money / thomasgreco

Précis of Greco’s The End of Money and the Future of Civilization

To mix things up, I thought it would be fun to share some knowledge gained from Thomas Greco’s The End of Money and the Future of Civilization across two blog posts.  This first post will cover the challenges facing us (ch. 1-10).  The second post will cover how we can navigate into the future (ch. 11-20).  

I apologize in advance for any misinterpretations of the material and look forward to corrections.  I can think of no better executive summary than to quote Greco directly.

The most graceful and promising approach to empowering ourselves and our communities is through voluntary, entrepreneurial activities that can liberate the exchange process and reclaim the credit commons. (p. 111)

The good news is that Congressman Ron Paul has brought attention to the issue of money creation.  Greco includes an exchange between Ron Paul and Alan Greenspan at a February 11, 2004 House Financial Services Committee hearing in which Paul suggested that the power to create financial bubbles was an ominous power. (39)  Greenspan’s response was interesting.

Congressman, as I’ve said to you before, the problem you are eluding to is called the conversion of a commodity standard to fiat money.  We have statutorily gone onto a fiat money standard and as a consequence of that it is inevitable that the authority, which is the producer of the money supply, will have inordinate power.

The bad news is that even though there seems to be rough consensus that the Federal Reserve is the problem and that it has too much power, Paul’s strange position of reverting to money backed by gold (so-called “sound money”) ignores the primary issue that it is not credit money but the monopoly of credit money that is the problem.  It’s like saying all media is bad if there was a mediaopoly.  As John Adams wrote to Jefferson, it is the widespread misunderstanding of money that enables the “perplexities, confusion and distress in America.”

Mercifully, Greco takes us up the steps of the “ladder of economic civilization” (H. Withers) to where we are currently overlooking what some observers are calling “the controlled demolition of the global financial system.” (58)  At each step in the ladder, we can detect how the essence (or value basis) of money changed.  To be clear, this historical investigation is limited to reciprocal exchange which excludes gifts, involuntary transfers (taxes, theft, etc) and counterfeiting.

  1. Barter trade – Barter is the most primitive form of reciprocal exchange as it only involves two people and depends upon the “double coincidence” of needs. (90)
  2. Commodity money – The first step on the ladder is when traders began to accept commodities for their exchange value.  Traders accept the commodity because there is sufficiently high demand (or “general demand” as Greco says) for them.  (Determining which commodities can serve as money seems to be a good application of the Keynesian beauty contest).  Commodity money, of course, includes gold and silver coins and Greco points out that transactions with commodity money “essentially remained a barter trade of one thing for another.” (90)  Elsewhere, Greco credits E.C. Riegel with the term “split-barter.”
  3. Symbolic money – Claim checks or receipts for deposited commodities like gold or wheat are symbolic money.  What’s noteworthy about symbolic money is its acceptability “derives from the fact that it can be redeemed by the holder on demand for the amount of commodity that it represents.” (92)  Greco spends relatively little space on symbolic money and calls it the half step between commodity money and credit money.
  4. Credit money –  The “great monetary transformation” from commodity and symbolic to credit money (an IOU) both gave humanity the ability to expand the money supply to meet the needs of commerce and also provided a new major vector for abuse.  The origin of credit money is attributed to goldsmiths whose original business was to issue (create and put into circulation) paper receipts (symbolic money) for gold deposits.  Again, people readily accepted these paper banknotes because they could be redeemed for gold on demand.  The goldsmiths noticed that as long as they had a safe buffer of surplus gold, they could create additional banknotes.  They could create a lot more than they could spend so they started making loans with these additional banknotes.  With this new financial innovation, both credit money and fractional reserve banking were born and goldsmiths became bankers.  Do you see a problem?  Greco reveals “one of the most fundamental problems with paper money historically was the fact that both symbolic paper and credit paper were both made redeemable for gold.” (94)  Inevitably, banks would run out of gold and shut down.  This failure to distinguish between symbolic paper and credit paper was the source of chronic financial instability manifested by bank runs and panics and led people to mistakenly distrust all paper money.  Greco tells us the important question to ask is “What does the paper represent?”

Of course, as Greco points out, the redeemability of paper was abandoned and that’s not a bad thing.  Let’s summarize.  No money was created with barter trade, so we were not yet on the ladder.  The creation of commodity money took place simply by harvesting the earth’s natural resources.  Symbolic money was created when a deposit of commodities was made.  What about credit money?  Hmmm….

Let’s try a simple thought exercise that is not necessarily consistent with Greco’s explanation in the book but is partly inspired by his other writing.  Suppose Joe Customer starts with an account balance of zero.  Joe needs to buy some stuff so he applies for a credit card.  Based on some set of heuristics (this may or may not involve chickens on a roulette wheel.  In any case, hacking the process is public knowledge), the bank authorizes a credit limit of $1000.  Joe’s account balance is still zero.  Each time Joe makes a purchase, Joe’s account balance is deducted by the amount of purchase.  If the deduction results in Joe’s account balance falling below -$1000, then the purchase is declined.  So, when was the credit money created?  When the transaction was approved, newly created credit money in the amount of the purchase was added to the merchant’s account balance.  Joe’s account balance dropped by the amount of the purchase and the bank earned an IOU from Joe.  Credit money is only created when Joe makes a purchase.  The bank depends on the transaction between Joe and the merchant to create the credit money.  The bank owes the merchant the amount of the purchase and Joe owes the bank the amount of purchase (thus, all money that is created represents credit obligations).  Greco again uses terminology from Withers, calling the creation of credit money “mutual indebtedness.” (93)

So, what is this “loan” business?  What happens when the bank “loans” Joe $1000?  It’s like the credit limit authorization just described, except that instead of Joe’s balance starting at zero after the authorization, Joe’s balance starts at $1000.  Instead of payment declined at an account balance of -$1000, payment is declined at an account balance of $0.    At the time of the loan, just like the credit authorization, no credit money is created.  However, in the terms of a so-called loan, the bank requires that Joe give an IOU to the bank at the time of the loan instead of later when Joe makes one or more purchases.  Joe receives nothing in exchange for the IOU at the time of the loan.  So, ideally, by accepting the bank’s terms, Joe’s intention should be to use the amount of the “loan” immediately.1    Just because the bank is offering to set his account balance at $1000 instead of $0, Joe shouldn’t think the bank actually loaned him anything.  The bank just authorized a credit limit and took his IOU ahead of time.  Credit money is created when it is accepted in exchange for goods or services.

The common misuse of language reinforces the confusion around the nature of loans.  Greco shares C. Quigley’s example of the abuse of the word “deposit” by the banking industry.  Quigley notes that the banking industry counts as deposits both lodged deposits and created deposits. (103)  Joe depositing his paycheck at the bank is an example of a lodged deposit.  A created deposit is one the bank makes in Joe’s account when it makes a loan to Joe.  The first deposit is an asset.  The second “deposit” represents a debt.  Just because the bank calls it a deposit doesn’t mean its a deposit, but calling it a deposit makes it a lot easier to profit off people like Joe by justifying a system where “people’s own credit is privatized and loaned back to them at interest.” (100)

Greco acknowledges grassroots initiatives that support the return of money creation from the banking system to the national government but warns against any elite power.

The fundamental problem with the present political money system is the monopolization of credit (money) per se, and not who happens to be the owner of that monopoly…what we really need for government to do is not to take control of the money monopoly, but to end it.

In the next post, we’ll continue with the second half of the book.


  1. This may happen automatically as Joe might immediately start earning token interest on the amount of the loan.  But this just proves the point as the newly created credit money has bought a badly performing investment from the bank and if it stayed there, Joe wouldn’t be able to repay the loan.

One thought on “Précis of Greco’s The End of Money and the Future of Civilization

  1. Some thoughts on how to harness the credit commons … also arrived at after reading Thomas Greco's “The End of Money”…

    I have tried to imagine how to capture the credit commons for use by all through a highly automated open-source means of exchange. Some thoughts about how this might be possible, and some points to be included in a general public license for people-generated credit, follow here…

    This is intended as a basis for discussion, and is a record of my current thinking on the matter.

    1) The power to create credit is vested in each economic subject, be it a business or an individual. The use of credit thus created for the purpose of mediating economic exchange is subject to certain rules.

    2) Credit is created as the counterpart of non interest-bearing debt. Debt is expressed as a minus balance on a personal account, while credit is the positive balance. Credit may be exchanged for some good or service considered of equal value, or it may be gifted to someone else to spend. One person's debt is another person's credit. The overall balance is always zero.

    3) Definitions: Credit is monetized trust. The word credit is used to signify a positive account balance. Historically, credit has been the capacity of individuals or businesses to incur debt because of the trust others place in them. Finally, the term “Credit” (capitalized) signifies a unit of value, like in “the price for this is five Credits”.

    (snip … the whole post was too long to be a comment, so here is the place where it can be found)

    This has also been posted on my blog here:

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