17 May, 2022


Sir Mervyn King Envisions A World Without Money: Is It A Possibility?

By Hema Senanayake – 

Hema Senanayake

Hema Senanayake

“Great minds discuss ideas, average minds discuss events and weak minds discuss people.” This is a quote attributed to both Eleanor Roosevelt and Socrates. Some observers do not agree with it and they say that everyone discusses everything at one point or another. But some people observe that everyone discusses all those things at some point, but the saying is clearly referring, to the proclivities of said minds or in other words it explains a tendency to do something regularly by those minds.

Whatever the case is, we just cannot ignore when an idea is expressed by Sir Mervyn King who retired in 2013 as the Governor of the Bank of England. He had been the Governor of the Bank of England from 2003 to 2013 and before 2003 he had been the Deputy Governor of the Bank from 1998 to 2003. Therefore, his expertise in the area of central banking and money, it seems, is unquestionable.

His new idea is that he has envisioned a world without money. One of his recent quotes in regard to this idea has been posted in a website call “Beyond Money.” He is obsessed with this idea for quite a long time. In 1999 he said that, “Societies have managed without central banks and their monopoly of the supply of money in the past, and may well do so again in the future.” This idea was briefly discussed in the book titled “The Nature of Money” published in 2004 and the book was written by Professor Ingham who has been attached to the Cambridge University for over 40 years. In the middle of 2013, another economist published a whole new book on this subject titled “The End of Money.” So, it seems that King’s idea is being increasingly discussed at least in academia.

I thought that this discussion is intelligible to CT readers. I think they will find it interesting. Other than that they will also find the true role of money in the economic system in this discussion.

Before Mervyn King, a few centuries ago the economist David Ricardo had envisioned an advanced economic system without money. As a result this question it seems was discussed by Karl Marx making a strong argument against Ricardo. In early 1930s Soviet regime has had experimented a socialist economy without money and it failed within a few years. Leon Trotsky wrote briefly but enlighteningly of the Soviet regime’s bad experiment. In this context, King’s idea virtually is not new but his vision has an extra dimension which dimension being the computing power of new generations of computers.

He says:

“There is no reason products and services could not be swapped directly by consumers and producers through a system of direct exchange – essentially a massive barter economy. All it requires is some commonly used unit of account and adequate computing power to make sure all transactions could be settled immediately. People would pay each other electronically, without the payment being routed through anything that we would currently recognize as a bank. Central banks in their present form would no longer exist – nor would money.” (Mervyn King – Governor of the Bank of England)

No doubt, computing power has already changed the global economic order and it will continue to do so. But, can the ingenious computing power negate the need of money in the economy?

Before we go into analyze the Governor’s vision I think it would be interesting to bring a similar vision presented by a person in defense of communist economic system existed in Soviet Russia. When the inflation triggered in, the Stalin regime stopped the use of money. This happened in early 1930s. They argued when there is no money there is no inflation. In fact the experiment was a failure and even though “the money of an administrative kind” was reintroduced after a few years, a few decades later the Soviet economy failed due its inefficiency. However, the said person claimed that the communist economy could have efficiently functioned if adequate computing power existed so as to plan the production and distribution by the central decision making body.

Like the defender of the existed communist economic system, Mervyn King, it seems has never understood the efficiency factor of any contemporary economic system. The need of money is primarily about ensuring the efficiency of the economic system even though it is used as a medium of payment or settlement.

Soviet economy did not fail due to the lack of data and due to the absence of an efficient method to process them in making decisions in regard to the production and distribution, instead the system failed due its inefficiency in allocating physical productive resources including labor, among innumerous production processes which must be validated at present and must be validated in the future, by the members of society. Any economic system that cannot assure the efficiency of the said process should fail. Contemporary capitalist economic system is not the ultimate efficient system that has evolved. It has its own weaknesses, waste and inefficiencies but it has a system of societal validation of the allocation of physical productive resources among innumerous production processes. This is the primary requirement to organize an efficient economy – capitalist or socialist. Will the massive barter economy backed by adequate computing power with no money, which has been envisioned by the Governor of Bank of England be a more efficient system? Absolutely it is not. Efficiency factor is the most important thing and not the mode of settlement.

In order to understand this dilemma, first, we must look into how the contemporary capitalism gains its relative efficiency in the allocation of productive resources among numerous production processes which are validated by the members of society than the Soviet style socialism.

For an example let us think about a commodity. In the production of a commodity, we use a certain quantity of a certain quality of raw materials. We need certain kind of utilities such as electricity and water to produce it. Also certain amount of labor will be expended in producing the commodity. This means we have used a certain amount of social resources in producing the commodity. How do we know whether the use of social resources in producing this particular commodity is actually right? This was a century old question. It perhaps dated back to Ricardo’s time. Ricardo opined in replacing money from a kind of labor certificate. In 19th century Karl Marx had addressed this same question and he argued against Ricardo.

Karl Marx stated “The actual sale of commodities for money tests the validity of the expectation that any particular labor expended is indeed social and necessary labor. It is only after sale that social and necessary character of the labor expended in producing a commodity is guaranteed. The commodity producer produces the commodity on a speculation that the market will validate the social and necessary character of that labor.”

Let me reproduce the above quote by replacing the word “labor” from the word “resource.” This does not mean that his use of word “labor” is wrong but I want to use the word “resource” in order to avoid dissention. Still I attribute the quote to Karl Marx.

“The actual sale of commodities for money tests the validity of the expectation that any particular resource expended is indeed social and necessary resource. It is only after sale that social and necessary character of the resource expended in producing a commodity is guaranteed. The commodity producer produces the commodity on a speculation that the market will validate the social and necessary character of that resource.”

From the above quote we identify that Karl Marx had clearly explained that the buyer or the consumer has to validate the production by the act of purchasing. The market or the demand element in the market, does this. This is the essential role of market. In other words, allocation of social resources efficiently for production among numerous production processes is the primary role of market. Now, how the markets function?

Market exchange of goods and services is not possible without a common measure of value. This should be an extremely flexible measure of value that freely penetrates into each and every productive resource so as to have a value for the output. It cannot be a “commonly used unit of account” as was claimed by the former Governor of Bank of England. However if the “commonly used unit of account” is capable of penetrating into each and every productive resource so as to express the value then the “commonly used unit of account” cannot be brought into existence by the computing power itself. There should be limit for the creation of “commonly used unit of accounts” in the economic system.

Any unit of the measure of value that has no value in its own form and which can be produced without any significant effort electronically or in any other form, will lose its character as a unit of measure of value if the production of such unit is not restricted or regulated, period. Therefore, if there is such thing which production is regulated then it must be done by a decree and hence it must be duly called money. I wish if Mervyn King or any other economist can argue against this determination.

In fact, modern money, whether it is paper currency or electronic currency, is a fiat currency. Fiat currency is simply defined as any money declared by a government decree to be legal tender. It is this legal tender that penetrates into each and every product revealing its value in order to facilitate the exchange of goods and services through which social validation of the use of social resources take place. This is what money does even though there could be weaknesses in current monetary theory and practice.

However, at present, most of the fiat money is produced by the banking system and not by the Central Bank or the government. This is facilitated by a core banking system known as Fractional Reserve Banking system.

Those who envision the end of money make a fundamental error. They assume that the function of money is to be the instrument that enables exchange not as the instrument that allows revealing relative economic value of each and every atom or nanoparticle. This mistake is apparently clearly from the following two quotes.

“It [money] is a thing as necessary as air, water, and food- because, in a developed economy, it is by the process of exchange that we acquire virtually everything we need to live, and money is the instrument that enables that exchange.” (Thomas Greco Jr., “The End of Money”)

“When I speak about the end of money, I am referring to the growing recognition that money has become nothing more than an information system, and to the emergent mechanisms for managing exchange information outside the conventional banking system and without the use of political monies.” (Thomas Greco Jr., “The End of Money”)

Thomas Greco Jr. concerns only about the most apparent role of money as an instrument of exchange or information for exchange. But they have failed to recognize the economic process of revealing value of products. Perhaps we could imagine the removal of the role of market justified by Karl Marx in regard to the societal validation of the use of resources through an advanced process of what is known as on-demand-production. But we will never be able to remove the need of a measure of value that penetrates into each and every product including labor time. Any exchange information is arising from the “value information.”

Envisioning of moneyless economy is not what we should envision now. What we should envision is as to how we can remove the inimical burden to the wellbeing of the progress of human civilization in creating modern money as was explained by Rothchilds.

Historians identify Rothschilds as the originators of modern banking beginning from 1760 in Germany. The influence of their banking industry on the society was so wide spread. Eighteenth century German poet Heinrich Heine captured their scheme accurately and wrote, “Money is the god of our times, and Rothschild is his prophet.”

A member of Rothschild family writing a letter from London to their agents in New York explained their system of banking as follows:

“The few who can understand the system will be either so interested in its profits, or so dependent on its favours, that there will be no opposition from that class, while, on the other hand, that great body of people, mentally incapable of comprehending the tremendous advantage that Capital derives from the system, will bear its burden without complaint and, perhaps, without even suspecting that the system is inimical to their interests.”

Even today this is the banking system that we practice, which system is known as Fractional Reserve Banking. Under this system, banks virtually create money; some money is created to finance essential economic activities and a lot of money to finance the “dream world of financial speculators.” Mervyn King has explained this money creation process as follows.

“When banks extend loans to their customers, they create money by crediting their customers’ accounts.” (Sir Mervyn King, Speech to the South Wales Chamber of Commerce at The Millenium Centre, Cardiff on 23rd October 2012)

Some politicians are now envisioning to end this system. I disagree with them; because this is a system that is essential for the macroeconomic system but the way it is used today poses a real threat to the progress of human civilization. I think this is what Mervyn King must reveal to the world since he belongs to “the few who can understand the system.”

Print Friendly, PDF & Email

Latest comments

  • 1

    The true role of money is to bribe the king. Every king knows this.

  • 0

    Why do they envision a world without money, are they scared when the western currencies are NOT valued any where in the world as the fooreign exchange, when the eastern currencies become the world’s prominent currency for foreign exchange, they can still dominate the foreign currancy – market of the money-less world ?

    Did you think about that ?

    China gave up bit coins. Because, it is not backed by GOLD or anything. SO, the use of bit coins can send any country bankrupt any moment.

  • 0

    Hey Softy, Is money backed by gold or a promise ?

  • 0

    How people can spoil an intelligent subject with inane , meaningless comments !

    I really wish the moderation process was more selective on this website.

    I certainly agree that the system used by the banks today are a threat to civilization. However you do not give us a real alternative.

    Surely not back to barter system ?

    • 0

      I will discuss it in my future articles. Thanks.

  • 0


    Great minds discuss ideas, average minds discuss events and weak minds discuss people.

    Sir Mervyn, who presented his last quarterly forecasts last week, said “what bankers did is not the only explanation of the crisis that we had.”
    In a valedictory interview he said: “Don’t demonise individuals here. This wasn’t a problem of individuals, this was a problem of failure of a system. We collectively allowed the banking system to become too big, we gave them far too much status and standing in society and we didn’t regulate it adequately by ensuring it had enough capital.”

    You Quote Great Minds Discuss Ideas: But from the above it is clear that they failed to discuss.

    As for your observation below:

    His new idea is that he has envisioned a world without money. But that is not how I see it as he says above that we didnt regulate it adequately by ensuring it had enough capital.

Leave A Comment

Comments should not exceed 200 words. Embedding external links and writing in capital letters are discouraged. Commenting is automatically disabled after 5 days and approval may take up to 24 hours. Please read our Comments Policy for further details. Your email address will not be published.