Tuesday, July 14, 2015

What's Wrong with Our Monetary System and How to Fix It

[In italiano]

[Guest post by Adrian Kuzminski]

[Promoted by the comments, Adrian has provided an update.]

Something's profoundly wrong with our global financial system. Pope Francis is only the latest to raise the alarm:

“Human beings and nature must not be at the service of money. Let us say no to an economy of exclusion and inequality, where money rules, rather than service. That economy kills. That economy excludes. That economy destroys Mother Earth.”

What the Pope calls “an economy of exclusion and inequality, where money rules” is widely evident. What is not so clear is how we got into this situation, and what to do about it.

Most people take our monetary system for granted, and are shocked to learn that the government doesn't issue our money. Almost all of it is created by loans made “out of thin air” as bookkeeping entries by private banks. For this sleight-of-hand, they charge interest, making a tidy profit for doing essentially nothing. The currency printed by the government – coins and bills – is a negligible amount by comparison.

The idea of giving private banks a monopoly over money creation goes back to seventeenth century England. The British government, in a Faustian bargain, agreed to allow a group of private bankers to assume the national debt as collateral for the issuance of loans, confident that the state would be able to service the debt on the backs of taxpayers.

And so it has been ever since. Alexander Hamilton much admired this scheme, which he called “the English system,” and he and his successors were finally able to establish it in the United States, and subsequently most of the world.

But money is too important to be left to the bankers. There is no good reason to give any private group a lucrative monopoly over the creation of money; money creation should be the public service most people mistakenly believe it to be. Further, privatized money creation allows a few large banks and financial institutions not only to profit by simply making bookkeeping entries, but to direct overall investment in the economy to their corporate cronies, not the public at large.

Ordinary people can get the financing they need only on burdensome if not ruinous terms, leaving them as debt peons weighed down by mortgages, student loans, auto loans, credit card balances, etc. The interest payments extracted from these loans feed the private investment machine of Wall Street finance, represented by the ultimate creditor class: the notorious “one percenters.”

There are two main critics of our privatized financial system: goldbugs and public banking advocates. The goldbugs would return us to a gold standard, making gold our currency. The problem is that it would become almost impossible to borrow money since the amount of gold which could be put into circulation is relatively miniscule and inelastic. They is no way easily to expand the supply of gold in the world

Credit—the ability to borrow money—is vital to any economy. If we cannot borrow against the future for capital investment—roads and infrastructure, housing, businesses, hospitals, education, etc.—then we cannot fund essential services. To that end, we need an elastic money supply.

Public banking advocates—like Stephen Zarlenga and Ellen Brown--appreciate the need for credit. Their aim is to transfer the monopoly on the creation of credit from private to public hands. Unfortunately, there is no guarantee that this form of "progressive" state finance would be any better than private finance.

If we had a truly democratic government actually accountable to the public, such a system might work. But in fact governments in the United States and most developed countries are oligarchies controlled by special interests. A centralized public bank—without a political revolution--would likely favor government contractors and continue to squeeze borrowers for interest payments, now supposedly directed to “the public good.”

This is curiously reminiscent of the system in the old Soviet Union and today's China, where a political nomenklatura ends up calling the shots and enriching itself. Our current system of centralized private finance, as well as the "progressive" proposal of centralized public finance, are no more than twin versions of top-down financial control by an elite.

Fortunately, there is another model available. There is a long tradition in America, beginning with colonial resistance to “the English system,” and continuing with anti-federalists, Jeffersonians, Jacksonians, and post-Civil war populists. This tradition opposed any kind of centralized banking in favor of some kind of decentralized issuance of money.

The idea they developed is to prohibit any kind of central bank—public or private—and instead have money issued exclusively locally on the basis of good collateral to individuals and businesses. It's a grassroots, ground-up approach. Priority is given to local citizens and businesses, who can get interest-free loans from local public credit banks to finance what they need to do.

Such a system would have to be publicly regulated to ensure fair and uniform standards of lending at the local level. It would, in that sense, be a public banking system. The absence of a centralized issuing authority, however, would prevent any concentration of financial power, public or private.

Any top-down system of financial control—private or public—presupposes some kind of control by elites, that is, some kind of central planning, whether in corporate board rooms or in the offices of government agencies, or some combination of both. The historical record suggests that such top-down decision-making is inevitably self-serving, distorted, and socially counter-productive.

Indeed, whether public or private, it is the love of money empowered by centralized finance which creates the “economy of exclusion and inequality” which Pope Francis decries.

The decentralized system of populist finance would operate with no central planning. Instead, countless local decisions about lending and credit-worthiness would function as a genuine “hidden hand” of finance, one which would be self-regulating. Here the love of money would find no way to leverage its power. Instead it would be dispersed among the general population, as it should be, without burdensome interest charges, to the benefit of all.

Adrian Kuzminski lives on a farm in upstate New York and is the author of The Ecology of Money: Debt, Growth and Sustainability and Fixing the System: A History of Populism, Ancient & Modern, among other works.

Since my brief comments on the gold standard seemed most provoking, let me add this update to my article, "What's Wrong with Our Monetary System . . ."

When people talk about the gold standard they usually mean defining money in terms of some fixed quantity of the stuff. At one time, for instance, the US government guaranteed that $35 would buy you a troy ounce of gold.

That's not a pure gold standard, but one in which gold is mixed up with paper money, that is, bills, certificates, or other so-called token guarantees whose ratio to gold is supposed to be fixed, but which historically has in fact fluctuated wildly.

A pure gold standard would be one in which only gold coins circulated as currency, with no piggy-backing paper money or other so-called token guarantees redeemable in gold available.

Until the invention of credit on a large scale in the seventeenth and eighteenth centuries, that was basically the case. Most Western economies at that time relied on gold and/or other precious metal coins, and little else, for their currency. If there was ever a pure gold standard, that was it.

Gold coins were the basic medium of exchange. Silver and other portable valuables were also used, but let's stick to gold for the sake of simplicity. The key point is that all such items all had an intrinsic value; we can call them commodity monies.

Most exchanges were therefore reciprocal, that is, equal value for equal value. Since gold has an intrinsic value, its exchange for a product or service fully satisfied any transaction. This is in contrast to an exchange based on debt, or a promise to pay, which is not immediately satisfied, but deferred.

Such credit as was available locally for most people back then was relatively short term or seasonal, say in advance of the next harvest. Such promises were often recorded, but did not circulate as a medium among third parties, that is, they were not yet money.

More extended forms of credit certainly existed—most notably the bills of exchange of merchants—and they were important, particularly in long-distance trade for luxuries and some basic commodities (grain, salt, etc.). But they were specialized and limited in scope. Usury was widely condemned, making lending even less attractive to anyone with money. Savers tended to be hoarders.

It is difficult to create credit with a commodity currency like this because money has to be lent out almost entirely from existing savings. The money supply, as a result, was highly inelastic; it could expand only in the event of significant new discoveries of precious metal reserves.

Indeed, it was only the discovery of vast gold reserves in the New World which allowed the gold-based money supply to expand. This permitted new investment in commerce, and helped fuel the expansion of trade and manufacturing we associate with the rise of early Modern Europe.

But credit, still tied to gold, remained hard to get, and the bulk of early modern economies remained on a largely local and subsistence level. It was the goldsmiths of seventeenth century England who were among the first to figure out how to get around the inelasticity of gold and commodity monies.

They discovered that only a relatively few depositors would claim their gold at any one time; as a result they found they could lend out far more to borrowers—in the form of certificates redeemable in gold--than the amount of deposits they actually had on hand, and that they could get away with it (most of the time).

This multiplication of credit through what we now call fractional reserve banking, along with other credit innovations in what some call the financial revolution of the late seventeenth and early eighteenth centuries, made it possible to fund economic growth far beyond what a pure gold standard would allow.

The key thing was the substitution of various tokens purportedly redeemable in gold for gold itself. At that point gold became identified with and highly leveraged by these various new financial tokens, which were ever less tethered to their gold base.

The so-called classical era of the gold standard—even at its height between 1870 and 1914—was not a pure gold standard at all, but one enormously amplified by credit instruments pyramided on top of gold reserves.

When we talk about the gold standard in modern times, we are really talking about a series of financial instruments—fractional reserve banking, a national debt, central banks, securities markets, usurious interest, etc.—which created a ballooning pyramid of tokens merely representing gold.

The final, long-delayed collapse of the largely symbolic modern gold standard during the Depression, confirmed by Nixon's removal of the United States from any last link to gold in 1971, made official what was already plain: that most money had in fact long been issued as debt, with less and less significant backing by any precious metals.

In this light, it isn't hard to see what the call for a return to any sort of gold standard really means. In its pure form, it means the return to a highly inelastic money supply, last seen in the Middle Ages. I don't think that's what goldbugs have in mind, though it might be where we end up in a severe post-collapse scenario.

Otherwise, it means a mostly symbolic link to a precious metal, no doubt psychologically satisfying to some, but unfortunately little more than a convenient obfuscation to the powers that be for how the monetary system, which is killing us, really works. I don't think that's what the goldbugs want either.

(For anyone interested, this and related issues are discussed at length in my book, The Ecology of Money: Debt, Growth, and Sustainability.)


BaronSilverBaron said...

"The goldbugs would return us to a gold standard, making gold our currency. The problem is that it would become almost impossible to borrow money since the amount of gold which could be put into circulation is relatively miniscule and inelastic. They is no way easily to expand the supply of gold in the world"

After I read this I didn't bother to go any further. The author obviously hasn't a clue about Gold.

Anonymous said...

You discuss Andrew Jackson but you neglect to mention the best response to Hamilton out there (and which isn't crazy Marxism), Henry George http://schalkenbach.org/library/henry-george/drake-p+p/pcontents.htm "Wages are not drawn from capital. On the contrary, wages are drawn from the product of the labor for which they are paid." He bashes many crazy Adam Smith ideas, such as the preposterous idea that wages come from capital. I quote: "First they claim, without reservation, that capital limits labor. Then they state that capital is stored up or accumulated labor. If we substitute this definition for the word capital, the proposition refutes itself. That is, it says labor cannot be employed until the results of labor have been accumulated. This is patently absurd."

Anonymous said...

I'm slightly perplexed by the assertion that a gold standard is impossible because it would prevent enough credit from being extended; and that credit is essential to invest in vital new infrastructure. Doesn't the last part of this assume that society will be wealthier in the future than it is now - and therefore that it is legitimate to borrow from our future selves?

But surely that is true only in a world of perpetual economic growth. Now, as we look at (or maybe back at) Peak Oil, we must face the prospect of economic sustainability, rather than continual growth. So maybe we should no longer rely on borrowing from the future, which may actually have less wealth than we do now. If a gold standard would force us to stop creating excessive credit, maybe it is just what we need.

PeterW said...

Credit is worth or reputation in the eyes of ones peers. When the peer group becomes too large to memorise balances then credit is made visible through the use of 'money'.( Money is an emergent property of scale}.
It is possible to transfer ones credit to another as 'payment' ( after work occurs), or as a 'loan' (before work occurs) accepting as repayment reverse transfers of credit over time.
These visible representations of credit balances must of course be created and therein lies the opportunity to multiply , falsify and counterfeit this 'money', divorcing it from its underlying relationship to real goods and services.
Thus the out-of-control issuance of IOUs gives us a world awash with 'money', worthless credit and fraudulent reputation.

Citroame said...

Why have any regulated system of money? Simply repeal all legal tender laws and let people use whatever they like. Let politicians and banksters try and inflate the money supply then. Nobody would use it and the criminals would have to find more honest work, maybe Mafia or drug dealing. The best money, be it Bitcoin, gold, silver or Roubles would be used and the inferior would not in a totally free market.

Anonymous said...

"If we had a truly democratic government actually accountable to the public..." I see we are in the realm of fantasy here. But it is nice to dream. Any serious attempt to change the top down financial control structure would be labelled 'terrorism' or 'domestic extremism' and the leaders of any such effort would be jailed - as the liberty dollar folks discovered.
Did you know during the Great Depression thousands of local currencies popped up all over the land? Back then people were not so dumbed down and distracted.
Education is the key, so I applaud this article.

Professor Diabolical said...

Little bit lost on the "inflexible" gold standard, but ultimately back on track.

Gold does NOT constrain the economy. First, modern gold supply expands at a 1-3% rate--equal to the developed GDP, which is just what Bernanke and the Freidmanites suggest. But that's a red herring anyway: gold supply can remain at 0% growth and merely the PRICE will change. Same with the "there’s not enough gold" argument. At $1,100, yes, that's true. But in 1980 and at other times gold was 1/10 of the money supply, which today would be near $10,000/oz. --Both sides would change, however, as many bad debts would be defaulted and gold mining would expand as the price rose, likely meeting in the $5,000 range--not too far off the 500-year average purchasing power.

The author considers gold "Inflexible", but then describes the previous gold useage as a solution, where people must issue their own credit against tangible goods, in a roughly 1:1 ratio. That's called the "Real Bills Doctrine," which works like this: Given a (mostly) static supply of gold, how do we expand the money supply when we produce ever-more goods from a factory? Glad you asked! You float a "letter of credit" to the next supplier, from the mine to the factory, to the distributor, to the retailer, each of which is a 90-day promissory note, i.e. wholesaling. Guess what? This is the same as what we do today, and no "Money" was used. If the goods aren't sold, the note is quickly in trouble and we don't run up massive imbalances. If the goods are sold, we collect the money from the customer and repay the note. How do we know we'll get paid, won't get cheated, and won't either expand (inflate) or contract (austerity) the money/economy? Because the 90-day "real bill" is paid in gold. So why don't we need to massively expand gold supply in a growing economy? Because we're expanding against ACTUAL GOODS-In-PROCESS. --The gold is just a poker chip, a re-contact with reality, needed for 5 minutes as that bill is paid, once every 90 days. In other words, we make up for gold SUPPLY with gold VELOCITY. Same as today, actually: velocity is crashing, which makes the Fed’s spiraling M3 money supply mean nothing.

In any case, rather than a wild west of 1,000 types of currency--which I'm fine with, in principle--the market tends to gravitate toward an honest method of final payment everyone can focus on, while the economy is free to expand and contract against your 90-day supply chain payment of "Real Bills." This is how things worked from the re-discovery of commerce up to the government getting involved in WWI, and it worked pretty well, or at least better than now, where, as you say, the core can create money out of nothing, tied to nothing, against nothing, command the economy, and buy influence with it.

Great to tie the new currency solution to real, tangible things. “Real Bills” helps tie it to an honest, permanent touchstone that can't be counterfeited, without demanding crushing austerity in its (re)implementation.

Stuart Cram said...

I thought this article was going really well until the ‘goldbugs’ part as well. I don’t have any but I would have to say that my East Indian in-laws are “gold bugs” in the sense that they consider it a true store of wealth. They see paper currency as something temporary lasting a generation, maybe two, if you’re lucky.

My father-in-law always talks about how easily one can convert gold into local currency across the subcontinent. Isn’t it hard to believe a billion plus people in a multi-millennia aged society that has survived so many tumultuous events could all be wrong? What intellectual advantage can be gained by suing such a derisive term?

I would suggest that ‘Gold Standard’ would be the open-minded term to use when discussing the various currency issuing methods available to the state apparatus. This was in place in the US until Nixon closed the gold window in 1971.

To me the main weakness with the public banking model is that it still requires a growing economy in order to pay back the debts created when issuing money in the form of loans. Gail T of Ourfiniteworld has covered this far better than I can summarize.

Personally I think in the next decade or two Gold will be a great way to get yourself killed. Being skilled in providing for one-self & family, and being very very generous with any surplus achieved will be the only way for my progeny and I to make it through this upcoming population bottleneck. The rich will burn with us.

Marcel Cousineau said...

The reason every economic system instituted by man is doomed to fail is because of the fallen and evil nature of man. Greed and arrogance are endemic in every monetary system created even the Pope's Vatican Bank was rife with Mafia corruption.
The Bible warns that the love of money is the root of all evil.
"For the love of money is the root of all evil: which while some coveted after, they have erred from the faith, and pierced themselves through with many sorrows. 1Timothy 6:10
For the amount of time and toil we waste in accumulating money and wealth and the reality that we will not take any of it with us into eternity should awaken us to seek the true and everlasting treasures in this very temporary life we live.

leoeris said...

I stopped reading BaronSilverBaron when he capitalized gold.

Caryl said...

Thank you for initiating what must become an important discussion. Traditionally the Catholic Church banned usury--the lending of money at interest. Unfortunately it crept back in, maybe with the Renaissance. But usurious lending and banking have now gotten completely out of hand. E. Michael Jones, editor of Culture Wars, is a great source for discussion of these issues. He has just come out with a book, Barren Metal, a history of capitalism. It is also interesting to know that Islam bans usury-- I am sure that is one of the chief reasons that the New World Order-bankster hegemony--wages wars against Muslims.

pyrrhus said...

"Such a system would have to be publicly regulated to ensure fair and uniform standards of lending at the local level. It would, in that sense, be a public banking system." Back to square one, the cronies and oligarchs would control the regulation process.
Why not go to the actual 19th century practice; every bank issued banknotes drawable at sight. Strong banks' banknotes were in demand, weak or poorly run banks would be shunned or heavily discounted. The "gold standard" after the civil war was banknotes drawn on well known NY banks that were backed by gold. For serious business, they drove out the competition, and eventually forced the US back onto a metallic standard.
BTW, the quantity of gold in the world is irrelevant to its use as backing for a currency....gold provides great stability, limits government spending, and helps stabilize exchange rates.

Unknown said...

The author describes exactly what I believe the monetary landscape will look like in coming years. It won't happen this way because of reform, but because of collapse. When currency becomes useless, to the extent people have any surplus at all with which to trade, they will be back to trading directly with people from their own region for the most part, and in some of the more prosperous (relatively speaking) of those places, local exchanges will start to appear.

I don't think the finite supply of gold is an inherent problem though. If anything that's what gives it any value at all. What happens as demand grows, and the "price" per se, goes up, is that it simply gets traded in smaller and smaller pieces.

Zoltar said...

Thank you, Adrian, for your lucid insights about currency and finance. Every part of your position strikes me as sensible and wise, except for the suggestion that it can be achieved in our lifetimes.

I agree with you, Thomas Jefferson, and all others who have recognized that “money is too important to be left to bankers,” but that begs the question of how control of our economy at any level can be wrested back from them. Even if the American electorate could agree upon a solution it would be squelched by the international financial powers that are the true masters today. How many people have even heard of the Bank of International Settlements?

It’s fascinating to observe how predictably the gold bugs swarm all over your post with their fetish that their favorite precious metal can solve the problem. Point out the succession of financial crashes leading up to the Great Depression that were caused by the Gold Standard and they will all shuffle papers and change the subject.

The only thing that will matter in the real financial world that is nearly at hand is how are we as individuals to transact with our neighbors at whatever sort of market is within walking distance of our home? The solution won’t be a rectangle of plastic; the banks will be gone. It won’t be cryptocurrency; there won’t be electricity, let alone an Internet. And it won’t be a chunk of gold, or if is the bearer will be waylaid before he can get back home with it.

If your gold is paper, good luck with that. It will prove as ethereal as the most arcane derivatives. If your gold is metal, I suggest you lock your doors, spread it out on the floor of a dark room, and lie upon it like Tolkien’s dragon, Smaug.

Dammerung said...

The purpose of the gold standard is to NOT expand alongside economic expansion. This drives price deflation, which is the way the benefits of technological progress are distributed to the working classes instead of being monopolized by a self-established oligarchy.

Charles Fasola said...

All posters here including the author, who understands little about money, should take time to read through the American Monetary institutes website. You all may learn a bit about what true monetary reform looks like.

Unknown said...

At last the religious leaders are speaking out ! In the Koran, the Torah, and the Bible it is specifically forbidden to lend money with interest. Maybe if we took this advice more seriously things would improve

Rhisiart Gwilym said...

Just think: all those billions of Indians, Amerindians, West Indians, East Indians, Chinese, Russians, Vietnamese, Burmese, Thais, and on and on, through Eurasia, and all the other parts of the world too, right forward from several thousand years ago to this very day -

All of them deluded and wrong about gold, all this time! Amazing!

And here was me thinking that a reliable, durable currency of exchange and savings was something tangible, that lasts, and - above all - that everyone trusts, steadily, generation after generation. And that you can value per unit weight at any price you like, according to what everyone decides to accept, to make sure that there's always enough liquid-currency gold notes (one for one, 100% matching) around at whatever value is convenient. And where even the most powerful bunch of state thugs in world history can only suppress the real market value for a limited time, before running out of general trust in their hallucinatory paper 'wealth'.

Obviously I've made a terrible mistake. Oh god! I must be a - Oh no! Not a - a goldbug!

Remind me again: what percentage of the world's people DON'T trust gold? How big a majority again? And when did this sudden switch away from trusting the barbarous relic happen, just recently? I must have been asleep...

Anonymous said...

Here is a letter from Henry George to the Pope the first the Pope got involved in economics (that time against socialism) http://www.henrygeorgefoundation.org/the-science-of-economics/letter-to-pope-leo-xiii.html

angus said...

I thought that Orlov was really smart, much smarter than I which he is. But being smart in someways can leave one deficient in others. To pontificate about subjects of which you have little understanding is not endearing, or wise.
Monetary science is not your forte'. So when you have influence over the minds of people reading your comments and articles, its best not to condemn gold as a means of tranacting business or any other rhetoric of which you are unsure about. The current monetary system has been around 46 years. Prior to that, gold and silver was the basis, though abused for most of the last 150 years or more, as defining the value of money by the oz or grain etc.
Flexibility is but fancy name, for frauduland credit. Why don't we have flexible metre then there might be enough carpet for everyone.
Gold and silver are very flexible, their intrinsic value is determined by what they can be exchanged for in terms of labor, energy, or what ever. Any other system has been proved, a failure 100% of the time, and in the failing, or prior to the event, comes, chaos, tyranny, famine and usually, war. Are these alteratives flexible enough for you? We have chaos and war. A gold standard guarentees that spending will be of benefit to that standard, that, being free trade and capital construction, rather than capital destruction war included. War is a product of government intervention in markets, including money markets. Government by spending more than they can afford, have to kill the gold standard through propagander and legislation.
The gold standard and silver standard are part and parcel of the liberty of mankind and guarentee that liberty, through the free mintage or seignorage of the same with the with acceptance of payment for all debts.
You do not need to have any gold to trade in a gold standard. A gold stardard means moral behaviour and conduct with a fixed value for money. With no gold standard there is no morality or moral behaviour. The world degenerates to its lowest form.

Jetgraphics said...

Contrary to popular belief, CONGRESS has no power to create money, nor give it to anyone else. Congress has power to coin money (stamp bullion) and borrow money. Federal Reserve Notes are IOUs, promises to pay IN THE FUTURE.
However, that promise was repudiated in 1933.

As to the Fed Res extending credit (not loan) at usury - well - that should be challenged, because usury involves an impossible contract. It has been long known that long term usury requires an INFINITE MONEY TOKEN SUPPLY - which gold / silver or any other precious metal cannot ever fulfill. However, clause 4, 14th amendment, USCON forbids questioning the public debt regardless of the fraud involved.

In short, arguing about money madness is best kept to asylums and under professional care.

John Doyle said...

Gold is not a medium of exchange 'It's just another asset. We can exchange assets if we want but we need a way of valuing them first and money does that.
Gold today is not given it's true value, which should be $57,000 an ounce. So it's just as manipulated as any asset can be.
We are stuck with money.
Today however Money is ephemeral stuff. The vast supply of money is bank money, 97% of the total. It is liability all of it.
Central bank money is the money supply, accumulated ever since the nation's beginning. It is net credited to the economy.There is no liability attached.
Bank money is vapourware. The banks can issue it at will. There is no law or statute permitting banks to do it. It is entirely created by credit. [no intermediary or fractional reserve system survives today] Banks are only restricted by their shareholder value and their assets as to how far a bank can go with lending. There are few controls monitoring them apart from actions by the CB.
I think it is so entrenched that only a civilization ending crash will reset it.

JonWOK said...

The Living Economies system, which, like every system, has its flaws, is working quite well for us on a small, slowly-does-it scale here in New Zealand. Through this debt-free, savings-pool style system, members deposit their surplus money into the pool to allow it to be used by others as they need it. To use money from the pool, a member must provide proof of collateral, in the event of a default, and describe what the money will be used for. There are other layers of security, and more details that you, dear reader, may research if you wish. http://neweconomics.net.nz/

The primary flaw in this system is that it utilizes mainstream currency and banks. This, however, i see as an intermediate phase which we can grow out of as the 'regular' economy becomes less stable.

This system may not be a panacea; we see it as a good way to practice dealing with each other on a local scale and with prickly, crunchy financial debates as we fine tune the way we operate. We may discard this system entirely at some point, but will nonetheless be collectively richer for the experience, and more ready to face alternative currencies/economies.

I wish all my fellow humans well in finding ways to meet these challenges.

Charles Fasola said...

Sorry sir, but Mr. Zarlenga does not support public banking as Ms. Brown describes it. In fact his ideas repudiate and are not in agreement with the concept she supports. Brown advocates for State Banks like the Bank of ND. Banks that still create money through debt isduance by keystroke. Zarlenga on the other hand supports thr Federal Government creating 100% of money by spending it into the economy directly, debt free. Which would require strong and honest regulations. He advocates for the end of fractional reserve private banking; supporting a 100% reserve system for the private banks. Brown keeps the current system of money creation in tact except the bank is a public entity. Two completely different concepts.

Unknown said...

Great points in the article - thank you. Lots of comments bashing the idea that we can't return to the gold standard and most of their points are correct. There are ways to manage an economy upon a fixed (or nearly fixed, slightly growing) asset like gold.

A private issuer like the fed is one problem, fractional reserve lending is another. Money is created from nothing all the way down the chain. Those who aren't in the elite group that holds these preferential rights of money creation will always become enslaved by it. Elasticity isn't the problem so much as the exclusivity of privilege to expand the money supply.

Ultimately, time is the only universally-owned asset and as such is really what money represents. Until we have a monetary system mapped directly to time, we're going to remain enslaved. People get 24 hours of fresh money every single day. Their wealth depends on how wisely they spend it. There are solutions, but nobody ever cares to discuss them. All discussions out there are trapped within the created dialectic of either an elastic credit system or an inelastic gold standard. Truth be told, the only true economy is one fixed to time.

Most importantly, what most "goldbugs" fail to realize is that they're being played. If the credit economy collapses and we fall back to a gold standard, it's the .001%ers who will make the windfall profit as the price soars into the stratosphere. I have no gold. Most people have no gold. Even if you do have some gold, you don't. Your relative holding is insignificant. The plan is to fall back to this standard at some point and those in power will see the change coming long before you do and will make a windfall profit that makes the Rothschild Waterloo scam look like a kindergarten dress rehearsal. A Rothschild bank held the sole power to set the price of gold, ever since 1919 .. coincidentally enough, they stopped trading in in 2014. Have no doubt in your mind that they see it coming and have been hoarding it. The Fed has never had a proper accounting, but neither has Fort Knox (look it up). There may not even be anything in there - the Nixon Shock had to happen in 1971 just to ensure that some gold remained in the States at all, as foreign states were demanding their debts be paid in gold. There are people holding tremendous amounts of gold (not bearer certificates). There are only a few people that own all the mines it comes from. They would obviously love nothing more than for us to return to that standard. Don't buy into the scam.

The only way we could make a proper shift without enslaving our children and theirs is to transition to a thing of value that nobody can hoard. Don't believe the hype. Gold won't save us. If we move to that, there are only a few people who can sell it to us. They will become our masters. Or rather, they will remain so .. but with an even firmer grip.

Powers that be like to limit thought to a binary argument. It's not fiat credit vs fixed gold. It's something else. Since the powers that be own the media, they own the conversation. Don't fall for their trap. An economy based on time is the only true way to get out of this. It's limited in quantity, available to all and naturally expanding. It's the one solution you'll never hear talked of.

kevin said...

Oh Dmitry, after so many years of great articles, interviews and books, I must assume you've added this guest post just to make us laugh. It worked! Thank you :-) I'll be anxiously awaiting the recommencement of your outstanding work.

Nathan said...


God banned usury in the Mosaic law given to the nation of Israel. But that was as part of a complete Sabbath-centric civil law that also involved perpetual land ownership which could be "leased" to others until the next jubilee (after 7 periods of 7 years, i.e. every 50th year was jubliee), when all land title reverted to the original family lines it was allocated to following the conquest. Every seventh year was a sabbath year, when the land, beasts of burden and farmers were given a year of rest. Only naturally occurring produce was to be taken, and the shortfall was to be covered by surplus set aside during the preceding 6 years of full production. And every week contained six days of hard work, and one day of rest. In an agrarian culture, these rules gave the best chance for massive productivity throughout the land, with fairly evenly distributed wealth. People could still make stupid decisions and families could become destitute for up to 50 years at a time, but there was always the option of selling yourself or some children (pesky second sons) into indentured service to provide a basic income. Citizens who had sold themselves were freed from service in the Jubilee as well. It was a true clean slate start for the whole nation, and prevented a small minority from controlling all the wealth over generations. Prisons as we know them today didn't exist. Many crimes incurred capital punishment, and foreign prisoners (of war usually) were put to use as permanent slaves within the households. But the law afforded slaves basic rights as well.

Various Christian governments over the last couple of thousand years have attempted to adopt some of these civil laws, with varying success. Israel failed to uphold all aspects of God's law in any case. That's the point of the law, not as a path to salvation, but to highlight man's inability to keep the law and earn his own salvation, and point the way to the need for a gracious saviour.

In theory, God's law for the running of the nation of Israel is perfect and could form a template for all national government. But, as always happens when people get involved, in practice it falls far short of the ideal. And of course, people define "ideal" differently from God, and differently from each other.

Unknown said...

Talk about money and boy oh boy do the loonies come out of the woodwork. "With no gold standard there is no morality or moral behaviour. The world degenerates to its lowest form."
That might be the most ludicrous thing I've read in weeks.

Robin Datta said...

Money is symbols (the tertiary economy) purported to represent value exchangeable for resources including energy (the primary economy) and useable products (the secondary economy).

Without a defined connection to the primary and secondary economies, any number of the symbols can be created by such simple methods as keystrokes and magnetised pacticles on rusty platters. Moreover there can be symbols of symbols, symbols of symbols of symbols, etc. ad infinitum.

The simple solution is to have a defined connection.

Zoltar said...

How unsurprising that this week’s discussion has turned into a hybrid of finance and theology: two priesthoods with their own bodies of recondite, sacred knowledge, each convinced that only they apprehend the true nature of God/Currency.

To this layperson it doesn’t seem that either has served us well.

Anonymous said...

What happens if this proposal is implemented and then taken over by central banksters who return to producing fiat currency? Weren't similar proposals tried in the 19th Century? The banksters engineered events so those systems would fail and they could set up a central bank.

How do we know this proposed system would not be taken over by banksters? How do we know they would not take us back to fiat currency some day?

jwl said...


onething said...

Brian Brinkworth,

Some good points, but what does an economy based on time really mean? What would it look like?

candrich said...

One who issues and controls money is the master. One who needs and uses money is the slave. This has always been the case and always will be. In this world today, the only free soul is the one who has no need for money. That doesn't mean you never use it or acquire it. It only means you can walk off without it and still have a fine life if need be. There is no time like the present to begin learning survival skills. Let's all go free. Civilization hasn't served us at all so far. Does anyone really think it's going to start serving us now? Not likely. Go free!

Unknown said...

All of this gnashing of teeth and rending of garments can be boiled down to one eloquent observation by Upton Sinclair: “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

Virtual immortality awaits those who can reverse these anomalies and I have no hope of witnessing said transgression. My spawn do not even care until the moment that the water/gasoline tap runs dry. I cannot decide whether I am pissing up a rope or into the wind. God help us.

Jim R said...


Funny! I stopped reading him at exactly the same point.

As for the main article, the author almost seems to be describing Bitcoin or other alt-currency. Distributed, worldwide, not under any single central authority.

There's the matter of supply flexibility... the architects of Bitcoin were adamant about limiting its supply, but in the Dollar regime, 'flexibility' has been abused out into 'ludicrous' territory.

Since the Bitcoin project is open-source, there are more than a hundred forks of it by now, with various design tweaks. In terms of price and usage, almost all of them are down in the noise. You have Doggiecoins with the cute little mascot, Litecoin, probably the oldest, with some actual exchange value of $3 - $4, and others, too many to enumerate.

Some of these alt-currency projects have been designed with a degree of flexibility in their supply.

But of course the ultimate proof of a "currency" is whether you can pay your taxes in it, and whether it is widely adopted. Right now the Dollar is king, with several contenders, Euro, Yuan... apparently it can survive quite a lot of corruption and mismanagement in its supply function and still be widely accepted.

possumqueensa said...

The people advocating the abolition of money are the people who don't have any. Things can only get better. For the rest of us, however, those who have worked for a lifetime, those over the cusp of fifty, we know the system's not perfect, but we're kinda used to it now and we'd rather like things to stay the same as they are thank you very much.

Nathan said...

I love the system used in the Austrian town of Worgl in 1932 to ensure high money velocity. It was simple and effective. Notes were printed that had a value on one side, and a grid of small boxes on the other side. The note expired 1 month after issue, unless it had a small stamp affixed to the box for the following month. The stamps cost 1% of the value of the note. So, a $1 note costs 1c per month to remain as valid currency. That is the definition of "currency" after all.

This discouraged hoarding by the wealthy, and encouraged exchanging it for goods and services as fast as possible. Anyway, here's a short article explaining the concept of "Stamp scrip"
http://ccmag.net/new-currency-chapter-1. If it gets results, devolves power into the hands of the locals, then expect it to be outlawed by the powers that be. Which it was.

Bui Tyril said...

The article lost me once it touched on the subject of gold. The argument that there is "not enough gold to go around" is pure nonsense -- gold can of course be divided into micro units and, besides, under a gold standard silver is usually part of the equation. And transactions don't have to be direct, they can go through a clearing system using modern technologies.

Anonymous said...

You could teach this stuff to a kid...

Kid: 'Daddy? Why are there rich people?'
Cae-Dad: 'What do you mean by rich? You mean like in spirit?'
Kid: 'No-o-o-o-o… Like they have lots of big houses and cars and money!'
Cae-Dad: 'Ohhh, you mean those kinds. Well, you see, sweetie, our society allows some people to make more money than other people, working no harder that anyone else. Society then allows those with more money to acquire more land than others. Over time, this creates the dynamic for most, if not all, problems we have in society today, from landlessness, homelessness and poverty, to social unrest, war, civilizational collapse and even ecocide.'
Kid: 'Why does society allow that?!'
Cae-Dad: 'Corruption. [domination-- see Jenson's 'Overshoot Loop' for example] Society uses force to uphold the laws that say that one person with more money can have more land than another with less money.'
Kid: 'Why can’t we stop that!?'
Cae-Dad: 'Corruption again: This setup is upheld by people with guns and weapons, or access to them, like cops, security guards and military people– people who often don’t understand this basic and very simple immoral core of our society.'
Kid: ' :( '
Cae-Dad: 'Ya; :( '

AlaBikeDr said...

There are obviously a lot of thinking people who are interested in a fair monetary system. The one we have has just gradually turned into an ogre. But since change itself is "unfair" how do we navigate a monetary reset? Freedom. Repeal legal tender laws. Do not tax gains in alternative currencies. (Nor write off losses). To the question-How much money did you make last year, the honest answer would be I made 15 ounces of gold currently valued at $1100/ounce. People will continue to use the FRN b/c it's there, most people are too clueless to care, or the government could begin to manage it honestly. Is it headed for a smoking hole collapse? Yes, I think so. I do not think TPTB have any intention of managing it honestly. Gold is no panacea because holding it can be criminalized when the trust system blows up. But politically we do have an option to push for legal tender repeal. Auditing the Fed makes a lot of sense to me too. Why will none of this happen? Nobody cares until the AC goes off, the stores don't sell Corn Flakes, or you can't get money out of your own account at the bank.

desertspeaks said...

what monetary system?? what we have is nothing more than fraud! Banks do NOT loan money!
They create it out of thin air with a few clicks on a keyboard! This has been proven in court! Google "credit river case"
If you're not already aware of what I posted here, you'll be shocked to learn EVERYTHING YOU THOUGHT YOU KNEW IS A LIE!

apsterian said...

BaronSilverBaron said...
"The goldbugs would return us to a gold standard, making gold our currency. The problem is that it would become almost impossible to borrow money since the amount of gold which could be put into circulation is relatively miniscule and inelastic. They is no way easily to expand the supply of gold in the world"

I have to agree w. "BaronSilverBaron," above, for remember, money must be commodity w. "intrinsic value," capable of being traded on its own over the market--thus a FINITE supply of it. Without commodity base, for which gold/silver are best for practical purposes, u'll get inflation--which is legalized COUNTERFEITING, as we have now w. US Federal Reserve Bank, Bank of England, ECB, IMF, BIS, etc.

For value of real money, like gold/silver, is "elastic" by definition and necessarily, as buying power goes up as amount of money in circulation goes down, everything else being equal. If amount of money in circulation goes down, the buying power goes up, giving incentive to spend more money back into circulation--this is how money works.

U gotta go back to the origins of money which are pre-historic--it couldn't have been essentially diff. fm barter, "money" then arising fm it. "Money" then was just one of the convenient commodities available which was used as a substitute for whatever was desired for barter, but wasn't available, the other (money) commodity used as stand-in, to be exchanged for the originally-desired item WHEN it eventually became available.

Most practical "money" would have had to have been DURABLE as it would have changed fm many hands, hence a metal, and to be most convenient it would have had to have been relatively VALUABLE so that a relatively small amount could equal a relatively larger value for the desired item for sale--hence gold/silver.

Best reference for money, its history and development is by "Austrians" at Mises.org. Thanks for ur attn.