Public Banking, Money and the Science of

Stable Money Systems

By Marc Gauvin

Copyright © 2011-11-09


Following the unprecedented turmoil due to the crisis in money and money systems many are proposing their particular brands of solutions to the problem. Ellen Brown form the Public Banking Institute (PBI) is pursuing the Public Banking alternative emphasising the importance of who owns the bank to deduce whose interests will then be most served.   But as many rightly intuit the application of interest, being a growth factor, is at the root of the problem, is not sustainable and undoubtedly represents a problem to everyone in as much as interest, being a cost factored into prices, increases the cost of living for all rich and poor.

At the question of the science of stability as applied to money systems Is thoroughly explored. Hitherto, the emphasis of dealing with the money system’s instability has been on whether or not interest, the only economic cost that does not generate its own principal money as do the financing of all other goods and services, can or cannot be paid, this apart from the particular problem posed by the fact that interest grows as a function of time.   However, although the issue of the pay ability of interest is certainly important it is not what defines the systems stability or instability.   System stability is defined by whether or not equilibrium of the system requires external inputs to achieve, that is if you have to continuously prop up the system with external efforts or energies, then the system is unstable, if on the contrary the system regains equilibrium as a result of its inherent design, then the system is stable. This is the definition of stability used in Control Systems Engineering and differs markedly from most other definitions being invoked in economics and the money reform debate, that focus on the relative ability to contain instability. For example, “relatively” stable price levels may be considered as proof of “relative” system stability but that is utterly incorrect if price levels are the result of extraneous actions taken to mitigate the volatility of prices.   The central question of how stability is defined is vital because not recognising the definition of stability as used in science leads to seeking solutions to instability anywhere but at its root source.   In physical systems where root sources cannot be eradicated then there exists no option but to contain or redirect the instability but in systems such as money systems absolute stability is entirely possible.

Thus, the question of whether or not public or private banking is more stable is mute until the correct and most rigorous definition of stability is applied to the mathematics of credit creation and debt which Is the central issue regarding the proper function of a banking system.

In this regard it is worth taking into consideration from


3.     The stable currency unit theorem:


A Passive BIBO Stable Money System by definition implies that all of the system’s component Transactions are also necessarily Passive BIBO Stable. Therefore, it directly follows that if every Transaction is a Passive BIBO Stable process and all money created is necessarily a product of such Stable Transactions, then all such money maintains a Bounded ratio with all system inputs. By definition!


4.     What matters in order to have a stable currency:


- It matters not who performs the Transactions that generate the Currency

- It matters not when the Transactions are performed

- It matters not what Wealth is Transacted

- It matters not why we Transact the Wealth

- It matters not how many units are generated




5.     Why our present Currency system is unstable:


Because the current system Transactions are financed by debt that grows unboundedly.


From participating in Ellen Brown’s online Public Banking Group it has become evident that the focus is on the merits of state backed credit and banking and it is the belief that interest is not a problem because any interest charged will get recycled back to the benefit of society.   But this thesis is dangerously wrong because it implicitly assumes the wrong definition of stability and furthermore it creates an imbalance in the system that since by definition, interest is a demand beyond the available money in existence and will necessarily create a surplus at another point of the system in this case the State Owned Bank.   This is and always has been the underlying source of financial crimes, abuses and injustice, so why are we expected to believe that bureaucrats will not by virtue of one or other of a myriad of obvious and hidden means, take advantage of said necessary imbalance? Would it not be much wiser to implement a much more efficient yet trivial solution where no interest is ever charged and access to “liquidity” is made an automatic consequence of any transaction?

This is the solution offered by the Passive BIBO Currency standard specification here.   Under such a specification, the only function of Public Banking would be to assure proper maintenance of simple accounting and nothing more and for public projects, perhaps also to provide such a service to the public at large for those unable to do so for themselves. Thus, there would be no need to prevent any other public and private institutions from providing such services themselves but there would be a need for them to adhere to the same standard.

Now, it is important to realise at this point, that independently of the good intentions of how to manage said instability in the context of the proposed Public Banking scheme (i.e. re-circulate the interest earnings back to the economy), mathematically, the system remains unstable. In fact such a proposition is naïve in that it lacks the requisite understanding of the real nature and danger of instability and it has the very serious effect of diverting discussion from much more enlightened and definitive solutions.

Finally, this is not a question of opinion, unfortunately the general lack of intellectual rigour has led many into misrepresentation of all sorts, for example, the pseudo civility of “agreeing to disagree” in matters where logic applies as opposed to subjective issues such as taste etc. The matter at hand, is clearly one where not only logic applies it must do so fully in order for any solution to be validated. I therefore submit once more that regarding the matter at a hand, tactics such as resorting to “opinion” or “agreeing to disagree”, are utterly inappropriate until such time that a choice must be made for lack of ability to apply logic, math and science to the matter, which simply can never be the case with a money system. Also, to be aware of the work of your peers that shed light on the question and purposefully ignore it or slough it off on the basis of “opinion” is not only inappropriate it is wilfully misleading to others as it leaves the false impression that there must have been a logical reason to slough it off when in reality there are none. Either one submits to the full arbitration of math and science or one simply has no case or real solution to offer in money systems.

In summary: The mathematics of stability applied to the question of money systems points to the fact that whether public or not, any banking proposal that supports the application of interest to credit is systematically unstable and therefore represents a non-solution. Furthermore, because adherence to a Passive BIBO stable technical currency specification guarantees absolute stability with unlimited abundance and access to liquidity by any agent in the economy, any proposal public or not that does not adhere to it or it’s proven equivalent cannot be considered a valid proposal.






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