IN THIS SECTION:

 

We are absolutely without a permanent money system.... It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.

Robert H. Hemphill,  Credit Manager, Atlanta Federal Reserve Bank

 

What we are using all over the world is not money! The best and brightest brains will not see that the world is not using money at all. The blindness that prevails is of vast philosophical importance. We are living in a deluded world and the outcome of this delusion is going to be nothing less than apocalyptic in its overwhelming, destructive consequences for mankind.

Hugo Salinas Price, Millionaire businessman, economic thinker

Money and the Community

The Birth and Death Of Money

In other times and places people have desired salvation, beauty, power, ... adventure, conquest, comfort. Today, money – not necessarily even the things money can buy, but money - is what everyone wants [and] therefore if one wishes to understand life one must understand money in this present phase of history and civilization.

Jacob Needleman,  Money and the Meaning of Life, 1991

 

What were you doing on August 15th, 1971. It is unlikely that you will remember, but history will show, and indeed is already showing dramatically, that was the day on which western civilization entered into its final phase. It was the day when a new form of money was invented, and when the global banking system started on the road to self-destruction, with social consequences that can hardly be imagined. It was the day when President Nixon declared that America would no longer redeem dollars for gold. It has taken half a century for the full consequences of that decision to become apparent, but it began the reshaping of the economic world.

Money, banks and civilization are in a symbiotic relationship. This page of the website is devoted largely to showing how the nature of money has changed through time. Its companion pages Banks and the New Slavery and the Just-for-Profit Community need to be viewed to give a rounded picture of what is involved and, hopefully, convince the viewer that the need for a new kind of economic world is now beyond doubt.

A hundred years ago money in Britain was the gold sovereign and various almost pure silver and copper coins, and although banknotes for £5 and upwards existed, the average person could go through life without seeing one. It may seem like a million years ago, but in the early part of his working life my father received his weekly pay in sovereigns. After World War One the sovereign was replaced with the pound note, but nothing much changed in commerce because of that. After World War Two the use of cheques as money by the general public came in slowly, for while they had existed long before, first as a means of exchange between banks, for several decades only the “upper class” had access to personal cheques. My father was probably fifty before he had his first cheque book, and I am pretty sure that my mother never had one. In the early days shops would take cheques from anyone who had a cheque book, assuming that the holder was well-to-do, trustworthy and had money in the bank.

The concept and the physical form of money and the system of monetary exchange have been evolving for five thousand years, the most recent changes being the invention of money-as-credit and digital money. It has reached its limit of development in the widespread use of credit cards, which enable us to make purchases in seconds from almost anywhere in the world in any major currency, thanks to smart terminals and PIN numbers. What we usually forget, until the monthly statement comes in, is that we are buying not with our own money but with debt that gives us the illusion of real money.

This little slice of recent monetary history shows how rapidly the concept and use of money has evolved in a century; but if we look further back in time we can see how radical that evolution has been and, more importantly, where it is now headed. The Death of Money is the title of a recent book by Joel Kurzman, which argues that com­puter­isation has created a bastard form of cash, which will destroy the global economic system unless new mechanisms are found to eliminate the potential for fraud. It is doubtful, however, that new mechanisms will solve anything, for money is so bound up with the human community, and thus with human nature, that no permanent cure is possible without redesigning social structures. Economic reform now calls for radically new thinking on both a technical and ethical level.

Any attempt to rebuild on the old foundation will, inevitably, result in future collapse. This is why a new concept of money and of the economic community is now needed. Unless we go down to this level of economic understanding, reinvention of the financial system would be meaningless.

Since there is no immediate alternative to the US dollar as a global currency, the ongoing corruption of the monetary system will doubtless continue for some months, if not years. During that time, we will almost certainly see a de-globalization, as countries or trading blocs, like “Euroland,” set up tariff barriers and exchange controls. Along with this we may expect to see new kinds of local and regional currency initiatives springing up, as happened in the Great Depression of the 1930’s.

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What is Money?

Wider reform that will eventually rebuild a global trading system will need to start by considering the origin and purpose of money. In its first appearance, as precious metals, it was clearly understood as a uniquely useful item in a system of barter, and that function has never disappeared, despite the mantra that “Gold is a barbarous relic” which economics students in high school and university are trained to repeat, without ever examining the evidence for its truth. The phrase has the authority of Lord Keynes, although it was actually first used in the nineteenth century by the less well known  monetary reformer Alexander del Mar.

The use of money raised economic activity above the level of barter, enabling a society to become civilized and to cross the barrier between tribe and tribe. Without money, trade is restricted to primitive and immediate exchange, saving for the future is impossible and the planning of capital projects for the benefit of the community made virtually impossible. As the world’s monetary system collapses around us, the time is appropriate to make a statement that only recently would have seemed outlandish or even unintelligible:

Just as human progress from savagery to civilization has depended on the invention of money, future progress will depend upon a new definition and use of money.

Money in classical economics has three functions. It is

So far, so obvious, but whatever the textbooks say, money today is not a reliable store of value, for it is constantly depreciating through inflation and, by the same token, is not a reliable measure of value either, a fact which economic theory conveniently overlooks. 

Of no less importance are the many social roles that money plays in addition to its classical functions. It is critical in metaeconomic theory to understand that money

Consideration of these factors extends the science of economics deep into social and political territory. Away from the imposing equations of professional economists, the whole purpose of economic activity is brought into question, and with it ideals of ethics and of community and even the purpose of life itself. Money has achieved an almost sacramental status in modern society, and become an all-purpose good, like grace in Christian theology, so that making money is often taken as an unquestioned end in itself. In Danny deVito’s immortal non-sequitur, “Everyone needs money; that’s why it’s called money.” “Money,” to quote the convicted fraudster Bernie Cornfeld, “has a strange purity.”  It has been called “frozen desire,” but could equally be called “crystallized power,” for with money in the bank we can get people to do things for us, like making a suit or building us a house, or we can get governments to do our bidding, if we have enough money.

While we tend to assume that money is essentially coins and notes, it can, in fact, take many physical forms. Anything which is universally acceptable can be pressed into service, and this has varied enormously across time and cultures. Initially the universal medium of exchange was livestock, and a man’s wealth was measured (and still is in some pastoral societies) by the number of cattle or goats he possessed. These ancient forms of money are remembered in some economic terms today: pecuniary is related to “pig”, and salary to the salt which Roman soldiers commonly accepted as part of their wage. Anything easily portable and generally desirable can function as a means of exchange. In Berlin just after the Second World War, when economic structures were shattered, a carton of cigarettes was the accepted form of money, and had the advantage over other desirables, such as nylon stockings, in that it could be divided into ten packs of twenty cigarettes for small change, as it were.

Tinned food was also passed from hand to hand, not for eating but as money, and one economic journalist tells how in the hyperinflation that ravaged the former Jugoslavia from 1991-94, he took a tin of sardines in exchange for something, but decided to eat its contents, and thus realise its value. To his dismay, the tin had been passed around for so long that the sardines had gone bad, and this little story illustrates a profound truth about money, namely that almost any token of value will function as money, so long as no one wishes to redeem it for the material value that it represents. The economic crisis unfolding today is caused by increasing numbers of people looking behind the token value of the US dollar and discovering that it has, like the sardines, gone bad. A little thought experiment in the box below will start to open up some of the complex aspects of money which the ordinary person never suspects.

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Instant Monetary Theory:

Imagine an island, perhaps the size of the Isle of Wight, that was self-sufficient in the necessities of life, but had no monetary system. Without money as a common medium of exchange economic activity would be reduced to barter. And imagine in this situation that a rich individual were to distribute to everyone on the island a brown envelope on which was printed, “This envelope contains a twenty Euro voucher. I will redeem it for twenty Euros in six months, so long as the envelope remains unopened. Once opened, I will not redeem it.”

If the signature under the notice were, say, Richard Branson, who is very rich, there would be no particular reason not to trust him or to open the envelope, and while waiting to redeem their windfall, everyone could use the brown envelope as a means of exchange – i.e., as money. I could exchange my envelope for groceries, and the grocer could buy further stocks at the wholesaler, or buy a coat, and so on. Our benefactor has kick-started the island’s economy, but in a stuttering kind of way.

The first problem arising would be what to use for small change, and, at the other end of the scale, how could sufficient envelopes be accumulated to be able to pay for, say, a new school. Soon a wider economic difficulty would surface, for although the island is more or less self-sufficient, its population is too small to have a pharmaceutical industry, and soon the need for common drugs would arise, and with it the problem of what to use as money to pay for imports from other countries. Some more sophisticated monetary system would be necessary to promote economic well-being.  

Now imagine that the signature on the envelope was someone unknown. Would confidence in the redeemability of the contents of the brown envelopes be so high and, if not, what would be the consequence of diminished confidence? Probably, there would be no temptation to accumulate the brown envelopes, but even in considering this scenario, one realises that if some entrepreneurial soul did hoard them, he or she would bring the economic revival to a halt, for there would be few envelopes in circulation, and if the entrepreneur was very successful, there would eventually be none at all, and business activity would cease.

This brown envelope story shows up quickly some of the complexities of defining and creating money in a modern economy. The island’s economy could not get very far with twenty euros apiece. What would have happened if the benefactor in question had given everyone a thousand or a million euros? With twenty euros for each individual, the island’s economy would be in permanent depression, but with a million, there would be wild inflation.

Now extend this little economic thought-experiment and imagine two similar islands in fairly close proximity, one of which has rich farmland and timber stands but no mineral resources and the other which has little farmland or forest but coal, iron, copper and other deposits. While the first has a brown envelope form of money, the second uses a rather rare kind of shell, covered with lustrous mother of pearl, as a means of exchange. A small shell might be exchangeable for a sweater and fifty large shells might buy you a modest cottage.

The sea around both islands swarms with fish, so both communities can live at a subsistence level, and have long done so, although tribal antagonisms between them have kept them apart. Eventually, however, they make an attempt to form an economic community for mutual benefit, trading food for ironware, coal for timber, etc. Here arises the monetary challenge, for pretty shells and brown envelopes are not mutually acceptable. A new kind of monetary arrangement is needed.

The point?

  • If you can see the difficulties you are halfway to being an economist.
  • If you can suggest a workable solution, you are an economist.
  • Without some means of exchange no one can go beyond crude barter and economic survival level. Civilization and evolution are impossible.
  • Without trade to bring them together the inhabitants of the two islands will probably glare forever at each other across the straits in mutual antagonism.

 

In ancient times the precious metals of gold and silver were universally valued, as a means of ornamentation, but money itself did not appear until these metals were coined, that is to say, stamped into uniform pieces with an identifying mark. Proto-coinage appeared five thousand years ago with the Sumerian shekel, which was a certified weight of silver, and seems to have been valued as a quantity of barley, since both words have the same root. The shekel is still the currency unit of Israel. However, although coins began as a measure of weight (the root meaning of words like pound, lira and peso), they soon were accorded an intrinsic value unrelated to their metal content. Human nature being what it is, ways of cheating started to appear almost as soon as money was born. The temptation to make money without working for it is universal and very powerful.

The three methods used were

clipping     counterfeiting     debasement

all being different forms of counterfeiting, since they enable bad coinage to be passed off as good, until the deception is discovered. Since coins were not so precisely stamped as today, it was possible to file or clip the edges, and melt down the filings, before putting the coins back in circulation. (It was, in fact, Isaac Newton, as Master of the Royal Mint, who introduced the milled edge coin to prevent clipping. He was a very competent economist, as well as a scientific genius.) Counterfeiting was much more profitable than this DIY method of clipping, and consisted of stamping look-alike coins made from base metal, usually covered thinly with precious metal. In all countries, until a couple of centuries ago, counterfeiting was punishable by death, for it struck at the very heart of trade and thus of society.

Debasement of the coinage, by contrast, was usually a government initiated kind of counterfeiting, in which the content of precious metal was systematically reduced, until the resultant coin was too obviously a dud to have any use in trade. Over a period of two centuries, as the Roman empire declined, the silver content of the denarius was reduced from 95% to 1%. This debasement was largely to enable the government to pay for war, a factor which has played an absolutely crucial part in the history of money, banking and economics, and a part to which academic theory rarely gives proper emphasis. Today counterfeiting in the cause of war is done by means of inflating the currency, and the consequences of that may be seen on the page The Endgame and particularly the section The Bankrupting of America.

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Gold Wars

In 2001 there was published a book entitled Gold Wars, by Ferdinand Lips which revealed the extent to which the international banking system, headed by the  US Federal Reserve, would go to ensure that the American dollar, and not gold, was taken as the universal standard of value. Lips, who died in 2008, was Swiss, a banker of extreme competence and a trustee of the Foundation for the Advancement of Monetary Education. He was a co-founder of Rothschild Bank AG in Zurich, but later resigned and founded his own Bank Lips AG in 1987. During these years he had become aware that the Money Power was working to take control of the financial system of the one Western country that had held out against it, his own Switzerland. The Money Power is as shadowy as its name, but through his wide experience Lips is able to name individuals and institutions and track their operations.

The plot hinges on the fact Switzerland was the only country in the world with a currency backed completely by the gold reserves in the Swiss Central Bank. As such it was a latent threat to both the global dominance of the US dollar and the principle of money-as-debt which has become essential in the global banking system. The two great banks in Switzerland (initially three, but now Credit Suisse and UBS) had long been independent but were in fact being integrated into this global network whose centre was in New York, and were, in effect, transferring their national loyalty to the international cartel.

The main point at issue was to demonetize gold completely, so that the US dollar could not be valued by reference to it, and thus would become the de facto measuring rod for currency values. The strategy employed by the Money Power, as Lips came to realise, was to persuade the Swiss government to sell off its gold reserves (as Gordon Brown had done in Britain) and invest the proceeds largely in US Treasury bonds. Ostensibly this provided the benefit that the T-bonds generated interest, whereas gold did not, and at the time the possibility that T-bonds would lose value through inflation was not considered.

What Lips records in Gold Wars is a campaign orchestrated by money interests of varying kinds to generate guilt feelings in the Swiss people at large about the supposed theft by their central bank of the assets of German Jews who had perished in the Holocaust. This disinformation was accompanied by a legitimate debate about the need to rethink Switzerland’s political and financial independence in view of the emerging European Union and a common currency. Switzerland, despite its neutrality, has long had an international outlook, as witness the Red Cross and the complex of international institutions located in Geneva. Hence there was a bias towards accepting the logic of joining a financial world that seemed at the time to function perfectly well without a gold-backed currency, and the sell-off of the country’s gold was decided by referendum in 1997. However, as Lips chronicles, the propaganda blitz by the Swiss government and the way in which the referendum was rushed through without time for public debate marks a shameful chapter in Swiss democracy.

What Lips does not deal with, and what may turn out to be more important, is the derivatives trading in which Credit Suisse and UBS later became involved on a very large scale. If, as has happened in the US, the Swiss government may need to step in to save them from bankruptcy because of this, Swiss taxpayers may find themselves with an enormous future burden, and the once rock-solid Swiss franc may suffer accordingly.

This brief and simplified excursion into Swiss economics raises controversial and questionable issues. Any viewer seeking confirmation of the bare facts here can consult Angelo M. Codevilla’s Between the Alps and a Hard Place. Professor Codevilla was formerly a US Senate Intelligence Adviser.

Money and War

War is an unproductive economic activity, even though successful conquest may conceal this fact for a time. The historian Paul Kennedy has shown in his best-selling book The Rise and Fall of the Great Powers how, in general, empires fall because they must ultimately devote too much of their productive output to maintaining armies. The First World War toppled Britain from an almost unassailable position of global hegemony by bleeding the country’s economic resources, and putting it in debt to the United States, from which time the American hegemony has grown, to the point where the dollar is the global reserve currency and America dominates international bodies such as the International Monetary Fund and the World Bank. Now, after half a century of almost uninterrupted war, cold and hot – in Korea, Vietnam, Kuwait, Iraq and Afghanistan – America’s cash reserves too have been bled dry, and new economic empires are on the rise.

America’s global influence was once largely welcomed by other countries, since it seemed a better alternative by far than communist domination. America’s ability to wage war was at first maintained by its industrial power, but that is now ebbing away, as manufacturing facilities move overseas, mostly to the BRIC countries – Brazil, Russia, India and China. Its dominance in manufacturing and the wealth which enabled it to import from other countries made it the so-called “locomotive” which pulled the rest of the world’s economies along. America’s economic power, however, was sustained by doing something which no other empire has been able to do, namely taxing not only the conquered but all the citizens in the world. While this process may have started almost accidentally, it has been pursued silently and deliberately for many years, certainly since 1944, in a coordinated strategy. It has been made possible because the US dollar has been accepted since 1944 as the global reserve currency. The abuse of this privilege has led to global economic breakdown.

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America Taxes the World

Since WW2 America has levied a silent tax on the whole world by the simple fact of ensuring that until very recently oil has been priced in dollars.

The significance of this is profound, and the mechanism is simple to understand. With the active support of Japan and Britain, and particularly of Saudi Arabia, America has been able to insist that oil is priced in dollars, so that every country in the world must first buy dollars before it can buy oil. So long as the dollar was backed by gold, this presented no problem, for in buying dollars one was effectively buying a claim on America’s gold reserves, and countries were able, if they so wished, to take the gold. When the gold-dollar link was broken by President Nixon in 1971, however, there was no backing to the dollar except trust in “the full faith and credit of the US government”, which has been criminally abused. Dollars have been printed in huge abundance to pay for American wars and bail out the big banks. As well as this, President Johnson promised Americans that the government would be able to provide both guns and butter, and he was able to do it by diluting the value of the dollar and imposing a silent tax on those countries which held their national reserves in dollars.

To abandon the dollar standard would have brought chaos to the world’s trading and financial systems. So, taking advantage of this tacit blackmail, the US government has continued to print dollars with reckless abandon, and other countries have continued to buy them or exchange them for goods in full knowledge that they were a depreciating asset. The ongoing meltdown of value of the dollar may be roughly measured by comparing the $8,000 that would have bought a modest car in 1970 to the $35,000 it would cost today. The actual cost to the world’s citizens is impossible to calculate accurately, but it would probably be true to say that the average British householder has been paying at least £40 per year to support America’s imperialism and provide the good life for its citizens.

This silent extortion is the single greatest fact about economics today, yet, as the Mexican economist Hugo Salinas Price has pointed out, not a single Nobel Prize winning economist has ever drawn attention to it. Mainstream and academic economics is carried on largely in a parallel universe to the real world, and the most system-shattering events seem to come as a surprise.

America’s taxation of the world and its political and military consequences have been made possible by an accident of geology, which left about a quarter of the world’s oil reserves under the sands of Saudi Arabia, and has enabled successive US governments to carry on a protection racket on a grand scale. They have offered the Saudi government military protection (as much against its own citizens as any external aggressor) in exchange for the Saudi’s pricing their oil in dollars and turning the tap on or off, so to speak, in order to control the world oil price according to American wishes. Since August 2014, however, the Saudis have turned the table on America by manipulating the oil price for their own political purposes. This situation has been changing for several years, as the giant American oil companies have lost their near-monopoly on world oil production, and countries like Russia, Venezuela and Indonesia have nationalized their oil industries, in effect if not in name, and priced their oil in Yen, Euros or Roubles.

America’s attempts to prevent this happening have been extreme, most obviously in starting two wars to maintain its domination of the world’s oil supplies. There is no doubt that the invasion of Iraq was not because it represented a terrorist threat or had weapons of mass destruction, but was a response to Saddam Hussein’s expressed intention of pricing Iraq’s oil in Euros. From the viewpoint of American imperialism, this could not be allowed to happen, and the so-called “war on terror” was the thinnest of pretexts for taking over Iraqi oil resources.

Iranian plans to set up an independent oil bourse to sell its oil in yen and euros, are now operational, but were set back almost two years by having their computer installations sabotaged, by unknown agents. The war in Afghanistan, though ultimately about oil supplies from central Asia, has more tangled roots. There is a geopolitical agenda here regarding control of the world’s oil, which is slipping out of America’s grasp after half a century. The world economic order is entering into a terminal phase, and when it has collapsed entirely, we can either attempt to rebuild it on the old foundation, thus ensuring future disaster, or do some radically new thinking about what economics is all about. That is what brings metanomics into existence.

All empires fall, either by foreign invasion, moral decay or what Lenin called “debauching the currency.” There is happening before the world’s bewildered eyes the most ominous debauching in history - that of the American dollar

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A New Kind of Money | The Birth & Death of Money | What is Money? | Instant Monetary Theory | Gold Wars | Money & War | America Taxes the World

 

 

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