Chapter Three ...second of three parts

National currencies
These days, it's difficult to imagine money that isn't issued by some country, or, in the case of the Euro, some group of countries. Nevertheless, it is useful to remember that the concept of a national currency is only a couple of centuries old. The great majority of currencies throughout history were issued privately, by some sovereign, or some other local authority.
Notwithstanding, the creation of a national money is one of the most powerful tools available for fomenting a national awareness. It is a daily proof of the existence of borders between countries, which otherwise are only to be seen by looking at an atlas. A recent example is that after the breakup of the Soviet Union, one of the first acts by newly independent republics was the issuing of their own money. "A common money system is a shared information system that makes it possible to evaluate what is coming in and what is going out" (Charles Handy: The Empty Raincoat, 1995) Sharing a money creates invisible but very powerful links within all sectors of a country, and reinforces a boundary between "what is ours" and "what is theirs". In this way one of the objectives of the euro (the common currency which,  in January 1999 replaced the individual currencies of eleven nations) was to stimulate a more unified European consciousness.
The universal adoption of national currencies should not obscure the fact that until 1971 international commerce had a transnational currency-gold. After that time, the US dolllar became the world currency , which had a negative impact on everybody, even the US
Recently, non-geographic communities have emerged, like the internet, and had a significant impact on the internatioal monetary system. In chapters 4 and 8 I will deal with this theme.
Fiat Money
The  simple question "Where does money come from?" leads us directly into the world of magic. Money not only appears and disappears, but is literally created out of nothing. To understand this, it is necessary to loook beyond appearances. At first sight, national moneys seem to come from the central banks: in the case of the USA, the Federal Reserve, or the Secretary of the Treasury, but this is not in fact the case. If we want to know where it comes from, we need to take a peek up the magician's sleeve.
If one wants $20 cash, what does one do? One goes to the bank and asks for it. The teller, or the ATM has a look at one's account, and if the balance is sufficient, out comes the cash. No balance, no cash.
In fact, money is what one has in the bank account, since one will only get any if that balance is positive. In the same way, the Central bank issues to one's bank whatever amount one's bank requests, but debits the bank's account accordingly.
So where does the money in one's account come from? Usually from a salary, a pension, or some other deposit. But where does one's employer get the money to deposit? As president Truman famously asked "in the last resort, where does each bill come from?"
Bank debt
In  the last chapter I alluded to a fact which may seem surprising. Every dollar, euro, or other national currency in circulation originates as a bank loan. For example, if one meets the requirements for obtaining a mortgage of $100,000 to buy a house (remember this book was written in the nineties) puts a credit into one's account and literally creates the $100,000 out of nothing. This is the real origin of money. Of course, bank loans are supposed to be backed by some guarantee of the borrower's ability to repay the loan: property, a house, a car, some profitable business, etc. Once the credit is granted and the deposit made, one can write a check to the seller of the property, who in turn deposits it into his bank account, and the money begins to circulate indefinitely, right up until someone repays a loan, at which point the money returns to the nothingness from which it arose.
One of the differences between Eastern and Western philosophies is that in the east, nothing is the explicit origin of all things, while in the west, we always summon up God, the Word, the One as prime mover. You could say that in the west we have hidden the emptiness at the center of the monetary system. Could that be a reason for its hypnotic powers?
According to the Radcliffe Commission set up by the British Parliament, "Cash in circulation is that portion of the national debt on which no interest is paid." This simple process by which money is created is given the appropriate name"fiat" money, from the Latin "let there be".  "Let there be light" were the first words spoken by God in the bible. The following line goes "He made the light and he saw that it was good" Here we stand before a truly divine function, the creation of something out of nothing by the power of the word.
There is no doubt whatever that the next time we respectfully request a loan, we will experience some intimidation before the banker! In the same way that the magician needs a handkerchief to flutter over his top hat before the rabbit appears, the banker  has another veil. During the money creating process, our attention will be directed to boring technical details: the details which drive competition between banks, deposit requirements, and the role of the Federal Reserve in optimizing the system. All these details, like the magicians handkerchief, have the perfectly valid purpose: to regulate the amount of fiduciary money that each bank is allowed to create (that is, the number of rabbits that the magician can pull out of each hat!)
A particularly interesting aspect of this scheme, which dates to pre-Victorian England- is that it allows societies to resolve two apparently contradictory intents: on the one hand, reinforcing the national state, while on the other trusting to the initiatives of private enterprise and in the competition between them. Specifically, this paves the way for privatizing the creation of national money, which theoretically is a public function,  as a privilege held in common by the banking community, at the same time as it maintains a competitive pressure on the individual banks for the deposits of cients.
Jackson and McConnell summarize in a few words another important aspect in the constitution of "fiat money" systems: "The money created from bank debt gets its value from the relationship between its usefulness and its scarcity". Said another way, for a "fiat money" system based on bank debt to work,  scarcity must be introduced and artificially maintained. This is one of the reasons that our existing system does not self-regulate, but requires the active intervention of central banks to maintain scarcity. It can also be said that the central banks compete amongst themselves to maintain the scarcity of their national currrencies on the international market. This serves at the same time to support the scarcity as well as the relative value of the money.
Further along, we will see that other types of money called "mutual credit systems" do exist, which self-regulate better than national money, and whose value rests on the goods and services existing within the community which accepts them. These currencies, rather than being artificially scarce, can be sufficient to the needs of the community.
Interest
The final characteristic shared by our national currencies is the bearing of interest. The belief is newly arisen that the bearing of interest is intrinsic to the creation of money, whereas we forget that it definitely has not been this way during most of history. In fact, the three biblical religions (Judaism, Christianity and Islam) emphatically forbade the charging of ANY interest on money loaned. Today, only Islam maintains this prohibition. We forget that the Catholic church condemned the charging of interest as the sin of usury until the nineteenth century. (I'll post his aside about this in the next blog)
The impact of interest
The consequences of charging interest are the most difficult to understand and the least known of the four key features of our system.  The effect on society is general and powerful, and merits more detailed analysis. The charging of interest in a monetary system has three effects:
1)Indirectly, the charging of interest systematically foments competition among the participants in the system.
2)The need to pay interest is a constant stimulus to the need for permanent economic growth, even while real standards of living are stagnant.
3)Interest concentrates wealth, burdening the great majority of taxes for the benefit of a tiny minority. 
The fomenting of competition
Here is an Australian tale, which illustrates the workings of interest in our monetary system, and the way it stimulates competition amongst all those who participate in the system.
Once upon a time there was a village in the Australian outback where people used barter for all their transactions. On market days they came with chickens, eggs, hams, and bread and spent a long time bargaining amongst themselves for whatever they wanted to exchange.
At important times of the year, such as during harvest, or if someone's barn was damaged by a storm, it was customary to help each other out, as the custom had been forever. Everyone knew that when they had a problem, their neighbors would lend a hand.
One day, a stranger wearing elegant shiny black shoes and a white hat showed up on market day, and watched their goings on with a sardonic smile on his face. When he saw a farmer chasing six hens that he intended to trade for a ham, he could no longer contain himself: "Poor people, so primitive" The farmer's wife, who heard him, asked "Do you think you could do a better job than my husband catching these chickens?", to which he replied, "no indeed, but there is a much better way to handle the whole matter". "Oh really," said the farmer's wife, "what is that?" The stranger said, "Meet me over there under that tree, and bring me a cow hide. Have all the other families come too, and  I'll show you a better way."
When they brought him the cow hide, he set about cutting it into perfect circles, with a stamp on each one. Then he offered each family ten discs, and explained that each one represented the value of a chicken. He said "Now you can trade the discs instead of running after those pesky chickens."
His argument was very convincing, and the people were impressed.
Once every family had received their ten discs, the man added, "In a year, I'll be back. I'll sit under this very tree, and I'll expect each of you to come with eleven discs. The eleventh disc will be a demonstration of your appreciation for how much easier I've made your life." The six-chicken farmer asked, "How are we going to get an eleventh disc?" and the man answered "You'll figure it out".
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If that year, the population and annual production of the town remain stable, what will have happened? Remember that the eleventh disc was never created. In this way, even if every family takes good care of their affairs,  one of every eleven families  have to lose all their discs for the other ten families to have the wherewithal for repayment to the man.
From then on, when some family's barn is damaged by a storm, folks aren't as generous as they used to be, and no longer rush to help prevent trouble. It is much easier to trade discs for chickens on market days, but this new fashion, without even meaning to, undervalues traditional collaboration, and instead creates  furious competition for getting the extra discs.
This is how our current monetary system ensures competition amongst its participants. The fable illustrates how the eleventh disc, the charging of interest, as a part of the creation of money, impacts the people who use it.
When the bank credits one's account with the $100,000 loan for a mortgage, it only creates the capital. Nevertheless, it expects we will repay $200,000 in approximately twenty years- otherwise we lose the house. The bank does not create the interest, but stimulates us to enter a competitive battle with the whole world to get hold of the  $100,000 difference. Since all the other banks operate in exactly the same way, the system guarantees that some people will end up in bankruptcy. In the final analysis, when we repay our loan with interest, we are taking other people's money.
In other words, the indispensable mechanism used to create the scarcity that is essential to the functioning of money created by bank debt is competition for money that was never created, and it bankrupts those who lose.

What is natural, competition or collaboration?

Professor Imanishi, biosociologist from the Uni versity of Kyoto that the Darwinian concept of nature as a battle for survival has ignored many much more common instances in evolution of symbiosis, shared development, and harmonious co-existence which everywhere prevail. For example, even the human body could not survive long without the symbiotic  collaboration of thousands of millions of micro-organisms in the digestive tract.

Elisabeth Sahtouris, a specialist in evolutionary biology demonstrates that predominantly competitive behavior  is a feature of juvenile species during their early growth. By contrast,  inmature systems such as an old-growth forest, the competition for light is balanced by an intense co-operation among all species. Those species which don't learn to co-operate with those which are interdependent invariably disappear.

Our current money system aims for competition. Thus it is necessary for us to cultivate complementary systems (which we will examine later) in order to balance that competition with collaboration.

To recapitulate, the current monetary system obliges us to incur collective debt, and compete amongst each other within the community in order to make the money we need for our transactions.It's no surprise that ideas such as "The outside world is a hard place" and "survival of the fittest" should be taken at face value by nineteenth century Englishmen, and subsequently by everybody else who bought into the system they designed for themselves. Fortunately, today there are a great many demonstrations that allow for less rigid ideas about the "natural world"