DOES THE DEBT-BASED MONETARY SYSTEM OF THE CAPITALIST ORDER NEED TO BE TRANSFORMED IN THE 21ST CENTURY?

Money is viewed as essentially endogenous in a credit based economy which often respond to changes in the behavior of economic entities, rather than being subjected to the control of monetary authorities. Loans created by banks simultaneously increases the deposits against which checks can be written with proportional increase the amount of funds in the circulation, however, the total amount of funds held as deposit by banks also decline as these loans are paid without being renewed or offset by loans to other parties. (Arestis and Eichner 1988, pp.1004-1005). 

Rowbotham (1998) attributed the existence of money to the creation of credit through banking systems by converting the small amount of equity into a highly leveraged debt which accounts for 97% of monies in circulation. He stressed that the recent growth in mortgage finance is an insidious form of personal indebtedness that subjects consumers to a state of “wage dependence” or “debt slavery” which in turn causes the supply of labor to be higher than it should, thus leading the economies to a state of “forced economic growth” (Rowbotham 1998). 

Recently, in a bid to avoid recession in 2003, the bank of England though at the risk of unleashing forces of households relying solely on credit, announced the reduction of interest rate base of loans and mortgages. Considering the competitiveness of the banking industries, borrowing became so cheap that the volume of mortgages rose drastically (Credit crash Britain: Slumpbusters, 2008). 

However, credits at this stage are no more being used as a stop gap, but rather as a way of making ends meet. The design of credit based system has changed essentially to become a flexible loan product; rather than a way of paying for things you could afford, it became a way of paying for things you could not afford. Subsequent to this, countries like Britain went on a spending sledge, during 2003, £38 billion was spent on fashion and holiday spending rose by 41% to £8 billion. The slowdown encountered by the economy in recent years can be attributed to inability to repay loans, consumers started to raise new credit to offset old ones. 

Hence, my opinion that the debt-based monetary system of the capitalist order be transformed.