I thank the EEA for this opportunity to address you. This talk is not meant as an attack but as a challenge to “young economists.” It’s important that the economic profession be held to account for its’ part in this crisis.
The crisis gives a rare opportunity for reform. There’s no denying that the present “Economics” regime has been a key cause of the pain, suffering, illness and even death inflicted on America’s less affluent; and of the worldwide economic destruction we see. My observations are admittedly from an outsider and there should be a value for you from that perspective, but this was well expressed by Economist Jamie Galbraith in testimony to the Senate Crime subcommittee on May 4th, 2010:
“I write to you from a disgraced profession. Economic theory, as widely taught since the 1980s, failed miserably to understand the forces behind the financial crisis.”
With rare exceptions, those in control of the World’s monetary/economic agenda and the theories supporting it have helped bring the world to its knees. Shouldn’t they (and their theories) be held accountable? The challenge will be for “youngsters” like yourselves, to bring your chosen profession to its senses.
False “monetary” beliefs (some call them theories) have misdirected public policy decisions for decades, with devastating effect! Errors of Concept, methodology and factual errors led to disastrous outcomes for our nation and have the potential to gradually take America down into an unprecedented abyss of lawlessness and deprivation. Consider the present insane calls for austerity. Economists have allowed the idea to prevail that a government has to be run the way a shopkeepers runs his store. These times call for greater care and some heroism among economists; and cowardice is no longer tolerable among those who do understand.
Which particular monetary errors? Most importantly, economists have not understood or appreciated the difference between money and credit. That using credit for money is dangerous, harmful and unnecessary. Can’t they read Knapp’s “State Theory of Money, available in English since the early 1920s, to understand credit is just one type of money system, and not a good one at that? Even Minsky who pointed out that such a fractional reserve system always collapses, regarded that as a problem inherent in “Capitalism, and didn’t consider eradicating it but merely called for government providing jobs when the credit structure was in collapse. A solution that one of AMIs researchers said was like “trimming poison ivy!”
Many economists have falsely concluded that “all money is debt,” and while most money in our particular mis structured system is debt, this attitude ignores the possibility and necessity to define a better system based on government money, not private debt. This failure to understand the concept of government money as opposed to private credit, has had immense and deadly repercussions. The Great Henry Simons summed it up in one magnificent sentence in the 1930s:
“The mistake … lies in fearing money and trusting debt.”
Henry Simons, (Economic Policy for a Free Society, 1930s, P.199)
This fundamental error has allowed the most egregious banking and money system to dominate our society for a century. It has caused immense damage:
For example: The privatization of our monetary system, with control over public policy being in unelected hands, for whoever controls the money system, over time will control the nation.
And look what they have done with that power:
- They’ve given special privilege to create money to some, and disadvantage to others; which has led to an obscene concentration of wealth and a corresponding poverty! This has encouraged lawlessness and corruption among the privileged; pushing them to diseased excess for acquisition, and ignoring those among us in great need.
- They’ve turned economics into a primitive religion, and worshipped the “market” as a god, despite all evidence to the contrary. A primary tool they use is to denigrate and ignore evidence. “Anecdotal” was the description Greenspan used for real evidence that challenges their theories. A fundamental sin of poor methodology.
- They have placed an unnecessary ball and chain on the leg of every producer by having the money supply itself bear an unnecessary interest cost to society.
- They’ve foisted a “fractional reserve” system on us prone to periodic collapse. Credit will collapse during a crisis. Money does not collapse. Credit will collapse during a crisis. Money does not collapse. Money does not collapse.
In our present system most of what we use for money – more accurately purchasing media – comes into existence as an interest bearing debt, when banks make loans. In that sense, most money in our fractional reserve system – is debt. But economists can’t seem to grasp that those rules can and must be changed. Afraid to confront their paymasters, who are benefitting from the injustice, they can’t conceive of practical ways we can use real government issued money for money instead of substituting private debt for it. They ignore previous attempts such as the Chicago Plan of the 1930s; and smear prior periods when such real money was used successfully.
Errors of methodology regarding money include refusal to examine the facts and a tendency to ignore history where the monetary facts are found. This leads to the silliest errors of fact regarding monetary history including:
- Being unaware of the colonial periods’ excellent experience with government money.
- The Continental Currency – they are generally unaware they were destroyed by Brit counterfeiting.
- The Greenbacks – which is mistakenly characterized as worthless paper money, ignoring that they ultimately exchanged one for one with gold.
- The French Assignats – where they have again ignored Brit counterfeiting and enshrined the propaganda book written by a banking heir as unbiased fact (White’s Fiat Money in France)!
- The German Hyperinflation is not recognized as occurring under a privately owned and privately controlled Reichsbank!
- Regarding the FED as part of the government!
- The Free banking Schools misidentify the Free banking period because New York’s “Free Banking Law” gave better results. But despite its title it imposed much stronger requirements and regulations and was the opposite of free banking!
Jamie Galbraith ended his testimony to the Senate’s Crime Subcommittee with this warning: “But you have to act. The true alternative is a failure extending over time from the economic to the political system. Just as too few predicted the financial crisis, it may be that too few are today speaking frankly about where a failure to deal with the aftermath may lead.
In this situation, let me suggest, the country faces an existential threat. Either the legal system must do its work, or the market system cannot be restored. There must be a thorough, transparent, effective, radical cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law. And the public, which lives by the law, must see very clearly and unambiguously that this is the case. Thank you.”
James K. Galbraith to the Subcommittee on Crime, Senate Judiciary Committee, May 4, 2010.
Prof. Galbraith rightfully identifies confronting and punishing the criminal element as a matter of national survival! The AMI agrees and then goes to a more fundamental level. Regulation alone will not work in a money system which unfairly concentrates wealth to obscene levels because that concentration of money and power, can and will eventually overcome the regulators.
This in fact is what is happening, going back to the Carter, and Reagan administrations where airlines, trucking, and savings and loans were de-regulated leading to the Savings and Loan Crisis. Accelerating under Clinton where Gramm-Leach-Bliley repealed part of Glass Steagall and the Gramm Commodity Futures act of 2000 exempted OTC Derivatives from regulation. The Great Brooksly Born was forced out of the CFTC Chairmanship and replaced by Gramm’s wife! Where NAFTA was approved, attacking American jobs and where the law allowing media concentration was passed which has kept any reasonable discussion of the monetary and economic travesties off the airwaves until the banker’s malfeasance broke onto the front pages! A media that has promoted a divisive, even treasonous politics of hatred.
This slow moving “Coup d’état” reached the US Supreme Court, which installed a president who twice could not be elected; and their recent obscene decision allowing corporations to dominate our electoral process.
Our malformed money and banking system is at the bottom of these travesties and therefore must face fundamental reform. But that requires your help. How can this be done?
Enter The Congress’ Best Economist- Congressman Dennis Kucinich
On December 17, 2010, Congressman Dennis Kucinich introduced the National Emergency Employment Defense Act (“NEED,” HR 6550*) which contains all the monetary reform provisions of The American Monetary Act- see the brochure at http://www.monetary.org. It is much more than regulation; it fundamentally reforms our private CREDIT/DEBT system now wrecking our nation and harming all humanity, and replaces it with a government MONEY system.
The Act achieves reform with 3 basic provisions. All three are necessary; doing one or two of them wouldn’t work and could cause more damage.
First the Federal Reserve gets incorporated into the U.S. Treasury where all new money is created by our government – what people think happens now.
Second, It ends the fractional reserve system. Banks no longer have the accounting privilege of creating our money supply. All their previously issued credit is converted into U.S. Money through an elegant and gentle accounting change. The banks are held accountable for this conversion and from that point operate the way people think they do now – as intermediaries between depositors and borrowers.
Third, new money is introduced by the government spending it into circulation for infrastructure, starting with the $2.2 trillion the engineers tell us is needed to properly maintain our infrastructure over the next 5 years. Infrastructure will include the necessary human infrastructure of health care and education.
Banks are encouraged to continue lending as profit making companies, but are no longer allowed to create our money supply through their loan making activity.
Thus, The NEED Act nationalizes the money system, not the banking system. Banking is absolutely not a proper function of government, but providing the nation’s money supply is a key function of government. No one else can do it properly. Talk of nationalizing the banking business really acts like a poison pill to block real reform. Same for talk of the states going into the banking business keeping the fractional reserve system in place, and allowing the banks to continue creating what we use for money! That would reform nothing and actually endorses the fractional reserve system! It is a farcical diversion, misleading some good people away from real monetary reform at the only time reform is possible – during a crisis. All serious Monetary reformers understand that banks can not be allowed to create our money supply.
Despite prejudice against government, most people are surprised to learn that history shows government has a far superior record in controlling the money system than private controllers have. And yes that includes the continental currency, the Greenbacks and even the German Hyperinflation; which by the way took place under a completely privatized German central bank, with all governmental influence removed! These facts, though not taught in your econ classes, are discussed at length in my book The Lost Science of Money available here.
Why listen to me? My University of Chicago training regarding independent thinking and reading fundamental sources; about 400 of which got into the bibliography. I’ve approached it honestly. I’ve been Director of the American Monetary Institute since 1996, after being its co-founder.
Perhaps you will consider Prof. Kaoru Yamaguchi’s Systems Dynamics study of the American Monetary Act? He examined it with the most advanced computer systemology and found that:
It pays off the national debt
It provides the funds for infrastructure (solving the unemployment problem)
It does this without causing inflation. You can read his results at www.monetary.org
We invite thoughtful input from economists and others who have studied our money system. From you people who still have open minds. Ladies and Gentlemen, Thanks for your attention. We have some materials for you.
*HR 6550 was the bill number in the 111th Congress. It may get a new number on re-introduction into the 112th Congress, expected soon.
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