World War I

World War I
Thomas Allen

[Editor’s note: Footnotes in the original are omitted.]

The twentieth century was a century in which Illuminists made great progress. It was a century of wars and Communist revolutions. The wars and revolutions of this century were orgies of human sacrifices to Lucifer.

In the twentieth century, the Illuminists brought about two world wars. It divided Christendom into opposing camps and had Aryan Christians killing Aryan Christians in large numbers. Illuminists overthrew the Czar of Russia and made Russia an atheistic-communistic empire at the close of World War I. Then at the close of World War II, it had built Russia into a great military power controlling much of the world.

In 1871, Giuseppe Mazzini and Albert Pike proposed a series of world wars that would be so bloody that every country on Earth would surrender their sovereignty to an international governance like the United Nations. Pike concluded that three world wars would be needed to bring about Lucifer’s New World Order. So, the Illuminists planned three world wars to consolidate their world power. The first world war would overthrow the major monarchies of continental Europe, establish a communist regime, and lay the foundations for world government. The second world war would elevate Communism to a world power, give Communists control of Europe, empower Zionism in Palestine, and consolidate the establishment of world government. With the third world war, Communism (atheism), Christianity, Zionism (Judaism), and Islam would destroy each other, and the New World Order would be established with its one world government and one world religion. The third world war would grow out of the conflict between the Zionists and Moslems over Palestine. When the ashes of the third world war settled, Christianity would be no more. Every country would be ready to surrender all to an all powerful global government for the sake of peace.[1] The Illuminists would undisputedly reign supreme. Nimrod’s dream would be fulfilled. Lucifer’s New World Order would be firmly established, and Lucifer would rule all with the Illuminists as his governors and priests.

During the early years of the twentieth century, Illuminists were putting the final pieces in place to bring about the first of these massive war in Europe. This war became known as World War I.

The immediate cause of World War I was the assassination of Archduke Franz Ferdinand, heir to the throne of the Austro-Hungarian Empire. His assassin, Gavrilo Princep (Gabriel Prinzip), was “a progeny of Freemasonry.” Ferdinand knew that his life was in danger and had commented that the Freemasons had resolved to kill him. The Serbian Lodge Narodna Odbrana, in alliance with the Crna Ruka, organized the assassination.[2] The Jews of Salonika and the Committee for Union and Progress were involved in the assassination. The Serbian cabinet, King Alexander, the Russian Minister Hartwig, and the Russian military attache Artmanov knew about the plot to assassinate Ferdinand.[3]

Until the expulsion of the Turks, the Committee for Union and Progress was centered in the Jewish lodges of Salonika. It grew out of the Masonic lodge Macedonia Risorta. Emannuele Carass, a Salonikan Jew, established this lodge. This was one of the two lodges in Salonika under the Grand Orient of Italy.

The Grand Orient of France controlled the Grand Orient of Italy. Funding for the assassination of Archduke Ferdinand came from the Grand Orient of France through the Grand Orient of Italy to the Alliance Israelite Universelle, which was ostensibly a Jewish charitable trust.[4]

Both Austria and Serbia wanted war. While Germany was trying to restrain Austria, Illuminists controlling the governments of Russia, France, and Great Britain were pressing for a large-scale war. Years before it began, they had been planning for war. For years, the countries of Europe had been in an arms race.

Theobald von Bethmann-Hollweg, the Chancellor of Kaiser Wilhelm II, led Germany into war. He was a cousin of the Rothschilds and a member of the Frankfort banking family of Bethmann.

Wolff, the German news agency, filled Germans with a desire for war. The Rothschilds owned Wolff. Max Warburg, Wilhelm’s personal banker, was a leading member of Wolff. (The Rothschilds also had an interest in the British news agency Reuters and the French news agency Havas.)

Even before the opening shots, Rothschild Freres in France and J.P. Morgan and Co. in New York were planning to lend large sums to France to buy munitions and other supplies from the United States. Vanderlip, president of National City Bank, offered to support France. (Vanderlip would later be a major supporter of the Bolsheviks in Russia.) J.P. Morgan and Co. was Great Britain’s financial agent in the United States and lent Great Britain a large sum of money at the beginning of the war. Once in office, President Wilson made loans to Great Britain, France, and their allies.

American bankers also raised money for Germany. Kuhn, Loeb and Co. was the first to raise money for Germany, which was deposited with M.M. Warburg and Co. in Hamburg. Chase National Bank, Guaranty Trust Co., and Mechanics and Metal National Bank raised money that Germany used to fund its espionage activities in Mexico and the United States.[5]

Krupp of Germany provided steel for all the major navies involved in the war. The Rothschilds’ mine in Spain supplied lead to Germany. Du Pont provided 40 percent of the Allies’ powder. While war destroys lives of the common people, it can be extremely profitable to those with the right contacts.

After the war started, the main problem that the Illuminists faced was to keep it going. Germany lacked the food and coal for a long war. Without Germany, the war would soon fissile out. To overcome the food problem, Emile Francqui, director of the Belgian bank Societe Generale, and his close associate and friend, Herbert Hoover, organized the Belgian Relief Commission. (When the United States entered the war, Hoover became the head of the U.S. Food Administration.) J. Henry Schroder Banking Co. was a backer of the Belgian Relief Commission.[6] (J. Henry Schroder Banking Co. later helped finance Hoover’s presidential campaign.)

Once the war began the next great task was to bring the United States into the war, preferably on the side of Great Britain and France. This was not an easy task. Most Americans wanted to remain neutral. Almost half the American people had German ancestors. (The United States had the largest German population of any country outside Germany.) If forced into the war, most preferred to side with Germany. (The English were seizing and searching American officials and ships. They were intercepting mail to and from the United States. They were even using the United States flag. These actions had caused the War of 1812 between the United States and the English.[7]) Much deception would be needed, and was used, to get the United States to enter as an ally of the British.

The British Secret Intelligence Service flooded the United States with anti-German propaganda. British agents deceived gullible, credulous American journalists with doctored photographs and false documents. The British painted Germany as a militaristic monster that wanted to rule the world. (Meanwhile, Great Britain was maintaining the greatest, most extensive empire that the world had ever know and wanted to add Germany’s colonies to that empire. British soldiers were in more countries around the world than all other countries put together.) Sir Gilbert Parker was the British agent in charge of pro-British, anti-German propaganda in the United States. Another British intelligence agent sent to the United States to bring then into the war was Sir William Wiseman. As a reward for his excellent work, he was made a partner in Kuhn, Loeb and Co.

In 1916 Congress established the Council on National Defense. Although set up to develop plans to mobilize the United States if they were attacked, its real objective was to push the United States into the war. Daniel Willard (president of the B&O Railroad) was chairman. Other members included Bernard Baruch (Wilson’s campaign fund raiser and later head of the War Industries Board), Howard Coffin (president of Hudson Motor Car Co.), Walter S. Gifford (president of AT&T and a director of the Commission on Industrial Preparedness), Hollis Godfrey (president of Drexel Institute), Samuel Gompers (labor leader and a Jew), and Julius Rosenwald (merchant and philanthropist). Howard Coffin and Elihu Root are credited with creating the Council.

Also, pushing the United States to enter the war was the Carnegie Endowment for International Peace, which was created in 1910.

Another organization established to bring the United States into the war was the Navy League. Henry Payne Whitney, a partner of J.P. Morgan and owner of Metropolitan magazine and a member of Skull and Bones, founded the Navy League. Other major actors in the Navy League were J.P. Morgan, Jr. (U.S. Steel), Charles Schwab (Bethlehem Steel), R. M. Thompson (International Nickel), and B. F. Tracy (attorney for Carnegie Steel Co.).

J.P. Morgan, Jr. had his agents to purchase the national and international policy of the 25 most influential newspapers in the United States. He and John D. Rockefeller used the newspapers under their control to propagandize for war against Germany and to promote financial, military, and other matters of interest to Morgan, Rockefeller, and their fellow Illuminists. With advertising money, Morgan and Rockefeller bullied most of the newspapers that they did not control directly into following their pro-war, anti-German line. Where this tactic failed, bribery often work.

During his first term, Wilson presented himself as “the great apostle of peace and neutrality.”[8] When he ran for reelection in 1916, he claimed that he would keep the United States out of the war. However, once he was reelected, he used an event that occurred in 1915, the sinking of the Lusitania to bring the United States into World War I. Using the sinking of the Lusitania and the Zimmerman telegram, Wilson was able to keep his promise to higher degree Illuminists and deliver the United States to the Illuminists. In 1917, the United States entered the war against Germany. (The international financiers needed the United States to protect the value of the French and British bonds that they had bought. France and Great Britain were broke, and Germany was beginning to win. If it won the war, the French and British bonds could have become worthless.)

Upon entering the war, Wilson turned the United States into a fascist state. He appointed Bernard Baruch, son of an immigrant from Poland, head of the War Industries Board, which had absolute control of every factory in the United States. He appointed Eugene Meyer, son of an immigrant from France, head of the War Finance Corp., which controlled the loan program that financed the war. Paul Warburg wrote the plan for organizing the War Finance Corp. Wilson had earlier appointed Paul Warburg, an immigrant from Germany, to the Board of Governors of the Federal Reserve System, which controlled the banking system, and, consequently, controlled credit and money in the United States.

Wilson filled his administration with agents and members of J.P. Morgan and Co. and Kuhn, Loeb and Co. His Secretary of the Treasury, William G. McAdoo, was an agent of Kuhn, Loeb and Co. Jerome Hanauer, a partner of Kuhn, Loeb and Co., became the Assistant Secretary of the Treasury in charge of Liberty Loans. Several other high-ranking officials in the Wilson administration represented these two companies.

Wilson also arrested and convicted persons speaking and writing against the war. Perhaps the most notable victim was Eugene Debs, head of the Socialist Party.

This war was supposedly fought “to make the world safe for democracy” and “to end all wars.” In reality, it was fought to establish a world government, an essential element of the New World Order. What seemingly was a nationalist war, Freemasons had converted into a socialist and holy war. They used it to bring about the Luciferian illuministic New World Order.

By the end of the war some 18 million people, mostly Aryans, had been sacrificed on Lucifer’s altar. Some $400 billion ($6100 billion in 2000 dollars) had been destroyed. The empires of Germany, Austria-Hungary, Russia, and Turkey were no more. Enormous wealth and power had been transferred to international financiers and other Illuminists.

The war also drove three great European monarchs from their thrones: Hohenzollern of Germany, Hapsburg of Austria-Hungary, and Romanov of Russia. By the end of the war, the governments of these countries were no longer monarchial in form. (Actually, Austria-Hungary ceased to exist as it was divided into Austria, Hungary, and Czechoslovakia and parts of it were given to Rumania, Serbia, Italy, and Poland.) The destruction of these monarchies was an illuministic goal.

Another important out come of World War I was the laying of the foundations to turn Palestine into a Jewish state. At the beginning of the war, Baron Edmund de Rothschild informed Dr. Chaim Weizmann, a leading Jewish Zionist, who became the first president of Israel, that the war would advance Zionism.[9] Following the war, Palestine became a British protectorate. At this time many Jews in Great Britain opposed Zionism and did not favor a Jewish state in Palestine. Most of the major opposition to Zionism came from Jews. They saw it as divisive. (Non-Jewish Zionists retaliated by ostracizing non-Zionist Jews.) Zionism’s greatest support came from such British leaders as Lloyd George (prime minister), Lord Arthur Balfour (foreign secretary), Lord Milner, Sir Mark Sykes (chief secretary to the war cabinet), Leopold Amery (colonial secretary), Lord Robert Cecil (assistant secretary for foreign affairs), General Jan Smuts (South African field marshal and later prime minister). With the Balfour Declaration, Great Britain promised to establish Palestine as a national homeland for Jews. The Zionist Jews promised to bring the United States into the war against Germany.[10] However, the Jews did not want the United States to enter the war until Czar Nicholas II had been overthrown. So, Wilson waited until he was overthrown before asking Congress for a declaration of war. Near the end of the war, the British conquered Palestine not for military purposes but for establishing a future Jewish state. In 1917, Jewish immigration to Palestine began in earnest. The Zionist dream of turning Palestine into a Jewish state came to fulfillment in 1917.

Moreover, the war caused the eventual abandonment of the gold standard. Because banks and governments had issued so much fiat money to finance the war, a return to the gold standard was not possible without greatly devaluing the currency in terms of gold or greatly reducing the currency and causing a depression to bring the currency back to its prewar value. Without a gold standard, bankers could issue money without restraint.

Furthermore, many Illuminists made a fortune out of the war. J.P. Morgan, Jr., Baruch, the Du Ponts, and other Illuminists made fortunes. Much money was made selling governments supplies that they did not need.

Another outcome of the war was the impoverishment of Great Britain. As a result, the leadership of Illuminism passed from Great Britain to the United States. Thus, Americans assumed the leadership role at the Versailles Peace Conference.

At a secret meeting of the Grand Orient of France and the International Masonic Conference in Paris in 1917, the agenda for Versailles Peace Conference was drawn up. Attending this Masonic Conference were representatives of Freemasons from Argentina, Belgium, Brazil, Italy, Portugal, Serbia, Spain, and the United States. (The chief beneficiary politically of World War I was Freemasonry. Between 1918 and 1930, Freemasons controlled European politics.) Part of this agenda was the Fourteen Points and the plan for the League of Nations, which Freemasons provided President Wilson.[11] (Establishing the League of Nation and the concomitant world government was a major reason for the war.) The agenda also included the abdication of the Hohenzollerns from the German throne and starvation of the Germans (the Allies blockaded the shipment of food into Germany following the war). The goal of the starvation was to bring about a Communist revolution in Germany. The plan also sought a federation of European states and a world court.

Freemasons and other Illuminists now began working for the next world war. The world’s most sinister Illuminists assembled at the Versailles Peace Conference to draw up a treaty to ensure that another world war would soon follow.

As a result of the treaty, Germany’s army and navy were greatly reduced and Rhineland was demilitarized. France obtained Alsace and Lorraine and the coal of the Saar valley. Germany lost her overseas colonies to France and Great Britain. A large portion of east Germany was surrendered to the newly formed country of Poland. Germany was saddled with reparations that she could never repay.

The Versailles Peace Conference consisted of three tiers or circles. The outer tier was the public conference. This tier was highly visible and attended by reporters from around the world. The next tier was the secret conference of the Big Five. Here the United States, Great Britain, France, Italy, and Japan met privately and discussed instructions from their hidden masters. The inner most tier was the nightly Masonic conferences. Only a select few attended these meetings. Here all the important decisions were made.[12]

To persuade and encourage Wilson to push the United States to join the League of Nations, Illuminists provided him private gifts of a million dollars in gold and precious gems.[13] Wilson also saw himself as the president of the new world government.

In 1915 the League to Enforce Peace was founded in the United States to promote world government following the war. Former President Taft headed it. Carnegie financed it. Theodore Marburg masterminded and ran it. Its principals were Perry Belmont (representing the Rothschilds), Lincoln Filene, John Hays Hammond (a South African revolutionist), Elihu Root (J.P. Morgan’s attorney), Jacob Schiff (Kuhn, Loeb and Co.), Isaac Seligman, and Oscar Straus. Through its British branch, Marburg worked with Lord James Bryce, Sir Edward Grey, and Sir Gilbert Parker to establish a League of Nations. President Wilson, Robert Cecil, and General Smuts introduced a draft of the scheme of the League of Nations at the Peace Conference.

Several Wall Street bankers accompanied Wilson’s delegation to Paris as part of the American delegation to the peace conference. They include Bernard Baruch (banker, Wall Street manipulator, Jew, and Freemason), Thomas Lamont of J. P. Morgan Co., L. L. Strauss of Kuhn, Loeb and Co., and Paul Warburg of Kuhn, Loeb and Co. and a former member of the Federal Reserve System. (Paul Warburg's brother Max Warburg, who was head of German secret service and head of M.M. Warburg Co., was the head of the German delegation. He accepted the reparations terms on behalf of Germany.) Paul Warburg represented American banking interests, and Max Warburg represented Germany banking interest. Other members of his entourage included Secretary of State Robert Lansing and his nephews, John Foster Dulles and Allen Dulles, Walter Lippman, Felix Frankfurter, and Supreme Court Justice Brandies. Baron Edmond de Rothschilds hosted the leading members of the American delegation.

Preceding Wilson to Europe was Colonel Edward House, Wilson’s alter ego and chief advisor. House was in charge of the American War Mission. Accompanying House was his son-in-law, Gordon Auchincloss, a Wall Street lawyer, a director of Chase National Bank, and second in charge of the American War Mission. Paul Cravath, a lawyer for Kuhn, Loeb and Co. was also part of the American War Mission and was third in charge.

Alfred Milner was the principal representative of Great Britain.

France’s chief representatives at the Versailles Peace Conference was Klotz, a Jew, France’s Finance Minister, and an agent of the Rothschilds (he is reported to have bribed the press for the Rothschilds). Baron Edmund de Rothschild of France was the dominating force of the Peace Conference. Klotz along with Baruch and Lord Cunliffe (Governor of the Bank of England) formed the Reparations Commission.

As economic advisor to the Versailles Peace Conference, Baruch imposed a horrendous reparation burden on Germany. (According to Lloyd George, “The protocol which was signed between the Allies and Associated Powers and Germany is the triumph of the international financiers. Agreement would never have been reached without the brusque and brutal intervention of the international bankers.”[14]) The reparation was made impossible for Germany to pay. Thus, Germany would be forced to seek political relief. The results were a ruinous inflation that destroyed the German middle class, and set the stage for Hitler’s revolutionary program The Peace Conference achieved its two primary purposes: the League of Nations and another world war.

Churchill later condemned the Unites States’ entry into World War I. If the United States had stayed out of Europe’s war, he remarked, “peace would have been made with Germany, and there would have been no collapse in Russia leading to Communism; no breakdown of government in Italy followed by Fascism; and Nazism would never have gained ascendancy in Germany.”[15] As a high degree Illuminist, he should have known one of the primary goals of the war was to turn Russia into a communist country. Another primary objective was to bring about World War II, which had not started when Churchill made this comment.

Endnotes
1. William T. Still, New World Order: The Ancient Plan of Secret Societies (Lafayette, Louisiana: Huntington House Publishers, 1990), p. 127.

2. Lady Queenborough (Edith Starr Miller), Occult Theocracy (Two Volumes, Hawthorne, California: The Christian Book Club of America, 1933), p. 602.

3. Eustace Mullins, The Curse of Canaan: A Demonology of History (Staunton, Virginia: Revelation Book, 1987), pp. 198-200.

4. Ibid., p. 200.

5. Antony C. Sutton, Wall Street and the Bolshevik Revolution (Morley, Western Australia: Veritas Publishing Company Pty., Ltd., 1981), pp. 64-67.

6. Eustace Mullins, Secrets of the Federal Reserve (1991), pp. 69ff.

7. William P. Hoar, Architect of Conspiracy: An Intriguing History (Belmont, Massachusetts: Western Islands, 1984), p. 101.

8. Martin A. Larson, The Federal Reserve and Our Manipulated Dollar (Old Greenwich, Connecticut: The Devin-Adair Company, 1975), p. 81.

9. Douglas Reed, Far and Wide. (1951), p. 285.

10. Comte Leon de Poncins, State Secrets: A Documentation of the Secret Revolutionary Mainspring Governing Anglo-American Politics (Translator Timothy Tindal-Robertson. 1975), p. 16.

11. Mullins, Curse of Cain, p. 204.

12. Ibid., pp. 204-205.

13. Mullins, Curse of Cain, p. 205. Eustace Mullins, The World Order: Our Secret Rulers (Second edition, Staunton, Virginia: Ezra Pound Institute of Civilization, 1992), p. 48.

14. Mullins, World Order, p. 49.

15. Gary Allen, None Dare Call It Conspiracy. Seal Beach, California: Concord Press, n.d., p. 66.


[Editor’s notes: List of references in the original are omitted.

Copyright © 2010 by Thomas Coley Allen.

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Federal Reserve System

Federal Reserve System
Thomas Allen

[Editor’s note: Footnotes in the original are omitted.]

Perhaps the most powerful tool used by Illuminists to control a government is to control that government’s credit and issuance of money and the country’s banking system. (The fifth plank of the Communist Manifesto reads, “Centralization of credit in the hands of the state by means of a national bank with state capital and an exclusive monopoly.”) With the control of these, comes the control of the economy. (Mayer Amschel Rothschild said, “Give me control over a nation’s economy, and I care not who makes its law.”[1]) Control of the banking, credit, and monetary systems gives the Illuminists enormous influence and power over governments. (Reginald McKenna, president of Midlands Bank of England, said, “Those that create and issue the money and credit direct the policies of government and hold in their hands the destiny of the people.”[2]) They can dictate the terms upon which a government can borrow money. With this power, they can demand and ensure that the government will grant and protect their monopolistic control of the banking, credit, and monetary systems.

To gain and consolidate control and power, the Illuminists use what is often called the Babylonian monetary system. This system depends on a strong central government, which depends on a strong central bank for its continuous financing. Thus, the government grants the bank a monopoly over the money and credit system. The central bank controls the issuance of money, which for much of the twentieth century has been debt, i.e., the money that the people use represents someone’s debt. This power gives the central bank control of the economy.[3]

After the Napoleonic Wars, the Rothschilds established central banks in all the major countries of Europe. They used their power as central bankers to urge countries of Europe to undertake a massive arms buildup although Europe was living in a time of peace. By 1886 military expenditures had become so great that they were beginning to cause Europe’s economies to stagnate. Countries could not continue their arms buildup without either internal rebellion or external war. Yet, they had spent so much money on armaments that they could not finance a war. Finally, the United States offered away out of their problem.

In 1913, Woodrow Wilson became President of the United States. One of his first acts was to sign the Federal Reserve Act into law. A few months later World War I began. This law solved the problem of financing a world war.

The Federal Reserve Act and the Federal Reserve System that it established grew out of the work of a few major bankers and their political allies. In 1910 Paul Warburg of Kuhn, Loeb and Co.; Henry P. Davison, senior partner of J. P. Morgan and Co.; Charles D. Norton, president of (Morgan’s) First National Bank of New York; Frank A. Vanderlip, President of (William Rockefeller’s) National City Bank of New York; Benjamin Strong, vice-president of (Morgan’s) Bankers Trust Co.; and A. Piatt Andrew, Assistant Secretary of the Treasury, met with Senator Nelson Aldrich on Jekyl Island and secretly drafted a plan for an American central bank.[4] The essence of this plan later became the Federal Reserve System.

These bankers controlled heavy industry, oil, communications, and railroads in the United States. They had the reputation of controlling the entire money and credit of the United States. “They elected Congressmen, appointed judges, and bought and sold newspapers and publishing houses whenever they need a job done.”[5]

The first attempt at creating the Federal Reserve System failed because the bill was associated with the Republican Party, which was too closely connected with Wall Street. To solve this problem, the Illuminists decided to put the Democrats in power and have them introduce a new bill. This job was made easy when Theodore Roosevelt, the Republican President whom William Taft had succeeded, decided to run on the Progressive Party ticket. Jacob Schiff had persuaded Roosevelt to run against both Wilson and Taft[6] J. P. Morgan provided Roosevelt money and manpower to run an effective campaign. Two Morgan agents, Frank Munsey and George Perkins, practically ran Roosevelt’s campaign.[7] (Rockefeller financed Wilson’s campaign. Jacob Schiff, Paul Warburg, Bernard Baruch, Henry Morgenthau, Sr., Henry Dodge of National City Bank of New York, and Thomas Ryan, all of whom were bankers, and the first four of whom were Jews, Samuel Untermyer, a wealthy corporate Jewish lawyer, and Adolph Ochs, publisher of the New York Times, also supported Wilson.[8]) Roosevelt received more press coverage than Taft and Wilson combined. Thus, Roosevelt diverted enough votes from President Taft, who was a popular President and who opposed establishing the Federal Reserve System although the Republican platform endorsed it, to give Wilson the presidency. Wilson delivered the Federal Reserve Bank. Actually, the political influence of William Jennings Bryan (the ardent foe of the big bankers, leader of the Democratic Party’s left-wing, and Wilson’s Secretary of State) is what pushed the bill through Congress.[9] The “unseen guardian angel” of the Federal Reserve Act was Colonel Edward House, who was in constant contact with Paul Warburg while the Federal Reserve Act was being prepared and steered through Congress.

(Putting a President in office was nothing new to Morgan. J.P. Morgan and Co. and Kuhn, Loeb and Co. joined in an alliance in 1901 to form the Northern Securities Co. To stop the Department of Justice from prosecuting the Northern Securities Co. as a trust until a less vulnerable system could be worked out, Morgan, Schiff, and Paul Warburg got Theodore Roosevelt elected President in 1904. The Northern Securities Co. was the consolidation of the Rothschild empire in America. In 1869, J.P. Morgan and Co. became an international agency of the Rothschilds when J.P. Morgan and Anthony Drexel concluded an agreement with N.M. Rothschild Co. that made J.P. Morgan Co. its agent.)

The Federal Reserve System achieved the three main functions of a central bank. Private individuals owned the bank, received a profit from the ownership, and controlled the issuance of money. Through the Federal Reserve System, the owning banks could use the credit of the United States government for their own profit. They issued currency (federal reserve notes) on the credit of the United States government. The country’s entire financial resources were at the command of the Illuminists through the central bank. Perhaps most important, the Federal Reserve System mortgaged the country by involving it in perpetual war. Like all central banks, the Federal Reserve System sought to control the government by controlling loans to the government. It sought to influence economic activity and manipulate foreign exchanges. To secure its monopoly, it sought to influence politicians by economic rewards in the business world when they left government.

With the initial stock offering in 1914, six New York banks bought a controlling interest in the Federal Reserve Bank of New York. They were National City Bank (a Rockefeller bank), First National Bank (a Morgan bank), National Bank of Commerce (a Warburg bank), Hanover National Bank, Chase National Bank (a Rockefeller bank), Chemical Bank, and Marine National Bank of Buffalo (later Marine Midland).[10] These seven banks acquired more than 40 percent of the stock of the Federal Reserve Bank of New York. Some of the leading merchant banks of Great Britain controlled most of these banks. These British banks included Schroder Bank; Morgan, Grenfell and Co. (affiliated with J.P. Morgan Co.), Lazard Brothers; N.M. Rothschild; Brown Shipley Co. (affiliated with Brown Brothers, later Brown Brothers, Harriman).

The Federal Reserve System gave the international bankers control of the money and credit in the United States. (Federal reserve notes are privately issued money backed by the taxing power of the United States government to cover losses of the banks issuing the notes.) Thus, the international bankers gained control of the economy of the United States. With control of the economy, they could control the country. With control of the economy, they controlled and exaggerated the boom-bust cycle. Insiders who knew when the Federal Reserve Bank would begin expanding the money supply could buy property and shares when they were cheap before the expansion. Then they could sell just before the Federal Reserve Bank began to contract the money supply, which they would know in advance. As the economy crashed, they could again buy shares and property cheaply, often at distressed prices of bankruptcy. If their banks had financial difficulty because of loan defaults, the Federal Reserve Bank would lend them the money necessary to protect them from bankruptcy.

For the Illuminists, 1913 was a victorious year in the United States. They obtained a vast new source of revenue for the United States government with the ratification of the Sixteenth Amendment. (In 1909, Aldrich, John D. Rockefeller’s spokesman in Congress, proposed, with President Taft’s support, amending the Constitution to grant Congress the power to levy income taxes.) This Amendment gave them unrestricted power to tax incomes and estates. With unlimited power to tax incomes and inheritance, the economy could be socialized, unlimited wars fought, and foreign socialistic governments maintained in power with foreign aid. (Without the income tax, the United States’ participation in World War I was doubtful; this tax was necessary to pay for the war.) Next came the ratification of the Seventeenth Amendment, which destroyed what little remained of the federal republic that survived Lincoln’s war to destroy the South and the Constitution. This Amendment removed the elections of Senators from state legislatures and required them to be elected by popular vote. Perhaps their greatest victory came at the end of the year when the Federal Reserve bill became law. Now the Illuminists had the power to create booms and busts—and thus amass enormous fortunes for themselves.

Endnotes
1. H.S. Kenan, The Federal Reserve Bank (Los Angeles, California: The Noontide Press, 1966), p. 6.

2. Gary Allen, None Dare Call It Conspiracy (Seal Beach, California: Concord Press, n.d.), p. 41.

3. Eustace Mullins, The Curse of Canaan: A Demonology of History (Staunton, Virginia: Revelation Book, 1987), pp. 196-197.

4. G. Edward Griffin, The Creature from Jekyll Island (Westlake Village, California: American Media, 2002), p. 5.

5. Kenan, pp. 94-95.

6. Archibald E. Roberts, Emerging Struggle for State Sovereignty (Fort Collins, Colorado: Betsy Ross Press, 1979), p. 152.

7. Allen, p. 48.

8. Kenan, p. 123.

9. Martin A. Larson, The Federal Reserve and Our Manipulated Dollar (Old Greenwich, Connecticut: The Devin-Adair Company, 1975), pp. 46-47.

10. Eustace Mullins, Secrets of the Federal Reserve (1991), p. 34. Eustace Mullins, The World Order: Our Secret Rulers (Second edition, Staunton, Virginia: Ezra Pound Institute of Civilization, 1992), p. 103.

[Editor’s note: The list of references in the original is omitted.]

Copyright © 2010 by Thomas Coley Allen.

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Analysis of Richard Cook’s Monetary Reforms Part IV

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

This paper is Part IV 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 expresses utter contempt for such things as “market forces” and “law’s of economics (p. 198). He has to. They predict that his scheme will fail. He has to calm that such things as “markets,” “Say’s Law” (v.i.), and “supply and demand” are fictions. Economic laws must be merely artificial fabrications made for the benefit of the ruling elite (p. 198). Apparently, if the government wants to, it could repeal Say’s Law, which Mr. Cook’s scheme seeks to do, and the law of supply and demand. Mr. Cook seems to believe that the government can prevail over the markets. So far none have—not even Stalin’s or Mao’s regime.

Mr. Cook does admit that the money that he proposes is fiat money. However, he claims that, unlike debt-based Federal Reserve credit, his is not inflationary. Moreover, he claims that greenbacks were not inflationary (p. 201).

Greenbacks decreased in purchasing power until the late 1860s. Then Congress began withdrawing them from circulation, and they begin rising in purchasing power. In 1875, Congress declared that greenbacks would be redeemed in gold at par beginning in 1879. They continued to rise in purchasing power. Mr. Cook does not do any of these. He proposes to increase the money supply indefinitely year after year and probably at an increasing rate.

If Mr. Cook’s money is noninflationary, it is solely because of the skewed way that he defines inflation. He likes to believe that raising interest rates causes inflation (p. 192). Interest rates may rise because of inflation, but they do not cause inflation. Cost inputs do not cause inflation either. Inflation occurs when the money supply grows faster than new goods entering the markets. Mr. Cook’s scheme guarantees inflation because it guarantees that the money supply will grow at a much faster rate than new goods entering the markets.

Mr. Cook recommends restoring “private banking operations in the U.S. to the ‘real bills’ doctrine” (p. 202). With Mr. Cook, I agree. However, under his proposed system, the real bills doctrine will not work. For the real bills doctrine to work, it needs to be accompanied by a true commodity money like gold or silver. To function properly, real bills need to mature into something that is no one else’s obligation, such as gold or silver. When a real bill matures into another form of credit money, like federal reserve notes or Mr. Cook’s government notes (treasury certificates as he calls them [p. 203]), the real bills doctrine becomes dysfunctional and ceases to operate. That is why the real bills doctrine died with World War I and is not in use today.

Mr. Cook recommends establishing “a National Price Commission to work toward a system-wide fair pricing policy for the U.S. (p. 203).” In other words, Mr. Cook wants to fix the prices of everything in the country. This is one way to keep his inflation from showing in prices. On what would he blame the resulting shortage? Will a lack of money cause the shortages? That Mr. Cook would suggest price fixing is consistent with his disdain for the markets and his apparent confidence in the infallibility of politicians and bureaucrats is not surprising. (I am puzzled why he has so much confidence in them as he frequently condemns them for selling out to the bankers.)

Mr. Cook, who considers himself a progressive, describes the progressive perspective on money and related issues (pp. 210-220). He declares that the law created money (p. 210) although people were buying and selling with money before any law ever decreed anything to be money.

Like all progressives, Mr. Cook distrusts and despises freedom. (Many things in his progressive list evidence this.) Progressives are not only convinced that they know how people should live their lives, they are determined to force them to live that way. Fundamentally, progressives differ little from liberals, socialists, communists, fascists, Nazis, neo-conservatives, and the like. All of them contend that the leader, party, politicians, and bureaucrats always know best.

He claims that the financial elite considers money to be a commodity and to have intrinsic value (p. 210). If true, today’s financial elite differs significantly from the financial elite of a few decades ago. Except perhaps for progressives, no one believes that today’s money is a commodity with intrinsic value. Money has had no direct connection with any commodity since 1971 when President Nixon severed its last connection with a commodity, gold.

Mr. Cook objects to the notion that money may be used “for anything the owner desires, including usury and speculation” (p. 210). He implies that money is not the property of the person who holds it. By inference, he is asserting that money always remains the property of the government regardless of who holds it. Under the monetary system recognized by the founding fathers in the Constitution, the money belongs to and is owned by whoever holds it. The government only gets ownership of the money that it collects in taxes, fees, and fines. It loses ownership when it spends the money.

Mr. Cook states that “the progressive definition of money has prevailed when the government has controlled or strongly influenced the creation of money. The elitist definition has prevailed when private bankers have controlled or strongly influenced the creation of money, particularly during the century since the Federal Reserve was created in 1913” (pp. 210-211). Using Mr. Cook’s criteria, the U.S. monetary system was neither progressive nor elitist before Lincoln’s war to destroy the Constitution. It was the barbaric silver and gold standards. During the greenback era of 1862 to 1879, the monetary system was highly progressive. The exception was the West Coast where the barbaric gold standard remained in use. Between 1879 and 1913, it was a mixture of progressive and barbaric. The barbaric gold standard remained in place. The progressive component was the fiat part: greenbacks, silver dollars, and Treasury notes of 1890. National bank notes should be included in the progressive part as the U.S. government indirectly controlled their quantity. Furthermore, since the government has strongly influenced the creation of money since 1913, that money is also progressive or at least a mixture of progressive and elitist. (The U.S. government has had much more control over money since 1913 than it had anytime before 1860.)

According to Mr. Cook, “the main underlying cause of the American Revolution was refusal by the British Parliament to allow the colonies to issue their own paper money” (p. 211). If true, why did these colonies not only deny themselves the authority to issue their own paper money, but they also denied the U.S. government this authority when they adopted the Constitution? This prohibition cannot be blamed solely on the pro-banker Hamilton and his followers. Anti-banker Jefferson and his followers were even more adamant in their opposition to paper money.

Like all fiat money reformers, Mr. Cook asserts that the Constitution allows the U.S. government to issue money (p. 211). As mentioned above, it does not. The original draft contained this authority, but the drafters removed it. By removing it, they were convinced that they had denied Congress the authority to print and issue paper money.

Mr. Cook claims that Democrats “have held a more progressive view of money. It has been the Federalists/Whigs/Republicans who have held the pro-bank view” (p. 211). Again, Mr. Cook shows his ignorance of history. Before 1860, most Democrats were staunch supporters of the barbaric gold and silver standards. Under the gold and silver standards, the government does not own or issue money, coins, except perhaps subsidiary coins. Money as coins is created by whoever brings the metal to the mint for coinage, and the coins minted belong to that person, and not the government. Such a monetary system is highly unprogressive. Progressive money was a Republican invention. Greenbacks came into being during under a Republican president. The Republican party dominated the U.S. government during the last part of the nineteenth century when more progressive money as silver dollars and Treasury notes of 1890 came into being. Democratic President Wilson brought in the Federal Reserve System. Democratic President Roosevelt made the federal reserve note legal tender.

Mr. Cook writes, “Until around 1873, banks were required to hold their reserves in specie, i.e., gold or silver, until silver was demonetized by Congress. . . . From 1873-1933, gold was the only metallic reserve allowed” (p. 212). Again, Mr. Cook errs. Banks could and did hold greenbacks as reserves. Like gold, greenbacks were legal tender. Between 1879 and 1933, greenbacks were redeemable in gold on demand and had a gold backing of about one-third to one-half.

Mr. Cook states, “A gold standard cannot prevent bank failures or guarantee the value of the currency” (p. 212). He is correct in that a gold standard cannot prevent bank failures. Neither can his progressive money prevent bank failure. Bank failures even occurred under the greenback standard, a governmentally issued fiat monetary standard. Bank failures depend on how banks operate.

If Mr. Cook means that a gold standard cannot guarantee absolute, never varying value of the currency, he is correct. Neither can his progressive money. Whatever he means, gold will do a much better job of maintaining the value, purchasing power, of the currency than his proposed alternative.

Mr. Cook claims that by 1900 the country had returned to the bimetallic standard (p. 213). Again, Mr. Cook is wrong. The Gold Standard Act of 1900 clearly placed the United States on the monometallic gold standard. Bimetallism ended with the Coinage Act of 1873, which closed the mint to the free coinage of silver. With this Act, Congress ended the silver standard—erroneously called demonetizing silver. With the Bland-Allison Act of 1878, Congress began issuing fiat money in the form of silver dollars. Fiat silver dollars lasted until 1900 when silver dollars were made subsidiary coins of gold.

Mr. Cook writes, “Neither banks nor government are needed in order to have money” (p. 214). He is correct. However, he contradicts himself. He has consistently insisted that law creates money. If law creates money, money cannot exist independently of a governmental decree.

Mr. Cook contends that laissez-faire economics “was the basis for the monetarist policies of the 1970s and the ‘Reagan Revolution’ of the 1980s” (p. 214). If so, why did government regulations continue to grow unabated? Laissez-faire economics would have slashed economic regulation to the bone. It would have reduced the U.S. government enormously. Instead, the U.S. government continued to grow. Laissez-faire economics would have returned the country to the gold standard. The Federal Reserve System would have ceased to exist. The economic and monetary policies of the 1970s and 1980s and the two following decades are much closer to the interventionist progressive economics, which Mr. Cook calls the “American System” (pp. 214-215), than they are to noninterventionist laissez-faire economics.

Although Mr. Cook would deny it, the Federal Reserve System is a creation of progressive economics, the American System. It is like the other programs that he praises as progressivism and the American System (p. 215).

Mr. Cook contends that money is an abstract concept (p. 228). He is correct about today’s money being an abstraction. His replacement progressive money is also an abstraction. However, money has not always been an abstraction. Under the gold standard, money is not an abstraction. It is a definable tangible. Under the Gold Standard Act of 1900, Congress defined the dollar as 25.8 grains of gold nine-tenths fine, or 23.22 grains of pure gold. The dollar was a unit of weight of gold. Unlike today’s money and Cook’s money, which are vague abstractions, the dollar was a concrete tangible. Under the gold standard, people knew exactly how much a dollar was worth. It had a value of 23.22 grains of gold. With today’s money, no one knows how much the dollar is worth without valuing it in terms of itself (a dollar equals a dollar worth of goods). The same is true of Mr. Cook’s progressive money.

Mr. Cook is correct in that the economy of the United States “is not free-market capitalism. Rather it is control by financial and industrial cartels . . .” (p. 229). However, he fails to note that cartels depend on the government to survive. Without governmental coercion, they are short-lived. Today’s financial and industrial cartels result from progressive economics, the American System. Many grew out of public-private partnerships, which Mr. Cook supports.

Mr. Cook abhors the control that these cartels have over the government (p. 229). If Mr. Cook really wants to eliminate the control that these cartels have over the government, he would promote severe restrictions on the power of government instead of promoting its expansion. Cartels first seek to control the government to protect themselves from their competition and the government. Second, they seek to control the government to receive subsidies from it. Stripping the government of its power to destroy a business arbitrarily and its power to reward through subsidies, exclusive grants, and so forth would eliminate cartels dominating the government. They would have no incentive to do so. Mr. Cook’s system of heavy governmental intervention and subsidies gives these cartels plenty of incentive to seek control of the government.

Mr. Cook contends that Say’s Law is a myth (p. 230). “Say's Law states that the production of goods by an economy automatically generates the wherewithal for society to purchase those goods, because earnings from their sale is immediately recycled as purchasing power” (p. 231). “According to Say’s Law, productivity gives people their purchasing power; production is the cause of consumption; people’s consumption depends on their production; products are bought with products.”[1] Thus, a person has to produce something or provide some service in order to buy something. He buys with what he produces; money serves as an intermediary. A person cannot get something for nothing: “There is no free lunch.” Mr. Cook argues otherwise. He wants to enable a person to consume even if he produces nothing. His system eliminates the need for an individual to produce anything in order to buy stuff. Each individual receives a minimum income whether he ever produces anything or not. Although he probably would disagree, he is really advocating taking property from producers and giving it to nonproducers. He conceals his theft via dilution of the currency, i.e., depreciating the purchasing power of the monetary unit. To conceal his theft further, he avers that Say’s Law is a myth.

Mr. Cook claims that Say errs because he “overlooked the fact of capitalist economics which is that of retained earnings” (p. 231). Retained earnings are a form of savings. The manufacturer retains earnings today to spend tomorrow to improve and expand his production (p. 231). Unlike the miser, he does not bury his money with the intent of never using it. Mr. Cook seems to disdain saving as much as Keynes. Both view savings as detrimental to the economy instead of beneficial. Both seek to overcome savings by artificially expanding the money supply. Money must be spent as quickly as it is received. The demand for money must be pushed to zero to prevent economic collapse—so Mr. Cook implies. Mr. Cook must argue that Say’s Law is invalid. If it is valid, his system collapses just as the current Keynesian economic system is collapsing. It, like Mr. Cook’s scheme, rests on the presumption that Say’s Law is false. Wealth can be obtained merely by expanding the money supply.

Mr. Cook considers banking “tied to specific commercial activities” (p. 243) to be the “real bills” doctrine. Thus, under the real bills doctrine, banks “provide working capital for commercial transactions, such as stocking of inventory, or for business expansion” (p. 243). This is not the real bills doctrine. The heart of the real bills doctrine is the real bill of exchange. A real bill of exchange (a real bill) is drawn on real goods that are ready to be sold (sitting on the retailer’s shelf) or are on the way to the retailer to be sold. The real bill expires within 90 days or less. It is self-liquidating, i.e., the merchandise that it represents pays the bill when it is sold.

Under the real bills doctrine, a real bill of exchange occurs when the supplier draws a bill on a retailer to give the retailer time, 90 days or less, to sell the merchandise and get the money to pay the bill. If the retailer accepts the bill, a real bill or commercial money has been created. Now the supplier can use the bill to pay his creditors or sell it to a bank. If a bank buys the bill, it converts the bill to banknotes or checkbook money.

Unlike the two examples that Mr. Cook gives, a real bill of exchange is not a loan. No lending or borrowing is involved. Also, unlike Mr. Cook’s example, a real bill is a self-liquidating credit instrument.

If a bank treats loans for stocking inventory and business expansion like real bills, it is operating unsoundly and risks bankruptcy. (Many loans for stocking inventory are for purposes of speculating on future demand. Mr. Cook wants to outlaw loans for speculation. How is he going to distinguish between lending for speculative stocking and lending for nonspeculative stocking?) Bank lending for inventory and expansion should come from savings. Furthermore, the loans should be for a duration of no greater than the time that the savings are required to be deposited at the bank. Such are sound banking practices.

Mr. Cook contends that “credit should belong to the public and be administered by the government in some equitable way” (p. 248). It is amazing how Mr. Cook can trust the government after he frequently describes the disastrous things that it has done. He offers no solutions to prevent the government from doing these things in the future. What would prevent the government from repeating its miscreant deeds of the past in the future? Leaving credit and its creation in the hands of the people individually instead of entrusting it to the government makes more sense.

Mr. Cook does recognize that the monopolistic power that the corrupt banks have over the monetary and credit system comes from the government (p. 248). Yet he wants to give the government even more power to corrupt. If political leaders betrayed the trust of the people once, what will prevent them from doing it again? Does not common sense dictate that political leaders, and therefore, government, should be stripped of their power instead of given more as Mr. Cook wants to do?

Like most fiat monetary reformers, Mr. Cook provides a good description of today’s economic and monetary problems. He does a fairly good job of describing the causes. However, he fails to identify the most important ones: fiat money and the concentration of political power. To him, these are not part of the problem. They are part of the solution.

Mr. Cook is correct in that the current monetary and financial system is a disaster that benefits a few powerful people. It is in need of a major reconstruction. However, his solution is not the answer. His solution is a disaster that will continue to benefit these few powerful people. Instead of controlling the people through a collaboration of banking and government as they currently do, they would control them solely through the government under Mr. Cook’s reforms. Mr. Cook streamlines the control.

Mr. Cook seems to believe that when the government usurped from the markets the prerogative of creating and regulating money and credit, it did so for the benefit of society. (Actually, Mr. Cook implies that money and credit did not exist until some government invented them.) Thus, governments never claimed the prerogative of creating and regulating money and credit for the benefit of the ruler. (Being a statist, Mr. Cook may believe that the ruler and society are the same.)

Seldom, if ever, has any government ever created and regulated money and credit for the benefit of society (the people) as a whole. They have always done it for the benefit of those who really control the government. In many respects, Mr. Cook’s scheme makes the creation and control of money easier for the rulers. As his system gives the real rulers unlimited money and credit, they have unlimited funds for their pet projects including wars. His system frees them from unpopular taxation and the need to borrow. Moreover, his system requires the rulers to bribe the people and make them dependent on the government. Thus, it makes the control of the people easier. It gives the rulers total control of the economy. They can favor their toadies, lackeys, and apologists with subsidized loans with below-market interest rates. His system breeds corruption.

Mr. Cook must believe that politicians, who are the easiest people on the planet to corrupt, will remain incorruptible. They will always remain altruistic and will never do anything for selfish reasons. He must populate the government with people of high integrity and probity, the likes of which the United States have rarely seen in positions of power since 1860. Even if such saintly people control the government, Mr. Cook’s scheme would fail. For it to work the committee or person in charge has to be omniscient.

Mr. Cook’s scheme makes people dependent on the government. By becoming dependent on the government, they are much less likely to object even to the most egregious actions of the government. His scheme strips them of their freedom and independents by reducing them to the chattel of the ruling elite. It denies them their dignity. It turns them into domesticated animals begging for more handouts.

Mr. Cook’s money like all fiat money is politically driven instead of economically driven. Although he probably would deny it, his money is independent of market needs, i.e., economic demand. If the gap between gross domestic product and national income is of economic importance, the markets would generate the money to fill the gap unless the government intervenes to prevent it. If Mr. Cook believes that the gap is detrimental to the economy, he should find the government’s action preventing closing the gap and work to eliminate it. If the gap needs filling, the markets will do it more efficiently and accurately than any governmental action. His proposal is an artificial political contrivance that will damage the economy and reduce the standard of living of the people.

If Mr. Cook’s perceived gap between GDP and national income is a real problem, it can easily and quickly be solved by returning to the gold and silver standard accompanied by the real bills doctrine (commercial money principle). This system places the creation of money and credit directly in the hands of the people with little governmental oversight. Unlike Mr. Cook’s proposal, the concentration of power in the hands of the U.S. government is unnecessary. Furthermore, it does not make the people wards of the government as does Mr. Cook’s system.

The classical gold standard eliminates the debt-based monetary system that Mr. Cook abhors. Mr. Cook’s scheme does not; it is also a debt-based system. It merely changes the form of the debt-based monetary system. It uses noninterest-bearing and nonrepayable debt-based money.

Moreover, under the classical gold standard without centralized banking, interest rates are low with little fluctuation. They do not have to be suppressed to be artificially low as Mr. Cook promotes.

Some day you will see that there is no man so truly disinherited, as the man who once takes a State-bribe. – Auberon Herbert[2]

Endnotes

1. Thomas Allen, Reconstruction of America’s Monetary and Banking System: A Return to Constitutional Money (Franklinton, N.C.: TC Allen Co., 2009), p. 49.

2. Leslie Synder, Justice or Revolution (New York, N.Y.: Books in Focus, Inc., 1979), p. 161.

Copyright © 2009 by Thomas Coley Allen.

 Part 3

 More articles on history.

Analysis of Richard Cook’s Monetary Reforms Part III

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

This paper is Part III 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 claims “that the program would free mankind from the control of the monetary elite which has unjustly usurped the fruits of the labor of society” (p. 67). It does do that. However, it does so by putting them under the control of the political elite, who will then unjustly usurp the fruits of the labor of society. Mr. Cook’s program does not set the people free. It merely changes their master, who in reality is probably the same elite.

Mr. Cook expresses his underlying fascist tendencies when he suggests that the government is a better regulator of the economy than are the markets (p. 81), which he seems to hold in utter contempt. Mr. Cook errs when he claims that the attitude of deregulation and letting the markets regulate the economy instead of the government began in the Reagan administration (p. 81). Keeping the government out of the economy was the general attitude until the progressive Wilson administration. The major exceptions were federal subsidies of infrastructure, such as canals and railroads, and protective tariffs, which lead to Southern secession. If President Reagan and the following presidents truly believed in nongovernmental intervention, why did the Code of Federal Regulation grow, not only unabated but often at an accelerated rate?

Mr. Cook asks, “But if market-based economics is so wonderful, why do we have stagnating employee incomes, rapidly increasing control of wealth by the very rich, a middle class in decline, growing poverty collapse of our manufacturing job base, a bursting housing bubble, resurgent commodity inflation, shaky stock prices, trillion dollar war in the Middle East financed by runaway deficit spending, and capital markets dominated by predatory equity and hedge funds” (p. 82)? The answer is that we have a heavily governmentally manipulated market as Mr. Cook advocates. The problems that Mr. Cook identifies are the results of the conflict between the government trying to control the markets and the markets trying to free themselves from that control. Many of these problems result from the government creating and protecting a banking cartel. These problems will not go away if Mr. Cook’s program is adopted. They will become worse as he advocates evermore governmental control of the economy.

Mr. Cook condemns the ever-growing debt in the United States and blames it on the markets (p. 82). His solution is not to reduce debt. It is to replace one form of debt with another. He would deny this because he fails or refuses to see government notes as a noninterest-bearing, nonrepayable form of debt. As it is never paid down, his debt always grows.

Mr. Cook is convinced that banks derive their power from free-market ideology (p. 84). They do not. They derive their power from governments. Governments gave them this power through the creation and maintenance of central banking and governmental regulations. (Central banks are not creatures of the markets. They are creatures of governments. The markets did create them. Governments did. Markets have never created a central bank.) The last thing that most bankers want to do is to operate in a free market. If they had to operate in a truly free market, they would lose the power that Mr. Cook ascribes to them. (President Bush’s bailout of the banks was Mr. Cook’s governmental intervention and not the markets operating. President Roosevelt’s suspension of the bankers’ obligation to redeem their notes in gold as they had contracted to do was Mr. Cook’s governmental intervention and not the markets operating.)

Like most fiat monetary reforms, Mr. Cook fondly quotes Benjamin Franklin’s admiration of paper money (p. 89). Franklin admired paper money because he made a small fortune printing it. By the time of the U.S. Constitution’s adoption, he had seen the destructive effects of governmentally issued paper money, i.e., governmentally issued credit. By then he had lost much of his enthusiasm for paper money. Thomas Jefferson, Thomas Paine, James Madison, and most of the founding fathers abhorred paper money. This hostility toward paper money appears in the U.S. Constitution where Congress was stripped of the power to emit bills of credit, i.e., to issue paper money, that the Articles of Confederation granted it. (Thus, Mr. Cook’s program requiring the U.S. government to issue paper money and its electronic equivalent is unconstitutional in spite of what any court may declare.)

Mr. Cook shows his ignorance of monetary history when he writes, “Because the colonial notes were spent directly into circulation not issued by a central bank through lending at interest, they did not inflate” (p. 90). Colonial notes were highly inflationary.[1]

Mr. Cook notes that by 1811 when the charter of the First Bank of the United States expired, state-chartered banks “had begun to issue paper money through fractional reserve banking” (p. 94). He also notes that lending was “confined mainly to commercial transactions under the ‘real bills’ doctrine” (p. 94). Some points of clarification are needed. First, under the real bills doctrine, banks do not really lend when they buy a real bill of exchange. Real bills are commercial money. They can be and were used to discharge debt. When a bank buys a real bill, it merely converts commercial money (the real bill) to bank money (bank notes and checkbook money). Second, the discount rate (the difference between what one pays for a real bill and its value at maturity) is not an interest rate. Savers determine rates. Consumers determine discount rates. (This does not mean that governments do not intervene to fix rates. When governments fix rates, they create excesses or shortages.)

Like most fiat monetary reformers, Mr. Cook expresses admiration for President Lincoln (pp. 96-97). Does he admire Lincoln because he did more than any other president to destroy the U.S. Constitution? He does admire Lincoln’s issuance of the unconstitutional greenback (p. 96) to fight his war to destroy the Constitution.

Like nearly all monetary economists, be they hard-money folks or easy-money folks, Mr. Cook claims that “silver was demonetized by the Coinage Act of 1873” (p. 97). This is not exactly true. This Act did not demonetized silver. It ended the silver standard. Silver continued to be used in subsidiary coins (dimes, quarters, and halves). Between 1878 and 1900, silver as silver dollars was used as fiat money. Congress and the Secretary of the Treasury instead of the markets decided the quantity to issue. Moreover, the value of silver in a silver dollar was less than a dollar. In 1900 with the Gold Standard Act, silver dollars became subsidiary coins for gold.

Mr. Cook is probably correct when he claims that the Coinage Act of 1873 “was in line with a worldwide banker-sponsored shift toward a gold standard” (p. 97). The elimination of the silver standard was necessary to eliminate the gold standard, which occurred in 1933.

Mr. Cook errs when he writes, “In creating it [the Federal Reserve System], Congress ceded its constitutional authority over the nation’s monetary system to the private financiers” (p. 98). With the Federal Reserve Act, Congress did create a banking cartel, but it has no constitutional authority to do so. The Constitution grants Congress no authority to act as a bank. Therefore, it can give no entity such authority. Just as importantly, the Constitution grants Congress no authority over the country’s monetary system. Its only authorities on monetary matters are defining the monetary unit and coining all the gold and silver presented to the mint for coinage. Thus, it ceded none of its constitutional authority. What it ceded was the authority that it had usurped.

Originally, the Act prohibited the Federal Reserve from buying treasury securities and using treasury securities as collateral for note issuance. When World War I broke out, the Federal Reserve and the U.S. government ignored this prohibition. The Federal Reserve bought treasury securities (p. 98). Later, Congress legitimized this illegal activity.

Again, Mr. Cook harps on deregulation and its destructive effects (p. 103). Again, I ask, “If we have had all this deregulation, why has the Code of Federal Regulation (CFR) continued to grow at an accelerated rate?” (When I first began working with the CFR in the early 1970s, I worked with one or two volumes. When I last worked with the CFR in 2007, I was working with 20 volumes. If all the material incorporated by reference were included, several hundred volumes would be needed. So much for deregulation.) Deregulation is not the cause of America’s financial and economic problems. A lack of deregulation is the cause. At the root of America’s economic problem is excessive regulation.

Mr. Cook blames much of the financial and economic problems of the country on “monetarism” and the resulting erratic expansion and contraction of the money supply (pp. 102-104, 171-172). Mr. Cook’s understanding of monetarism differs significantly from mine. According to Milton Friedman, the father of monetarism, the money supply should grow at a known steady rate year after year with no regard for interest rates, unemployment, governmental budgetary needs, or anything else. Friedman’s concept differs greatly from Mr. Cook’s description. Like Mr. Cook, I have no use for the monetarist approach to regulating the money supply.

Mr. Cook declares that credit creation should be “through our constitutional system whereby Congress is authorized to create money and regulate its value” (p. 128). The Constitution does not authorize Congress to create money. It authorizes Congress to coin money. To coin money and to create money are entirely two different things. Money cannot be coined until it is created. Mr. Cook despises market-created gold and silver money. They can be and have been used as money without being coined. Coining makes their use easier. The Constitution recognizes this fact. Under the Constitution, if no private person brought any gold or silver to the mint, there would be no coins. If the U.S. government undertook to coin gold and silver on its own account, it would first have to steal the gold or silver from someone. (Between 1878 and 1900, it did mint silver dollars on its own account. It could do so because it could buy silver with gold and the silver coins minted contained less silver than the monetary value of the coin.)

Mr. Cook argues that the federal government should control credit instead of private bankers (p. 128). Except for authorizing Congress to borrow money, the Constitution does not authorize the U.S. government to become involved with credit. If Mr. Cook wants a constitutional system that removes the control of credit from bankers and international financiers, he should advocate the true real bills doctrine and concomitant gold and silver standards. Such a monetary and credit system can operate without banks although not as efficiently. However, they make the control of credit private by putting it directly in the hands of the people. (Mr. Cook does not trust the people with the control of credit. The government, which he entrusts with the control of credit, is not and can never be the people.) Moreover, they also greatly restrict governmental monetary adventurism. They would prevent governmental control of credit, the establishment of Social Credit, and its concomitant fiat money. They are a greater threat to Mr. Cook’s proposal than the current system. His proposal is only a major modification of the current system. The gold and silver standards with the real bills doctrine is a replacement.

Mr. Cook remarks that “under the regime of the world’s all-powerful central banking systems, money is brought into existence only as debt-bearing loans” (p. 145). This may be true today, but it has not always been true. Before President Roosevelt stole the people’s gold, money came into the system whenever a gold smelter cast an ingot of gold and certified its weight and purity.

Thieves like Roosevelt, whom Mr. Cook admires although he was a frontman for the big bankers, whom Mr. Cook despises, are the type of people that Mr. Cook wants to entrust with managing the country’s monetary. A banker like Morgan is despicable, selfish, and greedy when he is a banker. However, if he were to become a politician or a governmental bureaucrat like the head of the Bank of England, he suddenly becomes an altruistic and honorable person of probity and integrity. Although Mr. Cook distrusts bankers, he seems to trust politicians and bureaucrats implicitly.

However, Mr. Cook distrusts governmental officials to manage the current economy or even doubts that they can (p. 146). Yet he not only wants these people to manage the economy under his system, but he advocates that they do. They have to because his program calls on them actively to manage the monetary system and, by that, the economy.

Mr. Cook is correct when he writes, “The fundamental objectives of monetary policy should be to secure a healthy producing economy and provide for sufficient individual income” (p. 148). His proposal fails to achieve this goal. Contrary to his assertion, it is highly inflationary. He also advocates heavy governmental intervention in the economy, which retards economic growth. Mr. Cook displays a strong distrust of freedom.

Mr. Cook is a strong advocate of a guaranteed income (pp. 9, 148). People should be guaranteed a minimum standard of living even if they produce nothing and are as parasitic as bankers and speculators. To give someone a guaranteed income, the wealth has to be forcibly taken from someone else. If an individual forcibly takes another person’s wealth even to give to a third party, he would be called a thief and punished as such. However, if he is shrewd, he steals through the government. Not only does he then get away with his theft, but he is also considered the victim who deserves what he gets—and more. Mr. Cook conceals this theft with his printing press money and its electronic equivalent. He also cuts everyone in on the deal by giving everyone a bribe. Although he would deny it, he is transferring wealth from producers to nonproducers by depreciating the money.

Mr. Cook believes that everyone in the country has a claim to what everyone else produces (p. 148). Yet this philosophy of “from each according to his production to each according to his need” is not communism. Again, Mr. Cook conceals his communistic scheme with printing press money and its electronic equivalent.

Mr. Cook not only wants the U.S. government to guarantee every American a minimum income, but he wants governments of rich countries through the United Nations to guarantee everyone in the world a minimum income (p. 158). (Mr. Cook appears to be a strong supporter of the U.N. [p. 174].) He is a firm believer in using governments to plunder producers for the benefit of nonproducers. Producers are to be the slaves of nonproducers. He really does support a parasitic society—only the parasites are no longer bankers and speculators.

Mr. Cook is right when he writes, “The U.S. and world economies are on the brink of collapse due to the lunacy of the financial system, not because we can’t produce enough. Contrary to so many doomsayers, the mature world economy is capable of providing a decent living for everyone on the planet” (p. 149). Yet he fails to connect a declining standard of living with fiat money. As the monetary system has moved farther from the gold standard, the standard of living for the common man has declined at an increasing pace. Only sound money and minimum governmental oversight can unleash this productive power that will significantly raise the standard of living especially for the poor. Mr. Cook offers neither. On the contrary, he offers an unsound monetary system and massive governmental intrusion.

Mr. Cook refuses to realize that the gold standard, especially when accompanied by the silver standard, protects the common man from bankers and governments by limiting their power over him. Consequently, bankers and governments have been hostile toward the gold standard. Mr. Cook sees the danger of the bankers and wants to protect the common man from them. However, he does not seem to see the greater danger of government—at least not under his system although he vaguely sees it under the current system. This ignorance or deliberate blindness is unexplainable unless he is so blinded by his system, which demands the subordination of the common man to the government, that he refuses to see it.

Mr. Cook contents that his recommendations are based on economic ethics (p. 153). The ethics underlying his proposed system are the same as those underlying the current system. They are fraud and force. Both force loans on the people in the form of irredeemable legal tender paper money. They deceive people into believing that they can get something for nothing. In both systems, money is created out of nothing.

Mr. Cook is correct in that “human morality should be the common denominator and essential element in making economic policy decisions” (p. 153). Unfortunately, his proposal is no more moral than the current system. He believes that a gang of thugs acting as the government has the right to take someone’s property without his consent. He does object to much of this taking under the current system, but he demands such taking under his system. He seems to object to “might makes right” (p. 154). Yet his system relies on this principle.

Mr. Cook is a firm believer in command and control. The government telling (commanding) markets what to do solves financial and economic problems. Mr. Cook distrusts liberty. Freedom and markets cannot be trusted to solve financial and economic problems.

Mr. Cook seems to believe that self-interest governmental bureaucrats acting under the facade of “charity, compassion, or service to mankind” (p. 154) can better direct production and services of the economy than the profit motive. Profit sends a clear signal to entrepreneurs informing them what the people want and when and where they want it. What do nonrisk-taking bureaucrats use to guide themselves in providing for the people? Gut feelings? Personal basis? Mr. Cook’s desires?

What happens when people use their money in a way that Mr. Cook finds objectionable, such as speculation? Does the government outlaw arbitrarily objectionable spending?

Mr. Cook objects to war (pp. 155, 191-192). Yet his scheme makes financing war easy. Under his system, the government can fight wars with printing press money. It need not finance them with taxes or borrowing. Only gold and silver have been much of an impediment to war. Because they make war so difficult, governments quickly abandon them when they want to fight a war of any significance.

Mr. Cook disagrees with the notion “that money is, or should be, a thing of value in-and-of itself, or that this value is created by ‘market forces’” (p. 178). Commodity money, like gold coins, has value as money because the material of which it is made has value in and of itself, i.e., has value because of its nonmonetary use. Supply and demand give fiat money value, which originally comes from its connection with commodity money. The only other mechanism that gives money value is to fix the price of everything in the economy in terms of the monetary unit. How does Mr. Cook propose that money receive its value?

Mr. Cook claims “that money serves its socially-beneficial purposes only when it is regarded as an instrument of law and an economic medium-of-exchange and when it is regulated by a government which can responsibly direct its benefits to the welfare of all citizens” (p. 179). Apparently, before a governmental edict decreed a certain item to be the medium of exchange, i.e., money, money served no socially-beneficial purpose. If the markets decide what is to be used as money, money can serve no socially-beneficial purposes. Or at least its socially-beneficial purposes are severely limited. (To Mr. Cook, money’s socially-beneficial purposes seem to be the welfare state with socialized healthcare and education.)

Markets easily and efficiently create money and credit when and where it is needed and in the quantity needed. Mr. Cook would have the government regulate money by always increasing its supply regardless of demand. The government would create and issue money to cover most of its operating expenses, to subsidize prices, and to fill the perceived gap between national income and gross domestic product.

Like most fiat monetary reformers, Mr. Cook believes that the Constitution authorizes Congress to print and issue money (p. 179). It does not. The writers of the Constitution thought that they had denied Congress the power to print money when they removed the provision in the draft that authorized Congress to emit bills of credit.

As he states, the Supreme Court did declare that the Constitution authorized the printing and issuance of greenbacks (p. 179). However, the first time that the Supreme Court ruled on the constitutionality of the greenback, it ruled that it was unconstitutional. Only after President Grant did his version of packing the Court did the Supreme Court rule that the greenback was constitutional. What this ruling shows is that when given a choice between political expediency and personal bias verse original intent, the Court nearly always chooses political expediency and personal bias over original intent. This preference is the root of nearly all of the economic problems of the United States. If courts had followed the wording and intent of the Constitution, the Federal Reserve would not exist. Neither would the U.S. government’s micromanagement of the economy and the welfare state.

Mr. Cook claims that “fractional reserve banking under a privately-owned central bank is not ordained by our Constitution” (p. 179). He is correct. However, based on his premise that the Constitution is highly elastic and that it gives Congress the authority to control and regulate money, the Federal Reserve is constitutional. Congress chose to control and regulate money through “fractional reserve banking under a privately owned central bank.” The Constitution does not prohibit Congress from delegating its powers to private entities or using them to exercise its powers.

Mr. Cook claims that the current system forces people into ruinous debt (p. 179). On the private level, no one is forced to borrow. The way to avoid ruinous debt is not to borrow. Those who run the government can force ruinous debt on taxpayers through their extravagant spending. However, if the people want to avoid this ruinous debt they can vote people into office who adamantly oppose the welfare-warfare state. Mr. Cook’s scheme does not eliminate ruinous debt. It merely changes its form to noninterest-bearing, nonrepayable debt.

Mr. Cook is correct about the Federal Reserve’s incompetence and inability to manage the country’s money properly and to influence the economy appropriately (pp. 183ff). Yet he believes that politicians and bureaucrats are fully competent and able to manage the country’s money and economy. Unlike the Federal Reserve, the government can at least dictate how individuals are to spend their money and what economic activities are to be undertaken. Did not the Soviet Union and Mao’s China do this?

Endnote

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



Copyright © 2009 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.

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