The Failed Experiment: How Deregulation Created a Financial System That Works for the Few, Not the Many

11 min readDec 22, 2024

The dream of owning a home, once a cornerstone of Australian society, is slipping out of reach for many. Wages stagnate while housing prices skyrocket, leaving ordinary Australians struggling to make ends meet. The financial system, designed to serve the needs of the people, now operates in the interests of a select few. This stark reality is the outcome of a grand experiment — the deregulation of the financial system — an experiment that has demonstrably failed.

The seeds of this failure were sown in 1981 with the implementation of the Campbell Report. This report, commissioned by the Australian government, advocated for the deregulation of the financial system, promising increased efficiency and competition. The government and the opposition embraced its recommendations, ushering in an era of free market dominance in finance. This marked the beginning of a forty-year experiment with profound and largely negative consequences for the Australian economy and its people.

The deregulation of the financial system has not delivered on its promises. Instead, it has led to a dramatic expansion of the financial sector, primarily fueled by bank finance for transferring existing assets rather than creating new wealth. This expansion has come at a significant cost to the real economy, with the financial sector extracting vast profits from the productive sectors of society. The unintended consequence of deregulation has been the enrichment of the already wealthy, widening the gap between the haves and the have-nots.

The Australian Energy Market Commission and the Australian Energy Regulator, both products of the Hilmer Report 1993, offer a compelling parallel to the failures of financial deregulation. These institutions, tasked with promoting competition and efficiency in the electricity market, have instead presided over a dramatic increase in electricity prices, eroding the living standards of ordinary Australians. The privatisation and deregulation of essential services, like electricity, have mirrored the trends in the financial sector, concentrating wealth and power in the hands of a few.

The current financial system, characterised by high-interest loans, complex financial products, and a relentless pursuit of profit, has eroded the fairness and reciprocity principles underpinning a healthy society. The dominance of negative reciprocity, where one party benefits at the expense of another, is evident in how banks operate, extracting wealth from borrowers and depositors while enriching their shareholders. This system is inherently unsustainable, fueling social inequality, environmental degradation, and a growing sense of disillusionment.

The evidence is clear: the experiment of financial deregulation has failed. It’s time to acknowledge this failure and chart a new course. This requires a fundamental rethinking of our financial system, moving away from the dominance of debt and speculation towards a system that prioritizes the well-being of people and communities. The following sections will explore the specific mechanisms of this failure and propose an alternative: a system based on democratic money, balanced reciprocity, and Permanent Asset Markets. This new system promises to restore the dream of homeownership, revitalize the real economy, and create a more just and sustainable future for all Australians.

Democratic Money: Reclaiming Finance for the People

The failure of financial deregulation demands a radical reimagining of our financial system. We need a system that operates in the interests of the many, not the few; a system that prioritises community well-being over individual profit maximisation; a system that embodies the principles of fairness and balanced reciprocity. This is the promise of democratic money.

Democratic money means everyone has equal access to and receives the same value from each dollar they deposit or borrow from a bank. In a democratic money system, the power to create and distribute money is decentralised, shifting away from the current model where banks monopolise this power. This shift would fundamentally alter the dynamics of our economy, creating a more level playing field and empowering individuals and communities.

The current financial system disproportionately benefits the wealthy through lower fees, exclusive financial arrangements, and capital gain practices while burdening individuals and smaller entities with higher costs and double interest payments. This inherent unfairness is a direct result of the undemocratic nature of money creation.

Imagine a system where new money is introduced into the economy not through bank loans but through direct distribution to individuals and communities. This is the core principle of democratic money. This new money could fund essential public services, invest in renewable energy infrastructure, or support local businesses. By empowering communities to decide how this money is spent, we can ensure that it is used to create real wealth and improve people’s lives.

The principles of Elinor Ostrom’s work on governing the commons offer a valuable framework for designing a democratic money system. Ostrom’s research demonstrated that communities can successfully manage shared resources when they have:

Clearly defined boundaries: Who is part of the community, and who benefits from the shared resource?
Rules adapted to local conditions: What are the specific needs and challenges of the community?
Collective-choice arrangements: How do community members participate in decision-making?
Monitoring mechanisms: How is the use of the resource tracked and managed?
Graduated sanctions: How are rule violations addressed?
Conflict-resolution mechanisms: How are disputes between community members resolved?
Minimal recognition of rights to organize: Does the community have the autonomy to govern itself?
Nested enterprises: For larger systems, how are governance activities organized at multiple levels?

By applying these principles to finance, we can create a democratic money system that is fair, sustainable, and accountable to the people it serves.

One practical way to implement democratic money is through Permanent Asset Markets (PAMs). PAMs offer an alternative to the current debt-based system by allowing communities to monetise assets through shares in a community-owned company rather than through loans. This approach eliminates the need for interest payments and allows for the equitable distribution of profits among community members.

The implementation of PAMs can begin with essential services like housing. Permanent Housing Markets (PHMs) would allow individuals to purchase and sell homes incrementally by buying and selling shares in a company that owns the properties. This approach would:

Make housing more affordable: By eliminating the cost of interest, PHMs would significantly reduce the overall cost of homeownership.
Increase community control: PHMs would give communities greater control over the development and management of housing.
Stabilise housing prices: By decoupling housing from the speculative forces of the market, PHMs would create a more stable and predictable housing market.

The transition to democratic money will not be easy. The current financial system is deeply entrenched, and those who benefit from it will resist change. However, the costs of inaction are far greater. The growing inequality, environmental degradation, and social unrest we see today are all symptoms of a financial system that is out of balance.

By embracing democratic money, we can reclaim finance for the people and create a more just and sustainable future for all.

The Mechanics of Exploitation: How the Current Financial System Extracts Wealth from the Many to Enrich the Few

The dream of a fair and just society, where everyone has an equal opportunity to thrive, is undermined by a financial system rigged to benefit the already wealthy. This system, characterised by debt-based money creation, compound interest, and capital gains for a select few, operates as a sophisticated wealth extraction machine, transferring wealth from the majority to a powerful minority.

A fundamental flaw lies at the heart of this system: the conflation of money with capital. In its purest form, money should be a neutral medium of exchange, a tool for facilitating transactions. Conversely, capital represents tangible assets — the goods, services, and infrastructure that generate wealth. The current financial system blurs this distinction, allowing money to become a source of profit, detached from any real productive activity.

Money creation through bank loans is the primary mechanism of wealth extraction. When a bank issues a loan, it creates new money and debt. This newly created money enters the economy, increasing the money supply and driving up demand, but the corresponding debt burdens the borrower, obligating them to repay the principal plus interest.

Here’s how this process unfolds:

Loan Origination: A bank creates a loan account and credits the borrower’s account with newly created money. The borrower uses this money to purchase an asset like a house.
Interest Accrual: The bank charges interest on the loan, effectively creating a claim on the borrower’s future income. This interest is not simply a fee for providing the loan; it is a mechanism for extracting wealth from the borrower.
Capitalisation of Interest: Banks further amplify their profits by capitalising interest. They debit the loan account with the interest due, extending the loan’s life and increasing the loan amount the borrower must repay. This interest payment is then treated as a capital gain for the bank, effectively creating new money while increasing the borrower’s debt burden.
Double Interest Payment: The borrower is forced to pay interest twice: once through the capitalised interest that extends the loan and again through the regular interest payments.
Wealth Transfer: This system effectively transfers wealth from borrowers to banks and their shareholders. The capitalised interest, treated as a capital gain, is mainly untaxed, further amplifying the financial sector’s profits.

This cycle of debt-based money creation, interest accrual, and capitalisation of interest creates a system where money begets more money, but only for those who already have it. The wealthy, with access to cheaper loans and the ability to leverage their existing assets, benefit disproportionately from this system. The poor and middle class, burdened by high-interest debt and limited access to capital, struggle to keep up.

The Australian housing market is a prime example of this wealth extraction dynamic. Decades of easy credit, fueled by low interest rates and government policies designed to stimulate homeownership, have increased housing prices to unsustainable levels. Ordinary Australians are now priced out of the market, forced to take on crippling levels of debt to purchase a home. This debt burden then acts as a drag on the economy, reducing consumer spending and hindering economic growth.

The current financial system emphasising debt-based money creation and the pursuit of capital gains, is a key driver of inequality. It creates a self-perpetuating cycle where the rich get richer, and the poor get poorer. This system is not only unfair; it is also economically inefficient. It diverts resources away from productive investments and stifles innovation.

To break free from this cycle of exploitation, we need to rethink our relationship with money. Democratic money, emphasising community-based ownership and balanced reciprocity, offers a path to a more just and sustainable financial system.

Building a Better Future: Practical Steps Towards a Democratic Money System

The previous sections have laid bare the inherent flaws of the current financial system and articulated the principles of democratic money as a viable alternative. But how do we move from theory to practice? How do we transition from a system rooted in exploitation to prioritising fairness, sustainability, and community well-being? This section outlines concrete steps individuals, communities, and governments can take to build a better financial future.

Individual Action: Raising Awareness and Demanding Change

Change begins with awareness. Individuals can play a crucial role in advocating for a more democratic and equitable financial system by:

Educating Themselves: Understanding the intricacies of the current financial system and the principles of democratic money is the first step. The sources provided offer valuable insights into wealth extraction mechanics and alternative models’ potential.
Engaging in Conversations: Discussing these issues with friends, family, and colleagues helps to raise awareness and broaden the public discourse. Sharing articles, participating in online forums, and joining community groups focused on financial justice can amplify the message.
Demanding Transparency and Accountability from Financial Institutions: Individuals can hold banks accountable by questioning their practices, demanding transparency in fee structures, and scrutinizing the terms of loans and financial products. Supporting ethical and community-focused financial institutions can also send a powerful message.
Advocating for Policy Change: Contacting elected officials and urging them to support legislation that promotes financial fairness and democratic money principles can translate individual action into tangible political change.

Community Action: Building Alternative Models from the Ground Up

While individual action is essential, systemic change requires collective effort. Communities can take concrete steps to build alternative financial models:

Establishing Permanent Asset Markets (PAMs): Communities can form PAMs for essential services like housing, energy, and transportation. These markets, operating on the principles of shared ownership and democratic decision-making, can demonstrate the viability of a more equitable and sustainable financial system. The sources provide detailed guidance on establishing Permanent Housing Markets (PHMs) as a starting point.
Creating Community-Owned Banks and Credit Unions: These institutions can prioritise the financial well-being of their members, offering fair loan terms, ethical investment options, and transparent governance structures. They can also be crucial in channelling new money into community-driven projects.
Supporting Local Businesses that Embrace Balanced Reciprocity: Patronizing businesses prioritising fair wages, ethical sourcing, and community reinvestment helps build a more sustainable and equitable local economy.

Government Action: Creating a Level Playing Field and Shifting the Rules of the Game

Ultimately, lasting change requires government intervention to reshape the financial landscape. Policymakers can take decisive action by:

Ending the Practice of Capitalising Interest on Loans: This simple but profound change would immediately reduce borrowers’ debt burdens and curtail banks’ unearned profits.
Directing New Money Creation towards Public Goods and Community Investments: Rather than funnelling new money through bank loans that primarily benefit the wealthy, governments can directly invest in public infrastructure, renewable energy projects, and community-owned enterprises.
Implementing Democratic Money Mechanisms: Governments can explore innovative money creation and distribution approaches, such as issuing a Citizen’s Dividend or establishing a National Investment Bank that prioritises community well-being.
Supporting Research and Development of Alternative Economic Models: Investing in research that explores the potential of democratic money, permanent asset markets, and other community-centred financial systems can lead to a more equitable and sustainable future.

The Path Forward: Embracing a New Vision of Finance

The transition to a democratic money system will require a fundamental shift in mindset. It will require abandoning the individualistic, profit-driven ethos that dominates the current financial landscape and embracing a more cooperative, community-oriented approach. It will also demand courage, persistence, and a willingness to challenge the status quo.

The challenges are significant, but the potential rewards are immense. By reclaiming finance for the people, we can create a world where money is a tool for building a more just, sustainable, and prosperous society for all.

The Implementation Strategy

A Roadmap for Change:

This section outlines a practical strategy for transitioning from the current system to one based on PAMs and democratic money.

Start by advocating for policy changes, encouraging banks to adopt simple interest loans and share capital gains with borrowers.
Propose the establishment of pilot programs to test the implementation of PAMs in specific communities and sectors.
Emphasise the importance of community engagement and public education in building support for the transition to a new financial system.
Suggest ways to leverage existing institutions, such as Community Banks, to facilitate the adoption of PAMs.
Call for government support and regulation to ensure the fairness and transparency of PAMs.

Building a Sustainable Future:

This section explores the broader societal implications of adopting PAMs and democratic money.

Discuss the potential of PAMs to contribute to a more sustainable economy by redirecting funds towards renewable energy and other socially beneficial projects.
Highlight the positive impact of PAMs on social cohesion and community well-being by fostering a sense of shared ownership and responsibility.
Argue for a shift in values from individualistic wealth accumulation to collective prosperity and a more equitable distribution of resources.
Envision a future where finance serves the needs of people and communities rather than vice versa.

The implementation strategy can be summarized as follows:

Policy Advocacy: Lobby governments to reform banking regulations and encourage the adoption of simple interest loans and profit-sharing mechanisms
Pilot Programs: Establish small-scale PAMs in specific communities and sectors to demonstrate their feasibility and benefits
Community Engagement: Conduct public education campaigns to raise awareness about the shortcomings of the current system and the potential of PAMs.
Leveraging Existing Institutions: Partner with Community Banks and other like-minded organisations to support the development and implementation of PAMs.
Government Support and Regulation: Seek government backing to provide a regulatory framework that ensures fairness, transparency, and accountability within PAMs.

By taking these steps, it is possible to create a more just, equitable, and sustainable financial system that benefits everyone.