Why I am not a White Nationalist — Where They Are Wrong Economically

Why I am not a White Nationalist — 

Where They Are Wrong Economically

Thomas Allen

White Nationalists advocate adopting highly invasive, liberty-destroying, and immensely destructive economic and monetary programs. A discussion of some of them follows.

– Managed economy. White Nationalists have a low opinion of the free market, free enterprise economic system; like most people, they confuse it with capitalism. (See “Capitalists and Socialists” by Thomas Allen.) Even those who do not confuse it with capitalism have an especially low opinion of it. Since White Nationalists have more trust and confidence in bureaucrats than they have in the people, even White people, they prefer a governmentally managed economy to a free market, free enterprise economy.

– Communist threat to capitalists. Contrary to what many White Nationalists believe, capitalists do not have to be threatened with communism. Few White Nationalists know that if it were not for capitalists’ succor, communism would have died a stillbirth. (See “Soviet Union” and “China” by Thomas Allen.)

– Welfare. Although White Nationalists oppose Martin Luther King’s social justice (discrimination against Whites and special privileges for Blacks and other nonwhites), they not only want to implement his economic justice but also expand it. Like King, they are proponents of the welfare state. They seem to admire President Franklin Roosevelt’s New Deal and Lyndon Johnson’s Great Society (except the civil rights and immigration parts of it). Their primary objection to the Great Society is the recipients of the benefits. The principal problem that White Nationalists seem to have with King’s economic justice is that he did not go far enough. Like King, they have no qualms about forcibly taking property from producers and giving it to nonproducers.

Most White Nationalists advocate a welfare state for the benefit of the working and middle classes. Contrary to what many of them believe, mostly the working and middle classes will pay for this welfare state. Moreover, the welfare state benefits the oligarchs more than anyone else since it makes the working and middle classes more dependent on the government, which the oligarchs control. When a person is receiving financial benefits from the government, he is less likely to object to governmental actions even if they are detrimental to him because he fears losing his benefits. Some White Nationalists find such control desirable.

– Protectionism. Like many statists, White Nationalists are proponents of protectionism. They want to protect politically favored industries from competition. Thus, they are enamored with government-business partnerships, i.e., corporate welfare; protectionism is just a form of corporate welfare.

Protectionism may give workers in the protected industry higher pay, but it does so at the expense of other workers with higher prices, which lowers their standard of living. Protectionism is of little benefit to construction workers, plumbers, carpenters, electricians, medical faculty workers, teachers, hospitality workers, and most service providers. Often, protectionism adversely affects workers in the protected industries. Owners of the protected industries are the primary beneficiaries. (For more discussion on protectionism, see “Questions for Protectionists,” “Do We Really Need to Return to Hamilton,” and “A Letter: Tariffs” by Thomas Allen.)

Instead of giving politically favored industries special advantages with tariffs and quotas at the expense of consumers, a more prudent approach that would save taxpayers money and encourage manufacturers not to build their plants overseas should be used. This approach ends all subsidies that encourage them to locate their factories overseas. Moreover, the US armed forces would not be used to protect their property in foreign countries. Also, reducing regulations on domestic manufacturers would reduce the incentive to move outside the country. One thing that most people forget is that imports are bought with exports. The more a country imports, the more it must export. (Currently, a major export of the United States is the fiat US dollar.)

– Interest. Some White Nationalists want to outlaw interest. When the government suppresses the rate of interest, the country consumes its capital. As a country uses its capital for consumption, its economy deteriorates and poverty grows. Eventually, all its capital is consumed and it returns to the hunter-gatherer stage. (For a more detailed discussion on interest, see “Usury” and “Questions for Anti-Usurers” by Thomas Allen.)

– Fiat money. Like all statists, White Nationalists adore fiat money and abhor commodity money (gold and silver). (For the difference between fiat money and commodity money, see “What Is the Difference Between Commodity and Fiat Money” by Thomas Allen.) Unlike the founding fathers, who trusted the people and left control of the money supply directly in the hands of the people, White Nationalists trust politicians and bureaucrats to regulate and control the money supply. Under the gold coin standard contained in the US Constitution, the people decided how many gold coins were needed by the quantity of gold they brought to the mint for coinage and the quantity of gold coins they melted for nonmonetary uses. (See "Constitutional Money" by Thomas Allen.) The same is true for the silver standard. (For more on the gold standard, see “What is the Gold Standard?” by Thomas Allen.) Moreover, gold extinguishes debt, while fiat money merely discharges debt by passing it to another. (See “Extinguishing Debt” by Thomas Allen.) A major reason that fiat money adherents hate the true gold-coin standard is that the government cannot control the money under the gold-coin standard.

When accompanied by the real bills doctrine, enough money is created to clear the market of newly produced goods. Most of the money created under the real bills doctrine goes initially to the workers and suppliers of material used to manufacture the products. Further, when money created under the real bills doctrine has done its work, it is automatically removed from the market and does not cause inflation. A chief flaw of all fiat monetary systems is a lack of a mechanism to remove excess money from the economy; consequently, fiat monetary systems nearly always have problems with inflation. (For more discussion on the real bills doctrine, see “Real Bills Doctrine” by Thomas Allen.)

– Social credits. Some White Nationalists prefer the social credit fiat monetary system. This system is highly flawed and will fail to do what its supporters claim it will do. It is highly invasive and greatly swells the ranks of governmental bureaucrats. Moreover, it demands enormous amounts of record-keeping, reporting, and data analysis. Nevertheless, most White Nationalists probably know nothing about the social credit system, and many have never heard of it. (For a detailed discussion of the social credit system, see “Analysis of Richard Cook’s Monetary Reforms as Presented in We Hold These Truths” by Thomas Allen.)

Central bank digital currency is ideal for the social credit economy because it makes tracking private spending transparent and, therefore, easier. Further, it reduces the time between collecting and analyzing data and the injection of new currency. Also, it can be used to force people to spend by directly stealing their savings. (Most social credit advocates despise savings.)

Moreover, since the social credit economy requires an administrative state, it is compatible with an administrative state. (An administrative state is a state ruled by experts and technocrats for the benefit of the oligarchs.) Most other fiat monetary reform schemes also require an administrative state. Furthermore, the administrative state eliminates checks and balances by merging the executive, legislative, and judicial functions into one agency, which is what many White Nationalists seem to want.

– Guaranteed income. Like King, White Nationalists promote a guaranteed annual income. A guaranteed annual income is the foundation of the social credit system.

– Economic summary. The difference between the monetary and economic system that White Nationalism promotes and that fascism and socialism promote is difficult to distinguish. (Since the United States have adopted at least 80 percent of the planks in the Communist Manifesto, distinguishing between the US government and a communist government is often difficult. See “Are the United States a Communist Country?” by Thomas Allen.) All want to use the government to force people, ultimately under the penalty of death, to do what most people do not naturally want to do. 

Conclusion

Many White Nationalists seem to overlook the necessity of a firm moral foundation. Christianity used to provide this foundation. However, between World War I and World War II, it began earnestly to be phased out. During the civil rights era, this foundation has been nearly eradicated as Christian denominations replaced the gospel of Jesus with the gospel of King and wokeism. To replace dying Christianity, a few White Nationalists promote paganism, especially Nordic paganism. Yet, paganism offers no firm moral foundation. Various forms of paganism are prominent in America today; the three most popular are the worship of Hermes (sports), Gaia (climate change), and Moloch (abortion). Most White Nationalists seem to want to replace Christianity with the welfare state and the worship of the state.

Only a few White Nationalists seem to realize that the political and economic policies and programs that they advocate lead to despotic tyranny even if the country is entirely White. Although they deplore totalitarianism, their worship of the state and their proposed economic system leads to totalitarianism.

Their love of statism, support of the welfare state, and the proposed monetary and economic system disqualify me from being a White Nationalist. Nevertheless, they are generally correct in their solution to racial problems and many other social issues. However, their ignorance of economics knows no bounds. As abysmal as the current monetary and economic system is in the US, the proposals of White Nationalists are far worse.

Further, the primary difference between the typical White Nationalist and the typical left-winger is racial and social issues. Other than these issues, they mostly agree on other issues at least in principle although they may differ in details.

In summary, the foreign and social policies of White Nationalism are excellent. However, its political and economic policies are horrendous.

Copyright © 2025 by Thomas Coley Allen.

 Part 2

More political articles.

Poor on Fawcett

Poor on Fawcett

Thomas Allen

    In 1877, Henry Varnum Poor (1812-1905) wrote Money and Its Laws: Embracing a History of Monetary Theories, and a History of the Currency of the United States. He was a financial analyst and founder of a company that evolved into Standard & Poor’s. Poor was a proponent of the real bills doctrine and the classical gold-coin standard and, thus, the quality theory of money. He gave little credence to the quantity theory of money — especially if credit money, such as bank notes, were convertible on demand in species. Also, he contended that the value of money depends on and is derived from the value of the material of which it is made and with paper money, its representation of such value.
    In the latter part of his book, he discusses leading monetary theorists from Aristotle (350 B.C.) to David A. Wells (1875). Most of the economists whom he discussed were proponents of the quantity theory of money. We will look at his discussion on Henry Fawcett. My comments are in brackets. Referenced page numbers enclosed in parentheses are to Poor’s book.
    Henry Fawcett (1833-1884) was a British academic, statesman and economist. He was a professor of political science at the University of Cambridge, England. Among his works are Manual of Political Economy (1865), which Poor reviews, Democracy in America (1875), and Free Trade and Protectionism (1878).
    Fawcett writes, that “a bank-note, whether issued by a State establishment or by a private firm, is simply a convenient form for bringing into practical use the credit which may be possessed by the Bank. . . . A banker, therefore, whose credit is good can circulate a great number of his notes in his own neighborhood; his notes being willingly accepted by those to whom he is known. . . . It is manifestly to his advantage to issue notes” (p. 376). Using an example, he illustrates his statement. If £60,000 of bank notes are kept in circulation and if the banker keeps legal-tender reserves equal to £20,000, he has £40,000 at his disposal to invest. In England, the circulation of bank notes is placed under various restrictions. Fawcett investigates the effect on prices that the removal of these restrictions would have. “[T]he effect which would be produced entirely depends upon circumstances” (p. 376). If “there is no change in the population, or in the commercial condition of the country[,] . . . [and if] an increased issue of notes were added to the money circulation of the country, prices would manifestly rise; because there would be now more money in circulation to carry on the same amount of buying and selling which was previously conducted by a smaller amount of money” (p. 376). However, if “the additional notes which are issued simply cause a corresponding amount of bullion to be withdrawn from circulation, it is manifest that no effect is produced on prices” (p. 376). Continuing, Fawcett states:

[G]eneral prices depend upon the quantity of money in circulation compared with the wealth which is bought and sold with money, and also upon the frequency with which this wealth is bought and sold before it is consumed. If more wealth is produced, and an increased quantity of wealth is also bought and sold for money, general prices must decline, unless a large quantity of money is brought into circulation. . . . In fact, if there should be an increased production of wealth, if there should be more buying and selling, or if any other circumstance should occur the effect of which is to require the circulation of a larger amount of money, the value of money must rise; or, in other words, general prices must decline, unless an increased supply of money is forthcoming, so that a larger amount may be brought into circulation (p. 377).

    Next Fawcett discusses bills of exchange. If bills of exchange ceased to be used, then the money supply would have to be increased to replace the bills of exchange. Thus, “bills of exchange, in many classes of transactions, are a convenient and complete substitute for money” (p. 377). “Consequently, if it were not for bills of exchange, one of two things must happen: either the money in circulation must be increased, or the money already in circulation must become more valuable, since a greater amount of money will be required to carry on the trade and commerce of the country” (p. 377). Therefore, whether an increased issue of bills of exchange affects prices cannot be answered affirmatively or negatively. “All that can be said is this: if the buying and selling now carried on by bills of exchange were effected by money, then one of two things must occur, — either more money must be brought into circulation, or general price most decline” (pp. 377-378). Fawcett concludes, “The influence, however, which is exerted upon prices by bills of exchange is not due to any thing peculiar in the nature or form of a bill of exchange: it is not the bill which produces the influence, but the influence is produced by the credit which is given. The bill is not this credit; but is simply a testimony or record of its existence” (p. 378).
    Poor responds that Fawcett errs in his example. All £60,000 of notes would be returned for redemption within 60 to 90 days of the issue for gold coin or the equivalent to coin. Explaining how this would happen, Poor writes:

If the banker discounted bills representing merchandise, his notes would be returned to him by their makers in their payment. If he discounted those that would not be paid, then the notes issued would have to be presently taken in by him, by paying out a corresponding amount of his reserve. The debts created by their issue are to be discharged by their use, or by that of coin. Every note issued, therefore, must have a provision of an equal amount of capital for its discharge, and must be discharged by such provision. Its value depends upon its capacity of being discharged, of being retired from circulation. If it could never be discharged, it could have no value. Such is the law of all convertible currencies. Notes get into circulation upon the credit of the issuer; but it is always upon the assumption that means, their equivalent in value, are first provided for their redemption. Without such confidence, no one would take them. The basis of their circulation is not credit, but capital. Credit is but another word for confidence that such capital exists, and can always be had when wanted (p. 378).

    Poor continues, “The reserve is not held to meet such notes as occasionally return, such as are assumed to be issued in excess; for the reason that all will return within their appointed periods” (p. 379). Thus, “Mr. Fawcett wholly misconceived the law or nature of paper money” (p. 379). [Poor gives an excellent explanation of the operation of the real bills doctrine. If the principle of the real bills doctrine is adhered to, currency cannot be overissued. It ensures that the currency available to clear, buy, new goods entering the markets is sufficient to clear the market with little or no effect on prices. Here is where the advocates of Social Credit err. Under the real bills doctrine, new goods entering the markets produce the money needed to buy them, i.e., the bill of exchange. Without resorting to borrowing, it also provides the money to pay employees and suppliers before the goods are sold. Thus, the real bills doctrine is far superior to the Social Credit scheme, which requires the government to print and give government notes to the people to close the gap between national income and the gross domestic product. The real bills doctrine closes the perceived gap between the national income and gross domestic product more quickly, accurately, and precisely than does the Social Credit scheme. Moreover, unlike the Social Credit scheme, the real bills doctrine closes the gap without resorting to governmental force or making the people dependent on the government or leading them to believe that they are getting something for nothing. Unlike the Social Credit scheme, which requires about two years to deliver the money to the people necessary to close the gap that occurred two years earlier, the real bills doctrine does so within a few months at most. Furthermore, the real bills doctrine is far superior to the Social Credit scheme at getting the right amount of money at the right place and at the right time.]
    Moreover, according to Poor, Fawcett errs with “his statement that notes can be substituted, as currency, for a corresponding amount of gold; the saving to the country being in the amount of the substitution, ‘because notes, which are simply pieces of paper of no intrinsic value, perform with equal efficiency all the purposes which were previously fulfilled by the gold which is now supposed to be dispensed with’” (p. 379). Poor remarks:

Notes which are constantly being retired from circulation cannot take the place of gold which remains, as currency, unchanged and permanently in circulation. Whether convertible or not, they cannot perform, with equal efficiency, all the purposes which are fulfilled by gold. Their value is representative, not intrinsic; that of gold is intrinsic, not representative. Notes become valueless if their constituent become valueless; the value of gold depends upon nothing but itself (p. 379).

[With today’s paper fiat money, notes have replaced gold. That paper notes and their electronic equivalent “cannot perform, with equal efficiency, all the purposes which are fulfilled by gold” explains much of the monetary and economic problems that the world now faces.]
    In comparing gold with bank notes, Poor writes:

Gold can be used in the arts; notes cannot. Gold can discharge indebtedness to foreign countries; notes cannot. Gold can discharge balances arising in the domestic trade of a country; notes cannot. Gold can be held as reserves by the issuers of paper money, and by society, and for all time; notes cannot in either case, as they are necessarily speedily retired by the use, or disappearance from any cause, of their constituent. Notes are accepted within the country in which they are issued, by reason of their representative character. They can perform only one function of gold, — that of effecting domestic exchanges (p. 379).

[Poor fails to mention that gold, which is no one else’s obligation, can extinguish debt; notes cannot. Notes can only discharge debts by transferring them to another. Moreover, gold can transport value over millennia; notes cannot.]
    Also, according to Poor, Fawcett fails to see “that the less cannot include the greater. Paper discharges gold from use in one particular; but can no more be substituted for it in all the functions which the latter has to perform in the economy of society than a mere promise can be substituted for the performance, or sugar for iron” (p. 379). Poor adds, “Great advantages result from the use of paper money, and in ratio to its use, in the same way that great advantages result from the use of ships and railroad” (p. 380). [Trying to substitute completely paper for gold is the major flaw of modern-day economics and today’s monetary system that will cause their downfall. It is also the major and fatal flaw of all schemes of the fiat monetary reformers. Even worse, is the movement to reduce all money to electronic bytes, as they are even more nebulous and abstract than paper notes.]
    Next Poor comments on “Mr. Fawcett’s theory of the effect upon prices of credit in the form of paper money is singularly unphilosophic and inadequate. With him, the whole thing is a mere piece of mechanism: so much money, so much price; and the reverse. His conclusions are based upon assumptions wholly impossible in themselves” (p. 380). Contrary to Fawcett’s belief that doubling production and purchases while the amount of money remains the same will cause price to fall one-half, “production and consumption cannot be doubled, the amount of money remaining the same; both must, as a rule, proceed in ratio to the amount of money in circulation” (p. 380). Moreover, Poor adds, “Paper money is the symbol of merchandise: the one must be in ratio to the other, as the necessary condition of production and consumption” (p. 380).
    About Fawcett’s belief, Poor remarks:

He [Fawcett] might as well have assumed the commerce of a country to be doubled for the reason that the ships employed carried twice as much as they have the ability to carry. His statements and illustrations are nothing less than contradictions in terms. Credit in the form of money has an effect entirely different from that due to its quantity. ‘If,’ says Fawcett, in effect, ‘one would lift two pounds of merchandise with a one pound weight, he must double, or reduce one-half, the length of one arm of the scale.’ The true object of paper money is to raise the two pounds of merchandise without the employment of any weight whatever. So far as this can be done, can the cost of the operations of weighing be saved, and prices reduced in like ratio; and so far can the coin of a country be employed in the discharge of functions peculiar to itself, and which neither symbols nor paper money of any kind can discharge (p. 380).

        According to Poor, depending on Fawcett’s definition of currency, Fawcett may have erred in assuming that an increase in currency is followed by an increase in prices (pp. 380-381). If currency is capital or the representation of capital, then Fawcett is wrong because “prices must be in ratio to the amount of merchandise fitted for consumption, or in ratio to the perfection of the instruments for its distribution” (p. 381). However, if currency “be neither capital nor the representative of capital (merchandise); if it be that kind of currency which can be substituted for gold, like legal tender [notes],” (p. 381) then Fawcett is right because “an increase of such currency always tends to advance prices in being in excess of the means of consumption” (p. 381). [Although general prices fluctuated under the gold standard, they were much more stable than general prices have been under today’s paper fiat monetary system. {An ostensible goal of today’s monetary system used to be to maintain stable prices.} Under the gold standard, general prices trended upward for years and then downward for years; however, over a few decades, they remained fairly stable with perhaps a downward bias because of improved technology. Under today’s fiat paper monetary system, general prices have trended upward as the monetary unit loses purchasing power year after year.]
    About inconvertible currency [e.g., today’s currency], Poor writes, “People accept an inconvertible currency of government notes, as it will discharge their own debts existing at the time, by virtue of its being legal tender, and from a belief that it will speedily be redeemed by an equivalent in some form. If government be competent to issue it, it would have a high value for a time, even if it were believed that it would not be paid” (p. 384). [No one really believes that today’s currency will be paid, i.e., redeemed in gold or in anything else with intrinsic value.]
    According to Fawcett, a country can increase the issue of its currency without disturbing the finances of the country “if its issue were confined within reasonable limits” (p. 384). “If, for example, the United States, in the late civil war, had issued notes only in ratio to their increased necessity for money, the issue could have exerted no influence over prices” (p. 384). About U.S. notes issued during the war, Poor comments, “The demand for money, measured by the price of the notes issued, exceeded sixteen-fold the amount of previous expenditure” (p. 384). Then he asks, “how could the expenditures of a government be increased sixteen-fold, or even eightfold, without any increase of capital, or fund to draw upon, and prices remain at their old figures? It is the same as to say that a demand multiplied by one per cent equals a demand multiplied by eight or sixteen per cent” (p. 384). Continuing, Poor remarks, “If gold could have been supplied wherewith to meet all expenditures growing out of the war, prices would still have increased enormously, from the excess of demand over supply” (p. 384). About the rise of prices during the war, Poor writes, “Prices rose, therefore, in ratio to the demand; in other words, in ratio to the inflation of the currency” (pp. 384-385).
    In his concluding remarks about Fawcett, Poor writes:

If Mr. Fawcett had paused long enough to ask himself weather [sic] or not a sovereign to be received six months hence had the same value to the person who was to receive it as a sovereign in hand; or whether a government note having one year to run, without interest, equalled in value its note having the same time to run, bearing interest, — the answer, properly made, would have unlocked to him all the mysteries of money. Instead of this, he contented himself with a mild restatement of all the old dogmas, every one of which he accepted without reservation, and every one of which is exactly opposed to the principles upon which money is based. It must, however, be said in his favor, that his style is in agreeable contrast to the incoherent extravagance of Macleod and the fantastic nonsense of Bonamy Price (p. 385).

Copyright © 2017 by Thomas Coley Allen.

More money articles.

Analysis of Money No Mystery

Analysis of Money No Mystery

Thomas Allen

    The following is an analysis of Money No Mystery: Mastery by Monopoly by Arnold Leese [1938] (Hollywood, California: Sons of Liberty). Leese  (1878–1956) was a British fascist politician. What is proposed in his book is a fascist monetary system. He discusses some Jewish issues that are not addressed since they are beyond the scope and objective of this article. His words and my paraphrases or summaries of his words, I have italicized. My commentary is in roman letters. I have provided references to pages in his book and have enclosed them in parentheses.
    Mr. Leese comments on gold’s suitability for money. One property that makes gold suitable for money is its rarity (p. 3.). Rarity is an important characteristic for money if it is not too rare. What makes gold the most suitable metal for money is its flow-to-stock ratio. Annually, newly mined gold accounts for about 2 percent of the above ground stock of gold available for monetary use. Thus, newly mined gold does not have much effect on the value of gold.
    Mr. Leese remarks that irredeemable paper money had reached “a stage of general stability” (p. 3.). That may have been true during the late 1930s when he wrote. However, that stability was lost during World War II and the decades that followed.
    Like all fiat money advocates, Mr. Leese believes that governmental fiat gives money its value. Government can give otherwise worthless pieces of paper great value by declaring them legal tender and by that eliminate any need for gold backing (p. 3.). If governmental fiat can give money value, bimetallism would have worked. Gold and silver would have exchanged at the same value at the ratio decreed by the government. (Presumably, they would exchange at the same value even if various countries had radically different ratios.) If government fiat and legal-tender laws gave money its value, a $10 U.S. note would have had the same purchasing power as a $10 gold coin in the United States between 1862 and 1879. Instead U.S. notes traded at a discount to gold until they became redeemable on demand in gold.
    Mr. Leese claims, “No one inside this country [Great Britain] cared a scrap whether the legalised paper money was convertible or not into gold; he didn’t want gold; he wanted goods, and got them, through the scraps of paper legalised by the State as National Money” (p. 3.). That may be true. Only a miser wants money because it is money regardless of form. Most people want money so that they can trade it or invest it now or some time in the future. Convertibility into gold serves as a regulator of credit, paper money, and keeps it within proper bounds. If the government or banks are issuing too much paper money or other types of credit money, people will redeem the excess and halt the expansion. Gold keeps the monetary system honest and thwarts the expansionist programs of statists, which is why fascists and other statists hate it.
    Mr. Leese has a better understanding of the gold standard than most post-World-War-II writers, including proponents of the gold standard. He knew that the British pound was the value of 113 grains of gold (p. 4).
    Like most opponents of the gold standard, Mr. Leese declares, “Few people wanted to do this [exchange bank note for gold], because gold has limited functions in general utility; you can’t eat it, drink it, make clothes of it or even flirt with it; before you can make use of it, you have to exchange it for something you want” (p. 4). Thus, he presents one of the most absurd arguments that opponents of gold give. One can eat and wear gold. However, such an argument against gold is stupid and is intended to deceive. The same thing can be said about paper fiat money and even more so about its electronic equivalent. How does one eat, drink, and wear electrons, which make up the bulk of today’s money, flowing through some unknown computer at some unknown location?
    Mr. Leese makes an error common to most opponents and proponents of the gold standard. He asserts that if all paper money is not fully backed by gold, a true gold standard does not exist (p. 4.). The true gold standard does not require all paper money and other forms of market-generated credit money to be backed by gold. Bank credit money (bank notes and checkbook money) can also be backed by commercial money, real bills of exchange, which are themselves a form of market-generated credit money — the real bills doctrine.
    According to Mr. Leese, the international gold standard leads to people and countries attempting to corner gold to “become masters of the International Industrial situation.” Jews were the primary people who cornered gold. By cornering gold, Jews gain control of fixing the rate of interest (p. 4-5). Where the real bills doctrine operates, many financial transactions are with commercial money — not with gold. The propensity of consumers to buy fixes the discount rate of bills of exchange, which is not really interest — not the hoarders of gold. Hoarders of gold have much less power than their opponents give them. (A more detail discussion on hoarding gold is given in “Is Gold Too Easy to Manipulate?”)  As Jews control most of the paper money issued today through central bank operations, abandoning the gold standard for fiat paper money does not eliminate this issue. It does not assuage Leese’s problem of Jewish control of the monetary system. (Perhaps this is why the Protocols of Zion advocates abandoning the gold standard in favor of fiat paper money [v.i.].)
    Mr. Leese writes, “The Financier can, by using his control of Gold to expand or contract the volume of Money (currency or credit) in circulation, create boom or slump in Britain” (p. 5.). As post World-War-II history shows, the financier can more easily expand and contract the volume of paper money. He can expand the money supply far greater under today’s monetary system than he could under the gold standard. Thus, when the inevitable slump comes, it is more severe or last much longer than it would have under the gold standard.
    Like most opponents of the gold standard, Mr. Leese asserts that gold cannot “supply the industrial need for National Money” (p. 5). As I show in “There Is Enough Gold,” enough gold exists to accommodate world commerce several times over when accompanied by the proper credit system, the real bills doctrine. Enough gold was available in 2004 to accommodate 3.8 times the gross world product of 2007 without fractionalization of gold.
    Mr. Leese discusses Britain’s return to the gold standard following World War I (pp. 6-7).
    Mr. Leese writes, “OUR National Money must be divorced from its association with Gold” (p. 8). This part of his proposal has been achieved. In 1971 when President Nixon ended the gold exchange standard, Bretton Wood system, gold ceased any formal role in the world’s monetary systems.
    Mr. Leese states that countries (Great Britain) should pay for imports with domestic paper money that can only be exchanged for goods and services in the importing country (p. 8). To some degree, bills of exchange serve this purpose. The world is in the process of achieving the intent of his proposal by abandoning the U.S. dollar standard that has been in place since World War II. However, his proposal seems to require country A to buy from country B the value of products that it sells to country B. Such an arrangement would greatly hamper foreign trade.
    Mr. Leese recognizes the need to control the amount of money issued (p. 8). He does not offer any mechanism for doing this other than trusting politicians and bureaucrats. Thus, politicians and bureaucrats would have to act contrary to their nature by not seeking to increase their prestige, power, and wealth.
    Mr. Leese discusses how the practices of lending for interest came to Great Britain and the adverse effects of interest (pp. 9-12). Under fascism, interest on foreign loans belong to the people of the country as a whole and not to the individuals who lend the money abroad (p. 11). By “people as a whole” he probably means the government — at least that is what most statists mean. However, the government is not the people as a whole. It has never been and never will be. It is the small group of people controlling it. If the people as a whole are to receive the interest paid on foreign loans, some mechanism needs to be in place to divide that interest among the individuals of the country without the government getting part of it.
    Mr. Leese opposes the Social Credit scheme (p. 12). I discuss the flaws of Social “Credits in Analysis of Richard Cook’s Monetary Reforms.”
    Mr. Leese presents the monetary reforms of the Imperial Fascist League (pp. 12-15). A “Department of Issue is established to control absolutely the issue of currency and credit” (p. 13). Its objectives are:
    (1) Gradually inflate money and credit until the price level of commodities are raised to the level reached at the end of World War I (p. 13).
    (2) After achieving item 1 and in accordance with item 3, stabilize the purchasing power of money so that it becomes as fixed as the yard (meter), pint (liter), and pound (gram) and no longer varies; expand and contract the money supply to maintain a stable level of a general-price index (p. 13).
    (3) Adjust currency and credit until production is sufficient to satisfy the needs of the country and its exportation overseas (p. 13).
    (4) Retire gradually all external and internal interest-bearing government securities with non-interest bearing currency (pp. 13-14), i.e., with non-interest bearing government notes or central bank notes that function like government notes.
    (5) Adjust gradually “to the new values by limiting currency inflation, in the early stages, to State disbursements” (p. 14), i.e., the government gets the new money first before it loses value.
    (6) Distribute equitably credit inflation to agriculture and industry (p. 14).
    (7) Balance imports and exports by tariffs, embargoes, and trade packs that enforce equality in exchange value (p. 14). The trade issue is discussed above.
    Mr. Leese does not propose governmental ownership of banking. However, banks are stripped of their ability to create money via lending. That is, he advocates 100‒percent reserve banking. The government introduces new money by buying government securities and cancelling them and with low-interest loans. Only the government can lend money for mortgages, which are lent through deposit banks. The government fixes all bank interest rates (pp. 14-15).
    His proposal has so many flaws, one knows hardly where to begin. His system depends on the wisdom and integrity of politicians and bureaucrats. If that were not enough, his proposal also depends on them be omniscient. Governments have attempted items 1, 2, and 3. So far they have all failed.
    Moreover, all price indexes are flawed. They always over count some items and under count others. As people’s tastes constantly change, price indexes need to be revised often to account for changing tastes. Also, changes in technology affect quality and cost as well as offering new items not in the index. These changes need to be considered. An ever-changing price index makes comparing the cost of living over an extended time questionable. Furthermore, governmentally generated price indexes are subjected to political consideration. Politicians like to conceal inflation, so they adjust price indexes to hide the real cost of living.
    Most countries can achieve item 4, if so desired, by having their central banks buy all their securities. To keep such action from resulting in massive inflation,  if not hyperinflation, would require large-scale restraint of the monetary and banking system.
    When governments fix interest rates, they drive high-risk borrowers to the black market (loan sharks) for loans. To propose involving the government in the mortgage and lending markets is fuel for corruption and disaster. Governmental intervention in the mortgage and lending markets was a major contributor to the crash of 2008. When governments become involved in economic activities, politics usually trump economics.
    A great irony of Mr. Leese’s fascist proposal of replacing the gold standard with fiat paper money is that the Jewish Protocols of Zion has the same proposal. The Jewish proposal is set out in Protocol 20:

        The present issue of money in general does not correspond with the requirements per head, and cannot therefore satisfy all the needs of the workers. The issue of money ought to correspond with the growth of population and thereby children also must absolutely be reckoned as consumers of currency from the day of their birth. The revision of issue is a material question for the whole world.
        You are aware that the gold standard has been the ruin of the States which adopted it, for it has not been able to satisfy the demands for money, the more so that we [Jews] have removed gold from circulation as far as possible.
        With us [Jews] the standard that must be introduced is the cost of working-man power, whether it be reckoned in paper or in wood. We shall make the issue of money in accordance with the normal requirements of each subject, adding to the quantity with every birth and subtracting with every death.[1]

The two proposals merely disagree in the criteria to use in deciding how much money the government needs to inject into the economy. Was Mr. Leese an agent of the Jews?
    Mr. Leese’s proposal fails to achieve his purported goal. It does not make the monetary system or economy better — at least not in the long run. However, it greatly increases the power of the government, i.e., those who actually control the government, over the economy and the people. As such control is a goal of fascism, Mr. Leese’s proposal does successfully achieve that fascist goal.

Endnote
1. Protocol of the Learned Elders of Zion, ed. Sergyel Nilus, trans. Victor E. Marsden (1905, 1922), p. 16.

Copyright © 2015 by Thomas Coley Allen.

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Analysis of Richard Cook’s Monetary Reforms Part II

Analysis of Richard Cook’s Monetary Reforms as Presented in We Hold These Truths
Part II

Thomas Allen

This paper is Part II of my analysis of Richard C. Cook’s monetary reforms as presented in his book We Hold These Truths: The Hope of Monetary Reform (Tendril Press, 2008–2009). His words and my paraphrases or summaries of his words, I have italicized. My commentary is in roman letters. I have provided references to pages in his book and have enclosed them in parentheses.

Mr. Cook admits that “a strong, functioning economy is required” for his system to work (p. 37). However, he fails to explain adequately how a strong, functioning economy will continue when people are paid whether they are productive or not.

He is correct in that people need leisure time to pursue spiritual, intellectual, and family activities (p. 37). (As not many people will pursue these activities, especially the first two, is the government going to force its wards to pursue these activities?) They should be relieved of perpetual grueling toil (p. 37). However, his scheme does not achieve these goals in the end. Like all collective schemes, it leads to economic stagnation and decline.

Mr. Cook advocates shifting much of credit creation from banks to the U.S. government. The U.S. government needs to lend more. More governmental lending supports “the concept that credit should really be viewed as a publicly-regulated utility . . . ” (p. 39). First, nowhere does the U.S. Constitution authorize the U.S. government to lend money or credit to anyone. Furthermore, the U.S. government will breed more corruption as it lends more. Loans will be used to pay and play political favorites. Second, if credit is a public utility and should be regulated as one, no one could lend to friends or relatives without the approval of some governmental bureaucrat. (Most likely, such loans below a specific amount would be exempted from case-by-case approval. However, such exemption is itself a bureaucratic approval that can be revoked.)

Mr. Cook supports the American Monetary Institute’s recommendations of a Monetary Control Board in the Department of the Treasury setting and overseeing monetary targets and other proposals of the American Monetary Institute (pp. 39, 55, 65, 109, 159, 262). Since Mr. Cook’s system demands injections of money into the economy to fund most of the government and to fill the “gap,” the Monetary Control Board seems superfluous. Its only purpose seems to be justifying ever-increasing governmental expenditures. As I have discussed in detail the American Monetary Institute’s proposal in “Analysis of the American Monetary Institute’s American Monetary Act,”[1] I will not go into any depth on its highly flawed despotic scheme. However, it is a good match for Mr. Cook’s proposal.

Mr. Cook presents the now-defunct Reconstruction Finance Corporation (RFC) and Home Owners Loan Corporation (HOLC) as examples of public credit. He recommends creating programs like these to lend at below-market interest rates to state and local governments for infrastructure projects (p. 39). Thus, he wants to make the states ever more dependent on and subservient to the U.S. government. A major cause of the political and economic problems in this country has been the subordination of the creators (the states) to the created (the U.S. government). Today, nearly all political power has been usurped and concentrated in Washington. The states can do little more than what the U.S. government allows them to do. Mr. Cook’s scheme completes this consolidation.

He also supports the U.S. government lending at below-market interest rates to banks money for banks to lend at some low rate to consumers, students, and small businesses (p. 40). According to Mr. Cook, when the Federal Reserve, which was created by and exists at the pleasure of the U.S. government, makes low interest rate loans, it distorts the economy, creates inflation, and causes all sorts of havoc. However, when the U.S. government does the same thing through another agency that it has established, it causes none of these problems. At least that is what Mr. Cook would have us to believe. It must be who gets the interest. No, it cannot be that because all the interest earned by the Federal Reserve above its operating costs goes to the U.S. Treasury. What is the difference, Mr. Cook?

Mr. Cook describes the current system with fractional reserve banking—creating money out of nothing (pp. 53ff). He remarks “that because borrowed money pays for labor, commodities, rent, etc., it becomes part of the prices that are eventually charged for goods and services. However, when the money goes back to the bank to cancel a loan, that purchasing power disappears” (p. 54). Labor, rent, etc. may become part of the price, but they do not determine the price. To the contrary, the price that the marginal buyer is willing to pay determines the cost of the product or service inputs. Furthermore, Mr. Cook condemns removing money (purchasing power) from the economy once its work is done. Apparently, once money, purchasing power, enters the economy, it should remain there forever. As noted above, this is highly inflationary.

Mr. Cook seems to believe in a “firm law of prices.” Prices do not move to meet the available purchasing media. Once the seller sets his price, it remains fixed. On the other hand, Mr. Cook seems to agree that prices rise and fall as the purchasing medium is inflated or deflated. Yet for some reason, prices do not want to adjust to meet the income, purchasing power, available for purchases. This lack of adjustment is an essential part of Social Credit. Mr. Cook seems to explain this firm law of prices with cost (p. 61). Because of the costs associated with production, prices cannot decline. What he and most other people fail to realize is that costs do not determine prices. Prices determine costs. The actual selling prices of the final products determine all the costs going into producing these products.

Mr. Cook states “the real purpose of money . . . is to serve as a ticket for the purchase by people of articles they need to survive or otherwise desire to utilize once the demand for survival has been met” (p. 55). No, it is not. The real purpose of money is to serve as a ticket for those who have produced to represent their contribution to what they have produced. Then they can exchange these tickets for things that they need and want.

Mr. Cook is correct when he remarks that the financial system does work “against what should be the real purpose of money” (p. 55). However, the real purpose is not what he claims.

Mr. Cook is hostile toward the notion that money is or should be a commodity. Money should not have value in and of itself. Gold and silver money have no intrinsic value (p. 55). If money has no value in and of itself or is not descended from money that did, how does one know the value of the money?

Whether or not gold and silver have intrinsic value is debatable even in hard money circles. If by intrinsic value, Mr. Cook means that gold and silver have no absolute value in and of themselves, independent of human thought, he is right. Neither gold nor silver nor anything else has such value. When people say that gold and silver have intrinsic value, they usually mean that they have value in and of themselves. That is, they have value in their monetary use because they have value in their nonmonetary use. The reason that federal reserve notes have value is that the dollar used to be a definite weight of gold and that the federal reserve notes were once redeemable in gold on demand. If Mr. Cook’s new notes have value, it will be because they are related to federal reserve notes, which were once related to gold.

Mr. Cook is correct when he states “money is anything that a willing buyer and a willing seller agree to exchange for something else” (p. 55). However, no sane person is going to trade a useful product for a worthless piece of paper or an electric blip. That paper or its electronic equivalent can only have value if it is or once was related to something that had value in and of itself.

Under today’s system, people accept federal reserve notes primarily because of legal tender laws. They have to accept them for payment of debt. Mr. Cook gives no hint that legal tender laws should be repealed. Without them, people would soon refuse to accept his money—except for their National Dividend stipend that cost them nothing to accept other than their independence and freedom. If no one was forced to accept his money, it would lose its value as it has no intrinsic value.

Mr. Cook errs when he writes that “unless there are goods and services available and for sale, gold and silver are totally useless” (p. 56). No, they are not. They are highly useful even if not used as money. Their nonmonetary uses are what gave them value that enabled them to be used for money. Today, neither is used as a medium of exchange, yet both are highly valuable. Mr. Cook could not have written and published his book with the equipment that he used without them.

Mr. Cook recites the old myth that gold and silver have no value because “you can’t eat them, live in them, or wear them” (p. 56). One cannot eat, live in, or wear electronic blips, which will be the form of most, if not all, of Mr. Cook’s credits. One can eat, live in, and wear gold and silver. Both are taken orally to treat certain ailments. A house can be built with gold and silver bricks. It would be expensive and highly energy inefficient, but it can be done. (I forgot. Gold and silver have no value, so any house built with them will literally be cheaper than dirt.) Clothes can be and have been made with them.

If Mr. Cook believes that gold and silver have no value whereas his electronic blips do, he should go to some poverty-stricken country like Haiti and find out which one really has value. He will have no problem spending his gold or silver coin. He will have extreme difficulty finding anyone willing to sell him something for his electronic blip.

Furthermore, if gold has no value, why do governments expend many more resources guarding their hoards of gold than they expend guarding any vault filled with paper currency? If gold and silver have no value, why do people expend their time and resources looking for, mining, and refining gold and silver?

Mr. Cook asks, “So by what right do the bankers bind the economy in such a straightjacket of debt” (p. 56)? They have the right because the U.S. government gave it to them through excessive governmental intervention. (This is the same government that Mr. Cook advocates giving even more power.) It did so through the establishment of the Federal Reserve System, excessive regulation of banking, legal tender laws, and other economic intervention. (Under the gold standard, the government allowed abusive fractional reserve banking by allowing bankers to violate their contract to redeem their notes on demand if enough banks could not do so. It should have imprisoned these bankers for fraud and failure to keep their contracts.) Mr. Cook does not object to excessive governmental intervention in the economy. His objection concerns where and how it is used. Mr. Cook even recognizes that governmentally granted privileges, i.e., licenses and regulatory requirements, e.g., minimum capital requirements, contribute to this problem (pp. 56-57).

Mr. Cook insists that money in and of itself has no value. Credit gives money its value. “Without the credit potential of a producing economy, money has no value” (p. 57). If Mr. Cook is correct, then the ancients bought and sold with valueless money. How absurd! Perhaps the most common monetary standard was the cattle standard. People bought and sold based on the value of cattle. Cattle were their purchasing power. According to Mr. Cook, these cattle had no value because the ancients had not developed an economy based on credit. Again, how absurd. People would not have used cattle in exchanges if they had no value in and of themselves. They certainly did not used cattle because of credit as most never used credit, and many would have considered such a notion ridiculous.

Mr. Cook’s concept of “credit” differs from most. To him, “credit” is the economic potential of the economy (p. 58). Money is the measure of credit (pp.58-59).

Mr. Cook believes that the government should control money. Naively, he believes that those who really control the government will control the money for the benefit of the people as a whole (pp. 59-62). That is, those who really control the government will put aside their selfish desires and act altruistically for the betterment of the people. If they would do this, they would be doing it now. History offers only a few examples of such altruism. On the contrary, those who control the government act to serve their own desires and often to the detriment of the people as a whole. Even if those who control the money under Mr. Cook’s system were purely altruistic with no selfish motivation, they would fail in their job because they are not omniscient. To provide the right amount of money, they have to know everyone’s demand preference for money, which is constantly changing, at every moment in time. No committee or individual can ever achieve this no matter how brilliant they are or how much data they have.

Mr. Cook insists that money, and therefore, credit, should be public property and not private property (p. 59). Thus, any money that a person has in his pocket belongs to the government. Since all credit is public property, i.e., it belongs to and is owned by the government, all National Dividend credit given to a person really belongs to and is owned by the government. Therefore, whatever a person buys with money and credit, which are the property of the government, must belong to the government as its property has been used to get the goods and services. Furthermore, everyone loses ownership, and by that control, of his own credit. As noted above, whenever a person borrows money from a bank, he is lending the bank his credit. Under Mr. Cook’s system, this credit now belongs to the government and not the borrower. And Mr. Cook insists that is not socialism (p. 59)! Under his system, the government surreptitiously ends up owning everything.

The founding fathers did not conceive of money and credit being public property. They were to be private property. The monetary system that they devised ensured that the money, gold and silver coins, would be private property. Then all the credit based on this money would remain private property.

Mr. Cook claims that the productive capacity of the country is credit and that credit should be publicly owned, i.e., governmentally owned, utility (p. 58). Yet he insists that this be not socialism. Under socialism, the government owns the means of production or regulates them so heavily that it is tantamount to ownership. The means of production are part of the productive capacity of the country. If the government owns the credit and if credit is the productive capacity of the country, then the government owns the productive capacity. If it owns the productive capacity, it owns the means of production. Is that not socialism?

Mr. Cook states, “It is essential to realize that the central government of a sovereign nation has the right, the ability, and the responsibility to introduce ALL new credit into existence. This is totally different from having the central bank ‘print money’ . . .” (p. 62). Since the Bank of England became a part of the British government in 1946, Great Britain should be an economic paradise instead of the economic disaster that it is. Since 1946 all the money and credit issued by the British central bank, which is an agency of the British government, have been the property of the British government. The British government has been managing the money and credit of Great Britain. Yet Great Britain is financially and economically worse off than the United States. If Mr. Cook is right, Great Britain should be much better off than the United States. It is much closer to Mr. Cook’s system than the United States. The only thing really lacking in the British system is periodically sending everyone a big check to bridge the national income-GDP gap.

Mr. Cook would counter, “Sovereign creation of credit should not be based on debt. It is and should be based on direct lending or spending of money into circulation by the government itself” (p. 63). Where this has been tried, the results have been disastrous and highly inflationary. Massachusetts did this in the first half of the eighteenth.[2] France did it in the 1790s.[3] Both experiments were failures. Whereas these schemes failed, Mr. Cook believes his will succeed by injecting more money into the economy and giving the government more control of the economy through its absolute monopolistic control of credit.

Mr. Cook claims that “it is the job of government to bring that money to where it is needed” (p. 63). How does the government know where it is needed? It has to be omniscient to know. The founding fathers knew that no government is omniscient, and it certainly should not have the power to attempt to obtain such knowledge. Therefore, they left the allocation of money and credit in the hands of the people—the only place it can be if the people are to be free.

Mr. Cook gives an outline of the principles guiding his system. The Social Credit concept discussed above is a key principle (pp. 63-64). They are a mixture of government-private partnerships. Some things are left to private initiative, and some, to government command. In reality, the government decides. In short, Mr. Cook promotes a form of fascism.

While retaining the welfare portion of the welfare-warfare state, he discards the warfare part (p. 64). Welfare and warfare go together like husband and wife in the Biblical sense: They are one flesh. One cannot for long be separated from the other. The exhilarating rush of power that the welfare state gives those who control the government will force it to lust for total power by adding the warfare state. If Mr. Cook wants to abandon the warfare state, he must also abandon the welfare state. Yet he cannot because his system depends on the welfare state mentality.

Mr. Cook advocates spending “sufficient credit into existence to supply the basic operating expenses of government at all levels without recourse to either taxes or borrowing” (p. 65). Then he provides three examples: colonial paper money, the Continental, and the greenback (p. 65). All three of the examples were highly inflationary and highly destructive to the common man’s wealth. They enriched speculators, whom Mr. Cook disdains, and the politically connected. Mr. Cook’s proposal would have the same results. Only his will be more inflationary and destructive. Like them, his new money has no relationship to new goods being offered for sale. Moreover, unlike them, his system makes no pretense of removing excess money. Apparently, he believes that under his scheme, excess money is impossible. (The U.S. note or greenback did not meet the fate of the colonial money and the Continental because Congress ceased issuing more of them and actually reduced the amount in circulation. Furthermore, it set up a mechanism to redeem them in gold. None of these are part of Mr. Cook’s scheme.) Mr. Cook does allow for the collection of some user fees(p. 65), which does nothing to remove any excess.
Unlike some fiat money reformers, Mr. Cook correctly sees that these three types of money were a form of credit money (p. 65). What he does not acknowledge is that they were interest-free, nonrepayable forced loans (although U.S. notes offered payment to the holder between 1879 and 1933).

Mr. Cook proposes a National Dividend program divided into two parts. “One would be a cash stipend paid to all citizens which would also serve the purpose of eliminating poverty by providing everyone with a basic income guarantee. The remainder of the National Dividend would consist or an overall pricing subsidy, whereby a designated proportion of all purchases, including home building expenses, would be rebated to consumers” (pp. 65-66). Mr. Cook does not explain what will prevent people who are paid whether they work or not from following the historical experience of not working. He also fails to explain why his consumption subsidies, especially when people are paid not to produce, will not lead to shortages. His program increases demand while it decreases supply.

He also sets aside part of the National Dividend to give to all citizens upon reaching the age of 18 to use for higher education, trade school, or business investment (p. 66). Is the government going to force them to undertake one of these endeavors? What happens if a person does not want to undertake one of these activities? If the government does not give him the money, it has withheld part of the National Dividend with presumably disastrous consequences. Will the government allow the students to spend their time at college parties? How will it stop it? It cannot demand the students to return the money because that would remove part of the National Dividend. The only solution is for the government to micromanage student activity at college. Giving people money for business investments presents the same problem. Risk-aversion bureaucrats must micromanage the business investments to prevent them from being spent in undesirable ways from the government’s perspective.

Mr. Cook is correct when he states that his program will not create a Utopia (p. 66). It has to have a highly intrusive government just to collect the data needed to compute the National Dividend accurately. He asserts that his program does not relieve mankind of the need to work, etc. (pp. 66-67). Perhaps, but it certainly reduces their incentive to do so.

Endnotes
1. Thomas Allen, "Analysis of the American Monetary Institute’s American Monetary Act" (Franklinton, N.C.: TC Allen Co., 2009).

2. Thomas Allen, "Massachusetts Notes: The Perfect Money" (Franklinton, N.C.: TC Allen Co., 2009).

3. Thomas Allen, "Assignat: The Nearly Perfect Money" (Franklinton, N.C.: TC Allen Co., 2009).

Copyright © 2010 by Thomas Coley Allen.

Part 1 Part 3

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Analysis of Richard Cook’s Monetary Reforms Part I

Analysis of Richard Cook’s Monetary Reforms as Presented in We Hold These Truths
Part I

Thomas Allen

This paper is Part I of my analysis of Richard C. Cook’s monetary reforms as presented in his book We Hold These Truths: The Hope of Monetary Reform (Tendril Press, 2008–2009). His words and my paraphrases or summaries of his words, I have italicized. My commentary is in roman letters. I have provided references to pages in his book and have enclosed them in parentheses.

Mr. Cook covers many different things in his book. I am limiting my analysis mostly to his monetary reform. As his book contains much repetition, this analysis also contains some repetition. Moreover as various related points of his proposal are scattered throughout his book, this analysis is somewhat scattered.

Mr. Cook is a statist who advocates giving a strong central government absolute control of the country’s money and credit. He seems convinced that America’s financial and economic problems result from too little governmental intervention instead of too much. He also seems to believe that giving those who really control the U.S. government, i.e., the monopolistic cartels, absolute monopolistic control of money and credit will break the tyranny of their monopolistic control (p. xv). Moreover, he is a preacher of envy, who promises the people something for nothing if they would just adopt his scheme.

Mr. Cook believes that the solution to the country’s problems lies in “central control of monetary resources” (p. 9). The financial and economic crisis that the United States face is caused by and is the result of “central control of monetary resources.” Since 1913, the United States have had “central control of monetary resources.”

Mr. Cook contends that the primary problem with the U.S. “financial system is that the creation of new purchasing power through credit—loans, mortgages, credit cards, etc.—is controlled by private financial institutions. The system functions principally for their profit” (p. 13). The implication is that if the government controlled the creation of purchasing power, the country would have no financial or economic problems of concern. If this were true, then the Soviet Union would have been an economic paradise compared to the United States instead of an economic disaster. Its government had absolute control of the creation of new purchasing power and enforced it with an extensive police state.

Like all fiat monetary reformers, Mr. Cook believes that the U.S. Constitution gives Congress “authority over our monetary system” (p. 13). It does not. The U.S. Constitution gives Congress only severely limited monetary authorities. It authorizes Congress to define the monetary unit. At the time of its adoption, people understood this authority to be defining the dollar as the weight of silver in the Spanish milled dollar. This is what the Constitution means by “regulate the value thereof.” It could coin money, i.e., gold and silver. The Constitution gives Congress no authority to print any kind of paper money. It gives Congress no authority to create or issue credit except that it does authorize Congress to use the government’s credit to borrow. The Constitution leaves the creation of money and credit directly in the hands of the people acting in their individual capacities.

Mr. Cook calls for “greater economic democracy” (p. 14). “Greater economic democracy” is euphuism for socialism, fascism, or another form of statism. To achieve this goal, he promotes Social Credit as the replacement for the current “finance capitalism.” Social Credit provides “democratic capitalism” without a collective solution (p. 14). As we shall see, Social Credit is a form of collectivism.

He claims, “The main problem with the U.S. economy today has to do with earnings and prices. People simply do not earn anywhere near enough to buy what the economy produces” (p. 17). He may be correct, but this is questionable. As we will see, his solution is wrong and will fail to achieve this goal.

Using 2006 data, Mr. Cook compares the gross domestic product (GDP) to the total national income. He concludes that the national income or purchasing power is not enough to consume all the gross domestic product. It only accounts for about 75 percent of what is needed to consume the gross domestic product (p. 18). The remainder must come from borrowing, new debt. This borrowing enriches financial institutions as they receive the interest (pp.19-24).

Correctly, Mr. Cook does not believe that more regulation and restrictions in lending will solve the problem. He also rules out keeping interest rates artificially low (although he proposes to do this with his Social Credit system) and cutting the costs of production, which usually means cutting labor costs. Part of his recommendation is higher taxation of upper-income brackets and corporations. However, these increases in taxation will not close the gap between GDP and purchasing power, national income (pp. 24-25). Taxation of income and corporations does nothing to close Mr. Cook’s perceived gap. It merely transfers income from one category to another. If this taxation does anything, it will widen the gap as taxation of income often leads to a decline in income. Likewise, the taxation of corporations does nothing to narrow the gap. Corporations will pay the tax from their income or collect it from the income of their customers via higher prices.

Mr. Cook describes C.H. Douglas’s Social Credit proposal (pp. 26ff). According to Mr. Douglas, the cause of financial crises is the “gap between the value of manufactured goods and the purchasing power distributed through wages, salaries, and dividends” (p. 26). This deficiency results from “business profits not distributed as dividends (retained earnings); individual savings, i.e., ‘mere abstention from buying’; ‘investment of savings in new works, which create a new cost without fresh purchasing power’; accounting factors, where costs previously incurred are carried over into current prices; and ‘deflation’, i.e., ‘sale of securities by banks and recall of loans’” (p. 26). Mr. Douglas seems to have as little use for savings as does the typical Keynesian. As the industrial revolution has been built on “retained earnings,” “individual savings,” and “investment of savings in new works,” Mr. Douglas must want to return society to a preindustrial revolution era.

To Mr. Douglas’ list, Mr. Cook adds “insurance, . . . maintenance of unused plant capacity, . . . employer retirement contributions, and the cumulative sum of retained earnings and other cost factors when businesses buy from each other” (p. 26). Like Mr. Douglas and apparently all Social Credit adherents, Mr. Cook has little use for savings and investments. He opposes companies assisting their employees with retirement, or at least he considers it detrimental to the economy. Much of the money that ends up in insurance, retirement plans, and retained earnings is used for industrial development and technological advancement. Only that portion that ends up in government bonds is truly wasted. Also, Mr. Cook believes that letting factories and machines decay is better for the economy than maintaining them for future use.

Mr. Cook firmly believes that market forces do not decide the price of a product. He seems to believe that company executives dictate prices. They “force consumers to pay for the costs of capital depreciation, [but] they do not give them credit for appreciation of the value of the business that will appear through future capital gains” (p. 26). A company may propose a price, but it cannot fix the price unless the government stands ready to enforce that price. The marginal buyer determines the price.

To Mr. Douglas, the solution to the problem is credit (p. 27). He identifies two forms of credit: “real credit” and “financial credit.” Real credit is “the total ability of a nation to produce goods and services through increasingly efficient use of science and technology. Another way to define ‘real credit’ is to view it as ‘productive potential’” (p. 28). Loans by banks are financial credit (p. 28). Are savings accounts, certificates of deposits, and checking accounts, which are loans to banks, “real credit” or “financial credit?” Whichever they are, neither Mr. Douglas nor Mr. Cook seems to have much use for the first two.

Mr. Cook claims that in the United States, banks have a monopoly on credit (p. 28). That is not exactly true. Anyone who lends is creating credit. If someone lends a coworker money for lunch, he has created credit. Banks have a monopoly (or more correctly a cartel as more than one is included) in creating credit that also functions as a circulating medium of exchange. If Mr. Cook’s definition of credit as the productive capacity of the country is used (p. 58), it is definitely not true—at least not yet. Some private concerns still operate independently of bank credit.

Moreover, bank lending is not as one-sided as often presented. When a bank lends a customer electronic checkbook money, it is lending its credit. On the other side of the loan, the customer is lending an equivalent amount of credit to the bank when he accepts the bank’s promise to pay. The bank promises to pay in federal reserve notes the checkbook money lent to the customer when returned for redemption. Thus, the bank and its customer are mutually indebted to each other. Both owe each other the money represented by the loan. Fractional reserve banking is “the manufacture of currency out of mutual indebtedness.”[1]

Not only is the bank lending its credit to the borrower, but the borrower is also leading his credit to the bank. One may ask, “Why doesn’t the borrower print and spend his own notes and eliminate the bank?” If the law did not prevent him, he could. Whether anyone would accept these notes is doubtful.

Mr. Cook’s National Dividend program (v.i.) obviates this voluntary aspect of lending. He wants to force every legal resident to lend his credit to the government. He does this by forcing the government’s credit on each individual.

Mr. Cook writes, “Critics may ask why, if Douglas's analysis is correct, is it not generally recognized and accepted? The answer is that it IS recognized and accepted, but only by the monetary reformers on the one hand and the financiers on the other. But the financiers, who own the mass media, are not telling the rest of us, because it’s what makes them so rich and powerful” (p. 29). A large segment of monetary reformers rejects Mr. Douglas’ and Mr. Cook’s solution of Social Credit. They believe that the problem is fiat money and not who creates and issues it or how it is created and issued. Markets are vastly superior to any committee or individual in deciding how much money and credit to create and issue and when and where. On the other hand, Mr. Douglas and Mr. Cook believe that the problem is not fiat money. It is who creates and issues it and how. A committee or individual can do a better job of creating and issuing money and credit than the markets. That is a part, the committee, is greater than the whole, the markets, i.e., the sum of every individual on the planet.

Both Mr. Douglas and Mr. Cook are correct in that the current system is highly flawed. The flaws arise from governmental intervention and granting special privileges to certain groups. Most monetary reformers agree with Mr. Douglas and Mr. Cook that the special privileges granted to banks need to be removed. However, Mr. Douglas and Mr. Cook want the government to have the power to grant special privileges. They favor strong governmental intervention. Their program depends on it.

Mr. Douglas claims that his system is neither Marxism nor socialism. “Marxism, like finance capitalism [his term for the current system], assumes an economy of scarcity” (p. 29).

Mr. Douglas believes that as machines do more work, “workers’ wages would fade away as a source of societal purchasing power” (p. 30). “. . . abundance could be distributed to those who needed and deserved it only if society took back its rightful prerogative of credit creation from the banks and made that credit available without hindrance to individuals” (p. 30). History has shown that automation has lead to an explosion in jobs and often higher-paying jobs. In this respect, Mr. Douglas errs. Automation frees labor to undertake more productive tasks.

The key part of Mr. Douglas’ plan is the National Dividend. It is a “cash stipend paid to all citizens” (p. 30). Do illegal aliens receive a payment? Mr. Cook does exclude illegal aliens (p. 33). Therefore, are people required to prove their citizenship? Does this require a national identification card or chip?

For the National Dividend program to work, the government has to outlaw anonymity for all citizens. (Only illegal aliens have the right to anonymity. Once again illegal aliens have more rights than citizens.) It must know about their existence and presumably location, so it can force its loans on them. Everyone has to participate in the program whether he wants to or not so that a sufficient quantity of money is injected into the economy and everyone receives a minimum income.

Moreover, the government would have to prevent the saving or investing of any money or credit paid through the National Dividend program. More than that, it would have to prevent using the National Dividend stipend from being used to allow the saving or investing of funds that would not have been saved or invested without the National Dividend. Saving and investing cannot be allowed to be increased. If they do increase, part of the purpose of the National Dividend, which is to overcome the negative aspect of saving and investing, has been defeated.

“Because the dividend would be an expression of the sum total of the producing potential expressed as the ‘real credit’ of the nation, it would be distributed as a book entry on a government ledger, not as a budget expenditure paid for by tax revenues. And the right to the dividend would not be tied to whether or not a person had a job” (p. 30). In other words, the U.S. government would directly create money out of nothing instead of creating money out of nothing through the Federal Reserve as it currently does.

Mr. Cook does acknowledge that the government may be creating money out of nothing as banks do now. However, “the difference is that bank loans must be repaid, while payments under a National Dividend system would not” (p. 31). Thus, money created under the National Dividend program is nonrepayable. At least under the current dysfunctional system, money is eventually withdrawn from the economy once its work is done. Under Mr. Cook’s scheme, it is not. Once the money is injected into the economy, it remains there forever. Thus, the purchasing power of money will continuously be driven down.

Alternatively, the National Dividend could be distributed “through price rebates paid to consumers as partial compensate for purchases” (p. 30). Mr. Douglas’ plan, which Mr. Cook endorses, does create many new jobs through the bureaucracy needed to implement it. His system may not be pure socialism, but it is a redistribute-the-wealth program.

The National Dividend of Social Credit fills the gap between national income and GDP. It provides the “purchasing power to the residents of the nation as their rightful benefit from creating, operating, and maintaining our wondrous economy. It’s society as a whole which created our economy, and we are the ones who should benefit from it” (pp. 30-31). Apparently, Mr. Cook believes that individual effort had little to do with creating our economy. Mr. Cook’s collectivism shows itself in this statement. At least Mr. Cook sees what Mr. Douglas denies, and, that is, Social Credit is a form of collectivism.

Before comparing national income to GDP, governmental expenditures should be subtracted from GDP because governmental expenditures are a negative on the economy and do not contribute any goods to the economy. (Some of it may be necessary, but it still is a negative.) Governmental expenditures account for about 20 percent of GDP. Removing governmental expenditures reduces Mr. Cook’s gap significantly. If the gap between GDP and national income is as important as Mr. Cook and the adherents of Social Credit believe, they need to focus on reducing governmental expenditures instead of creating more money out of nothing to make everyone dependent on the government.

Removing governmental expenditures leaves a gap of about $1 trillion. If the $1 trillion in savings and investments that Mr. Cook arbitrarily removes from the national income are added back, the gap vanishes.

I have just illustrated a major flaw with Social Credit and the concomitant National Dividend. Calculating the National Dividend is completely arbitrary and is based on arbitrarily selected numbers. What should be included in calculating GDP and national income? The choice is arbitrary. I would exclude governmental expenditures and include savings. Mr. Cook would do the opposite. By removing savings from national income, Mr. Cook admits that the selection of numbers to include or exclude is an arbitrary choice.

Once someone decides what to include, the data need to be collected. (Mr. Cook is vague about whom this someone is although it probably would be done under to auspices of some governmental bureaucracy.) Collection of data requires more bureaucrats, more intrusion, and more cost on businesses and individuals, and therefore, more drag on the economy, less productivity, and higher prices.

Moreover, the data collected are historical and not contemporaneous. Should not the National Dividend reflect the present instead of the past? If the objective is to close the gap between production and income, should not the gap be covered when it occurs instead of 18 to 24 months later? That is if done annually. If done monthly, the lag is six to 12 months.

An annual approach would require several months after the end of the year to collect, compile, and report data. Several more months are needed for the bureaucrats to review and compile data. Another month or two is needed to populate accounts. A monthly approach would require about the same amount of time to collect, report, compile, and review data and populate accounts.

Furthermore, accurate information requires more than just companies and institutions reporting. It requires each individual to report detailed information about his activities—must not miss any individual sales, off-the-record payments, or hoarding of cash. The reporting requirements for Mr. Cook’s program to function properly are at least as invasive as income taxes.

A system is available that does inject money into the economy simultaneously with the supply of new goods being offered for sale equal to the cost of these goods. It is the real bills doctrine (commercial money principle). For the real bills doctrine to function, the gold coin standard (the true gold standard) is necessary. We can never again have the gold standard because it greatly restricts the ability of those who really control the government to control the people. So people like Mr. Cook pursue schemes that will give those who control the government more control over the people.

“A Social Credit system would be implemented through simple bookkeeping. The funding of the National Dividend would be drawn from a National Credit Account that would include all factors which give rise to production costs and create new capital assets” (p. 31).

“The National Credit Account could also be used for price subsidies” (p. 31). So, the U.S. government is going to distort the markets by rigging prices. Depending on how the subsidies are applied, they will lead to shortages or surpluses.

What happens when shortages occur? Does the government intervene to solve the problem caused by the first intervention? That is the usual approach. How will shortages make workers better off?

On the other hand, what happens if surpluses occur? Artificial surpluses make production higher than it would be otherwise. The economy is producing more than is being consumed. According to Social Credit, it means that people do not have enough money to buy the governmentally created surpluses. This distortion causes the government to issue even more National Dividend.

Mr. Cook argues that National Dividend money is not “free money” (p. 31). It is free money to the recipient. He exerts no effort to earn it. He risks nothing to get it. Because he exists, he receives it. Parents expend resources on their children, not because the children work for it, but because they exist; they belong to the parents. Likewise, Social Credit reduces people to wards of the government. The government pays them because they belong to the government.

Mr. Cook emphasizes “that Social Credit is not a socialist system. Rather it is ‘democratic capitalism,’ in contrast to the ‘financial capitalism . . .” (pp. 31-32). I guess it depends on how one defines “socialism.” Whether or not it is socialism, it is a form of collectivism and statism. It leads straight to a despotic government.

“Under a Social Credit system, banks would continue to function in limited ways, but they would not have the privilege of funding the entire shortfall in purchasing power of the nation” (p. 32). The National Dividend would fund the shortfall (pp. 32-33).

Like all fiat monetary reformers, Mr. Cook claims that his scheme is not inflationary. It merely brings “the total monetary supply of the nation only up to the level of the GDP. It would not result in ‘more dollars chasing the same amount of goods,’ . . .” (p. 33). Contrary to Mr. Cook’s claim, his scheme is highly inflationary. Inflation occurs when new money entering the markets exceeds the value of new goods entering the markets. The value of new goods entering the markets accounts for only a part of the GDP. For example, governmental expenditures, which are a significant part of the GDP, are not goods, either new or old, which is why they should be subtracted from the GDP. Furthermore, under Mr. Cook’s scheme, once new money enters the economy, it is never removed. Thus, each year, ever more dollars are available to chase the same quantity of goods.

Like many people, Mr. Cook errs in identifying rising costs and prices as inflation (p. 34). He also errs when he claims that bank interest is inflationary (p. 34). None of these is inflation. Rising costs and prices result from inflation, which is an increase in the money supply above the value of new goods entering the markets. Furthermore, interest only indirectly causes inflation. If the Federal Reserve keeps interest rates below the natural market rate, people may borrow more. Their increased borrowing can lead to banks creating more credit money than the markets require. Then the result is inflationary, and prices usually rise. Therefore, contrary to Mr. Cook’s assertion, interest is not inflationary because it adds to the cost of business. The cost of producing a product does not fix its price; the marginal consumer does. Moreover, the marginal consumer ultimately fixes the costs of production.

Mr. Cook is correct when he states, “Management of a modern producing economy the way the Federal Reserve does by raising and lowering interest rates is a travesty” (p. 35). However, contrary to Mr. Cook’s assertion (p. 36), low-interest rates, i.e., interest rates below the market rates, typically lead to more inflation than high-interest rates, i.e., interest rates above the market rate. As noted above, people borrow more when rates are artificially low, which results in more credit money being created. Conversely, they borrow less when rates are artificially high, and thus, less credit money is created. This is why the Federal Reserve pushed interest rates down when it wants more inflation and pushes them up when it wants less inflation.

Endnote

1. Hartley Withers, The Meaning of Money (Cheaper ed.; New York, N.Y.: E.P. Dutton and Co., 1921), p. 28.

Copyright © 2010 by Thomas Coley Allen.

Part 2

More articles on money.