By John Howell
March 29, 2016

The proposal of “helicopter money”, namely that the government should just pass money out directly to the people, reflects the realization that the enormous amount of money created by our banking system following the 2008 crash, through quantitative easing, has not gotten into the right hands. Despite creating money at a rate of $85 billion a month for several years, the country is still suffering.

The middle class is getting smaller; a few rise up out of the middle class but most, hit by foreclosures, health crises, debt, and job losses, fall out of the bottom of the middle class. The money created has not trickled down to the people; median income has fallen, by 7.7 percent in Ohio between 2007 and 2014 ( The government bailed out the banks after the crash, which means the taxpayers bailed out the banks. Now economists are coming to realize that, in order to have a healthy economy, it is the people who need to be bailed out. Thus the idea of “helicopter money.”

The idea of “helicopter money” raises the question of how money is created in our current system. Many people think that money is created by government; but that is not true. If the government created money why would it be in debt? Why would it have to borrow to balance its budget? Government gave away its constitutionally mandated responsibility to create money with the Federal Reserve Act of 1913. It gave it to private banks. It is hard to imagine, but banks create money out of nothing when they make loans. (For the academically inclined, see Richard Werner, A lost century in economics: three theories of banking and the conclusive evidence, International Review of Financial Analysis, Sept. 8, 2015). That means all of the money created has to be paid back with interest. Since the banks create only the principal of loans which they make (credit they extend), the interest has to come from the only source of new money, namely more loans, which is good for the banks.

Because of the accounting system banks use, as loan principal is repaid it disappears. (This wouldn’t happen if our money were primarily in a tangible form — coins or bills. But only a tiny fraction of today’s money is in the form of currency. The rest is account money, which exists only as numbers in accounts.) To sustain money in the system, the rate of money creation through loan-making must continually exceed the rate of loan repayment — a profitable situation for the lenders who collect the interest. The result of this system is the massive debt now weighing down every government, federal, state and local, many businesses, and most households and individuals; it is because all of our money is issued as debt, that is, as credit, as the lenders like to speak of it.

As the “helicopter money” idea suggests, money creation doesn’t have to be that way. But the solution is not a one-time helicopter drop of money, the solution is to change the way money is created. The solution is to have money created by government, as called for by the Constitution. It has been done before, most notably by the Republican administration of Abraham Lincoln. The greenbacks created by legislative action carried the nation through the crisis of the Civil War and on into the period of nation building that followed.

But creation of money by government was always resisted by the bankers, who wanted that lucrative prerogative for themselves. The bankers won in 1913 through political influence, getting Congress to give them the Federal Reserve System, under which they create as debt the money we use. They get the interest; we, the public, get the debt.

Many people think that the Federal Reserve System represents a government bank, but it is not. The Federal Reserve Board is a government agency, but it is not a bank. It is a regulatory agency and a policy-making agency. The Federal Reserve banks, which it regulates, are privately owned by the commercial banks they serve. If the Federal Reserve Board decides that the system should buy $85 billion of bonds in a certain month, it directs the NY Federal Reserve bank, a privately owned bank, to create an account, that is, to create the money, to do so.

Creation of money has always been a mark of a sovereign, whether the sovereign is a monarch or a democracy. Our sovereignty has been given away to the global banking cartel. It is time to turn in our Federal Reserve Notes (look in your billfold), reclaim our nation’s sovereignty, end the Federal Reserve System, and replace it with a system of money which is created by government as a public asset, instead of as a public liability.

As a nation we have the labor and the materials to do all of these things. Why do we let the scarcity of money, which is created out of nothing, hold us back? We the People can do better. Proposals of monetary reform merit discussion.

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John Howell is an associate professor of physiology emeritus at Ohio University.