[R-G] [BillTottenWeblog] The New Civic Revolution

[Bill Totten]

Review of Stephen Zarlenga's The Lost Science of Money (2002)
            
by Richard C Cook


Stephen Zarlenga, the director of the American Monetary Institute, has
written a book entitled The Lost Science of Money, which is one of the
most important books published in the world in the past 200 years. Someday
it will be recognized for the classic that it is. The fact that many of
the ideas seem unfamiliar only shows how lost the science of money really
has become. This review will demonstrate that monetary reform along the
lines Zarlenga recommends could transform the economy of the world into a
system that would benefit everyone, not just the monetary plutocrats who
preside over the globalistic cannibalism that runs amok today.

During the 18th and 19th centuries, Americans had a much better grasp than
we do of the importance of monetary policy and its political significance.
Virtually no one knows anything about the battles over the British
Currency Act of 1764, or over the First Bank of the United States in the
1790s and the Second Bank in the 1820s, or over the Greenbacks issued by
the Lincoln administration during the Civil War, or the battles waged by
the Greenback Party and the silver crusaders of the late 1800s. Those of
us who so readily comment on every kind of economic issue would benefit
vastly from the knowledge of past generations, for people once knew that
WHO issues and controls a nation's money is more critical and decisive
than any other economic matter. In fact, our more progressive ancestors
would consider it both comical and tragic if they beheld our incredible
ignorance and passivity with regard to monetary issues.

Today everyone in public life or academia takes it for granted that the
monetary system nominally presided over by the Federal Reserve is the only
one ever conceived by the mind of man that is safe, functional, worth
having, or even possible. I suppose we assume that the near-panic that
grips the minds of millions of people every time the Federal Reserve
contemplates an interest rate hike is the way Almighty God intended human
beings to live on this good earth. But then again, maybe not. In his book,
The Lost Science of Money, Stephen Zarlenga has proven once and for all
how wrong these assumptions are, how rotten and ill-conceived this system
really is, and how a few basic reforms could make an enormous difference
in the life of the people of our nation and the world.

Zarlenga's ideas of monetary reform are part of a longstanding underground
intellectual current that has surfaced from time to time even within the
federal government. Twenty years ago, a study group on alternative
monetary policy was starting to be set up within the White House just
before President Carter was voted out of office in favor of the most
fiscally-irresponsible president in US history, Ronald Reagan. Attention
had been attracted by the Social Credit theories which originated with
Major Douglas in Great Britain during the 1920s and which were  promoted
by A R Orage, publisher of the progressive periodical the New Age.

Douglas's ideas were an important pioneering effort to create the
theoretical foundations of a genuinely scientific and democratic currency
suited to modern industrial conditions. He had a really revolutionary
idea: that the money in circulation should be directly issued by the
government and should be sufficient for the people of the nation to
purchase what they were able to produce at full employment levels. This
would mean that rational people in the government would be able to
calculate how much money was needed and assure that it was entered into
circulation. Douglas's ideas were partially but successfully implemented
in some of the Canadian provinces several decades ago before the
financiers put an end to the experiment.

The reason we cannot accomplish this seemingly simple task of balancing
currency with production is that our government does not exercise its
sovereign prerogative of controlling the money supply. You weren't taught
this in school, but by an act of Congress in 1913, that prerogative was
ceded to the private banking industry. The aim of that industry - surprise
- is to maximize its profits by earning interest on money it does not
possess but which it creates out of thin air under a monopolistic
government charter called the Federal Reserve System. Unfortunately, the
people who sit in Congress and make our laws seem to have forgotten this
ever happened, which is why Mr Zarlenga's book and the work of the
American Monetary Institute and related organizations are so important.

Let's be clear. The Federal Reserve System is not a public institution,
although it serves certain well-defined but very limited public purposes
as the Treasury Department's fiscal agent and as a national clearinghouse
of monetary transactions. But the fact that the chairman of the Federal
Reserve is appointed by the president is mainly for show, which would
become clear if the president tried to appoint a true monetary reformer to
the position. Rather the Federal Reserve is the instrument of the private
banking interests which own its stock, and it is those interests which
issue and control our currency.

Stephen Zarlenga has enunciated the most important principle of all by
defining money (through logic and case studies) in its rightful sense as
an "instrument of law" which should be created and controlled by the
central government to facilitate the legitimate commerce and investment of
the nation. He traces this principle through world history, but the key
event for us in America was the issuance of paper money by the colonial
governments in the English colonies through the simple expedient of
spending it into existence in payment for public expenses. This is the
real meaning of fiat money, and our ancestors understood it.

By contrast, the money issued by the Federal Reserve is often called fiat
money but it really isn't. Rather it is a degraded debt-based currency
issued by the banks through loans. It's pseudo-money. Open your wallet and
look at a Federal Reserve note. It's really a kind of play money, because
it is encumbered by the requirement to repay the loans which produced it
and to repay them with interest. The Bureau of Engraving and Printing is
constantly looking for better ways to print money to prevent
counterfeiting, not realizing that the Federal Reserve notes they already
print are made with a kind of disappearing ink. This ink strangely causes
the value of the notes to vanish into the vaults of the banks.

Much of the reserve base for bank loans is federal government debt
instruments - Treasury notes, T-bills, and the like - meaning that the
larger the national debt, the better for the banks, because they are then
authorized by reserve policy to lend more money to you, to me, and to
Argentina. Now you know why Republican presidents like Reagan or George W
Bush couldn't care less about running up more government debt. Nothing
more effectively lines the pockets of their foremost patrons, the
financiers.

By contrast, true fiat money, which is the money most suited to the
democratic form of government, would be paper, or, today, electronic money
spent into existence for legitimate public purposes. This money would then
circulate throughout the national economy, fueling every kind of economic
endeavor imaginable, but with no debt burden and no overwhelming carrying
charges by the banks.

This type of true fiat money was used extensively in colonial times until
further production was outlawed by the British Parliament, in league with
American colonial hard-money merchants, through the Currency Act of 1764.
The result was a deepening economic depression that was a primary cause of
the American Revolution. Once the Continental Congress declared
independence in 1776, it authorized fiat currency through the famous
Continental currency. While popular textbooks speak derisively of the
inflation of this currency, they fail to note two crucial facts. One is
that the Continentals were a great success in financing the early war
effort before the later infusion of French gold, and the other is that the
inflation was caused to a considerable extent by massive British
counterfeiting of the Continental currency in the British-held city of New
York. Stephen Zarlenga covers this aspect of our monetary history in
detail.

With the establishment of the First Bank of the United States under
Secretary of the Treasury Alexander Hamilton during the first of President
George Washington's two administrations, the concept of government-issued
fiat money was replaced by that of debt-laden bank notes issued by a
central bank whose stock was subscribed by speculators and private
financiers. In fact, having won our independence from Great Britain,
through Hamilton's bank we promptly turned over our monetary system to
stockholders, a majority of whom were British and continental European!

The First Bank of the United States was the Bank of England imitated on
American soil, a bank which during the 18th century saddled the British
government and people with an astronomical national debt. Hamilton was
strenuously opposed by Thomas Jefferson, James Madison, and their
followers, who realized that control of the monetary supply by private
interests was disastrous to democracy. In fact, monetary policy was the
number one political issue of the 1790s, and it was the split between
Hamilton and his beloved First Bank and Jefferson who opposed it that
created a permanent two-party system for the United States.

Hamilton became the leader of the Federalists, who were the forerunners of
today's Republican Party, which is above all the party of the private
financiers. Jefferson led the party that eventually became the Democratic
Party, though its leaders today have forgotten that their party's founder
viewed control of the monetary system by bankers as the death-knell of
government by and for the people. Maybe the present-day Democrats, who
proved in the 2004 presidential election what many suspected, which is
that they truly have nothing to say, should read the history of their
origins. They could start with one of the most important books on politics
ever written in America, which Stephen Zarlenga cites extensively, Martin
Van Buren's once-famous tome published just before the Civil War entitled,
Inquiry Into the Origin and Course of Political Parties in the United
States (1867).

Jefferson was the great apostle of human freedom. His words in the
Declaration of Independence that "all men are created equal", have changed
the history of the world and are the foundation of every democratic
constitution in existence. Jefferson was elected president in 1800 and
repudiated debt-based financing of the federal government. This election
was known at the time as the "Civic Revolution of 1800", because of the
overthrow of power of the financiers who controlled the government through
the First Bank. Jefferson and his Secretary of the Treasury Albert
Gallatin slashed expenditures and balanced the federal budget for eight
consecutive years, a feat which was never again accomplished.

In fact, the best way to assure a massive public debt and the accompanying
erosion of monetary values through uncontrollable inflation is to charter
and rely on a privately-owned and controlled central bank of issue like
the Bank of England, the First and Second Banks of the United States, or
the Federal Reserve  of today. Once such a system is in place, the central
government is so hamstrung by debt that is it unable to direct public
expenditures into desirable socioeconomic channels and has surrendered its
economic sovereignty to the financiers, which is precisely where we now
stand.

The most notable success of government-issued fiat money was the famous
Greenbacks, authorized by Congress in 1861 and utilized by the Lincoln
administration to pay wartime expenditures. Of course Lincoln was a
Republican, and so pro-bank, but the government was facing an emergency,
and Lincoln had the ability to rise above party-line thinking to do what
had to be done. Actually, the impetus for the Greenback legislation came
out of the US House of Representatives, which as a body had been the most
progressive and knowledgeable institution within the government since our
Constitution was enacted, and the ordinary people of the time, with their
measure of natural common sense, recognized that it was the Greenbacks
which saved the union.

It was because the Greenbacks eliminated the need for the federal
government to borrow from the New York and British bankers at the
extortionist rates of interest they were demanding that Lincoln was called
by the London Times "the most dangerous man on earth". Soon afterwards,
however, the bankers were able to secure passage by Congress of the
National Banking Acts of 1863-64, legislation which Lincoln approved. This
eventually led to the centralization of banking power, the formation of
the New York Money Trust under the Morgan and Rockefeller interests, and
the complete takeover of money creation by the US and European bankers
through the Federal Reserve Act of 1913.

Nevertheless, during the Civil War and for the half-century which
followed, the Greenbacks were an essential component of the US money
supply. As late as 1900, Greenbacks still formed about one-third of the
money in circulation. Another third consisted of metallic-based currency -
gold and silver coins, along with Treasury-issued silver certificates -
while the final third consisted of debt-based paper notes issued by
national banks. The value of the Greenbacks was destroyed by inflation
during and after World War One, when the sovereign power to create money
was abdicated by Congress and President Woodrow Wilson and ceded to the
private bankers through the Federal Reserve Act.

Congressman Charles A Lindberg, Senior, Republican of Minnesota and father
of the future aviator, said on December 23 1913, the day President Woodrow
Wilson  signed the Federal Reserve Act: "This Act establishes the most
gigantic trust on Earth. When the President signs this bill, the invisible
government by the Monetary Power will be legalized. The people may not
know it immediately, but the day of reckoning is only a few years removed.
The trusts will soon realize that they have gone too far even for their
own good. The people must make a declaration of independence to relieve
themselves from the Monetary Power. This they will be able to do by taking
control of Congress. Wall Streeters could not cheat us if you Senators and
Representatives did not make a humbug of Congress ... If we had a people's
Congress, there would be stability. The greatest crime of Congress is its
currency system. The worst legislative crime of the ages is perpetrated by
this banking bill. The caucus and the party bosses have again operated and
prevented the people from getting the benefit of their own government."

Hmm, "the worst legislative crime of the ages …" Unfortunately, Lindberg
never got his people's Congress. But other intelligent people in the
United States knew what had happened. Among them were America's greatest
inventor and its greatest industrial genius, Thomas Edison and Henry Ford,
who were cited in articles in the New York Times on December 4 and 6 1921,
as favoring direct government funding of the Muscle Shoals nitrate and
water power projects near Florence, Alabama. Edison said, "… under the old
way [that is, funding government projects through borrowing via bond
issues from the public and banks as through the national banking and
Federal Reserve System], any time we wish to add to the national wealth,
we are compelled to add to the national debt. Now, that is what Henry Ford
wants to prevent. He thinks it is stupid, and so do I, that for the loan
of $30 million of their own money the people of the United States should
be compelled to pay $66 million. That is what it amounts to, with interest
… In all our great bond issues the interest is always greater than the
principal. All of the great public works cost more than twice the actual
cost, on that account. Under the present system of doing business we
simply add 120 to 150 percent to the stated cost."

Edison contrasted debt financing to a system like the Greenbacks, where
the government simply spends currency into circulation. He said, "… if the
government issues currency, it provides itself with enough money to
increase the national wealth at Muscle Shoals without disturbing the
business of the rest of the country. And in doing this it increases income
without adding a penny to its debt. It is absurd to say that our country
can issue $30 million in bonds and not $30 million in currency. Both are
promises to pay, but one promise fattens the usurer and the other helps
the people. If the currency issued by the government is no good, then the
bonds issued would be no good either. It is a terrible situation when the
government, to increase the national wealth, must go into debt and submit
to ruinous interest charges …"

Hmm, "a terrible situation …" The Federal Reserve with its system of debt
financing has ruled the monetary and thereby the economic life of the
United States for the last 91 years. Because of it, every man, woman, and
child owes tens of thousands of dollars to a bank, either from mortgages
or household debt, or from borrowing by local, state, or national
governments. The Romans had a word for it which we translate as "debt
slavery". Interestingly, a seeming majority of our two hundred million or
so debt slaves are vehement supporters of those politicians who are bought
and sold on a daily basis by the financiers who rule the economy which has
subjected us to ever-declining real wealth. I guess it's because the
financiers have such strong family values.

Speaking of family values, how about what is going on today with the cost
of purchasing a family home? Middle-class wealth has been shattered by
this seemingly uncontrollable inflation that no one subjected to it can
explain. Instead, people are reduced to trying to make their own little
killing by buying today with plans to sell in a year or two at a profit.
So the family home, the hearth of domestic tranquility, has become a
gambling chip. Will any politician stand up and say this is just a trick
of the banks, in cahoots with government, to pump cash into an economy
which is grossly undermonetized and where our physical infrastructure has
been so stripped down that it can no longer provide our population with a
decent living? All this is covered up by a monopolistic press that the
financiers own lock, stock, and barrel.

So let's now shift gears and speak as impartial professional analysts. A
good analyst knows that the first thing to do when conducting an analysis
is to identify and describe the problem you want to solve. In the realm of
monetary policy, what is the real nature of the problem we are facing
financially that can lead us to search for the source of the toxins that
are infecting the world today? Isn't the problem, or paradox, that while
science and engineering have the ability to produce everything really
necessary to support the world's population in a reasonable degree of
health, safety, and comfort, we see instead a world in the throes of war,
strife, poverty, debt, struggle over resources, disease, and ignorance
everywhere except in the most prosperous parts of those few nations that
control the world's money supply?

Think about it. The era of scarcity of resources should be over. It is, or
should be, crystal clear to any impartial observer that science has the
ability to solve mankind's material problems once and for all. If you
doubt it, go talk to any bright engineering student about the miracles
science is working in every field. We know how to provide food, water,
shelter, transportation, and clothing to everyone in the world. We have
the technological capability to replace cars that run on fossil fuels with
those that run on fuel produced by farm products. We know that the oceans
contain an unlimited supply of water, and we have the knowledge to remove
the salt and other minerals to make it drinkable. We know that the Sun is
an endless powerhouse of energy, and we possess the technology to harness
it. And even if minerals near the surface of the Earth are limited in
their extractability, we know that the ocean bottom or even the asteroids
and the Moon, if mined, could meet our needs indefinitely.

What is it that prevents us from being able to take advantage of Nature's
abundance? When faced with a problem like this what do we do? Do we try to
find an answer or do we just blow it off? Well, if we are thinking like
scientists, we examine the data and form a hypothesis. In this case, what
is limited seems to be not resources, not organizational ability, not
technological know-how, but CAPITAL. Observation shows that time after
time the biggest lack in any new industry which has the capacity to
relieve man's material burdens is that there is not sufficient
readily-available money to make it happen. This is an economic fact. And
why is it not available? Is money scarce? Or is it kept scarce because
those who control it want to make it scarce to enhance their own economic
and political power?

The scarcity of money is artificial. It is a function of the monetary
system that controls the currency. This scarcity is made much worse by the
fact that our concept of money is so poor. We view money as a commodity
that is and should be privately owned, and that if it is needed for great
public purposes it can only be accumulated by robbing citizens through
taxes or by robbing future generations of their birthright through
borrowing and adding to the national debt. Any major project that must be
financed through borrowing from financial institutions, whether a local
elementary school or a national health care system, is immediately
hamstrung by interest debt. Ask any local budget officer. As Thomas Edison
indicated when talking about the Muscle Shoals project, this debt can
double or even triple the lifetime cost of a project.

What are the broad economic and social results of the system of private
control of money creation? Here are just a few:

Increased concentration of wealth in the hands of those who already have
it and the progressive impoverishment of everyone else;

Gradual destruction of the middle class and reduction of the majority of
humanity to consumers, service workers, and debt slaves;

Control of government and the press by the financiers;

Erosion of the ability of government to invest in education, health care,
and physical infrastructure;

Crushing burdens of taxation on all classes of society except the most
wealthy;

Inflation of the costs of housing and real estate due to the utilization
of mortgage lending by the financial industry as the best way to maximize
their profits while pumping liquidity into the world economy;

Speculative investment of huge amounts of money in derivatives and other
non-productive financial instruments as opposed to investment in processes
that enhance real physical wealth;

Distortion of the physical landscape through creation of vast tracts of
suburban wilderness, because the hideous concentration of expensive single
family homes, shopping malls, and freeways is the most profitable scenario
for lenders;

Reduction of entire regions of the world to poverty and dependence on the
movement of private capital, combined with loss of national economic
sovereignty by any nation where outside private financiers are in control
of investment and resources;

A deepening worldwide crime wave resulting from the fact that private
finance simply cannot engender sufficient paid employment for the people
of the world;

A ceaseless state of war and civil strife resulting from entirely
unnecessary national and international financial crises.

            
Not only is the monetary system that causes all this shortsighted and even
criminal, but it is also just plain stupid. Money as a resource is not or
should not be defined as a commodity like any other. It is, as both
Aristotle and Stephen Zarlenga have said, and as Thomas Edison and Henry
Ford well knew, an "instrument of law" that should and must be controlled
by government acting as the legitimate agent for the needs, hopes, dreams,
and aspirations of all the people. To repeat, money should not be treated
as a commodity. It should be an instrument of law that commands
commodities for the public and private good. To do this, money should be
created as, when, where, and how it is needed based on analysis by public
agencies, including our own Congress, accountable only to the people.

Faced with the need, for example, of a network of large desalination
plants to augment the nation's water supply, the government should pass
legislation to authorize the creation of the required amount of money and
spend it into circulation on facilities that will meet the goal of an
abundant water supply. This could be done through outright grants or the
capital could be injected by very low-interest loans from a government
reconstruction authority, as was done by the Roosevelt administration
under the New Deal. Direct spending of the people's money for great public
projects is what Edison and Ford proposed in 1921 for Muscle Shoals.

The system I am talking about (described in detail in Zarlenga's The Lost
Science of Money book) would be the modern version of the Greenbacks, a
system which can be easily implemented with sufficient political will.
Unfortunately, the will is lacking, and the current generation of
politicians knows nothing about monetary issues. Free and open debate of
these issues is a distant memory, even though two twentieth century
chairmen of the House Banking Committee, Wright Patman and Henry Gonzales,
introduced legislation to abolish the Federal Reserve.

Spending of the new Greenback currency that now should be authorized by
Congress could be done for a host of worthwhile infrastructure needs,
including education, where a free college education could be offered to
everyone, transportation, including both local and national mass transit
systems, as well as health care and sanitation systems and financing of
Social Security. In time, much government funding at all levels could be
accomplished through this system, thereby reducing or even eliminating the
need for income taxes. Takeover of the power of currency creation used
responsibly by our democratically-elected government is the single measure
with the power to make the abundance of science available to all our
citizens and to reduce or eliminate the totally-useless competition and
struggle for economic domination that is the cause of so much trouble in
the world today.

In fact, it is not an exaggeration to say that today there is only one
truly overriding economic, financial, and political issue that holds the
key to everything else, and this is whether the creation of money is
controlled by democratically-elected governments or by the private
financial industry. The world we truly value and wish for ourselves and
our children and grandchildren will live or die based on how that question
is answered. The epic nature of this struggle can be clearly understood by
reference to one of the great movies of our time, Star Wars. If you want
to know what it takes to sustain a real Republic, like that envisioned by
Luke Skywalker, Princess Leia, and the Jedi, it is one where the people
create and control the currency. If you want to enthrone over all of us an
evil Empire like that of Darth Vader and the Emperor, then turn over the
money supply to the bankers. That is in fact what has been done and is why
we are already so far down the dark  road of economic globalization based
on financial tyranny.

The giant sucking sound you hear around the globe today comes from the
international financial community sucking the life, the resources, and the
assets out of the pockets of all the people of the world. The primary
exception is China, which has maintained its financial independence
through monetary policy resembling that which is described in this paper.
This is why China may become the world's leading economic power within one
or two more generations, with political and eventually military hegemony
soon to follow. If that isn't enough to frighten us into action, then the
case is truly hopeless.

So think about these things as you study Stephen Zarlenga's work … This
study will lead you to a vision of the future which is breathtaking and
which sooner or later must be realized. This is the progressive wave of
the future which cannot be denied. The day is coming when the earth will
truly be equally free for all by the discovery that we already possess the
keys to our future material happiness. The great changes needed to bring
this vision into realization begin with monetary reform. That is how
important the work is of Stephen Zarlenga and the American Monetary
Institute and others thinking along the same lines.

Real and lasting change can only be made by those with the ideas to
replace what we have now with something meaningful. You can start by
realizing how much you and everyone you know has been duped by the
existing monetary system then move on to a serious study of Stephen
Zarlenga's book, The Lost Science of Money. Implementation of monetary
reform will be the foundation of a new "civic revolution", even more
far-reaching than the one Thomas Jefferson and his colleagues brought
about in America over two centuries ago.

_____
            
Richard Cook, formerly with the US Treasury and Nasa,  is a monetary
writer and historian, and author of  Challenger Revealed: How the Reagan
Administration Caused the Greatest Tragedy of the Space Age (2007).

(c) 2004 American Monetary Institute

Stephen Zarlenga, Director

Dedicated to the independent study of monetary history, theory, and reform

http://www.monetary.org/gracchusjones.html


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