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Endogenous Money

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The Global Table


Exogenous and Endogenous Money

NB. In all dictionaries, 'endogenous' has the meaning of coming or growing from within and 'exogenous' has the meaning of coming from without. However, conventional economics (concerned with maintaining the contradictions and inequities of the present system) has perverted those meanings to almost their exact opposites.

a) Exogenous money
Exogenous money is either money coming from abroad OR money created by the international banking system operating within a country. Its usual form is that of interest-bearing loans which are not necessarily directed at productive capacity and furthering the needs of society; and which hand control of society either to a narrow elite or to outsiders.

b) Endogenous money
In happy contrast to exogenous money, endogenous money, although repayable, bears no interest and is always directed at productive capacity. 'Endogenous' means coming or growing from within. Therefore an endogenous money supply means a money supply arising from within the society. Endogenous money is issued by the central bank but can be administered by the banking system. An endogenous money supply is of immense importance because it is capable of ensuring, among other things:-

· economic and social justice
· an end to the imposition of interest
· a direct linking of new money to productive capacity
· a widespread ownership of productive capital
· an increase in political freedoms
· an efficient wealth creation
· a basic income for all inhabitants
· policy to unite inhabitants who have different linguistic, religious, geographical and ethnic backgrounds
· an ability of a society to control its own destiny as opposed to being ruled by outsiders and others
· a new economic system which, by a proper use of interest-free loans, spreads productive capacity to all individuals in the population so that they produce (and thus earn) independently of whether or not they also have a conventional job.

The result is a combination of efficiency with social and economic justice.

Endogenous money ensures that a society's currency is always backed by productive assets. Taking the form of state-issued, interest-free loans (administered by the private banking system) it is directly related to the real economy, made repayable and, when repaid, is cancelled or cancellable.
It has four main uses:

Public capital investment thereby allowing hospitals, roads, bridges, sewage works, fire stations, schools etc. to be constructed for one half, or one third of the present cost. Over time, the National Debt would reduce. However, the capital projects can still, if wished, be built by the private sector, managed by the private sector, even owned by the private sector. The key point is that the cost, at the very least, is being halved.

Private capital investment if such investment creates new owners of capital and is part of policy to enable all individuals, over time, on market principles, to become owners of substantial amounts of productive capital. By using state-issued interest-free loans, administered by the banking system on market principles, a company/corporation would get cheap money as long as new shareholders are created.

Green capital investment, particularly for clean, renewable energy. At present, using interest-bearing loans, a lot of green technology is not financially viable. With interest-free loans, however, it would become viable. Thus we could have, for example, clean electricity through tidal barrages, dams, windmills, wave machines, solar electricity, and geothermal power stations.

Small and start-up businesses thereby freeing them from the crushing pressure of interest-bearing debt. (In the case of small and start-up businesses, there would be no requirement for wide ownership.)

These uses have huge practical implications not least that the cost of all productive capital investment is reduced to a half or less of what it costs at present. Moreover, there would be a money supply whose origin is not fraudulent because it is directly and continuously related to the real economy with counter-inflationary effect. Perhaps best of all, the widespread ownership of productive capital would give all owners a stake in the economic success, and social cohesion, of their society. By profoundly involving all individuals in the economthrough individual capital ownership, political unity can be built. Countries with different ethnic, religious, linguistic or other groupings will be able to give all their people a strong sense of common cause and purpose.

Complementary Currencies

Endogenous money is already in widespread use as a medium of exchange in the many local trading systems generally known as complementary currencies. Complementary currencies are:-
a) created within the society without debt to a credit institution (eg a bank) and are local
b) directly related to provision of a good or service
c) issued by individuals - in a transaction as a simultaneous debt and credit (although the "timebanks" model now allows individuals to build up credits without a corresponding debt).
d) have no interest attached
e) cannot be inflationary

It is not suggested that this form of endogenous money is a complete substitute for a national currency, but it enables goods and services to be produced (and in effect directly monetised, but without using ordinary money) to facilitate socioeconomic intercourse.

Debt-free (non-repayable) money issued by the state.

Debt-free (non-repayable) money issued by the state is neither endogenous nor exogenous. It is endogenous in the sense of being issued by the state but, since it is not directly related to productive capacity, a key aspect is missing. It is best to view such money as being neither endogenous nor exogenous but "sui generis"