PREFACE ON USURY - From: THE MODERN IDOLATRY

From: THE MODERN IDOLATRY being An Analysis of Usury and THE Pathology of Debt, Jeffrey Mark 1934


PREFACE ON USURY

   The aim of this book is to show that the causes for the present widespread individual, industrial, political and international unrest must be sought in the financial system, and in that only. More specifically, that this system, under whose archaic dictates we all necessarily live and suffer, is based on and entirely motivated by usury — which is itself the genesis of all hatred, fear, suspicion and war.

   In order to do this, a somewhat detailed examination of existing financial processes has been undertaken. This has hitherto been considered the exclusive province of financial and economic experts. It is imperative to-day that it should be regarded as a matter for everyman’s judgment.

   The fact that certain sections of the book are somewhat technical, does not mean, therefore, that it has been written solely as a challenge to financial theorists. This book is written for the ordinary man, and its main implication is sociological.

   The present intolerable position, which the writer believes to be merely the preliminary stage in the complete breakdown of the monetary system throughout Western civilization, is the living ‘ reductio ad absurdum ’ of a condition which is implicit in all forms of sociology under usury.

   Modern civilizations, as well as those of the ancient world, have been built up on and were or are being broken by usury. The expansion of a nation or empire depends fundamentally on the expansion and maintenance of its debt-structure. So long as interest-payments can be made with respect to an increasing debt-structure, national or imperial entities can be supported or extended. In the last analysis, however, these interest-payments can only be transferred through the complementary degradation of certain classes within these entities and the commercial exploitation of retrogressive or undeveloped countries outside them. The spectacular rise of communism and socialism in the last eighty years shows that this internal exploitation is now receiving organized opposition on a world scale. The position with regard to external exploitation will be discussed in some detail in the succeeding paragraphs.

   For hundreds of years, the civilizations of the West have lived at the expense of the East. Interest-payments due on Western capital have been made possible by the creation of slavery conditions in the Eastern countries. The jingoistic paraphernalia of Western military power, state, church, and law derive from and are entirely subordinate to the financial and commercial processes which brought about those conditions- For if, in the military campaigns which extended the areas for Western exploitation, the Bible has followed the sword, both priest and soldier have followed the usurer.

   In this century, the Eastern countries have come to an awareness of these financial and commercial processes, and are now prepared to accept, to some extent, the continuance of slavery conditions, at the dictates of financiers, so as to further a new and aggressive policy in the world market, with respect to both industrial and agricultural products. In this policy, the most powerful weapon of the East is the low standard of living to which its workers have become inured during centuries of Western oppression. They are, therefore, able to produce and sell at prices with which the West cannot compete.

   The chief advantage '' of the East, that is to say, in the coming suicidal struggle for economic supremacy, derives from the miserable conditions which have been created there by Western domination. Under usury, it is the exploited who finally exploit the exploiters, until the wheel once more comes full circle and the same punitive justice again comes into play. The rise and fall of civilizations are but episodes in the history of usury.

   There are two forms of usury. The major form is that represented by bank loans, and the minor form by the creation of interest-bearing savings and investments which go to make up the debt-structure in every country.

   A fact which is not, but which should be, common knowledge, is that all money in and out of circulation, now comes into existence as an interest-bearing loan in favour of the banking systems of the world. This major principle of usury is administered by an international organization which functions through the central banks and large financial agencies of Western civilization. The minor form of investments is sporadic and individualistic — even when controlled by international commercial combines — but derives from, and, in practice, is dominated absolutely by the major principle of bank loans.

   It is important, therefore, to realize that we are all usurers — from the child who deposits his mite in the penny savings-bank to the international syndicate of money-lenders which operates through the Bank for International Settlements and the League of Nations machinery at Geneva — and that the universal adoption of this evil and disruptive principle, against the teaching of all the highest philosophical and religious examples, is ratified by common consent and full legal authority.

   Psychologically, usury is based on the desire to get something for nothing. In practice, it promotes a process of interference, by the accumulation of debt-claims, in the flow of the medium of exchange, i.e., money. The spending of money is, at one and the same time, the promotion of this flow and the creation and consumption of commodities. The progressive accumulation of savings and debt-claims (misleadingly called capital) is the damning up of this flow and the progressive restriction, first of consumption, then of production, and so, finally, of both. The secondary flow created by the investment of debt-claims can only be maintained by the indefinite extension of the area for exploitation.

As the world is a self-contained entity, and as we are all simultaneously both usurers and consumers, the progressive accumulation of debt finally operates to restrict the creation and exchange of material and psychological values throughout the whole of society. Debt, in fact, is nothing more or less than a fantastic abstraction, called out of the deeps of man’s subconscious, ultimately to confound debtor and creditor alike.

   For, as statistics go to prove, debt automatically increases at a faster rate than production, so that there inevitably comes a time when goods go into pawn faster than they are produced. When these countries (e.g. of the East) which were formerly exploited to pay a large part of the interest-claims due on accumulated debt, not only show less disposition to do so but begin to establish external debt-claims of their own, an impossible position of tension is created. This attempts to resolve itself by a desperate competition for the disposal of mounting “ surpluses ” in the world market, so that foreign currency for the payment of interest on external debt can be obtained. The result of this is, firstly, an accelerating competition in internal wage slavery in all countries concerned, and, secondly, when these conditions become insupportable, revolution or war. The World War itself was not a cause but a symptom of the present decline.

   In the past, this progressive accumulation of debt-claims has brought about the ruin of civilizations as single units. Three civilizations in the American continent rose and fell. Babylon, Egypt, Greece and Rome fell. But now the nations are so interlocked by modern means of communication and transport, by international debt and exchange parities, that a civilization which encompasses the world is threatened.

   The reconstruction proposals in Part III of this book are therefore concerned with the details of a mechanism to effect the abolition of usury in all its forms. The end of this would be the gradual elimination of all debt-claims and the establishment of a system of free money to facilitate and not obstruct, as at present, the complete distribution of the whole product of industry to consumers. This would not necessarily involve, as is commonly supposed by socialists and communists, the abolition of the profit system and the nationalization of the productive processes. The abolition of the principle of money interest on money lent would itself remove anomalies and desperate injustices which are supposed to reside in capitalism and the profit system.

   Since the writing of “ Das Kapital ”, Western capitalistic exploitation, now faced by the aggressive commercial retaliation of the East, has necessarily given way to purely financial negation. Nearly all the creations of the nineteenth-century capitalists — such as, for instance, the power-loom cotton industry of Lancashire — ^have been broken by usury. International finance, like the international armaments racket which it has spawned, knows no boundaries, geographical or cultural, and if the end of the latter is destruction, the end of the former, consciously or unconsciously, it matters not which, is universal degradation and slavery.

   In attempting to trace out these developments, the writer refers specifically to the so-called principles of British and American banking. As the British system is the more highly developed, the more “ stable and the more in accordance with the declared ideals of bankers, he has based his argument mainly on a discussion of its methods. Eight years’ residence in the United States has familiarized the author, to some extent, with the workings of the American banking and industrial systems, and statistics are given as far as possible, from both American and British sources, at each stage in the argument. He has thus sought to interest the reading public on both sides of the Atlantic.

   The writer apologizes for the wholesale use of quotation marks and italics. He has been impelled to do this, because so many terms used in banking circles, as well as in ordinary conversation, take on an entirely opposite meaning when the bogus principles of internal and international finance are understood. Bank “ credit ” should invariably be thought of for what it is, i.e. bank debt (and moreover as irrepayable debt). The phrase “ bank deposits ” is a legal euphemism, as all bank “ deposits ” derive from the progressive issue of bank ** credit ”. No one, consequently, really “ makes ” money except the bankers who literally create it. The term “ convertible currency ” is a quibble which has bedeviled mankind for centuries. Money is not “ convertible ” into gold for the well-known reason that gold “ backing ” exists in less than a one-to-ten ratio to bank “ deposits Nothing, in the writer’s opinion, could be more fundamentally unsound than a “ sound ” currency. Foreign " trade ” is not primarily the exchange of goods between nations, but essentially a device to transfer interest payments due on international debt. Foreign “ investments” are simply part of the mechanism of foreign “ trade ”. It is criminal to regard unsaleable goods as industrial “ surpluses ” while millions throughout civilization are faced with the fear or actual fact of starvation. According to financial, as opposed to common-sense reasoning, the blessings of an ever-increasing abundance and leisure become insoluble problems of “ over production " and “ unemployment."

   If, on occasions, the writer may seem to be a little extravagant or emotional in his attitude, this is because it is difficult, if not impossible, to be consistently impersonal when discussing the principles of so-called sciences which have brought such an enormous amount of totally unnecessary suffering to humanity. Banking and economics are not sciences, but academic elaborations of sinister fallacies, based on superstitions which themselves derive from the gold idolatry of barbarism. The author wishes to acknowledge his indebtedness to the writings of the Editor of, and the contributors to, the “ New English Weekly a magazine almost entirely devoted to the discussion of certain aspects of the New Economics. Where direct quotations are used, acknowledgment has been made. But, in a few instances, fragmentary phrases as well as paraphrases of incidental material in editorials and articles have been used without acknowledgment.

   He wishes also to thank specially his friend, Mr. Schuyler Jackson, to whom this book is dedicated. In this enterprise, as in others, he owes much to the unworldly wisdom of this Pennsylvanian farmer.

The Absurdity of the National Debt

The Absurdity of the National Debt.
by The Duke of Bedford
-1947-

    IT is a remarkable proof of the ignorance of politicians in regard to matters of finance and, in consequence, of their unfitness to play the important part which of necessity they do in the conduct of the nation's affairs, that neither the Conservatives, Labour nor Liberal Parties, not to mention the I.L.P., Communists and Common Wealth, have ever made any important statement of a policy in connection with the National Debt, nor shown the slightest indication that they realize that it is desirable to do anything about it.

HOW IT STARTED!

    The National Debt started in 1694, when the Government of the day unwisely arranged that a private syndicate, which later became known as the "Bank of England," should lend it £1,200,000 in gold, at 8% interest. With even greater stupidity, they then allowed the syndicate to issue bank notes to the value of £1,200,000 which it was able to lend into circulation, charging interest. Thus, although the Bank of England was not put to any expense beyond the cost of the paper and printing, it was allowed to draw interest on two lots of money—its own gold and the new notes to the value of the gold! Later, the Bank of England managed to obtain still more gold which they also lent to the Government at interest, and, whenever they did so, they increased their issue of virtually costless paper money until they were getting interest on £16 millions in gold and £16 millions in paper notes. If the Government had done the obviously sensible thing and, instead of borrowing, had decided to issue its own paper money, it could likewise have done so at the mere cost of paper and printing; there would have been no need for interest to be paid to anybody; and the taxpayer would not have been burdened to provide interest.

    As time went on, the Bank of England increased the amount of the paper money it created over and above the amount of gold it held, until it was soon lending out in notes nearly ten times the value of its gold holdings.

    During the first half of the 19th century the Commercial Banks invented and began to use, "cheque" money. This new kind of money did not exist even in the form of paper notes, but was brought into being by the simple process, either of entering in bank books the figures recording the granting of loans; or of filling-in cheques to enable the banks to buy themselves Securities. These cheques, it is important to note, did not, like a private individual's cheque, draw on and transfer money already in existence; they created new money to the value of the figures written upon them.

SWELLING THE DEBT

    Gradually, also, as the years went by, the Government increased the National Debt by borrowing at interest more and more money. It borrowed, either new money from the banking system, or existing money from private individuals and organizations, instead of keeping out of debt by causing the banks to create the money which it required, without any interest-charge, using anti-inflation taxation, when necessary, to keep the money-supply within proper bounds.

    The practice of the Government when borrowing and adding to the National Debt, is to issue Government Bonds and Securities of different kinds, of which Consols, War Loan and War Savings certificates are familiar examples. These Government Securities are really bits of paper giving the holders the right to receive interest. This may sound all very nice, but there is a snag about the practice which will be explained later. The Government Securities, or in other words the holdings of the National Debt, are bought by private individuals and organisations with money already in existence. In the case of banks, however, they are bought, as already indicated, with newly-created money, for, according to banking practice, a Commercial Bank like Barclay's or the Midland, can, by the mere filling-in of the cheques making the purchase, create new money for buying Securities (or making loans) up to about nine times the amount of its "cash reserves." These latter consist of coin and notes and cheques drawn on the Bank of England. For example, someone banking with the Midland might deposit £100 in notes, or a cheque to the value of £100 drawn on the Bank of England. That would give the Midland Bank the right to create, either for buying Securities (including Government Securities which add to the National Debt) or for making loans, or partly for the one purpose and partly for the other, up to £900 of new cheque money.

    The National Debt, always increasing, has, within the last half century, gone up by leaps and bounds. We will first consider the extent of the increase, and some of the mathematical problems and absurdities involved. We will then proceed to deal with some of its other highly objectionable features.

    In 1914, before the outbreak of the First World War, it had increased from the original £1,200,000 to £700 millions; income tax was 1s. 4d. in the pound; and the average of taxation per head was about £3 per annum. During the seventy years prior to 1914, some £1,500 millions had been spent from taxation in mere interest-charges, without the capital of £700 millions being in any way reduced. This is important, and indicates one way in which the mad practice of borrowing at interest from the banking system and other sources is so thoroughly unsatisfactory and unfair. As year succeeds year, and interest payment piles up on interest-payment, the time comes when the unhappy country has paid out, in interest-charges much more than the original sum borrowed. and yet it is as far as ever away from making its escape from debt, for, in spite of the huge sums paid to the lenders, the principal remains unreduced and the right to go on levying interest continues indefinitely! It is important to note that, because of this ridiculous state of affairs, although the last bill for munitions, etc., was probably met within a year or two of the conclusion of hostilities, we are still paying interest on money borrowed for the Napoleonic Wars; still paying interest on money borrowed for the Crimean War; and still paying interest on money borrowed for the Boer War, not to mention, of course, money borrowed for the two World Wars!

    By the time the 1914-1918 war had ended, the National Debt had risen from £700 millions to about £7,000 millions at which figure it stood during the period between 1918 and 1939. The average interest-charges during this period of twenty-one years, amounted to £240 millions a year or just over £ 5000 millions drawn out of the pockets of taxpayers yet without ever reducing the capital sum of £7,000 millions. The first World War, it is important to remember did not materially decrease this country's capacity to produce and import real wealth in the form of goods and services. Indeed, it is probably correct to say that, by reason of war inventions and discoveries, the capacity of Britain to produce and import goods actually increased.

    In spite of this, however, the power of people of all classes to buy and enjoy the goods and services which either were produced or could have been produced, was diminished by the vastly increased taxation. Rich people had to pay far more in super-tax. Poor people had to pay more in "indirect taxation." (Indirect taxation means Customs and Excise dues on imported goods, which add to the price of the latter and increase the amount of money which purchasers, including the poor have to pay in order to obtain them.)

USURY CREATES POVERTY

    Educated people who were wealthy, or had once been wealthy, never had the sense to ask themselves why, when the nation's power to produce goods and services was greater than before, they, because of increased taxation, must be content with less; nor did they ever inquire why the poor could not be given a larger amount of the increased wealth in goods, without their own standard of living being reduced. Most of them attributed the heavy taxation and diminution of their power to purchase what they needed or desired, to the increased expenditure on Government services, including education, unemployment relief, etc. Here their ignorance of financial matters led them into error, for as far as its effect on taxation was concerned, increased expenditure on Government services was a mere flea-bite by comparison with the amount they had to pay in order to provide interest on the ever-growing National Debt. The more selfish among the complainants, and those who were not eye-witnesses of the sufferings of the poor, grumbled because more money was being spent—and rightly spent—in helping members of the weekly wage-earning class. They remembered cases they had come across of lazy workmen, and they thought and argued as though ail the unemployed were lazy. The weekly wage-earners, on the other hand, equally ignorant of financial matters and naturally angered by the selfish and unfair criticism of those who, in spite of their reduced standard of living, were still far better off than themselves, hated their critics and demanded that they should be taxed still more heavily, believing that only by such means could their own lot be improved. Thus it came about that the spirit of class hatred and antagonism tended to increase, largely because both sides were putting the blame in the wrong place!

    As a result of the borrowings at interest made during World War II, the National Debt has now increased from £7,000 millions to £20,000 millions and it has not stopped rising. It is indeed doubtful if it can stop rising! If the Government started repaying the National Debt at the rate of one million pounds a week, it would take more than 400 years to clear off the capital alone, regardless of the interest-charges which, if these were only 2½% would exactly double the capital sum every 40 years. If every male worker in this country were to give £l a month to repay the capital amount, it would still take I30 years to clear, without taking into account any interest- charges at all. If current interest-charges are reckoned at only 2½ average, the sum which must be drawn out of the pockets of the people year by year, without ever starting to reduce the principal of the debt, is £625 millions, or about £10 millions a week, which is equal to every male worker contributing about £32 15s. 7d. a year, or £2 14s. 7d. a month. Is it any wonder that we feel crushed and strangled by taxation? Is it not incredible that none of the major political parties are in the slightest degree interested in this vital matter?

    A new arrangement made since the Bank of England was nationalised, whereby the Bank pays into the Treasury an annual sum of £I,746,360 "which will be applied to the payment of any interest which would otherwise have fallen to be paid out of the permanent annual charge for the National Debt," in reality does nothing useful to effect a progressive reduction in the burden of the Debt. This is so, because we find elsewhere in the Nationalisation Bill that the same amount—£1,746,360—is to be collected by taxation for the benefit of the former stockholders of the Bank. This tax in effect adds to the interest-charge on the National Debt, so that the arrangement whereby the Bank pays an equivalent amount into the Treasury, merely cancels out an annual addition to the debt and fails, as I have already pointed out, to reduce progressively either the colossal principal sum of £26,000 million, or the interest which has to be paid thereon.

WHO BENEFITS?

We will now proceed to consider other aspects of the folly or iniquity of the National Debt.

    Remember that all the interest on the Debt, or in other words, all the dividends paid to holders of every form of Government Securities, come out of. taxation; and remember that every citizen who is a holder of Government Securities is also a payer of taxes, direct or indirect, and usually both.

Absurdity No. 1 is that those who are holders of Government Securities, or in other words, investors in the National Debt, themselves, through taxation, provide the Government with the money wherewith to pay them their dividends! They might therefore be as prosperous, and in many cases, indeed, much better off, if they had no money invested in Government Securities and no dividends paid to them for their holdings, but, as a result, no taxation to provide such dividends, either! Not only do the holders of Government Securities themselves, as a class, have to provide all the dividends that the Government pays them; they also have to provide a substantial sum of money to pay the salaries of the host of persons, who doing no creative work of any kind, merely take their money away from them and hand it back again. In other words if the interest on the Government Securities is 2½%, then probably some 3% is actually needed and collected to include the remuneration of those who administer the scheme. This means that the people are paying £3 out of one pocket in order that the bureaucracy may hand them back £2 10s. to put into the other pocket!

Absurdity No. 2 is that the taxpayer cannot spend on his own needs and desires money which he has to keep in reserve for paying taxes, including, of course, interest-on-National-Debt taxes: and, equally, the State cannot spend on any good purpose or social service, money which it has to keep in reserve for paying interest to the holders of Government Securities! A large number of persons, therefore, are being employed, quite uselessly, in the endless collection and transfer, backwards and forwards between the taxpayer and the State, and the State and the taxpayer, of vast and ever-increasing sums which neither party can spend in any useful way whatever!

Absurdity— and injustice—No. 3 is that the holdings of the small investors in Government Securities and the National Debt, the "men in the street," as it were, who have not more than £500 shares, only amount to some 20% of. the total. Eighty per cent. is held by banks, insurance companies, and other large organisations, and, as we have already seen, banks obtain their holdings, as a general rule, by creating new money by a stroke of the pen. Banks also, it might be added, have means denied to the small investor, of disguising their profits and escaping taxation.

Absurdity No. 4 is that the small investors pay in taxation, in order to provide dividends on their holdings of the National Debt for the big investors, about four times as much money as they ever receive as dividends on their own holdings!

    Another racket in connection with the National Debt, quite common in the 1914 -18 war, was for the banks to create new money in the form of loans and lend it to the insurance companies, etc., to enable the latter to buy Government Securities and a share in the National Debt. The holdings in such cases would stand in the name of the insurance companies, and not of the banks, but might be dividends on the holdings (obtained of course from taxpayers) would be shared between the banks and the insurance companies. Sometimes, too, an insurance company or other big concern would, during the war, sell shares in some industrial enterprise which produced goods and services (or sale at a profit (and quite rightly paid dividends), and use the money so obtained to buy Government Securities, thus placing itself, as it were, on the taxpayer's already over-burdened back. The opinion of experts is somewhat divided on the question of whether there has been any repetition of this practice during the last world war.

    Before we leave the question of "rackets" it may be well to call attention to another dishonest practice in connection with the National Debt to which governments are prone to resort. Investors are sometimes tempted by the assurance that at a future date they will be paid a larger sum for their investments in Government Securities than they originally gave. It has originally been stated, for example, that the original National Savings Certificates were first issued at either 15£ or 15/9, to be worth 21£ in seven years' time. When the seven years had elapsed no allowance, however, was made for the fact that the purchasing power of the £ had declined to about 8d by comparison with its value at the time that the National Savings Certificates were first issued. The result was that the people who invested 15£ worth of purchasing power in 1940, in 1947 got back 21£ worth in name, but only 9£ worth in actual fact! In other words, they made no real profit at all, but have incurred a loss of 6£ on every 15£ invested! In spite of this, people have again been invited to invest 10£ on the understanding that they will get 3£ back in ten years' time!

    The defence is sometimes put forward that the National Debt is really quite harmless, as it virtually amounts to taking money out of one pocket and putting it into another and it also operates as a form of anti-inflation taxation. Why it should be defensible to waste a stupendous amount of time and labour and put millions of people to unnecessary trouble in order to accomplish the useless result of taking money out of one pocket and putting it into another, is not revealed! As for the National Debt operating as a form of anti-inflation taxation, this may be true in so far as it keeps a large sum of money out of effective circulation—regardless, it might be added, of whether general conditions render anti-inflation taxation, or that amount of anti-inflation taxation, desirable or not. There is, however, a well-known saying about burning down the house in order to roast a leg of pork. By comparison with sensible, businesslike anti-inflation taxation, carefully designed to take out of circulation during a given period that amount of money, and that amount only, which, if left in people's pockets, would prove redundant, the National Debt is entirely comparable to the destruction, by fire, of a splendid mansion in order to reduce raw pork to a cooked state.

    If the question be asked, "What should be done in order to put an end to the National Debt and to the evils connected therewith?" the answer is not very difficult.

    In the first place, a clear distinction should be drawn between those who have bought their holdings of the National Debt with money they have saved, earned, inherited, or otherwise normally acquired; and those who have bought their holdings with newly-created money, i.e., the banks and those bankers' nominees who have been granted bank loans wherewith to make their purchases. Banks should be ordered to sell their holdings of Government Securities to the State, which, as a matter of book-keeping, would pay them with newly-created non-debt money. This money, in accordance with existing banking practice, the banks would then be required to destroy, for, just as under the present system they create new money when making loans or buying Securities, so do they destroy money when they receive repayment of the principal of loans or sell Securities, keeping only the interest for themselves. If this action were taken, a part of the National Debt would be wiped out immediately, without any risk of inflation, and all the attendant nonsense of endlessly collecting money by taxation, distributing it and collecting it again, would cease. No injustice would have been inflicted even on the banks for they have already done extremely well out of the interest received in the past from Government Securities which were purchased neither with their depositors' money nor with money they had to save or earn. If it were desired to treat bankers generously for the work they do as the nation's accountants, they could be paid the most ample salaries, just like any other public servants, but this could be done without burdening the whole country with the hocus-pocus of the National Debt.

    With regard to bankers' nominees, i.e.,those to whom the banks have lent newly-created money to enable them to buy Government Securities, these, if they should still exist, should be dealt with in a rather similar way. The banks should be directed to call in their loans made to these nominees. The Government would then give the nominees newly-created, non-debt money to enable them to make the repayment, and the banks, on receipt of this money, would, again in accordance with present practice, cancel and destroy it.

    There would remain only that part of the National Debt purchased by private individuals, organisations, etc., with money already in existence and obtained in a normal manner. These persons should be paid the full value of their holdings with newly-created non-debt money, as rapidly as could be arranged without risk of inflation, and they could then spend the money so received or invest it in Industry. It might be found possible and desirable to speed up this process by granting fewer bank loans during the period when it was carried out. The less money created by bank loans, the more can safely be created for other purposes. If it were felt that special consideration should be shown to elderly persons of small means who have been encouraged to invest in Government Securities because of the certainty of the income to be derived therefrom (neither they, nor anyone else, seems to have appreciated the connection between the "certainty" of the income and the "certainty" and inevitability of the taxation which provides it!), an arrangement could easily be made to allow them suitable annuities for which, incidentally, they would not have to help to provide the money, out of the taxes which they themselves paid !

    The Government's present policy of reducing rates of interest on holdings of the National Debt, without attempting any fundamental reform of the financial system, is neither fish, flesh, fowl nor good red herring so far as small investors in the National Debt are concerned. The low rate of interest brings them but a miserable and inadequate return for the sums of money they have, with difficulty, saved and invested, while at the same time they get no compensating advantage in reduced taxation consequent on a thorough overhaul of the entire financial system. If the question be asked, "How can the Government obtain the money which it formerly got by borrowing at interest?" the answer is again very simple. It can direct the banks to create it not in the form of interest-bearing debt, and it can use anti-inflation taxation to collect, from time to time, just as much of that money as may be necessary in order to prevent an excess from remaining in circulation. Money, it must never be forgotten, derives its value from the presence in the country of an adequate backing of goods and services. It does not derive any value from the fact that it was first created as interest-bearing debt, or, indeed, debt of any kind.


On the Author:

Hastings William Sackville Russell, 12th Duke of Bedford (21 December 1888 – 9 October 1953) was a British peer. He was born at Cairnsmore House, Minnigaff, Kirkcudbrightshire the son of Herbrand Russell, 11th Duke of Bedford and his wife Mary Du Caurroy Tribe, DBE, RRC, FLS, the aviator and ornithologist.[1] He was noted for both his career as a naturalist and for his involvement in politics.

Fedophilia

by George Selgin on January 17, 2020

Source: https://www.alt-m.org/2020/01/17/friday-flashback-fedophilia/

As we start off the New Year, we thought it might not be a bad idea to remind our readers of the need to resist status-quo bias in assessing both the Fed's performance and the merit of alternative institutional arrangements. -Ed.

***

Although the movement to “End the Fed” has a considerable popular following, only a very tiny number of economists—our illustrious contributors amongst them—take the possibility seriously. For the rest, the Federal Reserve System is, not an ideal currency system to be sure (for who would dare to call it that?), but, implicitly at least, the best of all possible systems. And while there’s no shortage of proposals for reforming it almost all of them call only for mere tinkering. Tough though their love may be, the fact remains that most economists are stuck on the Fed.

This veneration of the Fed has long struck me as perverse. Its record can hardly be said, after all, to supply grounds for complacency, much less for the belief that no other system could possibly do better. (Indeed that record, as Bill Lastrapes, Larry White and I have shown, even makes it difficult to claim that the Fed has improved upon the evidently flawed National Currency system it replaced.) Further, as the Fed is both a monopoly and a central planning agency, one would expect economists’ general opposition to monopolies and to central planning, as informed by their welfare theorems and by the general collapse of socialism, to prejudice them against it. Yet instead of ganging up to look into market-based alternatives to the Fed, the profession, for the most part, has relegated such inquiries to its fringe.

Why? The question warrants an answer from those of us who insist that exploring alternatives to the Fed is worthwhile, if only to counter people’s natural but nevertheless mistaken inclination to assume that the rest of the profession isn’t interested in such alternatives because it has already carefully considered—and rejected—them.

It’s tempting to blame Fedophilia, and the more general phenomenon of what Larry White calls “status quo” bias in monetary research, on the Fed’s direct influence upon the economics profession. According to White, in 2005 the Fed employed about 27 percent more full-time macro- and monetary (including banking) economists than the top 50 US academic economics departments combined, while disseminating much of their research gratis through various in-house publications or as working papers. Perhaps not surprisingly, despite a thorough review of such publications, White could not find “a single Fed-published article that calls for eliminating, privatizing, or even restructuring the Fed.” That professional monetary economics journals are not much better may, in turn, reflect the fact, also documented by White, that Fed-affiliated economists also dominate those journals' editorial boards.

But I doubt that a reluctance to bite the hand that feeds them is the only, or even the most important, reason why most economists seldom question the Fed’s desirability. Another reason, I suppose, is their desire to distance themselves from… kooks. Let’s face it: more than a few persons who’d like to “End the Fed” want to do so because they think the Rothschilds run it, that it had JFK killed because he planned to revive the silver dollar, and that the basic plan for it was hatched not by the Congressional Committee in charge of monetary reform but by a cabal of Wall Street bankers at a top-secret meeting on Jekyll Island.

Oh, wait: the last claim is actually true. But claims like the others give reasonable and well-informed Fed critics a bad name, while giving others reason for wishing to put as much space as possible between themselves and the anti-Fed fringe.

I’m convinced that imagination, or the lack of it, also plays a part. To some extent, the problem is too much rather than too little imagination. With fiat money, and a discretionary central bank, it’s always theoretically possible to have the money stock (or some other nominal variable) behave just like it ought to, according to whichever macroeconomic theory or model one prefers. In other words, a modern central bank is always technically capable of doing the right thing, just as a chimpanzee jumping on a keyboard is technically capable of typing-out War and Peace.

Just as obviously, any conceivable alternative to a discretionary central bank, whether based on competition and a commodity standard or frozen fiat base or on some other “automatic” mechanisms, is bound to be imperfect, judged relative to some—indeed any—theoretical ideal. Consequently, an economist need only imagine that a central bank might somehow be managed according to his or her own particular monetary policy ideals to reckon it worthwhile to try and nudge it in that direction, but not to consider other conceivable arrangements.

That there’s a fallacy of composition of sorts at play here should be obvious, for a dozen economists might hold as many completely different monetary policy ideals; yet every one might be a Fedophile simply because the Fed could cater to his or her beliefs. In actual fact, of course, the Fed’s conduct can at most satisfy only one of them, and is indeed likely to satisfy none at all, and so might actually prove distinctly inferior to what some non-central bank alternative would achieve. So in letting their imaginations get the best of them, all twelve economists end up endorsing what’s really the inferior option.

If you don’t think economists are really capable of such naivete, I refer you to the literature on currency boards, in which one routinely encounters arguments to the effect that central banks are always better than currency boards because they might be better. Or how about those critics of the gold standard who, having first observed how, under such a standard, gold discoveries will cause inflation, go on to conclude, triumphantly, that a fiat-money issuing central-bank is better because it might keep prices stable?

But if economists let their imaginations run wild in having their ideal central banks stand in for the real McCoys, those same imaginations tend to run dry when it comes to contemplating radical alternatives to the monetary status quo. Regarding conventional beliefs concerning the need for government-run coin factories, which he (rightly) dismissed as so much poppycock, Herbert Spencer observed, “So much more does a realized fact influence us than an imagined one, that had the baking of bread been hitherto carried on by government agents, probably the supply of bread by private enterprise would scarcely be conceived possible, much less advantageous.” Economists who haven’t put any effort into imagining how non-central bank based monetary systems might work find it all too easy to simply suppose that they can’t work, or at least that they can’t work at all well. The workings of decentralized markets are often subtle; while such markets' ability to solve many difficult coordination problems is, not only mysterious to untrained observers, but often difficult if not impossible even for experts to fathom except by means of painstaking investigations. In comparison monetary central planning is duck soup—on paper, anyway.
Nor does the way monetary economics is taught help. In other subjects, the welfare theorems are taken seriously. In classes on international trade, for example, time is always spent, early on, on the implications of free trade: never mind that the world has never witnessed perfectly free trade, and probably never will; it’s understood that the consequences of tariffs and other sorts of state interference can only be properly assessed by comparing them to the free trade alternative, and no one who hasn’t studied that alternative can expect to have his or her pronouncements about the virtues of protectionism taken seriously.

In classes in monetary economics, on the other hand, the presence of a central bank—a monetary central planner, that is—is assumed from the get-go, and no serious attention is given to the implications of “free trade in money and banking." Consequently, when most monetary economists talk about the virtues of this or that central bank, they’re mostly talking through their hats, because they haven’t a clue concerning what other institutions might be present, and what they might be up to if the central bank wasn’t there.

Since monetary systems not managed by central banks, including some very successful ones, have in fact existed, economists’ inability to envision such systems is also evidence of their ignorance of economic history. That ignorance in turn, among younger economists at least, is a predictable consequence of the now-orthodox view that history can be safely boiled down to a bunch of correlation coefficients, so that they need only gather enough numbers and run enough regressions to discover everything worth knowing about the past.
Those who’ve been spared such “training,” on the other hand, often have a purblind view of the history of money and banks—one that brings to mind Saul Steinberg’s famous New Yorker cover depicting a 9th-Avenuer’s view of the world, with its almost uninhabited desert between the Hudson and the Pacific, and China, Japan, and Russia barely visible on the horizon. If he or she knows any monetary history at all, the typical (which is to say American) economist knows something about that history in the U.S., and perhaps considerably less about events in Great Britain. Theirs is, in short, just the right amount of knowledge to be very dangerous indeed.

And dangerous it has been. In particular, because the U.S. before 1914, and England before the Bank of England began acting as a lender of last resort, happened to suffer frequent financial crises, economists' historical nearsightedness has given rise to the conventional wisdom that any fractional-reserve banking system lacking a lender of last resort must be crisis-prone, and to clever (if utterly fantastic) formal models serving to illustrate the same view (or, according to economists’ twisted rhetoric, to “prove” it “rigorously”). It has, correspondingly, led economists to ignore or at least to underestimate the extent to which legal restrictions, including unit banking laws in the U.S. and the six-partner rule in England, contributed to the deficiencies of those countries’ banking systems. Finally, and most regrettably, it has caused economists to overlook altogether the possibility that the monopolization of paper currency has itself been more a cause of than a cure for financial instability.

The good news is that Fedophilia is curable. Milton Friedman, for one, was a recovering Fedophile: later in his career, he repudiated the mostly-conventional arguments he’d once put forward in defense of a currency monopoly. Friedman, of course, was a special case: a famous proponent of free markets, he had more reason than most economists do to view claims of market failure with skepticism, even if he’d once subscribed to them himself. Even so, his was only a half-hearted change of heart, in part (I believe) because he still hadn't drawn the lessons he might have from the banking experiences of countries other than the U.S. and England.

Friedman’s case suggests that it will take some pretty intense therapy to deprogram other Fed inamoratos, including a regimen of required readings. Charles Conant’s History of Modern Banks of Issue will help them to overcome their historical parochialism. Vera Smith’s The Rationale of Central Banking will do more of the same, while also exposing them to the lively debates that took place between advocates and opponents of currency monopolies before the former (supported by their governments’ ravenous Treasuries) swept the field. The Experience of Free Banking, edited by Kevin Dowd (with contributions by several Alt-M contributors including yours truly) gathers studies of a number of past, decentralized currency systems, showing how they tended to be more stable than their more centralized counterparts, while another collection, Rondo Cameron’s Banking in the Early Stages of Industrialization, shows that less centralized systems were also better at fostering economic development. Finally, instead of being allowed to merely pay lip service to Walter Bagehot’s Lombard Street, Fedophile’s should be forced, first to read it from cover to cover, and then to re-read out-loud those passages (there are several) in which Bagehot explains that there’d be no need for lenders of last resort had unwise legislation not created centralized (“one reserve”) currency systems in the first place. The last step works especially well in group therapy.

Of course, even the most vigorous deprogramming regimen is unlikely to alter the habits of hard-core Fed enthusiasts. But it might at the very least make them more inclined to engage in serious debate with the Fed’s critics, instead of allowing the Fed's apologists to go on believing that they answer those critics convincingly simply by rolling their eyes.

This entry was posted in Banking Regulation, Economic History, Fiat Money, Free Banking, Money & Politics, News, The Fed & Central Banks and tagged currency board, Federal Reserve, Free banking, Gold standard, monetary policy. Bookmark the permalink.

About George Selgin

George Selgin is a senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute and Professor Emeritus of Economics at the University of Georgia. His research covers a broad range of topics within the field of monetary economics, including monetary history,...

BlackRock’s French headquarters Occupied

"Money secretly created by banks, without being recorded as an entry in the cash flow, when it returns to the bank, and customer accounts are cleared to zero, must be made to disappear from the bank's centralized account through transfers to "classified" accounts (See: Révélation$) in offshore countries. From offshore accounts the money is laundered by transferring it to the accounts of U.S. investment funds that do not have an obligation to disclose who the funding partners are (see: Blackrock). At this point the invisible money becomes visible again and can be invested by "miraculously" buying the whole world." - Anonymous

BlackRock Becomes a Symbol for Anticapitalist Fervor in France

Suspicions that the Wall Street giant sought to influence President Macron’s overhaul of the nation’s pension system have made the company a target of protesters.

In January, trade unions and members of the Yellow Vest movement stormed the historic Le Centorial building in Paris, where BlackRock has its offices.Credit...Dmitry Kostyukov for The New York Times

By Liz Alderman 

Source; New York Times, Feb. 14, 2020

PARIS — The video shows footprints in blood-red paint tracked by militant protesters across BlackRock’s French headquarters. Documents litter the floors. On the walls, black spray-painted graffiti denounces the company as “criminal.”

Just a few months ago, BlackRock, the U.S. money-management giant, was barely known to the general public in France. But as President Emmanuel Macron presses ahead with a controversial campaign to overhaul the French economy, the company has become a favorite target for growing anticapitalist sentiment.

Protesters claim BlackRock has tried to influence — and stands to profit from — Mr. Macron’s overhaul of the nation’s pension system. They point to cordial meetings between Mr. Macron and Laurence D. Fink, the founder and chief executive of BlackRock. And they fear the huge Wall Street firm — its $7 trillion under management is more than twice France’s economic output — is working behind the scenes to pick apart the country’s system of social protections.

The protests escalated with the action on Monday morning, when environmental activists who allege French workers’ pensions could be directed by BlackRock stormed the company’s offices.

Continue reading the main story

Last month, trade unions and members of the Yellow Vest movement led a raucous crowd to the historic Le Centorial building, where BlackRock has its offices, lighting flares and denouncing what they said was an effort to impose American-style free-market rules on France.

There is no evidence that BlackRock influenced Mr. Macron to push retirement savings to it or any other financial giant, although financial firms could get some business from part of the pension overhaul that encourages high earners to invest in stocks.

And BlackRock strenuously denies the claims. “We deplore the fact that our company continues to be caught up in an unfounded controversy driven by political objectives,” it said in a statement. “We reiterate that BlackRock has never been involved in the current pension reform project and does not intend to be.”

Yet BlackRock’s role as an adviser to governments and central banks and as a major shareholder in some of the world’s biggest companies has quickly made it a symbol in a country that has long been deeply skeptical of capitalism and the stock market. The social climate here has grown more tense after recent nationwide strikes to protest the pension overhaul.

BlackRock has tried to portray itself as an industry leader in responsible investing. The protesters on Monday cited BlackRock investments in the French oil giant Total and the construction company Vinci as running counter to that.

Continue reading the main story

In an influential annual letter to leaders of the world’s largest companies, Mr. Fink said last month that his firm would make investment decisions with environmental sustainability as a core goal. On Wednesday, BlackRock said one of its fast-growing green-oriented funds would stop investing in companies that got revenue from the Alberta oil sands.

 

Laurence D. Fink, center, the chief executive of BlackRock, with President Emmanuel Macron, right, in July. Credit...Pool photo by Michel Euler

Such actions have done little to placate the company’s growing cadre of critics in France, where it manages 27 billion euros in assets for local clients and invests over €185 billion, or $200 billion, in French equities and corporate and government bonds.

Parliament will start debating next week the bill that aims to overhaul the nation’s convoluted pension system. Although the system has been criticized for being too generous, the incidence of poverty among older people in France is one of the lowest in the world — and far lower than in the United States.

The measure seems likely to pass because Mr. Macron’s party commands an absolute majority, despite attempts by opponents to obstruct the bill with more than 22,000 amendments. It is expected to move to the Senate in April.

In the meantime, more demonstrations have been called, including new strikes and protests on Thursday. BlackRock is likely to remain a ripe target for frustration.

The controversy broke open in December when Mr. Macron unveiled details of his proposal to standardize France’s 42 public and private pension schemes into one state-managed plan. Critics had already accused the president, a former investment banker, of favoring the rich with an earlier measure to reduce taxes on high earners, a step that resonated in a country where wealth is increasingly associated with injustice.

Continue reading the main story

Opponents seized on a public BlackRock analyst note describing pension investment options in France — a sign, they said, that Wall Street’s biggest asset manager was seeking to profit.

The document noted that the investment-wary French hold huge piles of savings in cash, bonds and nonfinancial assets but “disappointingly” little in stocks. (A recent study by the International Monetary Fund showed that only 5 percent of French households’ total financial assets are in stocks. That figure is nearly 34 percent for U.S. households, according to 2016 data from the Organization for Economic Cooperation and Development.)

Soon, activists began circulating photos on social media of Mr. Fink sitting next to Mr. Macron at a green finance summit in the Élysée Palace in July as proof of chummy ties.

French media ran articles highlighting BlackRock’s assessment as a sign that the company is eager to see France’s state-run pension scheme tilt toward the American system, where workers often save for pensions through investments.

In reality, Mr. Macron’s blueprint would instead largely keep France’s publicly funded pay-as-you-go system in place, a point some trade unions have recently acknowledged. An editorial on Wednesday in the French economic magazine Le Point defended BlackRock as being the victim of “conspiratorial diatribes,” adding that the company was being made into a “new French scapegoat.”

Opponents insist that Mr. Macron’s plan still opens France to the influence of companies like BlackRock.

Protesters in Paris in January.Credit...Lionel Bonaventure/Agence France-Presse — Getty Images

They point to a measure that would cut pension payroll taxes on people earning more than €120,000 annually — less than 1 percent of France’s work force — and encourage them to invest in private pension funds.

Continue reading the main story

Addressing the National Assembly, Olivier Marleix, a conservative lawmaker from the party Les Républicains, said the proposal would divert money away from France’s social safety net. “You are offering three billion euros to pension funds,” he said. “BlackRock’s business will thrive in France.”

It didn’t help BlackRock’s image among dissidents when Mr. Macron elevated the president of BlackRock France, Jean-François Cirelli, a former civil servant who worked for two previous French presidents, to the rank of officer of the Legion of Honor, France’s highest order of merit, just as strikes over the pension changes reached a peak in early January.

The news lit up social media and triggered a fresh storm of criticism that the American fund was too cozy with Mr. Macron, and would profit from the pension changes.

“BlackRock is simply the dark side of the pension reform,” Olivier Faure, the secretary general of the Socialist Party, told French television.

Mr. Cirelli hit back at what he said was “an unfounded and irrational” controversy.

“We are being used for political ends in a conflict that is not ours,” he said, adding that BlackRock “is not a pension fund, does not distribute any retirement savings product and has no intention of doing so.”

Such statements have not appeased opponents. “BlackRock is an emblem,” said Benoît Martin, the head of the Paris branch of the militant General Confederation of Labor union. Mr. Martin said he was among the first wave of protesters to storm BlackRock France’s headquarters in January.

Continue reading the main story

“You have Larry Fink meeting with President Macron,” he added. “We’re concerned about the influence of BlackRock in French politics.”

The union has called for more demonstrations and strikes to protest the changes. And BlackRock, Mr. Martin said, is likely to remain a target.

Youth for Climate France, one of the groups that ransacked the offices on Monday, said in a statement that the protests were “symptomatic of capitalism, which is at the origin of these problems.”

“By attacking BlackRock, we’re attacking capitalism,” the group said.

Constant Méheut contributed reporting.

Liz Alderman is the Paris-based chief European business correspondent, covering economic and inequality challenges around Europe. She was previously an assistant business editor, and spent five years as the business editor of what was The International Herald Tribune. @LizAldermanNYT

Accounting black-holes: The $35 Trillion Pentagon Case

Just A Little Sloppy Record-Keeping? The Pentagon's $35 Trillion 'Accounting Black Hole'

by Tyler Durden

Wed, 02/05/2020 - 23:45

Source: https://www.zerohedge.com/economics/just-little-sloppy-record-keeping-pentagons-35-trillion-accounting-black-hole

 

Over the past two weeks of coronavirus headlines and heightened global anxiety, along with impeachment coverage and after over the Super Bowl weekend Americans huddled in living rooms in blissful oblivion, a story which in more normal times would be front and center has gone largely unnoticed. To be sure, the Pentagon couldn't be happier that this bombshell has taken a back burner in global headlines:

The Pentagon made $35 trillion in accounting adjustments last year alone — a total that’s larger than the entire U.S. economy and underscores the Defense Department’s continuing difficulty in balancing its books.
The latest estimate is up from $30.7 trillion in 2018 and $29 trillion in 2017, the first year adjustments were tracked in a concerted way, according to Pentagon figures and a lawmaker who’s pursued the accounting morass.

It sounds more appropriately news out of The Onion or Babylon Bee given this is *Trillions* and not just billions — though that itself would have been remarkable enough. Naturally, the first and only question we should start with is: how is this even possible? 

After all, $35 trillion is about one-and-a-half times the size of the entire US economy. Not to mention that the figure easily dwarfs the GDP of the entire combined nations of the European continent. Consider too that the current actual US budge for defense-related funding is $738 billion.
“Within that $30 trillion is a lot of double, triple, and quadruple counting of the same money as it got moved between accounts,” Todd Harrison, a Pentagon budget expert with the Center for Strategic and International Studies, told Bloomberg in a recent report.
But are we really to believe that mere “combined errors, shorthand, and sloppy record-keeping by DoD accountants” — as another analyst was quoted as saying — can explain a $35 Trillion accounting black hole?
According to the DoD, there's nothing to see here...

The Defense Department acknowledged that it failed its first-ever audit in 2018 and then again last year, when it reviewed $2.7 trillion in assets and $2.6 trillion in liabilities. While auditors found no evidence of fraud in the review of finances that Congress required, they flagged a laundry list of problems, including accounting adjustments.

With tax season now fast approaching, it's not too comforting to know the Pentagon enjoys over half of all discretionary domestic spending for its global war machine in maintenance of our humble Republic Empire .

Bloomberg attempted to get a handle on it further in explaining, "The military services make adjustments, some automatic and some manual, on a monthly and quarterly basis, and those actions are consolidated by the Pentagon’s primary finance and accounting service and submitted to the Treasury."
"There were 546,433 adjustments in fiscal 2017 and 562,568 in 2018, according to figures provided by Representative Jackie Speier, who asked the Government Accountability Office to investigate," the report added.

Spokeswoman for the Pentagon’s inspector general, Dwrena Allen, downplayed what to most Americans will sound like the makings of an explosive scandal. “In layman’s terms, this means that the DoD made adjustments to accounting records without having documentation to support the need or amount for the adjustment,” she said.
And for further perspective on the DoD's "defense" of the beggars belief figure:

"It means money that DoD moved from one part of the budget to another," Clark explained to Task & Purpose. "So, like in your household budget: It would be like moving money from checking, to savings, to your 401K, to your credit card, and then back."
However, $35 trillion is close to 50-times the size of the Pentagon's 2019 budget, so that means every dollar the Defense Department received from Congress was moved up to 50 times before it was actually spent, Clark said.

"Trillions" explained away by a little benign neglect of simple documentation?
Of course, in the real world outside the halls of government and of largely unchecked power, a mere single trillion would be enough to send people to jail. Here we're talking $30+ trillion and it appears this gaping accounting black hole bigger that most of the world's past and future economies will itself be memory holed and explained away as being but the minor errors of some DoD pencil-pushers, apparently.

THE GREAT BANK ROBBERY

Bank Robbery

January 20, 2020 by Ivo Mosley

Source: https://positivemoney.org/2020/01/bank-robbery-2/ 

Published today, the new book ‘Bank Robbery’ by Ivo Mosley, sets out some of the damaging results of banks creating our money supply. In this guest blog he describes some of the basics of that process.

Oxfam’s new report revealed today that the 22 richest men in the world have more wealth than all the women in Africa. Just how did levels of wealth inequality get this bad?  

The answer to that question is fairly simple but rarely talked about: it’s to do with where our money comes from. The way money is created today allows certain individuals to get unimaginably rich without having to contribute anything in return. This way of creating money got full legal backing over three hundred years ago, first in England then across the world. And following deregulation since the 1970s, the system has become even easier to exploit.

So, how does money creation work? The key lies in our banking system, because most of today’s money is created when banks make loans. A borrower obviously owes the bank what she or he has borrowed, but not many people know that legally the bank owes the same amount to the borrower. This debt from the bank becomes money! This, of course, is completely different to the standard pretence of banks, that they lend what others have deposited. In 2014, the truth of this statement was publicly acknowledged by the Bank of England with its bulletin ‘Money creation in the modern economy’.

When a bank lends, two equal-and-opposite debts are created out of nothing: the bank owes the borrower and the borrower owes the bank. But laws have established that debt from a bank is money, so the bank pays the borrower merely by acknowledging its debt. The confusing nature of this essential truth has itself helped protect the system from public notice and scrutiny for a long time. When the borrower repays her or his loan, the bank’s debt will disappear. So, unless the borrower asks for cash, the bank will have paid out nothing except an acknowledgement of its own debt. In truth, this kind of debt would be better called ‘fake debt’ because it pays nothing out except itself. 

This is where government duplicity comes in, because the other two types of money -‘cash’ and ‘reserve’ – are also fake debts: they too are ‘promises-to-pay’ which pay out nothing except themselves. In the words of the Bank of England, currency (cash) is ‘an IOU to customers’ and reserves are ‘IOUs from the central bank to commercial banks’ (Quarterly Bulletin 2014 Q1). All these debts are valuable because the law supports debt as a commodity. The diabolical genius of the system is that it depends upon something counterintuitive and hard to grasp. 

The logic of making a payment in the system, however, is simple. When a customer pays someone, the bank (legally and technically) no longer owes that amount to the customer; it owes it to the person who has been paid.
So: our money supply today is legally debt from banks, central and commercial. The system was invented with a purpose: to centralize wealth and power in the hands of the ruling classes. It has been very good at its job. Inequality began to grow immediately in England once the laws were passed (1694 and 1704) and it is now beyond horrible across the world. 

The system also encourages financial speculation. Unlike productive investment, speculation drives up asset prices with little or no other benefits. With access to huge quantities of money created out of the blue, speculators buy up the hard-created assets of others. This means that for hundreds of years, a main consideration underlying economic activity, particularly in the corporate sector, has been to increase profits for speculators.

Today’s system means that for every bit of money in existence, a corresponding amount of real debt has been created. There’s no point complaining about the amount of debt in the world without confronting this fundamental fact: it means we cannot hope to pay off our collective debts without also decreasing the total amount of money in circulation, which would have a destabilising effect on our economy. To truly diminish debt we must transform our current money system.
This also makes it extremely difficult to tackle inequality. Wherever this system has been established in the past, inequality has ballooned and only massive redistributions of wealth or debt jubilees have been able to save society from collapse. In its first manifestation, in ancient Mesopotamia, sovereigns would periodically cancel all debts to prevent the whole nation falling into slavery. Closer to our own time, socialism – redistribution – emerged as a dire necessity to counter desperate poverty, exploitation and starvation among the poor.
But the bad effects of creating money this way spread far beyond inequality and debt. My book explores how it also breeds environmental destruction, colonial robbery, war, helplessness and hopelessness; and how it makes democracy pretty meaningless, because true power always rests with money – on which we all depend. Very few voices are speaking out against the system, and groups who are, as part of the international movement for monetary reform are often under-resourced or run solely by volunteers.

Last but not least, because so few people understand the system, no one knows where to turn to start creating a better world. Horrid spectres of extremism and dictatorship rear their ugly heads, because voters do not understand how they are being robbed. Instead of reform, blame and brutality take centre stage.

And yet: reform would be simple, if only we all demanded it! The proposal I advance in ‘Bank Robbery’ is that if debt were no longer a commodity to be traded, the system would collapse. We would just have to remove those laws which say that ownership of a debt can be passed around like cigarettes or sweets. Debt from private banks would no longer be able to pass from hand to hand as property – as money. After reform, money would stay in permanent circulation. Lending and borrowing would still be legal, but only the original lender would be supported by the power of the State when trying to reclaim a debt. Banks would only be able to lend out deposited money, which is what most people assume they do now; and a great number of other financial tricks would no longer be supported in law. 

The system was unabashedly created in order to centralise power with a ruling class. That is what it did, and what it still does today. A ruling class of power-seekers and profiteers tends to have a blind spot for everything except its own interests. In the words of Adam Smith, “All for ourselves, and nothing for other people, seems, in every age of the world, to have been the vile maxim of the masters of mankind.” Which is why, in the words of another old thinker (Acton), those who are disadvantaged must call for change: ‘it is by the combined efforts of the weak to resist the reign of force and constant wrong, that liberty has been preserved.’

Ivo will be speaking at the launch event for his book ‘Bank Robbery’ at 7.30pm this Thursday 23rd January, at the Prince of Greenwich pub, 72 Royal Hill, Greenwich, London, SE10 8RT. The event is run by our local Greenwich group, full details here. 

You can purchase a copy of the book from the publisher Triarchy Press or from Amazon.