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The Heart of Economics: the Creation and Management of Money
This article is by a (High School?) Teacher. It is very ambitious and, in my opinion, mostly wrong -- and, dangerous to our nation’s well being. (Marty Carbone)
This will be going into my file of articles that I hope will be part of an economics study course I hope to start in public libraries (mrc)
From http://model-economy.wikispaces.com/The+Heart+of+Economics
Instructions: Please read the passage, watch the videos listed, and answer the questions below. Please cut and paste the questions onto your own paper, write your responses, and e-mail back to me with “LCHS” somewhere in the title (CHerman@lcusd.net ). Each question is worth 2 points. Please complete by Friday, August 22, although you have the legal right to procrastinate until Monday, September 8. I appreciate early responses! Feel free to e-mail with any questions and/or comments. The most current version of this paper is at: http://classlink.lcusd.net/classlink/viewfiles.php?pid=4096 .
Without knowing how money is created and managed, all other topics concerning money are out of context. This is crucial: regarding trillions of dollars of economic power, you have no idea where money comes from. It’s time for you to learn. When people don’t know how money is created and managed, the only thing between them and tyranny is trust in ethical government. As we’ve discussed, American democracy is founded upon cautious distrust of government. To compensate for temptations of power and personal profit in government, the US Constitution is designed with checks and balances. However, because checks and balances can be thwarted if politicians are unethical, the only real protection of liberty is citizen responsibility. American democracy is dependent upon our taking personal responsibility for understanding our most important economic and political issues. This is one of them.
Many Americans believe in the US without understanding our major economic and government policies. Collectively, American’s trust in our government to ethically create and manage money is so pervasive that few of us ever give this multi-trillion dollar issue a moment’s thought.
There are five topics to understand for civic competence in creating and managing money. The first four are topics on your AP Macroeconomics test:
* Money and bank credit.
* Fractional reserve banking.
* Debt (public and private) and money supply.
* Historical struggle between government-issued money and private bank-issued credit.
* Cost-benefit analysis for monetary reform in your world of the present.
I promise each topic will be easy for you to understand and that your understanding will give you an informed policy voice over trillions of dollars. I’ve written the following information in this paper that I encourage you to verify and supplement through additional research. You’ll watch an online 45-minute video, “Money As Debt,” that will explain and show you these ideas. Feel free to watch “Money As Debt” at any point in the assignment. Of many sources: http://video.google.com/videoplay?docid=-9050474362583451279 , or in 5 parts: http://www.youtube.com/watch?v=vVkFb26u9g8 . For background: www.moneyasdebt.net . For transcript of Money as Debt: http://paulgrignon.netfirms.com/MoneyasDebt/MoneyasDebt1_Transcript.doc . For an excellent overview of our monetary system, Want to Know.info’s: http://www.wanttoknow.info/financialbankingcoverup .
Please be advised that the ideas most people have about how money is created and managed are false. Again, I provide all data in good faith as completely accurate. The conservative principle of prima facie applies. The following facts are verifiable in common economic dictionary and encyclopedia information, and hold unless refuted. I welcome any correction of inaccurate information and/or inclusion of useful information. Because the facts are so different from what most people believe, cognitive dissonance will push some people to reject the facts. Please reaffirm your commitment to embrace the facts. Here we go:
Money and Bank Credit: Your AP test will ask you to define money as anything generally accepted for trade. However, in the real world something is money only when the government authorizes it as “legal tender.” Its purpose is to facilitate trade. Fiat money (not exchangeable for a commodity that “backs” the currency) is all that’s required for this purpose because the government enforces its acceptance as payment. Commodity money is the attachment of money to a thing, like gold or silver. This is not needed for legal enforcement and introduces fluctuation as the value of the attached commodity changes. If you’ve been aware of the wildly escalating price of gold, you’ll understand the risk of a wildly fluctuating value of commodity money.
Bank credit is the legal power government has given banks to create a form of money out of nothing and lend it to the public at interest. Bank credit increases the supply of money, causes inflation (by definition as the supply increases), and devalues the money already possessed by the public. Inflation is a hidden tax on your money because purchasing power decreases with inflation. The banking industry benefits from this policy of creating credit out of nothing and lending it to us at interest, while the public has the costs of paying banks to “borrow” money at interest while existing money is devalued. I use the term “borrow” because the loan wasn’t something possessed by the bank. The loan was created out of nothing when you asked for the loan. This is difficult for many students to grasp. Watching “Money As Debt” will help.
Fractional Reserve Banking: This is how the banking industry multiplies any new money added by the Federal Reserve to the money supply. The definition of fractional reserve banking is that banks need only keep a fraction of total deposits on reserve and can lend the rest. What you’ll need to know for the AP test includes the “reserve ratio” (RR). The simplified version on the AP: once a bank is established, they must hold a percentage (ratio) of their total deposits “on reserve” that is not lent to customers. This rate is set by the Federal Reserve (Fed), usually at 10% on your AP (about 6% in real-life taking in all factors). This means that if the Federal Reserve adds new money into the banking system, let’s say $1000 through creating money out of nothing and buying US government securities on the open market, almost all of this new money will soon end up deposited in banks. The receiving banks then collectively lend to customers up to $900 while keeping $100 on reserve. The person receiving the loan purchases something; the $900 then is most likely deposited into another bank. This bank lends up to 90%, and the process continues with the new money created measured by the formula 1/RR. In this case the new money created is $1000 x 1/10%, or $1000 x 10 = $10,000. Because the Federal Reserve is owned by the banking industry, this causes a classic conflict of interest because the banking industry’s profit comes from expanding the money supply and then lending it. Expanding the money supply is in conflict with the public’s interest to limit the supply of money to guard its value from inflation.
Debt (public and national) and the Money Supply: When banks lend money, the interest charge can double the amount of money the customer must repay. Through fractional reserve banking, only the amount leant is created (principle) but not the interest. Because our US money is only created as debt, and the interest is never created, we can now explain some extraordinary but predictable outcomes of this monetary system. Money is debt, created out of nothing by private banks, and then leant to us to repay at interest. The debt will always be greater than the money supply. It’s impossible to ever repay total debt; we are in debt forever in this monetary system.
To put this in numbers, the total debt of the US public is currently over $50 trillion.[1] The total US money supply is somewhere around $13-15 trillion.[2] We don’t know the exact amount anymore because the Federal Reserve stopped publishing that figure in 2006, claiming it was unimportant and “too expensive to tabulate and print.” This decision was made without consultation from Congress or opportunity for comment from professional economists or the public. Critics responded that this number is among the most important because inflation is a function of the money supply, tabulating its cost is negligible, and not keeping track of the total money supply is potentially crippling to our overall economy through the risk of inflation. Critics suspect that the Fed is hiding how much they’re increasing the money supply.[3]
The Fed is privately-owned by the banking industry with their meetings closed to Congress and the public. The purpose of all business is to maximize their own profit with limited interest in the public good. The Fed is only audited by giving their accounting books to an independent firm to verify their math is correct in the books. Because the Fed is not strictly and transparently regulated by Congress, we have to trust the Fed that the numbers on their books are accurate. The only “oversight” from Congress is quarterly interviews for questions and answers with the Chair of the Federal Reserve. Presidents appoints the seven Board of Governors to help manage the Fed, but historically these selections always come from a short-list of candidates selected by Fed ownership.[4] The term of office for Board members is 14 years.
Because the Federal Reserve can always create money out of nothing to buy US government securities, the federal government is tempted to increase the national debt rather than operate a balanced budget. The current national debt of over $10 trillion[5] has an annual interest cost to the American taxpayers close to $500 billion.[6] US taxpayers only pay the interest and never pay down the principal of the debt. When the securities are due to be paid, additional securities are sold to cover the cost. There is no government plan to pay the national debt or reduce it rather than vague promises to reduce spending and reduce the debt from higher tax revenue of a strong economy. This rhetoric has no track record of performance since Andrew Jackson enacted monetary reform in his administration that ended in 1836.
The interest payment cost of $500 billion every year to Americans is enormous. As we learned in the last lesson, the investment to fund the UN Millennium Goals that would save a million children’s lives every month while decreasing population growth rates is estimated by professional economists from a low of $40 billion/year to a maximum of $150 billion/year at the project’s most expensive phase.[7] This is a ten-year investment, as sustainable and self-funding development is the project’s goal. Importantly, because our total money supply is ~$15 trillion, paying off over $9 trillion in debt is impossible from its proportional destruction of the money supply. Also, even if we wanted to repay the debt, the average cost to the ~100 million American households is about $90,000. If taxed progressively, the average cost per La Cañada household is about $250,000. The average La Cañada household tax payment for the interest on the debt is about $1,000/month.[8] We’ll consider alternatives to this monetary system in our cost-benefit section.
To put this in another perspective, the US Bureau of Engraving and Printing (BEP) has two buildings, one in Washington, D.C. and one in Fort Worth, Texas. Imagine each building has two halves: both print pretty pieces of paper. In one half, money is printed; in the other half, US Treasury Securities. Securities are mostly T-Bills, Notes, and Bonds; they are auctioned to the public every week as loans to whoever buys them and are repaid with interest. Bills are loans for a year or less, Notes are two to ten years, and Bonds are ten to thirty years. These are all marketable, meaning that they can be resold.
If Congress wants to buy government programs beyond their tax revenue, they may print and sell as many securities as they wish but cannot get money directly because that is illegal in our current monetary system. If the Fed wants money, they can print as much as they wish at the cost of the paper and then charge the taxpayers as an operating expense. Of course, the Fed can also enter money electronically into accounts. We have no way of knowing if the Fed abuses their power to create money by entering money into accounts and not reporting this on their books. The only safeguard the public has is their word that they would never ever create money for themselves, even though that is possible with a few computer keystrokes and undetectable.
For comparison, imagine if your family was a nation with the power to print its own money. I offer to take this job from you with the following spin: I’m a banking expert. Whomever you appoint from your family to create money will combine ignorance with inevitable corruption that will be incapable of managing your family’s money no matter what transparent safeguards you enact. Therefore, I will print money to lend to your family at interest. With your family’s increased education and economic productivity, you can only increase the money supply by additional lending from me. As a “government,” your family need never pay off the loan, only the interest. Your family will work for me in paying the interest, and my family will manage the money to lend to your family. This is fair because printing your own money will lead to your ruin.
Your family becomes increasingly in debt to me. After decades of this practice, your family doesn’t give this system any thought and whines about the interest payment without taking any action to understand the system and look for alternative structures.
Historical struggle between government-issued money and private bank-issued credit: As you can imagine, privately-owned banks would love to have the legal right to create and manage a nation’s money. This authority gives a whole new meaning to “taking your work home with you.” For an excellent comprehensive history, watch “The Money Masters” online (made in 1996: http://video.google.com/videoplay?docid=-515319560256183936 among many) and/or read the updated 2006 transcript: http://users.cyberone.com.au/myers/money-masters.html .[9] Watching the 45-minute video “Money As Debt” will give you a general appreciation of the history, as will the historical quotes at the end of this lesson.
Watching “Money As Debt” is important. From my summer conference among AP Economics teachers, their report is that students will not be able to answer the questions on money creation on the AP test without a walkthrough demonstration like this video. Also, please watch the beginning of “The Money Masters;” if you like what you learn, keep watching. The entire video is 3.5 hours, so you might want to watch in chapters. A short written parable might also help: The Money Myth Exploded.[10] The bottom-line of the history is a centuries-long struggle of wealthy bankers who have endeavored for the ultimate banking job. In the US, this struggle was won by the banks with the passage of the Federal Reserve Act in 1913. This allowed for the legal practice of fractional reserve banking and a monetary system of perpetual debt. Let’s consider the alternative envisioned for the Constitution but not included because the debate took so much energy and time at the Constitutional Convention that the members tabled the issue for Congress to resolve later.
Cost-Benefit Analysis for Monetary Reform: Monetary reform would nationalize the Federal Reserve (this name is deceptive so the public would perceive it as a government entity) and retain its use for bank administrative functions. Fractional reserve lending would be made illegal, with the US Treasury having sole legal authority to issue new money for the benefit of the American public rather than the benefit of the banking industry. About 45% of the national debt is held by the Fed and intra-governmental transfers; this debt would be cancelled as it becomes a bookkeeping entry with nationalization. Of the publicly-held debt of various parties holding US Securities, the US Treasury would monetize (pay) the debt in proportion to fractional reserves being replaced with full reserves over a period of one to two years to monitor money supply and avoid inflation.
The governmental cost of this reform is negligible. The benefits are astounding: the American public would no longer pay $500 billion every year for national debt interest payments. If lending is run at a non-profit rate or at nominal interest returned to the American public (for infrastructure, schools, fire and police protection, etc.) rather than profiting the banks, the savings to the US public is conservatively $500 billion.[11] If the US Federal government increased the money supply by 3% a year to keep up with population increase and economic growth, we could spend an additional $400 billion yearly into public programs or refund it as a public dividend.[12] This savings would allow us to simplify or eliminate the income tax.[13] The estimated savings of eliminating the income tax with all its complexity, loopholes, and evasion is $250 billion/year.[14] The total benefits for monetary reform are conservatively over a trillion dollars every year to the American public. One trillion is $1,000,000,000,000. To give you an idea of this amount, imagine a new stack of $1 bills. New bills are about 200/inch. Imagine if you laminated bills in a horizontal stack; this would be the same size as a 2x4 board. Now imagine that this board of money was to travel on the 210 Freeway beginning at the Oak Grove on-ramp heading east toward Pasadena. How far would the money-board go to equal $1 trillion? All the way to PCC? To Phoenix? Make your guess, then check the footnote.[15]
The private sector economic costs of monetary reform are transfers of wealth from the banking industry to the American public. Most bank employees would do their current work under a banking structure of our current credit unions rather than a bank structure.
Opponents of monetary reform claim that even if government issued money with transparency, any oversight created would be defeated; government would issue too much money and cause inflation. They also claim that competition for large profits in the banking industry spur innovation that wouldn’t occur in a non-profit design. Improvements such as ATMs, on-line banking, instant purchasing are worth the cost of giving monetary power to the private sector.
The statutory purposes of the Fed are stable prices, maximum employment, and moderate interest rates. For prices, consider for yourself how well they’ve done since the Fed began in 1913. Ask parents and grandparents if prices have remained stable in their lifetimes or if they’ve increased just a teensy-weensy little bit. You could also check the data and confirm that the dollar has lost over 95% of its value since the Fed went to work for stable prices.[16] For employment, consider that we have unemployed people in this country, resources to put to work, and infrastructure to improve; then judge the Fed’s effectiveness in creating money only as debt. For example, although LCUSD will not fire teachers, consider in California that 20,000 teachers are scheduled to be fired in 2008 because of government budget cuts.[17] We have the need for teachers, the teachers are available, but we have unemployed teachers because the government must borrow its money to hire them rather than issue money directly. This only occurs because money is debt in our current system; we would not have this problem if government restored this Constitutional power and issued money directly. For interest rates, the non-profit rate of borrowing money is generally considered among economists at 3% in our current inflationary economy. With monetary reform ending 95% of current inflation from fractional reserve banking, the non-profit rate for a home loan would be less than 1%. Ask your parents how much interest they pay on their mortgage for your home and if they conclude that the value added by the banking industry is worth the amount they pay above 1%.
Thank you for your attention to this information. If the performance of the Fed is acceptable to you along with its trillion dollar annual cost, feel free to defend it. If you prefer monetary reform, a trillion dollars of benefit every year to the American public will go far to building a brighter future. If you haven’t yet watched “Money As Debt,” please do so now.
Questions:
1. Please define “bank credit.” Explain why the banking industry benefits from legal authority to create it.
2. Define “fractional reserve banking.” Explain how the Federal Reserve increases the money supply and how fractional reserve laws multiply the increase.
3. Define “inflation.” Explain the effect that increasing the money supply has on inflation.
4. Explain how fractional reserve banking and bank credit can only create new money as someone’s debt. Explain if this answers the question you’ve had of how so many people and the US government can be in so much debt.
5. Explain how debt can be repaid as individuals but never can be repaid by society. Write the current US total debt and total money supply.
6. Explain why the US federal government is tempted to borrow rather than raise taxes to pay for government programs. How are we US taxpayers funding the expected $500 billion 2008 deficit for the federal government? “Deficit spending” is how much the government spends beyond its tax revenue for any given year. National debt is the total of all the annual deficits minus any surplus years.
7. Explain two reasons why the national debt is unlikely to ever be repaid in our current monetary system.
8. Explain why powerful bankers would like to be in charge of a nation’s money creation. Given the data you have so far and any additional research you do, write your analysis of how well bank corporations have served the public interest in their design of the US monetary system.
9. Explain the dollar amount benefits of monetary reform in eliminating interest payments on the national debt, transferring the profits of the banking industry to the American public, having the federal government fund programs directly at a 3% annual growth rate, and eliminating costs of the current income tax. Explain the costs of monetary reform.
10. Explain the degree you find this lesson helpful to understand the enormous importance of the creation and management of the nation’s money. Please explain the degree you struggled with cognitive dissonance in holding the competing ideas of our elected government officials serving the public interest and the facts that a trillion dollars of public benefit are diverted to the benefit of the banking industry and/or political interests of the current monetary system.
Quotes on the history of creating and managing money:
“Experience, more prevalent than all the logic in the world, has fully convinced us all, that it (paper money issued directly by government) has been, and is now of the greatest advantages to the country.” – Benjamin Franklin, The American Weekly Mercury, March 27, 1729. http://www.historycarper.com/resources/twobf2/paper1.htm
“The utility of this currency became by time and experience so evident as never afterwards to be much disputed.” – Benjamin Franklin, The Autobiography of Benjamin Franklin, page 65: http://books.google.com/books?id=izkLAAAAIAAJ&pg=PA65&lpg=PA65&dq=The+utility+of+this+currency+became+by+time&source=web&ots=oXus0ZmYXu&sig=-iNLTJs_TxPJoRqkNBg8InIM2a0&hl=en&sa=X&oi=book_result&resnum=5&ct=result .
“All the perplexities, confusions, and distresses in America arise, not from defects in their constitution or confederation, not from a want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation.” – John Adams, letter to Thomas Jefferson (1787-08-25), The Works of John Adams
“This institution (privately-owned central banks) is one of the most deadly hostility against the principles of our Constitution...suppose a series of untoward events should occur...an institution like this...in a critical moment might upset (overthrow) the government.” – Thomas Jefferson, December 1803 letter to Treasury Secretary, Albert Gallatin. http://www.yamaguchy.netfirms.com/7897401/jefferson/gallatin.html
“The treasury, lacking confidence in the country, delivered itself bound hand and foot to bold and bankrupt adventurers and bankers pretending to have money, whom it could have crushed at any moment...These jugglers were at the feet of government. For it was not, any confidence in their frothy bubbles, but the lack of all other money, which induced...people to take their paper...We are now without any common measure of value of property, and private fortunes are up or down at the will of the worst of our citizens...As little seems to be known of the principles of political economy as if nothing had ever been written or practiced on the subject.” – Thomas Jefferson, October 16, 1815 letter to Gallatin. Letters and Addresses, edit. William Parker, (New York: 1905. http://www.archive.org/stream/lettersandaddres00jeffuoft/lettersandaddres00jeffuoft_djvu.txt
“It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes.” – President Andrew Jackson in his veto message for the renewal of the privately-owned Band of the United States, which would have continued their private monopoly of creating US money. July 10, 1832. http://avalon.law.yale.edu/19th_century/ajveto01.asp
“I have no hesitation to say if they can re-charter the bank (2nd Bank of the US – a privately-owned central bank) with this hydra of corruption they will rule the nation and its charter will be perpetual and its corrupting influence destroy the liberty of our country. When I came into this administration...I had a majority of 75. Since then it is now believed it (the bank) has bought over by loans, discounts, etc until...there were 2/3 for re-chartering it.” – President Andrew Jackson, April 7, 1833 letter to R. H. M. Cryer. Ralph Catterall, The 2nd Bank of the U.S., (Univ. of Chicago Press, 1902.
After President Jackson vetoed Congress’ re-charter the 2nd Bank of the US and paid-off the national debt, President Van Buren (elected 1836) was confident the goal of defending the US from a privately-owned central bank was won: “The practice of funding the public debt...has long been discontinued...A National Bank has become a completely ‘obsolete idea’ among us, as thoroughly condemned in public opinion as a national debt.” – Catterall, p. 431.
“Why then should we go into Wall Street, State Street, Chestnut Street, or any other street, begging for money? Their money (private bank’s) is not as secure as Government money...I am unwilling that this government should be left in the hands of any class of men, bankers or moneylenders, however respectable or patriotic they may be. The Government is much stronger than any of them.” – Congressman E. G. Spaulding, 1862 speech to Congress in favor of issuing Greenbacks to pay for the Civil War rather than government borrowing. E. G. Spaulding, A Resource of War, (repr. CN: Greenwood, 1971), p. 37.
Peter Cooper (1791-1883) was one of America’s leading inventors and businessmen. He designed and built the first US locomotive in 1830, the “Tom Thumb.” Cooper was the first to introduce anthracite coal into iron production in 1845, resulting in the US’ first wrought iron beams for construction. In 1854, Cooper was a founder in the telegraph company that created the first trans-Atlantic cable. He patented Jell-O. In 1859, he founded The Cooper Union for the Advancement of Science and Art, a university in New York City that grants full scholarships to the nation’s brightest students with express admittance to all regardless of race, religion or sex. Cooper learned about monetary policy from Albert Gallatin, US Secretary of the Treasury from 1801-1814. The following 14 paragraphs are the summation of his life-long experience of the benefits of monetary reform that he witnessed from Andrew Jackson ending the privately-owned 2nd Bank of the United States and promptly paying-off the national debt, the US government directly issuing Greenbacks to pay for the Civil War rather than borrow the money, and then the economic depression when that policy was rescinded in favor of the federal government again borrowing money, as we do today.
ADDRESS AT THE CONVENTION OF THE NATIONAL PARTY, CONVENED IN BOSTON, 4TH OF JUNE, 1879. http://yamaguchy.netfirms.com/7897401/cooper/cooper_index.html .
“I think, that the neglect of our several administrations to make laws, that shall properly regulate the currency, both in volume and value, has been a greater cause of demoralization, want and misery among the mass of the people, than all other causes combined.
The American people have a right to demand of their Government a substantial reason for having taken from them their money, used by them for years as the currency of the country without cost to the Government. Our present Secretary of the Treasury declared in the Senate that “every citizen of the United States had conformed his business to the clause of the law regulating the currency of the country.”
I believe it will be impossible for our Government to show a good reason for having taken from the people their circulating notes, possessing (as the late Secretary McCulloch stated at the banquet, given by the New York Chamber of Commerce) “all the legal attributes of money.” The Secretary at the same time said, that, “In the very year, in which the war was closed, the reduction of the debt was commenced, and the reduction has been steadily continued, to the amazement of foreign nations.”
This debt, so called, was also “the credit of a great nation, cut up into small pieces and circulated as money;” as was well said by Secretary Chase. What shall we think of the administration of a Government, expressly designed, “by the people and for the people,” that should turn their circulating credit and their real money, into a debt which stops that circulation, vital as it is to the trade and prosperity of this people, and makes it a burden of bonds and taxes on their industry?
It will be equally impossible to show a good reason for having taken from the people their fractional currency, which was costing the Government nothing, and supplying its place with a more inconvenient currency, at the cost of thirty-two millions of dollars, added to the National debt.
The amount, already paid by the people as interest on the National debt, apart from any payments on account of the principal, is already one thousand, two hundred and twenty-four millions of dollars.
I have long been compelled to believe, that all that is now or ever has been required to secure permanently, is a safe deposit for all the unoccupied moneys of the country, and an ever strengthening bond of National union, as well as the best currency, that our country or the world ever saw, will be for the Government to do now, what should have been done at the close of the civil war,—and at the close of the war of Revolution against England—namely, to make the people’s money, found in circulation at the close of the war the sole money of the country, and the unflactuating measure of all values, receivable for all forms of taxes, duties and debts, and interconvertible with the interest-bearing bonds of the Government, which should bear an equitable but low rate of interest.
...How can we, as a Republican and a free people, control the Financial Institutions and the policy of this Government in the interest and prosperity of the whole people?
It is evident, that some fatal errors have been committed, some where, by which want, ruin and distress have been introduced, where before was prosperity, abundance and full employment for the enterprise and industry of this nation.
Individuals may suffer from extravagance, over-trading or over-production; but how can a whole nation have its joy and prosperity turned into mourning, but by the fatal errors of its ruling classes, which make the laws, and can thus mete out injustice and dry up the resources of a nation by rapacity and greed of gain, instead of diffusing happiness, education and freedom among the people.
Misgovernment and the faults of the ruling class have always proved in history the trouble and sorrow of nations. All the responsibility of a nation’s happiness, which may depend on a people’s laws and administration, must rest upon those, who are, for the time, the law making and administrative class.
Though the influences, that are now working against the rights of labor and the true interests of a Republican Government, are insidious and concealed under plausible reasons, yet the danger to our free institutions, now, is no less than in the inception of the rebellion, that shook our Republic to its centre. It is only another oligarchy, another enslaving power, that is asserting itself against the interest of the whole people. There is fast forming in this country an aristocracy of wealth—the worst form of aristocracy, that can curse the prosperity of any country. For such an aristocracy has no country—“absenteeism,” living abroad, while they draw their income from the country, is one of its common characteristics. Such an aristocracy is without soul and without patriotism. Let us save our country from this, its most potent, and, as I hope, its last enemy. I beseech you, fellow-citizens, to consider well what the crisis of the country demands of you, not losing sight of the fact, that there are great wrongs which must be righted in the administration of the finances of this country for the last twelve years. Old issues of North and South are, in a great measure, passing away, but there is no section of our common country, that needs so much the reviving influence of an abundant and a sound currency, as the South. The Southern people have the finest natural resources, that our country affords; every facility for manufacture—the material, labor and water-power indefinite. They need only money, wisely distributed among its working and enterprising population, for their work and their enterprise, which may draw out the money, and put it to the best use. It was well said, lately, by one of the Southern statesmen, that the “Government had impoverished, discomfited, and crushed the South more by its financial policy, since peace was declared, than by its arms during the whole war of Rebellion! ”
If the people can look for no relief from the present Congress and Administration—if those, who now sway the financial interests of the country cannot see their great opportunity—then new men must be chosen by the people, whom they can trust to make laws, and execute measures, that “shall secure the blessings of liberty to themselves and their posterity.”
I will close my remarks by a quotation from a speech of Daniel Webster. He declared that “The producing cause of all prosperity is labor, labor, labor. The Government was made to protect this industry, and to give it both encouragement and security. To this very end, with this precise object in view, power was given to Congress over the currency and over the money of the country.”
* * * * * * * * * * * * *
“The bankers will favor a course of special legislation to increase their power...They will never cease to ask for more, ...so long as there is more that can be wrung from the toiling masses of the American People...The struggle with this money power has been going on from the beginning of the history of this country.” – Peter Cooper, famous American inventor in his letter to President Hayes, June 1, 1877. http://query.nytimes.com/mem/archive-free/pdf?res=9806E1D7123FE63BBC4153DFB066838C669FDE
“We say in our platform that we believe that the right to coin and issue money is a function of government. We believe it. We believe that it is a part of sovereignty, and can no more with safety be delegated to private individuals than we could afford to delegate to private individuals the power to make penal statutes or levy taxes...Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank, and that the government ought to go out of the banking business. I stand with Jefferson rather than with them, and tell them, as he did, that the issue of money is a function of government, and that the banks ought to go out of the governing business... When we have restored the money of the Constitution, all other reform will be possible, but until this is done there is no other reform that can be accomplished.”
– William Jennings Bryan, Cross of Gold Speech, 1896. http://en.wikisource.org/wiki/Cross_of_Gold_Speech .
The following 16 paragraphs are the observations of Charles Lindbergh Sr., member of the House of Representatives from 1907-1917 (R-MN), concerning how the financial elite formed their privately-owned Federal Reserve banking system. Lindbergh called the owners of the Fed as among “The Money Trust.” This is from his 1917 book Why is Your Country at War?, that alleges the Money Trust’s interest to encourage war for their higher profits. http://books.google.com/books?id=qzAWAAAAYAAJ, page 156 (all italics from the original text)
“...I shall now quote the main important parts of my speech of July 5, 1916—in the Congressional Record of that date:
“No matter what individual professions and party claims may be to the contrary, it is apparent to anyone who has been a Member of Congress, and to anyone else who examines, that the will of the people in regard to legislation is seldom consulted. The price of leadership here is exactly the opposite of carrying out, in good faith, the will of those we are elected to serve.
Wholesale deception of the voters has been, and is now, the means used most successfully to secure office and remain in public life.
...Every one here knows that these things are true. But the public gets no information from the press about it, but anyone who dares to uncover the system and expose the schemes for deceiving the public finds that a certain part of the press will attack him and call him a radical and obstructionist, and excoriate him in every way possible. If to tell the truth about things makes one a radical, then radicals ought to be at a premium. But they have not been so far politically.
...There is a sinister influence at work in our country, which, if it is not checked, intends to completely undermine the original purpose of the formation of our Government—change it from the purposes of a democracy, and instead make it of a monarchical and plutocratic system, and to bring all the world into one control and one system, which for purposes of deception of the plain people, they would call a “world’s democracy,” but which in fact it is their plan to make the rule of the wealth grabbers, maintained by simple organization of themselves and disorganization of the masses pitting the masses against each other. It would be the privilege of a few to rule in splendor, and the fate of the many to spend their lives in unrequited toil and that hopeless condition of servitude which millions came here to escape from. The few now desire to cut off every possible avenue of escape from industrial slavery for the masses.
...The plain truth is that neither of these great parties, as at present led and manipulated by an ‘invisible government’ is fit to manage the destinies of a great people. Their rules of regulation must be changed before they will be, and it is doubtful if their rules will be materially changed. If they shall be, it will be because the voters themselves force it.
...Early in my service here I observed that there was some power outside the Government itself which was insidiously, but none the less effectively dictating the course of legislation in reference to finance, currency and the creation and control of credit throughout the country; that it was in a position to dictate and did dictate to an extent almost unlimited, to whom credit should be extended and from whom it should be withheld, and that it largely controlled the political action and influence of most of the banking and other corporations of the country. I saw that such a power of control existed here in Congress.
I introduced a resolution setting forth the facts, naming this insidious and well nigh invincible power, the Money Trust, source of all the trusts and calling for an investigation of its activities. The “big business” press, ridiculed the resolution and especially the idea that the Money Trust had an existence. (The facts about this appears elsewhere in this volume. See Index: Money Trust.) In this case the Committee reported out my resolution under a different name, and in order to prevent me from serving on the committee to be appointed, the resolution was referred to the Banking and Currency Committee which was composed almost entirely of bankers and lawyers for some of the banks. By keeping me off the committee I could not cross examine the witnesses.
The committee, nevertheless, had to report that there was a Money Trust and that its activities were as I had stated, and that its existence and the power it yielded were a menace to the institutions of the country, but took no action to deprive it of its power.
Woodrow Wilson, however, took notice of the proceedings and of the existence of the Money Trust.
This was before he became president. He promised to exercise his influence if elected, to curb its power and influence. But I have no hesitation in saying that this promise has not been kept, but on the contrary the principal result of financial legislation during this administration has been to legalize and more firmly entrench the Money Trust in its control of business, credit and politics of this vast country than ever before, and in order to conceal that fact the Money Trust has bought the services of many prominent financial writers for the purpose of running articles in the press praising the Federal Reserve system which in less than six years the people will rise in rebellion against because of its intolerable and unjust burden (Editor’s note: Lindbergh was off by seven years. It took 13 years from this speech for the Money Trust to simultaneously call-in loans in October 1929, crash the Stock Market, and begin the Great Depression).
Profiting from my observation of the Money Trust inquiry by a committee nearly all the members of which were interested in limiting its activities as much as possible, I introduced a resolution declaring it should be the policy of the House Membership that no banker or any one who was financially interested in a bank should be a member of the banking and currency committee.
I also introduced a resolution calling on Members to declare the extent of their affiliations with banks, if they had any.
Neither of these resolutions came out of the Committee on Rules to which they were referred, so we must take it for granted that a majority of the Rules Committee believe that it is right for bankers to frame legislation for Congress to pass for the bankers personal benefit, as all financial legislation shows has been done. Personally I do not believe that a banker should be on that Committee, any more than that if some one sued a judge that he, the sued judge, should sit as the presiding judge to decide his own lawsuit.
My Democratic friends, you have the vain hope that special privilege, having obtained enormous benefits at your hands, is going to be grateful for the past favors that you have showered upon it and assist you in retaining control of the Government. They will furnish you campaign funds, as they do to both the dominant parties, but it makes little difference to them which of you have the power as long as it remains with either under present conditions. You are to learn, having done all you could for it, that you are no longer necessary to its business, except that now that you have passed the most important laws that it wanted, you are forced to follow it up, and are stopped from complaining through your portion of the press and on the stump or from entering any protest whatever when the time comes that your eyes will be open to the oppression the plain people are surely destined to suffer because of your falsely so-called “beneficial legislation.”
You have missed the opportunity of your lifetime; one not likely to ever come to you again. The time will come when no Democrat who boasts of the achievements of this administration will be considered worthy to hold any public office. You have gone “cross-roads” with some of the most vital principles laid down by the great Thomas Jefferson. You may boast of him as a great Democrat, but none of you who have been active in fastening some of the hardships of this administration upon the people can boast of yourselves.”
The following seven paragraphs is Thomas Edison discussing the views for monetary reform that Henry Ford and Edison share. He’s referencing how the US government should directly create the money to build a hydroelectric dam at Muscle Shoals, Alabama, as reported from the NY Times article, “Ford sees wealth in Muscle Shoals” of Dec. 6, 1921. http://query.nytimes.com/mem/archive-free/pdf?_r=1&res=9C04E0D7103EEE3ABC4E53DFB467838A639EDE :
“That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt. Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 -- that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.
But here is the point: If our nation can issue a dollarbond, it can issue a dollar bill. The element that makes the bond good makes the bill good. The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond and an additional 20 per cent, whereas the currency pays nobody but those who directly contribute to Muscle Shoals in some useful way.
... if the Government issues currency, it provides itself with enough money to increase the national wealth at Muscles Shoals without disturbing the business of the rest of the country. And in doing this it increases its income without adding a penny to its debt.
It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people. If the currency issued by the Government were no good, then the bonds issued would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious values of gold.
Look at it another way. If the Government issues bonds, the brokers will sell them. The bonds will be negotiable; they will be considered as gilt edged paper. Why? Because the government is behind them, but who is behind the Government? The people. Therefore it is the people who constitute the basis of Government credit. Why then cannot the people have the benefit of their own gilt-edged credit by receiving non-interest bearing currency on Muscle Shoals, instead of the bankers receiving the benefit of the people’s credit in interest-bearing bonds?
Certainly there is a complete set of misleading slogans kept on hand for just such outbreaks of common sense among the people. The people are so ignorant of what they think are the intricacies of the money system that they are easily impressed by big words. There would be new shrieks of ‘fiat money,’ and ‘paper money’ and ‘green-backism,’ and all the rest of it – the same old cries with which the people have been shouted down from the beginning.
But maybe we have passed beyond the time when the thoughtful 2 per cent – you know, I gather from my questionnaire that only 2 per cent of the people think,” and Mr. Edison smiled broadly. “Maybe they can’t shout down American thinkers any longer. The only dynamite that works in this country is the dynamite of a sound idea. I think we are getting a sound idea on the money question. The people have an instinct which tells them that something is wrong, and that the wrong somehow centers in money. They have an instinct, also, which tells them when a proposal is made in their interests or against them.”
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John F. Hylan was Mayor of New York City from 1918 to 1925. The following 12 revealing paragraphs were reported by the New York Times on Dec. 10, 1922. New York has long been the US banking and financial headquarters, with the mayor’s office about a half-mile from the New York Stock Exchange. HYLAN ADDS PINCHOT TO PRESIDENCY LIST; FORESEES A REVOLT. http://query.nytimes.com/mem/archive-free/pdf?res=9F07EED6153AEF33A25753C1A9649D946395D6CF
“What each party wants is a man whose sympathies are with the people and not with gold, a candidate with a proven progressive record. If the international bankers and the food profiteers control both parties, there undoubtedly will be a third party, but it strikes me that they won’t be able to.
One of the most astounding facts about our American life is that the wealth and property of the country and the control of the machinery of government are in the hands of less than 2 per cent of the inhabitants. That is to say, a small group of excessively wealthy individuals, members of the Republican and Democratic Parties alike, have, through the exercise of powerful, sinister and, too often, unlawful influence, usurped the government and seized public property on such a wholesale scale that they have become the virtual dictators of the destinies of more than 110,000,000 people (the US population at the time). That is a situation which, to my mind, constitutes the greatest menace to the safety of our republic.
A small group of international bankers and money lenders, public utility exploiters and tariff beneficiaries have actually dictated nominations for offices up to the Presidency. They have placed the slickest, cleverest, and most cunning manipulators in official positions, even in the minor posts, where they could be of service when called upon by the invisible power which, utterly devoid of all humanity, seeks but to wallow in riches.
This invisible power, whose black and menacing form hovers over every fireside in the land, stealthily and secretly reaches out and seizes in its filthy paws our vaunted institutions of free government with the same ruthlessness and relentlessness as the grim specter of death pursues its numberless victims.
So absolute is the power of America’s secret dynastic rulers that they have, without hindrance, written the very platforms and pledges of political parties, and because of substantial contributions to campaign chests they have arrogated to themselves the right to dictate the governmental policies of the administration elected to office regardless of party.
Woe to the public officials who dare to resent their dictatorship! If there be such public officials who will not submit to their imperious dictation, then the flood-gates of lying press propaganda are released, sweeping the unhappy public servant to an earthly as well as political grave, or compelling him to compromise with his conscience and become their subservient tool to the end of his term.
I say to you in all candor that either alternative might have been my lot, and that I might not now be Mayor of the City of New York if one of the greatest, most useful of citizens and, through his publications, the most powerful individual in the United States, William Randolph Hearst, had not enabled me, through the columns of his newspapers in greater New York to present my side of the city administration’s case to the people and thus offset the deluge of mendacious misstatements in the opposition press.
It has also become increasingly obvious that these wealth lords are able, in many instances, to place their own hand-picked Judges upon the Bench, thus insuring decisions in favor of organized corporate greed at the price of human life; while the instances of promotion of such Judges in recent years has been an open secret to us all. This is said with all due respect to the courts and with a genuine appreciation of the exemplary conduct and superior attainments of our judiciary as a body.
...The wealth lords of America are already busily engaged in attempts to insure their control of the nominees of the Republican and Democratic Parties in 1924. They will endeavor at that time to place in nomination at both conventions candidates whom they can control. If this can be accomplished, the election will be of small interest to them, for the people will have to elect one or the other of their candidates.
It would seem the part of wisdom for the people in every State in the Union to watch carefully the maneuvers of corrupt big business and to organize themselves thoroughly to ensure the nomination of men in both the major parties of fighting personalities and progressive tendencies. Both the Republican and Democratic Parties must adopt progressive platforms attuned to the needs of the times and select men who will carry out such platforms if they expect to receive the support of the people generally. Only in this way may we ever hope to be liberated from the economic serfdom and human slavery to which we have been so long subjugated.
I cannot escape the feeling that the most recent movement inspired by the worst kind of bigotry is another attempt engineered by the ruling minority or money lenders of America to create dissension among the different creeds and races of our people, thus diverting attention from their own sinister machinations.
The regrettable feature of this unwholesome situation is that there are some among us who are unwittingly mislead into fellowship with such pernicious organizations. Even a few clergymen who are supposed to extol before the world the virtues of charity and forgiveness and to stand out as living exemplars of these humane doctrines have been found susceptible to the clink of dirty gold which such membership places upon their palms.”
* * * * * * * * * * * * *
“Mr. Chairman, we have in this country one of the most corrupt institutions the world has ever known. I refer to the Federal Reserve Board and the Federal Reserve Banks. The Federal Reserve Board, a Government board, has cheated the Government of the United States and the people of the United States out of enough money to pay the national debt. The depredations and iniquities of the Federal Reserve Board has cost this country enough money to pay the national debt several times over. This evil institution has impoverished and ruined the people of the United States, has bankrupted itself, and has practically bankrupted our Government. It has done this through the defects of the law under which it operates, through the maladministration of that law by the Federal Reserve Board, and through the corrupt practices of the moneyed vultures who control it.
Some people think the Federal Reserve banks are United States Government institutions. They are not Government institutions. They are private credit monopolies which prey upon the people of the United States for the benefit of themselves and their foreign customers; foreign and domestic speculators and swindlers; and rich and predatory money lenders. In that dark crew of financial pirates there are those who would cut a man’s throat to get a dollar out of his pocket; there are those who send money into States to buy votes to control our legislation; and there are those who maintain international propaganda for the purpose of deceiving us and of wheedling us into the granting of new concessions which will permit them to cover up their past misdeeds and set again in motion their gigantic train of crime.” – Rep. Louis McFadden, June 10, 1932. Source: Congressional Record, June 1932, pg 12595-12603. McFadden was the president of the Pennsylvania Bankers’ Association (1914-15) and president of the First National Bank of Canton, Pennsylvania (1916-25). He had been Chairman of the House Banking and Currency Committee for over 10 years when he made this speech denouncing the Federal Reserve System.
* * * * * * * * * * * * *
“The real truth of the matter is, as you and I know, that a financial element in the larger centers has owned the Government ever since the days of Andrew Jackson — and I am not wholly excepting the Administration of W.W. (Woodrow Wilson). The country is going through a repetition of Jackson’s fight with the Bank of the United States — only on a far bigger and broader basis.” - Franklin Roosevelt, letter to Col. Edward Mandell House (21 November 1933); as quoted in F.D.R.: His Personal Letters, 1928-1945, edited by Elliott Roosevelt (New York: Duell, Sloan and Pearce, 1950), pg. 373.
“The depression was the calculated ‘shearing’ of the public by the World Money powers, triggered by the planned sudden shortage of supply of call money in the New York money market....The One World Government leaders and their ever close bankers have now acquired full control of the money and credit machinery of the U.S. via the creation of the privately owned Federal Reserve Bank.”
Curtis Dall (FDR’s son-in-law), My Exploited Father-in-Law, 1967. pages 34-43: http://209.85.173.132/search?q=cache:B6Z5WdvB86QJ:www.vho.org/aaargh/fran/livres4/dall.pdf+my+exploited+father+in+law&hl=en&ct=clnk&cd=1&gl=us .
“When our Federal Government, that has the exclusive power to create money, creates that money and then goes into the open market and borrows it and pays interest for the use of its own money, it occurs to me that that is going too far. I have never yet had anyone who could, through the use of logic and reason, justify the Federal Government borrowing the use of its own money... The Constitution of the United States does not give the banks the power to create money. The Constitution says that Congress shall have the power to create money, but now, under our system, we will sell bonds to commercial banks and obtain credit from those banks. I believe the time will come when people will demand that this be changed. I believe the time will come in this country when they will actually blame you and me and everyone else connected with this Congress for sitting idly by and permitting such an idiotic system to continue. I make that statement after years of study.” - Wright Patman, Representative in the U.S. Congress from 1929 to his death on March 7, 1976, and chairman of the House Committee on Banking and Currency for 40 years. For 20 of those years, he introduced legislation to repeal the Federal Reserve Banking Act of 1913. Quote from excerpts from September 29, 1941, as reported in the Congressional Record of the House of Representatives (pages 7582-7583).
“As you know, I am entirely sympathetic with the objectives of your Monetary Reform Act...You deserve a great deal of credit for carrying through so thoroughly on your own conception...I am impressed by your persistence and attention to detail.” – Milton Friedman, Nobel Prize Laureate in Economics and Senior Fellow at the Hoover Institute to the authors of The Money Masters (undated) – www.themoneymasters.com .
“It’s (Federal Reserve) an immoral institution, because we have delivered to a secretive body the privilege of creating money out of thin air; if you or I did it, we’d be called counterfeiters, so why have we legalized counterfeiting? But the economic reasons are overwhelming: the Federal Reserve is the creature that destroys value...Since the Fed has been in existence, the dollar has lost about 97% of its value. You’re supposed to encourage savings, but if something loses its value, why save dollars? There’s no encouragement whatsoever.” – Congressman Ron Paul, CNBC debate with Faiz Shakir, March 20, 2008: http://www.youtube.com/watch?v=k94VWPjUQSM )
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[1] Washington Post. Phillips, K. The Old Titans All Collapsed: Is the US Next? May 18, 2008: http://www.washingtonpost.com/wp-dyn/content/article/2008/05/16/AR2008051603461.html
[2] Shadow Government Statistics. John Williams. http://www.shadowstats.com/alternate_data/money-supply .
[3] Wikipedia for overview: http://en.wikipedia.org/wiki/Money_supply#United_States , alternative statistics: Shadow Government Statistics homepage. Williams, J. http://www.shadowstats.com/alternate_data , and The Mess that Greenspan Made. M3, We Hardly Knew You. Nov. 22, 2005: http://themessthatgreenspanmade.blogspot.com/2005/11/m3-we-hardly-knew-you.html .
[4] This has been the practice for as long as I remember. I wasn’t able to find documentation from the media.
[5] Treasury Direct. The Debt to the Penny and Who Holds it: http://www.treasurydirect.gov/NP/BPDLogin?application=np .
[6] Seeking Alpha. Shedlock, M. National Debt and Interest Payments for 2008. Jan. 9, 2008: http://seekingalpha.com/article/59505-national-debt-interest-payments-for-fiscal-2008 .
[7] Borgen Project: Poverty Reduction through Political Accountability. http://borgenproject.org/Cost_of_Ending_Poverty.html and The End of Poverty: Economic Possibilities for our Time. Jeffrey Sachs. http://www.earthinstitute.columbia.edu/endofpoverty/oda.html .
[8] Total interest divided by ~100 million households, then multiplied by the average LC household income at 2.5 times the national average.
[9] Many of their quotes from Presidents are not included at the end of this lesson because their sources are usually the Congressional Record. Members of Congress did not footnote their sources and we do not have other written sources to corroborate the quotes.
[10] Evan, L. The Money Myth Exploded: The Financial Enigma Resolved – A Debt-Money System: http://www.michaeljournal.org/myth.htm
[11] Of $50 trillion total debt, a conservative current interest cost of 5% is $2.5 trillion every year. The academic estimate of the true cost of borrowing is about 3%. A $500 billion savings if the profits are transferred to the American public rather than to the banking industry is probably low.
[12] The US GDP is ~$13 trillion every year. Three percent growth is moderately conservative.
[13] Of the US Federal government’s ~$2.5 trillion annual budget, about $1.2 trillion is received from income tax.
[14] Tax Foundation. Hodge, S, Moody, J, Warcholik, W. The Rising Cost of Complying with the Federal Income Tax. Jan. 10, 2006: http://www.taxfoundation.org/research/show/1281.html .
[15] Over three times around the world at the equator. Yes, that’s a lot. Earth’s circumference is ~25,000 miles. There are 63,360 inches in a mile.
[16] US Bureau of Labor Statistics. CPI Inflation Calculator: http://data.bls.gov/cgi-bin/cpicalc.pl .
[17] California Department of Education. State Schools Chief Jack O’Connell, Teachers, Support Staff, Administrators Announce More Than 20,000 Teachers and Support Staff Getting Layoff Notices Due to Budget Crisis. March 14, 2008: http://www.cde.ca.gov/nr/ne/yr08/yr08rel31.asp