Money Creation

I have been grappling with the discussion regarding money creation by private banks, and have come to the conclusion that it is the best thing that there can be as the backbone of the financial system. All other options centralize power to a condensed authority – say a central bank or a state government – and thus severely limit the potential for innovation and growth in the economy.

Let’s remember that money in the bank is like gas in the tank. Money is fuel for economic activity and carries only potential value until it is being used. Thus, sitting in bank accounts we have the real potential value of money that is not being used – like gas in the tank of a car waiting to go places. Money in a bank account exists as potential value, since in and of itself it is not doing anything. This is not to say that potential value doesn’t have value: the ability to hop in the car and go places at a moment’s notice definitely has a lot of value for the holder of the potential.

There are two kinds of people: those with gas in the tank and those without. Those without are stuck in place without the capacity to go and do. Those with are much freer in the sense that their options for activity in life are broader. This divide of peoples as separated by liquid wealth will always exist – it is just a question of to what extent the divide is there.

What then becomes the main question is how to allow people without gas in the tank to get up, go, and do. The question of access-to-capital is of central importance in practically realizing the freedom of the people. Political philosophy is full of all types of ways of describing freedom and liberty, but in practice the matter boils down to cash. Do you have it or not?

So, to stay true to our words of freedom and liberty – and all such good things that respect the sovereignty of the individual – we must ensure access-to-capital, and since there must always be risk involved in a capital outlay, this means that there must be debt. To all wishing for risk-free capital outlays then let us remember that the first risk is to imagine that there is no risk. Risk is what makes you go. Without risk, you slowly turn into a sack of shit, like a child whose parents aren’t demanding enough and thus raise a human being who lacks initiative. You begin to envelop yourself in a false sense of entitlement when you begin to believe that there is no risk to anything.

Effort creates value, value gives emotion, emotion is power. Risk is really damned good at spurring effort, because behind effort lies the lack of effort, and that’s where the entrance to the cave of real fear begins. Just imagine a world filled with a lack of effort. The risk that lies ahead of effort is nothing like the real fear coming from a lack of effort.

So, thank God for debt. Debt is a great thing at getting people to move, because debt must be paid back with interest, and that means debt is only created when there is some planning involved to ascertain a certain level of understanding about the potential to pay back the debt and interest, and this is why I think people hate debt: they actually have to think ahead and face the risks of taking it on. They actually have to plan things out.

How it

Now that we understand why debt is a good thing, let’s understand its functionality so that we can close with an understanding of why private money creation is a good thing.

We have already described the real potential value of money – of having cash in the bank. Let us set that aside as given and begin the consideration of the virtual potential value of debt. We begin by assuming the characters of Banker as creditor and Individual as debtor. The Banker creates debt and the Individual takes it on, for whatever purpose.

How money creation works is that private banks magically conjure up debt out of thin air when making a loan, and as the loan is paid back, the banks then destroy said money. In the event of a successful loan – where the debt is paid back with interest – the debt comes into the world and leaves it, leaving behind the equity that was created for the Individual (whatever the loan was taken out for) and the interest that was created to pay the salary of the Banker (and to set the Individual in motion to start paying back the debt – interest is like an ON-button).

What we can see happening is that the virtual potential value of debt exists only during the process of equity creation – of whatever the loan was taken out for and of the interest that pays the Banker’s salary. Debt is virtual because it doesn’t really exist in the real economy – the real economy that consists of equity that has been created with debt. Debt is like a creative spirit, a breath of fresh air that is blown into the financial system, and as it is sucked back out by the pressure of time (the loan repayment schedule), it leaves behind the equity for which purpose the debt was taken out. Debt doesn’t stay in the economy – by its very definition, debt destroys itself, and that is a good thing since it is not the weight of debt that we want, it is the equity that it brings us, after we have worked to earn it.

Money creation through debt – from nothing, back to nothing, leaving behind something that becomes the real money – is the lungs of the global financial system.

This is why private money creation is a good thing. If we were to only have one huge set of lungs – say a central bank with all the power of money creation – then only those with access to the central bank would be able to get up, go, and do. By decentralizing the power of money creation to the private banking system, the very power of creation itself is dispersed into society. By having a competitive money creation market, the forces of competition will ensure efficiency, given a solid regulatory framework correctly incentivizing all parties.

The more access-to-capital, the more egalitarian a society we have. There is absolutely no way around this fact.


Of course, handling the power of creation is not to be taken lightly. I would posit the assumption that most people of power understand this completely and are honest human beings of significant dignity and moral stature. I would also posit the assumption that most rage towards the financial system is based on a lack of understanding – on both sides of the table – about its nature and functionality, since it is such a ridiculously complex system.

So here it is that I should venture to take a guess that the best solution for Banking Peace would be for all to realize that the Banker and the Individual operate on the same side of the table. The Banker wishes to make successful loans to produce interest with which to pay a salary. The Individual wishes to make successful loans to create cool stuff into reality and avoid default notations on the personal financial record. It is hard (impossible) for me to see how, in the process of capital outlay, the Banker and Individual are not on the same side of the table, just as Customer and Supplier are in any other industry.

To close, then, we must take note that creating money by being vested with the capacity to blow debt into the economy and suck it out again is a job of the highest responsibility, requiring immense understanding of how value is built and operated in reality – of how business works. The oversight of the lungs of the financial system is a task on par with any position of power.

I believe, with a clear understanding of why money creation by private banks is a good thing, it is possible to write a Banker’s Constitution that sets out the role and limits of the financial system as a part of society, making it understandable for everyone and ending the rage against the machine that has gone on for eternity – probably because there hasn’t been egalitarian access-to-capital!

Egalitarian access-to-capital: being brought to you now by private money creation.


Private money creation requires a few changes to the way we see risk from the perspective of the Banker, and I believe not seeing this has been one of the main reasons why private money creation has been questionable. It used to be that banks took deposits and lent them onward to other people, meaning that if loans weren’t being paid back, then other people’s deposits were at risk. Now – with private money creation from nothing, back to nothing – the default of a loan doesn’t put another person’s deposits at risk. The debt came from nothing, and it is going back to nothing – so it doesn’t really matter whether less debt is destroyed than was created, because it is all being destroyed, nonetheless. The only thing at risk is that the Banker gets a smaller salary because less interest has been paid (and isn’t as hot shit within the Firm), and that the Individual who held the loan gets a default notation for not having been able to pay back the debt in full, which will hurt their credit rating.

So it is important to see that – for private money creation to work – we must separate the holding of equity (the maintenance of the real economy, of what already exists) from the creation of debts (the maintenance of the virtual economy, of what is coming into existence). The storage business and the creation business are two different things, no longer dependent on each other in operation per se, but of course fueling the motions of each other – as the real economy loses old players, more demand arises for new debt to fill whatever gap was created in whatever market where some player died. (added note: Thanks to some great help from the Bank of Norway, I’ve now learned that the term narrow banking exists and deals with this same separation of the storage and creation sides of banking).

But probably the best side of private money creation from nothing, back to nothing is that it has so many moral benefits for all involved, as it removes unnecessary punishment from the list of risks inherent to debt-induced economic growth. If the loan isn’t being paid back in full, this means that it is not generating returns, which means operative failure deflates the economy, just as it is supposed to. With debt conjured from nothing, back to nothing, we are also able to remove fear-inducing enforcement requirements from the system: we don’t need to force defaultees to keep paying unpaid debt back anymore, since the debt would be being destroyed anyway. This wasn’t the same thing when debt was considered as having been outlayed against the deposits of others, creating a situation where Bankers also played police, because they had to get the money of their other customers back. The Banker’s smaller paycheck and the Individual’s hurt credit rating is enough punishment, and the banking system can have a clean moral conscience and say “at least you tried – sorry it didn’t work out, we must now stamp your forehead with this mark of default which will wear off in a while, but you don’t need to keep paying us back. Go out and get a salaried job until the mark wears off your forehead, and then you’re ready to try again, if you so wish.”)

The final thing to realise is that the basis for the existence of interest is generally held as “a money today is worth more than a money tomorrow.” This puts value on the potential value of having gas in the tank, making interest compensation for the removal of liquidity which investing existing capital into an interest-bearing asset does. By separating the storage of equity from the creation of debt, however, this is left as only one side (the storage side) of the argument. On the creative side of the interest argument, where there is no longer a need to consider the liquidity of a depositors standing (as debt can be created as completely separate from depositors) the rationale for the being of interest is to motivate the debtor into motion, and to motivate the creditor to ensure the loan is repaid, as the interest pays salaries.

Realising the dualistic nature of interest – on the storage side and on the creative side – is really important, because it shows how interest works both ways: holding depositors’ equity in place and compensating for the loss of liquidity (the time-value of money), and setting a debtor in motion to create more equity (the money-value of time). Needless to say, the Banker takes a deserved cut, whichever way the interest is going, as compensation for operating the system.

The Good Hombres.
The Good Hombres.

© 2018 Jens J. Sørensen

Philosophy of Identity

I. It is what I am, it is what you are, it is what we will always be. The birth of the Internet – or, as I see it, the continuous collective externally-projected human mind – has definitely made us think about our own nature, as individuals and as a collective.

I’m going to write briefly on my thoughts regarding systemic identity and individual identity. I’d like to clarify beforehand that on the systemic side of my thinking I am not considering a group or tribe identity, but rather the definition of our collective selves as seen through the system that we live in. As you will see, this is a different notion than that of a tribe identity where moral norms and behavioral patterns define subjective descriptions of a collective, as experienced by individuals inside and outside of the tribe. By discussing systemic identity I strive to remain in an objective sphere of thought.

Systemic identity

Across the centuries and millennia, human beings have slowly constructed societal systems to govern our collective operation. Within these systems of government, ultimately enforced with the threat of punishment, exist the subjective tribes I speak of above, with their own moral and behavioral norms that inscribe their members with a certain softer understanding of how to be.

Whereas tribe identities are not necessarily specifically defined out in the open – existing rather as feelings within the group – systemic identities are relatively objective as defined by the laws and regulations that have been put into place, in public, and as enforced by publicly-known officials. Whereas tribe identities are enforced by the subjective feelings within the group of individuals, based on how each individual feels themselves comfortable as a part of the group, then the systemic identity is based on objective rules of law and deeply studied mechanisms of enforcement in court.

Technically tribe identities and systemic identities are the same thing – mechanisms that guide our being – but their differences arise from the relative subjectivity and objectivity of their states. As a rule of thumbs, the bigger a group grows, the more objectivity it requires to maintain a coherent stability, and the slower becomes its malleability in changing form from one time into another. So a tribe is small, a system is big, and can grow to be as big as the carrying imagination.

At the most objective level of systemic identity we today have the system of global governance as based on sovereign nations – governed regions of land – as built upon the Treaty of Westphalia from 1648. Beyond the System of Nations has since arisen a set of super-national organizations to govern international interactions of different sorts: everything from the function-specific World Health Organization and World Trade Organization to the overarching presence of the United Nations.

I’d just like to briefly mention that I am a strong proponent of multilateral organizations organizing the flows of international interaction, as they build the foundations of trust that peoples across lands require to be able to invest their equities into all manners of co-operations and competitions. This brings me to the crux of this text regarding identity: trust.


Ultimately, at the base of absolutely all organizations and their different mechanisms of governance, lies the individual. I think a quick d’uh is called for here.

Whilst the individual defines the group, the group also defines the individual. Such is the nature of human interaction, an ever-continuing process of definition, creating the states of being we are all in as individuals and collectives. The academic management discipline of Strategy-as-Practice discusses the state of an organization as being defined by the discourse running through it – put simply, the words used define the times lived in. We must simply remember that the words are always interpreted from different points of view, and thus nothing is ever really straightforward when it comes to organizational definition.

Jumping past the subjective definition of individual and collective identities, the systemic identity we objectively each have is condensed into our official documents: our passports, our driver’s licenses, our personnel cards each define our identity as viewed from an entirely objective standpoint. The objectively defined laws and regulations of the systems granting the objective identity tie us together into a shared system of being, where we all share the same threats of punishment.

I have mentioned punishment a couple of times, and I think a very direct word on its value is required: a correctly-balanced threat of punishment is not oppressive – it keeps us safe from the potential threat of each other. As history has proven time and again, legal systems can definitely go too far, or not far enough, and the result is a systemic insecurity that dampens the health of the human spirit, which naturally seeks safety. D’uh – again.

The value of systemic identities is thus very straightforward: they keep us safe by making it very clear that we are part of a collective of objective rules that, in whatever way, we are both subjective to and in control of. The equity of objective identity is our primary systemic safety net and, in my view, it is our primary shield guarding the sanctity of our right to our own body, our own mind, and our own property. From the point of view of the system and its administrators, this triad of fundamental personal equity is what we are.

This objectification from the point of view of the law-bearers does not negate our human value – it enforces it. We gain the potential to have rights to ourselves and our property, since our objective identity allows administrators to attach documentation of, say, home ownership to our being, thus allowing for it to be enforced in matters of dispute between individuals.

Everything – from the point-of-view of how things are made to work in reality – is built upon the existence of our objective identity, which takes absolutely no opinion of our subjective identity, which lies in the realm of the private sector: nature. This isn’t to say that system administrators are not part of nature. It’s just a different nature than the one that is being governed: there is the governing realm, and the realm of the governed, both logically dependent on each other for their existence, both checking each others’ power.

By knowing that we share a common system of objective identity, wherever we might live, we are naturally able to form bonds of societal trust among each other. That person and this person live under the same system of governance that I do – I can trust that, to some extent, we will behave in similar ways. Understanding this is crucial to see the pillars that form the stability of the system we ourselves live in, but also to see that you can’t simply drop a human being from one land into another and expect things to start melding together smoothly. Recognizing the inherent differences in systems and the natures of the identities they create for us allows us to work with them: understanding differences is not something to be feared, it is something to be understood, so that we might work better together – within and between our own respective systems – over time.

Let’s just put things very clearly: being able to work together is the fundamental source of all money, and I’d like to state it as obvious fact that we all want money, because it is like the air we breathe: a life force, unless you’re paying your rent with, uhh.. more fundamental forms of capital.

So we want to be able to work together, and that requires slowing down to study each other calmly. You know, from my point of view – Finns and Russians and all the potential for so much love and partying, with all the money we can make together, by working together. We are neighbors, after all.

With an understanding of the value of our objective identities and their purpose in keeping us safe, it is easier to see how many fearful discussions of organizations of Orwellian natures are severely misguided. When one understands the very benevolent purpose of the existence of the system we live within – that the enforcement of the laws bound to our objective identities should be shared in order to allow for the formation of trust – then the most paranoid in our midst, especially in the media*, should find the capacity to calm themselves down. The “societal machine”, built by bureaucracy and industry combined, keeps us separate from Hobbes’ state of nature, so we need not live in a constant state of fear about each other.

Let us compare two massive organizations: Facebook and China. Facebook is a massive global organization of users who are tracked with the purpose of pushing ads at them, enticed into the system with different addictive notification mechanisms and so forth. China is an immense land of 1,4 billion people whose administrators maintain continuous surveillance operations to ensure laws are being adhered to and that citizens are safe. I am not naïve – I understand that China likely goes too far with some laws – but similarly Facebook goes too far with some features.

Which is more Orwellian? The motive to addict and push ads at people, or the motive to keep citizens safe so that they might live their day-to-day lives? It all depends on the people affected, but I believe the Chinese deserve plenty of respect for their efforts in maintaining the livelihood of an immensely-sized population and a remembrance of the fact that surveillance systems that Chinese firms such as Huawei have installed in African cities have led to significant drops in crime. I doubt Londoners feel less safe thanks to their broad CCTV network.

There is a good side to surveillance, and there is a bad side. Considering the balance and the difficulty of the task at hand for super-large organizations is only fair game for the administrators of such systems.

Everything reduces down to the existence of the objective identity of the individual – that an individual’s holding of an objective identity should have the purpose of reminding them that there are laws around them that are intended to keep them safe, which allows for the formation of societal trust. If the laws go too far, then it can only be sensed properly from within, by those affected, and it remains primarily in their realm of power to communicate with their administrators regarding overreach.

The oversight of the international community is an important secondary security function, protecting the rights of the individual, ultimately at the level of the Church of Human Rights – the United Nations – of which I am a large fan, for I still believe that, despite its troubles, that it is indeed protecting my human rights, because law-bearers in Finland still seem to have respect for the organization.

But sovereign nations and their peoples need to look within, first, before expecting external policing to come their way. That is – if they wish to maintain their sovereignty, the first demand of which requires that the individuals, made sovereign by the equity of objective identity given to them by the sovereign nations they inhabit, get up off their ass and talk to their law-bearing administrators with a sense of dignity.

A saying of mine sums up this responsibility of the individual to act as a sovereign, if they wish to be sovereign:

“Effort creates value, value gives emotion, emotion is power.”

At the end of the day, sovereignty is all about maintaining one’s own power, and that requires effort beginning with the individual. In the realm of objectivity, there are no excuses for excessive laziness – and this goes out to a shit-ton of Finns of all ages right now. The collective doesn’t maintain itself by itself – it requires individuals to rise up and lead, and that starts with taking oneself seriously.

Individual identity

Individual identity – as separate from the systemic identity objectively given to us – is.. uhh.. it is. When I was in politics, all it required was taking a few minutes to step back and think about how many fucking people there are – even in our teeny-weeny land – to realize that humans are. There is no way to even begin to grasp the breadth of our individual natures and, thus, from the perspective of an administrator, thank the heavens of logic for objective identities.

Reminding oneself that the job of an administrator is to enforce the sanctity of an individual’s sovereignty, through the concept of the objective identity, allows one to distance oneself from the immense emotional consideration of who the people are. The only correct, objective answer is they are themselves because, seriously, there is no way to define a collective identity without severely imposing on the right of an individual to see themselves as the sovereign individuals that they are. The emotional distancing is necessary to be able to lead such an immensely-sized organization, much like medical doctors require psychological methods to distance themselves from their patients to protect themselves. I cannot even begin to imagine what the leaders of larger populations deal with, but I imagine the institutional structures they inhabit keep them safe.

To close

In this Age of Social Media, I think there is room to close on a note considering the subjective nature of the human individual. Professionally, I hold a decent track-record of sales and thus know a thing or two about story-telling. I know about the flexibility of words and their capacity to catch a potential sale, and I know about the limits of the conscience where words are stretched just the right amount and when they are stretched too far. In the software world, if sales stretches their words too far, usually it means that an IT Engineer will need to do additional work to meet the oversold promises delivered to the customer.

Sales knows the limits. Much like a racing driver on track can only push so far off the line before going off, a salesperson can only flex the words so much before their conscience takes a hit. Mistakes make masters, at the cost of pain to self and others.

This said, I am highly cognizant of the potential situation existing in society today where individuals are overselling themselves on social media. The ego is often seen as a negative thing but I do not see tools that are part of nature as bad – I see tools that can be used well and not well. The ego is our natural projection of who we see ourselves as – you can visualize a bubble around yourself that you project simply by being – and, in a stable state, the external projection is balanced with your internal emotions. You receive the kind of feedback from the external world that you would expect, because you are being honest with yourself.

Now, if the ego is being oversold – if the external projection on Instagram is pushed into an imagined perfection – I suspect there are potential mental health risks, as per my relatively extensive reading up upon the subject. I don’t really know what else to say than mention that, from my own point-of-view, significant chunks of the SoMe-population are acting like children shouting competitively at each other: “Look at me! Look at me!

Society does not seem healthy by any stretch of the imagination at this point – the data on the existent stress of identity is everywhere, not the least among our politicians, who need to sell themselves constantly to make their living (which might not be the best motivation to be in politics, to start with, but that’s another story).

As a salesperson, I know the emotional toll of not getting feedback to one’s own projection: sales is mostly about sending out messages and not hearing anything in return, but such is the nature of alchemy, of making money. Patience is required, and I believe patience is required to find one’s true self, instead of projecting like an addict until you pop.

Identity, in all its forms of consideration, is the core of being. If anyone out there reading feels like they are stressed out from the over-projection of self, then don’t blame yourself: social media just happened, and there was no way to prepare for its effects. Breathe, and take a step back, out of the smartphone.

I think it could be good to think about understanding why having an objective identity from the system in nature that you live in is a good thing, to think about why it keeps you safe (you can always objectively know who you are and return to it – land on your own factual base – if you’re a bit lost in the subjective side of things), and to think about the triad of things that it gives you, as I’ve described in this text.

I have no doubt that the human soul has an epic capacity to heal itself from over-projection: it takes your decision to step out of the computer and back into nature to start the process. I know it helped for me. Much faster than I thought it would. It also helped for Simon Cowell so – if you don’t trust me – trust him, or this article from The Guardian.

ps. if you wish to read up more on the functionality of organizations, then feel free to peruse my working presentation found on my professional website here.

*the quickest of words on the identity of mainstream medias on TV: you do realize that the audiosphere of your broadcasts creates completely unnecessary intensity in how the state of the world is perceived? The entire identity structure of mainstream media outlets – which I follow actively across Al Jazeera, BBC, CNN, Sky News, France24… – creates a whole load of unnecessary stress in the present human consciousness. Being from a musical family and being somewhat of an audiophile myself, it is not too much to say that your decision to have these intense tunes playing in the introduction and background of news broadcasts paints the picture of the world as super-intense and fuels it further. Whilst strenuous world events are indeed taking place, then there is absolutely no need to fuel the tension by stressing one of the most powerful of our senses – our hearing.

CALM DOWN, GLOBAL MEDIA PEEPS. Al Jazeera sets a good example of a suitable audiosphere, in my opinion.

© 2018 Jens J. Sørensen