 More texts on monetary reform
MargritKennedy: Interest and Inflation Free Money (Published by Seva International; ISBN 0-9643025-0-0;Contents AppendicesAnyway, B costs are including the interests. What other costs increased more than from 1 to 259,5 between 1946 and 1990 in USA ? Written by John H. Hotson Interests increased from 1 to 259,5 between 1946 and 1990 in USA ? (John H. Hotson was professor emeritus of economics University of Waterloo and executive director of the Committee on Monetary and Economic Reform (COMER), a Canadian based network of economists working for economic and monetary reform. This article is based on a series he published in the October 1994, November 1994, and January 1995 issues of Economic Reform, the COMER newsletter, Comer Publications, 3284 Yonge St., Suite 500, Toronto, Ontario, M4N 3M7, fax (416) 486-4674. Understanding MoneyPosted on June 6, 2011 by The Prodigal Son  An understanding of the true nature of money is essential for those seeking economic reforms toward the creation of sustainable societies. People today have more erroneous ideas about money than Victorians had about sex, so please read the following with care. Let’s begin with the distinction between “legal tender” money which only the government or its agency, the Bank of Canada in the case of Canada, can create, and the “money” created by private banks-and increasingly by “near banks”. If you happen to have a Bank of Canada note, on it you will read the words “This note is legal tender.” These notes, and checks drawn on the Bank of Canada, are the only legal money in Canada. What that means is that if you owe someone $20 and you give him a $20 bill he is paid and if he refuses payment in this form you are absolved of the debt. By contrast, he does not have to accept your check drawn on a private bank, or even a certified check of a private bank. Money issued by the Bank of Canada is sometimes called “Right of Purchase” money to distinguish it from “Promise to Pay” money created by private banks. While private banks are in effect creating money out of nothing, they are (ostensibly) providing a (seemingly) important service as their “promise to pay money” is for many purposes safer and more convenient to use and store than actual cash. Furthermore, it costs the banks billions of dollars to maintain the payments system that clears your check back to your account and to keep the necessary records. All those nice, or not so nice, people who work in those banks, deciding who gets a loan and what happens if they can’t pay have to be paid their salaries. Banks also have to pay phone bills, electricity, heat and so on. What they create is intangible, but at the same time very real. Essentially, the bank is substituting its promise to pay-which is accepted as money-for your promise to pay, which is not. Today only about 4 percent of the money in circulation in Canada is Bank of Canada legal tender. In other words, 96 percent of our money is created by private banks (the Royal Bank and the Bank of Montreal are the most prevalent in this area). In 1945 the Bank of Canada accounted for 27 percent of our money. At that time the bank rate of interest was only 1.5 percent and the Canadian economy boomed. Some 96 percent of the “money” we are now using is not Bank of Canada “legal tender,” but rather the promise of private banks to pay the bearer Bank of Canada legal tender on demand. This promise is what a private bank provides for you when you take out a loan with the promise to repay it with interest. The bank knows that mostly you don’t want legal tender. What you want is a checking account or a bank issued check for the amount borrowed so that you can send the bank’s promise-to-pay to folks you owe money to-folks who also don’t want legal tender, but do want to deposit your check in their own bank account. The money supply of Canada increases at the moment a bank issues you a loan. As you repay your loan the money supply shrinks. So money is being created and destroyed every day. Banking came into existence as a fraud. The fraud was legalized and we’ve been living with the consequences, both good and bad, ever since. Even so it is also a great invention-right up there with fire, the wheel, and the steam engine. In the 16th century as the gold and silver the Spanish had stolen from the American Indians poured into Europe, coins grew larger, more plentiful and heavy. Merchants needed a safe place to keep them when they weren’t needed. The goldsmiths had large safes and fierce dogs and it became customary to leave coins on “safe deposit” with them. Next people saw that a “gold certificate” or warehouse receipt signed by the goldsmith was more convenient to circulate than those heavy coins made of soft metals that quickly wore out if they passed hand to hand. So the smiths printed up receipts in convenient denominations promising payment in gold to whomever presented the receipt. Some people took to writing notes to the smith ordering him to transfer the ownership of some of their coins to someone else. Thus the personal check was born. Then one day one of the smiths had a brilliant, and wholly dishonest, idea. He noticed that people so much preferred his paper money to its “gold backing” that the gold in his vault hardly circulated-some of it hadn’t moved in years. So he thought, “I could print up some extra gold certificates and lend them out to gain the interest.” The idea was irresistible, and thus banking was born! Just 300 years ago, in 1694, William Patterson talked King William III into chartering a private bank with the official sounding title of “The Bank of England.” The King had another war to fight with France’s King Louis XIV and not much money to pay for it. Being a Dutchman, he was unpopular with the British Parliament and it balked at voting the needed taxes. The royal credit was zilch because of his predecessors’ extravagance. What to do? He jumped at Patterson’s promise to lend him lots of “Bank of England Notes”-which had little or no gold “backing”-at a reasonable sounding 3 percent interest. Thus national debt was born. King William seems never to have asked His Royal Self the obvious question, “Why the hell should I pay William Patterson interest to print money for me? Why don’t I get a printing press and print some money myself?” Nor did he notice that his humble subjects in the Massachusetts Bay Colony, in what would one day become the United States, had already come to just this solution to solve a similar problem. In 1690, the Massachusetts Bay Colony decided to do its bit in King William’s War by invading Canada (New France). The soldiers were told, “We can’t pay you, but the French have lots of silver. So beat them out of it and we will pay you with the spoils.” But the French won and the soldiers came back to Boston sore, mean and unpaid. Necessity being the mother of invention, some bright Yankees (see HERE) thought of printing up government “promissory notes,” declaring them “legal tender” and using them to pay the soldiers. That worked so well that the other colonies copied the idea. From that day until the American Revolution (1775-1782) there were no banks in the 13 British North American colonies.  By the time of the Revolution, Pennsylvania was the richest place on earth. Benjamin Franklin liked to boast that part of the credit was due to the government money he had printed. As he pointed out, the government could spend the money into circulation for a new bridge or school, then tax the cost back over the useful life of the project. It could also lend the money to businessmen at 5 percent interest instead of the 10 percent the British banks charged. Or it could transfer the money into circulation to take care of widows, orphans and other unfortunates. Pennsylvania made so much money out of creating money-and selling off lands stolen from the Indians-that it hardly had to levy any taxes. When word of this reached Great Britain, the Bank of England decided to destroy the competition of the colonial money. It got Parliament to forbid the colonies to produce any more of the stuff and the fat was on the fire. The Continental Congress met and defied Parliament and the King by issuing its own currency-the Continental. As Franklin saw it, the attempt of Britain to restrict the colonies from issuing paper money was one of the main causes of the Revolution.
- Benjamin Franklin The Continentals paid for most of the cost of the revolution. Since they had to be over-issued, prices rose greatly. Much of the inflation, however, was caused by massive British counterfeiting of the Continentals. “You revolting Yankees like paper money? Here! Have lots of it!” So Americans still have a saying. “Not worth a Continental.” After the war banking came to America. Some historians have much criticized this method of financing the American Revolution and held up British practice as a model of “sound finance.” However, as William Hixson shows in his book, Triumph of the Bankers, those historians have it backwards. According to Hixson, the total cost of the war to the Americans was about $250 million and much of this was financed by the “Continentals” and other paper monies. An additional war debt of $56.7 million accumulated some $70 million in interest before it was all paid off in 1836. The direct war costs to the British government came to about $500 million. However, the British financed their side of the war almost entirely with borrowed money. Since they have never since reduced their national debt below $500 million, they still owe this money! Assuming a modest average interest rate of 4 percent, the British taxpayer has by this time paid the British bondholder over $4 billion in interest on the initial $500 million loan-and is still paying! Sound finance?  What a pity that King William did not have a Benjamin Franklin to advise him! What a pity that the wisdom of Franklin was lost and Alexander Hamilton was able subsequently to charter the Bank of The United States modeled directly on the Bank of England! What a pity that many historians, like many non-historians, so badly misunderstand money and banking! The financial system the world has evolved on the Bank of England model is not sustainable. It creates nearly all money as debt. Such money only exists as long as someone is willing and able to pay interest on it. It disappears, wholly or partially, in recurring financial crises. Such a system requires that new debt must be created faster than principal and interest payments fall due on old debt. A sustainable financial system would enable the real economy to be maintained decade after decade and century after century at its full employment potential without recurring inflation and recession. By this standard, a financial system that creates money only through the creation of debt is inherently unsustainable. When a bank makes a loan, the principal amount of the loan is added to the borrower’s bank balance. The borrower, however, has promised to repay the loan plus interest even though the loan has created only the amount of money required to repay the principal-but not the amount of the interest. Therefore unless indebtedness continually grows it is impossible for all loans to be repaid as they come due. Furthermore, during the life of a loan some of the money will be saved and re-lent by individual bond purchasers, by savings banks, insurance companies etc. These loans do not create new money, but they do create debt. While we use only one mechanism-bank loans-to create money, we use several mechanisms to create debt, thus making it inevitable that debt will grow faster than the money with which to pay it. Recurring cycles of inflation, recession, and depression are a nearly inevitable consequence. If, in the attempt to arrest the price inflation resulting from an excessive rate of debt formation, the monetary authorities raise the rate of interest, the result is likely to be a financial panic. This in turn may result in a sharp cutback in borrowing. Monetary authorities respond to bail out the system by increasing bank reserves. Governments may also respond by increasing the public debt-risking both inflation and growing government deficits. Governments got into this mess by violating four common sense rules regarding their fiscal and monetary policies. These rules are: 1. No sovereign government should ever, under any circumstances, give over democratic control of its money supply to bankers. 2. No sovereign government should ever, under any circumstances, borrow any money from any private bank. 3. No national, provincial, or local government should borrow foreign money to increase purchases abroad when there is excessive domestic unemployment. 4. Governments, like businesses, should distinguish between “capital” and “current” expenditures, and when it is prudent to do so, finance capital improvements with money the government has created for itself. A few words about the first three of these rules, as the fourth rule has been discussed extensively elsewhere. 1. There is persistent pressure from central bankers and academic economists to free central banks from the obligation to consider the effects of their actions upon employment and output levels so that they can concentrate on price stability. This is a very bad idea indeed. Dominated by bankers and economists, central banks are entirely too prone to give exclusive attention to creditor interests to the exclusion of worker interests. Amending central bank charters to give them independence from democratic oversight, or to set up “price stability” as their only goal would complete their subjection to banker interests. CANADA’S OWN WILLIAM LYON MACKENZIE KING (PRIME MINISTER RESPONSIBLE FOR NATIONALIZING THE BANK OF CANADA) SAID IT ALL:
2. Anyone who understands that banks create the money they lend can see that it makes no sense for a sovereign government, which can create money at near zero cost, to borrow money at high cost from a private bank. The fact that most governments do borrow from private banks is one of the greatest errors of our times. If a government needs money created to pay for public spending it should create the money itself through its own bank; or spend the money debt and interest free as the United States did during the Revolution and again during the Civil War. If a government does not wish to “monetize” its deficits during periods of unusual need such as wartime, it should either make up the deficit with higher taxes or borrow only from the non-bank public-which cannot create the money it lends to the government. 3. One of the most mistaken ideas, with which Canadians especially are cursed, is the idea that a country should maintain its interest rates higher than those of its main trading partners “to attract foreign investment.” To begin with, high interest rates inhibit real investment spending on new buildings, machinery and equipment by diverting funds to finance government deficits. Furthermore, the foreign funds attracted to Canada by high interest rates cannot be spent on Canadian employees and products. They are only useful for importing foreign goods and making payments on foreign debts. Moreover, these funds bid up the value of the Canadian dollar in foreign exchange markets, giving foreign goods a domestic price advantage over similar goods produced in Canada, while making it harder for Canada to export. Thus the inflow of foreign funds actually contributes to a “current account deficit” and depresses the Canadian economy. Those who argue that Canada must borrow on “capital account” because she has a “current account deficit” have cause and effect totally reversed. Canada has a current account deficit becauseshe is borrowing on capital account. What she needs to do is to stop borrowing, lowerintere WHEN THE BANK OF CANADA ENCOURAGES THE CANADIAN GOVERNMENT, PROVINCES, AND MUNICIPALITIES TO BORROW IN NEW YORK AND TOKYO IT IS A BETRAYAL OF CANADA. WHERE SHOULD THEY BORROW WHEN NEW MONEY IS NEEDED FOR GOVERNMENT SPENDING?THEY SHOULD BORROW AT THE GOVERNMENT OWNED BANK OF CANADA, PAYING NEAR ZERO INTEREST RATES-JUST SUFFICIENT TO COVER THE BANK’S RUNNING EXPENSES. Written by John H. Hotson (John H. Hotson was professor emeritus of economics University of Waterloo and executive director of the Committee on Monetary and Economic Reform (COMER), a Canadian based network of economists working for economic and monetary reform. This article is based on a series he published in the October 1994, November 1994, and January 1995 issues of Economic Reform, the COMER newsletter, Comer Publications, 3284 Yonge St., Suite 500, Toronto, Ontario, M4N 3M7, fax (416) 486-4674. He gave the PCD Forum permission to use this material only five days before his untimely death on January 21, 1996 following heart surgery. People-Centered Development Forum papers may be reprinted, and distributed freely with appropriate credits without prior permission. Because of the technical progress, Julian Simon is thinking that costs were decreasing. from Alain Pilote: quote: Here is what Douglas had to say about the chronic shortage of purchasing power: "We are often told that it is obviously absurd to say that the financial system does not distribute sufficient purchasing power to buy the goods that are for sale. We never said it! What we do say is that, under the present monetary system, in order to have sufficient purchasing power to distribute goods for consumption, it is necessary to make a disproportionate amount of capital goods and goods for export. (...)" "That is, broadly speaking, the situation. In this country, and in every modern country, in order to make the present monetary system work at all, you have got to make a whole lot of things that are not immediately bought in order to distribute what is already available."14 "(...) it must be borne in mind that the existing economic system distributes goods and services through the same agency which induces goods and services, i.e., payment for work in progress. In others words, if production stops, distribution stops, and, as a consequence, a clear incentive exists to produce useless or superfluous articles in order that useful commodities already existing may be distributed."15 What has kept the system going Without another source of income (the dividend), there should be, theoretically, a growing mountain of unsold goods. But if goods are sold all the same, it is because, instead, we have a growing mountain of debt! Since people do not have enough money, retailers must encourage credit buying in order to sell their goods: buy now, pay later (or should we say more precisely, pay forever...) But this is not sufficient to fill the gap in the purchasing power. unquote. VIX PERVENIT (On Usury and Other Dishonest Profit | ||
| Pope Benedict XIV | ||
| Encyclical of Pope Benedict XIV promulgated on 1 November 1745.To the Venerable Brothers, Patriarchs, Archbishops, Bishops and Ordinary Clergy of Italy. Venerable Brothers, Greetings and Apostolic Benediction. Hardly had the new controversy (namely, whether certain contracts should be held valid) come to our attention, when several opinions began spreading in Italy that hardly seemed to agree with sound doctrine; We decided that We must remedy this. If We did not do so immediately, such an evil might acquire new force by delay and silence. If we neglected our duty, it might even spread further, shaking those cities of Italy so far not affected. Therefore We decided to consult with a number of the Cardinals of the Holy Roman Church, who are renowned for their knowledge and competence in theology and canon law. We also called upon many from the regular clergy who were outstanding in both the faculty of theology and that of canon law. We chose some monks, some mendicants, and finally some from the regular clergy. As presiding officer, We appointed one with degrees in both canon and civil law, who had lengthy court experience. We chose the past July 4 for the meeting at which We explained the nature of the whole business. We learned that all had known and considered it already. 2. We then ordered them to consider carefully all aspects of the matter, meanwhile searching for a solution; after this consideration, they were to write out their conclusions. We did not ask them to pass judgment on the contract which gave rise to the controversy since the many documents they would need were not available. Rather We asked that they establish a fixed teaching on usury, since the opinions recently spread abroad seemed to contradict the Church's doctrine. All complied with these orders. They gave their opinions publicly in two convocations, the first of which was held in our presence last July 18, the other last August 1; then they submitted their opinions in writing to the secretary of the convocation. 3. Indeed they proved to be of one mind in their opinions. I. The nature of the sin called usury has its proper place and origin in a loan contract. This financial contract between consenting parties demands, by its very nature, that one return to another only as much as he has received. The sin rests on the fact that sometimes the creditor desires more than he has given. Therefore he contends some gain is owed him beyond that which he loaned, but any gain which exceeds the amount he gave is illicit and usurious.4. This is how the Cardinals and theologians and the men most conversant with the canons, whose advice We had asked for in this most serious business, explained their opinions. Also We devoted our private study to this matter before the congregations were convened, while they were in session, and again after they had been held; for We read the opinions of these outstanding men most diligently. Because of this, We approve and confirm whatever is contained in the opinions above, since the professors of Canon Law and Theology, scriptural evidence, the decrees of previous popes, and the authority of Church councils and the Fathers all seem to enjoin it. Besides, We certainly know the authors who hold the opposite opinions and also those who either support and defend those authors or at least who seem to give them consideration. We are also aware that the theologians of regions neighboring those in which the controversy had its origin undertook the defense of the truth with wisdom and seriousness. 5. Therefore We address these encyclical letters to all Italian Archbishops, Bishops, and priests to make all of you aware of these matters. Whenever Synods are held or sermons preached or instructions on sacred doctrine given, the above opinions must be adhered to strictly. Take great care that no one in your dioceses dares to write or preach the contrary; however if any one should refuse to obey, he should be subjected to the penalties imposed by the sacred canons on those who violate Apostolic mandates. 6. Concerning the specific contract which caused these new controversies, We decide nothing for the present; We also shall not decide now about the other contracts in which the theologians and canonists lack agreement. Rekindle your zeal for piety and your conscientiousness so that you may execute what We have given. 7. First of all, show your people with persuasive words that the sin and vice of usury is most emphatically condemned in the Sacred Scriptures; that it assumes various forms and appearances in order that the faithful, restored to liberty and grace by the blood of Christ, may again be driven headlong into ruin. Therefore, if they desire to invest their money, let them exercise diligent care lest they be snatched by cupidity, the source of all evil; to this end, let them be guided by those who excel in doctrine and the glory of virtue. 8. In the second place, some trust in their own strength and knowledge to such an extent that they do not hesitate to give answers to those questions which demand considerable knowledge of sacred theology and of the canons. But it is essential for these people, also, to avoid extremes, which are always evil. For instance, there are some who judge these matters with such severity that they hold any profit derived from money to be illegal and usurious; in contrast to them, there are some so indulgent and so remiss that they hold any gain whatsoever to be free of usury. Let them not adhere too much to their private opinions. Before they give their answer, let them consult a number of eminent writers; then let them accept those views which they understand to be confirmed by knowledge and authority. And if a dispute should arise, when some contract is discussed, let no insults be hurled at those who hold the contrary opinion; nor let it be asserted that it must be severely censured, particularly if it does not lack the support of reason and of men of reputation. Indeed clamorous outcries and accusations break the chain of Christian love and give offense and scandal to the people. 9. In the third place, those who desire to keep themselves free and untouched by the contamination of usury and to give their money to another in such a manner that they may receive only legitimate gain should be admonished to make a contract beforehand. In the contract they should explain the conditions and what gain they expect from their money. This will not only greatly help to avoid concern and anxiety, but will also confirm the contract in the realm of public business. This approach also closes the door on controversies-which have arisen more than once-since it clarifies whether the money, which has been loaned without apparent interest, may actually contain concealed usury. 10. In the fourth place We exhort you not to listen to those who say that today the issue of usury is present in name only, since gain is almost always obtained from money given to another. How false is this opinion and how far removed from the truth! We can easily understand this if we consider that the nature of one contract differs from the nature of another. By the same token, the things which result from these contracts will differ in accordance with the varying nature of the contracts. Truly an obvious difference exists between gain which arises from money legally, and therefore can be upheld in the courts of both civil and canon law, and gain which is illicitly obtained, and must therefore be returned according to the judgments of both courts. Thus, it is clearly invalid to suggest, on the grounds that some gain is usually received from money lent out, that the issue of usury is irrelevant in our times. 11. These are the chief things We wanted to say to you. We hope that you may command your faithful to observe what these letters prescribe; and that you may undertake effective remedies if disturbances should be stirred up among your people because of this new controversy over usury or if the simplicity and purity of doctrine should become corrupted in Italy. Finally, to you and to the flock committed to your care, We impart the Apostolic Benediction. Given in Rome at St. Mary Major, 1 November 1745, the sixth year of Our Pontificate. | ||
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