CONFRONTING TYRANNY
The case for Monetary Reform and Economic
Democracy
Mike Rowbotham, 01263 761610, Price: 15#
Bretts Cottage, Chapel Road, Aldborough,
Norfolk, NR11 7NP, England
JCT: Mike Rowbotham
send me a manuscript of his soon-to-be-
published book. The Table of Contents
is revealing:
1 Up against the wall
2 The debt-based financial
system
3 The consumer society
myth
4 Transport and centralization
5 Export warfare
6 The lunacy of the
national debt
7 Food and farming
8 Work and Technology
9 Pollution and the
environment
10 Third World debt
11 Multinationals, nation
states and money power
12 The free trade religion
13 History 1 - The origins
of debt finance
14 Lincoln and Douglas - The
suppressed alternative
15 History 2 - The extension
of debt finance
16 Reform - 3% is not enough
17 Inflation
18 Balance stability and reform
19 The conspiracy of arrogance
20 Legitimate powers
21 The pursuit of economic
democracy
JCT: LETS is mentioned
on the page 237 of Section 16, "Reform is
not enough" and later on page 296 which
I will transcribe in total:
Page 237: Generally speaking, when one
is trying to present the case
for a reform, and persuade others of the
need for change, it is
important not to overstate one's argument.
Exaggeration is often
counterproductive. But the fact is that
in the case of the financial
system, it is almost impossible to over
state the need for reform. The
instability; the indefensible absurdity
and the damage caused, both to
the economy and the entire social fabric
by our current financial
system are all so devastating that the
situation is simply beyond
exaggeration. The power of words is almost
inadequate to convey the
full depth of the injustice and destructive
effect of modern money.
It is no exaggeration to claim that the
reform of this debt-based
monetary supply system is the single most
important area of reform
confronting Mankind. Reforming the financial
system is more important
than the war against poverty and starvation;
more important than the
movement to protect the environment, the
struggle against pollution,
the peace movement, the fight against
drugs and racism, and the battle
for social justice and welfare. Financial
reform is more important
than all of these other issues for the
simple reason that the current
financial system is responsible, both
directly and indirectly for
causing or least exacerbating them.
As a result, however fast people try to
tackle these other problems
separately, the dominating economic background
of an exploitative
system of wage dependency ensures that
the situation deteriorates
faster than the various reforms can cope.
Garet Farrett, the famous
American economist said in his book "The
Bubble that broke the World:
"Of all the discoveries and inventions
by which we live and die, this
totally improbable helix of credit is
the most cunning, the most
liable, the least comprehended, and next
to high explosives, the most
dangerous."
The historical survey in chapters 13,
14, and 15 attempted to do two
things. The first intention was to highlight
the contribution of an
unstable and inadequate financial system
to incidents of major social
distress; the second was to give a brief
mention of some of the
criticisms and proposals for reform made
by those who traced these
events to their financial origins. This
book cannot claim to have done
justice to the quality of this criticism
nor the range of proposals
put forward by various reformers. However,
whilst these schemes
differed considerably, all had one common
theme in the repudiation of
debt, and the iniquity of bank credit
creation upon which our
financial system is not entirely based.
The proposals for reform fall into two
broad categories.
The first category consists of those schemes
which advocated an
entirely new mechanism, either replacing
the present financial system,
or additional to it. The second category
consists of those proposals
based on the belief that reform of the
present monetary system is
possible and preferable.
The first category includes John Grey,
Silvio Gessel, the technocrats
and the many local currency or barter
issues of the 1930s. Today's
LETS schemes take their inspiration and
acknowledge their origins in
these earlier efforts.
The second category, and in fairness,
by far the larger category - the
monetary reformers - includes John Law,
Lincoln, Douglas, the
"Creditists" and "Distributists," Irving
Fisher; and in the present
day, the Christian Council for Monetary
Justice, Brian Gould, James
Gibb Stuart and Austin Mitchell, M.P.
It is not intended to consider the first
category of reforms in an
great depth, not because they lack validity,
LETS schemes and their
precursors have often functioned with
great success and brought
prosperity, or at least improved the economic
and social well-fare of
those involved. The main reasons for not
considering these schemes in
detail are, first, only a relatively small
number of people have been
able to escape the clutches of the financial
system through them.
These schemes take a considerable amount
of effort and commitment to
organize and run, and many people in conventional
employment are
effectively bound to the dominant financial
system by nature of the
work they do. These exchange schemes are
valuable, but alone they can
do little but marginally improve the situation
for a few, leaving the
majority of people still subject to the
forced economy at large and
its financial system.
The second and main reason for concentrating
on monetary reform is
that there is a democratic issue at stake.
We should not have to dodge
and compensate for the financial system
by devising LETS schemes or
supplementary exchange mediums; we should
not have to go scurrying
around printing tokens; advertising services,
calculating and
administering a secondary exchange network
at considerable personal
effort. The financial system is our financial
system; the conventional
economy is our economy and both have a
responsibility to serve us; and
we have a right to seek their reform.
Page 296: The ultimate challenge to the
debt-based financial system,
which involves a wholly legitimate action,
is to create one's own
currency. If the government fails to create
and supply the economy
with an effective and supportive means
of exchange, they should not be
surprised if people undertake this for
themselves. The upsurge in the
number of LETS schemes all around the
world shows that this is already
happening. The most effective LETS schemes
are those which are credit-
based; ie they do not automatically and
necessarily involved one
person going into debt to another person
whenever goods and services
are exchanged, but are founded upon a
circulating stock of permanent
credits. A set number of these credits
is issued to each member on
joining the scheme and thus the total
currency rises with the number
of members. The most famous and longest
lasting such scheme is the
Ithaca Hours currency devised by Paul
Glover in America.
With LETS schemes, the scope exists not
just for local currencies but
currencies created by and for the business
community. Under the debt-
based financial system, the demand for
finance by industry gives rise
to substantial commercial debts and the
consequent need to sell goods
and services at a price elevated by such
debt. Several schemes linking
businesses through a supplementary credit
scheme now operate on the
continent and with their success, more
are being planned.
It is noticeable that governments rarely
try to tax such schemes and
seem to act as if they did not exist.
There is a reason for this. To
raise taxes from the earnings of a LETS
or Business Currency scheme
would be to give recognition and value
to that currency and then it is
only a very short step to the wholly reasonable
demand to pay taxes in
the new currency since this is the form
the earnings take. This leaves
the government with the option of either
dealing in the new currency
or cancelling it, in which case, more
can easily be created to
compensate for this.
At times, governments have attempted to
outlaw such currency schemes,
especially when they involve the creation
of a true token of currency.
But with the advent of the computer, the
chance now exists to
completely drop tokens that can be construed
as currency and use
number-money exclusively. If government
only regards coins and notes
as worthy of consideration and creation,
and deems bank-created
number-money as u worthy of issue and
regulation, such a government
can hardly challenge or make a legal charge
against ordinary people
for creating their own number-currency.
This is a policy of playing by
the rules set down by the government;
taking them at their own game.
Since money is such a nebulous and abstract
entity, the number of ways
around, through, and out of the current
situation, are legion,
provided that a clear idea is retained
of the purpose, function and
status of money within the economy. It
is important that LETS
organizers appreciate the basic flaw of
the present financial system
is that it is a debt-based. The need for
a stable and fully
functioning currency is not met by simply
linking people and recording
work done as a credit to one person and
a debt against another.
Ultimately, this is because money is needed
not just as a means of
exchange but as a "store of value." The
act of saving money has got a
bad name for many people by being associated
with the charging of
interest, but saving means no more than
waiting-to-spend, or
collecting sufficient money for a purpose.
There is nothing inherently
wrong or unsound in this but it does require
that there is a
sufficient quantity of currency, free
of debt, for some people to save
without detriment to the rest of the economy.
It has to be appreciated by anyone who
sincerely wishes to see an end
to the misrule of money power, that this
is only likely to come about
if the most complete and clever tyranny
the world has ever known is
confronted calmly and tackled constructively.
JCT: An erudite
tirade against the injustice of paying interest
to loansharks for tokens we could be using
for free. I found much good
and though his solution would work, it
is the old Social Credit "Add
to the Numerator" solution that has been
upgraded to the LETS
"Stabilize the Denominator" solution.
At least he delineates between
the Numerator Compensators and the Denominator
Stabilizers. And I
don't object to bank credit creation if
banks do it for a service
charge and not an interest charge.
Adding money
in the numerator free of debt to pay the expanded
debt leads them to conclude that the problem
was "debt-money." I've
shown that only the interest positive
feedback on the debt is bad and
the debt itself is honorable. I have no
preference for money being
debt-based or non-debt-based. Usury's
the problem, not the result.
I sent him a
copy of the advanced engineering analysis of the
banking system and hope he adds a lot
more about LETS. Some notes
1. Up against the wall
2. The debt-based financial system
p18: Governor of the Bank of Canada, Graham
Towers, said that "each
and every time a bank makes a loan, new
bank credit is created - new
deposits - brand new money." There's no
question in his mind that
loans are coming out of the tap.
JCT: I use that
quote linking the loans out tube to the money tap
in my banking plumbing model.
p29: Banking is institutionalized usury,
always seen as a great evil.
p32: The word "mortgage" means literally
"death-pledge."
JCT: I use "death-gamble"
but both fit how the contract works.
p34: Now, slavery is a big word, it is
a term both justified and
penetratingly accurate.
JCT: Of course,
that's why I called my LETS monetary reform Party
the Abolitionist Party. I knew LETS would
free the debt slaves
including me.
3. The consumer society myth
p46: Section on the Pursuit of Cheapness
p50: By creating an artificially intense
financial environment,
requiring the constant repayment of debts
which are ultimately
unrepayable, debt-finance has engendered
widespread tensions and
divisions to what should be the cooperative
venture of work.
JCT: That's just
how playing musical chairs death-pledge should
feel.
p56: Don't blame the rich.
p58: The modern economy is driven, not
by the aggregate desires of
what people want out of the economy, but
rather, by what the economy
can get out of them. the only fitting
word for this is slavery.
Standard textbooks say nothing about the
chronic lack of purchasing
power. Indeed, modern economics denies
any such phenomena exist. Say's
law states that "out of the process of
production comes sufficient
money to purchase the goods it produces."
p60: This neglect of the origins of money
explains the problem. If
borrowing is seen as borrowing money "from
someone else," escalating
debt must be a sign of prosperity.
p62: Summary: Money borrowed is not money
lent; it is money created.
At the heart of the economy is money and
at the heart of modern
economics is a misunderstanding about
money.
p63: This, combined with the fact that
goods are so tantalizing, yet
always financially out of reach, has resulted
in a culture of
perpetual desire set against a background
of frustration and
discontent. Slavery is a term which is
utterly appropriate and fully
warranted. The fact that this is indeed
slavery is underlined by the
status of the unemployed. Benefits are
barely adequate to survive on.
No question of having sufficient to buy
tools. The situation is a
blatant description of slavery.
So long as we are in debt, so we are bound
to paid employment. There
is a word for this system. It is Peonage,
otherwise known as financial
slavery. Cheryl Payer describes this system:
"In the Peonage, or debt-
slavery system, the aim is to keep the
labourer permanently indentured
through his debt to the employer."
Peonage, a people tied permanently by
monetary force to perpetual
labor.
p64: It is an archaic, grossly inadequate
and inadequately understood
financial system. When one reflects upon
the environmental impact of
forced economic growth, the cost of slavery
may well include not just
our lifetimes, but our lives, and those
of our children.
The choice of the world slavery is not
a matter of exaggeration.
As C.H. Douglas said: "The primary characteristic
of the slave is not
bad treatment. It is that he is without
say in his own policy."
4. Transport and centralization
JCT: This is
a great chapter on the lunacy of transportation
costs for overseas goods we could be producing
at home.
5. Export warfare
JCT: Really good
explanation of the economic war to export what
we can't buy at home.
6. The lunacy of the national debt
p80: Humour is unavoidable, indeed the
only fitting treatment for the
national debt. He makes the fascinating
point that since they have no
intention of paying off the national debt,
increased borrowing acts
like a source of new money to pay corporate
and private debt. Of
course, healthier books involves greater
taking from the poor to give
to the rich but Nations which get deep
in debt to get more liquidity
have lower inflation and better lifestyle
than those who don't get
into debt and don't get more liquidity
to effect employment trading.
7. Food and farming
p105: Richard Douthwaite's book "Short
Circuit" commented "Even a
child might ask: "Why must food be transported
thousands of miles when
it can be produced right here?" This is
not efficiency, but economics
gone mad."
8. Work and Technology
JCT: He points
out that increased technology should result in
increased wealth for all.
9. Pollution and the environment
p123: The financial system exerts pressures
on nations to support this
destruction of the environment.
10. Third World debt
JCT: He cites
David Korten, Jackie Roddick, et al get at end
chapters
11. Multinationals, nation states and money
power
12. The free trade religion
13. History 1 - The origins of debt finance
p177: The basic defect is money issued
as debt.
JCT: Interest-bearing
debt. Not interest-free debt.
In medieval England, there was little inflation.
What is most
striking, the general population enjoyed
a standard of living that was
almost unequalled until the beginning
of the 20th century.
JCT: Using King
Henry's interest-free tallies all those years
permitted them spend half a year earning
a comfortable living and the
other half of the year in celebrations
or on work-bees building
cathedrals.
King Henry VIII debased his coinage. Queen
Elizabeth I debased her
coinage. Poverty became rife.
p178: Goldsmith's fractional reserve banking
system.
p179: In 1698, King lost control of state
finances to Bank of England.
p180: Plague and bad harvests had often
struck the economy but with
the periodic collapse of bank-credit a
new phenomenon began to appear:
economic depressions spread across the
country causing appalling
poverty, often in the midst of plentiful
harvests. From the 16th
century onwards, these depressions occurred
more and more regularly.
They might be localized or widespread.
Whatever the trigger, the
result was that bank credit collapsed.
In 1705, John Law, produced wheat as probably
the first substantial
treatise on monetary reform: "Several
proposals offered to remedy the
difficulties the nation is under from
the great scarcity of Money." He
called for a Parliamentary commission
to create and lend paper money
on the security of land ownership not
exceeding one half or two thirds
of the value:"
JCT: Wow. Right
on.
And at the ordinary interest.
JCT: Right off.
Because the land could not be taken abroad,
like gold. "Land pledged
is better than silver pledged."" Of course,
owners from abroad seem
the inevitable result.
p180: In 1746 Bishop Berkley presented
his arguments in the form of
what he called his "Queries: "Whether
it might not be a privilege for
a private person to be able to create
a hundred pounds with a dash of
his pen?"
In 1793, Edward King wrote: "The issuing
out of any notes for general
circulation ought to be as sacred to government
as the issuing out of
gold and silver coin is sacred to government,
and to the mint at the
Tower... We see some of our plantations
make shift without money,
properly called, using bits of stamped
paper, of no real value.. it
will be next to impossible for such people
to arrive at any great
degree of power and splendour."
p182: Between 1814 and 1816, labourers
became vagrants whiles all
around them, the land was full of food.
Starvation was rife...
p183: Poaching was punishable by death.
William Cobbett: This villainous bank
has slaughtered more people than
would people a state. With rope, the prison,
the hulk and the
transport ship, the bank has destroyed
perhaps 50,000 persons,
including the widows and orphans of its
victims. At the shop of this
crew of fraudulent insolvents, there sits
a council to determine which
of their victims shall live and which
shall swing! Having usurped the
royal prerogative of coining and issuing
money, it is but another step
to usurp that of pardoning or causing
to be hanged."
p184: 1819-1822 Panic, 1825 Panic, 1829
Panic, 1833 Panic.
p185: In 1495, agricultural wages were
sufficient with just 15 weeks
work. By 1564, 40 weeks. By 1651, his
entire annual wage. By 1725,
15%-20% shortfall and by 1777, factor
between 3 and 4 from Henry VII
time. The nation had indeed been allowing
its poor to starve to death.
p186: Thorold Rogers, a highly respected
professor of history at Oxford
university, said: "From 1563 to 1824,
a conspiracy was entered into to
cheat the English workman of his wages."
Subsequent to publication, he
was rapidly relieved of his position there.
p188: In 1842, John Grey published: "An
effective remedy for the
distress of nations" advocating distributing
paper money rather like
tickets, from government-organizers appreciate
the basic flaw of the
present financial system organized industries
and agricultural
concerns.
JCT: Yes. Right
on.
F.W. Fetter: "All banks of issue were taking
over the royal
prerogative of issuing money."
In 1844, Prime Minister Robert Peel confirmed
power of the banks.
p189: In 1847, interest rates were put
up to an unheard of 13% and a
massive and sudden crash.
JCT: He does
America's money story
p197: In his book entitled: "Distribute
or Destroy," a Swedish
economist, Brynjolf Bjorset, records that
over 2,000 schemes for
monetary reform were advanced during the
period from 1925-1930, all
with a common theme of repudiation of
the industrial and government
debt.
p198: Fredirick Soddy, a Nobel laureate
in chemistry, was a passionate
advocate of monetary reform: "fatal to
democracy has been its failure
to provide any proper authority and mechanism
for the making and issue
of money, as and when it is required,
to keep pace with the growth of
its wealth.. It certainly does seem odd
to a tyro to discover that the
laws proceeds with the utmost severity
against the fraudulent
counterfeiter for uttering new money tokens,
but allows the banks in
effect to create it wholesale to lend
at interest.. which is a far
more profitable business and infinitely
more serious in its
consequences to the general community
than counterfeiting. To any
other age, it would have been the most
obvious form of treason against
the state.. Year after year the industrialized
nations produced an
ever-mounting tide of munitions of war,
with the flower of their
manpower withdrawn from production. There
seemed no physical limit to
the extent which a nation, shaken out
of its preconceived habits of
economic thought by the imminent peril
at its doors, could turn out
the material necessities for its existence.
Whereas now we have
returned to peace and squalor, to idle
factories and farms reverting
to grass.. Yet we have the same wealth
of natural resources.
Irving Fisher, advanced "100% Money" which
demanded government create
currency to keep pace with the bank creation
of credit.
JCT: Again, they
only have to create the growth due to interest
because the principal is issued at the
time of loan.
p198: By 1933, more than 300 communities
across had introduced some
form of barter system, scrip issue or
local currency to try to
overcome the nationwide currency shortage.
President Roosevelt
forbade any further such issues yet in
one of his 1933 election
addresses, Roosevelt spoke out against
"Practices of the unscrupulous
money changers who stand indicted by public
opinion."
JCT: It's not
the first time Roosevelt practiced the opposite of
what he preached.
p199: In Europe, Sylvio Gessel devised
a local currency in the form of
a stamped scrip. In 1932 American magazine,
The New Republic, the
effects on the village were dramatic.
"One would not have recognized
Schwanenkirchen a few months after work
had been resumed in the mine.
The village was on a prosperity basis,
workers and merchants were free
from debts and a new spirit of life and
freedom pervaded the town.
Reporters came from all over Germany to
write about the miracle.
Their success terrified the German government
which feared they would
cause inflation and passed emergency legislation
in 1931 to bring
their use to an end. The mine closed and
its workers were plunged back
into unemployment. In Austria, similar
themes were started during the
1930s, with quite startling success, notably
in the town of Worgl. But
again, the government intervened to make
these schemes illegal.
The Distributionists and Technocrats were
groups devoted to the
practical solution of the "money problem."
JCT: I've checked
Technocracy and they advocate 1/s LETS using
energy certificates, manpower over Time.
So I'd guess his opinion of
Distributists is probably right too.
Head and shoulders above these stood the
figure of C.H. Douglas and
the Social Credit movement. His ideas
are explored in the next chapter
with those of Abraham Lincoln.
14. Lincoln and Douglas - The suppressed
alternative
JCT: He reprints
in total Lincoln's greatest of all "Money will
cease to be Master" Abolitionist Statements
from Senate Doc 23, page
91 1865. He does a nice history of Social
Credit.
p208: If for no other reason than the
fact that when a bank issues a
loan, it requires more to be repaid than
was borrowed, the dynamic
could not be balanced.
p209: Douglas: "How was it that a world
which was apparently almost
feverishly prosperous in 1929 could be
so impoverished by 1930. Is it
reasonable to suppose that between a single
date in October 1929 and a
few months later, the world would change
from a rich one to a poor
one? Of course it is not."
p210: The basic income would be money
created by the government free
of debt to offset the debt generated by
the banking system.
JCT: Yes, not
the rent and overhead expenses. And the only amount
to be offset is the interest, not the
principal which has been issued.
p211: Douglas believed that what he had
discovered was a "flaw;" a
fault or unintended defect in the financial
system that would be
rectified once the matter had been thoroughly
discussed.
JCT: I felt the
very same way. In my early letters to the
government, I informed them how we could
be using casino chips to save
ourselves all the interest and taxes.
P211: By the time he wrote his second book,
Douglas's whole approach
had changed. What they were up against
might well be an unintended
defect in the financial system those involved
in government and
finance had no intention of changing a
situation which conferred on
them great powers over the direction and
pace of economic growth via
manipulation of the unbalanced financial
system.
p212: From 1923, Douglas's writings are
highly political.. He insisted
that behind the current monetary system
there was also a philosophy
with a range of assumptions and prejudices
and people could not let go
of them, in spite of argument and evidence.
Douglas questioned the blind pursuit of
employment.
p215: "The whole strength of finance lies
in the unconsciousness of
the average individual as to its nature..
the policy is to load us
individually and collectively with debt
so that we shall be the slaves
of our debtors in perpetuity.. What is
aimed at is a pyramidal slavery
system."
p215: A number of eminent and key financial
figures came out openly in
support of Douglas's proposals.
Reginald McKenna, former Director Bank
of England
Vincent Vickers, Bank of England Director
Robert Eisler,
Lord Josiah Stamp, Director Bank of England
p214: Douglas preferred to outline the
principles involved in reform
and by and large steered clear of cut-and-dried
solutions.
JCT: Of course,
working to balance purchasing power in the
numerator takes lots of estimation which
eliminating the imbalance in
the denominator does not.
p214: "To elect a Social Credit party would
be to elect a set of
amateurs to direct a set of very competent
professional bankers."
JCT: He must
be regretting making that statement. He insists on
forcing bankers to do it right rather
than do it right ourselves which
is quite trivial using LETS software rather
than the Social Credit
compensation software.
p215: When a Social Credit government elected
in Alberta Canada, every
attempt which that administration made
to implement a credit system of
finance was over-ruled by the Ottawa government.
15. History 2 - The extension of debt finance
p226: Where has all the money gone? How
can there be a net trade
deficit over the world as a whole? How
can there be a net outflow of
money from the nations of the world?..
It is not the rich nations who
have benefitted but the multinational
and financial interests.
p233: The fact is, our current civilization
had grown out of virtual
slavery and has not changed a bit except
some of its slaves are better
cared for. We need only remember when
men were thrown into debtor's
gaol, families were left to starve whilst
food rotted, children were
locked in workhouses or taken for slaves
and men were hung for
poaching a rabbit. And if anyone believes
that modern times do not
deserve such parallel, the unconscionable
conduct of financial and
corporate interests in the Third World
should serve to correct any
such illusion. Meanwhile, the pressure
to force single mothers back to
work whilst there are millions unemployed
who WANT to work, should
prove that even in the wealthy countries,
we still know how to pick on
and blame the most vulnerable in society..
Those who have lost their
homes to mortgage repossession and often
lost their families as a
result will testify that the ruthlessness
of finance is quite
unchanged.. Meanwhile, with the best brains
and best economists that
money can buy, the deregulated world economy
they oversee is
destroying lives and livelihoods and threatening
the very existence of
the planet.
A mere fifty years ago, many of the now
impoverished nations were
considered prosperous. We shared with
them our agriculture, our
technology, our industry, and our health
care, all of which could, and
often has, improved their lives. But we
took all this and more away
with the final gift, for most of all,
we have given them white-man's
economics. And white-man's economics is
proving itself far more
ruthless than white man's colonial rule.
16. Reform - 3% is not enough
JCT: Here he
mentions LETS as a private solution that we wouldn't
have to resort to if money were run right.
p240: The sensible way to settle the national
debt is to pay it off
gradually as stocks and bonds mature..
The economy clearly needs a
stock of money circulating debt-free,
but the question of how much is
not easy. Sufficient debt-free money should
then be created so as to
produce a match between the total prices
of goods and the total money
available for their purchase.
JCT: That's why
it's preferable to eliminate the growth of debt
in the denominator rather than guess how
much to inflate the
numerator.
p241: The current system of bank credit
creation needs to be
counterbalanced by a second money supply
of rue, debt-free money.
JCT: No. current
bank credit creation is sufficient to already
balance the principal of the debt. Only
the interest on the credited
created needs to be counterbalanced or
eliminated.
People and businesses are responsible for
repaying loans, plus
interest and the level of borrowing can
be used as a feedback control.
JCT: Sure, it
is the best feedback control if you don't choose to
eliminate the feedback.
p242: The term "stable credit" also serves
to contrast this process
with the creation by banks of debt-money
which is unstable.
JCT: Creation
by banks of debt-money principal is stable. It's
the non-creation of the money for the
interest which is unstable.
A financial system based upon credit as
opposed to debt..
JCT: Makes no
difference at all. It's the usury on either that
would cause the problem.
p243: How large a gap between taxation
and spending should be chosen?
Might not too little or too much stable
credit be produced?
Unfortunately, working out how much stable,
debt-free money is needed
in total is extremely difficult.
JCT: The Argentinian
Provinces limited the issuance of new bond
money to the creation of new wealth and
did not seem to experience any
problems.
p244: The constant need of an economy that
is being run on debt for
ever more money.
JCT: LETS runs
an economy on debts of one member to another with
no problems because there's no usury.
Swapping your debts is just as
effective a way of keeping score as swapping
your credits.
p245: This inevitably involves a degree
of "guestimation."
p246: IN the early stages, some inflation
might occur.
p248: It might be claimed that such creation
of debt-free money is an
open invitation to inflation. In defence,
the principles are sound.
p250: The choice is between a debt-based
or a credit-based economy.
A credit-based system is less inflationary
than a debt-based system
JCT: Inflation
is a function of only the interest rate, not
whether the units are credits or debts.
p252: There is no point in having too many
savings.
JCT: I find "too
many" savings preferable to "enough."
A threatening surplus of savings could
not occur anyway.
JCT: I sure hope
a threatening surplus of savings does occur.
p256: The charging of interest would go
on much as before..
JCT: Which is
the real reason for all the necessary guestimation.
Luckily, there are no redeeming features
to rewarding the positives by
penalizing the negatives as most negatives
will be the children.
p258: The idea of a National Debt, the
idea or us owing to ourselves,
or nobody, or the man in the moon, or
the future, or the past, this
will be a passage in the history books
at which youngsters stare in
sheer disbelief. Some people will criticize
such reform as likely to
produce an uncontrollable boom..
JCT: Let's see
if there's such as thing as a "full-steam ahead"
boom we can't control.
This chapter really deals with the technical
matter of calculating how
much or at what rate to create stable
credit. If this technique or
rationale is faulty or inadequate, another
must be found. The
technique is certainly not sufficient
on its own.
JCT: Here his
doubts have clouded the vision that indeed, his
technique of balancing the numerator would
be sufficient on its own.
It's just that there's no reason to compensate
for the usury positive
feedback loop on debts with Social Credit
negative feedback, it's
better to eliminate the positive feedback
by abolishing interest with
LETS.
If the scheme I propose has any defects
- and it probably has -
another method of doing what clearly needs
to be done must be found.
JCT: Once again,
like all the best Socreds, I score your book an
A for having found a correct solution
but not the A+ for having found
the optimum solution.
Any scheme that is started is bound to
be speculative and sketchy in
the initial stages.
JCT: Not if you
use LETS casino accounting software overseen by a
qualified banking systems engineer. It's
good and it's instantaneous.
17. Inflation
p259: I would be the first to admit that
the outline I have offered of
a balanced financial system may be shown
to be an amateurish attempt
to grapple with an immensely complex issue.
JCT: And Mike
Rowbotham should be proud that he picked one of the
two winning solutions after an accurate
diagnosis of the symptoms.
But the trouble is professional aren't
even trying. Any competent
professional economist would have to accept
that inflation has nothing
to do with "too much money chasing too
few goods." The whole principle
of changing from a debt-based to a credit-based
money is that more
money needs to be created in a way that
does not cause inflation
because inflation is not too much money.
It is caused by too much
debt-money.
JCT: It is caused
by interest on any amount of money.
When our everyday experience is that there
is never enough money,
quite honestly, does "too much money chasing
too few goods" sound
realistic? Quite honestly, which is the
more likely? That inflation is
due to excess money or the backlog of
debt?
JCT: Of course,
since debt is a function of the interest rate,
D(i), saying that inflation is a function
of a function of interest is
also true.
p260: The theory of too much money chasing
too few goods is
contradicted by almost every piece of
empirical evidence available.
Look in any store and see that "too few
goods" just does not apply. As
far as "too much money" all businesses
are up to their eyeballs in
debts.
p261: The reason prices rise is that firms
have been investing and
must repay the costs associated with that
investment. The debt may be
in the form of a bank loan or an obligation
to pay dividends but
either way, costs have been incurred..
In summary, price inflation is
caused by firms charging the true financial
costs of the goods. The
gap between prices and purchasing power
is masked during a recession
but eventually start to creep up.
p263: There is further evidence linking
inflation with debt.
JCT: Where D(i).
But he then notes that injecting new money makes
inflation go down as one would expect
if one knows about inflation
ShiftB.
p264: Economists view a government deficit
as inflationary, whereas in
principle, it is precisely the opposite.
It is bank credit - debt
money - which is inflationary. A government
deficit is effectively
debt-free money and as such a direct counter
to inflation since it
enters the economy without registering
in industrial costs or consumer
debt and although it is recorded as a
debt by the government, this
debt is constantly deferred.
JCT: Then he
shows that governments that have taken on massive
new debts for massive new loans of new
money have lower inflation than
governments that do not leading us to
the conclusion that it's better
to be in the loanshark's yoke than having
no yoke at all.
p265: The failure by economists to identify
the root cause of
inflation as being debt(i) is nothing
short of simple-minded. This
becomes even more obvious wen the conventional
tactic for controlling
inflation is considered. They warn that
they will have to put up
interest rates; they so misunderstand
it that their policies to
control it actually exacerbate the problem.
Raising interest rates is
one of the most inflationary acts that
can be undertaken.
p266: Debt-free money would end inflation.
JCT: It would
certainly average it out to zero every year.
p268: We have lived for so long in a debt-financial
system that the
scarcity of money is ingrained in us.
We are so used to the scramble
to meet costs; the difficulty in balancing
the books; the conventional
economist's warning that more money causes
inflation; it seems
impossible that a constructive, serious
proposal should involve more
money, and debt-free money at that. But
consider the alternative..
INTEREST-FREE CREDIT: A suggestion that
monetary reform can be
achieved by the creation of interest-free
credit is presented by
Margrit Kennedy in her book "Interest
and Inflation-free Money." There
is a whole world of difference between
interest-free and debt-free. If
money is created by banks free of interest
but still has to be repaid,
that money is still entering the economy
as a debt. The repayments may
not be raised and exacerbated by interest
charges but there is still a
debt requiring payment.
JCT: And sufficient
tokens in our wallets.
There is no stock of stable debt-free money
in the economy.
JCT: But there
is an infinite stock of tokens ready to be
borrowed into existence at all of our
accounts at a moment's notice if
necessary. Everyone in a LETS has their
own tap and their own drain.
Why worry if there's water water in the
pool?
p269: It is fair to say that interest charged
on loans is almost
entirely redistributed. This is the legitimate
complaint against the
charging of interest - not that it causes
inflation, for it does not.
JCT: J(i) too.
Inflation is a function of interest.
After a few years, the total of debt repayments
would become critical
again, due not to interest, but due to
the gross total of borrowing.
JCT: For which
there is an equivalent gross total tokens in
circulation.
Thus interest-free money would soon give
rise to inflation just as if
interest were charged. Thus interest-free
money is actually the most
inflationary policy imaginable.
JCT: And of course,
this simply is an error based on his
assumption that inflation is ShiftA. I'm
sure that once it's pointed
out that it is ShiftB, he'll find that
interest-free injections of
tokens into circulation matched by an
equivalent collateral base
cannot be the most inflationary policy
imaginable.
When people talk about interest-free money,
they do not actually mean
no interest but low interest which they
generally refer to as bank
administration charges. Thus interest-free
and debt-free money
probably have the similar goals but only
a stable debt-free money
stock can possibly achieve the many wider
goals discussed.
JCT: Cashing
out everyone's chips at the end of the night and
leaving them with no permanent stock of
chips has never been of
consequence when an infinite supply was
ready for issuance the next
day.
18. Balance stability and reform
p270: A credit system of finance will
not instantly solve these but it
can make them soluble. It will not cure
all the ills of the world but
it will make them curable. The world will
be a long time healing.
JCT: The time
it takes to get your interest-free credit card.
p271: Douglas completely ignored permanent
credit.
JCT: So does
Turmel when credit is available on demand.
p272: The option of debt-free money being
spent into the economy by
the government was not a possibility by
Douglas who wanted debt-free
money injected where it was needed - the
economy - consumers' pockets.
Abraham Lincoln made no mention of a basic
income in his statement:
"The privilege
of creating and issuing money is not only the
supreme prerogative of government, but
it is the government's greatest
creative opportunity. The government need
not and should not borrow
capital at interest. The government should
create and issue and
circulate all the currency and credit
needed to satisfy the spending
power of the government and the buying
power of the consumers."
This is fundamentally different policy
from that of Douglas. It makes
perfect sense to embrace both policies.
JCT: Which only
proves that 1/s currency works whether it is
privately based like LETS or wampum or
whether it is national based
like Greenbacks or Tallies.
p275: The accountability of the power of
money raises the most
sensitive aspect of monetary reform; the
suggestion that behind the
financial system, there is an active conspiracy.
It also brings us to
what is in a sense the sad part of the
story of Douglas and the Social
Credit movement. As interest in his ideas
lapsed after the war,
Douglas became more and more distracted
by, and convinced of, a
deliberate conspiracy to retain and use
the power of money for
political ends.
19. The conspiracy of arrogance
p276: Douglas came to believe that those
who operated the financial
system were either involved in, or were
pawns in, a deliberate
coordinated conspiracy to achieve a totalitarian
world government of
financial control.
JCT: The machinery
was certainly available. Whether anyone was
using it on purpose or whether history
is accidental is another story.
To add the suggestion that the current
financial system is the
mechanism which an "elite" is using to
its advantage is to place such
demands on credibility on the reader as
to risk undermining the entire
case for monetary reform.
JCT: We risk
undermining the entire case for freedom from
financial slavery by suggesting the masters
have had a hand in the
operation of the system which has proven
to their advantage?
Wall Street financed the rise to power
of both Hitler and Lenin. This
is the seedier and more overtly evil side
of money power.. But such
financial actions cannot in retrospect
betoken conspiracy to engender
war, nor promote world government by finance,
as some have claimed.
p277: However, it would not be right to
dismiss the conspiracy theory
quite so lightly. The United States Bankers
Magazine 1892 said: "Our
principle men are now engaged in forming
an imperialism of capital to
govern the world.. Chattel slavery will
be abolished and this we are
in favor of for slavery is but the owning
of labour and involves the
care of the slave. We can obtain the same
result with less trouble by
controlling the money."
It was the discovery that key government
personnel were in the pay of
the banks which led Lincoln to warn: "Corporations
have been
enthroned. An era of corruption in high
places will follow and the
money power will endeavour to prolong
its reign by working on the
prejudices of the people until the wealth
is aggregated in a few hands
and the Republic is destroyed."
The literature on conspiracy theory makes
explicit reference to the
power of wage-slavery but it has been
often pointed out that
capitalism and socialism, the apparent
antitheses of political theory
both share unquestioning acceptance of
the financial system and
subjection of ordinary people to state
or private capital.
p279: The theory is that behind people
like Delors, Kohl, Clinton,
there are key figures with power and influence,
these invisible grey
men who are claimed to be the real movers;
permanent members of the
establishment with an undeclared and shared
agenda which is pursued in
full awareness of results; the intention
is a world hegemony through
money power.
When the power of money is understood,
it is indeed a weapon quite
powerful enough to achieve what conspiracy
theorists claim is its
intent. We have seen how money power plays
off nations against each
other. But debt finance automatically
tends to centralization and
growing debt; is this a conspiracy or
just the gravity of events?
There is indeed far more to world affairs
than any of us "on the
ground" realize. But a conspiracy, if
it exists, is always portrayed
as evil. Not only is this not proven,
what evidence there is of
conspiracy is of collusion of a totally
different nature. There are
indeed meetings between key figures who
between them hold the
economies of the world in their hands.
But this is not a conspiracy of
evil, although it involves the management
of unjust powers associated
with debt-finance. Not is there evidence
of a master plan.
David Korten says: "There is no conspiracy
although in practical
terms, the consequences are much as if
there were."
David Korten's conclusion allows us to
tackle the conspiracy by
assuming it does not exist. It is far
more sensible to ignore the
remote possibility that behind the energetic
pursuit of supra-national
organization, there is a truly conscious
totalitarian conspiracy to
retain and employ the power of money.
First, if there is a conspiracy, it involves
a miserably small number
of people who hold no power over others
than that of creating phantom
credit. Second, the ease with which the
financial system can be
reformed makes these people of no consequence
whatever. They believe
in contemporary economic theory and have
absolutely no clue of the
weaknesses of conventional economics.
p281: Most politicians clearly know nothing
about the weakness of
conventional economics. It is therefore
not right to call their
mismanagement a conspiracy. All this boils
down to is the belief that
those in power know best. It is the philosophy
of benign dictatorship.
This is the policy by which the world
bank has crucified the economies
of many Third World countries..
p282: What dominates world economics is
not a conspiracy, it is a
mistake. The conspiracy is not one of
evil intent, it is a conspiracy
of error - the organized pursuit of erroneous
policy.
20. Legitimate powers
21. The pursuit of economic democracy
p293: A full understanding of the financial
system provides a solution
to so many micro and macro-economic conundrums
and financial
contradictions that it can only be described
as a revelation.
p296: The ultimate challenge to the debt-based
financial system, which
involves a wholly legitimate action, is
to create one's own currency.
If the government fails to create and
supply the economy with an
effective and supportive means of exchange,
they should not be
surprised if people undertake this for
themselves. The upsurge in the
number of LETS schemes all around the
world shows that this is already
happening. The most effective LETS schemes
are those which are credit-
based; ie they do not automatically and
necessarily involved one
person going into debt to another person
whenever goods and services
are exchanged, but are founded upon a
circulating stock of permanent
credits. A set number of these credits
is issued to each member on
joining the scheme and thus the total
currency rises with the number
of members. The most famous and longest
lasting such scheme is the
Ithaca Hours currency devised by Paul
Glover in America.
With LETS schemes, the scope exists not
just for local currencies but
currencies created by and for the business
community. Under the debt-
based financial system, the demand for
finance by industry gives rise
to substantial commercial debts and the
consequent need to sell goods
and services at a price elevated by such
debt. Several schemes linking
businesses through a supplementary credit
scheme now operate on the
continent and with their success, more
are being planned.
It is noticeable that governments rarely
try to tax such schemes and
seem to act as if they did not exist.
There is a reason for this. To
raise taxes from the earnings of a LETS
or Business Currency scheme
would be to give recognition and value
to that currency and then it is
only a very short step to the wholly reasonable
demand to pay taxes in
the new currency since this is the form
the earnings take. This leaves
the government with the option of either
dealing in the new currency
or cancelling it, in which case, more
can easily be created to
compensate for this.
At times, governments have attempted to
outlaw such currency schemes,
especially when they involve the creation
of a true token of currency.
But with the advent of the computer, the
chance now exists to
completely drop tokens that can be construed
as currency and use
number-money exclusively. If government
only regards coins and notes
as worthy of consideration and creation,
and deems bank-created
number-money as unworthy of issue and
regulation, such a government
can hardly challenge or make a legal charge
against ordinary people
for creating their own number-currency.
This is a policy of playing by
the rules set down by the government;
taking them at their own game.
Since money is such a nebulous and abstract
entity, the number of ways
around, through, and out of the current
situation, are legion,
provided that a clear idea is retained
of the purpose, function and
status of money within the economy. It
is important that LETS
organizers appreciate the basic flaw of
the present financial system
is that it is a debt-based. The need for
a stable and fully
functioning currency is not met by simply
linking people and recording
work done as a credit to one person and
a debt against another.
Ultimately, this is because money is needed
not just as a means of
exchange but as a "store of value."
JCT: Right you
are and the LETS engineer has been trying to
convince the LETS technicians that LETS
can liquefy not only a
member's commitments but also a member's
collateral assets if they
would only institute a store-house function
to hold the negative
account.
The act of saving money has got a bad name
for many people by being
associated with the charging of interest,
but saving means no more
than waiting-to-spend, or collecting sufficient
money for a purpose.
JCT: Sad to say
but LETS technicians have spent hours of time
devoted to finding ways of preventing
people from saving their IOUs.
It's a flaw in the operation I would not
permit.
There is nothing inherently wrong or unsound
in this but it does
require that there is a sufficient quantity
of currency, free of debt,
for some people to save without detriment
to the rest of the economy
however large or small it might me..
It has to be appreciated by anyone who
sincerely wishes to see an end
to the misrule of money power, that this
is only likely to come about
if the most complete and clever tyranny
the world has ever known is
confronted calmly and tackled constructively.
p297: If monetary reform is to bear fruit,
someone will have to take
the initiative with the institution of
a credit based financial system
and show how it is done. Britain is the
home of Social Credit. Which
nation will become the parent of Economic
Democracy? The days of
dictatorship by money will be numbered.
JCT: Overall,
the book offers several insights into the money
system that I found new and that it s
rarity. I enjoyed it. It
validates LETS even it if doesn't see
that LETS is the easier global
alternative than Social Credit guestimation.
I recommend it to any
Abolitionist monetary reformer's library.