Where Does Money Come From?

By Alison Mitchell, Friends of Willow Park and Wodonga Urban Landcare Network

Do you know?  If you’re like me, until recently, I would have said “the bank” or “the government”.  No, actually, money is created by debt.  The history of money is quite fascinating, but the more recent history is somewhat disturbing.  Initially, banks were only allowed to lend as much money as they held in deposits, that is, a loan-to-deposit ratio of 100%.  These days an Australian bank has a loan-to-deposit ratio of 150%, that is, they can lend $3 for every $2 they hold in deposits.  It is that extra $1 that is the debt that essentially “creates” money.  More importantly, that debt is subject to interest payments and these can only be made by creating more debt.  And this is what keeps our economy ever-growing and you possibly feeling like you’re on an economic treadmill.  The issue with growth is that our current economic system is entirely dependent on environmental resources, specifically, their plundering and the pollution and degradation that accompany that activity. 

But does it have to be that way?  My research into money has led me to confidently respond to that question with a resounding “NO!”.  There are many alternatives that help us live more lightly.  Some alternatives would be easier to adopt than others, but a challenge is no excuse for not trying and our own survival may depend on us rising to that challenge.

An alternative to our current economic system is a “closed loop” or “circular” economy where we repurpose, reuse and/or recycle those natural resources the system depends on.  This approach may be the least difficult to employ as we already have many technologies to effectively close the loop for our natural resources; what we lack is the political will to make these technologies cost-effective. 

Many other alternatives exist such as the “sharing” economy where neighbourhoods and even whole communities share resources rather than own them.  Sharing economies often work as libraries do and we already have examples in our region such as the toy libraries.  Timeshares is another example of an alternative economic system where people offer their services and exchange the timeshares gained for services they need.  In fact, there are a multitude of alternative economies and many have been around for centuries.  Currently, they are undergoing a resurgence as individuals and communities recognise the lack of sustainability inherent in our current economic system.  Go on – do some research, be inspired, and start an alternative economy.