The-Lost-Science-of-Money. Parte 2b
The-Lost-Science-of-Money. Parte 2b
The-Lost-Science-of-Money. Parte 2b
CHAPTER 19
The Greenback battles of the 1860s and 1870s were the “real thing.”
For the first and only time in our history, the primary secular problem of
American society was being accurately attacked: the private control of
the money system and the special privileges that elements of society -
the bankers - had usurped for their personal benefit at society's expense.
The earlier attacks by Jefferson were accurate, but hadn't reached
that level of popular participation. The programs of Jackson and Van
Biren had much more popular support but lacked an accurate solution,
ind erroneously instituted a system more dependent on metal.
In contrast, the Greenbacks were (and still are) a viable solution to a
large part of America's monetary problems. They are a method of creat-
rig money without interest costs or debt, and without alienating the con-
trol of the money system from the government of the people. However,
508 The Lost Science Of Money
by the 1880s and 1890s the battle lines had already been skilfully shift-
ed into “side show” arguments over silver and bimetallism. Then, with
the establishment of the Federal Reserve System in 1913, serious dis-
cussion of who should control the nation's money system became almost
impossible to carry on in the American mainstream.
POPULISM - BAGGED BY THE BANKERS
One reason for populism's failure was its diversity, with various
interests from different parts of the country. Populists didn't always
share common goals and could be divided and discouraged. They didn't
fully recognize the deviousness of their opponents. Furthermore, as
average people they were always in need of money and their political
activities reduced their meager resources.
The bankers on the other hand were more closely knit with a nar-
rowly defined objective. Elements among them could draw on centuries
of recorded experience in European court intrigue. Most importantly, the
bankers' treachery was self financing.
In one sense the populist movement was a rising of the victims of a
financial oligarchy, against their oppressors; the victims of usury rising
against the usurers - defining usury in its macro sense as “a misuse of
society's monetary mechanism for illicit gain.”
BELMONT “FACTOR” SPLITS THE DEMOCRATS
The very existence of a populist movement demonstrated a fatal
political weakness. The presence of August Belmont, Baron
Rothschild's American agent, in the top echelons of the Democratic
party would be enough to keep the Democrats from becoming the logi-
cal focal point for the popular forces on the crucial Greenback issue - the
control of the nation's money system.
This neutralizing of the Democrats was of pivotal importance. For
had they solidly embraced the Greenbacks, as they logically should
have, these splinter parties would never have formed and the nation-
wide-majority which in fact existed for the Greenbacks could have
found a more powerful and possibly successful expression through the
Democratic Party.
HIGHLIGHTS OF THE GREENBACK MOVEMENT
This chronological summary briefly highlights some monetary
events of the diverse movement:
*1872 - The National Labour Reform Party demanded an irredeemable
paper currency issued by the Government, “directly to the people.”
19 TRIUMPH OF THE BANKERS - THE FEDERAL RESERVE SYSTEM 509
*1876 - The National Independent Party was organized for the presi-
dential election and nominated Peter Cooper at their Indianapolis con-
vention. Cooper, a civil engineer, was one of the first major industrial-
ists with an outstanding reputation of supporting labor as well. He was
eighty five years old and was to resign in favor of his Vice President.
After losing the election, Cooper sent an open letter to President Grant
on the Money Power:
“This bondage has its manifold center and secret force in more than
2,000 banks that are scattered throughout the country...Such a power of
wealth, under the selfish instincts of mankind, will always be able to
control the action of our government unless that government is directed
by the strict principles ofjustice and of the public welfare. The bankers
will favor a course of special legislation to increase their power... They
will never cease to ask for more,...so long as there is more that can be
wrung from the toiling masses of the American People.... The struggle
with this money power has been going on from the beginning of the his-
tory of this country. l
*In Chicago, an “Independent Greenback Party” organized Cook
County ward by ward. The agitation for a permanent Greenback curren-
cy reached a climax in the congressional elections of 1878. After 1880,
interest began to wane in the face of political defeats dealt to it by the
scandal ridden Grant Administration, from the sheer exhaustion of bat-
tle, and by being diverted on the false silver issue.
*1884 - General Benjamin F. Butler ran for president on a paper money
platform (see Chapter 15).
*1892 - The “Peoples Party” nominated James B. Weaver as their pres-
idential candidate. He received over 1 million votes, and called for the
government to issue a national currency at $50 per capita of population;
this money was to be paid out for public improvements and loaned to cit-
izens at 2% interest.
*March 1893 - General Jacob Coxey of Massillon, Ohio marched on
Washington with thousands of the unemployed. “Coxey's Army,” as it
was called, demanded that the government issue $500,000,000 in non
interest bearing legal tender notes (Greenbacks), to employ 4 million
men in the construction of roads. Coxey's monetary theory appears
sound and his implied threat of force was justified, but he didn't carry
through his thinking to its logical conclusions in terms of his personal
security. The Washington police force was able to arrest him for walking
510 The Lost Science Of Money
labor this crown of thorns. You shall not crucify mankind upon a cross
of gold.”
Bryan stood before the hall with his arms outstretched as a cross, his
head tilted to the side toward his shoulder. For a long moment there was
a stunned silence, and then an uproar, and he was nominated. It was one
of the great moments in American political history.
In two weeks Bryan, the great orator, visited two-thirds of all the
states giving 400 speeches. Nothing like it had been seen before. The
campaign became known as the “Honest Money Campaign.”
But in reality the campaign offered the American people a choice
19a. William Jennings Bryan supported coining more silver money in his
1896 run for the Presidency. Later his support was crucial in passing the
Federal Reserve Act, and later still, he deeply regretted that fact.
512 The Lost Science Of Money
“could consider them that, now” (times and attitudes since Kolko wrote
have retrogressed dramatically back to the earlier view!).
The mergers were mainly a way to sell watered down [diluted] stock.
Morgan's method was to overcapitalize the companies and take large
underwriting fees in the process of selling the stock to the public. The
Morgan interests would then gain control of the boards of directors of
the new entity through the merger process. For example, in 1908, out of
183 industrial mergers, stocks and bonds of $3.085 billion were
issued based on capital worth only $1.459 billion.7
As in the present day, the short term outlook dominated stock mar-
ket activity:
“Insofar as Morgan's profits were not immediate or short range, but
tied to the managerial and profit performance of the new company,
Morgan tended to do relatively poorly,” wrote Kolko, “The new merg-
ers, with their size, efficiency and capitalization were unable to stem the
tide of competitive growth. Quite the contrary! They were more likely
than not unable to compete successfully or hold on to their share of the
market, and this fact became one of utmost political importance.”
THE GROWING COMPETITION
Bankers tell us that competition is a hallmark and requirement of the
capitalist system. That's what they say and what they pay professors to
profess, but not what they do. They demand that others compete to better
serve them but abhor competition for themselves. Then they concentrate
on corrupting governments into legislating special privileges for them.
Yet competition and decentralization was even increasing in the field of
banking at the turn of the century. By 1892 state chartered banks sur-
passed nationally chartered banks in importance. The national banks'
share of business continued to decline from that point:
Year State banks accounted for:
1896 61% of total # of banks and 54% of total bank resources.
1913 71% of total # of banks and 57% of total bank resources.9
In 1908 national bank notes represented only 20% of the total circu-
lating currency.1* The number of banks grew from 10,000 in 1900 to
25,000 in 1912.
Still, the New York banks controlled about one-half the total
deposits. Furthermore, because the national bank law wisely limited
their loans to any one borrower to 10% of the banks capital, in 1912
there were only 12 banks capable of making loans over $1 million to any
one fi 11
GOLD AND TECHNOLOGY DISCOVERIES BRING RELIEF
Toward the end of the 19th century the worldwide need for more
money in the existing mixed system of metals, bank created paper and
credits, and government created money was alleviated by some fortu-
nate developments: major gold discoveries in South Africa, Alaska and
Australia; and the invention of the Cyanide leaching process which
extracted a lot more gold from the crushed rock. Annual gold produc-
tion more than doubled in only eight years:12
1890 - 5.7 million ounces of gold produced
1896 - 9.8 “ “ “
1898 - 13.9 “ “ “
It is difficult to accurately estimate the amount of coinage in exis-
tence, because often the same precious metal gets coined and re-coined
19 TRIUMPH OF THE BANKERS - THE FEDERAL RESERVE SYSTEM 515
by more than one country's mint. Del Mar estimated the gold and silver
coinage available country by country, and concluded that the world's
total grew from $3.7 billion in 1879, up to $6.34 billion in 1899.’ 3
CURRENCY ACT OF 1900
This law established the single gold standard in the U.S. at $1 = 25.8
grains of gold. The deflationary effects normally to be expected from
19c. DEL MAR'S TABLE OF GOLD AND SILVER COINAGE
(source: Del Mar; History Of The Precious Metals)
3ò
i7
&O I OO
3+
óo 3o 8o
Belyium
Switzerland t8
Ilenmark ...
Colonies . . io
Egypt . . . . 30 I$ IO 5
in Af rlca . .
454
........................................................
such a move did not materialize because the production of gold had
more than doubled from 1890 to 1898.
When gold enthusiasts refer to the sound workings of a gold stan-
dard in this period, they ignore that it was a highly unusual time for gold
production, where the supply of gold available for money grew much
faster than the population, rather than at its usual inadequate historic rate
of under 1.2% per year.’4 They also ignore that the supply of gold was
augmented by paper notes and deposits issued by banks and government.
TREASURY SECRETARY SHAW'S INNOVATIVE SOLUTIONS
Though the U.S. had been independent for 125 years, there was
still no uniform currency system, and there was no structural flexibility
whereby the banking system could easily adjust to changing economic
conditions.
From 1902 to 1906, Treasury Secretary Leslie M. Shaw faced a
banking system that was limited and inflexible. Nationally chartered
banks were allowed to create only about $800 million in currency, based
on their holdings of government bonds as reserves or collateral. The sys-
tem could not respond well to real business needs or even to the neces-
sary seasonal requirements for money. There was no lender of last resort
when the banks got into trouble and the system was susceptible to booms
and panics over minor events.
Shaw wanted to change the banknotes to read that they were guar-
anteed by the government, slnce in effect they were. He also proposed
implementing what became known as the real bills doctrine, then used
in Europe, where banks could finance industry based on commercial
paper guarantees.
Shaw initiated a program to avert banking panics by depositing gov-
ernment funds or bonds into banks when money was tight. Then, to calm
down boom periods, he would withdraw them.15
“In his final report to Congress, written at the end of 1906...he wrote:
‘If the Secretary of the Treasury were given $100 million to be
deposited with the banks or withdrawn as he might deem expedient, and
if in addition he were clothed with authority over the reserves of the sever-
al banks, with power to contract the national bank circulation at pleasure,
in my judgment no panic, as distinguished from industrial stagnation could
threaten the U.S. or Europe that he could not avert...’
“If [the Treasury's power•1 had been expanded as Shaw requested,
the Treasury would have been clothed with effective power different, but
19 TRIUMPH OF THE BANKERS - THE FEDERAL RESERVE SYSTEM 517
not clearly inferior to that later assigned to the Federal Reserve System,”
wrote Frledman and Schwartz.16
THE POSTAL SAVINGS SYSTEM
Another solid banking initiative was inaugurated by the Post Office
in January 1911. The Postal Savings System offered savings accounts to
depositors, operating as a deposit bank and making no loans, like the
theoretical operation of the Bank of Amsterdam.
The Postal Savings system became popular. It held 4% of the nation's
savings in 1919. This declined to 2% in 1929, but rose to 13 o3 in 1933
and to 20% in 1947. By the end of 1960 it was back down to 2%. The
percentage declined just before the 1929 crash, perhaps because of the
aggressive atmosphere of the times. The rise into 1933 might indi- cate
a flight of depositors to safety, and the continued growing share to 1947
could indicate that distrust of the banking system extended long beyond
the Depression.
BANKERS THWART SOCIETAL SOLUTIONS: PANIC OF 1907
Our thesis would predict that Shaw's balanced approach in the hands
of Government would be unwelcome to those seeking to make a business
of manipulating the money system. In 1906 Jakob Shiff was a partner of
Kuhn Loeb, agent for the Rothschild's American interests. Shiff and oth-
ers (including Shaw) publicly warned that the U.S. would face its worst
financial crisis. These warnings foreshadowed the Panic of 1907.
The hidden source of the panic of 1907 was the Bank of England's
instruction in September 1906 to British banks not to negotiate
Amerlcan finance bills but to have them all paid in gold as they matured.
There was also a crisis situation in banking in Amsterdam and Hamburg.
The result was that about 1% of the U.S. gold supply was shipped
abroad, causing a decline in the total U.S. money supply of about 2 ’/› %.
This was enough to generate the banking panic of October 1907.'7
But it was an unusual panic: “The Panic of 1907 was exclusively
banking,” wrote Studenski and Kroos.1
The banks refused to honor their deposits - to pay out cash to their
depositors; however, all of their other financial operations continued
normally. It was a manufactured, unnecessary panic. The major New
York City Banks were later criticized for restricting their payments while
their reserves were still adequate, and for delaying the issue of clearing
house loan certificates to the banking community:
“The six large banks (in NY) acting in concert could have sustained
518 The Lost Science Of Money
American poet Ezra Pound, and his student Eustace Mullins, that it
would be clearly documented in a readable form.
Mullins had studied under Ezra Pound in the late 1940s, as had the
poet T. S. Elliot. Pound understood the abstract nature of money, and the
importance of that concept to society. One of the requirements he set for
his students was that they read all of the available writings of Alexander
Del Mar. T.S. Elliot went on to become one of America's greatest poets;
Mullins' work would be just as important, exposing the fraudulent
money and banking system. For a deeper insight into Ezra Pound and
Mullins, I recommend a biography Mullins wrote on a part of Pound's
life, called This Difficult Individual.
Eustace Mullins was working as a librarian at the Library of
Congress, and had the world's greatest research library on this subject
at his fingertips, plus the knowledge of how to use it. He also had the
willing assistance of other research librarians. To put together the
information that they assembled would otherwise have required a
small fortune, and could not have been done.
Mullins book, The Federal Reserve Conspiracy, was published in
1952, and continues to be the definitive work on the Fed (Federal
Reserve System), from that viewpoint. Through Mullins' work, many
behind the scenes activities of highly placed financiers came to light.
The book is generally banned from discussion in Economics depart-
ments of American universities, as it doesn't hesitate to mention the
names of the people responsible for foisting the Fed onto us. Many of
19d.
American poet Ezra
Pound (1885-1972)
had a deep awareness
of monetary princi-
ples, and some of his
poetry deals with the
destructive moral and
social effects of usury.
Pound required his
students (including
T.S. Elliot) to read all
the writings of mone-
tary historian Alex-
ander Del Mar.
19 TRIUMPH OF THE BANKERS - THE FEDERAL RESERVE SYSTEM 523
in foreign banking, nor the opportunity to study the methods and poli-
cies of the banks of issue of Europe,” wrote Benjamin Strong, the first
President of the New York Federal Reserve Bank.3'
This lack of understanding continued for decades as evidenced in
Thomas E. Dewey's questions to Marriner Eccles (then Chairman of the
Federal Reserve System) in a June 17, 1942 appearance before a con-
gressional committee:
Eccles: “I mean the Federal reserve, when it carries out an open
market operation, that is, if it purchases government securities in the
open market, it puts new money into the hands of the banks which cre-
ates idle deposits.”
Dewey: “There are no excess reserves to use for this purpose?”
Eccles: “Whenever the Federal Reserve System buys government
securities in the open market, or buys them direct from the treasury,
either one, that is what it does.”
Dewey: “What are you going to buy them with? You are going to
create credit?”
Eccles: “That is all we have ever done. That is the way the Federal
Reserve System creates money. It is a bank of issue. ’9
Dewey was no slouch; he was to become Governor of New York,
and nearly defeat Truman for the presidency in 1948; yet he had trouble
grasping how the Federal Reserve created money out of thin air. He
probably had believed the normal misinformation that banks mainly re-
lend the money that their depositors place with them.
Fourth, both institutions were privately owned but made to appear as
government bodies.
The introduction to Garrison and Scott's re-written plan submitted to
Wilson made nine points of supposed “dlfference” with the Aldrich plan.
Point number three was:
“The machinery and organization provided under this plan will work
in the open, and are absolutely under government control. 40
Point number four was:
“The ownership of this institution is not confined to banks and can
never be controlled by any special interest or in any section of the country.”
A fifth parallel was that some important early supporters would later
condemn both institutions. In the case of the Bank of England, William
Paterson became so disaffected that he published a book condemning the
Bank's buildup of the national debt.
52 The Lost Science Of Money
Notes to Chapter 19
Peter Cooper, open letter to President Grant, June 1, 1877.
2 W.J. Bryan, The Second Battle, (Chicago: W.B. Conkey, 1900), p. 207
W.J. Bryan and the Campaign of 1896, edit., G. Whicher, (Boston: Heath,
1953), section by James A. Barnes quoting the Nation magazine, p. 25.
John D. Hicks, The Populist Revolt, (Univ. of Nebraska Press, 1961), p. 340.
Henry George 1896 N.Y. Journal interview, quoted by Henry George, Jr., Life
of Henry George, (New York: R. Schalkenbach Foundation, 1960), p. 558.
Gabriel Kolko, The Triumph of Conservatism, (Chicago: Quadrangle, 1967).
7 Kolko, cited above, pp. 18-22.
12
Studenski & Kroos, cited above, pp. 233-46.
I
Alexander Del Mar, History of the Precious Metals, (1902, repr., New York:
A.M. Kelley, 1969), p. 456.
14 William F. Hixson, The Triumph of the Bankers, (Westport: Praeger, 1993), p. 13.
'5 Leslie M. Shaw, Current Issues, (New York: Appleton, 1908), pp. 304-11.
'6 Milton Friedman & Anna Schwartz, A Monetary History of the United States,
1867-1960, (Princeton Univ. Press, Natl. Bureau of Econ. Res., 197 l), p. 150.
’7 Friedman & Schwartz, cited above, p. 161.
Studenski & Kroos, cited above, p. 252.
9
see Oliver M. Sprague, History of Crises Under the National Banking System,
(repr., New York: A.M. Kelley, 1968).
20 Friedman & Schwartz, cited above, p. 168.
21 Studenski & Kroos, cited above, p. 255.
22 Friedman & Schwartz, cited above, pp. l 80-185.
2' Kolko, cited above, p. 282.
24 Carroll Quigley, Tragedy and Hope, (New York: Macmillan, 1966), pp. 46-7, 53.
25Kolko, cited above, p. 190-215.
26 Eustace Mullins, The Federal Reserve Conspirac y, (New Jersey: Common
CHAPTER 20
The Federal Reserve System was poorly defined from the start. It
arose out of Aldrich's National Monetary Commission, which didn't
bother to define money. The System's objectives were not spelled out
carefully and its image differed considerably from its underlying poten-
tial. Publicly it continued the retrogression toward gold, away from the
advanced Greenback concept. More privately, it confused money with
credit, in the real bills doctrine. Prominent Democratic leaders such as
William Jennings Bryan and Robert LaFollette, the populist Senator
from Wisconsin, did not see where it would lead and were convinced to
support its passage because they thought parts of it would help farmers.
As the Fed's monetary engines were fired up to finance WWI, we
see as much confusion as conspiracy, right up to the Depression, as an
536 The Lost Science Of Money
Stock Exchange from July 31, 1914 until April 15, 1915 created an air
of emergency even before the U.S. entered the war. During WWI the
nation's railway system was nationalized, adding to the crisis atmos-
phere in which American values were cast aside - sometimes secretly -
and unconstitutional powers were handed over to Wall Street operators:
“...Woodrow Wilson did turn over this country to the worst elements
in it during the First World War. The American people were put in the
hands of three dictators, all three being Wall Street gamblers who had
never held any elective office in the United States,” wrote Mullins.
“Bernard Baruch, Eugene Meyer Jr., and Paul Warburg.. .exercised
more direct power over the American people than any president, because
back of these men was the strength of the financial oligarchy which had
maintained undisputed sway in this country since 1863...,” wrote
Mullins. He then cited an example of this power, in Baruch's own words:
“Baruch as chairman of the War Industries Board exercised dictato-
rial powers over American manufacturers. At the Nye committee hear-
ings in 1935, Baruch testified:
‘President Wilson gave me a letter authorizing me to take over any
industry or plant. There was Judge Gary, President of United States
Steel, whom we were having trouble with, and when I showed him that
letter, he said “I guess we will have to fix this up,” and he did fix it up.”’11
Eugene Meyer Jr., the son of the dominant partner of Lazard Freres,
was appointed at Baruch's insistence to the Chairmanship of the War
Finance Corporation and was later appointed Governor of the Federal
Reserve Board in 1931. Meyer handled the war finance of those agen-
cies and banks not under the control of the Federal Reserve System.
Meyer eventually bought the Washington Post newspaper, run by his
daughter Katherine Graham until her death in mid 2001.
Paul Warburg was the subject of a U.S. Naval Secret Service Report
of Dec. 12, 1918:
“Warburg, Paul, New York City. German. Naturalized American
Citizen 1911, was decorated by the Kaiser in 1912, was Vice Chairman
of the Federal Reserve Board, handled large sums furnished by Germany
for Lenin and Trotsky. Has a brother who is leader of the espionage system
of Germany,” related Mullins.12
BANK OF ENGLAND DICTATES AMERICAN
MONETARY POLICY IN THE 1920s
“...after W.W.I a close cooperation was established between the
Bank of England and. ..the Federal Reserve Bank of New York...largely
540 The Lost Science Of Money
due to the cordial relations existing between Mr. Montagu Norman of the
Bank of England and Mr. Benjamin Strong.. .On several occasions, the
discount rate policy of the Federal Reserve Bank of New York was guid-
ed by a desire to help the Bank of England,” wrote monetary historian
Paul Einzig.13
Fed Governor Leffingwell complained to the Washington Board:
“It is very painful for me to say but when Governor Strong got back
from London he told me that he had agreed on a program with the
Governor of the Bank of England. ..I regard it as exceedingly unfortunate,
in view of all that history, that this agitation of rates comes about when we
must raise $500 million every two weeks to keep from defaulting. 14
In January 1920, the Fed raised its discount rate by 1.25% to 6%. On
June 1, 1920 it was raised again to 7o/«. Wholesale prices, which peaked
in May 1920, fell 56% by June 1921. This was the sharpest decline in
U.S. history, and led to an unnecessarily severe depression in 1920-21.
That depression pushed American farmers into a financial crisis from
which they did not recover, even as the stock market later soared.
20a. On September 16, 1920 at 11:59 AM, a wagon carrying a bomb of dyna-
mite and scrap iron was detonated at Broad and Wall Street, killing 38 and
wounding hundreds. The driver had walked away and was never caught.
20 THE FEDERAL RESERVE WRECKED AMERICA 541
200
100 «
log. scale
41 2
(July)
20b. The Dow Jones Industrial Average really took off after the Bank of
England's influence was brought to bear on the Fed in 1926 to support
England's foolish gold standard poficy, a major cause of the Great Depression.
20 THE FEDERAL RESERVE WRECKED AMERICA 543
100 in 1914 to over 276 in 1920." Yet in 1925 the Bank of England
made the pound convertible into gold at pre-war parity levels and paid
out gold for paper at the old rate, which was not realistic; in fact it was
perverse.
The effects were not felt in England and Europe for a time because
the Federal Reserve System supported the Bank of England by keeping
interest rates low in America, encouraging the export of gold to
Europe. However, the U.S. money supply became progressively more
leveraged, being based on smaller reserves, and the low interest rates
helped to fuel the stock market bubble, driving prices up to unrealistic
levels, from which a collapse was likely.
H. Parker Willis confirmed the foreign source of the policy:
“In the autumn of 1926 a group of bankers. ..[met] in a Washington
hotel. One asked if the low discount rates of the system were not likely
to encourage speculation. ‘Yes’ replied the famous banker, ‘they will, but
that cannot be helped. It is the price we must pay for helping Europe. ’19
The Congressional “Stabilization” hearings of 1928 confirmed that
Europeans [i.e. the English] had determined the Fed's policy, especially
the testimony of Federal Reserve Board Governor Adolph Miller:20
Governor Miller: “I think we are very close to the point where further
solicitude on our part for the monetary concerns of Europe can be
altered. The Federal Reserve board last summer, 1927 [began].. .to ease
the credit situation and to cheapen the cost of money. The official
reasons for that departure in credit policy were that it would help stabi-
lize international exchange and stimulate the exportation of gold.”
Committee Chairman McFadden: “...Where did the suggestions
come from that caused this decision...?”
Governor Miller: “The three largest central Banks in Europe had sent
representatives to this country. There were the Governor of the Bank of
England, Mr. Montagu Norman, the President of the Reichsbank, Mr.
Hjalmar Schacht, and Professor Rist, Deputy Governor of the Bank of
France. These gentlemen were in conference with officials of the Federal
Reserve Bank of New York. After a week or two, they appeared in
Washington for the better part of a day...They came down the evening of
one day, and were the guests of the Governors of the Federal Reserve
Board the following day, and left that afternoon for New York.”
Chairman McFadden: “Was it a social affair, or were matters of
importance discussed?”
544 The Lost Science Of Money
“In March 1928, Roy A. Young, Governor of the Board, was called
before a Senate Committee. ‘Do you think the brokers’ loans are too
high?’ he was asked.
“I am not prepared to say whether brokers’ loans are too high or too
low,” he replied, “but I am sure they are safely and conservatively
made.”
“Secretary of the Treasury Mellon in a formal statement assured the
country that they were not too high, and President Coolidge, using mate-
rial supplied him by the Federal Reserve Board, made a plain statement
to the country that they were riot too high. The Federal Reserve Board,
charged with the duty of protecting the interests of the average man, thus
did its utmost to assure the average man that he should feel no alarm
about his savings. Yet the Federal Reserve Board issued on February 2,
1929, a letter addressed to the Reserve Bank directors cautioning them
against the grave danger of further speculation,” wrote H. Parker Willis,
who became much disillusioned with “his” Federal Reserve System.22
THE BANKERS WERE WARNED AGAINST “SPECULATION”
Then On February 6, 1929 four days after its warning to the 12
Federal Reserve Banks, the Board warned the system's member banks
that their purpose was not to finance speculation in the stock market
through loans on securities. But the New York FRB ignored the warning
and advertised the availability of another $25 million for brokers’ loans.
The System's monetary base had already been moving toward con-
traction. At the end of 1928 the System's holdings of U.S. bonds dropped
from over $600 million to only $230 million, having sold about $400
million of them in the open market during the year. They fell further to
$145 million in the first half of 1929. Since these holdings could be used
as reserves in the fractional reserve system, selling them could remove
multiples of that amount of money from circulation; or it would require a
more leveraged position, or substitution of other, inferior collateral.23
BENJAMIN STRONG WAS READY
Strong's correspondence of August 1928 showed an awareness of
the problem, and how to handle it:
“...the very existence of the Federal Reserve System is a safeguard
against anything like a calamity growing out of money rates. ..we (have)
the power to deal with such an emergency instantly by flooding the
street with money. ..the country is well aware of this.” Strong knew
20 THE FEDERAL RESERVE WRECKED AMERICA 547
THE CRASH
The great crash of 1929 was much more than an economic or mar-
ket phenomenon. It was life and death to hundreds of thousands of
human beings, about 36 million, if one includes the related World War II
casualties.26 The collapse spread from the U.S. to Europe and the rest of
the world, except China, which was on a silver standard, not a gold stan-
dard, and was hardly affected.
It was also an event of deep sociological importance because laissez-
faire ideas had ruled in the 1920s. But the crash made clear to virtually
everyone that “capitalism,” to the extent it was defined by the American
political, economic and market system, had fundamentally failed. That
is the history we have been in the process of unlearning; it is the his-
tory that we appear doomed to repeat once more.
MONEY SUPPLY PLUNGES IN
THE GREAT DEPRESSION
The really crucial data - the money supply figures - were not being
watched at the time. In fact, the figures were not being published in a
timely way and were not readily available. From August 1929 to March
1933 the U.S. money stock fell by one-third !
At the same time, the number of commercial banks fell by about
one-third. The first wave of bank failures came in October, 1930.
Another wave of failures hit in March, 193 t. Domestically, currency was
being withdrawn from the banks, depleting their reserves and creating a
multiple effect on the money supply. Externally, except for 1929 and
1930, gold was being withdrawn from the system by foreigners, having a
similar negative effect on the U.S. money supply.27
Today the money supply figures are watched but are not understood.
Thanks to confusion over the nature of money, the Fed's measurements
of the money supply are primarily measuring the credit supply. But cred-
it and money are two different things, and Fed Chairman Greenspan
admitted in recent testimony that he was having difficulty defining money.
BRITAIN FORCED TO ABANDON ITS
GOLD STANDARD FOLLY
Even after the crash, up to mid-1931, the Fed continued to support
the Bank of England's failing gold standard, extending loans to
European banks while denying them to domestic industry. In mid-1931,
the FRB of New York and other FRBs were buying commercial paper
from the Bank of England and the central banks of Austria, Hungary and
20 THE FEDERAL RESERVE WRECKED AMERICA 549
attribute much of the responsibility for the recent wave of bank fail-
ures.. 32
So the bankers were not trying to make loans and were calling in
existing good loans. Under the disastrous conditions created by the
banking system itself in confusing credit with money, and then using
their creation of that credit to fuel a speculative bubble, normal business
practices had utterly broken down when panic set in. The bankers were
scared to death and for good reason: they were operating a fractional
reserve system that had lost the confidence of its depositors.
Studenski and Kroos point out that those banks that survived were
the ones able to quickly convert their operations from fractional meth-
ods into deposit institutions. Thus the assets of surviving banks shifted
in two directions during the depression:
1) A sharp rise in the portion held in cash; and
2) A sharp rise in investments (mainly government bonds) relative to
loans. In 1929, 40% of bank investments were in government bonds. In
1933 it rose to over 50%.
But if banks are acting as deposit institutions, then some other entity
20c. The “Bonus Vets” of WWI gathered in Washington in 1932 at the depth
of the Depression, to petition Congress to pay the $1,000 bonus already
promised. It was a perfect way to make much needed increases in the money
supply but “conservatives” were again “worried about infla- tion” and
blocked it. On July 28, D.C. police clashed with the veterans.
General Douglas MacArthur then set their camps on fire.
552 The Lost Science Of Money
must create the money. The Federal Reserve refused to do it, and the
conservatives blocked Roosevelt from doing much.
THE BANKERS DIDN'T HELP END THE DEPRESSION
It was within the Fed's power to alleviate the tragedy. In 1929 about
37% of all the banks, controlling about 76% of all the banking resources,
were members of the Federal Reserve System. In August 1929 the
money stock was 10.6 times the gold reserves. By August 1931 the
money stock was only 8.3 times the gold reserves, and gold reserves
were falling. But the Federal Reserve System wouldn't use its
reserves.33 Why didn't they act decisively?
The first reason why the System failed to help the nation is that it
was not really set up to serve the nation's monetary needs. That would
have required a different structure - a nationally owned system, with
explicit societal goals aimed at promoting the general welfare. The
privately owned Fed was designed and set up to promote the short term
profits of the largest bankers, while taking minimal risks. That is ulti-
mately exactly what it did, as the system collapsed.
They never undertook to carry out the responsibilities to society that
this power implies and requires. Contrary to the present day misty-eyed
corporate ads prevalent on TV, which falsely portray a concern for their
social responsibilities to humanity, the essential method of large
American corporations is generally to grab privilege while denying
responsibility. They privatize profits and socialize losses. In the Great
Depression the bankers demonstrated that they felt little or no responsi-
bility towards the American people whose financial lives they con-
trolled.
The second reason for the Fed's dismal performance is that, as
a fractional reserve system, it depended on the public's confidence
in it. The Federal Reserve System could not restore that confidence.
The important monetary moves to get out of the depression came
from Congress, not the Fed. In April 1932, under heavy Congressional
pressure, the System embarked on large scale open market purchases of
about $1 billion in government bonds, injecting the new money into the
economy.
FOLLOWING ADAM SMITH TO THE DOORS OF HELL
The whole spectrum of erroneous ideas that made up Adam Smith's
free market ideology dominated American economics and politics of the
1920s. Of course a real free market, like a free society, cannot be created
20 THE FEDERAL RESERVE WRECKED AMERICA 553
20d. Mariner Eccles, with roots in the American West (Utah), became
Chairman of the Fed during the Depression, and brought a somewhat
less doctrinaire though apparently dour viewpoint to the job.
554 The Lost Science Of Money
that the false economic concepts held on the nation was equally dangerous.
Everyone was so sure that Adam Smith's erroneous ideas were correct.
A ROUGH CHANGE OF THE GUARD FROM
HOOVER TO ROOSEVELT
There was a four-month wait in the changeover to the new adminis-
tration. The laissez-faire viewpoint dominated America to such an extent
that Roosevelt, too, had advocated cutting spending and balancing the
budget. However, his monetary intentions were unclear. He realized that
a wider distribution of buying power was necessary for a recovery and
he had promised a “new deal” with vast social reforms.
In Hoover's final days, panicky gold withdrawals pressured the
banking system. The Federal Reserve asked Hoover to close the banks,
but he refused. The Republicans then tried to bluff Roosevelt into pub-
licly promising to continue the gold standard, as the only way to stop the
panic and avoid a banking collapse. But Roosevelt had other ideas.
Roosevelt chose a policy of economic and monetary nationalism,
putting the U.S. national interests above the cosmopolitan (internation-
al) objectives of “classical economics.” John Maynard Keynes had
developed an economic theory to support government deficit spending, to
boost economic growth during down periods. Fortunately the new
Chairman of the Fed, Marriner Eccles, agreed with Keynes and told a
Senate committee that the concept of a balanced budget was archaic. But
Keynes merely promoted a fiscal solution, not really a monetary solution.
KEYNES TO THE RESCUE?
In December 1933 at the request of the New York Times (with some
involvement of Supreme Court Justice Felix Frankfurter), English econ-
omist John Maynard Keynes wrote an open letter to President Roosevelt.
Keynes wisely advised Roosevelt that “Only the expenditures of public
authority” could turn the tide of depression. Well, that was obvious
enough!
However, Keynes inappropriately warned Roosevelt not to cre-
ate the money for this, but only to borrow it, and wrongly advised
him that there was already enough money in circulation, and that:
“increasing the quantity of money.. .is like trying to get fat by buy-
ing a larger belt.”
Several times, his letter attempted to influence Roosevelt to drop his
program of necessary reforms, and to concentrate on short range actions:
“...even wise and necessary reform may, in some respects impede
20 THE FEDERAL RESERVE WRECKED AMERICA 555
20e. A typical Depression era scene of unemployed men waiting in line for
free soup. It has become increasingly difficult to find such photos as the
modern whitewash of financial capitalism has gained strength.
While such expenditures would build the national debt and benefit
the bankers, some of the money spent would also build real infrastruc-
ture. Under a government money system, the U.S. could have as easily
created the money itself, and not have been saddled with the debt. Yet
even with this disadvantage, the nation's monetary system was so
starved for money, that this small government deficit spending helped
the situation.
As important as the work relief efforts, but less well known, were
Roosevelt's programs to assist farmers. The first was by executive order
in the 1935 Resettlement Administration, which became the Bankhead-
Jones Farm Tenant Act of 1937. “Supervised credit,” estimated at about
$2 billion, was successfully offered to bankrupt farmers from 1935 to
1940:
“Under provisions of the ‘supervised credit system’ we monetized.. .
the integrity and work skills of the family.. .a viable improved farm and
family business plan...improved technology into the farming operation
(and) utilized sound guides for re-appraising farm land,” wrote Lee
Fryer, who had been an agricultural finance officer. 37
During this period the gross Federal debt was:
1933 - $22.5 billion
1935 - $28.7 billion
1937 - $36.4 billion
1939 - $40.4 billion
1940 - $43.0 billion.
AT LEAST THE GOVERNMENT ACTED
Some still criticize the government's actions as being ineffective in
ending the Depression. In some ways they were. Remember, the reins of
monetary control were not in government hands, but in those of the
Federal Reserve. And since the depression had a monetary/banking
cause, it required a monetary solution. These critics ignore that and pre-
tend the Federal Reserve was/is a part of the government.
The government generally had to act indirectly, “borrowing money”
created by the Federal Reserve System to pay for its programs instead of
creating the money itself. In effect the Fed held a veto power over the
governments financial actions. This is just one reason why the monetary
power should never be alienated from our government.
ANOTHER GREENBACK IS NEEDED
It is clear from our presentation, especially Chapter 17, that the eco-
nomic destruCtlon cried out for another large issue of new Greenbacks
by the Federal Government. It is clear that this would have created rapid
progress toward recovery.
English economists, such as Keynes, had a small excuse for their
ignorance of the possibility of using Greenbacks - their nation had vir-
tually no tradition of governmentally created money since the late
1600s. Thus in Keynes’ 1930 Treatise on Money, there is no significant
560 The Lost Science Of Money
plan had called for giving young families money to set up their house-
holds. Some conservatives condemn Roosevelt as socialistic, for enact-
ing Social Security. But they have allowed a kind of ideological bitter-
ness to distort their consciousness and are not seeing this clearly. They
must also look at the real world effects of policies, not simply use ideol-
ogy to condemn. Would they attack Thomas Paine, father of the
American Revolution, as a socialist, for first proposing such a program?
Since the early 1970s the financial elite has incessantly worked to
destroy Social Security: first by convincing Americans that it won't be
there when they retire; second by pretending that Social Security has to
be funded by tax payments, when in reality it would be best to have the
money created directly by government, and paid to recipients.
HISTORIC COLLAPSE OF THE GOLD/SILVER RATIO
The Great Depression served up another classic monetary lesson in
the collapse in the price of commodity silver. The monetary theories of
Adam Smith, David Ricardo, Karl Marx, and of Von Mises and the
Austrians, all of which assert a commodity or quasi commodity nature
of money, are refuted by the reality of the silver collapse. This was the
second great collapse of the ratio; the first occurred from the 1870s when
silver was demonetized as described in Chapter 18.
Silver had dropped from $1.38 per ounce in 1919, to 44 cents an
ounce in 1932, down 75%. Since at that time gold was still $20.67 per
ounce, this meant that the ratio was at 47 to 1 instead of the old 16 to 1.
The reason for the ratio collapse was that gold's value was still pro-
tected by law. It demonstrated that legal forces, not market or economic
forces, determine the value of the precious metals. This is a crucial con-
cept to grasp.
The “sanction” of the law (and earlier the “sanctification” of the
Temple) was still valid for commodity gold, but had been withdrawn
from commodity silver. The law is what determined the ratio. The
sanction of the law is what determined the value of the precious met-
als as money.
THE SILVER PURCHASE PROGRAM
In December 1933 Roosevelt directed the U.S. mints to receive all
newly mined domestic silver and pay 65 cents an ounce. This increased
the money supply slightly by subsidizing silver mining. But the Silver
Purchase Act of June 1934 directed the Treasury to purchase all silver,
both at home and abroad, until the price reached $1.29 or the silver
564 The Lost Science Of Money
then fell to 157.3 in June 1950. But before accepting the economist's
assertion that big price rises must follow such money creation consider:
1) Would cars have been more or less expensive if the created money
had gone to build millions of new cars instead of military jeeps, trucks
and tanks? Less.
2) If the money blown away on shells, airplanes and sunken ships
had been spent on housing and consumer appliances, wouldn't that have
lowered the cost of those items? Yes.
3) Had the billions wasted on innumerable campaigns of destruction
gone instead into modernizing American plant and equipment, wouldn't
that help keep the cost of goods low for many years to come? Yes, etc.
4) And aside from economic production, don't forget about the dead,
not just the loss of their future production, but the devastation of their
families.
In other words, channeling the new money into production
rather than destruction would have tended to create value, keep
prices down, and not required unnecessary loss of life.
THE “GI” BILL AND THE MARSHALL PLAN
Two important governmental programs for rebuilding after WWII
should be noted - the Marshall Plan to rebuild Europe, and the GI Bill
for the United States. The Marshall plan was funded at only $12 billion,
but had a positive effect, many multiples of that. The GI Bill provided
funds for education to the hundreds of thousands of returning soldiers,
who would become engineers, architects, scientists and teachers.
Though funded at $14 billion, the actual cost can be considered to be less
than zero, considering the productive abilities released and the many bil-
lions in taxes the government would collect on that. The GI Bill of
Rights was said to have finally achieved (within a more limited group)
many of the objectives Roosevelt had attempted earlier.
PROPAGANDA TO RESURRECT CAPITALISM'S
MORAL STANDING
Philosophically, the 1920s had been an orgy not only of speculation,
but of so-called “free market” policies. It had been a time of the belit-
tlement of government and a trusting belief in laissez-faire Capitalism
and markets to serve mankind. The crash and depression put an end to
that. Roosevelt's inaugural address in March 1933 had made it clear:
“...the rulers of the exchanges of mankind's goods have failed
through their own stubbornness and their own incompetence, have
20 THE FEDERAL RESERVE WRECKED AMERICA 567
Novarum (On the Condition of Workers) which was the Church's initial
effort at spiritual guidance in the modern industrial economy.
While the 1891 Rerum Novarum did call for justice to workers, it
gave the impression of being more concerned with protecting the status
quo of property relations and the social order. It indirectly attacked
reformers such as Henry George. Remedies were to be left to charity!
But Quadragesfmo Anno of 1931 was a different matter entirely and
represented a major shift toward real justice. No longer would the
Church automatically provide easy moral support for powerful systems
and rich individuals doing evil under cover of “conservative” economic
theory:
“(71) In the first place the worker must be paid a wage sufficient to
support him and his family.”
“(88) The right of ordering economic life cannot be left to a free
competition of forces. ..(this poison spring destroys) through forgetful-
ness or ignorance the social and moral character of economic life, (and
holds) that economic life must be...altogether free from and independ-
ent of public authority, because (the) market. ..principle of self direc-
tion.. .governs it much more perfectly than would the intervention of any
created intellect. But free competition. ..cannot direct economic life - a
truth. ..more than sufficiently demonstrated.”
Pius XI then addressed some key monetary matters:
“(105).. .it is obvious that not only is wealth concentrated in our
times but an immense power and despotic economic dictatorship is con-
solidated in the hands of the few.. .”
“(106) This dictatorship ffi being most forcibly exercised by those
who since they hold the money and completely control it, control credit
also and rule the lending ofmoney. Hence they regulate the fiow...of the
life-blood whereby the entire economic system lives, and have so firmly
in their grasp the sotil...of economic life that no one can breathe
against their will. 44
The encyclical pointed out with foresight in 1931 that this financial
system was inexorably moving towards warfare:
“(107) This concentration of power and might. ..lets only the
strongest survive. ..those who fight the most violently, those who give
least heed to their conscience. ..,”generating three kinds of conflict:
“First there is the struggle for economic supremacy itself (then) the
bitter fight to gain supremacy over the state in order to use in economic
struggles its resources and authority; finally there is conflict between
570 The Lost Science Of Money
states themselves.”
Very significantly, while noting the importance of charity,
Quadragesimo Anno suggested that juridical actions - legislative remedies -
were also called for. This represented an important shift towards real
reform. Although the church moves very, very slowly, when the theme
matures, events could move with proper speed as they did in England
after the War.
CHURCH OF ENGLAND DE-FANGS THE BANK OF ENGLAND
While the Catholics in America faced great difficulty translating
these ideas into practice, not so the Anglicans in England. Perhaps two
world wars and a worldwide depression all in less than 35 years, were
enough. The Church of England took the greatest monetary initiative of
the 20th century when it called for the nationalization of the Bank of
England. Using typical English understatement, but making one of the
most morally important public pronouncements on the Money Power of
this or any other century, the Archbishop of Canterbury wrote:
“In the case of money, we are dealing with something which is han-
dled in our generation by methods that are extremely different from
those in vogue a century or half century ago. When there was a multi-
tude of private banks, the system by which credit was issued may have
perhaps been appropriate, but with the amalgamation of the banks we
have now reached a stage where something universally needed - name-
ly money, or credit which does duty for money - has become in effect a
monopoly...
The private issue of new credit should be regarded in the modern
world in just the same way in which the private minting of money was
regarded in earlier times. The banks should be limited in their lending
power to the amount deposited by their clients, while the issue of newer
credit should be the function of public authority.
This is not in any way to censure the banks or bankers. They have
administered the system entrusted to them with singular uprightness and
ability and public spirit. But the system has become anomalous, and, as
so often happens when anomaly has persisted through a long period of
time, the result is to make into the master what ought to be the ser-
v«n/.” Reverend William Temple,
The Archbishop of Canterbury,
London, September 26, 194245
The Bank of England was nationalized in 1946. The Catholic
Church could learn a lot from this courageous act of its younger off-
spring. But unfortunately it was no longer in England, but in America
where the problem was now concentrated. The nexus of financial control,
572 The Lost Science Of Money
which had earlier jumped from Holland to England, had once again
shifted westward, to the United States. But it cannot move westward
again.
To summarize, In less than 20 years the Federal Reserve brought our
money system, banks, exchanges and economy to utter ruin. The “fear
of inflation” argument, used as an excuse for the bankers to do nothing
positive, was carried to an absurd level in the middle of the century's
worst deflation.
Again, it was government, not the banks, that rescued the situation.
The crash also momentarily woke the Catholic hierarchy. The Pope con-
demned the money system as a financial dictatorship, and the Anglican
hierarchy paved the way for nationalizing the Bank of England.
Bankers allowed a large creation of new money only when it was
devoted to warfare, not the creation of values for life. Later their propa-
ganda whitewashed what financiers had done, shifting the blame onto
government, the organization that did most to mend the financial
destruction.
The “free market” culture prevalent in the 1920s was re-established
thanks in large part to the polemic writings of Ayn Rand, and the
Austrian economists. The nations exchanges circumvented the regula-
tions put into place by government, to stop another crash. They did this
by u ng derivatives” and by pressuring the Congress to remove the
20 THE FEDERAL RESERVE WRECKED AMERICA 573
Notes to Chapter 20
l Frederick Soddy, The Arch Enemy OfEconomic Freedom, (London: self pub-
lished, 1943), p. 6.
2 Eustace Mullins, The Federal Reserve Conspiracy, (New Jersey: Common Sense
Milton Friedman & Anna Schwartz, A Monetary History of the United States,
1867-1960, (Princeton Univ. Press, Natl. Bureau of Econ. Res., 1971), p. 698.
Friedman & Schwartz, cited above, pp. 196-210.
10 Studenski & Kroos, cited above, p. 329.
I
' as quoted by Mullins, cited above, pp. 51-60.
2
' Mullins, cited above, pp. 50-60.
13 Paul Einzig, The Fight for Financial Supremacy, (London: Macmillan, 1931).
14 Lester V. Chandler, Benjamin Strong, Central Banker, (Washington: Brookings,
and Peace, 1974), on page 25 quotes Ernest & Trevor Dupuy's Encyclopaedia of
Military History, (Harper and Row, 1970, p. 1198).
2* Friedman & Schwartz, cited above, p. 299.
2 Friedman & Schwartz, cited above, p. 345, footnotes quoting Harrison,
'2 Friedman & Schwartz, cited above, p. 457, quoting the Report on the
Availability of Bank Credit in the Seventh Federal Reserve District, Submitted
to the Secretary of the Treasury, GPO, 1935, pp. vi, 3.
33 Studenski & Kroos, cited above, pp. 336-43.
34 Studenski & Kroos, cited above, pp. 334-40.
35 Historical Statistics of the United States, Colonial Times to !970, (Washington:
U.S. Dept. of Commerce, Census Bureau, 1975), Series K 361- 375, Series K
256-285, Series K l-16.
36 Studenski & Kroos, cited above, pp. 350-400.
37 Lee Friar, Rejections, in The Economics of Convulsion by Harold E. Wills
and Charles Walters Jr., (Kansas City, Mo: Acres USA, 1992), pp. 107-13.
Thomas Paine, Agrarian Justice, Paris, 1797, The Writings Of Thomas Paine,
Vol 3, edited by M. D. Conway, (New York: AMS Press, 1967), pp. 332-38.
Studenski & Kroos, cited above, p. 436.
40 Studenski & KrOos, clted above, p. 455.
41 Alan Greenspan's Gold & Economic Freedom essay in Ayn Rand's
Dobson, 1948), p. v.
575
CHAPTER 21
GERMANY'S 1923
HYPER-INFLATION UNDER
A PRIVATE CENTRAL BANK
residence and left the countryside to spend at least part of the year near
him. This formation of capital towns spurred the division of labor.
Because Germany had no central monarchy, no capital city formed there;
nor did as much division of labor develop in the later medieval period.
Thus Germany was late to centralize.
In 1815 Germany had what could be considered a centralized national
state with the formation of the German Federation. The major “German”
finance houses of the medieval period had been quick students of Italian
finance methods at Venice's German compound, the Foundacio De
Tedeschi. Some, like the Fuggers of southern Germany, had grown to
international prominence as factors in financing the election of emperors.
However, Portugal's opening of the Cape Route around Africa shat-
tered geopolitical relations and from the 16 th century Germany's relative
importance declined as a middle station in East-West trade. The Cape
Route to India circumvented them and shifted power away from Venice
and the Mediterranean up to the North Sea area, as described in Chapters 6
and 8.
BAGHDAD RAILWAY
Germany began altering that situation in 1900 when the Deutsche
Bank financed construction of the Turkish-Baghdad Railway. This
meant German industry, already linked to Istanbul (the “Orient Express”
line) could be directly linked to further eastern markets, circumventing
Britain's naval supremacy. The reformation historian Tawney confirms
the importance of this link and Hjalmar Schacht, one of 20 t' century
Germany's key financial figures, noted that this railway really “irked”
England.
There are other reports of British concern over German dynamism.
Francis Neilson, a former British Member of Parliament and author of
The Makers of War presented the viewpoint that England's old boy net-
work didn't consider itself up to competing with Germany industrially.
In 1907 the widely respected American diplomat Henry White was
instructed to ascertain British views. He met with his friend Arthur
Balfour. White's daughter “overheard” (probably White's way of not
directly violating secrecy pledges) one of White's conversations with
Balfour as follows:
“Balfour (somewhat lightly) ‘We are probably fools not to find a
reason for declaring war on Germany before she builds too many ships
and takes away our trade.”
21 GERMANY'S 1923 HYPERINFLATION UNDER A PRIVATE BANK 577
White: ‘...If you wish to compete with German trade, work harder.’
Balfour: ‘That would mean lowering our standard of living. Perhaps
it would be simpler for us to have a war.’
Balfour, reacting to White's shock ‘Is it a question of right or
wrong? Maybe it is just a question of keeping our supremacy.””
CORRUPT DIPLOMACY
European heads of state were still largely hereditarily selected.
Court intrigue and the system of secret treaties played a large role and
lent itself to warmongering. According to then member of Parliament,
Francis Neilson, the British Parllament had not been informed that
England was committed to a continental war to defend France, if necessary.2
Adding to the problem, the Schlieffen Plan for the emergency military
mobilization of Germany did not allow time for diplomatic negotiations.
Thus the assassination of Austrian Archduke Ferdinand in Sarajevo by
anarchists was given the power of a trigger in starting World War One.
THE ECONOMIC SIEGE
Alfred E. Zimmern's rare 13-page monograph The Economic
Leapor,' written during World War I, deserves attention because of its
content and its source. According to Professor Carroll Quigley, Zimmem
was part of ati elite group which he called the “Anglo American
Establishment. 4
Zimmern sums up the situation on page one:
“What is the economic situation? It can be stated in one sentence:
“The Central Powers are being besieged by practically the entire world
and they have no means at their disposal for bringing the siege to an end.”
Zimmem pointed out that this was the first time in history that such a
large siege had been attempted, and Germany didn't think it was possible. “In
December 1915 the Chancellor remarked ‘Does anyone seriously believe
that we can lose the war on account ofa shortage of rubber?’ Germany's war
preparations were made on an estimate “of a war of one year's duration
at the outside.”
Then Zimmern indicated what was planned for Germany:
“What will happen in the normal course when peace is signed?.
..will the cessation of the physical blockade of German harbors by itself
involve the raising of the siege?.. .But without raw materials there can be
no industrial employment; and demobilization without employ- ment
ready to hand for the disbanded soldier spells social disorder. ..The
578 The Lost Science Of Money
Hjalmar Schacht:
“The Treaty of Versailles is a model of ingenious measures for the
economic destruction of Germany,” adding:
“Every natural economic advance, every step toward the restoration
of economic confidence was made impossible by the influence of the
foreign political factor. 8
Further complicating matters, immediately after the surrender, on
November 9, 1918, the threatened leftist/communist coup was carried
out, when the Revolutionary Council of Commissioners of the People
overthrew the German government and temporarily took power.
MONETARY DESTRUCTION OF GERMANY
England had financed 20% of WWI through taxation; France 0%;
and Germany 6%. Schacht wrote that Germany's money supply rose
from 7.2 Billion Marks in December 1914, up to 28.4 Billion Marks on
November 7, 1918, the end of the open warfare. This meant that the cir-
culation went from 110 to 430 marks per person.
An index of wholesale prices had risen from 100 in 1913 to 234 in
late 1918, performing close to British indexes. The effect on working
people was cushioned as the index of workmen's wages rose from 100
to 248 during the period.9 Thus the 1st World War seriously damaged but
didn't destroy Germany's money system. That came under the occu-
pying forces.
GERMANY’S 1923 HYPER-INFLATION BY A
PRIVATE CENTRAL BANK
The great German hyper-inflation of 1922-23 is one of the most
widely cited examples by those who insist that private bankers, not gov-
ernments, should control the money system. What is practically
unknown about that sordid affair is that it occurred under the aus-
pices of a privately owned and controlled central bank.
Up to then the Reichsbank had a form of private ownership but with
substantial public control; the President and Directors were officials of
the German government, appointed by the Emperor for life. There was a
sharing of the revenue of the central bank between the private share-
holders and the government. But shareholders had no power to deter-
mine policy.10
The Allies’ plan for the reconstruction of Germany after WWI came
to be known as the Dawes Plan, named after General Charles Gates
Dawes, a Chicago banker. The foreign experts delegated by the League
580 The Lost Science Of Money
since the Versailles Treaty required payment in U.S. Dollars and British
Pounds, the inflationary disorder actually made it much harder to raise
such foreign exchange.
Hjalmar Schacht's 1967 book, The Magic of Money, presents what
appears to be a contradictory explanation of the private Reichsbank's
role in the inflation disaster.
First, in the hackneyed tradition of economists, he is prepared to let
the private Reichsbank off the hook very easily and blame the govern-
ment's difficult reparations situation instead. He minimized the connec-
tion of the private control of the central bank with the inflation as mere
co-incidence:
“The Reichsbank upon which this responsibility (to control infla-
tion) fell could not make up its mind to take action. It held the view that
it was useless to attempt to stabilize the currency so long as the Ruhr was
occupied and the war debts remained unfixed.” Schacht lamented:
“[The] ever growing extent the Reich had to resort to the Reichsbank
if it was to prolong its existence, and because the point at issue was the
survival of the Reich, the Reichsbank did not regard itself justified in
refusing even after the passing in 1922 of the law which gave it formal
autonomy. The legislation of 1922, which was intended to free the
Reichsbank from the claims of the state, came to grief at the decisive
moment because the Reich could not find any way of holding its head
above the water other than by the inflationary expedient of printing
banknotes. 14
In other words they did it to save the government, assumedly making
the new issues of Reichsmarks available for government expenditures.
THEN SCHACHT GIVES THE REAL EXPLANATION
Schacht was a lifelong member of the banking fraternity, reaching
its highest levels. He may have felt compelled to give his banker peers
and their public relations corps something innocuous to quote. But
Schacht also had a streak of German nationalism, and more than that, an
almost sacred devotion to a stable mark. He had watched helplessly as
the hyper-inflation destroyed “his mark.”
For whatever reasons, after 44 years he proceeded to let the cat out
of the bag, with some truly remarkable admissions, which shatter the
“accepted wisdom” the Anglo-American financial community has prom-
ulgated on the German hyper-inflation. But first, some monetary back-
ground to the events of 1923 are needed. Schacht gives the details.
584 The Lost Science Of Money
the Reichsbank issued Rentenmark credits. But the Rentenbank was not
truly independent of the Reichsbank, through various regulations.
SCHACHT PUT IN CHARGE OF STABILIZING THE MARK
Schacht, with 23 years of banking experience, agreed to be made the
government's Commissioner of Currency, a new position created to sta-
bilize the currency. At the time, monetary theorists such as Helfferich
were arguing that the German State wasn't powerful enough to “create
money that would command public confidence and that only the busi-
ness elements of the country acting of their own free will were compe-
tent to accomplish this task.”15 Schacht knew better.
THE GOVERNMENT STABILIZES THE CURRENCY
It took time to convince the population that the new currency would
not be over-issued:
“The invention of the Rentenmark did not stabilize the mark, the
battle for stabilization continued for a year, passing through many a dif-
ficult phase,” Schacht wrote, asserting that it was not the Rentenmark
but the subsequent credit restrictions on how many were created, that
stabilized the currency.16
The formal structure of the Reichsbank had apparently not been
altered in this stabilization period, but it was clearly the government and
society that now actively exercised the monetary control:
“The concurrent political and economic difficulties of the Reich
threatened rapidly to culminate in a catastrophe, when the government at
length braced itself to the resolve to take into its hands once more the
control of the destinies of the German people. In this policy the princi-
ple item was the endeavor to stabilize the mark. 17
The Rentenmarks were put into circulation in three days, from
November 15, 1923. They were not legal tender. There was no fixed
relation to the fallen Reichsmark, and the Rentenmarks could not be
used for international payments.
Schacht stopped all other money issuers and sent all Reichsbank
holdings of private money back to their source for immediate payment,
despite great howls of pain from all those private moneyers.
The Rentenmarks were expressly forbidden to be transferred to for-
eigners. This meant that speculators could not trade them for foreign
exchange to support their speculations when prices went against them.
Schacht's initial actions thus crushed the speculators, a necessary first
586 The Lost Science Of Money
“...not only the United States but other countries as well have large
vested interests in gold. The British Empire alone accounts for nearly
half of the gold output of the world, and in many other countries gold is
an important national asset. These countries would not look with favor
upon the displacement of gold as a monetary metal‘, and even in the
event of political changes resulting from the war these vested interests
will remain, though possibly shifted to other national jurisdictions. 41
The reader will notice that these “vested interest” countries were the
ones that warred with “goldless” Germany. De Fremery thought this
could have been one of the causes of the Second World War. However,
that decision may have been made earlier, and itself led to Germany
being without gold. Perhaps she was expected to borrow gold interna-
tionally, and that would have meant external control over her domestic
policies. Her decision to use alternatives to gold, would mean that the
international financiers would be unable to exercise this control through
the international gold standard, as described in Chapter 22, and this may
have led to controlling Germany through warfare instead.
SCHACHT ATE SOME CROW OVER FEDER MONEY
Schacht clearly had to “eat crow” and swallow his own words as
regards the new monetary issues that he earlier condemned. Thirty yeafs
later he justified his change of theory:
“ . .it was repeatedly asked whether the success of the MEFO bill
scheme did not mean that whenever there was a shortage of capital sav-
ings one could compensate by replacing such capital savings with cred-
its granted by the central bank, and thus by money specially granted for
the purpose. The English economist J.M. Keynes has delt with the prob-
lem theoretically, and MEFO transactions prove the practical applicabil-
ity of such an idea. 42
But Schacht insisted that certain conditions must exist. There had
been no stocks of raw materials; factories were empty; machines were
idle and 6 U2 million willing men were unemployed: “The capital which
could be expected to result from such developments (putting men to
work) was used in advance to grant credit through the MEFO transactions.’ 3
One could not ask for a more dramatic contradiction of the English
school's interpretation. This leaves that school without any valid histor-
ical justification for its anti-government prejudice concerning the control
of money systems. However, the author does not expect this to alter their
monetary stance against the public interest.
21 GERMANY’S 1923 HYPERINFLATION UNDER A PRIVATE BANK 601
Notes to Chapter 21
l
Allan Nevins, Henry Mite. Thirty Years ofAmerican Diplomac y, (New York:
Harper Bros., 1930), pp. 257-58.
2 Francis Nielsen, The Makers of War, (Appleton, WI: Nelson Publishing Co.,
Prof. Carroll Quigley, The Anglo American Establishment, (New York: Books In
Focus, 1982).
5 Konrad Heiden, The Fuerher, (Boston: Houghton Mifflin, 1944, written 1934), pp.
639-49.
6 Robert Lansing, The Peace Negotiations, (Boston: Houghton Mifflin, 1921),
pp. 272-75.
7 Francisco Nitti, The Wreck ofEurope, us quoted by Nielsen, cited above, p. 151.
Hjalmar Schacht, Stabilization of the Mark, (London: George Allen & Unwin,
1927), pp. 46-51.
Schacht, cited above, pp. 10—25.
0 Schacht, cited above, pp. 116-7.
1' Schacht, cited above, pp. 116-7.
12
Schacht, cited above, p. 50.
13
Schacht, cited above, pp. 50-51.
4
' Hjalmar Schacht, The Magic of Money, (London: Oldbourne, Trans. P.
Erskine, 1967), pp. 65-6.
'5 Schacht, Stabilization of the Mark, cited above, p. 84.
16
Schacht, The Magic of Money, cited above, p. 68.
17
Schacht, Stabilization of the Mark, cited above, p. 89.
I
Schacht, Stabilization of the Mark, cited above, p. 112.
19 Schacht, Stabilization of the Mark, cited above, p. 102.
Unwin, 1934, repr. New York, Howard Ferbig, 197 l), p. 59, 92.
33 Stephen M. Roberts, The House that Hitler Built, (New York: Harper Bro., 1938),
pp. 146-7.
°4 Heiden, cited above, p. 662.
35 Roberts, cited above, pp. 160-163.
CHAPTER 22
INTERNATIONAL
MONETARY
ORGANIZATIONS
“There is no international law of money
and there can never be one...for the law of money
is an important part of domestic law.”
Alexander Del Mar, 1899
standard in the 19th and early 20th centuries. Since the system was adver-
tised as “automatic,” little need was recognized (except by those who ran
it) for organizations or government to administer it.
Those benefiting from control of that system used their power of the
purse to effectively dominate the schools of economics, assuring that the
economists trained there would be “fixed” regarding those concepts. A
trusting belief in the workings of the gold standard was so well
entrenched that a remnant of it continues today, especially among con-
servative and religious groups, which can be characterized as well mean-
ing, but monetarily illiterate.
But all of the plausible sounding gold standard theory could not
change or hide the fact that, in order to function, the system had to mix
paper credits with gold in domestic economies. Even after this addition,
the mixed gold and credit standard could not properly service the grow-
ing economies. They periodically broke down with dire domestic and
international results.
The worst such breakdown, the Great Crash and Depression of
1929-33, described in Chapter 20, can be traced directly to England's
gold standard moves from 1925 to 1931; and this breakdown occurred in
peacetime. China was not on the gold standard and was hardly affected
at all by the Great Depression. It was widely noted that those countries
did best that left the gold standard soonest.
THE PROBLEM OF INTERNATIONAL PAYMENTS
The problem originates in the nature of money as a creature of the
legal system. This makes money a national rather than an international
instrument. Because international law is still very limited, so is the pos-
sibility of lnternational money at this time; but that could change rapidly.
Several diverse observers have noted the “nationality” of money:
Alexander Del Mar commented on this limitation in most of his mone-
tary writings. In 1967, Hjalmar Schacht observed, “There is no such
thing as an international currency. 2 But just two years later the
International Monetary Fund (the IMF) introduced the SDR (Special
Drawing Rights), which is intended as a kind of international money
reserve for governments.
EARLIER EXAMPLES OF INTERNATIONAL PAYMENTS
Egypt had a central banking system that could effect payments
through branches in various cities. In its near-2,000 year history, Rome
never used a central banking system within its territory, and the Old
22 INTERNATIONAL MONETARY ORGANIZATIONS 605
THE INTERNATIONAL
GOLD STANDARD
“Gold may not be capricious, but the men who
manipulate gold between countries are capricious.”
Robert de Fremery3
After England demonetized silver in 1816, the Latin Monetary
Union followed in the 1860s (see Chapter 18). So we consider that the
international gold standard dominated from the mid-1800s to 1931.
However, it was well recognized that international trade was almost
entirely an exchange of goods. In theory, when a country's imports and
exports got out of balance, it would have to import or export gold to
bring them into balance. For example, if a country imported more than
it exported, enough gold to make up the difference would be shipped
abroad. In theory this kept imports and exports in line:
“Any important dis-equilibrium in the balance of trade will cause
gold to flow, and the movement of(gold) will set in motion forces which
remove the initial cause of the disturbance.”
That's how a 1935 study of British gold movements by W.E. Beach
phrased it. The original theory held that these “forces” worked by chang-
ing the price level of goods and services in the country that was out of
balance. With less gold in the country, in theory prices would fall, caus-
ing exports to rise, leading to a balance in trade.4
However, the theory was later altered when it was learned through
investigation of the facts that there was not always the expected correlation
606 The Lost Science Of Money
between prices and exports - that for some periods high exports co-
incided with high prices for goods. The justifying theory of the gold
standard called for the opposite.
The theory was adjusted yet again to include the fact that the level
of bank credit in a country might be altered, at least temporarily, to make
up for gold expons. As late as 1982, a symposium of economists could
not really agree on how the gold standard system had functioned.
However, they did agree that the international gold standard was not
automatically adjusting, and though they are not quite certain how it
worked, they realize it didn't function in the advertised manner.5
At its base the international gold standard attempted to attribute an
objective value to gold. This made gold a kind of fetish and did not ade-
quately take into consideration that the value of gold itself was not
objective and fixed, but was variable.
Nor did it take into account the value that legal actions imparted to
gold. More simply stated, the gold standard theory was based on a false
concept of money's nature.
THE GOLD STANDARD GIVES FOREIGN BANKERS
LOCAL CONTROL
There is one indisputable aspect of the international gold standard
that economists recognized but ignored: the control of a country's inter-
nal credit policy - whether there would be contraction or expansion - was
ultimately in the hands of those who could move gold into or out of the
nation. So long as a country's balance of payments were cleared through a
gold standard system, forces outside the country could quietly bring on a
depression and thereby a (likely) change of government within the
country.
WORLD WAR I LEADS TO THE BANK FOR INTERNATIONAL
SETTLEMENTS (THE BIS)
The unprecedented level of horror endured in the first World War
gave strength to movements toward international law, that for better or
worse found expression in the League of Nations. WWI also led to the
formation of the first truly international monetary organization, the Bank
for International Settlements, known as the BIS, which was organized as
a result of suggestions by the Experts Committee on German WWI
Reparations as a way to facilitate reparation payments.
As the first international monetary organization, the BIS was not
organized as an authority superior to central banks, nor was it to engage
22 INTERNATIONAL MONETARY ORGANIZATIONS 607
One change the Bank made was to actually engage in the banking
business, but as a bank whose depositors are confined almost exclusively
to central banks. As such, the Bank holds a significant part of the
world's foreign exchange reserves; 113 billion dollars in such
deposits were held in March 1997, representing 7oZ«of all foreign
exchange reserves. It is also probably the world's largest single hold-
er of gold.
Though the BIS states that it doesn't advance money to governments
or open accounts in a government's name, most of the BIS deposits are
held in short term government securities.
MONEY CREATION POWERS
The BIS has no formal money creation powers, and is not a bank of
issue. However, Paul Einzig, writing in 1930, noted that conservatives
were alarmed that the BIS would become an instrument of great infla-
tion by creating excessive credits to central banks, based on fractional
reserves. That is, it would credit the central banks with several times
their deposits; and those credits would then be used as further reserves
by the central banks to create more money, etc.6 Only conservatives
could worry about inflation during the 20th century's worst deflation.
Of course it didn't work out that way. But it can be mentally filed
away that this potential engine for money creation in the form of the BIS
still exists out there, and under proper regulation, the author would con-
sider that a good thing in the present deflationary environment. If, that
is, the bank could be placed under public authority.
The Bank promotes itself as an important meeting place for central
bankers to “Facilitate international co-operation in areas of common
interest in particular as regards to monetary matters and support to the
international financial system,” especially its stability. It devotes a sig-
nificant effort to research and statistical work in the area of internation-
al loans; and more recently it has directed its attention to the volatile and
potentially de-stabilizing trading in financial derivatives.
In the 1988-1992 period, it fostered an international agreement
on how to evaluate the adequacy of a bank's capital and set mini-
mum requirements that internationally operating banks are expect-
ed to follow. These “regulations” are now having a greater effect on
how banks operate than is realized - arguably more than local regu-
lators have.
In 1996-97, an additional nine central banks from Asia, Latin
22 INTERNATIONAL MONETARY ORGANIZATIONS 609
America and the Middle East were admitted into the organization, bring-
ing the total BIS membership to 41 central banks. The administration of
the Bank includes an annual general meeting held the 2nd Monday in
June. It has a Board of Directors drawn from 11 major industrial coun-
tries and there is a management and staff of nearly 500 people from 27
countries.
The BIS as an organization tended to look backward toward gold.
Thus it would be the more forward looking IMF which became central
to international monetary developments between 1945 and 1973.
THE INTERNATIONAL
MONETARY FUND
For the second time in the 20th century, European regimes proved
unable to stop the forces that warmongers unleashed upon them, deci-
mating their people and nations in WWII. Power over international
finance flowed to the Federal Reserve System, as American industry sup-
plied both sides during most of WWI, and the Allies during WWII. Almost
sixty percent of the West's monetary gold was in New York at the end of
WW2.
Confident of victory, planning for the post-war monetary system
began in 1941. The central institution of this reform would not be the
BIS but the International Monetary Fund (IMF), which took shape at the
1944 conference at the Hotel Mount Washington in Bretton Woods, New
Hampshire. Seven hundred and thirty persons descended on the hotel for
the conference.
The Englishman John Maynard Keynes, whose theories had encour-
aged governments to borrow money to get out of the Great Depression,
wanted to go all the way and create an international central bank - a cen-
tral bank of central banks - with the power to create money and interna-
tional reserves based on a new monetary unit which he called the
“Bancorp.” But world conditions were not ready for this. In practice it
would require the member states to give up a part of their sovereignty to
the new central bank, and it was unrealistic to expect the U.S. to cede
sovereignty - to give up power - just when it had emerged as the world's
only financial superpower.
The IMF would be much more limited. Formulated mainly by the
61 0 The Lost Science Of Money
creating world reserves. First they could be used to create dollars, then
those dollars could be used as reserves to create other currencies. So at
least twice as much money would be created worldwide than if gold
alone were the reserve. The IMF was a mixed system of gold and a priv-
ileged paper dollar.
This was a “gold-exchange standard,” similar to that which emerged
from the 1922 Genoa Conference. In the 1920s the U.S. Dollar and the
British Pound were maintained convertible to gold by their central bank-
ing systems, while other European currencies were convertible not to
gold, but to the Dollar and the Pound. Thus the term “gold-exchange
standard” was a more accurate description than gold standard.
The paper nature of the system was slightly hidden because the
United States (and only the U.S.) undertook to maintain the dollar con-
vertible into gold for other members, at $35 per ounce.
But from the founding of the IMF, U.S. gold holdings were in a
downward trend, until they reached a level around $11 billion in 1971,
at the $35 valuation. It can be argued therefore that this system was
never really functioning as a sustainable gold based system, but began
“running out of gas” right from the start.
Use of the dollar for reserves by other central banks allowed the U.S.
to run large balance of payments deficits, prompting leaders like Charles
De Gaulle to attack Dollar Imperialism - the use of American dollars to
buy up European assets in the 1960s.
FLOATING RATES
The parity system broke down on August 15, 1971 after the Gold
Pool and U.S. gold reserves proved inadequate and President Nixon
closed the “gold window,” refusing to honor the commitment to
exchange dollars for gold. This was the end of the Bretton Woods agree-
ment, but the IMF continued. From March 1973 the exchange rates of
various major industrial currencies floated, with smaller countries’ cur-
rencies pegged to larger ones. Monetary theorists such as Robert de
Fremery, and several economists such as Friedman, Haberler and
Meade, had advised using floating rates for years, and they seemed to
function well.
SPECULATORS UNDERMINE THE IMF
The speculation problem began with gold and the way the “Gold
Pool” allowed private speculators to take risk-free positions speculating
in gold against the U.S. dollar. In 1968, Xenophon Zolotas, Greece's
22 INTERNATIONAL MONETARY ORGANIZATIONS 613
foremost monetary scholar, warned in The Gold Trap and the Dollar that:
“...the financial set up of the world - and thereby its freedom of
trade and economic prosperity - has become subservient to the interests
of gold speculators and hoarders. As a result more and more experts
agree on the necessity for gold to be phased out. 9
70 Billions of
U.S. $
50
30-
U.S. Monetary gold
20•
Rest of world's
Monetary gol
10.
$ liabilities held by foreign
monetary authorities
' I I IN T I I I I I II UI I I I U I I I I I I
1945 1950 1955 1960 1965 1970
22b. An examination of U.S. Gold reserves shows the system under pressure
from 1949, near the beginning of Bretton Woods. Declining U.S. holdings
meant the system was only running on reserves, which were draining away.
614 The Lost Science Of Money
The IMF's official historian, Margaret de Vries, implied that the sys-
tem was brought to its knees by some of its own biggest beneficiaries -
large corporate speculators:
“The extreme volatility of capital fiows (e.g. around $200 billion in
1976), in response to interest rate difference or anticipation of exchange
rate changes, was in large part responsible for undermining the inter-
national monetary order that existed until the late 1960s. ’0
Thus by the IMF’s reckoning, large capital flows by major specula-
tors severely harmed the system, which had been designed not for their
speculative games but to facilitate liquidity, production and trade
between nations. Michael Bordo has noted that:
“The architects of Bretton Woods envisaged a system characterized
by limited international capital mobility. 11
The early 1970s were a critical moment for the IMF. Which would
take precedence, the ability of corporate and other speculators to shift
huge amounts of capital overnight without warning, in order to take
advantage of a l/20th of a percent interest rate differential between cur-
rencies, or the ability of producers to create and trade goods, upon which
the world's peoples depended?
The IMF and the world community would either have to resist such
misuse of the world's monetary facilities and mechanisms, or be ruled
by them. It surrendered without a fight, subjecting its operations to the
notion that “free markets” in currency and interest rate speculation take
precedence over all else. It did this without any evidence that would
demonstrate a benefit to the world community arising out of the instability
such a viewpoint would bring to currency holdings. Perhaps Adam Smith's
market deity “Hand the Invisible” was supposed to take care of that.
In 1974, rather than negotiate a reformed system, the Governing
Board decided to let the new system evolve, until a revised charter was
approved in April 1978. The role of gold was reduced substantially and
the SDR was chosen to become the IMF’s “primary” reserve asset.
HOW TO END PRIVATE CURRENCY MANIPULATION
This author proposes three simple changes which would greatly
reduce the ability of speculators to manipulate national currencies,
which endangers the livelihoods of millions of persons.
A tax on currency transactions
For some years economists have called for placing a small tax on all
speculative currency transactions and using the proceeds to better service
22 INTERNATIONAL MONETARY ORGANIZATIONS 615
the markets involved. This is a fine idea, but does not go far enough
because it will not stop the large currency debacles, where a small tax
won't be enough to stop currency manipulators.
Prohibit speculative short-selling of currencies
The currencies of some developing areas (for example Southeast
Asia during the 1997 crisis) could have been placed into a category of
no short selling allowed, or setting low position limits for short sales.
Such a restriction would not affect those actually involved in production
and commerce in those areas, but would present a substantial block to
those attempting to take advantage of them. Appropriate exceptions
could be made by exchange authorities.
Settlement should be in “kind” instead of in “cash”
Economists still haven't recognized the potential importance of set-
tlement of futures and forward contracts in “kind,” rather than allowing
settlement in “cash.” Settlement in cash means that when it comes time
for short sellers to deliver the currency they sold, they have the option to
value the contract in dollars, and then pay in dollars. Thus they need only
the ability to deliver dollars, to protect their position.
However, requiring the contracts to be paid in “kind” would create
a very different situation. If the short sales of the currency drive down
the value of the currency, then when the delivery date approaches, those
who sold the contracts have to actually buy back the physical currency
to be able to deliver it. Such purchases push the price of the currency
back up, and conceivably the short sellers could get caught in a “short
squeeze” where they could not obtain the currency for delivery and
would have to default, with serious losses to themselves. Defaults in the
futures markets can bankrupt the largest speculators, as the billionaire
Hunt brothers discovered in the 1981 silver markets, and as Baring
Brothers Bank found in 1996.
These modest suggestions could help insulate currency markets
from typical forms of manipulation.
IMF'S MONEY CREATION POWERS
Originally the primary money creation mechanism of the IMF was
the use of dollars as a reserve on which other currencies were created.
U.S. balance of payments deficits could fuel monetary creation in coun-
tries such as Germany, which obtained the dollar reserves through for-
eign trade surpluses. But this was an automatic structural feature, not a
discretionary power.
616 The Lost Science Of Money
it began, the World Bank has lent about $400 billion. All of the IBRD's
clients are governments, but it works closely with private enterprise.
The Bank's website stresses how it helps to reduce poverty:
“In the past few decades, East Asia has achieved some of the most
remarkable poverty declines in history; 27% from 1975 to 1985 and 35%
from 1985 to 1995. Along with substantial improvements in the educa-
tion and health of the poor.” However, what will the 1997-98 Asian
financial debacle (brought on by large scale currency speculation) do to
these statistics?
The World Bank's public relations materials are a bit disingenuous.
For example their website states:
“Our Articles of Agreement explicitly prohibit the Bank from inter-
fering in the country's political affairs and require it to take only eco-
nomic considerations into account in its decisions. 17 But the Bank's
“economic considerations,” its definitions of good and bad, like those of
the IMF, are heavily loaded with political implications which work to
maintain or increase the disparity of wealth and income between rich
and poor.
THE INTERNATIONAL FINANCE CORPORATION (IFC)
This affiliate of the World Bank Group was founded in 1956 and is
the only one that invests in private sector projects in developing coun-
tries, and without a government guarantee. The IFC also arranges private
financing for these projects. Since its founding, it has committed about
$21.2 billion of its own money, and arranged another $15 billion in
underwriting syndications for 1,852 private companies in 129 develop-
ing countries.
In 1997 the IFC invested more than $8 billion. It also “helps” gov-
ernments to privatize state owned enterprises, and raises private finance
for ventures.
The IFC management, shareholders and Articles of Agreement are
independent from the rest of the World Bank Group. Its share capital is
provided by its 173 member countries, and it raises most of its funds by
issuing bonds.
THE INTERNATIONAL DEVELOPMENT ASSOCIATION (IDA)
This most recent addition to the World Bank Group came into exis-
tence in 1960. Today it is proudly put forward as the “good deeds” work
of the bank, because it makes 35 to 40-year interest-free loans to really
poor countries (those with less than about $1,000 per capita annual
622 The Lost Science Of Money
income). At present 80 countries are eligible for IDA loans. The popula-
tion of these countries is about 3.3 billion people, or 69% of the devel-
oping world's population!
The IDA charges an annual administrative fee of 0.75%. Critics say
that the IDA was only formed when there was a threat that the United
Nations was going to set up its own lending agency (the Special UN
Fund - SUNFUND for economic development). Eugene Black,
President of the IBRD at the time, admitted that the IDA “was really an
idea to offset the urge for SUNFUND.”18
IDA and the IBRD share the same staff and offices and report to the
same President. All IDA funds come from taxpayers of the IDA's mem-
ber governments, through cash contributions from its member govern-
ments, which are refreshed every three years. Since 1960 the IDA has
loaned about $108 billion to 106 countries. It generally lends $5 to 6 bil-
lion per year. According to the Bank's Website, IDA projects are target-
ed in the following categories:
Human resource development (education, health,
population, nutrition, water supply and sanitation) ................. 33%
Agriculture and rural development ......................................... 23%
Infrastructure ..... . .... . . .. . 23%
THE “STRATEGIC COMPACT”
The World Bank Group is currently engaged in a 30-month
“makeover” to re-examine and re-vamp all aspects of its activities. Its
description looks like a corporate efficiency drive, which goes so far as
to discuss how it will get rid of non-performing personnel at the Bank
itself! They do mention probably the most important area to reform, to
“design more appropriate conditionality.” However, their focus on firing
their own employees undercuts the grandiose announcements, and indi-
cates a retrogression may be coming, rather than a progression.
22 INTERNATIONAL MONETARY ORGANIZATIONS 623
ISLAMIC MONETARY
DEVELOPMENTS
Echoes of Scholasticism
taken more seriously by the faithful. Of particular interest are the devel-
opments occurring in Moslem monetary thought. For it turns out that
Mohammed understood the nature of money as a legal creation, and
taught his followers that nominally valued copper coinage was to be
as acceptable as gold and silver:
“According to Muhammad, the property of currency attaches to cir-
culating fulus (copper coins), and they are to be considered as an
absolute currency. ..They are in his view suitable for partnership invest-
ment like all other absolute currencies, viz., dirhams (silver) and dinars
(gold).” Kasani, 6:59-60.20
Imagine the effect on Christian money systems had Jesus Christ
made a similar observation.
“SHARIA” AND “FIQH”
“Sharia” refers to Islamic sacred law. Out of this was developed the
“Fiqh” - Islamic jurisprudence or a religious doctrine of duties and man-
ners. But in business, the Fiqh has been viewed as as ideal of how things
ought to be, and is not often followed. The Koran forbade the taking or
paying of interest, and when the interdiction was first imposed iii the 7th
century, business flourished:
“With the abolition of interest, economic activity in the Moslem world
did not suffer any decline. In fact there was increased prosperity,” wrote
M.U. Chopra, financial advisor to Saudi Arabia's Monetary Authority.21
This is interesting, but it was also a period of great expansion for
Islam. As early as the 11th century a person conducting “commerce in
accordance with the law was looked upon as ridiculous by all other mer-
chants,” according to Hurgronge.22 Thus there has been a large gulf
between Islamic practice and theory. Moslem countries over the last two
centuries gradually adopted an interest-based money and banking system,
under the influence of colonialism. But that is now beginning to change.
Chopra distinguishes three phases in the recent Moslem economic
revival. First, a re-evaluation of the Moslem position was begun in the
1930s (after viewing the West's Great Depression?) and was conducted by
non-economist Moslem scholars who re-affirmed the classical Moslem
positions. Then from about 1965, Moslem economists have worked on
analyzing these ideas. The third phase is the effort underway to actually
develop interest-free banking and financial institutions. Chopra says the
fourth phase will be in the area of monetary theory and implementation.
Pakistan especially has given impetus to these developments
22 INTERNATIONAL MONETARY ORGANIZATIONS 625
through its 1973 Constitution in which article 227 provides that all exist-
ing laws shall be “brought into conformity with the injunctions of the
Holy Quran and Sunnah” and that Riba (usury) be eliminated as soon as
possible. Chopra comments that this is “the first time that a serious
commitment of this nature has been expressed by the government to
mold the economy in the framework of Islamic values. 23
RIBA AND ZULM
The two terms Riba and Zulm are close in meaning to the way the
Christian Scholastics used the term “usury.” Riba covers more than
interest, but applies to all forms of unfair financial exploitation. Islam
seeks to eliminate “the injustice perpetrated in the form of the financier
being assured of a positive return without doing any work or sharing in
the risk, while the entrepreneur, in spite of his management and hard
work is not assured of such a positive return. *4
“Zulm” is an even more comprehensive Islamic term referring to all
forms of iniquity, injustice, exploitation, oppression and wrongdoing.
Islamic economic thought actively seeks to remove Riba and other forms
of exploitation and does not separate justice and morality from econom-
ics. Islam has an “Unflinching dedication to the brotherhood of
mankind,” Chopra tells us in his book Toward a Just Monetary System.25
NISAB AND ZAKAA
An interesting Moslem concept is of a three-sector economy: the
Public Sector; the Private Sector and the Voluntary Sector. Faridi
describes how those with “Nisab,” the ability to easily be generous, are
acting honorably when they give “Zakaa,” at 2 '/2 % of income, which
goes from the rich to the poor and is something more than alms.26
INTEREST-FREE FINANCE IN THE ISLAMIC WORLD
By the early 1980s interest-free banks were functioning in Egypt,
Jordan, the United Arab Emirates, Kuwait, Sudan and Bahrain. Chopra
counted 38 banks operating interest free in Africa and Asia, and even in
the Bahamas, and Geneva, Switzerland. In Pakistan, 6,500 bank branch-
es had opened interest-free sections where separate counters accepted
deposits for interest-free investment accounts. According to one report
these accounts were earning 8 to 15% per year from dividends and capital
gains. They're like mutual funds.
Pakistan also started a “National Investment Trust” to accept small
household savings for investment, through bearer and registered shares. It
will be interesting to see how these various interest-free mechanisms
626 The Lost Science O/ Money
Notes to Chapter 22
' See Stephen Zarlenga, Henry George ’s Concept Of Money, Robert
Schalkenbach Foundation, 2001.
2 Hjalmar Schacht, The Magic of Money, (London: Oldbourne, 1967), p. 75.
7 Hans Aufricht, The International Monetary Fund, (New York: Praeger, 1964).
Books, Carnegie Council on Ethics & Intematl. Affairs, 1987), pp. 25, 44-5.
'5 Cheryl Payer, 77ie WorldBank -a Critical Analysis, (Monthly Revlew Press, 1982).
" Barend A. de Vries, Remaking the World Bank, (Washlngton: Seven Locks,
1987), Ch. 1.
17 World Bank Website at: http://www.worldbank.org
I Payer, cited above, quoting IDA hlstorians Mason and Asher, p. 33.
*’ Money and Banking in Islam, ten papers delivered at the January 1981 con-
ference of the Institute of Policy Studies, Islamabad, Pakistan. Published by the
International Center for Research in Islamic Economics, King Abdul Aziz Univ.,
Jeddah, Saudi Arabia. From p. 3 of the Introduction.
20 Abraham L. Udovitch, Partnership and Profit in Medieval Islam, (Princeton
CHAPTER 23
THE EUROPEAN
MONETARY
UNION A
bankers and have not acted as recklessly in the past, this does not change
the fact that a great privilege is bestowed upon bankers in the power to
create money. This privilege leads to a continuing concentration of
wealth and power into the hands of bankers, without their earning it. It's
wrong.
Furthermore, as discussed in Chapters 19 and 20 it is the source of
panics and crashes in money and banking markets.
One hundred percent reserves could be implemented as in the plan
discussed in Chapter 24, except that presumably this would be political
death to the EMU, with the bankers preferring fractional reserve bank-
ing under their old national systems, instead of 100% reserves in the
European Community. If fractional reserves are a political necessity at
present for the EMU to move forward, removing this problem should be
on the reform agenda.
It would negate much of the ultimate purpose of the ECB to rely on
fractional reserve banking as its main method of creating money. The
ECB needs the ability to do that independently and directly. It needs the
ability to create reserves or simply money out of thin air, when it deter-
mines that is the best way to monetarily serve the Community. Without
that power it would be a eunuch among world central banks, and the
European Community would be accepting the disadvantages of central-
ized control, without the main advantage.
Yet there is not sufficient reference to the ECB’s power to create
reserves - or its intended use in the ECB protocols: “The Governing
Council shall formulate the monetary policy of the Community includ-
ing. ..the supply of reserves in the ESCB and shall establish necessary
monetary guidelines for the implementation.” (Ch. 3, Organization of
the ESCB, art. 12.1)
This is simply not an adequate discussion of how reserves will be
created by flat. It's as though the organizers don't want to clearly state
the power (which is there) for fear that it might bring on demands for
more monetary expansion by sections of the Community. They are like
temple priests bowing low to the ground in the presence of the holy of
holies, afraid or forbidden to even to look directly at “the power.”
NEW MONEY TO BE BASED ON FOREIGN TRADE SURPLUSES?
Because the Bundesbank previously relied heavily on trade surplus-
es to obtain U.S. dollar monetary reserves, perhaps there is a hope of
continuing to do this with the ECB. But this method of obtaining
reserves is problematic, and misses the point on the nature of money.
23 EUROPEAN MONETARY UNION 639
European Union.2
Without belng too melodramatic, one visualizes that within England
there still lurks the dark and powerful remnants of the “Bank of England
Gang,” for want of a better term. A doctrinally, hereditarily, or finan-
cially linked residue. If Britain were firmly in the European Monetary
System that gang's power to disrupt either in America or Europe would
be dramatically reduced, and they would be isolated there in the Atlantic,
between two great powers, where they can wither away before doing any
further damage to humanity.
The actions of the Continental Powers have been wise in terms of
helping bring England into the system. The Community's soft approach
toward England should be continued until the British people can relax
and fully understand its in their best interest to align with Europe. Come
what may, the door should remain open to them on favorable terms.
ACCOUNTABILITY
Article 35.1 is an important one - it gives the Court of Justice juris-
diction to review and interpret acts or omissions of the ECB. Presumably,
not providing an adequate money supply sufficient for industry and com-
merce would be an omission. Central banks have been sued for this in the
past, for example in the U.S. as we saw in Chapter 16.
The reader will sense that we are more concerned with the danger of
too little, rather than too much money in circulation. That has historical-
ly been the case. It's doubtful the European wartime inflations could have
been stopped. They were the result of paying for wars, not necessarily of
monetary mismanagement. Chapter 22 discussed the German case.
Institutionalize a formal review process
One suggestion would be to establish an automatic formal review
process providing for critical reviews of how the ECB is functioning
after 5, 10, and 20 years. A broad based commission, working with the
Court of Justice, could make recommendations with the necessary
“teeth” in them to alter the ECB's performance, if that is called for. It's
best that the process be automatic, and not subject to political decision
later. In 1956 the U.S. Congress tried to organize such a review of the
Federal Reserve System, but the bankers blocked it politically.
STATED GOALS
Article 105 states that “The primary objective of the ESCB shall be
to maintain price stability.” Continuing, the ESCB’s task shall be to
“define and implement the monetary policy of the Community. ..conduct
23 EUROPEAN MONETARY UNION 643
foreign exchange operations ...[and to] hold and manage the official
foreign reserves of the member states.”
But what may well turn out to be the most important statement of
purpose in the ECB’s founding documents are in the objectives listed in
the amended B) Part One “Principles,” Article 2:
“To promote throughout the Community a Harmonious and balanced
development of economic activities, sustainable and non-inflationary
growth respecting the environment, a high level of employment and of
social protection, the raising of the standard of living and quality of life,
and economic and social cohesion and solidarity among Member States.”
However, it says this is to be done “without prejudice to the objec-
tive of price stability,” by which they mean less than 20/o inflation.
COMMENT
Here we clearly see the division in attitudes that hopefully will
evolve into a healthy balance of forces in the Community. On the one
hand there are the heavy footprints of the “High Priests” of economics
and banking who appear to sincerely believe that “price stability” is a
sufficient measure of success or failure of the EMU!
Price stability, while important, could never be the primary
objective. Price stability of what? Of a well functioning currency sys-
tem that has been properly provided to the community - providing
that currency system is clearly more primary than “price stability.”
In Article 2 we see the importance of clearly stating the obvious. For
it is not obvious (or even desirable) to all, that the money system must
be held accountable to foster desirable results. Article 2 is the human
face of the EMU, the provisions that can serve to tame the worst misus-
es of the ECB, which the most myopic management might someday
attempt to impose. Such poor policies have been imposed, for example,
by the Federal Reserve System. A typical American banker's view would
be that the money system is fine, as long as their own profits are being
maximized.
In Article 2 is embodied a “silent” but important monetary principle:
the correct vision that the money system must be managed to produce
superior living results, not just to conform to dead theory. In other
words, its success is defined in terms of the desired outcomes. The
money system must be the servant and not the master.
POLITICAL INFLUENCE BLOCKED
Article 7 : “neither the ECB, nor a national central bank, nor any
member of their decision-making bodies shall seek or take instructions
644 The Lost Science Of Money
exclusively in the U.S., using the monetary dominance of the U.S. dol-
lar to politically dominate other countries and regions. This has reached
the point where growing numbers of lesser developed countries have
adopted the U.S. dollar as their official standard (for example, in South
and Central America).
Although monetary control differs from military dominance, some
in
1.15
1.10
- .05
Par - —1.00
95
-. 90
- 85
even before actual coin and currency began circulating in January 2002.
Inflation has been kept near its target level of 2% annually and is expect-
ed to be under that in 2002.3
Production and economic growth have increased - 3.4% in 2000 -
the strongest growth in a decade. Unemployment, though still high by
U.S. standards, has dropped from around 12% to about 8%. These lev-
els are less ominous than they would be in the U.S. because of the exten-
sive safety nets Europeans maintain, including universal health care.
Also because unemployment figures in the U.S. are understated.
The Euro area reported a strong balance of trade surplus but a weak
balance for services and financial transfers. This resulted in a balance of
payments deficit of E70 billion in year 2000. This deficit dropped to
E9.3 billion in 2001, and the month of December 2001 showed a balance
of payments surplus of E2.9 billion.
ECB President Willem F. Duisenberg's letter in their 2000 Annual
Report notes that: “Financial markets have shown confidence in the
determination and ability of the ECB to maintain price stability, its
23c.
Actual Euro coin
and currency
introduced in
January 2002. A
one Euro coin
and a 20 Euro
note are pictured
here (not to
scale). Notes have
a common Euro
theme on one
side, and a
national French,
German, or
Italian, etc,
theme on the
reverse. All are
current through-
out Europe.
650 The Lost Science Of Money
Notes to Chapter 19
l
Frederich Hayek, Denationalisation of Money, (London: Institute of Economic
Affairs, 2nd edition, 1978), pp. 19 - 20.
Carroll Quigley, Tragedy and Hope, (New York: Macmillan, 1966), p. 950
3 These statistics and those that follow are from the ECB's Annual Report
for the year 2000 and from from its January and February 2002 Bulletins.
651
CHAPTER 24
period 234,000 family farms were lost, and now close to 20% of
American farmers live in poverty!2
As Americans go further into credit card debt just to make ends
meet, they are subjected to obscene rates of interest, around 200/ . That
this has been “legalized” makes a farce of the law. The usurers have had
usury limits removed and are now actively bribing legislators to change
the personal bankruptcy laws in order to assure that American debtors
can be held in a form of perpetual bondage to them.
American vacations are a thing of the past, or have been reduced to
a break too short to shake off the psychological stresses of an increas-
ingly pressurized work atmosphere. The average vacation is now ten
days. Americans hear of Europeans' five week vacations in disbelief.
In the enforcement of the laws, property, especially that held by
financial institutions, is sacred, but industry is treated as subordinate,
and labor is merely a pawn. Too many of the American poor, facing this
bleak existence, and the American wealthy facing a meaningless one, try
to escape into chemically induced hallucinations through drugs and alco-
hol. Their “wars on crime” have now imprisoned a larger percentage of
America's population than any other nation on earth, over 1.5 million
citizens, mainly on drug charges. They have made the building of pris-
ons America's leading “growth industry.”
An even darker side of the U.S. prison situation is the growth of pri-
vate corporations' systematic substitution of prison labor (at 23 cents to
$1 per hour) for normal labor. Prison labor is a form of slave labor. Some
factories have been closed in order to move the production into nearby
prisons. This has moved so fast that the various main line religious
denominations have not yet reacted to this important development.
Europeans should understand where the policies of the free market
gang lead, so they can reconsider whether they really want to blindly fol-
low the U.S. In any case our current direction toward some strange form
of “disneyland fascism,” must change.
Much of the crime in the U.S. arises from an inequitable money sys-
tem, which rewards those skilled in manipulating the financial rules, and
neglects those doing an honest day's work. Some minorities succumb to
the illegal drug trade because they have no alternative employment.
American blacks especially are limited from meaningful participa-
tion in the economy. On an individual basis they can rise above the obsta-
cles and many capable individuals do. System wide, however, in an econ-
omy designed to ration work and keep a standing army of unemployed
24 PROPOSALS FOR U.S. MONETARY REFORM 653
available to put downward pressure on wages, it's not possible for the
group as a whole to overcome the disadvantages, which take their toll on
large percentages of its members. It should come as no surprise then that
blacks make up a disproportionate part of the U.S. prison population.
WHO IS RESPONSIBLE?
Those in charge of the U.S. money system, and their predecessors,
must bear a large part of the responsibility for this inequitable situation.
They broke the banks in 1929-32 and would not re-establish the money
supply except to make war. They proceeded to base the economy on the
military industrial complex for five decades, amassing many thousands of
thermonuclear weapons which could only be used if the Earth was
being destroyed. In 1970-74, the system was kept from total collapse
only by the perception that the Federal Deposit Insurance Corporation
was government guaranteed.
The banking disasters of Penn Central, Continental Illinois, Franklin
National, and the B.C.C.I. among others, have kept U.S. banking fraud
in the headlines over the years. The Savings and Loan scandals of the
late 1980s and early 1990s were a direct result of their removal of gov-
ernment banking regulations, and finally cost the American taxpayers
over $100 billion to bail them out.3 There is no comparable banking mis-
management to be found in any European country.
It appears to be a pillar of the U.S. “justice” system that the banking
crime connected with these dlsasters must go essentially unpunished.
This pattern for non-punishment of grand scale financial crime is
ingrained in the English speaking world, beginning with the scandals
surrounding the South Sea Bubble in 1721. Chapter 11 described how
England's ruling elites were involved in that swindle. We must find a
way to give these “financiers” the justice they deserve.
The author is not advocating a view ofjustice that ignores individ-
ua1 differences between men, or in which nature is denied, but is sug-
gesting that the cannibalism, as embodied in our present money system,
must stop. It is degrading to the human species.
MISDIAGNOSIS OF AMERICA'S PROBLEMS
Maintaining a confused concept of the nature of money has allowed
the money system origin of so many of society's serious problems to be
obscured. For example:
Balancing the federal budget
Balancing the federal budget is sold to the American public as a fiscal
654 TOWARD A FOURTH BRANCH OF GOVERNMENT
cally: up 300% in the last 30 years. Whatever the individual facts and
failings related to these tragedies, an important factor on the teenagefs is
the unbearable level of hypocrisy that our system now embodies.
Even the super-rich are not shielded from the violence. Consider the
1996 Colorado murder of 6-year-old Jean Bennet Ramsay right in the
home of her multi-millionaire parents; the 1996 New York murder of the
son of the billionaire Chairman of Time Warner company; the 1996 mur-
der in North Carolina of the father of half-billionaire basketball super-
star Michael Jordan; the 1997 murder of the son of half-billionaire enter-
tainer Bill Cosby in California; the 1997 Florida murder of multi-mil-
lionaire designer Gianni Versace.
Absence of a national caretaker
Behind these problems is the fact that the nation is controlled more
from behind the scenes by financial institutions than by the citizens
through elections.
When society loses control over its money system it loses whatever
control it might have had over its destiny. It can no longer set priorities
and the policies for achieving them. It can't solve problems, which then
develop into crises and continually mount up.
Its leaders substitute public relations for action and although the
media is part of this pretense, an awareness slowly develops that there is
“nobody home” in Washington. Nobody is taking care of America.
People stop voting and a deep sickness of the spirit develops.
MONETARY REFORM IS CRUCIALLY NEEDED
It's long overdue to admit that the money system is responsible for
so many social crises. Basic monetary principles can then be applied to
reforming the money system to help resolve society's most serious prob-
lems. Implementing the reforms requires effective political action.
MONEYS' NATURE MUST DICTATE MONETARY REFORM
Readers should now understand what money is - what it is we are
reforming. We've noted our inheritance from past genius:
from Aristotle - “Money exists not be nature but by law;”
from Plato - “a money token for purposes of exchange;”
from Paulus - “This device being officially promulgated, circulated and
maintained its purchasing power not so much from its substance as from
its quantity.”
Then after a long darkness,
24 PROPOSALS FOR U.S. MONETARY REFORM 657
from Berkeley - “Whether the true idea of money as such, be not alto-
gether that of a ticket, or counter?;”
from Locke and Franklin who viewed money as a pledge for wealth
rather than wealth itself;
from Del Mar we have:
“...what is commonly understood as money has always consisted,
tangibly, of a number of pieces of some material, marked by public
authority and named or understood in the laws or customs: that its pal-
pable characteristic was its mark of authority; its essential characteristic,
the possession of value, defined by law; and its function, the legal power
to pay debts and taxes and the mechanical power to facilitate the
exchange of other objects possessing value. ;4
and from Knapp - “Our test, that the money is accepted in payments
made to the states offices.”
We accept these concepts and add: Money's essence (apart from
whatever is used to signify it), is an abstract social power embodied
in law, as an unconditional means of payment.
This can be referred to as a socio/legal Constitutional Concept o]
Money. Wordsmiths are invited to submit a nicer sounding title to the
AMI. The term “Societal Concept ofMoney” also fits well. Perhaps sim-
ply the“Nomisma Concept of Money,” or just “Nomisma” is sufficient.
We could also call it the “Aristotelian concept of money,” in his honor.
A good money system will accomplish the above goals in a just and
efficient manner, assisting the widespread creation of values for living.
A bad one will raise unnecessary obstacles to the production of values,
establish privilege and comiption, and concentrate wealth and power
into undeserving hands. We presently have a very bad one.
This book has shown that it is historically self evident that the best
money systems have been controlled and monitored through law, by
public authority. Leaving the money power in private hands has invited,
even assured, disastrous results. This is also consistent with the logic of
money: since the money system is a creature of law, it rightfully belongs
within government, just as the law courts do.
We propose that ultimately the monetary power should be
constituted as a fourth branch of government, like the execu-
tive, judicial and legislative branches. We have concluded that the
nature of man and of society requires four, not three, branches of
government.
658 TOWARD A FOURTH BRANCH OF GOVERNMENT
manner; for quickly getting back more than one gives, in terms of shuf-
fling paper instruments. As we have seen, monetizing credit - in partic-
ular private bank credit - can lead to such poor results that it even makes
the primitive practice of monetizing “precious metals” look good! And
in that regard, the “goldbugs” do have a point.
The apologists for banking privilege argue that the banking business
is open to all those who have enough money to satisfy the legal and
financial requirements. But that is a variation of the argument put for-
ward by John Law in the early 1700s, who remarked: “All may share in
the establishment of the bank through ownership of it.”
We discussed this in Chapter 12, and noted how much more appro-
priate and convenient, for all to benefit, if the bank of issue is a National
Bank, owned and operated by society. It's a mystery why otherwise
intelligent persons don't see that such a privilege would necessarily fall
into the hands of the already wealthy, unjustly enriching them, and fur-
ther aggravating the obscene concentration of wealth in America.
To say that this “business” is open to all, is also reminiscent of the
Roman “Ager Publicus,” the lands that were owned by the Roman state
in the 1st and 2nd centuries BC and were, in theory, available to be used
by all Roman citizens. But only the wealthy could take advantage of the
possibility, as discussed in Chapter 2.
Modern apologists also assert that bankers are generally of “high
moral character.” But why would moral people seek to gain an unfair
advantage over their fellow citizens, through a little understood legal
privilege, to engage in a process that necessarily robs from society and
historically gives little or nothing back to society? This is very different
from the kind of license a doctor obtains to practice medicine. For the
doctor must provide valuable services to his patients, for which he is
paid. Bankers, with the privilege to create money can pay themselves,
one way or another.
Some apologists assert that the modern profit margins of banking are
not unreasonably high, again missing the point. Instead of earning prof-
its from their operations, bankers would pTObably be willing to pay for
their banking privilege if necessary, because of the power it gives them; a
power that can always translate into riches.
More important than their “earnings” is the power they usurp: they
control the rationing of credit. If that credit has been improperly substi-
tuted for money, the bankers are more in control of the society than is the
legislature, executive, and judiciary, not to mention the citizens.
24 PROPOSALS FOR U.S. MONETARY REFORM 663
24a. Congressman
Henry Gonzales,
Chairman of the House
Banking and Currency
Committee until 1994,
regularly introduced
legislation to repeal the
Federal Reserve Act.
Revolution and the Civil War. Or when allowed to get away with it, as
in WWI and WWII, they issued the money in large quantities them-
selves. They knew the resulting production would be blown up, sunk or
be useless and not become new consumer goods or production facilities
or improved infrastructure, which would have lowered prices, benefitted
the populace, and made the people more independent of the bankers.
Warfare thus became associated with “getting the economy mov-
ing.” But it wasn't the warfare; it was the accompanying monetary and
production activity that did it.
We haven't seen modern cases in the English speaking world where
such high levels of money creation were directed into real production,
and not specifically destined for destruction. Partial exceptions are the
limited efforts undertaken by Roosevelt after the Great Depression,
which gave us projects like Hoover Dam, and the water and sewer sys-
tems still used in our upstate New York area. Another exception was
NASA's all-out effort to reach the moon, which fostered much of our
modern miniaturized computerization.
In short, the Plutocracy's inflation theme is “the big lie.”
TOWARD A FOURTH BRANCH OF GOVERNMENT
Longer term, it will become recognized that the monetary power
is stronger and more pervasive than the three other branches of gov-
ernment. In keeping with its actual power and importance in the
daily lives of the citizenry, the monetary department should evolve
into a fourth branch of government. In fact that's what it is now, but
it's run mostly for private gain instead of the common good.
This fourth branch would refine and codify its protocols in ever-
increasing accuracy, starting from the point of considerable technical
knowledge and expertise already embodied in the Federal Reserve appa-
ratus. The overall objective, however, would be changed. Instead of
managing the money system to further enrich the leisure class, helping
them create and rule their “New World Order,” the goal would be to
“promote the general welfare,” an explicit objective of our Constitution.
And yes, a new order of the world would evolve out of this, but not the
slave system we are presently headed for.
NEARLY ALL CITIZENS WOULD GAIN
Those who want smaller government would be happy to see that it
could shrink, since so many of its present day activities, started to coun-
teract the inequitable effects of an unjust money and banking system,
would no longer be needed. Those who want more government controls
668 TOWARD A FOURTH BRANCH OF GOVERNMENT
would be happy to see the need for such controls disappear as the type
of corporate predators now in charge would find most of their funding
and power cut off. Those who want to abuse government for their own
private gain would find it much harder to do that.
AND THE LOSERS WOULD BE...?
Those presently benefitting from special monetary privileges would
find those benefits ended; but even for the majority of them the improve-
ments in the quality and security of life and the release of new creative
and industrial energy resulting from a fair money system would likely
outweigh any loss.
Only that tiny fraction of a percent at the very top would be big los-
ers; but considering what they have been doing, shouldn't they be happy
to escape with their lives - if they can?
There's one more group of losers: the type of ideologues who value
so-called free markets above life itself - other people's lives, that is.
These apologists, largely economists, devote careers to justifying the
worst predations upon mankind. In their hands those economic theories
are used as bludgeons to beat down their most vulnerable fellow men.
THE FACE OF EVIL
Most would agree that, where evil is being purposely done under
cover of economic theory, it should be clearly identified and thereby
destroyed. Some economists will scoff at being characterized as evil for
merely making deductions from their beloved theoretical premises that
they place their faith in, for merely acting as good priests of their hal-
lowed market god.
But they truly serve an evil deity and the fruits of their theories grow
monotonously bitter. The hallmark of those intent on doing harm is their
ever readiness to take current benefits from the common man, promising
him instead some imaginary heaven in the long term, to be made possi-
ble by the intercessions of their god, Hand, the Invisible.
Somehow their theories always manage to reserve the current bene-
fits for wealthy predators, parasites really, who in the main part fund
their salaries. At present, society is in trouble to the extent that these
“econo-myths” dogmas are being followed. Their prescription? - yet
more “free market discipline”- their brand of free trade theories dictate that
American workers must compete with underpaid workers in countries
where labor has minimal rights and where environmental concerns are
ignored; with what is in effect a form of slave labor. This props up foreign
24 PROPOSALS FOR U.S. MONETARY REFORM 669
power, it clearly becomes possible for the government to create and sub-
stitute such trusted real money for the already existing, suspect bank
credit. Thus we are not held hostage to preserving the existing flawed
banking system, or to risk bringing down the whole structure.
WOULD IT HAVE WORKED IN 1929-32?
Could this “100% Reserve Solution” have prevented the Great
Depression? Could the situation be rescued even after years of misman-
agement by the bankers, and after the panic set in? The answer to these
questions is “yes.” The “100% Reserve Solution” has some marvelous,
almost magical effects. It is a way to get to 100% reserves without dis-
rupting the banking system, or calling in loans and creating a financial
disaster. It is done by increasing the reserves held by banks.
SODDY AND SIMONS DEVELOP THE 100% RESERVE SOLUTION
Under this plan the banks are required to establish 100% reserve
backing for their deposits, in this unique way.
The U.S. Treasury would loan freshly created U.S. paper currency to
banks to bring their cash reserves up to 100%. The banks would pay inter-
est to the U.S. on these loans. If the Fed had not yet been nationalized,
then Federal Reserve Banks would also borrow from the treasury suffi-
cient new currency to bring their cash reserves up to 100% of their
levels. From that point, it is crucial that alternatives to bank created cred-
it be used to make necessary increases in the money supply.
For example, newly created money could be spent into circulation
by government paying for social security and universal medlcal cover-
age for the nation. Or it could be loaned into circulatlon in interest free
loans from the federal government to local governmental bodies (from
school boards to states) to be used only for infrastructure construction and
repair. This would cut the cost of all such infrastructure in half.
These and other sound alternatives are available now. More can be
developed through careful thought, and even more careful trial and error.
For banking institutions to continue making new loans they simply
would have to attract such new money from depositors or investors.
CONGRESSMAN VOORHIS PROMOTED THE 100% RESERVE PLAN
Into the 1940s, California Congressman Jerry Voorhis advocated the
100% Reserve Plan. Then the bankers' lobby financed Richard Nixon's
first congressional campaign against him. Nixon ran a dirty campaign,
smearing Voorhis as a communist, and got elected. Voorhis learned from
one of his neighbors, who was Nixon's campaign manager, that the
American Bankers Association had financed Nixon.
“IKE” WAYLAYS THE PATMAN PROBE
Voorhis then worked with House Banking Committee Chairman
Wright Patman in 1956 on the “Patman Probe,” which was to formally
examine the results of the Federal Reserve System, on a scale like
Aldrich's Monetary Commission of 1908-12. As the bill to create the
Patman Probe was being passed in the House of Representatives, the
bankers' lobby pulled 31 congressmen from the floor of the House and
told them to change their votes or face defeat in the next election. The
lobbyists later went to President Eisenhower to head off the probe. “Ike”
told them not to worry - he'd set up a “blue ribbon” group of bankers to
“study” it. Thus meaningful monetary reform has not been on the polit-
ical horizon for over a generation in America.13
DE FREMERY KEPT THE 100% RESERVE SOLUTION AI.IVE
The work of Robert de Fremery (1916-2000) has kept the concept of
the 100% Reserve Solution alive today. For decades he wrote articles
and corresponded with economists on the necessity of banks to maintain
100% reserves. His two books, Money and Freedom (1955) and Rights
vs. Privileges (1992) have clearly explained why:
“Is it not obvious that there are serious defects in our banking sys-
674 TOWARD A FOURTH BRANCH OF GOVERNMENT
tern and our tax system that deprive most of us of fundamental rights and
bestow enormous privileges on others?.. .How many riots must we
endure? How many prisons must we build? How many of our rights
must we lose? How many of our young people must be sent away to
fight in foreign wars before we decide that enough is enough?”l4
DeFremery believed that monetary reform had to be combined with
changes in the taxation system along the lines proposed by the 19th cen-
tury land reformer Henry George, and known as the “single tax,” in
which the full rental value of unimproved land goes directly to society
as taxation. It's a concept originated by the French Physiocrats (they
called it the “impot unique”) and the idea deserves more attention than
it is presently given. Father of the Revolution Thomas Paine held a
similar viewpoint toward land. See de Fremery's Rights vs Privileges.
De Fremery thought that unless land reform accompanied monetary
reform, the concentration of wealth and power spawned in either area
would soon re-establish a system of comipt privilege in the other area. In
the author's view, implementing our three major reform points will create
a climate of reform where other matters can be scrutinized and acted on.
REFORM #3: INSTITUTE ANTI - DEFLATION PROGRAMS
AND BEWARE OF DEFLATION
To proceed merely on the basis of restricting the bankers’ creation of
money is to invite deflation, depression and repudiation of the reforms.
This is a real danger since financial elements that would benefit from
defiation would promote reforms with such “unintended” consequences.
For three decades the fear of inflation has been drilled into the American
mind and the political climate is still vulnerable to an over reaction to
inflation phobia. Thus Fed Chairman Greenspan was praised for raising
interest rates 11 times in the late 1990s in fear of an imaginary inflation!
Therefore limitations on the bankers’ power to create money
must not only be accompanied by clearly defined powers for the
government to take their place, but also specific programs requiring
money creation, for example to re-build infrastructure throughout
the land in a major way. Paying for Social Security and a national
health care system through government money creation would also
serve to avert a deflation.
Are we advocating inflation? Certainly not. We like Henry George's
answer on whether he'd support the government issuing money too freely:
“(‘ecclesiastical expletive!’) I am a Greenbacker, but I am not a fool.”'5
24 PROPOSALS FOR U.S. MONETARY REFORM 675
24d.
these restrictions were in effect in the early 1980s, before the mad paper
chase took over our economy in its present form.
Regarding the international debt problem, Pope John Paul II, is
the best economist. His call for a “Jubilee” to forgive much of the
debt - to write it off - makes much more sense than most of them do.
FINANCIERS WILL TRY TO SABOTAGE REFORM
Once meaningful monetary reforms are underway in America, we
shouldn't be surprised if bankers and financiers attempt to derail the
reforms through economic disruptions, including bringing the economy to
a halt. They might spark foreign and domestic crises and violence.
Therefore the reforms must make substantial provision for this by cre-
atively giving such types enough other things to worry about so that they
have little time to attack the reforms. This shouldn't be too difficult, con-
sidering that reform would most likely proceed after another orgy of
banking induced disasters, rife with felonious activity.
Readers who feel the author has been too harsh on the bankers
should remember that even Jesus Christ felt compelled to use violence
against them, and them alone.
DON'T ALLOW ECONOMISTS TO DIRECT MONETARY REFORM
Monetary reform must not be left in the hands of economists. Such
reform is a legal, moral and political matter more than an economic one.
Economists have no training in those areas and generally disdain such
matters. Their indoctrination leads them to erroneously assume that the
market process best resolves such questions.
In Chapter 12 we likened the political economists to a Temple priest-
hood, trained to uphold the Temple ways. They have endured so much
mental pressure in their formative years in order to obtain their PHD seal
of approval from their predecessors that it's not realistic to expect or
count on them to break free of such thought patterns.
What role should economists play? Where exceptional individuals
have achieved an independence of mind, they can best contribute to the
reform process by evaluating technical matters connected with reform,
not the legal, moral or political questions regarding the main structures
reform should take. They can thus neutralize the destructive economists.
OBSTACLES TO MONETARY REFORM
The four main obstacles we must overcome are:
1. The banking and media establishments
The financial power of the bankers, related financiers, and their
24 PROPOSALS FOR U.S. MONETARY REFORM 677
“Dr. Von Mises denies not once but several times that his theories can
ever be disproved by facts. This point of view represents a leap backward
to Platonic Idealism or one of its offspring in various disguises. 17
The ongoing work of the AIER should not discard Harwood's acute
observations on this matter.C
It should be mentioned that among the Austrian economists, the
author truly admires Professor Murray Rothbard's clear and unequivocal
condemnation of fractional reserve banking as a “Ponzi scheme.” Von
Mises criticized it less forcefully; but most Austrians support it in the
name of free markets. Rothbard understood that free markets stop where
fraud and privilege begin.
We don't mean to only single out the Austrians. Similar charges
apply to other “schools” as well. As a “science,” economics is very ill.
3. Ayn Rand and the Libertarian free market theology
The anti-governmental aspect of most economists is the problem,
and ultimately their main thrust. For decades in America, as part of a free
market theology, they have attacked the one organizational form with the
potential to stand up against the Plutocracy on behalf of the people - our
government. The Libertarians didn't invent this idea. Adam Smith orig-
inated its present form, largely for the purpose of keeping the money power in
private hands, as seen in Chapter 12. The Libertarians are merely the
latest group to be captured by this ideology and to be convinced that they
represent something new, rather than an old plutocratic viewpoint.
Their idol, Ayn Rand, the 20th Century's greatest proponent of cap-
italism, was actually born in Russia as Alissa Rosenbaum. She renamed
herself after the brand name of her typewriter. Rand was so partial to
deductive reasoning as to be easily taken in by the conservative economic
line. Her monetary error of regarding money as a commodity, particu-
larly gold, is evident in the cocktail party speech by the colorful (and
your author's favorite of her characters) Francisco D'Anconia in her
novel Atlas Shrugged.1'
While it's only a novel, many of her followers treat it more like a
textbook or the “Gospel” and distribute an excerpt of that speech on
money. Her works transmitted this falsehood to the Libertarian political
party, which formed among her readers (without her blessing). But nov-
els are a medium that neither demands proof nor exposes the author to
C The author served as a Trustee and Executive Committee member of the American
Institute for Economic Research (AIER) in 1976, in a successful effort to help the
Institute resolve its problems with the Securities & Exchange Commlssion.)
24 PROPOSALS FOR U.S. MONETARY REFORM 679
public service.. .displacing the old ideal of the patriot and the hero who,
forgetful of self, lives and is ready to die for the good of his country. ..A
general disintegration of the body politic set in.. .the structure of society
tended to resolve itself into its individual elements and thereby to relapse
into barbarism, for civilization is only possible through the active co-
operation of the citizens and their willingness to subordinate their pri-
vate interests to the common good. 20
Similarly, while the Libertarian ideology gets people focused on the
individual, then certain already existing financial and religious organi-
zational structures can dominate by default.
The Libertarians cast off the jealous thunder God of the Old
Testament, and ignored Jesus and Mohammed. But they got suckered
into accepting the existence of ghosts created by those whose purpose it
was to monetarily rule societies. Their ghosts go under the name of
“invisible hands” supposedly exerted by the market.
As described by his High Priest Adam Smith, “Hand the Invisible”
promises that so long as society bows to neo-feudal elements in control
of the money system, Hand will appropriately distribute the economy's
rewards and punishments. To Adam Smith and the modem laissez-faire
advocates, the “Market” thus displays omniscience, omnipotence, and
benign goodness, the three essential attributes of a Deity.21
They pretend the “market” offers a valid, workable “morality” for
the guidance of society. But only people who have not seen the inner work-
ings of markets would entertain such a foolish idea. In effect they have sim-
ply done away with morality and consciously substituted “the bottom line.”
This is much more than an accounting problem. It is deeply embedded in
the so-called science of economics.
For in reality the only invisible hand is the one picking everyone's
pocket and transferring the contents to those abusing the monetary and
economic system! It's long past time to reform them out of existence, but
it's not too late.
4. Dangers to civil liberty from the “War on terrorism”
A precondition for monetary reform is that we keep our political
freedoms intact. Unfortunately, the destruction of the World Trade
Center in a context of Christian, Jewish and Moslem “fundamentalism”
has placed our Constitutional Republic and Bill of Rights in more
jeopardy than at any time since WWII.
Watching what we venerated as a magnificent permanence in New
York's skyline collapse into rubble was a traumatic experience. In the
682 TOWARD A FOURTH BRANCH OF GOVERNMENT
thing transcends such personal considerations. The reader will see that, by
using the monetary concepts presented here, society has far more power to
solve its long and short range problems than the prevailing attitudes
toward government would indicate. In fact it's now possible to go beyond
mere problem solving and into the beginnings of “utopia” creation.
As long as there are unused resources available, such as unemployed
and under-employed people, or unused plant and equipment and natural
resources, and there are needs to be filled, society has the monetary
power to employ those factors without resorting to taxation or borrow-
ing. Since we have seen that private banks can't or won't do it, the
money to finance such development can be carefully created by govern-
ment within specific constitutional guidelines. The availability of the
new goods and services produced means that inflation need not result.
The new wealth and economic activity and connected taxes generated
are great bonuses from such productive efforts.
Some short-sighted economists will crow that “there is no free
lunch,” and think they have knocked down these concepts (but if there's
no free lunch, then why haven't these fellows starved to death long ago?)
What they really seem to hate is watching society accomplish good
things and solve problems. They want to limit such decisions and activ-
ity only to corporations, and the elites that rule them. That means the
kind of problems that only society can solve will grow until they lead to
warfare.
The real sources of the productivity are the work and thought and
tools and natural resources, and our inherited knowledge and experi-
ence, all existing within a supportive social and legal framework. Money
is just the indispensable lubricant that facilitates their employment. If
there are not sufficient numbers of skilled people, society can direct its
monetary power to improving our educational system and funding new
schools of all types. People might also better understand the negative
role the media has been exercising in generally glorifying or playing to
ignorance and promoting drug use. They might question whether that is
accidental, really just for the sake of profit, or much worse.
Other purposes to which the monetary power can lend a hand are
obvious: medical research to remove the scourge of cancer and other dis-
eases; automotive research to double or quadruple the efficiency of auto-
mobiles; or develop better, pollution free technologies. Energy and
waste management research will allow us to stop fouling our planet. And
yes, a missile defense shield, and other programs that keep our defenses
24 PROPOSALS FOR U.S. MONETARY REFORM 685
Epilogue
If you are interested in these monetary themes on either a theoreti-
cal or practical level, you are invited to keep in touch with the Institute,
and if possible to become a sustaining member (see overleaf). We'll
keep all informed of developments with regular updates through e mail,
and regular mail for those not online.
No one knows just how the future will unfold, but we know that
monetary reform is crucially needed in America, and as long as we are
able to take meaningful steps to that end, we will. Our primary contri-
bution will continue to be in the area of monetary research and educa-
tion. We also have a responsibility to help implement the ideas discov-
ered there. That is fully consistent with our charter, and with the politi-
cal action limitations that 501(c)3 rules place on charitable trusts. Our
stated mission is “to advance the independent study of monetary histo-
ry, theory and reform, and to present the results in a way that’s under-
standable by the average citizen, so that it can lead to monetary reforms
that assure a greater level of economic justice in society and a more effi-
cient and equitable functioning of government.”
686
Notes to Chapter 24
' Alexander Del Mar, History of Monetary Systems, (repr., New York: A.M.
Kelley, 1969), p. 467.
2 Natl. Conf. of Catholic Bishop’s Pastoral Letter, Economic Justice for All, 1995.
3 A year 2,000 estimate by a Chicago Federal Reserve Bank economist. Earlier
figures of a $300 billion loss were reduced as many properties became salable.
4
Alexander Del Mar, Money in Ancient Countries, (London: Bell, 1885), p. 2
5 Max Weber, The Protestant Ethic and the Spirit of Capitalism, transl. Parsons,
Frederick Soddy, Money Versus Man, (New York: Dutton, 1933, pp. 32, 45-6.
9 de Fremery, cited above, p. 76.
10
Ludwig Von Mises, Human Action, (Yale Univ. Press, 1949), pp.560-80.
I I de Fremery, cited above, p. 50.
12 Henry C. Simon, Economic Policy%r a Free Society, (Univ. of Chicago Press, 1948).
http://pw2.netcom.com/ masonc/vickrey.html#KOHLERT
List of Illustrations
Abbreviations used: Nyplpc. - New York Public Library Photo Collection;
art. - artist; phot. - photographer; n.n. - not named; unk. - unknown.
la) Hook tool money, Ridgeway's Origin of Metallic Weights and Standards.
lb) Aristotle and Alexander, art. n.n., Nyplpc.
1c) Map of Greece and Turkey.
1d) Ionian stater, Smithsonian Institution, phot. Douglas Mudd.
le) Croiseus stater, Smithsonian Institution, phot. Douglas Mudd.
lf thru li) 130 grain coins, Smithsonian Instltution, phot. Douglas Mudd, &
American Numismatic Society, phot. Sebastian Heath.
lj) Athens owl, Smithsonian Institution, phot. Douglas Mudd.
lk) Solon, Casper Roig Edltores, Madrid, Nyplpc.
2a) Map of Italy.
2b) Aes signatum, Smithsonian Institutlon, phot. Douglas Mudd.
2c) Animal signatus, Smithsonian Institution, phot. Douglas Mudd.
2d) Heavy aes grave, Smithsonlan Institution, phot. Douglas Mudd.
2e) Lighter aes grave, Smithsonian Institution, phot. Douglas Mudd.
2f) Romano coins, Smithsonian Institution, phot. Douglas Mudd.
2g) Roma coins, Smithsonian Institution, phot. Dougtas Mudd.
2h) Roma quadrigatus, Smithsonian Institution, phot. Douglas Mudd.
2i) Denarius, Smithsonian Institution, Douglas Mudd.
2j) Roma victoriate, Smithsonian Institution, phot. Douglas Mudd.
2k) Oath scene gold/Mars eagle gold, Smithsonian Institution, Douglas Mudd.
21) Augustus bronze dupondus, Smithsonian Institution, phot. Douglas Mudd.
2m) Brutus’ “Eid Mart” daggers, Smithsonian Institution, Douglas Mudd.
2n) Constantine the Great, art. Jos. Buelow, 1860; Nyplpc.
3a) Abd El Malik coin, Smithsonian Institution, phot. Douglas Mudd.
3b) Map of middle-east land bridge.
3c) Early and late bezant, Smithsonian Institution, phot. Douglas Mudd.
3d) Walls of Constantinople, phot. E. Widmer, Nyplpc.
4a) Carolingian penny, Smithsonian Institution, phot. Douglas Mudd.
4b) Charlemagne, art. Meissonier; Nyplpc.
4c)St. Mark's Cathedral, phot. H. Simeone Huber, Nyplpc.
4d) Doge's secret chancellery room, phot. Tore Gill, Nyplpc.
4e) Venetian tournesello & star grosso, Lane's Money & Banking in ...Venice.
5a) Pope Urban calling for the crusade, art. n.n., Nyplpc.
5b) Siege of Jerusalem, art. Dore“, Nyplpc.
5c) Crusader coin, Smithsonian Institution, phot. Douglas Mudd.
5d) St. Peters castle at Bodrum, Internet source, phot. n.n.
5e) Map of 4th Crusade route.
6a) Champagne coln, Smithsonian Institution, phot. Douglas Mudd.
6b) Jacob Fugger, art. Hans Burgkmair, Nyplpc.
24 ILLUSTRATIONS 689
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INDEX
Abd El Melik, 83-84, 100 Andreades, Andreas, 5, 267, 347; Adam
Aboriginal American money, 214-15; Smith undistinguished, 310; Bank of
mound cultures, 362 England, 278, 279, 308; English nat-
Ace, 42-43, 50 ional debt, 290, 350; Solon's reforms,
Adams, Brooks, 78 29-31; temples as banks, 15, 24
Addison, C.G., 146-47 Animals, as money, 51
Aeginatic money standard, 33 Anti-Federalists, 393
Aes, (Roman) 44-45 Antwerp, 121-23, 127
Aes grave, 49, 51, 52, 55 Aquinas, Thomas, St. 178-79, 184-85, 194
Aes rude, 44 Aristotelian Analysis of Usury, The
Aes signatum, 46, 48, 51 (Langholm), 178
Agio (at Bank of Amsterdam), 230 Aristotle, 95, 103, 180, 592, 629; nature
Agrarian Justice (Paine), 410 of money, 35-36, 56, 656; nomisma,
Agricultural commodities as money, 12, 34-35; Solon's reforms, 29-31; usury,
15, 51; colonial America, 364-65 30, 184-85, 188, 341, 343-45
Al Djawhri, 102 Arrian Heresy, 93
Al-Jahri, Mabid, Ali, 626 Articles of Confederation, 389
Aldrich, Nelson, 519, 523, 525; National AS, (Roman), 44-45, 52, 55-56
Monetary Commission, 533, 535 Asian Trade fa Antiquity (Jones), 88
Aldrich Plan, 503, 524, 525, 527 Ass, (Roman), 44-45, 73
Aldrich-Vreeland Act, 518-19, 521, 526 Assignats, (French) 446, 447-50
Alexander the Great, 17, 18, 21, 78, 87, 95 Astor, John Jacob, 417
Alison, Archibald, 173 Athelstan's Law, 253
Ambrose, St. (on usury), 182 Attic money standard, 26, 30
America: aboriginal American money, Aufricht, Hans, 610
114-15; plunder of precious metals Augsburg, 185
from, 125; see also United States Augustus, 68, 70, 72-73, 75, 88, 89
American Bankers Association, 525 “Aurea mediocrites,” 31
American Inst. for Econ. Res. (AIER), 677 Aurelean, Emperor, 91
American Monetary Institute, 6, 128, 445- Aureus (gold coin), 71-72, 75, 88
46, 664, 665-66, 681-83; mission and pur Austrian School of Economics, 4, 676-
pose, 683; sustaining memberships, 686 77; free banking, 444-45; mistaken
American Revolution, 376-86 market origin of money, 28; paper
American Society of Civil Engineers, money, 372; usury, 342
infrastructure report, 654-55 B
Amsterdam, 223-49 Bacon, Francis (on usury), 341-42
Amsterdam Stock Exchange, 238-45, 277; Bagehot, Walter, 490-01, 679
Ducatoon index future; manipulations, Baggatini (Venetian coin), 125, 218
242-43; structural flaws, 243. Baigent, Michael: freemasonry, 149;
Ancient Coins and Medals (Humphreys), 41 Knights Templar, 141, 146, 148
Ancient Economic /;ffSforr (Heichelheim), 13 Balfour, Arthur (and WWI), 576-77
Ancient Oriental System, 12, 13, 33 Bank for International Settlements, 606-09,619
Ancus Marcius, King, 45 Bank holidays (1930’s), 556
Anderson, Benjamin, 503 Bank of Amsterdam, 228-33, 277-83;
INDEX 709
Civil War, 455, 464, 486; see also Banking System of the United States
Confederate money; Greenbacks (Gallatin), 421.
Clark, John, 437 Constantine the Great, 78
“Classical economics”, 33, 43, 102; mis- Constantinople, 141-45, 151
named, 102-03 Constitutional Convention, 393-402;
Clay, Henry, 416, 467 avoids money question, 396; inade-
Clay, Lucius, 597 quately defines money power, 394
Clay money, 45 Continental currency, 40, 96, 377-86, 434, 447;
Clearance mechanism (Fairs), 152 British counterfeiting, 380-81, 382, 460
Cobbett, William, 336-37 Convergence (European monetary), 633-34
Coin clipping, 120-21, 260-62, 266, 278- Cook, Jay, 492
79, 481, 482 Cooper, Peter, 509, 512
Coinage, 153, 514-15; “debasement,” 156- Cope, H.L., 78
57; colonial America, 364, 374; deriva Copper, 17; see also Bronze
tion of word, 22; free coinage law, 233; Copper money, 33, 40, 41, 51, 218;
Greece, 16, 21-24; “intrinsically valable Brugge, 168; Indian money, 113;
coinage,” 28-29; overvaluation, 51-52, Italy, 125, 218; Mexico, 214; see also
62, 65, 126, 127; private issue, 61-62; Bronze money
recoinage, 285; “tree coinage,” 366; Cosmas (medieval monk), 97-98
United States, 409; see also specific Cost-of-living index, 463
headings, e.g: Denarius; Gold coins; Counterfeiting: Assignats, 449; colonial
Roman monetary system rrioney, 372-73; Continental Currency,
Coins, Bodies, Games and t3old(Kurke), 34 380-81, 382, 460; Greenbacks, 454,
Coin's Financial School (Harvey), 498-99 460; punishment for, 96, 373
Coke, Lord, 343 Country pay period, 364-65
Collegenza (partnerships), 116, 181 Coxey, Jacob, 509-10
Columbus, Christopher, 210-11 Craggs, James, 300-01
Commodity money, 14, 109, 188, 395, Craig, John, 252
599, 670-71; Bank of England pro- Crawford, Michael, 56, 60, 62-63, 69-70, 73
motes , 278; Charlemagne, 129; colo- “Crime of 73”, 495
nial America, 364-65; Jevons, 356, Cromwell, Oliver (as Messiah), 263-64
357; Marx, 349, 355; private banking “Cross of gold” speech, 510-12
and, 335; redeemability into commodi- Crusades, 118-20, 131-49
ty, 157; Roman money mistaken as, 51- Currency. See Money
52, 56, 57-59, 60, 62, 63, 65, 100, 105; Currency Act (1764), 375
Smith, 335, 349, 357, 404, 530; Smith Currency Act of March 14, 1900, 515-16
promotes commodity money, 313; Currency of the American Colonies,
United States, 400, 402, 404, 409-10, 1700-1764, The (Brock), 369-70
411, 426 Currency question. See Bimetallism;
Commodity price indexes, 462-63 Deflation; Gold standard; Inflation;
Conant, Charles, 437, 468, 502 Legal tender; Paper money; Precious
Conditionality (IMF), 617 metals; Silver question
Confederate money, 447, 465-66 Cyprus, slaughter of the Greeks, 89
Confusion de Confusiones (De La Vega), Cyrene, slaughter of the Greeks, 89
242 D
Consecration process (coinage), 18-19 Dandolo, Andrea, 124, 125
Considerations on the Currency and Dandolo, Enrico, 120, 122, 142, 144
712 Index
States (Van Buren), 392-93 155, 158. 183; fall of Rome, 94, 95-96;
Origin of Rome, The (Block), 42 medieval moneylenders, 158; scarcity
Overmann Act, p. 532 of precious metals, 98
Owen, Robert. 660 Pius XI, Pope, (on the money power)
Owen-Glass bill, 523-24 568-71
“Owl,” (Athenian coin) 28 “Placcats,” (Dutch), 233
p Plato, 54; nature of money, 35-36, 656
Page, Walther Hines, 537 Pliny, 41, 59, 61, 88, 92
Paine, Thomas, 383-84, 435, 674; contra Plutarch, 21, 31-32, 40, 67
Bank of England, 292; continental Plutocracy, 666
currency, 386, 434; social security plan, Political economists, 307-10; Currency
562-63; view of money, 409-10 school versus Banking school, 331-32
Pakistan, 625, 627 priesthood for banket's theology, 305
Palestinian State, President supports, 681 Polybius, 32
Panic of 1857, 454 “Ponderata,” 313
Panic of 1907, 517-18 Pontiac (Indian chief), 364
Paper money: colonial America, 367-69; Pontifex Maximus, 68, 78, 83, 91, 212;
Confederate money, 465-66; England, control over Rome's money, 68, 78
268-69, 287; gold/silver backing a ruse, Populism, 508, 510, 512, 532
347, 529-30; Marx, 350; United States, Populist Revolt, The (Hicks), 510
362, 404, 414-15, 392, 396, 397, 434, Portugal, (and the Cape Route), 220
529-30; see also specific headings, e.g.: Postal Savings System, 517
Fiat money; Greenbacks Pound, Ezra, 522, 533
Parallel Lf yes (Plutarch), 21, 31-32, 40 Precious metals: drain to east, 7, 64-76;
Parish, David, 417 plunder, 109, 145, 217, 232; scarcity,
Parkes, James, 134, 135, 257-59, 260 98; unnecessary for money, throughout;
Paterson, William, 228, 279, 280, 285, see also specific metals, e.g.: Gold; Silver
290, 526, 527 Precious Metals, The (Jacob). 97, 350-51
Patman, Wright, 532, 664, 674 Price, 178
Paulus, Julius, 79; nature of money, 656 Price, Bonamy, 491-92
Pausanius, 21 Price indexes, 462-63
Pawnbrokers, 161, 167 Price, J. L., 238, 247
Payer, Cheryl, 620-21 Primitive Money (Einzig), 11
Peel, Robert, 332 Private banks, 158-61, 355-56;
Peisistratos, 28 Barcelona, 161; central banks, 518;
Pelanor, (Spartan money) 32, 45 land banks, 366; merchant banks, 159-
Pennsylvania, 370-71 60; Smith, 319-20, 359, 421; state-
Pennsylvania Bank, 385, 390 chartered banks, 436-37; United States,
Penny: Anglo-Saxon penny, 254; silver 436-37, 450
penny, 110-1 I Private money, 162, 335; compared to
Persian money standard, 26 government money, Chapter 16; forbid
Peruzzi, Emilio, 43, 44-45, 48 den in colonies, 375-76; immorality of,
Pesoa, Francesco, 222 661-63; Marx, 352
Petty, William, 228, 325, 341-42 Protestant Ethics and the SpfTit of
Piccoli (Venetian coin), 124 Capftalism (Weber), 201, 202
Piracy, 215 Ptolemies, 87-88
Pirenne, Henri, 98, 100, 103, 152, 154, Public Economy ofAthens, The (Boeckh),
INDEX 721
Studenski, P., and Kroos, H, 408, 454, 525, Tiberius Gracchus, 66-67
542, 551, 565; Bank of the United States, Tiepolo Querini Conspiracy, 123
417; central banking, 523; Greenbacks, Timberlake, Richard, 407
465; Panic of 1907, 517; private banks, Timotheus, 33
436, Kuhn Loeb & Co., 517, 524, 526. Tin money, 33
Suasso, Isaac Lopez, 272, 273 Tobacco, as money, 215
Suetonius, 44 Tool money, 15-16, 32; Mexico, 214
“Suffolk system,” 441 Tornesello, Venetian 125-26
Sulla, 67 Tovey, D'Blossiers, 237, 261-62, 253, 254
Summenhart, Conrad, 188 Toward a Just Monetary System
Sumner, William Graham, 366, 377, 406, (Chopra), 625
438, 458-59, 497 Townsend, E.D., 219
Supply and demand, 17, 18, 19, 20, 102, 105 Townshend, Charles, 299, 309-10
Survey of Primitive Money, A (Quiggen), 11 Toynbee, Arnold, 55, 63-64, 65
Sutherland, C.H.V. 60 Trade fairs, 152, 605
Symon, Thomas, 266 Trade and Politics in Ancient Greece
T (Hasebroek), 23-24
Tacitus, 19 Tragedy and Hope (Quigley), 520, 541
Taine, Hippolyte, 273 “Treasurers of the Gods,” 25
Takaki, Masayoshi, 484 Treatise on Money (Keynes), 559-60
Takatoshi, Sokubei, 484 Triens, 111
Talanton, (Homer's), 26 Triple Contract (usury avoidance), 188
Tallies, (English), 264-65 Triumph of Conservatism, The (Kolko), 512
Taney, Roger, 425 Troelstch, Ernst, 149, 192, 197, 198
Tariff, 88 Tuchers of Nurenberg, 167
Tawney, 576 “2 '/2 unit,” of Rome, 45-46, 49, 50
Tawney, R.H., 197; Baghdad railway, Two Nations, The (Hollis), 266-68
576; Puritanism, 198, 200
Taxation, 254, 564 Unger, Irwin, 464, 472, 473, 489, 492-93
Tcherikover, Victor, 75 Unholy Crusade, The (Godfrey), 142
Temple and the Lodge, The (Baigent and United States: banking fraud, 653;
Leigh), 141 coinage, 409; colonial money, 361-86,
Temple cults, 16-21 434; Country Pay period, 364-65; fed
Temple, William, Archbishop, 571 eral budget, 653-54; monetary pollcy,
Temples: as banks, 24-26, 70, 79; conse 433-5 l ; monetary power, 389-429;
cration process, 18-19, and prostitution, 19 monetary reform. 656, 658-84; paper
“Ten-hours bill,” 338-39 money, 434-35; private banks, 436-45;
Terrorism, war on, 680-81 reform of monetary system, 658-94; see
Tewksbury, D.S., 471 also specific headings, e.g.: Constitu-
Theodosian code, 89 tional Convention, Federal Reserve
Theory of Money and Credit, The (Von System, Great Depression, Greenbacks
Mises), 4 United States Monetary Commission, 498
Thermopylae, 90 Urban III, Pope, 183
Theory of Moral Sentiments (Smith), 329 Usher, A., 175
Theseus, 21, 25 Usury, 122, 177-203, 336-59, 674-75;
Thomas Aquinas, St., 178-79, 184, 185, 194 agricultural loans, 13-14, 29; Aristotle, 35,
Thomsen, Rudi, 48, 50, 51-52, 59, 60-61 184-85, 188, 341, 343-44; Bank of
Tiberius, Emperor, 75 England's manipulation of money as,
724 Index
278, 336, 340; Calvinism and, 196; def Westerman, William Linn, 16
inition, 340, 342; England, 259-61; Western, Charles, on deflation effects, 331
Islam, 625; “macro usury,” 340-41 Weston, George, 495
mathematical impossibility of long- Whipple, John, impossibility of long term
term usury, 346; Pennsylvania, 370- usury, legal concept of money, refutes
71; riskless usury, 346; scholastic Bentham 345-46, 674-75
view, 178-81, 189; Triple Contract, 188 White, Andrew Dickson, 446, 447-50
V White, Henry, 576-77
Van Buren, Martin, 392, 426-28, 435; White, Henry Dexter, 609-10
Bank of the United States, 422, 424-25, Whittlesey, Charles R., 672
454; Hamilton, 399, 402-03; Wicksell, Knut, 185-86; usury, 189
Independent Treasury System, 426; Wilbur, E.J., 454
Van Dillen, J.G., 228, 232, 233, 237-38, 247 Will, Moses, 263
VanderLip, Frank, 523, 525 William III, King of England, 272-73
Vaughan, Rice, 351 William of Auxerre, 183
Venice, 96, 103, 115-29, 142, 220 Willing, Thomas, 389, 391, 403
Ver Steeg, Clarence L., 391 Willis, H. Parker, 484, 543, 521, 523-24,
Victoriate, (Roman), 59, 62 528, 546
Viner, Jacob, 550-51 Wilson, Charles, 243, 247-48, 249, 273, 274
Von Humboldt, 218 Wilson, Thomas, 196
Von Mikes, Ludwig, 4, 568, 670, 676-77; Wilson, Woodrow, 521, 528, 537, 539
wrongfully attacks Franklin, 4; paper Wissell bank, 228
money, 372; usury, 189 Witherspoon, John, 473; Bank of North
Voorhis, Jerry, 673-74 America, 391; promotes commodity the-
Vreeland, Edward B. See Aldrich- ory of money, 404; paper money, 397-98
Vreeland Act Wooden money, 45
World, The, 487, 488, 489
w
World Bank, 620-21
Wade, John, 340 World Bank Group, 620-22
Walker, Francis Amassa, 18 World History of the Jewish People — The
Walpole, Robert, 309 Dark Ages, 711-1096, The (Roth), 134
Wampum, 363-364 World War I, 536-39, 542, 545, 579
War, and money, 160, 236-37; Bank of World War 11, and money creation, 565
England and, 290; Civil War, 455, 464,
x
486; Flanders, 155; Revolution, 376-
86; Roman monetary system and, 65- Xenophon, on the “division of labor,” 311
66, 73; World War I, 536-39, 542, 545,
579; WWII, 565 Young, Roy A., 546
Warburg, Paul M., 523, 526, 530, 536, Z
539, 547 Zakaa (Islamic), 625
Warren, Josiah, 660 Zarlenga, Stephen, 36, endnote 6
Washington, George, 405 Zarqa, Anas, 626
Wealth of Nations, The (Smith), 148, Zianni, Doge, 120, 127
311, 332, 284, 300, 389, 336, 407 Zimmem, Alfred E., 577-78
Weaver, James B., 509 Zolotas, Xenophon, 612-13
Weber, Max, 192, 201-02 Zulm (Islamic), 625
Webster, Daniel, 424, 425
Welsers of Augsburg, 166