House of Lords Talk

8/8/2019 House of Lords Talk

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AMERICAN MONETARY INSTITUTEPO BOX 601, VALATIE, NY 12184

Tel. 518-392-5387, mobile 224-805-2200 email [email protected] http://www.monetary.orgStephen Zarlenga, Director

Dedicated to the independent study of monetary history, theory and reform

2004 AMI (Written permission required to reproduce, but please distribute web site url freely)

TALK AT THE HOUSE OF LORDSto Lords, British MPs, and monetary reformers

at Parliament, London May 4, 2004

THE LOST SCIENCE OF MONEY& MONETARY JUSTICEUSING PUBLICLY CREATED MONEY TO FUND PUBLIC PROJECTS

A) INTRODUCTION

I thank the Honorable MP Austin Mitchell for inviting me to speak in this historic hall. And Mrs.

Sabine Kurjo Mcneill and Canon Peter Challen and the monetary reform groups for arranging it. Its an

honor to bring the research results of the American Monetary Institute on the Worlds deepening

monetary problems to your attention, - even when those results may sound controversial.

So many positive aspects of ourpoliticalsystem originated in yours, nothing would please me

more than to contribute to the good functioning of yourmoney system. 2 hours indicated for this

session, but since so many of you are versed on monetary matters well get into questions after a brief

presentation.

The Worlds economic problems are rooted in the miscontrol of our money systems which have

been based on an inadequate concept of the nature of money.

In America many States are broke and cutting needed programs and raising middle class taxes,

while an untaxed corporate culture resembling institutionalized theft has unfortunately dominated for

years. Enron, WorldCom, and Arthur Andersen are gone. Citibank and Merrill Lynch were fined over a

thousand million $ for their complicity in scandals. It was New Yorks Attorney General Spitzer, not the

private Federal Reserve System, who levied the fines. Americans face a future of rising bankruptcies

and falling job opportunities. Of course we all feel a lot safer with Martha Stewart heading into goal.

In England, thanks in part to the 1946 nationalization of the Bank of England, and other morerecent advances the symptoms take on different, less virulent forms but Im told theres deep concern

over growing national commitments and the debt and interest costs they might bring under your present

monetary arrangements. The good news for both our countries is that tried and true monetary

solutions exist and could be applied.
mailto:[email protected]:[email protected]


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HALF OF THE PROBLEM IS The failure of economics from Adam Smith to the present to define

or discover a concept of money consistent with both logic AND history. Economists rarely define

money, assuming an understanding of it.

Its still argued whether the nature of money is a concrete power, embodied in a commodity like

gold; or whether its a credit/debit issued by private banks. Does its value come from the material of

which its made? Or is it, as we have concluded, an abstract legal institution of society, having value inexchanges due to the sponsorship of government?

The correct answer the Science of Money - leads to conclusions on the proper monetary role

of government; on whether private banks should be allowed to continue creating money - or whether

this powerful privilege belongs solely in public hands through government.

THE OTHER HALF OF THE PROBLEM is the Mythology of Money that what A Lot of People

Think They Know About Money, just isnt so. A body of plausible sounding but misleading even

false ideas, repeated century after century by powerful interests, now passes for monetary wisdom. A

large part of this mythology is the view that government has been the main abuser of money systems and

inevitably causes inflation. This deeply entrenched viewpoint assumes that society has had better

experience with privately controlled money than with government issued money. Well examine the

evidence behind that dominant viewpoint. I doubt anyone will disagree that beliefs should rest on factual

evidence to remain credible?

What if an examination of the facts shows that publicly created money has a superior record to

private bank created money? Such facts are found mainly in history.

IN DEFINING MONEY, METHOD IS CRUCIALWe have two basic approaches to understanding money: A theoretical method based on logic; and an

empirical approach based on experience or history.Practitioners of the two methods normally arrive at

very different conclusions. Support for commodity money or private credit money tends to be based on

theory, while Historians normally want a much larger role for government.

Alexander Del Mar the great monetary historian wrote "As a rule political economists...dont take the

trouble to study the history of money; it is much easier to imagine it and to deduce the principles of this

imaginary knowledge."

This over-reliance on logic and downplaying of the facts has worsened with students being

sidetracked into higher mathematics of questionable use.

ARISTOTLE (384-322 BC) gave the culmination of Greek thought and experiment on money

around 340 BC:

All goods must therefore be measured by some one thing...now this unit is in truth, demand,

which holds all things together...but money has become by convention a sort of representative of


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HERE ARE TWO CASES OF this monetary science from ancient Greece and Rome reflecting

Aristotles nomisma concept:

Plutarch describes Lycurgus 8th century BC monetary reform when Spartas wealth became

overly concentrated. He banned using gold and silver and used iron slugs for money. Furthermore those

iron pieces were dipped in vinegar while hot, to render them brittle and purposely destroy any

commodity value that they had as iron! They received their value through legal sanction. 400 yearsbefore Plutarch, Plato confirms that Spartas iron money was rendered useless with the vinegar

treatment. This nomisma system lasted over 3 centuries and Sparta became a premier power. Polybius

tells it faltered when Spartas involvement in empire retrogressed her back to gold and silver money.

(LSM, Ch. 1)

REPUBLICAN ROME based her money on copper, isolating herself from the East and

disenfranchising the gold/silver hoards and therefore much of the power of the East. Gold could

still be traded asmerchandise; but without the monetary power, the ability of the East to control

or disrupt Romes money was reduced and she had a better chance to control her destiny. Roman

Nomisma, were bronze discs valued far above their commodity content through the law.(LSM, Ch.

2)(XXX AES GRAVE SLIDE)

(An Aside - When the US rose to become the dominant world power, we didnt have this

advantage of monetary isolation. But interestingly during the two great crises of our nation the

Revolutionary War, and the Civil War - we erected money systems completely independent of Old

World Power: the Continental Currency and the Greenbacks. And though both have been criticized, they

served us well.)


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XXX ROMA COIN, XXX DENARIUS, XXX OATH SCENE SLIDES

Rome won the Punic wars, butthey destroyedher money system and she regressed to Eastern

moneys- First to silver, and then with the imposition of Empire, Julius Caesar established a gold

standard using the weight system of the ancient temples. The growth of plutocracy accelerated; wealth

concentrated in its hands and the population degenerated into slavery. Adopting the Easts money

caused power and even the Empires headquarters to shift eastward to Byzantium. (LSM, Ch. 2 & 3)Since money is based in law, and in turn the money system supports the legal system, The

breakdown of law and money operated negatively, one upon the other for centuries in a

downward spiral of societal decay, especially in the West, where the city of Rome itself was

temporarily overrun. The concept of money regressed to crude metallism and the science of

money was lost again, especially in the West.

These two ancient cases illustrate that the system we are proposing is not new or hypothetical. Its

almost three millennia old and important societies were based on it.

Several parts of the Lost Science are visible there:

Its legal not commodity basis

Importance of limitation of issue

Importance of keeping the control within national hands

SECTION END

SECTION START

UNFORTUNATELY A MYTHOLOGY OF MONEY has obscured this science and served tokeep the money power in private hands. A Science of money is put forward logically and historically

showing that seignorage the profit of issuing money and more importantly the POWER derived from

it, clearly belongs to the nation, not to private banks.

A Plutocracy counters with a mythology the slur that government the organized

expression of your society CANT HANDLE IT.

Since Adam Smith a three-century campaign raises the fear of inflation and abuse under

government money, even though the evidence shows greater monetary abuse by private systems. In this

campaign they still advertise the 600-700 year old cases of monarchs debasing their coinage, but

NEVER give the context that this period which we call the KINGLY ABUSE PERIOD occurred after

the collapse of European monetary order with the fall of Byzantium in 1204 at the hands of the 4th

Crusade. Not mentioned is that much of the Kingly alterations were a necessary form of taxation, or

that REPUBLICS fared much better monetarily than monarchies. Nor do they discuss the greater

monetary problems caused by private bankers during those times.


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In addition to my book also consult Peter Spuffords great studyMoney and its use in Medieval

Europe published by Cambridge.He describes how the Anglo Saxon kings re-coined the money about

every six years, issuing three pennies for every four taken in. This was a 25% tax or about 4% a year. No

doubt some will paint these re-coinages as nefarious, but Spufford says this revenue provided the

strength of the late Anglo Saxon and early Norman kings, who adopted their system.

ALSO While you have been criticized for snobbishly looking down on the Continent,maybe its appropriate in this area. As an island community youve had monetary advantages over the

Continent and your Kings did pretty well on the money question:

In 1346 Parliament tried to gain control over money but was refused. In 1414 Parliament tried to

get at least a veto power in monetary matters but was again refused. Breckenridge in Legal Tender

wrote:

Why did Parliament not succeed in its attempt to assume the coinage power as it succeeded in

assuming the power over taxation? One reason...was that Parliament had no other remedy to propose, no

other line of conduct to suggest than that pursued by the Crown.

Despite modern day prejudices, the English Kings long standing monetary prerogative was used

responsibly. W.A. Shaws History of Currency, written in 1896, could identify only one case of

monarchical coinage irresponsibility:

This instance of debasement (1545-46 under Henry VIII) is the only one on record in English

currency history, he wrote, and it amounted to a grand debasement of about 15%! WHATS THE BIG

DEAL? If your mental impression of that case is a lot worse, maybe thats an effect of the propaganda

in this battle for control of the nations money.

And before bringing up the stoppage of the exchequer, do read Chris Hollis interpretation of that

event in The Two Nations.

CONSIDERING MORE RECENT TIMES, distinguished conservative journalist Henry

Hazlitt epitomized the modern day form of this private vs public money battle. In his introduction to

Andrew Dickson Whites essay, Fiat Money Inflation in France, a classic attack on government money,

Hazlitt wrote:

(The) world has failed to learn the lesson of the Assignats. Perhaps the study of the other great

inflations - of John Laws experiments with credit in France ; of the history of our own Continental

currency ; of the Greenbacks of our Civil War; of the great German inflation that culminated in 1923 -

would help to underscore and impress that lesson. Must we, from this appalling and repeated record,

draw once more the despairing conclusion that the only thing man learns from history is that man learns

nothing from history?


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Hazlitt believed history backed up his viewpoint. He trusted the reports he read on those inflations.

But they were not accurate, and to this day a literature about those events continues to grow, ranging

from misleading to false, mostly just repeating earlier disingenuous accounts.

Lets take a look - First THE CONTINENTAL CURRENCY begun in May 1775, became the

lifeblood of the American Revolution. $200 million were authorized and $200 million issued. Theyfunctioned well. In late 76 they were only at a 5% discount to coinage when General Howe made New

York City the center for British counterfeiting. You Brits counterfeited billions ofour Continentals. If

you ever find out how many, please let us know for the record! Newspaper ads openly offered the

forgeries; yet General Clinton complained to Lord George Germaine:

The experiments suggested by your Lordships have been tried, no assistance that could be

drawn from the power of gold or the arts of counterfeiting have been left untried; but still the currency ...

has not failed.

In March 1778 after 3 years of war, it was at $2.01 Continental for $1 of coinage.

The Continentals carried us over 5 years of Revolution to within 6 months of final victory. Thomas

Paine,Englands greatest gift to America, wrote: XXX TOM PAINE slide

Every stone in the Bridge, that has carried us over, seems to have a claim upon our esteem. But

this was a corner stone, and its usefulness cannot be forgotten. ...But to suppose as some did, that,

at the end of the war, it was to grow into gold or silver, or become equal thereto, was to suppose

that we were to get 200 millions of dollars by going to war, instead of paying the cost of carrying it

on. (LSM, Ch. 14)

The Continental Currency gave us a nation. Without it there would not be a United States.

FRANCEs MONEY SYSTEM was brought down by JOHN LAW a fugitive Scottish gambler.

But Laws operations were structured as private companies despite his recommending governmental

structures.

After an initial widely hailed success, his main focus became raising the price of the private

company shares. Weve all heard of the orgies of private speculation on the Rue Quincompaix in Paris,

concurrent with Englands 1720 South Sea Scandal another private affair. Laws system was thus

largely a failure of private money. The more obvious lesson which the French should not have had to

learn from John Law, is that its not a good idea to turn your nations money system over to a

professional gambler wanted for murder in his home country! DUH.

FRANCES later ASSIGNATS from 1789 were government issued, but under conditions of a

society and economy already so ruined by aristocratic extravagance that the people had risen in


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revolution. In the modern propaganda battle for control over societys monetary power the Assignats

described in Whites Fiat Money In France has been an important propaganda weapon against

government money. Few realize that was his purpose, written in 1876 during the battles over the

American Greenbacks, almost a century after the Assignats were issued. White, whose inherited fortune

arose from banking, eloquently used several rhetorical methods to attack the Greenbacks. But Hazlitts

introduction presents Whites essay as objective history on France, not as a political tract on theGreenbacks. Since a direct examination of the Greenbacks and their results would defeat Whites

purpose, instead he argued from analogy, asserting that what was true for France in time of ruin, must

also be true for the United States in relative calm.

Right from its publication Whites book was exposed in a lengthy essay by Stephen Dillaye, who

pointed out the purpose and faults in Whites arguments including omitting to inform his readers that the

Swiss and later British counterfeited far more Assignats than the French ever created. These facts

became documented through English court cases in which the counterfeiters were suing each other! In

the propaganda battle against government money, Whites book has somehow been continuously kept in

print by conservative foundations, the latest being the Cato Institute; Dillayes important essay, out of

print for 125 years is quite rare but we managed to find one, and will reprint it.

Well you may be thinking, no matter what Zarlenga says THE 1923 GERMAN

HYPERINFLATION surely condemns all government paper money!! But in fact that occurred

under a privately owned and privately controlled Reichsbank. Furthermore the hyperinflation began the

very month that all German governmental influence on the bank was removed and placed in private

hands at the insistence of the occupation forces. Furthermore Hjalmar Schacht tells us in his 1967 book

The Magic of Money, that this private Reichsbank actually facilitated the hyperinflation by financing the

speculators short sales of the mark. He didnt mention these things in his 1928 book on the subject.

It would be asking a lot after 3 centuries of propaganda for this brief examination to

convince you, but hopefully youll agree that a thorough examination is called for.

WHAT ABOUT THE AMERICAN GREENBACKS? Again this case doesnt stand scrutiny.

Contemporary observers called it the Best Money that ever a nation had and a majority wanted to keep

them permanently. But they were outmaneuvered politically by a wealthy coalition of bankers,

professors and Puritan ministers. Greenback Photo

Thanks to 100 years of misreporting and propaganda, the image of the Greenbacks coming down

to us is inflated or worthless paper money. But in fact, $450 million were authorized and $450 million

were printed. Counterfeiters couldnt duplicate the Greenbacks. Every Greenback was eventually

exchangeable one for one with gold coin.


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The Greenbacks were not promises to pay money later they were the money. Since they

were not borrowed, they did not give rise to interest payments and did not add to any national

debt. The U.S. Treasury printed them and spent them into circulation.

Economists know little about the Greenbacks. Critics merely remark that they dropped to 36

cents in gold, and leave it at that. While that happened, its highly misleading. Heres the whole picture:

XXX Greenbacks Vs Gold CHARTSome claim the Greenbacks kept value because later legislation called for redeeming them in

gold. But that unnecessary Resumption Act couldnt pass til 1874 for implementation in 1879. That

couldnt have caused the Greenbacks to start rising in July 1864. What did happen was that in June

1864, Congress limited the amount of Greenbacks to $450 million. An important part of the science of

money is limitation of issue.

ACTUAL PRICE MOVEMENTS DURING THE PERIOD were complex

Wesley Mitchells 1908 Greenback studies are watershed works. He quickly discovered that

There was no easy explanation of prices. Many related commodities didnt move the same, such as

wool and cotton. Gunpowder prices didnt rise much. The fastest rising commodities in one period were

sometimes the fastest falling in another period.

Mitchell constructed several price indexes, as there were none in existence. Items had to be

weighted for importance. Mitchells indexes started at 100 in 1860. His cost-of-living index median rose

a maximum of 73% by 1866 in the east, 57% in the west. This is a very different picture from mere gold

prices.

YES THERE WAS INFLATION BUT REMEMBER 13% OF THE POPULATION was fighting a

terrible war. 625,000 died. Greenbacks performed well despite being spent on destruction as this horrific

scene from Gettysburg shows. XX GETTYSBURG

THEY WERE ALSO BEING ABUSED BY THE BANKERS. FOR EVERY

GREENBACK CREATED BY CONGRESS, THE BANKING SYSTEM CREATED $1.49 IN

BANK NOTES.

An infuriated Treasury Secretary Chase remarked: It is a struggle on the part of the

banking institutions of the country to bleed the government of the U.S. to the tune of 6% on every

dollar which it is necessary for the government to use in carrying on this struggle for our

independence and our life.

And Still they functioned well. Some later economists would be surprised how well:

COMMENTS ON THE WARTIME INFLATION

Unger has noted that: It is now clear that inflation would have occurred even without the Greenback

issue.


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And comparing a wartime inflation under a government run money system (the Civil War) to wartime

inflation under a private banker run system (WW1), Civil War historian Randall wrote:

The threat of inflation was more effectively curbed during the Civil War than during the First

World War. Indeed as John K. Galbraith has observed, it is remarkable that without rationing, price

controls, or central banking, Chase could have managed the federal economy so well during the Civil

War.The fact that the Greenbacks were not accepted for import duties may also have been an

important negative factor against the currency:

Hence it has been argued that the Greenback circulation issued in 1862 might have kept at par

with gold if it, too, had been made receivable for all payments to the Government, wrote financial

historian Dewey. Also, if interest payments on government bonds had been paid in Greenbacks instead

of gold, a large part of the demand for gold would have disappeared. Studenski and Kroos, in their

authoritative Financial History of the United States, pronounced in favor of the Greenbacks:

Some writers have ascribed the price inflation almost entirely to the issuance of greenbacks, but

this is a mistaken view. Even if the greenbacks had not been issued and bonds had been sold at whatever

price they would bring in the market, inflation would have taken place. It would merely have taken

another form - that of the monetization of debt through the issue of bank currency or the creation of

bank credit.

AND WHAT IF??

WHAT IF instead of being spent on destruction, they went into building infrastructure, canals

and roads; or more farm machinery factories? Spending such money on infrastructure or onproductive capacity need not be inflationary. For example the Erie Canal lowered freight prices

from $114 a ton down to $9 a ton.

THE GREAT LESSON OF THE GREENBACKS Is That In Times Of Crisis - and other times too

- our nation has Power to do what is financially necessary, through our government. We dont

have to beg or borrow money from the wealthy and, create an astronomical national debt. We

dont have to tax the middle class into oblivion, or cancel necessary programs. We can carefully

use the nations sovereign money power far more than we presently have been allowed to realize.

(LSM, Ch. 17)

We have gone into some detail since this is the system we advocate. Again its not a theoretical,

hypothetical reform, but something we know how to do and have done, basing a third of our nations

money supply on it for five decades.


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THE SOUTHS CONFEDERATE CURRENCY BECAME WORTHLESS and we agree that a fiat

currency does depend upon a continuation of the government that issues it. But also the Confederate

money never reached the level of real money. It was always a promise to pay money later, notably in

gold or silver form. The South was afraid of paper money likening it to the Mark of the beast.

IN MORE RECENT TIMES, DURING WARFARE, banks to assure their own survival, asin WWI and WWII, issued the money in large quantities. 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, benefited the populace, and made the people more

independent of the bankers.

Warfare thus became associated with getting the economy moving. But it wasnt the warfare;

it was the accompanying monetary and production activity that did it.

We havent 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. The private

banking system has been unable or unwilling to do that, and they have not allowed government to do it.

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 systems still used in our upstate New York

area. Another exception was NASAs all-out effort to reach the moon, which fostered much of our

modern miniaturized computerization.

In short, the Plutocracys inflation theme is the big lie.

You cant allow this mythology to dictate you actions.

SECTION START

HOW WAS THE SCIENCE OF MONEY RECOVERED AFTER ROME DECLINED?

About 800 AD CHARLEMAGNE re-instituted money in the West. But minting his pennies

depended on working slaves to the death in the silver mines. XXX PENNY(LSM, Ch. 4)

When his Empire ran out of conquests and slaves, the money system faltered. This

plunder/conquest/slavery basis of precious metals systems continued well into the 19th century. Modern

19th and 20th century moneys claiming to be precious metals systems, depended on an element of fraud

as well see.

JUST AS VENICE BEGAN EXPERIMENTING WITH FIAT COPPER COINS, Columbus found

America and Europes precious metals money systems became more functional only after she began

the plunder of the Americas. The total loot taken at gunpoint from the Indians from 1500 to 1700, was


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over 1200 tons of gold and 60,000 tons of silver! These amounts far overshadowed European supplies,

and prices rose about 400 to 500% during that time.

The theft was their minor offense. Estimates place the Indian population under Spanish control at

32 million souls and in less than 40 years they killed about 15 million of them; working most to death in

the mines. Near Mexico City one report states:

For half a league round the mine, and for a great part of the road to it, you could scarcely makea step except upon dead bodies or the bones of dead men. The birds of prey coming to feed on these

corpses darkened the Sun.

Spain did the dirty work on the ground; England and Holland formed privateers to raid Spanish

fleets. XXX POTOSI COIN (LSM, Ch. 8)

This was a very rare period where the gold supply kept pace with population growth. Historically

it has not, and so gold money systems have been formulas for deflation. This blood stained money had

profound effects on Europe, forcing great structural changes, distributing wealth more broadly and

creating a Renaissance of the North which the Reformation is usually given the credit for.

The Bank of England then Usurped Englands Money Power from the Crown in 1694, after Dutch

William 3rd of Orange took over England. One of the founders William Paterson remarked:

The very name of a bank or corporation was avoided, though the notion of both was intended,

the proposers thinking it prudent that a design of this nature should have as easy and insensible a

beginning as possibleBut it was found convenient to put it to hazard and expose so much of the nature

ofthe thingas was needful to have it espoused in Parliament. (LSM, Ch. 11)

Until then Englands monetary power was in the Monarchs hands. But from this point, bank of

England credits its notes and book credits would be substituted in place of public money. This has

promoted a confusion between credit, and money, to this day. But they are different things. Credit

depends on the creditor remaining solvent. REAL MONEY DOES NOT PROMISE TO PAY

SOMETHING ELSE.

Credit can legally be made into money, but its not itself money. Money is on a higher order than

Credit. It is unconditionally accepted as payment. Credit expands when there is a tendency to

speculation, and sharply contracts just when most needed to assure confidence, wrote Henry George.

Those behind the Bank of England obscured the real source of the Banks power ITS LEGAL

PRIVILEGE its notes were accepted in payments to the government.

It recovered the science of money, but for the private profit of a small group not the whole

nation. Using the principles of money for private purposes produced harmful results: 120 years of near

continuous warfare spawned an unpayable national debt leading to excessive taxation which led directly


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to horrors such as the Irish Potato Famine. Before then, when a nations money system was used for

taxation, the revenue generally aided the society at least in terms of what a Republic or King thought

was needed. But private moneys like the Bank of Englands concentrated societys resources into a few

hands, crippling the possibility for government to function properly, leading to a growing contempt of

government.

REGRESSION OF MONETARY THOUGHTThe inflow of blood stained metal from America held back monetary thought in metallism. Even

so, the principles of the science of money re-emerged from time to time as in Englands 1601 Mixt

Moneys case, or the writings in Bishop George Berkeleys Querest in 1735.

BUT THEN IN 1776, THE FATHER OF ECONOMICS, ADAM SMITH, In 1776 in his Wealth

OfNations book took a giant leap backward and obliterated any concept of money in the law, by

defining money this way:

By the money price of goods it is to be observed, I understand always, the quantity of pure

gold or silver for which they are sold, without any regard to denomination of the coin.

Smith regressed the concept of money backwards from being based in law, not just back to a

level of unlimited coinage, but all the way back to pure metal by weight, where the concept of money

was before the Romans arrived in England!

The Bank of England had advanced to abstract paper money 80 years earlier; not in theory, but in

practice. Adam Smith regressed to commodity money, not in practice, but in theory.His theory applied

to their practice caused confusion and created mystery to this day. (LSM, Ch. 12) Interestingly, Marx

did no better.

We find that the modern 250 year attack on government originated largely in Adam

Smiths efforts to keep the monetary power within the Bank of England. Smith glorified the Bank and

obscured its private ownership saying it functioned as a great engine of state. He attacked government

issued money.

A revenue of this kind has even by some people been thought not below the attention of so great

an Empire as that of Great Britain...But whether such a Government as that of England - which,

whatever may be its virtues, has never been famous for good economy; which, in time of peace,

has generally conducted itself with the slothful and negligent profusion that is perhaps natural to

monarchies; and in time of war has constantly acted with all the thoughtless extravagance that

democracies are apt to fall into - could be safely trusted with the management of such a project,


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must at least be a good deal more doubtful. (Adam Smith, Wealth of Nations; p.358 in the Great

Books collection, vol. 39)

Smiths insulting attacks on the English Government marks the modern beginning of a relentless

attack on society - the belittling and smearing of its organizational form - government. The single

organization potentially able to block plutocracys encroachments.Smith also inadvertentlyilluminates the major purpose of this attack: - to keep the money power in private hands .

Every day we see examples of how this disease has reached epidemic proportions. It has spread

from Hayek and Ayn Rand to their intellectual heir Rush Limbaugh and his propaganda radio. Its not

entertainment. Its gone beyond politics and into treason.

The attack on government is serious enough, but it becomes really obnoxious when combined

with THE ATTACK ON HUMANITY, as seen in

ADAM SMITHS SELFISHISHNESS ERROR

Following Buckles lead, George identified the false axiom on which Smiths Wealth of Nations

is based:

Buckles understanding of Political Economy was that it eliminated every other feeling than

selfishness. Wherein Smith generalizes the laws of wealth, not from the phenomena of wealth, nor

from statistical statements, but from the phenomena of selfishness; thus making a deductive application

of one set of mental principles to the whole set of economical facts. He everywhere assumes that the

great moving power of all men, all interests and all classes, in all ages and in all countries is

selfishnessindeed Adam Smith will hardly admit common humanity into his theory of motives.

(SPE, 89, 90)

Consider the negative impact on humanity of Smiths selfishness assumption: Supporters of

his doctrine argue that it is merely in harmony with human nature. But clearly, if Man is defined in such

a base manner and systems of laws with their rewards and punishments are enforced along those lines,

then over time, they will tend to create a form of humanity in harmony with their false conception of

an economic mankind.

This de-evolutionary process, encouraging a lower form of humanity has been ongoing

especially in the English speaking world for well over 2 centuries. The work of great English novelists


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such as Charles Dickens or great philosophers like Bishop George Berkeley may have slowed it, but

didnt stop it. Henry George saw exactly where it would lead:

Nor can we abstract from man all but selfish qualities in order to make as the object of our

thoughtwhat has been called economic man, without getting what is really a monster, not a man.

(SPE, 99) Ecco Homo - circa 2000!

OUR AMERICAN EXPERIENCE contains many of the best case studies for understanding money.

We have been a great monetary laboratory - every conceivable solution was tried at some time, and

weve been a paper money nation from Colonial days. Our development was inseparable from it -

without it thered be no United States.

English and Dutch laws forbade sending coinage to the colonies, placing them in continual distress.

The intent was to extract raw materials, not for the colonists to trade with each other. An early form of

globalization. The Colonies had to devise monetary innovations. (LSM, Ch. 14 & 15)

In the country pay period (1632 92) 17 different commodities were monetized by law at specified

prices. It didnt work - everyone wanted to pay with the least desirable commodity, in the worst

condition.

1633 - Virginia and Maryland monetized tobacco, issuing warehouse receipts for it. A bumper crop in

1639. Half crop was burned; debts were reduced 60%

XXX Pine Tree COINS

1652 Hulls mint in Massachusetts stamped the gold and silver tree coinage. But it quickly

flowed to England and was melted down.

Private land banks were set up but were shunned by the colonists, who considered money a

prerogative of government, as it was in England until 1694.

XXX Mass bill of Credit

Then in 1690, 4 years before the Bank of England, Massachusetts embarked on a radical course and

issued paper bills of credit, spending them into circulation. Rather than a promise to pay anything,

they were a promise to receive them back for all payments to the commonwealth. The colony thrived.

Other colonies copied them and INFRASTRUCTURE arose.

XXX Franklin

In 1723 Pennsylvanias system loaned the bills into circulation, charging interest on them and using

it to pay colonial expenses. Ben Franklin wrote:


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Experience, more prevalent than all the logic in the World, has fully convinced us all, that paper

money has been, and is now of the greatest advantages to the country.

In Franklinss words, one detects a tension even then, between theoretical argument and practical

experience, a continuing battleground in economics today.

SOME LONG LOST PRINCIPLES OF THE SCIENCE OF MONEY QUICKLY

RESURFACED:* Money need not have intrinsic value; its nature is more of an abstract legal power than a commodity.

* Accepting the government paper back in taxes was the key feature needed to give it circulating value.

* The quantity of money in circulation had to be regulated to maintain its value.

* They observed that paper money helped build real infrastructure.

* Most importantly, the colonies did not issue more money than their legislatures authorized.

They have an outstanding record issuing currency.

Of over a hundred colonial issues I found only one case of fraud. In Virginia, a Mr. Robertson

who was supposed to be burning the old notes as new ones were printed, was giving them to friends

instead.

BUT IN THE BATTLE FOR MONETARY DOMINANCE THE COLONIAL

MONETARY experience has been miscast as irresponsible inflation money. This was the result of

18th century Bostons medical Dr. William Douglas inaccurate writings. The error was corrected by

Alexander Del Mar in 1900 in The History of Money in America, but was ignored. It was authoritatively

cleared up again by Professor Leslie Brock in 1976 and again ignored. Many economists, and especially

the libertarians still havent got the message that colonial government paper money was crucial in

building the colonies.

In 1764, Englands Lords of Trade and Plantations prohibited all colonial legal tender issues,

and that became the underlying cause of the American Revolution, not some tax on tea.

XXX Continental Currency

We have already discussed how CONTINENTAL CURRENCY became the lifeblood of the

revolution.

OUR CONSTITUTIONAL CONVENTION CONSIDEREDTWO GRAND THEMES OF

HUMANITY.

First whether mankind could be self-governing or had to be ruled by authority. Often referred to as the

American experiment. We are still learning the outcome, and one of the reasons its still in doubt is

because of the way the Convention mishandled the other grand theme which was over the nature

money.


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By the time of the Convention, the great benefits of the Continentals was nearly ignored; along

with much of the rest of our hard won monetary experiences. Some wanted to emphasize that the

Continentals became worthless and rejected the idea of paper money altogether.

They ignored that paper money was crucial in giving us a nation; that abstract money requires an

advanced legal system in place; that the normal method of assuring its acceptability is to allow the taxes

to be paid in it. Then there was the matter of a WAR against the worlds strongest power.The convention met from May to September 1787 but the money subject didnt come up until

August 16. Remember, Jefferson and Paine were not there. Franklin was too old to speak.

XXX Witherspoon

A curious book on money appeared just then, written anonymously by Calvinist Minister John

Witherspoon, the only clergyman signer of the declaration of Independence. The book attacked

Government money and promoted Adam Smiths view that only gold and silver are money. He

stonewalled our hard won colonial monetary experience.

The power for government to properly create money, long considered as a necessary part of

sovereignty, was contained in 5 magic words to emit bills of credit. This provision was already in the

articles of Confederation, but the Federalists - the merchant/commercial interest, largely responsible for

calling the Constitutional Convention in order to strengthen the national government, fought to exclude

this monetary power, from the new government, arguing that it could not be trusted with it! Some of

them intended to get hold of the power privately as had been done in England.

THE SUPREME IMPORTANCE of the concept of money now becomes evident: For if money is

primarily a commodity, convenient for making trades, which obtains its value out of intrinsic

qualities, then it could be viewed more as a creature of merchants and bankers than of governments.

But if the true nature of money is an abstract social institution embodied in law obtaining its

value largely through legal sanctions, then its more a creature of governments, and the Constitution had

better deal with it adequately. Describing how a uniform currency is to be provided, controlled and kept

reasonably stable, in a just manner. It was on this crucial question that the Constitutional

Convention faltered.

The delegates accepted Adam Smiths primitive commodity definition of money as gold and

silver and didnt firmly place the monetary power into government, leaving it ambiguous. Later theyd

argue over what they had done.

But the power would still exist, since it is as important as the legislative, judicial and executive

powers.

I am suggesting that the nature of human affairs requires government to have four branches,

not three; the fourth branch to embody and administer the monetary power.


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The Constitution trusted the people with the political power; but didnt firmly place the monetary

power in their government. This (along with slavery) is the Original Sin of American Politics!

As a result the power was left up for grabs. Alexander Hamilton wasted no time in grabbing.

My neighbor Martin Van Buren 8th US President wrote a great book on the Convention

The Origin of Political Parties in the US. He spent time with Jefferson discuss.

SECTION END

SECTION START

HOW PRIVATE CENTRAL BANKING BEGAN IN AMERICA

Hamilton And The Money Power Attack First The Bond Theft as related by Van Buren.

The Constitution went into effect in late 1789; Van Buren described Hamiltons first move as

Secretary of the Treasury, in 1790:

Hamilton assumed some $15 million of the state debts...an act...neither asked nor desired by the

states, unconstitutional and inexpedient

What was so bad about it?

A large proportiion of the domestic debt (was held by) the soldiers who fought our battles, and

the farmers, manufacturers and merchants who furnished supplies for their support....When it became

known to members of Congress, which sat behind closed doors, that the bill would pass...every part of

the country was overrun by speculators, by horse, and boat, buying up large portions of the certificates

for (pennies on the dollar). (LSM, Ch. 15)

Madison, attempted to have the law pay speculators less than the original holders, but was voted

down.

NEXT HAMILTON AND ASSOCIATES, HAVING KEPT THE MONETARY POWER

Out of government hands, moved to assume it themselves. The Bank of North America was the only

bank in the US, formed in Pennsylvania on Tom Paines initiative to assist the revolution. Arguing that it

was only a state bank, Hamilton suggested it come forward if it wanted to alter itself for the national

purpose. Curiously, the Bank took no steps toward this obvious increase in profit and power.

Hamiltons Federalists quickly put through legislation to charter the First Bank of The United

States, as a privately owned central bank on the Bank of England model. The Bank would be issuing

paper notes not really backed by metal, but pretending to be redeemable in coinage, on the one condition

that not a lot of people asked for redemption! They really did not have the coinage. The bank would do

what they had blocked the government from doing! Print paper money.


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Thus the real question in practice was whether it would be private banks or the government

that would create paper money. Will the immense power and profit of issuing currency go to the

benefit of the whole nation, or to the private bankers? Thats always been the real monetary question in

this country.

XXX BANK OF US NOTE

While gold and silver served as a smoke-screen what the bankers really counted on, werethe legal considerations of the money. They knew that all that was needed to give their paper notes

value, was for the government to accept them in payment for taxes. That, and not issuing too

excessive a quantity of them. Under those conditions, the paper notes they printed out of thin air, would

be a claim on any wealth existing in the society.

And we see why the Bank of North America was not put forward for this purpose: the U.S.

Government had owned 60% of it. Thomas Willing resigned the Presidency of the Bank of North

America, to become President of the first Bank of The U.S. The government would only own 20%

of the new bank. JUST WHERE DID THE MONEY FOR FIRST BANK OF THE U.S. CAME

FROM?

The $10 million share subscription for the banks shares, was oversubscribed within 2 hours. Less

than 1/10 of it was ever paid in gold. The rest of the payment was accepted in the form of bonds the

very government bonds that Hamilton had turned from pennies on the dollar to full value. So you see

where the money for the bank actually came from from the American people! THATS HOW

PRIVATE CENTRAL BANKING STARTED IN AMERICA!

Even if the bank had faithfully stuck to gold and silver, the nations monetary power would

still have been alienated to the east - to the European holders of those commodities. Same people wed

just fought the revolution against!

Thanks to Jeffersons efforts, the bank was liquidated in 1811. Three quarters of it was found to

be owned by Europeans English and Dutch. (LSM, Ch. 15)

THE 2ND BANK OF THE U.S. - THE BANK FROM HELL Operated illegally from inception,

accepting IOUs instead of the required gold in payment for its shares. So again the bankers gold

requirement turned out to be a masquerade.

This private central bank immediately embarked on a wild monetary expansion. Beginning

operations in April 1817, by July it had 19 branch offices and had created $52 million in loans on its

books and an additional 9 million in circulating currency, based on gold and silver coin reserves of only

$2.5 million. This tremendous expansion caused a wild speculative boom.


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Then in August 1818, the bank turned abruptly and began an insane contraction, causing the panic of

1819. It cut its outstanding loans and advances from a high of $52 million, down to $12 million in I819.

Its circulating notes dropped from $10 million to $3.5 million in 1820. A massive wave of bankruptcies

swept the nation.

The subsequent history of this bank and its fight to the death with President Jackson reads like a

financial soap opera. The story of various state chartered banks is similar.MEANWHILE THE US GOVERNMENT ACTED RESPONSIBLY

In the aftermath of liquidation of the first and second Banks, the US Treasury notes were

responsibly substituted in place of banknotes. About $65 million were authorized and only $37 million

actually issued. The U.S. Treasury spent them into circulation. Initially they were all large

denomination, paid interest; were redeemable in gold and required formalities to transfer. By 1815 they

became bearer certificates with no redemption date, paid no interest and were in smaller denominations.

Thus they were nearly a true money form. The fact is that the US government has always acted

responsibly in creating money. Not so the private banks!

SECTION END

SECTION START

APPLYING THESE CONCEPTS TO MONETARY REFORM NOW

The definitional problem continues gold is not much discussed and bank credits are openly

substituted for money.

Economists are now confusing credit with money. They call money high powered money and they are

calling credit Lower powered money.

They should be more forcefully distinguishing between credit, and money. Blurring the difference

empowers the bankers.

They should be examining the unfair privilege this system places in the bankers hands and

They should be examining the results. For example The deteriorating infrastructure situation see

Engineers report in the Lost Science of Money, ch. 24

A GREAT DANGER: THE PURPOSEFUL DE-FUNDING OF GOVERNMENT at the local, state

and federal levels, arises out of this disease of attacking government as the enemy. Carl Rove said that

he wants to shrink government to a small enough size to be able to drown it in a bathtub! Hes one

of Mr. Bushes religiously oriented advisors. Unfortunately the athiestically oriented Libertarians

hold a similar view. My friend Douglas Casey while recently co-chairman of the Libertarian Party

Presidential Committee remarked that he didnt see any need for government at all.


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ACHIEVING MONETARY REFORM NOW? Its a bit different For America and England. In broad

terms

America needs to:

First: Nationalize the Federal Reserve, place it within the Treasury. Long term it becomes an

independent fourth branch of Government. We use the greenback mechanism initially to fundinfrastructure improvement and repair. The American Society of Civil Engineers 1998 Report estimates

that $2 trillion will be needed. Much more is required to assure water supplies. This immediately starts

solving all sorts of economic problems including unemployment.

Second: Remove the privilege banks have to create money. Only government should have this power.

This means much more than requiring banks to have 100% reserves. A special 100% reserve solution

elegantly transforms all previously bank created money into U.S. created money. This does not cause

deflation or inflation.

Third: Institute anti-deflationary programs to assure that sufficient money is introduced by government

into the system.

Your job in England is much easier you have already nationalized the central bank BUT

CLEARLY

YOU MUST NOW COMPLETE THE 1942 INITIATIVE OF ARCHBISHOP WILLIAM

TEMPLE, which led to that nationalization. Heres what he said: QUOTE FROM BOOK

In the case of money, we are dealing with something which is handled in our generation by

methods that are extremely different from those in vogue a century or half century ago. When there was

a multitude 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 - namely 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 servant. Reverend William Temple, Archbishop

of Canterbury, September 26, 1942

The Bank of England was nationalized in 1946, but the Archbishops intent was sidestepped:


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If you want your banking system to be the servant of your society instead of its master, then

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.

How do you go about this? You can:

Wait for another crisis while having the legislation ready to go

Educate the populace on why this is importantInform your leadership on the necessity for this through the early day motion do a world class

independent study which gets the facts regarding public vs private money on the table. Place the

pressure on the banking establishment to justify this fantastic privilege which they enjoy, to the

detriment of the entire nation.

WHAT WAS THE MORAL EFFECT OF BANKING ON THE EARLY US?

Here is what William Gouge, a banking expert wrote in 1833:

Without clearly distinguishing the causes, men have come to see clearly the wealth passing continually

out of the hands of those whose labor produced it, or whose economy saved it, into the hands of those

who neither work nor save. They do not clearly see how the transfer takes place, but they are certain of

the fact. In the general scramble they think themselves entitled to some portion of the spoil, and if they

cannot obtain it by fair means, they take it by foul. The Banking system is the principal cause of social

evil in the United States. (It still is, in 2004!)

To summarize the argument: The nature of the money power is societally derived, not one originating in

the activities of private corporations. Because of its great importance to all, control over the process

belongs under public authority. Both logic and history show that its not safe to delegate this power, and

certainly not acceptable to allow its usurpation.

House of Lords Talk

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