We
do get the most interesting comments on occasion, especially from people who have
only skimmed through what we’ve written or just glanced at the title or the
conclusion. That seems to be the source
. . . excuse me, sourse, of the
following comment we got a week or so ago in response to a piece on the role of
the central bank in economic development (spelling and punctuation unchanged):
“The stock market
wallstreet will have to be heavily reformed so it can be a benifit to business
and not a sourse of destabilization. Of course abolishing the federal reserve
and having a debt free govt created money will also be necessary for a healthy
economy.”
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| Stock market "investing" is a rich man's game. |
This was
actually something of a softball pitch . . . metaphorically speaking. If you’ve ever seen a real softball game,
there’s nothing soft about it. Those
players are out for blood.
Anyway, it’s a
bit ironic that somebody thinks the solution to the problems of the financial
system can be solved by reforming Wall Street and abolishing the central
bank. Both moves would be of great
benefit to the current power structure and ensure that financial and economic
power remain right where they are.
To
begin, the stock market is of benefit only to those businesses engaged in
buying and selling existing debt and equity, that is, of existing owners,
people who are in the main already rich or they wouldn’t have the wherewithal
to buy and sell on Wall Street. The
stock market is, essentially, a “second hand shop.” It is a great convenience in transferring
ownership among people with money and ownership, but does nothing to create new
ownership and money.
That’s the job of the central
bank. A
central bank can and must play a key role in a program geared toward creating
new ownership. This is because a central
bank (if properly used) has the task of providing an elastic, uniform, and
stable reserve currency into which all other forms of money can be converted. This ensures an adequate money supply and, if
properly done by monetizing existing and future marketable goods and services,
creates an asset-backed currency with a stable and uniform value.
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| Charles I circumventing parliament. |
Frankly,
money creation is not something you want government involved in, although government
has an essential role in setting standards. Giving government the power to create money (“emit
bills of credit”) is the same as giving politicians a blank check, and freeing
them from dependence on the citizens.
This is such a key issue that when parliament caught Charles I, one of
the reasons they cut off his head was that he had figured out a way to govern
the country without relying on the taxes raised by parliament — borrow money
from his supporters or other countries . . . thereby putting himself in the
lenders’ power.
According
to Henry C. Adams in his book Public
Debts: An Essay in the Science of Finance (1898), the surest way for a
country or government to lose its sovereignty is to get into debt. The best that can happen is that the
financial powers of a country will end up running the country; as Baron
Rothschild is alleged to have said, “Give me power over money and credit and I
care not who makes the laws.”
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| "Dude, I totally remember paying you." |
And
make no mistake: there is no such thing as “debt free money” in the sense some
people demand it. Money is not, and can
never be (except in a purely socialist State) a “non-repayable debt the nation
owes itself.” Even if money were a
“non-repayable debt” that a country owes itself (a concept completely
demolished by Dr. Harold G. Moulton in his 1943 pamphlet, The New Philosophy of Public Debt (Washington, DC: The Brookings
Institution), what about the debt that is held by other countries and non-citizens? How long do you think a creditor is going to
be put off by, “Hey, Dude, we don’t have to make good on that debt because it’s
non-repayable, and we don’t owe it to you, but to ourselves!” “The check’s in the mail” would go over
better.
As
for a government not paying debts owed to its own citizens, how long before
people realize what’s going on and either vote the current crop of politicians
out of office, or start decorating the town lampposts? All money is a contract, a promise — a
“debt.” If a government intentionally
makes promises on which it has no intention of making good, how long is that
government going to last? And how long
will people try to carry out transactions by negotiating worthless promises?
“Hey,
Dude, gimmie a couple of loaves of bread and a gallon of milk in exchange for
these worthless promises.” Chances are
nobody in his or her right mind would take that deal.
No,
having the government take over money creation and back its promises with
meaningless promises to deliver is not a good idea — unless you’re trying to
cause total chaos.
#30#