Abuses by the USA PATRIOT Act
Tuesday, October 25, 2005
TESTIMONY ON THE USA PATRIOT ACT
BEFORE THE SENATE JUDICIARY COMMITTEE
BY BOB BARR
May 10, 2005. . .
Prior to the USA PATRIOT Act, library and bookseller records were not covered by this power, which back then only permitted an order for the records of certain business. Now, library records are covered as are all other records and tangible items, including membership lists of political organizations, gun purchase records, medical records, genetic information and any other document, item or record that the government contends is a tangible thing.Section 215 also comes with a sweeping and automatic gag order, without any explicit provision for a recipient to challenge that prior restraint on First Amendment grounds or even consult with counsel. And, if certification is made that the records are sought for any intelligence or terrorism inquiry, the judge has no power under the law to challenge that certification. Finally, and crucially, the power is also unlike a grand jury subpoena because a recipient has no explicit right to move to have it quashed in court, and failure to comply with a 215 order is presumptively a serious offense.Critics of this section rightly charge that its open-ended scope and lack of meaningful judicial review open the door to abuses, and I agree. At the very least, Congress should restore the specific and articulable facts requirement for the target of a section 215 order that connects such records to a terrorist, spy or other foreign agent. Here again, such a modest limitation, consistent with traditional Fourth Amendment principles, would pose no significant hardship to federal agents. Federal judges would, as they have for ages past, continue to approve virtually all such applications properly supported and applied for by government agents.. . .Apparently, the department sought and received the authority to delay notice 108 times between April 2003 and January 2005, a period of approximately 22 months. By contrast, it sought and received this authority 47 times between November 2001, when the PATRIOT Act was enacted, and April 2003, a period of about 17 months. The five-month difference in timeframe aside, these numbers clearly reveal a substantial increase in use.Moreover, Chairman Specter also revealed at the April 6th Judiciary Committee hearing that 92 -- or approximately 60 percent -- of those 155 requests were granted under the broad justification that notice would have the result of seriously jeopardizing an investigation, rather than under the more specific criteria that notice would endanger a persons life, imperil evidence, induce flight from prosecution or lead to witness tampering.Also, as Attorney General Gonzales informed Representative Flake at an April 7th hearing of the House Judiciary Committee, six criminal delayed-notice warrants under section 213 of the PATRIOT Act were approved with an indefinite delay (just as we had feared), and one had a delay that lasted fully half a year. In addition, the statutory language that opens the door to such indefinite delay is directly contrary to the only two appellate court rulings published before the Patriot Act that evaluate secret criminal search warrants with delayed-notification authorized by the lower court. In the first such case, a circuit court held that in this case the warrant was constitutionally defective in failing to provide explicitly for notice within a reasonable, but short, time subsequent to the surreptitious entry. Such a time should not exceed seven days except upon a strong showing of necessity.I would also submit that this Committee is in a special position to evaluate sneak and peek warrants. The Judiciary Committee has jurisdiction over the peculiar area of law in which criminal and intelligence investigative powers can blur into one another, and where they consequently have to be carefully cabined to protect constitutional rights. I respectfully submit that the sneak and peek statute is one law that is not appropriately cabined, and is currently so broad that it resembles powers associated with foreign intelligence investigations (i.e., outside reasonable limitations for criminal powers contained in the Fourth Amendment).. . .Too often in our history, we have acted too quickly in the face of major national security challenges, and have severely deprived our citizens of their God-given rights under the Constitution. Worse, such deprivations have, without exception, been unnecessary to secure our country. In the post-9/11 world, we have strayed perilously close to the edge, and I fear we will fall all the way if the PATRIOT Act is not fixed. If we do, however, meet the test of history and fix the law before it can lead to another historical shame, we will have broken with the past. And we will have done so by securing our liberties and our safety in equal measure. What could be more American than that?
Records show violations in FBI secret surveillancePublished: Monday, October 24, 2005WASHINGTON - The FBI has conducted clandestine surveillance on some U.S. residents for as long as 18 months at a time without proper paperwork or oversight, according to previously classified documents to be released today.Records also indicate the FBI has investigated hundreds of potential violations related to its use of secret surveillance operations, which have been stepped up dramatically in the wake of the Sept. 11, 2001, attacks but are largely hidden from public view.The records were provided to The Washington Post by the Electronic Privacy Information Center (EPIC), an advocacy group that has sued the Justice Department for records relating to the Patriot Act.David Sobel, EPIC's general counsel, said the new documents raise questions about the extent of possible misconduct in counterintelligence investigations and underscore the need for greater congressional oversight of clandestine surveillance within the United States.FBI officials disagreed, saying that none of the cases has involved major violations and most amount to administrative errors. The officials also said any information obtained from improper searches or eavesdropping is quarantined and eventually destroyed.
. . .
The documents reveal thirteen cases in 2002-2004 in which the FBI's Office of General Counsel investigated alleged FBI misconduct during intelligence activities, and reported these matters to the Intelligence Oversight Board (IOB). It appears from the case numbers assigned to each matter that the FBI reported to the IOB at least 153 instances of alleged misconduct occurring in 2003 alone.Under Executive Order 12863. inspectors general and general counsel throughout the intelligence community must report to the IOB "intelligence activities that they have reason to believe may be unlawful or contrary to Executive order or Presidential directive." The IOB, in turn, reports such activities to the President and Attorney General. The documents obtained by EPIC raise the troubling possibility that hundreds of allegations of unlawful investigations are reported from various agencies to the IOB each year. Yet there is no requirement that Congress is notified of these allegations or how these matters are ultimately resolved.These facts suggest a need for legislation that would require the Attorney General to report to the Judiciary Committees on matters forwarded to him by the IOB, as well as the Justice Department's response (if any) to intelligence activities that have been found unlawful or contrary to Executive order or Presidential directive,We believe there is particular urgency for the Committee to pursue this matter. Over the last several years, the FBI has been granted significantly expanded authority to undertake intelligence investigations in the United States. As FBI Director Robert Mueller stated in March 17, 2004 testimony before the House Appropriations Committee on the FBI's Fiscal Year 2005 Budget Request:Today, our mission has changed dramatically and our budget reflects this change. . . . Approximately 44 percent of the funding is allocated to counterterrorism and counterintelligenceor about $2.2 billion and 12,466 positions. Compared to FY 2001, this represents more than double the amount of funding and equates to an 80 percent increase in the number of people devoted to the counterterrorism and counterintelligence missions.One of the practical consequences of the FBI's expanded intelligence role has been the dramatic increase in the use of the secretive Foreign Intelligence Surveillance Act (FISA) to conduct searches in the United States. That law was originally enacted to address the specific problem of Soviet agents operating within the United States. However, the 2003 FISA Annual Report revealed that the Foreign Intelligence Surveillance Court had granted 1,724 applications for secret surveillance. That made 2003 the first year ever that more FISA warrants were granted than federal wiretap warrants, which are issued only under a more stringent legal standard.During the oversight hearings on the PATRIOT Act, representatives of the Department of Justice repeatedly stated that there had been no abuses of PATRIOT Act authority.* The Department also noted that its inspector general had received no complaints of civil liberties violations alleging employee misconduct related to the PATRIOT Act aside from the Brandon Mayfield matter.The documents released by the FBI to EPIC, however, suggest that there may be at least thirteen instances of unlawful intelligence investigations that were never disclosed to Congress. . . .*For example, Attorney General Alberto Gonzales testified on April 27 that "[t]here has not been one verified case of civil liberties abuse" arising from PATRIOT Act authority. FBI Director Robert Mueller agreed: "I as well am unaware of any substantiated allegations that the government has abused its authority under the PATRIOT Act." USA PATRIOT Act of 2001: Hearing Before the Senate Select Comm. on Intelligence, 109th Cong. (Federal News Service 2005) (testimony of Alberto Gonzales, Attorney General, and Robert Mueller, FBI Director). Deputy Attorney General James B. Comey also testified on May 11, "I don't believe there have been abuses of the PATRIOT Act." The USA PATRIOT Act and Foreign Intelligence Surveillance Act: Hearing Before the House Select Comm. on Intelligence, 109th Cong. (Federal News Service 2005) (testimony of James B. Comey, Deputy Attorney General).
Tax Terrorism Season
Sunday, October 23, 2005
Please, feel free to copy and distribute.
Socialized Money-Chapter VIII
Tuesday, October 18, 2005
of This Socialized System, Together
With Their Social Significance
EFFECTIVE operation and protection of this socialized monetary system, after it has been established, calls for coordinated functioning of its indispensable parts—all of them being geared to the purpose of liberating society from non-social monetary servitude.
In order to preserve the power of stabilization, provision is made, first, for an exclusively national medium of exchange. This, in turn, is dependent upon the exclusion of gold and silver as money, and consequently their demonetization. Essential also to preservation of the power of stabilization is the provision that both issue and control of the medium, shall be solely in the government. It also follows, for reasons later to be stated, that in order to preserve all these powers there can be but one kind of major money (wealth certificates).
It should be clear that safeguarding the means of stabilizing the national price level is equal in importance to tariff protection by which the nation saves itself from commercial and industrial despoliation at the hands of every other nation.
Since, as previously pointed out, the medium of exchange is the natural and primary means thus to effect stabilization, it therefore follows that if the medium is not exclusively national, it cannot be controlled in the interest of the people. Consequently there must be excluded other mediums which are foreign to the centralized power of issue and control in the federal government.
There can be in the system neither an international medium from the outside nor a medium put out by minor jurisdictions from the inside. The provision for an exclusively national medium of exchange applies, therefore, without qualification, against issue of "money" of whatsoever nature by states or cities, or by corporations (banks), whose privileges in this respect must not conflict with the sovereign power of the federal government.
There also is wrapped up in the provision for an exclusively national medium of exchange both the sovereignty and the integrity of the federal government itself. Any condition which undermines the stability of the nation, in the same measure discredits the government in power, and sets in motion forces, orderly or violent, for its overthrow. In this connection, it is well remembered how, quite recently, international money and credits at command of financiers of other nations were so deeply intermixed with the financial and securities structure of the United States that a conspiracy involving wholesale withdrawals of gold temporarily upset the economic equilibrium of the nation. Incidentally, it may have had not a little to do with the subsequent retirement of the political party then in power.
THE USE OF THE PRECIOUS METALS as money ultimately will rest upon their fitness to serve a special purpose. Stripped of the fictitious value thrown about them by law, and having lost their distinction as selected forms of wealth, they must take their place with other commodities, of which nine-tenths at least are more indispensable to society than gold and silver.
This special utility lies in the desirability of certain metals—on account of the commodity value which they carry and also owing to their convenience in handling—for subsidiary coins. According to the provisions of this system, therefore, use of the precious metals as money will be reduced to a minimum, the silver half-dollar piece becoming the largest metallic money coined. Other subsidiary coinage will remain the same as now.
The commodity value contained in these subsidiary coins being inferior to their money value, there is removed the objectionable feature which attaches to major metallic money whose commodity as well as money value is established by law.
THE QUESTION whether the supply of certain metals shall dictate the value of all other commodities, having recently been decided negatively in so many influential quarters, it would seem that it is about ready for chronological classification with that other once mooted question as to the flatness of the earth.
The precious metals, however, should have recognition in the economy of the nation. They are not only important in the arts and sciences, but their recovery from primal sources seems to supply a means of satisfying the peculiar urge in the human makeup to prospect, adventure, and to dream in the anticipation of great riches to be had for the finding.
Therefore, this system, in recognition of the part gold and silver have played in monetary systems heretofore in use, provides for the maintenance of a "treasure chest" of all precious metals mined in the United States, so as to conserve this form of wealth to the nation. Propitiously timed, this concentration of precious metals might be transformed into objects of art composing a national exhibit.
WHILE THE EXCHANGE of commodities between peoples of the different nations is a natural and desirable relationship, to be fostered and developed along lines beneficial to all concerned, facilities to that end provided by commercial nations seem to have claimed attention secondarily to the purpose actually accomplished to facilitate the exchange of money and securities between international moneymakers.
The United States, thus opened up and made available, has been a particularly fertile field for "money farmers" of foreign countries. Their surplus wealth planted in our rich investment soil, having returned profit and interest manyfold, is repatriated to support the economies of other nations. In effect upon the United States this diversion of national resources has been little different from that of maintaining on foreign soil a host of pensioners and annuitants.
Provisions of this system, while encouraging the exchange of commodities between nations, are especially designed to discourage foreign participation in our rich natural resources by making less easy the conversion of international surplus wealth wrung from the people of other lands.
It hardly needs be emphasized that under this system the nation will have no need for foreign "capital." In fact, socialized money in circulation would be so much a part of the national economy that inflow of international "loans" and "capital" would be offensively redundant.
GOVERNMENTAL exchange guaranties, facilitating the exchange of commodities between nations, as provided for in this system, could be relied upon adequately to serve all legitimate export and import requirements. These governmental guaranties, affecting transactions between the people of one nation with those of another, would be based upon parities of money values in the respective nations independently arrived at with each nation.
For instance, the respective governments would guarantee to their nationals that, within a given period, a certain stated value in a particular national currency would be the equivalent of a certain stated value in its own. The governments would "clear" international trade by providing national currency of the value agreed upon to cover all transactions coming within the restricted agreement with each nation.
Exchange for speculation in money, investment in securities, or loans of "capital" between the peoples of the United States and other nations would not come within the provisions of these guaranties.
Is it not about time that the peculiar type of Greed afflicting each nation should be quarantined and confined within such nation? Better internationalism, it would seem, should not facilitate the transmutation of dollars into pounds or francs, or pounds and francs into dollars, when the mechanism thus set up is used to impoverish the many and to enrich the few.
WHERE THERE ARE too many kinds of money in a monetary system, there is always the possibility that one, considered better than the others, will be driven out of circulation. This phenomenon is known as Gresham's law, recognized about three centuries ago when Sir Arthur Gresham announced discovery of the truth that bad money drives out good money, but that good money cannot drive out bad money.
The application of this law extends to any and every kind of money circulated in the same system. It applies not only to the weight and fineness of gold and silver, but also to any issue of currency that may be considered inferior.
Within the present year this law was given a fine demonstration right here in the United States. Millions of dollars in gold were driven into hiding in private vaults by the ten other kinds of national money, and the government was able to dislodge part of it only upon threatening the offenders with prosecution.
With stabilized wealth certificates the only major money of this system, there will be no chance for one kind of money to drive another kind of money out of circulation.
It should now be plain why a monetary system, depending upon the inviolability of its medium of exchange to effect stabilization, should not be vitiated by the inclusion of more than one kind of major money.
THE SPECIAL PRIVILEGES which the monopolists of money and credit have, from the very first, enjoyed at the expense of society, also must be swept aside in the interest of this socialized monetary system. The continued exercise of these special privileges is incompatible with (1) an exclusively national medium of exchange, (2) the sole right of issue and control in the government, and (3) major money constituted only of stabilized wealth certificates. All of these provisions are essential to stabilization under this socialized system. Therefore, the Federal Reserve as now constituted would have to be reorganized and its branches converted into regional extensions of the federal treasury, thus compelling banks to pull out and organize anew under the banner of business enjoying no special privilege. There would result, as a consequence, the complete divorcement of the monetary system of the nation from banking participation.
Socialized Money-Chapter VII
Monday, October 17, 2005
NOTE: I'm changing the font family to Arial for the remainder of these post, as Times New Romans doesn't display special character properly.
When you read this chapter, you will quickly realizes that one of the "benefits" derived from an income tax on the monetary system is that it can be used to extract too much money from the economy. The author demonstrates this philosophy be saying, "[T]hey could not show more accurately that an equilibrium had been established between the rate of federal taxation, on the one hand, and the monetary issue, on the other, and, as a consequence, the nation had secured a stabilized monetary system as a by-product."
Results as a Function of the
UNDER THIS socialized monetary systemmade operative upon the principle that the medium of exchange, the federal revenue and the wealth of the people naturally bear one to another a compensating and reciprocal relationshipthe means of stabilizing the price level result as a function of the system itself.
In this connection we are reminded of the bounteous contribution social forces naturally make, when permitted to do so, in behalf of human welfare. Even skillful organization diverting the benefits of these forces to private gain must eventually fail; for ultimately there will be either social supremacy or social chaos.
Represented by numbers alone, society gives to land in country and city added value according to density of population. It gives to all things produced their exchangeable value, thus classifying them as wealth. These same social forces, when brought into requisition, also have power naturally to supply a monetary system endowed with every desirable function, including the quality of stabilization inherent within itself.
LET US ASSUME, by way of illustration, that stabilization is a highly valuable woven creation which Society produces with her shuttles and her loom. Further, let us assume that, in the weaving of the economic fabric of the nation, the monetary system and the revenue system are combined in their related processes not dissimilarly to the manner in which mechanical shuttles carry the colored threads of the woof through the warp in forming a particular pattern.
In the weaving of this fabric of price-level stability, the warp, which always runs at right angles to the woof, represents, for sake of illustration, commodity and property values generally, constituting in the aggregate all the wealth of the people.
Running across the strands of the warp are the colored threads of the woof, one color representing the nation's medium of exchange and the other color representing taxes to support the federal government.
Taken together, commodity and property values may be visualized as running up and down the pattern, while the medium of exchange and federal revenue may be seen running across the pattern.
In the process of stabilization, expansion of the medium of exchange serves to raise average commodity values to the desired level. Conversely, contraction of the medium of exchange serves to lower average commodity values to the desired level.
As fully explained elsewhere in this book, measurement of average commodity values in terms of the medium of exchange can be made by means of index numbers, a statistical service periodically supplied by the United States Bureau of Labor. These index numbers show from one point of time to another the percentage of change in the price of a wide range of representative commodities.
NOW, IN THE WEAVING of the fabric of stability, let us assume there are two alternating shuttles carrying the threads of the woof. One shuttlelet us call it the Taxation Shuttlecarries a red thread across the warp of average commodity values. The other shuttlelet us call it the Monetary Shuttlecarries a green thread across the same warp. Each shuttle takes its turn in building the pattern of stability.
When average commodity values are below the desired level the Monetary Shuttle, carrying its green thread into the pattern, records the measure of inflation produced.
On the other hand, when average commodity values are above the desired level, the Taxation Shuttle carries its red thread into the pattern to record deflation; and, as in the case of the green thread, the red thread is shuttled across the warp until the right degree of stabilization is recorded.
In illustrating the processes by which the medium of exchange controls the level of average commodity values, it is now in order to connect the green and red threads carried by the two shuttles with their respective sources.
The green thread in the Monetary Shuttle has its source in stabilized wealth certificates, issued by the federal government and put into circulation only in exchange for services performed for or wealth conveyed to the federal government. These certificates may be issued in amount equal to the total volume of the medium of exchange, but must never be issued so as to produce inflation beyond the desired level of average commodity values. This legal tender is, to the amount of its issue, actually a certification of an equivalent of wealth having been conveyed to the federal government. To the amount of its issue, also, it has saved the cost of government and at the same time left in the pockets of the people wealth which otherwise would have been taxed away.
The first imperative of these wealth certificates is that they must be stable. Their character also qualifies them as the only medium that can be geared into a compensatory relationship with taxation to effect stabilization. Their employment, therefore, provides a reliable, direct and positive instrumentality for controlling both inflation and deflation.
THE RED THREAD in the Taxation Shuttle has its source in two measures or degrees of federal taxationone current, the other deferred. The principle of deferred taxation is a hitherto unused social value indispensable in a socialized monetary system. It makes possible, as a purely business transaction between the government and the people, without direct obligation, an unprecedented freedom of issue so long as it is confined within the limits of a stabilized price level.
The process of deflation, identified with this red thread in the Taxation Shuttle, implies contraction of the medium of exchange. Means employed by this monetary system to that end are available by alternative methods: By one the federal government goes into the money market and borrows its own issue on short time at current rates, paying interest therefor out of revenues derived from taxation either current or deferred. By the other method, if found necessary to stabilization, the federal government buys outright its own issue, on deferred payments at interest, for retirement. Under either method the instruments of indebtedness issued in exchange for wealth certificates borrowed or purchased are non-negotiable and must remain in the custody of the federal treasury during the term of their existence.
LET US NOW EXAMINE the completed pattern and discover the trends recorded by the green and red threads in the weaving of this fabric of stability, and also inquire into the effect of these stabilizing processes upon the weaver (the government) and the ultimate users of the fabric (the people).
In the first place, the monetary system, consisting of stabilized wealth certificates evidencing value having been received by the government, has cost society nothing as a capital investment, and to the extent of the medium in circulation the cost of government has been saved to the people. The medium of exchange, therefore, represents the saving to the government and the peopleless charges to effect deflation necessary to stabilizationupon their joint venture in a socialized monetary system.
It will be seen that the green and red threads follow a reciprocal trend as the shuttles alternate between the issue of wealth certificates to effect inflation, on the one hand, and the borrowing or retirement of wealth certificates to effect deflation, on the other.
Accordingly, the account between the government and the people will show that the medium of exchange has been issued and has entered into circulation without obligation, except that of conditional liability, either to the government or to the people. Through this liability the people assume responsibility, by way of taxation, for expense incidental to stabilization of the price level. It must be remembered that stability is not merely an establishment, once in effect always operative. It must be made effective through perpetual maintenance.
The account, when balanced, will plainly show that the medium of exchange, both in its establishment and later expansion, has cost the people nothing by way of current taxation. Assumption of liability for stabilization, furthermore, is carried only as a contingent liability under the classification of deferred taxation, subject to payment if and when stabilization is to be effected through deflation.
INSPECTION of the color scheme resulting from the weaving of the pattern of stability will disclose the interacting and reciprocal relationship existing between the monetary system and revenue system of the federal government. The green strands are seen to appear in the woof the instant inflation is to be recorded, and the red strands appear as soon as deflation starts, and continue until stabilization is accomplished.
If these figurative shuttles, in their compensatory movements back and forth weaving the tell-tale colors into the fabric of national stability, were the most delicately wrought scientific instruments, they could not show more accurately that an equilibrium had been established between the rate of federal taxation, on the one hand, and the monetary issue, on the other, and, as a consequence, the nation had secured a stabilized monetary system as a by-product.
The singing shuttles, with their green and red filaments woven into a record of economic designnot chancereveal a hitherto undiscovered resource by which the nation's monetary system may be converted from a liability into an asset; by which, also, the medium of exchange may be wrested from the money-credit monopoly, and by which, as a sort of overflowing of social benefits, the nation just naturally may inherit a stabilized price level.
ONCE UPON A TIME, two engineers in the public service were commissioned to study and recommend the most imperative reclamation need of the nation. Accordingly, they decided that a great waterway be dug north and south through the heart of the United States, and so reported to the Secretary of the Interior.
"Why!" exclaimed the Secretary, dumfounded. "Do you not know that the great Mississippi runs right down the middle of your blueprint?"
"I have never seen it," protested one.
"Why, I have never even heard of it," boasted the other.
The Secretary then realized, for the first time, that one was blind, the other deaf.
Who can say that future generations will not look upon those responsible for the existing monetary system in the United States as deaf, dumb and blind? For how else could they explain the perpetuation of a socially -impoverishing agency at great public expense, when a superior system is available by the mere act of appropriation from unused social values?
Socialized Money-Chapter VI
Sunday, October 16, 2005
Can Any Plan of Stabilization Benefit
Society in the Long Run?
MECHANISM of this socialized monetary system is designed to create and safeguard larger production, more equal distribution and wider consumption of wealth within the United States. These social benefits will flow largely from two fundamentally-sound economic establishments.
The first and most essential of these is the socialization of the system of exchange within the nation whereby this truly governmental function is wrested from the monopoly which controls both money and credit.
The second is the stabilization of the price level within the nation; or, the creation of a condition which, under favorable basic auspices, will insure to both the man-power and the wealth-resources of the nation a constancy of normal employment.
During the London economic conference, delegates moiled and pleaded for "stabilization" as prerequisite to all other international agreements.
Stabilization of what? The international value of gold and silver? And what one nation's monetary promises-to-pay are worth in such metals in ratio to the monetary promises-to-pay of every other nation?
Regardless of all else it might or might not do, such stabilization would substantially stabilize central banking in the area dominated by this money-credit monopoly. Such stabilization would also insure the continued economic supremacy of those who own wealth at interest over those who are struggling to free from indebtedness their wealth under interest.
The establishment of stable price levels in every nation is perhaps the world's most pressing economic need. And, unquestionably, any sound money based on the independent economy of a nation, if controlled in its quantitative relationship to other wealth, can be made to serve such end.
But will society at large actually gain in the end by merely being spared depressions and unemployment, due to fluctuating price levels, so long as surplus profits in production continue to go to build still greater surplus wealth, which, in the hands of the money-credit monopoly, come back to take still greater "earnings" from wealth burdened with interest-bearing indebtedness?
It must be remembered that stabilization, even though accomplished, is subject to prior conditions interposed by the monetary system and the economic policy under which it is set up.
Since, under the existing monetary system, the purchase and sale of government bonds through the Federal Reserve is inseparably a part of any scheme of stabilization that may be employed by the federal government, the United States treasury must of necessity continue to be an incubator for the hatching of federal bonds. Bonds are the very lifeblood of such a stabilization scheme. Therefore, under the so-called open-market transactions carried on from month to month in the course of stabilization the Federal Reserve and its banking affiliates would become incomparably the greatest bond-brokerage combination on the American continent. They have over twenty-two billion dollars' worth of federal bonds to play with, in addition to the short-term treasury notes which aggregate billions each year.
It can easily be understood that values which hold wealth at interest cannot be affected adversely by any act of stabilization under existing non-social monetary policy. In fact, it makes little difference to the money-credit monopoly whether values are embalmed in gold, silver, or managed currency which is always looping-the-loop with government bonds. Stabilization of the price level, being unimportantly incidental, would still leave unimpaired the supremacy of wealth at interest over wealth under interest.
THE FOURTH OF JULY 1933 brought to me a sense of pride in my country greater, perhaps, than ever before. There had come with the dawn's early light another declaration of American independencethe right of monetary freedom. As I mused the meaning of President Roosevelt's patriotic words, I found myself standing before a time-stained parchment framed and hanging on the wall in my humble home. The meaning of service and sacrifice never seemed so full as it did at that moment. Very simply, the parchment told that James Mackenzie Campbell, my father, had been honorably discharged after four years of service with the Board of Trade Battery of Chicago during the Civil War. . . Nearly seventy years later a President of the United States had acted so gallantly in behalf of his peoplefor humanity everywhere, in factas to glorify all previous sacrifice in the name of the Republic.
How significant of progress in human affairs when a President of the United States has been able so far to free himself from the sordid influences of a continuing national curse as to say:
"The sound internal economic system of a nation is a greater factor in its wellbeing than the price of its currency in changing terms of currencies of other nations. . . .
"Let me be frank in saying that the United States of America seeks the kind of dollar which a generation hence will have the same purchasing and debt-paying power as the dollar value we hope to attain in the near future. That objective means more to the good of other nations than a fixed ratio for a month or two in terms of the pound or franc."
The President's communication concluded with the expression that the purpose of the conference was "to better and perhaps to cure fundamental economic ills."
Just as pegging the dollar at the economic conference would have been superficial and inane in the circumstances, as well as a detour from the main-traveled road of progress, likewise will any scheme of stabilization be impotent to reach the nation's most deep-seated economic ill so long as our monetary system remains a part of the now dominant money-credit monopoly securely entrenched behind the Federal Reserve.
THE GROWING ALARM which financial crises bring to the people of every nation has, quite naturally, been communicated to those economists who concern themselves with the remedial side of their science. These have, within the present century, formulated and submitted for public consideration numerous plans of stabilization. The central purpose back of every one of these plans has been so to control or "manage" the supply of money in its relation to other wealth that its purchasing power will be the same today, tomorrow, next month, next year, or a decade hence.
The possibility of thus accomplishing stabilization of the price level is based upon one of the few economic assumptions regarding which there is no disagreementthe Quantity Theory of Money. This theory is epitomized by Prof. Irving Fisher, widely-recognized American authority on stabilization, as follows:
"The general level of prices is dependent upon the volume and rapidity of turnover of the circulating medium in relation to the business to be transacted thereby. Therefore, if the number of dollars circulated by cash and checks doubles while the number of goods and services exchanged thereby remains constant, prices will about double."
On the other hand, if the number of dollars circulated is reduced one-half, the price level will fall in about the same ratio.
Evidencing the earnestness with which means have been sought to overcome the recurrence of financial crises, and also as showing the range of thought upon the subject, a number of plans by forward-looking economists are summarized in an exhaustive work by Prof. Joseph Stagg Lawrence,1 whose critical study of stabilization is prefaced by the query: "Shall the quantity of gold subject to world influences of supply and demand, or the deliberate and conscious administration of men, determine the general level of prices?"
It will be noted in the perusal of these plans that, according to one theory, a medium like gold, whose purchasing power is variable, must be diluted or strengthened at times in order to accommodate itself to the greater or less quantity of gold in proportion to commodity and property forms of wealth subject to exchange. This theory, presumably, was that subscribed to by President Roosevelt and his monetary advisers when it was announced from the White House that the gold content of the dollar would be reduced. Another theory would regulate production of gold to monetary needs. Still other theories would employ a variety of devicesall, however, based upon gold.
In the United States the first plan to be presented for legislative consideration was that by Prof. Irving Fisher, introduced in the 67th Congress by Representative T. Alan Goldsborough. By its provisions the gold dollar was to cease to be "a constant quantity of gold of variable purchasing power" and become "a variable quantity of standard gold bullion of approximately constant computed purchasing power." Deviations in the value of the "goods dollar" as determined by index numbers of wholesale prices, compiled by the Department of Labor, would be added to or subtracted from the weight of the dollar.
An index number, as described by Prof. Fisher, is "a figure which shows the average percentage change in the price of a number of representative goods from one point of time to another."
A "goods dollar" contains a definite portion of many different representative goods having equal fractional value one to another, and which when combined total 100 cents. In other words, a cent's worth of 100 different goods would be a "goods dollar."
Another stabilization plan based upon gold was submitted by John Maynard Keynes, leading English economist. He believes that it is "essential that provision shall be made that there will never be cause for hope that prices will rise or fear that they will drop, or that if such movement does occur it will never go far." The Keynes plan is similar to that by Fisher, except that, in addition to changing the gold equivalent of the pound sterling from time to time to conform to changed conditions, stabilization would be assisted by variations in the bank rate to control internal and external prices.
R. G. Hawtrey proposed the gold-exchange standard, an international plan. "If all principal countries would settle what the value of their currency units in gold is to be," he states by way of qualification, "we want so to regulate the demand for gold that the values of these currency units in commodities does not vary substantially." This having been accomplished, the central banks of issue of the leading mercantile nations would be induced to extend each other credits or paper money of domestic validity in exchange for similar credits or paper money legally current in foreign countries. "Any one with legal tender money in one country," Mr. Hawtrey insists, "should be able to surrender it in exchange for an equivalent amount of legal tender money in any other country."
The plan of Carl Snyder for stabilization of gold would employ the open-market and rediscount powers of the Federal Reservethat is, a given rise in the price level would call for a given rise in the discount rate and a similar set sale of government securities. "Gold would cease to be directly legal tender," it was pointed out, "though practically it would be, of course, just the same as now" (1923). Attempt would be made to keep the amount of currency and credit in balance with the price level, which would be maintained as nearly constant as possible.
The plan by Prof. Lehfeldt contemplated the buying of all gold mines and ground known to possess gold deposits, and the regulation of production in accordance with the needs of the world for moneythe object being to maintain a constant value for the unit of gold, so that the dollar, remaining the same number of grains of gold, should retain approximately the same value. Prof. Lehfeldt estimated the cost of the gold sources at about one billion dollars.
Reasons which may have commended these plans individually or collectively, so long as the gold standard dominated monetary policy, do not apply to the same extent at this time, when virtually all the mercantile nations of the world are "managing" their currencies quite independently, being governed by the degree of expediency demanded in each case.
1Stabilization of Prices, by Joseph Stagg Lawrence (Princeton).
Socialized Money-Chapter V
Saturday, October 15, 2005
the Poor Man's Wealth Has Placed an
Economic Hobble Upon Society
MOST SOCIALLY HARMFUL of the vices inherent in commercial constitutionalismor, control of government by those who lend it moneyis the discrimination by which wealth at interest grows in the proportion it takes from wealth paying interest.
The sources of these phenomena, lying deep below the surface, and obscured in the maze of economic contradictions, seemingly have escaped analysis. When it is recognized, however, that these divergent processes are of the same source, merely segregated for discriminatory treatment at the point of controlfurthermore, that both are parts of the unity composing all exchangeable values, including the medium of exchange specifically and all other forms of legal wealththeir significance is more readily understood.
Analysis of these processes, then, has to do with the discrimination by which one condition of wealth receives interest and another condition of wealth pays interestor, let us call them wealth at interest and wealth under interest. The study involves consideration of (1) the incidence of interest upon commercial, industrial and governmental indebtedness; (2) the socially-undermining effect of shifting the cost of government and the added burden of the three aforementioned classifications of interest to the mass of society whose wealth consists largely of that which it consumes from day to day; (3) the non-social derivation of excessive accumulations of wealth at interest; and (4) both the chronic and acute phases of the process by which the portion of wealth subject to consumption by the masses is progressively forced lower, while wealth appropriated to surplus by the few grows both in volume and earning power.
LET US FIRST CONSIDER the incidence of interest (or the paying point to which interest ultimately falls) in its relation to commercial, industrial and governmental indebtedness. As can readily be understood, no business could continue to operate if it did not shift its legitimate costs to the purchasers of its goods. These costs include both interest and taxes. In this latter item is included also interest paid by government. Consequently, it should be clear that interest upon loans to commerce, industry and the government and also taxes assessed to commerce and industry finally come out of the hides, so to speak, of consumers. This is made quite plain by Wm. B. Greene1 in his Mutual Banking, when he says: "It is the indirect relation of the bank to the farmer and mechanic, and not its direct relation to the manufacturer and merchant that enables it to make money."
Illegitimate diversions of wealth due to excessive profits also come largely from the stream of wealth which supplies consumptive needs within the margin of a bare living.
In order to avoid misunderstanding, it may be well here to state that wholesale condemnation of the accumulation of surplus wealth, or its use at interest, is not intended. Billions of savings of the people are invested in insurance of one kind or anotherand this within proper limits is a notable example of the use to which surplus wealth may be socially devoted.
Again, distinction should be made between surplus wealth in moderate amount, the earnings from which periodically find their way back into channels of consumption, on the one hand, and, on the other, the monstrous accumulations of surplus wealth which become segregated and return with their increase to lay additional liens upon fixed values.
Stated variantly, it is the socially desirable amount of surplus wealth possessed by each individual, and depending also upon whether or not the interest from such surplus is turned back into consumption, that determines its social or non-social character.
In the degree that it possesses the qualities above described, money at interest in savings banks or mutual savings institutions also has more or less the character of socially desirable surplus wealth. And, of course, there will always be need for commercial banking, although controlled and restricted in the interest of society.
THE VEIN OF MONEY and bank credit at interest is year by year comparatively broadening, while the vein of wealth under interest is at the same time comparatively pinching out.
The cause of this divergent trend is that interest and taxes of the classifications heretofore mentioned come largely from wealth under interest, while interest earned from wealth under interest is itself added to wealth at interest. Consequently, the discrimination by which wealth at interest thus escapes the incidence of both interest and taxes, and at the same time receives interest upon its own existence, cannot result otherwise than to upset economic equilibrium within the sphere of its operation.
A logical deduction from the set of circumstances outlined above, considered together with the fact that the masses must depend upon wealth under interest for their consumptive needs, would be that the greater the amount of wealth at interest, the lower will be the consumptive ability per capita of those dependent upon returns from wealth under both interest and taxes.
To account for a condition identical in its exhausting effect upon society with that here analyzed, Mal-thus propounded his famous doctrine on population. This was to the effect, as is well known to students of economics, that population tends to multiply faster than the means of life; and that the lot of the poor is thus rendered hopeless unless war, famine or pestilence intervene to diminish population.
Dr. Malthus, however, presupposed a condition in which productive capacity is outrun by consumptive needs. Today, on the contrary, we have a condition in which consumptive needs are outrun by everything, especially by interest on commercial, industrial and governmental indebtedness, as well as by taxes to support government.
Around the world there is clamor for tariff walls to come downthe other fellow's, of coursepossibly in the belief that each nation's particular brand of shrewdness will enable it to unload its surplus goods abroad. At the same time restrictive laws govern production in agriculture. Trade agreements also are being entered into in the attempt to counteract seeming overproduction which really amounts to underconsumption due to artificial restrictions stupidly imposed by society itself.
Do these signs of the times indicate that population is outrunning the means of life? Or, do they indicate that nations employing the system called commercial constitutionalismwhich is no different here from that which operates in England, France, Germany, Italy, Japan, or any of the other mercantile nations of the modern worldcannot find markets either at home or abroad because they have selfishly destroyed the larger consumptive ability of the masses among their own populations?
While population may at some remote period outrun sustenance, we dare not shrink from recognition of the fact that economic manipulation is today operating upon the masses in society the same as would a natural diminution in the means of subsistence.
IN FULL AGREEMENT as to the vice of the policy which takes from wealth under the burden of both interest and taxation and gives to wealth at interest is the comment by Prof. F. W. Taussig2 upon inequities in taxation, as follows:
"Take away half the income of the poor man and you exact what is essential for life or meager comfort. Take away half the income of the rich and you take away only the income of luxury and ostentation."
There is no escape from the conclusion that, in the ratio that interest upon commercial, industrial and governmental indebtedness, and also the cost of government, continue to fall in larger measure upon those who live barely within the margin of subsistence, the ability of this class to consume will go lower and lower ; and the pace of production will resultingly slacken with each step in declining consumption. Such a process even enlightened selfishness dare not carry to its logical termination.
THERE ARE THOUSANDS of poor, unsophisticated beings who sincerely believe that the rich are entitled to their enormous wealthbecause they have earned it. Let us analyze the proposition. Many moderate fortunes have come from gains in commerce or industry. Incidental to such operations there have been normal accretions due to profits, which, it will be granted, have been earned.
There have also been immense accretions of wealth due to inflation, such as increased valuation based on excessive profits and still further profits upon these excessive valuations, or to the monopoly of natural resources, or to the enjoyment of other special privileges at the expense of society. Such have been taken; they have not been earned.
Finally, as a part of all these transactions, they have profited from year to year by a system which takes largely from the poor man's wealth both the cost of government and interest upon commercial and industrial credits used; and by which the earnings from these profits and privileges reinvested at interest have immunity from both taxation and interest, and come back still further to prey upon the poor man's wealth, and reduce his consumptive ability accordingly.
A few examples of how "big" surplus wealth comes into existence, and thereafter attaches itself parasit-ically upon society, may not here be amiss.
Mere mention will suffice for incidents fresh in the mind of the reader, such as relate to the tragic Krue-ger and the fugitive Insull, or to revelations in the congressional inquiry into bonanza financiering by Morgan and others. Both propriety and limited space preclude, however, a review of rancid high finance and profiteering in the last decade. Rather, let us go back twenty or thirty years into the virgin fields then golden with gleanings from new-era money-making.
The First National Bank of New York furnishes probably the most striking example of approved mon-eymaking in that period. The story was published in the metropolitan press of that day, but has been embalmed for future generations in a book on investment by H. L. Barber.3 Says the writer:
"Once the First National Bank did business in a quiet way on a capital of $500,000. It then paid 100 per cent a year. Every man who had a dollar in (the shares of) the bank got a dollar every year. . . . Then the capital was increased to $10,000,000 seven years ago. On this amount they paid 20 per cent, or $2,000,-000 in dividends each year, until three years ago; then they paid 32 per cent, and now they pay 40 per cent. . . . In 1902, when the capital was increased from $500,000 to $10,000,000, they gave to every stockholder 1,900 per cent on his investment.... They handed them $10,000,000 in exchange for half a million. And now they pay 40 per cent on that ten million. . . . During the four years between 1908 and 1911, inclusive, the dividends of the bank aggregated 226 per cent."
In the "depression" year of 1914, Mr. Barber recites, "United Cigar Stores of New Jersey made a dividend distribution of 110 per cent. The Farmers and Mechanics Bank of Sharpsburg declared a dividend of 100 per cent, and the stockholders of the Fidelity Trust Company divided a melon of seven million. The First National Bank of Uniontown declared a dividend of 700 per cent, and another ten million melon was cut by the Vacuum Oil Company. The Ford Motor Company made about $25,000,000 profits on a capitalization of $2,000,000; and the mere goodwill of Cluett, Peabody & Co., manufacturing such prosaic articles as shirts and collars, formed a very large part of the $18,000,000 corporation into which it was recently formed. The mere goodwill of Sears, Roebuck & Company was valued at thirty million, or 75 per cent of its common stock issue. The goodwill of the Woolworth Company was valued at fifty million, and of the B. F. Goodrich Company at fifty-seven million."
These are typical of the methods by which large blocks of surplus wealth come into existence. As surplus wealth, such values continue to earn interest payable out of the stream of wealth which supplies the consumptive needs of the masses.
IN THE ENDEAVOR to carry on under continually narrowing markets, the mercantile nations of the world have put forth extreme effort to sell their surplus goods in foreign countries. At the same time their own people, who actually need the goods, have restricted consumption forced upon them from causes identical with those affecting the masses here and everywhere, to wit:
A gradually narrowing stream of wealthfrom which appropriations are continually being made for excessive profits in commerce and industry, for taxes to support government, and for interest upon commercial, industrial and governmental indebtedness flows to and is the sole supply for consumptive needs of 95 per cent of the population.
Coincidently, another stream of wealth, gradually widening, flows to the few who enjoy never-failing profits, evade taxes and receive interest.
It would be strange if this diverted flow of wealth, wherever it might obtain, could result otherwise than in perpetually diminishing markets. The effect of appropriation and diversion upon anything that flows can easily be understood out here in the West, adjacent irrigated areas, where in summer river beds sometimes barely trickle because the flow of water at the point of control has been diverted to other uses.
It is elementary that diminished buying power begets subnormal production; that lower production begets decreased employment, and that the loss of employment reduces people to a lower consumption level. Thus the cycle of malign effects turns in upon society, an insensate process of social destruction.
THIS CHRONIC STATE of social dissolution as evidenced by decreasing employment, diminished buying power, restricted consumption, and subnormal production, is periodically intensified by an acute condition known as a financial crisis. This is caused by whipping the ordinary, every-day race between Wealth at Interest and Wealth under Interest into a wild dash of credit expansion. Of course, the sustaining power of Wealth under Interest being outrun, the result is inevitable.
Inflation thus set up by credit is the most insubstantial thing in the values which compose legal forms of wealth. It is a sort of self-rising element within the system of banking itself, multiplied and perfected in the credit devices supplied by the Federal Reserve in our own country and by central banks generally elsewhere.
Once the structure of deflation which follows the bursting of overexpanded credits hits bottom, the existing non-social monetary systemitself built around "the great principle of currency based on mutual indebtedness"4is revealed stark naked, stripped of even the fiction of soundness.
Phoenix may rise from his ashes; but in crises a monetary system based on promises to pay lies prostrate in the economic debris surrounding its own weakness and collapse.
THAT THERE MAY BE NO LACK of evidence to support the theory that the economic breakdown is largely due to society's subjection to a universal as well as national money-credit monopoly, objectified in the control of government by those who lend it money, the results of a recent research by a committee of three hundred business leaders of the United States5 is cited. The findings have to do with the status of wealth within the nation; and although the figures are estimates, Mr. J. H. Rand Jr., of Remington Rand Inc., chairman of the committee, is said to entertain no doubt as to their reasonable accuracy.
The findings show, to use the terms employed in this book, that wealth at interest now actually exceeds wealth under interest. The committee's exact figures are that in the year 1933 total indebtedness, representing the interest-bearing claims against wealth within the United States, amounts to $141,900,000,000, and that wealth under and supporting this burden amounts to $138,000,000,000. The probably low estimate of the nation's wealth as here given was based upon deflated valuation.
But, most remarkable from an economic standpoint, this committee of business leaders treats the hundred and forty odd billion dollars of indebtedness as though it had no existence as wealth. Certainly the evidences of this vast indebtednesssuch as bonds and the various kinds of notes supported by collateralare values which must be included in any rational computation of the nation's wealth. Unquestionably these bonds and notes have exchangeable valueand the very essence of wealth is its quality of exchangeability.
Therefore, if the nation's wealth under interest and that at interest be considered together, the total would be $279,900,000,000. But this method of arriving at the true value of the nation's wealth would also be erroneous.
Obviously the correct method, economically at least, would be to show within a joint exhibit the combined net worth (wealth) of the owners of the values represented by $138,000,000,000 and that of the owners of the instruments of indebtedness valued at $141,900,000,000. Such net-worth statement would show that the values listed by the committee of business leaders at $138,000,000,000 are subject to indebtedness of $141,900,000,000, and consequently have neither net worth nor exchangeable value, on the basis of the figures themselves.6
Rightly inter-pretedy the real wealth of the nation, under this statement of condition, is contained in the legal forms of wealth re-presented by the $141,900,000,000 of indebtedness.
THE WHOLE QUESTION of the nation's social maladjustment is here shown befogged in the false theory of economic values comprising wealth. Can it not be realized that, in the modern commercial complex, values no longer are fixed upon the plane of earth-tied tangibles?
Wealth now is pyramided in strata. It starts with ownership of minerals beneath the surface of the earth and includes title to the ground upon which we live, move and have our being. It extends upward through numerous legal forms of value.
Stocks of corporations rise above and hold the values of the physical forms upon which they are issued. Likewise, bonds, notes and numerous other instruments of legal wealth rise above corporation stocks and hold, to the amount of their issue while in effect, the value of the physical and corporate forms upon which they are issued.
In the modern sense, wealthcomprising all things which have exchangeable valueis a composite of values, all of which are interchangeable in an economic sense.
But we continue, for purposes of public revenue and private distribution of society's wealth, to treat wealth as an aggregate of things, rather than as an aggregate of values. That is why three hundred of the nation's business leaders look upon $138,000,-000,000 worth of things devitalized by $141,900,-000,000 of indebtedness as the real wealth of the nation. // is like saying that the value of an orange inheres in its rind, notwithstanding the juice has been squeezed from it.
This age-old fallacy is accepted as gospel truth in the world of public affairs. It is perpetuated by the quackish political formula: c/c (commercial constitutionalism). By this formula one classification of wealth is permitted to impose upon another classification of wealth the bulk of the cost of government and, in addition, interest upon the mountainous heap of commercial, industrial and governmental indebtedness held in its own name.
Can the nation hope for a new formula: r/r (righteous rule), through which society may emancipate itself from commercial constitutionalism and its indispensable adjunct, the money-credit monopoly?
THE FINDINGS of the committee of three hundred business leaders rightly reveal two streams of wealth flowing through the nation; but they conceive, evidently, one of these streamsthe River of Indebtednessto exist only in a Pickwickian sense. Wealth at interest must, however, be sustained by wealth under interest; so we have within the nation these two divergent streams: one (wealth under interest) continually narrowing; the other (wealth at interest) continually widening. That these divergent streams of wealth are respectively narrowing and widening is again supported by the findings of this committee of business leaders. In 1922, they state, the wealth of the nation amounted to $320,800,000,000, and the indebtedness against this wealth at that time was only $116,600,000,000. So, upon any basis of figuring due to inflation or deflation, there has been a notable narrowing and widening respectively of these two streams of wealth.
WHAT, THEN, DO THESE FACTS, having their meaning in the structure of wealth in relation to people, really signify?
They mean that by the operation of the existing non-social monetary-credit system, its beneficiaries have, within considerably less than a century of modern finance, been able to impose upon the nation and its people a volume of permanent indebtedness in excess of the value of the collateral upon which it was loaned.
Again, they mean that, since interest upon commercial, industrial and governmental indebtedness and also the cost of government rest largely upon wealth under indebtedness, the consumptive ability of all who live out of this stream of wealth is continually decreasing, and that lower production and employment levels, at least for home consumption, are being reached.
Finally, growing out of these malign processes, we find the social creation Wealth, which is the physical extension of each human life and the substance underlying society itself, precariously aswirl in a vortex of indebtedness set in motion by a band of highbinders as conscienceless as any who ever got their pricethe pioneers among the monopolists of money and credit.
1Mutual Banking, by Wm. B. Greene.
2Princifles of Economics, Vol. 2, by F. W. Taussig (Harvard).
3Making Money Make Money, by H. L. Barber.
4The Meaning of Money, by Hartley Withers.
5Associated Press report.
6The Net-Worth Tax, by the author of this book. This work introduces an equitable system of taxation on the basis of each individual's net worth. Used only as a federal tax, it would prove an indefeasible means to effect the more equal distribution of wealth.
Socialized Money-Chapter IV
Friday, October 14, 2005
Monopoly Gilds Its Security and
Crystallizes Its Power
WHEN Prof. Winthrop More Daniels1 asserts that "the student of constitutional liberty does not need to be told of the dominant role played by financial issues in modern politics," he reservedly calls attention to the coercive power of credit and the demoralizing effects of public indebtedness. A little more boldly he interprets his meaning in the following words:
"The universality of public credit must be reckoned among the noteworthy attributes of the financial constitution of today. . . . When property owners lend to the government they lend to a corporation controlled by themselves. . . . Some substantial security against repudiation is a condition necessarily precedent to the employment of public credit; and this security originated and consists in the political power of the propertied class."
These will be conceded to be the general facts surrounding the economic situation in the United States. The situation is here characterized as economic because it bears directly upon the making and administration of laws unfavorable to the more equal distribution of the nation's wealth, while at the same time facilitating its flow into the pockets of those who control the government as an added "security" for credit extended. This does not imply that all the laws are made and administered for the special benefit of the nation's creditors, but that those powers essential to the preservation of the special privileges they enjoy are safeguarded to the utmost both in law and administration. Among these powers no other is so essential to the perpetuation of this kind of constitutionalism in the United States as that of the existing non-social monetary system.
It is merely consequential that social and economic progress is at the barrier when the master pattern or blueprint of our national development is the handiwork of those whose dominant passion is moneymaking and money-bought power.
Fancy Shylock writing the economic constitution of the nation!
NOR DOES the self-imposed political power of those who supply either public or private creditshared also by those who are its beneficiariesend with the federal government. Coming nearer home, the governments of states, counties, and municipalities also generally are controlled by the same interests, but more particularly by those who supply credit for industry and commerce.
The principle of "security" plus collateral to which Prof. Daniels refers applies all down the line. For instance, do you suppose it would be possible for even a daily newspaper, dependent upon advertising patronage from merchants operating with the aid of credits, long to survive the advocacy of policies unfriendly to the money and credit monopoly, or to the "insiders" therewith allied?
Charles A. Dana,2 one of the world's great editors, well knew the menace of the thing here discussed when, in a review of Proudhon's "Solution of the Social Problem" he said: "Of all monopolies that of credit and the circulating medium is the worst."
THE EXTENT to which indebtedness has demoralized people and devitalized wealth in the United States is sufficiently alarming to arouse the public to crusade the evil. Society will be fortunate if the manpower and the horsepower of the next two or three generations are able to dig it from the indebtedness under which it is buriedprovided, of course, that the present pace of credit running is in the meantime greatly decelerated.
While it is true that many billions of this indebtedness were contracted in the emergency of war, it is also true that the traditional principles governing the laying of war debts, and the raising of revenue as a consequence of war, afflict society in a manner only slightly less devastating than war itself.
There is a principle or inherent thing, whatever it may be called, in our system which gives to surplus wealth at interest a singular freedom from liability for the cost of government, and imposes upon commodities in process of manufacture and consumption and upon other physical wealth the entire burden of government.
In operation this principle takes from society the capacity to produce for consumption (a necessary function) by adding to its burden to produce for surplus (an unnecessary function). Its economic significance lies in the fact that under a discriminatory policy in the treatment of wealthwith half of it unincumbered and drawing interest and the other half incumbered and paying interestsociety is perilously divided against itself.
1The Elements of Public Finance, by Winthrop More Daniels.
2 Mutual Credit, by Wm. B. Greene.
Socialized Money-Chapter III
Thursday, October 13, 2005
Chapter 3: This was a good chapter in that it goes into some detail behind the structure of the Federal Reserve and the implemented monetary system of the time (1933). The reader must remember that the United States was just coming off of the bi-metallic monetary system, or gold/silver standards. "President Roosevelt's routing of the gold standard" had made way for managed bank currency. The next step by the Federal Reserve was to implement, as the author surmises, a principle of exchange. He "presupposes a condition... in which indebtedness in one form will liquidate indebtedness in another. There is anticipated, it would seem, a timeprobably not so far distantwhen society would be required to pay to the monopoly which controls money and credits a percentage upon every dollar of wealth exchanged, in addition to interest upon all the borrowed dollars in business and industry." How prophetic that assumption was!
He continues by explaining that central banks are really nothing more than banker's banks. They are given the color of authority by calling them "Federal," but by no means are they a public bank. By Government handing over to private banks the authority to make and regulate the national monetary system, they are, in fact, subjecting the people to a subtle form of economic slavery. The author claims, "The process of cashing in was well underway... It would be impossible to conceive a more perfect conspiracy to rob and enslave society." (I believe he was referring to government's declaration for the public to hand over it's gold.)
"The Federal Reserve," he explains, "perpetuates itself through the creation and extension of indebtednessin the form of loans, discounts, rediscounts and government bonds, originated in and shuffled back and forth between banks. The Federal Reserve Board even has "qualified power to suspend reserve requirements." He follows with a few quotes from a person qualified to speak on this subject, H. Parker Willis, Secretary of the Federal Reserve Board:
"...the Federal Reserve system is a commercial banking system."
"...the most important alteration... of the law was... designating the new Federal Reserve notes (the ones in your wallet) as obligations of the United States, thus making them, in the technical sense at least, a government currency."
"an association of banks, . . . vested with what would ultimately amount to a monopoly of the power of issuing notes."
H. Parker Willis goes on to explain the process known as fractional-reserve banking, or creating bank credit from debt. He closes by explaining that, "As things developed, the relationship of the government to the banks as depositor has thus practically developed into a system whereby taxes, duties and other public dues are paid in bank credit."
The author closes the chapter by saying, "A nation dominated by such a monetary system enters definitely upon... the dictatorship which those who control the flow of money and credits exercise over not only the nation's commerce and industry, but over government itself, from the humblest city hall to the capitol at Washington, D. C." I would have to agree with that statement.
Nation's New Managed Bank
SEEMINGLY THE IDEA cannot register that the only way to get away from a bad monetary system is to abandon it entirely. The mixing of the good with the bad in a monetary system operates very much the same as Gresham's law applied to good and bad moneythe bad drives out or neutralizes the good.
Neither the switching of standards nor the varying of the metal content of the dollar may be said really to effect a fundamental change in our monetary system. In the broad sense there are only two fundamentally different monetary systems: the social and the nonsocial.
Monetary disturbance within the existing system has, however, been so unprecedented throughout the world, and particularly in the United States since March 1933, that no one can be quite sure as to what combination of monetary devices will be in effect the day after tomorrow. But there is absolute certainty that until a complete change has been effected, the monetary system of the United States will continue to be a hatchery for government bonds and a publicly-supported adjunct to the banking interests of the nation.
President Roosevelt's routing of the gold standard, while ranking as a major economic achievement in itself, must in the broader view be considered as the taking of an empty fort, from which the enemy has merely retreated to a more formidable positionthat of managed bank currency.
So, considering all phases of the monetary and economic situation in the United States, quittance of the gold standard is mainly significant in that it has brought ultimate reform in these particulars measurably nearer.
It is gratifying to note, nevertheless, that what has been going on in Washington has been accomplished in the spirit of a sensible parent taking a dangerous plaything away from his little folks.
Coincidently, moreover, there have come down from the walls in the national hall of fame the enlarged and tinted pictures of the "sound-money" saints, from the Roscoe Conklings of the 1860s to the Carter Glasses of the 1930s.
A visitation, too, of which we had grown tolerantly accustomed and in whose periodic coming we were never disappointedthe classic gold-standard editorialis missing from the press.
Probably the bulkiest monument and certainly the saddest testimonial to the nation's enthrallment to economic benightedness would be found in a massed edition of these editorials.
THE NEXT PHASE, or more correctly the completion of the present phase, of planned development in nonsocial monetary systems, both at home and abroad, will radiate from central banking. The part which our own centralized system, the Federal Reserve, will have in this development should, therefore, be more generally understood.
The banking principle of exchange, typical of privately-conducted central banking, presupposes a condition, if it be sufficiently widespread, in which indebtedness in one form will liquidate indebtedness in another. There is anticipated, it would seem, a timeprobably not so far distant-when society would be required to pay to the monopoly which controls money and credits a percentage upon every dollar of wealth exchanged, in addition to interest upon all the borrowed dollars used in business and industry.
With central banking established around the world, international finance would become merely a matter of bookkeeping between the various central banks, very much as banking transactions generally, including those of the federal government, are now details of bookkeeping between banks.
THERE IS NO DISGUISING the fact that the central banks of the various nations are essentially bankers' banks. True, they take on a certain governmental character, much as a chameleon takes on the color of the object upon which it rests. But inherently the central banks are privately owned and managedmanaged in the interest of the highly specialized and scientific art of moneymaking.
Therefore, when a nation turns its monetary system over to a central bank, it is placing in private hands the nation's most precious economic possession. Likewise, when central banks take over the monetary systems of the various nations, the people of the world thereby become subjected to the most subtle form of economic slavery.
EVERY STUDENT OF AFFAIRS knows from experience gained during the last half dozen years that the gold standard had a strangle hold upon the people of the United States. And while the pressure of that strangle hold has been relieved somewhat, it still is upon the necks of the people in the form of bank currency controlled by central banking.
If the gold standard had been allowed to operate to the extent of its possibilities, the wealth of the United States ultimately would have been liquidated in the interest of the beneficiaries of the system. The theory of "conversion" applicable to the paper satellites of gold would sooner or later have applied to all other forms of wealth.
It is no figure of speech to say that the wealth of the United States, from Bangor to Seattle and from Fargo to New Orleans, was goldplated and earmarked for delivery. Every character of federal, state, municipal or other public bond, and every private corporation bond, and every instrument identified with the vast credit structure of the countryall were payable in "gold of the present weight and fineness." One hundred and forty odd billion dollars of indebtedness payable in goldwith comparatively a handful of the precious metal.
The process of cashing in was well under way. Just two moves were in the play: First, concentrate wealth second, convert it into gold or tax-exempt securities payable in gold. It would be impossible to conceive a more perfect conspiracy to rob and enslave society.
The fact that three-fourths of the people the country over live from hand to mouth, and consequently are unable to accumulate wealth above the margin of subsistence, and that habitual indebtedness has become a national malady, indicates whom the gold standard was designed especially to serve. Unquestionably, it served peculiarly those who had surplus to convert into gold, and indebtedness liens upon a large part of the nation's wealth removable only with gold. Bryan spoke truth eloquently when he said men were being crucified upon a cross of gold.
The question was not alone whether it was advisable to abandon the gold standard. Rather, it was whether it was possible to do so.
Having wholly and unalterably committed ourselves to gold, we were in the situation of one who has grabbed an overpowering voltage of electricity and can neither let go nor survive the consequences of holding on.
looking the present monetary and economic setup squarely in the face, reason for felicitation on the part of the people of the United States is not apparent. Goldstandardism has merely been succeeded by an equally rapacious monetary monopolythe bank currency system, typical of central banking organizations throughout the world, but perfected in the superbanking system of the United States known as the Federal Reserve.
As is well known, the bank currency system was grafted upon and has become a luxuriant outgrowth of the gold standard. Now it is the fruitful part of that monetary tree. As a consequence, we find the government in the position of providing a banking system to serve the bankers rather than a monetary system to serve the people.
The nation's gold which once actually circulated as money is no longer even in reserve. It has, to all intents and purposes, apparently, been demonetized, and in its place we have a "reserve" which perpetuates itself through the creation and extension of indebtednessin the form of loans, discounts, rediscounts and government bonds, originated in and shuffled back and forth between banks. The Federal Reserve Board even has "qualified power to suspend reserve requirements."1
it was stated earlier in this chapter that the monetary system of the nation is being turned over to the bankers. It would be well, therefore, to establish the facts before making deductions as to the monopolistic nature of the revamped monetary establishment.
H. Parker Willis, professor of banking at Columbia University, formerly secretary of the Federal Reserve Board, is undoubtedly qualified to speak of the inherent nature of the organization with which he was so intimately associated. His exact words are that "the Federal Reserve system is essentially intended as a commercial banking system."1
In the establishment of the system it was also the intention to give effect to the so-called "elastic banknote issue of other countries."1 While alterations were to some extent introduced into the act during its consideration by Congress, "it may broadly be said there was no change in the objects ultimately aimed at."1
"Probably the most important alteration in the terms of the law," further comments Mr. Willis, "was that which designated the new Federal Reserve notes as obligations of the United States, thus making them, in the technical sense at least, a government currency."1
It should be clear from the foregoing that the Federal Reserve system is, as Mr. Willis in another paragraph styles it, "an association of banks,... vested with what would ultimately amount to a monopoly of the power of issuing notes,"1meaning, of course, that ultimately the national banks will surrender their note-issuing power.
The Federal Reserve Board, appointed by the President of the United States, with the advice and consent of the Senate, gives the system its governmental color. The board consists of seven members, including the Secretary of the Treasury and the Comptroller of the Currency. Two of the appointive members of the board "must be of tested banking experience, one of whom shall be designated governor and the other vice-governor."1
The board of directors of each of the twelve Federal Reserve banks consists of nine members. Three of these directors are named by the Federal Reserve Board as representatives of the government. The banks name the other sixthree to represent the banks and three "who are presumed to represent in a general way the industrial, commercial, and agricultural interests of the district in which the bank is situated."1
"An incidental consideration" in connection with the administrative duties of the Federal Reserve Board "is necessarily that of the earnings of Federal Reserve banks, and the degree in which it is necessary or desirable to enlarge those earnings through the taking on of more business." 1
The fact that the Secretary of the Treasury presides over the board "enables him to communicate to it necessary information with reference to the policies of the department on financial and banking questions, and to receive from it advice and information concerning the work of the Reserve system."1
Furthermore, according to Mr. Willis, the membership of the Secretary of the Treasury in the Federal Reserve Board will be of increasing significance. It is anticipated there will be "a constant working participation on the part of the Secretary of the Treasury in the affairs of the board, and, conversely, a participation on the part of the board, as a conservator of the banking resources of the country, in the operation of the Treasury Department."1
again let Mr. Willis2 testify: "In those countries where central banking exists, or where, as in the Federal Reserve system, there is a cooperative union of banks whose purpose is primarily that of mutual accommodation, . . . banks have the definite duty of relieving other banks through rediscounting."
From another authority, George William Dowrie,3 comes the statement that "in 1920, the peak year of credit expansion, collateral loans to members amounted to over 55 billions, out of the total loan and discount volume of 85 billions. Of the total of more than 55 billions, all but $150,000,000 was secured by war paper (bonds)."
The significance of these facts and figures appears when considered in conjunction with another set of facts and figures supplied by Mr. Willis,2 as follows:
"... By borrowing from the Federal Reserve bank and taking credit upon the books of that institution, the member's reserve is increased and its power to extend accommodation is thereby correspondingly extended to a maximum amount equal, in the case of a country bank, to about fourteen times the amount it borrows from the Federal Reserve bank, and in the case of a Reserve city bank, or a central Reserve city bank, to about ten times and eight times respectively."
The opinion of Hartley Withers,4 English authority, is further enlightening:
"On paper the new system [Federal Reserve] seems to be as near perfection as can be expected from any human effort, if perfection in a banking system means infinite powers of credit expansion."
In point, again, is another statement and explanation by Mr. Willis,1 then secretary of the Federal Reserve Board: "The essential and primary purpose of the system is that of performing what is known as the operation of rediscount. By discount is meant the transaction by which a bank accepts an obligation from a customer running for a specified period, and advances to the customer the amount of the obligation, minus the interest for the period... . When a bank possessed of such notes, and itself desiring funds, presents these notes to another bank in order to get an advance, the operation is called a rediscount."
Mr. Willis1 in another instance epitomizes the Federal Reserve as "a joint mechanism for the extension of credit to banks."
in germ the Federal Reserve was a banking idea. More than a generation ago a so-called currency commission, dominated by bankers, met in Indianapolis, Ind., and proposed a currency based upon commercial paper. Soon afterward a bill of identical import was introduced in congress.
One of the main objects of the legislation in the establishment of the Federal Reserve, but which was not set forth either in big type or colored ink, was "the management and commercial use of the funds of the government which were then isolated in the treasury and subtreasuries in large amounts."2 This is confirmed in another statement by Mr. Willis,1 in his earlier book, in which he said: "The fact remains that the Federal Reserve Act has provided ... a means of keeping the funds of the government available for banking uses."
The Federal Reserve system having become effective, the Reserve banks thereupon "relieved" the treasury, as follows: From flotation of loans; from collection, safekeeping and disbursement of public moneys; and from supplying and replacement of bills and coin in general circulation.
"As things have developed," Mr. Willis2 further explains, "the relation of the government to the banks as depositor has thus practically developed into a system whereby taxes, duties and other public dues are paid in bank credit."
The foregoing facts and figures regarding the Federal Reserve system are disquieting, to say the least. They show that
1. The Federal Reserve is essentially a bankers' organization, conducted in the interest of its members, for profit.
2. As such bankers' organization it now enjoys, along with the national banking system (whose circulation is in process of retirement), a monopoly of the supply of money, linked inextricably with the mastership of credits, in the United States.
3. By reason of this monopoly of supply, based upon its own credit (commercial paper) and the credit it provides for the government (bonds), there is established a circle of exchange with capacity utterly to destroy economic liberty and to impose financial servitude within the sphere of its operation.
A nation dominated by such a monetary system enters definitely upon what Winthrop More Daniels,5 formerly professor of political economy at Princeton University, defines as commercial constitutionalism, or the dictatorship which those who control the flow of money and credits exercise over not only the nation's commerce and industry, but over government itself, from the humblest city hall to the capitol at Washington, D. C.
1The Federal Reserve, by Henry Parker Willis, Secretary of the Federal Reserve Board.
2Banking and Business, by H. Parker Willis and Geo. W. Edwards.
3American Monetary and Banking Policies, by George William Dowrie (Stanford).
4The Meaning of Money, by Hartley Withers.
5'The Elements of Public Finance, by Winthrop More Daniels (Princeton).
noteItalic appearing in the quoted text supplied by this writer.