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Sunday, October 30, 2011

Khamenei vastly misinterpreted outside Iran

Ayatollah Ali Khamenei has issued a fatwa saying the production, stockpiling and use of nuclear weapons was forbidden under Islam.
Middle East
     Oct 28, 2011
Iran debates shift to parliamentary system
By Kaveh L Afrasiabi

TEHRAN - Iranian Supreme Leader Ayatollah Ali Khamenei's hint last week that the "presidential system" might give way to a parliamentary system has sparked an intensive debate about the merits of such a shift. Though couched in the language of a future possibility, the statement provides new ammunition in the country's factional politics.

"In the future, the parliamentary system can be possibly revived," Khamenei said at a lecture during his week-long trip to the province of Kermanshah, where he scolded the government officials for not doing enough to tackle rising unemployment in the province.

Replacement of the presidential system with a more European-style parliamentary system would mean scrapping the office of president and a resurrection of the role of prime minister in a revised system based on parliamentary consensus. Defenders of the proposal point to often tense relations between the Majlis (parliament) and the executive branch headed by President Mahmoud Ahmadinejad and say the change would bring about closer parliamentary scrutiny of the government.

Ali Larijani, the powerful speaker of the Majlis, and other Majlis deputies have embraced the idea, with Larijani claiming that this would result in a more smooth and efficient form of government. Former president Ali Akbar Rafsanjani, who heads the Expediency Council, has opposed this idea, as well as the related notion that the council, which serves as a quasi-parliamentary group, should also be scrapped. Defending the role and legitimacy of the Expediency Council, Rafsanjani this week vigorously defended the "republican" nature of the system, and in so many words expressed his opposition at any attempt to weaken it.

The idea of replacing the present system with a parliamentary system "has been under study in Majlis for sometime," according to Hamid Reza Katouzian, a Tehran MP.

The end of the presidential system may prove to a boon for party politics by encouraging the development of coalitions - a feature of political life that is dreadfully weak if not absent in Iran today.

A number of Tehran pundits, such as the reformist and vocal Tehran University political science professor Sadegh Ziba Kalam, have fully endorsed the leader's suggestion and penned in its favor, with Ziba Kalam putting the emphasis on government accountability.

Public support for a more robust parliamentary role in the governmental affairs is growing in light of the recent impeachment of the finance minister in a scandal which has also put some key bank executives, including the head of the central bank, in the firing line. In the immediate future that may well culminate in a constitutional revision.

There is no particular rush to reach a final resolution on this matter. Hassan Ghafoorifard, another Tehran deputy, told the media that "the leader's point in raising this issue has been to generate discussion and debate on this and I am certain it will not materialize for another 10 years".

Meanwhile, Khamenei's suggestion has been vastly misinterpreted outside Iran, with a number of commentators seizing on the issue as yet another expression of conflict and hostility from the supreme leader toward Ahmadinejad. This is clearly not the case. The leader's passing remark clearly shows that he was speaking of a long-term prospect, ie nothing that would stop Ahmadinejad from staying in office for the one-and-a-half years that remains of his term.

In a clue to the systematic efforts to patch up differences between and inside the executive, legislative, and judicial branches of the government, Mahdavi Kani, the current chairman of the Assembly of Experts, was appointed to mediate, and there are on-going "unity meetings" between the heads and key members of the three branches. As an overture to the president, Larijani and his supporters in the Majlis have backed the resignation of a fierce critic of Ahmadinejad, Ali Mottahari, who in the opinion of many experts "went too far in attacking the president and his chief of staff Rahim Mashaee".

On the whole, the mood in today's Majlis is toward reconciliation and working relations with the president rather than constantly challenging him. This is partly due to the plethora of foreign policy challenges confronting the regime, given the recent US allegations of Iran terror plot in Washington; allegations which the Tehran leaders have adamantly denied.

Regarding the claims that Tehran was involved in a plot to kill the Saudi ambassador to the US, since Iran is a signatory to the international conventions dictating cooperation in the investigation of such matters, Iran is likely to tag this to its previous complaints of US complicity in both the assassination of its nuclear scientists as well as US support for the terrorist group Jundallah, whose leader Abdulmalek Riggi, was apprehended last spring en route to a US base in Central Asia.

Tehran may be able to turn tables on the US and prove a case to the international community that it is "victim of Western-sponsored terrorism". A number of Tehran foreign policy experts have told the author that in their opinion Iran is willing to engage in earnest dialogue on Afghanistan, in light of the upcoming Afghan summit in Bonn in December. The big question is whether such needed dialogue becomes a collateral casualty in the US-Iran cold war now raging in full force.

Kaveh L Afrasiabi, PhD, is the author of After Khomeini: New Directions in Iran's Foreign Policy (Westview Press). For his Wikipedia entry, click here. He is author of Reading In Iran Foreign Policy After September 11 (BookSurge Publishing , October 23, 2008) and his latest book, Looking for rights at Harvard, is now available.

Ali Khamenei - Ayatollah Seyed Ali Hoseyni Kha-mene'i born 17 July 1939 is the Supreme Leader of Iran and the figurative head of the Muslim conservative establishment in Iran and Twelver Shi'a marja. In 2010, Forbes selected him 26th in the list of 'World's Most Powerful People'
He was president of Iran from 1981 to 1989, and has been Supreme Leader of Iran since June 1989 when the Assembly of Experts appointed him to succeed Ayatollah Ruhollah Khomeini. He has been described as one of only three people having "important influence" on the Islamic Republic of Iran (the other two being the founder of the republic, Ayatollah Ruhollah Khomeini, and the president of Iran for much of the 1990s, Ayatollah Akbar Hashemi Rafsanjani)
Khamenei, however, continued to strongly support Mahmoud Ahmadinejad's policies and re-election. Khamenei was the victim of an attack aimed to assassinate him in June 1981 that paralyzed his right arm.
In 1981, after the assassination of Mohammad-Ali Rajai, Khamenei was elected President of Iran by a landslide vote in the Iranian presidential election, October 1981 and became the first cleric to serve in the office.
Seyyed Ali Khamene'i succeeded Ayatollah Khomeini, the leader of the Islamic Revolution, after Khomeini's death, being elected as the new Supreme Leader by the Assembly of Experts on June 4, 1989.
Officials under Khamenei influence the country's various powerful, and sometimes bickering, institutions, including "the parliament, the presidency, the judiciary, the Revolutionary Guards, the military, the intelligence services, the police agencies, the clerical elite, the Friday prayer leaders and much of the media", as well as various "nongovernmental foundations, organizations, councils, seminaries and business groups"

Khamenei stays aloof from day-to-day politics. He gives no press conferences or interviews, and, as noted in Hooman Majd's book:

    [He] speaks only at special gatherings, such as an occasional Friday prayer or commemoration ceremonies of one sort or another. The Leader meets with foreign dignitaries (almost exclusively Muslim) but limits any televised and public words to generalities, such as Iran's support for the country (or entity like Hamas or Hezbollah) whose emissary he is meeting, Iran's peaceful and Islamic nature, and Iran's eagerness to expand trade and contacts with the friendly country in question. He pointedly does not meet with representatives of Western powers. The Supreme Leader does not travel overseas; if anyone wishes to see him, that person must travel to Iran.

Fatwa against nuclear weapons

Ayatollah Ali Khamenei has issued a fatwa saying the production, stockpiling and use of nuclear weapons was forbidden under Islam. The fatwa was cited in an official statement by the Iranian government at an August 2005 meeting of the International Atomic Energy Agency (IAEA) in Vienna.

Saturday, October 29, 2011

Occupy INEQUALITY -- David Graeber MSN interview (Grand Occupeur Leader!)

The top 1 percent now accounts for 23.5 percent of the national income if you include capital gains. In 1979, they only had 9.8 percent of the nation's earnings. During that same period, tax rates on the richest Americans have actually dropped. So as the economy went one way – toward more money going to the rich – the tax system went the other." ?    — Washington Post, 9/13/2010

"The richest 2% of the world's population owns more than half of the world's household wealth. Half the world, nearly 3 billion people, live on less than $2 a day. The three richest people in the world – Microsoft Chairman Bill Gates, investor Warren Buffett and Mexican telecom mogul Carlos Slim HelĂș – have more money than the poorest 48 nations combined." ?    — MSN Money Report, 12/13/2006

"Income in America is now more concentrated in fewer hands than it has been in 80 years. Almost a quarter of total income generated in the United States is going to the top 1 percent . The top one-tenth of 1 percent of Americans now earn as much as the bottom 120 million. The marginal income tax rate on the very rich is the lowest it has been in more than 80 years. Under President Dwight Eisenhower … it was 91 percent. Now it's 36 percent. " ?    — San Francisco Chronicle, 10/24/2010

All money is debt... by someone.

'Star Books' library at the Occupy London protest

'Star Books' library at the Occupy London protest.

Graeber has linked the Occupy tented cities to the Arab spring, seeing both as signals of "the dissolution of the American empire".

Is Madagascar the model for Occupy Wall Street?

"Occupy Wall Street's most defining characteristics - its decentralized nature and its intensive process of participatory, consensus-based decision-making - are rooted in ... the scholarship of anarchism and, specifically, in an ethnography of central Madagascar," The Chronicle of Higher Education reports. "It was on this island nation off the coast of Africa that David Graeber, one of the movement's early organizers, who has been called one of its main intellectual sources, spent 20 months between 1989 and 1991. He studied the people of Betafo, a community of descendants of nobles and slaves, for his 2007 book, Lost People.
Betafo was 'a place where the state picked up stakes and left,' says Mr. Graeber, an ethnographer, anarchist and reader in anthropology at the University of London's Goldsmiths campus. ... 'Basically, people were managing their own affairs autonomously,' he says."

Betafo ("many roofs") refers to (1) a town and surrounding district in Vakinankaratra Region, Madagascar, and (b) a village in the district of Arivonimamo, in Itasy Region. The village's inhabitants are said to be divided between descendants of andriana ("nobles') and descendants of former slaves ("olona mainty"). This aspect was the subject of a study by anthropologist David Graeber.[1] His book, "Lost People: Magic and the Legacy of Slavery in Madagascar" contains a detailed recounting of the village's oral traditions, full of stories of scandalous murders, magical battles, forbidden romances, and spiteful ancestors sending fires and hailstorms from their tombs. The irrigated rice paddies of this region are emblematic of this technology throughout the highlands and were nominated to the Tentative List of UNESCO World Heritage Sites in Madagascar in 1997.

A key to unlock the door of debtor's prison

David Graeber's terrific new book, Debt. In the best anthropological tradition, he helps us reset our everyday ideas by exploring history and other civilizations, then boomeranging back to render our own world strange, and more open to change.

He tells, for instance, of the Tiv, residents of rural Nigeria with elaborate rituals of exchange spiked with a dark secret. Among the Tiv, it is known that the society of witches recruits by tricking someone into eating human flesh. After that, two things might happen. Ordinary people simply run screaming from the table. But those with the seed of a witch in their hearts are burdened with a flesh debt, doomed to give their family to be served on other witches' tables.

Only the most powerful and charismatic men are susceptible to the flesh debt. Although everyone wants to become powerful and attractive, it's a way of curbing a love of too much power. In the egalitarian world of the Tiv, the story prevents anyone from becoming too big for their boots, lest they be forced to cook their children.

Power and charisma used to be suspect in our own culture. Those who accumulated power, who manufactured and traded in credit, have generally not been loved. As Graeber notes, it's impossible to find happy stories about usurers in most cultures. Late capitalism is a strange exception. Bankers may be derided, but they continue to accumulate power and money, their social necessity defended by, say, Niall Ferguson, who suggests that poverty isn't about rapacious financiers exploiting the poor, but the absence of bankers for the poor.

Given bailouts for the wealthy and austerity for the poor, this is a tough case to make. What Graeber does is open the door to thinking more deeply about why bankers exist in the first place. Is the solution to poverty really about making microloans available (often at high rates of interest) so that "untapped" capital can be made to work? Or might we imagine our responsibilities to one another in different ways?

Graeber suggests that we can. For him, debt is "a relationship between two people who do not consider each other fundamentally different sorts of being, who are at least potential equals, and who are not currently in a state of equality – but for whom there is some way to set matters straight." It's a lovely definition because it reminds us of the possibility of equality. Of course, it also throws into stark relief the debt we're familiar with today, invariably based on the opposite of equality.

Getting back to equality means breaking with a conception of human relations as a series of purely selfish transactions. In spotting the roots of the idea that we're all basically selfish individuals in European thinking barely 500 years old, Graeber makes his case powerfully. Along the way, he helps explain why our modern talk is shot through with the language of debt, offering a theory of the rise of religion along the way. Why, after all, is Christ the Redeemer? What gets cashed in?

This is a big book of big ideas: Within its 500 pages, you'll find a theory of capitalism, religion, the state, world history and money, with evidence reaching back more than 5,000 years, from the Inuit to the Aztecs, the Mughals to the Mongols. Graeber might, though, have offered more about how debt happens within the home, and how people have sought to reconfigure relations of debt.

We're left with only one concrete idea about what to do next, but it's one that has precedent in many societies: a jubilee, a wiping-clean of the slate, in which we are reminded that the balance at the bank is not all we are, and that we might refashion our relations with one another differently, and better. If that ever comes about, we'll owe David Graeber one.

Raj Patel is an academic and activist whose most recent book is The Value of Nothing.

Another aspect:


The book is packed with powerful insights and compelling perspectives. It's been one splash of cold water to the face after another, both awakening and invigorating.

"If you don't let us dream, we won't let you sleep".

They don't know why they're protesting

MSN MONEY writes:

The man behind Occupy Wall Street

Forget the labor unions. A University of London anarchist and anthropologist is a major force behind the protest movement.

If there is an endgame to the protests, he says it's to "delegitimize" the current political system in order to make way for the kind of radical change that would create a more open and fair democracy unshackled by the interests of big money.

"I think that our political structures are corrupt and we need to really think about what a democratic society would be like. People are learning how to do it now," Graeber says. "This is more than a protest, it's a camp to debate an alternative civilization."


In this interview, Graeber tells MSN-embedded-corporate-owned-mouthpiece MainStreet how he overhauled the message of Occupy Wall Street, why he wants to keep the list of demands as broad as possible and what he would say to those politicians who want to use the protests to their advantage.


MSN-MainStreet (office 14 Wall St, 15th Floor 212 3215000): How did you first get involved in Occupy Wall Street?

Graeber: I happened to be in the right place at the right time. There was a meeting on Aug. 2 for a general assembly to plan the Occupy Wall Street action based on an idea thrown out by Adbusters. Me and some friends showed up at this movement and sure enough there was a workers rally and we thought it was stupid. We said, 'Let's not play along, let's see if we can have a real general assembly.' So we started tapping people on the shoulder asking if they wanted to do a real general assembly and my friend jumped on stage saying we need to have a real general assembly and they chased her off. There was a tug-of-war, eventually we formed a circle, but it was back and forth and finally after a couple hours we managed to bring everyone away from their meeting into our meeting.

At that point, we decided on working by consensus process and we formed working groups and we decided to meet regularly afterwards. Then a couple days later we came up with the idea to call ourselves the 99% movement. I remember being the first to suggest this and was definitely the first to put it out on a list, though it was probably floating around at the time. That was really my key involvement. 

MS: What was the movement like before you took control of it that day in terms of its goals and strategy?

Graeber: I think the coalition showed up on Aug. 2 and said they would do a rally and then show up on Wall Street with a list of demands that were total boiler plate -- a massive jobs program, an end to oppression, money for us not for whatever. They were nice people, but it wasn't very radical, just the usual demands.

Adbusters, when they originally threw the idea out there, they were basically marketing guys who changed sides. They thought like marketers and one of their schticks was to come up with one single demand. That makes perfect sense from a marketing perspective, but it doesn't make sense from an organizing perspective. You need to organize people around a list of grievances. 

MS: Obviously, many people have criticized the movement for not putting out a single demand or list of demands. If the incentive to keep it vague was to make it easier for people to join the movement, why not make the message more specific now that the protests have gained steam?

Graeber: We don't want to give up the broad-based appeal. I do think every Occupy group has brainstorming groups coming up with this stuff, so there is a very long process of how we are going to come up with alternative visions democratically. That's being done. But people have been trying to put out demands and protest since the 2008 collapse and no one shows up. . . . Suddenly we get hundreds of thousands of people.

I think that people are much more interested in radical change. People really don't like the way things are arranged now. Yes, they have to actually get food for their children and that's a priority and if there is an immediate [political] measure that can do that then they want it, but there is an anger at the way things are structured. It's not a matter of how far people want to go as it is how far people think they can go.

MS: Given that, is there any issue you think the Occupy Wall Street protesters should avoid talking about, or is everything fair game?

Graeber: Antisemitic banking conspiracies and pretty much anything that's racist or sexist. Basic human decency applies. There are certain times that people say something that is offensive and people start repeating it in the human microphone. But we have working groups on anything else, where you can discuss monetary reform, where you can discuss transgender issues. It's a community with all sorts of concerns.

Thanks Occupy Wall Street . And we thought we were screwed, signed the 99 percenters who can't be there in person

MS: You seem to have a clearer sense of the purpose of these protests than most people, and you're certainly credited enough as being the architect behind them, so why not take charge of the movement more?

Graeber: I didn't want to do press stuff in the beginning, because I was involved with promoting my book ("Debt: The First 5,000 Years") and it seemed like a conflict of interest. We didn't have demands, and I had this book about debt, and I didn't want to make it seem like that's what we were pushing for. But I did do a lot of work with facilitation -- facilitating the first really long meeting at Tompkins Square Park, working with the outreach committee, getting together a training group for legal and medical training.

MS: And what about now? Clearly you are willing to do more media appearances, why not take your place as the face of the movement?

Graeber: I think the movement has many faces and that's as it should be. Sure, I'll be one of them, but when people ask, 'Was I one of the creators of OWS?' I say, 'Yeah, me and 100 other people.' It's the same with being a spokesman. I don't think I'm in any kind of privileged position. The last time I was in Zuccotti Park was 10 days ago, though I was in Austin [Texas] just a few days ago.

 MS: Does it bother you, then, to see celebrities like Michael Moore and Cornel West appear front and center at many of the rallies, garnering much of the media attention?

Graeber: I don't think it's a problem that Michael Moore comes at all and I don't think that he has tried to become the face of the movement, but I do think if someone or some organization like does try to become the face of it, that's a problem. I think these people are not trying to take advantage, they are trying to help, and I think it did help. NPR didn't cover this at all for the first two weeks and someone asked them why not and they said we would need to have tens of thousands of people, or we'd need to have more violence or we'd need to have celebrities.

 MS: Was it really that hard to find a way to get exposure early on?

 Graeber: We were in a trap because we knew that if you want media attention, you'd have to break some windows, but none of us wanted to endanger people or engage in violence. We all decided that would not be an appropriate tactic, but we knew the media would not cover us if we didn't. Then the NYPD obliged.

MS: You're referring to the scuffles between cops and protesters, I assume. Do you think the protesters did anything to incite those incidents or was it entirely the fault of the cops?

 Graeber: The NYPD was absolutely given orders to intimidate people through random force. The very first day, four people were arrested for chanting in front of a bank. Another time, two people were arrested for writing with chalk on the sidewalk.

MS: Going forward, are you concerned that Democrats -- or politicians in general -- will make an effort to take over the movement and use it for their own advantage?

 Graeber: I'm willing to believe that the Tea Party wasn't just Astroturf in the beginning, that it eventually got subsumed by Republicans. We won't let that happen. But I'll put it this way: If Nancy Pelosi is suddenly inspired to put out a call for a debt jubilee, that would be great. Nobody is going to say that's bad because it's backed by a government we consider to be illegitimate. That won't change our long-term visions. As long as you are on the same path, what we are really arguing for is what's possible so there's no reason we can't work together.

MS: And what exactly is that path you and the other protesters are working toward?

Graeber: That path is one towards autonomous organization. What this movement is about is that even the democratic institutions we do have now have been corrupted by big money, and in the same way our movement would be corrupted if we were subsumed into that same political system. We have to maintain the integrity of this experiment.


understand DEBT and MONEY:

IDIOCY!! All money is debt - No debt, no money!!!

Our civilization is locked in the grip of an ideology - CORPORATISM. An ideology that denies and undermines the legitimacy of individuals as the citizen in a democracy. The particular imbalance of this ideology leads to a worship of self-interest and a denial of the public good. The practical effects on the individual are passivity and conformism in the areas that matter, and non-conformism in the areas that don't.

John Ralston Saul

01 May, 2008 u2r2h blog


President Andrew Jackson called the banking cartel a "hydra-headed monster eating the flesh of the common man." New York Mayor John Hylan, writing in the 1920s, called it a "giant octopus" that "seizes in its long and powerful tentacles our executive officers, our legislative bodies, our schools, our courts, our newspapers, and every agency created for the public protection." The debt spider has devoured farms, homes and whole countries that have become trapped in its web. In a February 2005 article called "The Death of Banking," financial commentator Hans Schicht wrote:

The fact that the Banker is allowed to extend credit several times his own capital base and that the Banking Cartels, the Central Banks, are licensed to issue fresh paper money in exchange for treasury paper, [has] provided them with free lunch for eternity. . . . Through a network of anonymous financial spider webbing only a handful of global King Bankers own and control it all. . . . Everybody, people, enterprise, State and foreign countries, all have become slaves chained to the Banker's credit ropes.1

Schicht writes that he had an opportunity in his career to observe the wizards of finance as an insider at close range. The game has gotten so centralized and concentrated, he says, that the greater part of U.S. banking and enterprise is now under the control of a small inner circle of men. He calls the game "spider webbing." Its rules include:

  • Making any concentration of wealth invisible.
  • Exercising control through "leverage" – mergers, takeovers, chain share holdings where one company holds shares of other companies, conditions annexed to loans, and so forth.
  • Exercising tight personal management and control, with a minimum of insiders and front-men who themselves have only partial knowledge of the game.

The late Dr. Carroll Quigley was a writer and professor of history at Georgetown University, where he was President Bill Clinton's mentor. Dr. Quigley wrote from personal knowledge of an elite clique of global financiers bent on controlling the world. Their aim, he said, was "nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole." This system was "to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements."2 He called this clique simply the "international bankers." Their essence was not race, religion or nationality but was just a passion for control over other humans. The key to their success was that they would control and manipulate the money system of a nation while letting it appear to be controlled by the government.

The international bankers have succeeded in doing more than just controlling the money supply. Today they actually create the money supply, while making it appear to be created by the government. This devious scheme was revealed by Sir Josiah Stamp, director of the Bank of England and the second richest man in Britain in the 1920s. Speaking at the University of Texas in 1927, he dropped this bombshell:

The modern banking system manufactures money out of nothing. The process is perhaps the most astounding piece of sleight of hand that was ever invented. Banking was conceived in inequity and born in sin . . . . Bankers own the earth. Take it away from them but leave them the power to create money, and, with a flick of a pen, they will create enough money to buy it back again. . . . Take this great power away from them and all great fortunes like mine will disappear, for then this would be a better and happier world to live in. . . . But, if you want to continue to be the slaves of bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit.3

Professor Henry C. K. Liu is an economist who graduated from Harvard and chaired a graduate department at UCLA before becoming an investment adviser for developing countries. He calls the current monetary scheme a "cruel hoax." When we wake up to that fact, he says, our entire economic world view will need to be reordered, "just as physics was subject to reordering when man's world view changed with the realization that the earth is not stationary nor is it the center of the universe."4 The hoax is that there is virtually no "real" money in the system, only debts. Except for coins, which are issued by the government and make up only about one one-thousandth of the money supply, the entire U.S. money supply now consists of debt to private banks, for money they created with accounting entries on their books. It is all done by sleight of hand; and like a magician's trick, we have to see it many times before we realize what is going on. But when we do, it changes everything. All of history has to be rewritten.

The following chapters track the web of deceit that has engulfed us in debt, and present a simple solution that could make the country solvent once again. It is not a new solution but dates back to the Constitution: the power to create money needs to be returned to the government and the people it represents. The federal debt could be paid, income taxes could be eliminated, and social programs could be expanded; and this could all be done without imposing austerity measures on the people or sparking runaway inflation. Utopian as that may sound, it represents the thinking of some of America's brightest and best, historical and contemporary, including Abraham Lincoln, Thomas Jefferson and Benjamin Franklin. Among other arresting facts explored in this book are that:

  • The "Federal" Reserve is not actually federal. It is a private corporation owned by a consortium of very large multinational banks. (Chapter 13)
  • Except for coins, the government does not create money. Dollar bills (Federal Reserve Notes) are created by the private Federal Reserve, which lends them to the government. (Chapter 2)
  • Tangible currency (coins and dollar bills) together make up less than 3 percent of the U.S. money supply. The other 97 percent exists only as data entries on computer screens, and all of this money was created by banks in the form of loans. (Chapters 2 and 17)
  • The money that banks lend is not recycled from pre-existing deposits. It is new money, which did not exist until it was lent. (Chapters 17 and 18)
  • Thirty percent of the money created by banks with accounting entries is invested for their own accounts. (Chapter 18)
  • The American banking system, which at one time extended productive loans to agriculture and industry, has today become a giant betting machine. An estimated $370 trillion are now riding on complex high-risk bets known as derivatives – 28 times the $13 trillion annual output of the entire U.S. economy. These bets are funded by big U.S. banks and are made largely with borrowed money created on a computer screen. Derivatives can be and have been used to manipulate markets, loot businesses, and destroy competitor economies. (Chapters 20 and 32)
  • The U.S. federal debt has not been paid off since the days of Andrew Jackson. Only the interest gets paid, while the principal portion continues to grow. (Chapter 2)
  • The federal income tax was instituted specifically to coerce taxpayers to pay the interest due to the banks on the federal debt. If the money supply had been created by the government rather than borrowed from banks that created it, the income tax would have been unnecessary. (Chapters 13 and 43)
  • The interest alone on the federal debt will soon be more than the taxpayers can afford to pay. When we can't pay, the Federal Reserve's debt-based dollar system must collapse. (Chapter 29)
  • Contrary to popular belief, creeping inflation is not caused by the government irresponsibly printing dollars. It is caused by banks expanding the money supply with loans. (Chapter 10)
  • Most of the runaway inflation seen in "banana republics" has been caused, not by national governments over-printing money, but by global institutional speculators attacking local currencies and devaluing them on international markets. (Chapter 25)
  • The same sort of speculative devaluation could happen to the U.S. dollar if international investors were to abandon it as a global "reserve" currency, something they are now threatening to do in retaliation for what they perceive to be American economic imperialism. (Chapters 29 and 37)
  • There is a way out of this morass. The early American colonists found it, and so did Abraham Lincoln and some other national leaders: the government can take back the money-issuing power from the banks. (Chapters 8 and 24)

The bankers' Federal Reserve Notes and the government's coins represent two separate money systems that have been competing for dominance throughout recorded history. At one time, the right to issue money was the sovereign right of the king; but that right got usurped by private moneylenders. Today the sovereigns are the people, and the coins that make up less than one one-thousandth of the money supply are all that are left of our sovereign money. Many nations have successfully issued their own money, at least for a time; but the bankers' debt-money has generally infiltrated the system and taken over in the end. These concepts are so foreign to what we have been taught that it can be hard to wrap our minds around them, but the facts have been substantiated by many reliable authorities. To cite a few –

Robert H. Hemphill, Credit Manager of the Federal Reserve Bank of Atlanta, wrote in 1934:

We are completely dependent on the commercial Banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the Banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. 5

Graham Towers, Governor of the Bank of Canada from 1935 to 1955, acknowledged:

Banks create money. That is what they are for. . . . The manufacturing process to make money consists of making an entry in a book. That is all. . . . Each and every time a Bank makes a loan . . . new Bank credit is created -- brand new money.6

Robert B. Anderson, Secretary of the Treasury under Eisenhower, said in an interview reported in the August 31, 1959 issue of U.S. News and World Report:

[W]hen a bank makes a loan, it simply adds to the borrower's deposit account in the bank by the amount of the loan. The money is not taken from anyone else's deposit; it was not previously paid in to the bank by anyone. It's new money, created by the bank for the use of the borrower.

Michel Chossudovsky, Professor of Economics at the University of Ottawa, wrote during the Asian currency crisis of 1998:

[P]rivately held money reserves in the hands of "institutional speculators" far exceed the limited capabilities of the World's central banks. The latter acting individually or collectively are no longer able to fight the tide of speculative activity. Monetary policy is in the hands of private creditors who have the ability to freeze State budgets, paralyse the payments process, thwart the regular disbursement of wages to millions of workers (as in the former Soviet Union) and precipitate the collapse of production and social programmes.7

Today, Federal Reserve Notes and U.S. dollar loans dominate the economy of the world; but this international currency is not money issued by the American people or their government. It is money created and lent by a private cartel of international bankers, and this cartel has the United States itself hopelessly entangled in a web of debt. By 2006, combined personal, corporate and federal debt in the United States had reached a staggering 44 trillion dollars – four times the collective national income, or $147,312 for every man, woman and child in the country.8 The United States is legally bankrupt, defined in the dictionary as being unable to pay one's debts, being insolvent, or having liabilities in excess of a reasonable market value of assets held. By October 2006, the debt of the U.S. government had hit a breath-taking $8.5 trillion. Local, state and national governments are all so heavily in debt that they have been forced to sell off public assets to satisfy creditors. Crowded schools, crowded roads, and cutbacks in public transportation are eroding the quality of American life. A 2005 report by the American Society of Civil Engineers gave the nation's infrastructure an overall grade of D, including its roads, bridges, drinking water systems and other public works. "Americans are spending more time stuck in traffic and less time at home with their families," said the group's president. "We need to establish a comprehensive, long-term infrastructure plan."9 We need to but we can't, because government at every level is broke.

Money in the Land of Oz

If governments everywhere are in debt, who are they in debt to? The answer is that they are in debt to private banks. The "cruel hoax" is that governments are in debt for money created on a computer screen, money they could have created themselves. The vast power acquired through this sleight of hand by a small clique of men pulling the strings of government behind the scenes evokes images from The Wizard of Oz, a classic American fairytale that has become a rich source of imagery for financial commentators. Editorialist Christopher Mark wrote in a series called "The Grand Deception":

Welcome to the world of the International Banker, who like the famous film, The Wizard of Oz, stands behind the curtain of orchestrated national and international policymakers and so-called elected leaders. 10

The late Murray Rothbard, an economist of the classical Austrian School, wrote:

Money and banking have been made to appear as mysterious and arcane processes that must be guided and operated by a technocratic elite. They are nothing of the sort. In money, even more than the rest of our affairs, we have been tricked by a malignant Wizard of Oz.11

In a 2002 article titled "Who Controls the Federal Reserve System?", Victor Thorn wrote:

In essence, money has become nothing more than illusion -- an electronic figure or amount on a computer screen. . . . As time goes on, we have an increasing tendency toward being sucked into this Wizard of Oz vortex of unreality [by] magician-priests that use the illusion of money as their control device.12

James Galbraith wrote in The New American Prospect:

We are left . . . with the thought that the Federal Reserve Board does not know what it is doing. This is the "Wizard of Oz" theory, in which we pull away the curtains only to find an old man with a wrinkled face, playing with lights and loudspeakers.13

The analogies to The Wizard of Oz work for a reason. According to later commentators, the tale was actually written as a monetary allegory, at a time when the "money question" was a key issue in American politics. In the 1890s, politicians were still hotly debating who should create the nation's money and what it should consist of. Should it be created by the government, with full accountability to the people? Or should it be created by private banks behind closed doors, for the banks' own private ends?

William Jennings Bryan, the Populist candidate for President in 1896 and again in 1900, mounted the last serious challenge to the right of private bankers to create the national money supply. According to the commentators, Bryan was represented in Frank Baum's 1900 book The Wonderful Wizard of Oz by the Cowardly Lion. The Lion finally proved he was the King of Beasts by decapitating a giant spider that was terrorizing everyone in the forest. The giant spider Bryan challenged at the turn of the twentieth century was the Morgan/Rockefeller banking cartel, which was bent on usurping the power to create the nation's money from the people and their representative government.

Before World War I, two opposing systems of political economy competed for dominance in the United States. One operated out of Wall Street, the New York financial district that came to be the symbol of American finance. Its most important address was 23 Wall Street, known as the "House of Morgan." J. P. Morgan was an agent of powerful British banking interests. The Wizards of Wall Street and the Old World bankers pulling their strings sought to establish a national currency that was based on the "gold standard," one created privately by the financial elite who controlled the gold. The other system dated back to Benjamin Franklin and operated out of Philadelphia, the country's first capital, where the Constitutional Convention was held and Franklin's "Society for Political Inquiries" planned the industrialization and public works that would free the new republic from economic slavery to England.14 The Philadelphia faction favored a bank on the model established in provincial Pennsylvania, where a state loan office issued and lent money, collected the interest, and returned it to the provincial government to be used in place of taxes. President Abraham Lincoln returned to the colonial system of government-issued money during the Civil War; but he was assassinated, and the bankers reclaimed control of the money machine. The silent coup of the Wall Street faction culminated with the passage of the Federal Reserve Act in 1913, something they achieved by misleading Bryan and other wary Congressmen into thinking the Federal Reserve was actually federal.

Today the debate over who should create the national money supply is rarely heard, mainly because few people even realize it is an issue. Politicians and economists, along with everybody else, simply assume that money is created by the government, and that the "inflation" everybody complains about is caused by an out-of-control government running the dollar printing presses. The puppeteers working the money machine were more visible in the 1890s than they are today, largely because they had not yet succeeded in buying up the media and cornering public opinion.

Economics is a dry and forbidding subject that has been made intentionally complex by banking interests intent on concealing what is really going on. It is a subject that sorely needs lightening up, with imagery, metaphors, characters and a plot; so before we get into the ponderous details of the modern system of money-based-on-debt, we'll take an excursion back to a simpler time, when the money issues were more obvious and were still a burning topic of discussion. The plot line for The Wizard of Oz has been traced to the first-ever march on Washington, led by an obscure Ohio businessman who sought to persuade Congress to return to Lincoln's system of government-issued money in 1894. Besides sparking a century of protest marches and the country's most famous fairytale, this little-known visionary and the band of unemployed men he led may actually have had the solution to the whole money problem, then and now . . . .

Chapter 1


"The great Oz as spoken! Pay no attention to that man behind the curtain! I am the great and powerful Wizard of Oz!"

In refreshing contrast to the impenetrable writings of economists, the classic fairytale The Wizard of Oz has delighted young and old for over a century. It was first published by L. Frank Baum as The Wonderful Wizard of Oz in 1900. In 1939, it was made into a hit Hollywood movie starring Judy Garland, and later it was made into the popular stage play The Wiz. Few of the millions who have enjoyed this charming tale have suspected that its imagery was drawn from that most obscure and tedious of subjects, banking and finance. Fewer still have suspected that the real-life folk heroes who inspired its plot may have had the answer to the financial crisis facing the country today!

The economic allusions in Baum's tale were first observed in 1964 by a schoolteacher named Henry Littlefield, who called the story "a parable on Populism," referring to the People's Party movement challenging the banking monopoly in the late nineteenth century.1 Other analysts later picked up the theme. Economist Hugh Rockoff, writing in the Journal of Political Economy in 1990, called the story a "monetary allegory."2 Professor Tim Ziaukas, writing in 1998, stated:

"The Wizard of Oz" . . . was written at a time when American society was consumed by the debate over the "financial question," that is, the creation and circulation of money. . . . The characters of "The Wizard of Oz" represented those deeply involved in the debate: the Scarecrow as the farmers, the Tin Woodman as the industrial workers, the Lion as silver advocate William Jennings Bryan and Dorothy as the archetypal American girl.3

The Germans established the national fairytale tradition with Grimm's Fairy Tales, a collection of popular folklore gathered by the Brothers Grimm specifically to reflect German populist traditions and national values.4 Baum's tale did the same thing for the American populist (or people's) tradition. The Wizard of Oz has been called "the first truly American fairytale."5 It was all about people power, manifesting your dreams, finding what you wanted in your own backyard. According to Littlefield, the march of Dorothy and her friends to the Emerald City to petition the Wizard of Oz for help was patterned after the 1894 march from Ohio to Washington of an "Industrial Army" led by Jacob Coxey, urging Congress to return to the Greenback system initiated by Abraham Lincoln. The march of Coxey's Army on Washington began a long tradition of people taking to the streets in peaceful protest when there seemed no other way to voice their appeals. As Lawrence Goodwin, author of The Populist Moment, described the nineteenth century movement to change the money system:

[T]here was once a time in history when people acted. . . . [F]armers were trapped in debt. They were the most oppressed of Americans, they experimented with cooperative purchasing and marketing, they tried to find their own way out of the strangle hold of debt to merchants, but none of this could work if they couldn't get capital. So they had to turn to politics, and they had to organize themselves into a party. . . . [T]he populists didn't just organize a political party, they made a movement. They had picnics and parties and newsletters and classes and courses, and they taught themselves, and they taught each other, and they became a group of people with a sense of purpose, a group of people with courage, a group of people with dignity.6

Like the Populists, Dorothy and her troop discovered that they had the power to solve their own problems and achieve their own dreams. The Scarecrow in search of a brain, the Tin Man in search of a heart, the Lion in search of courage actually had what they wanted all along. When the Wizard's false magic proved powerless, the Wicked Witch was vanquished by a defenseless young girl and her little dog. When the Wizard disappeared in his hot air balloon, the unlettered Scarecrow took over as leader of Oz.

The Wizard of Oz came to embody the American dream and the American national spirit. In the United States, the land of abundance, all you had to do was to realize your potential and manifest it. That was one of the tale's morals, but it also contained a darker one, a message for which its imagery has become a familiar metaphor: that there are invisible puppeteers pulling the strings of the puppets we see on the stage, in a show that is largely illusion.

Money in the Land of Oz

The 1890s were plagued by an economic depression that was nearly as severe as the Great Depression of the 1930s. The farmers lived like serfs to the bankers, having mortgaged their farms, their equipment, and sometimes even the seeds they needed for planting. They were charged so much by a railroad cartel for shipping their products to market that they could have more costs and debts than profits. The farmers were as ignorant as the Scarecrow of banking policies; while in the cities, unemployed factory workers were as frozen as the Tin Woodman from the lack of a free-flowing supply of money to "oil" the wheels of industry. In the early 1890s, unemployment had reached 20 percent. The crime rate soared, families were torn apart, racial tensions boiled. The nation was in chaos. Radical party politics thrived.

In every presidential election between 1872 and 1896, there was a third national party running on a platform of financial reform. Typically organized under the auspices of labor or farmer organizations, these were parties of the people rather than the banks. They included the Populist Party, the Greenback and Greenback Labor Parties, the Labor Reform Party, the Antimonopolist Party, and the Union Labor Party. They advocated expanding the national currency to meet the needs of trade, reform of the banking system, and democratic control of the financial system.7

Money reform advocates today tend to argue that the solution to the country's financial woes is to return to the "gold standard," which required that paper money be backed by a certain weight of gold bullion. But to the farmers and laborers who were suffering under its yoke in the 1890s, the gold standard was the problem. They had been there and done it and knew it didn't work. William Jennings Bryan called the bankers' private gold-based money a "cross of gold." There was simply not enough gold available to finance the needs of an expanding economy. The bankers made loans in notes backed by gold and required repayment in notes backed by gold; but the bankers controlled the gold, and its price was subject to manipulation by speculators. Gold's price had increased over the course of the century, while the prices laborers got for their wares had dropped. People short of gold had to borrow from the bankers, who periodically contracted the money supply by calling in loans and raising interest rates. The result was "tight" money – insufficient money to go around. Like in a game of musical chairs, the people who came up short wound up losing their homes to the banks.

The solution of Jacob Coxey and his Industrial Army of destitute unemployed men was to augment the money supply with government-issued United States Notes. Popularly called "Greenbacks," these federal dollars were first issued by President Lincoln when he was faced with usurious interest rates in the 1860s. Lincoln had foiled the bankers by funding the government with U.S. Notes that did not accrue interest and did not have to be paid back to the banks. The same sort of debt-free paper money had financed a long period of colonial abundance in the eighteenth century, until King George forbade the colonies from issuing their own currency. The money supply had then shrunk, precipitating a depression that led to the American Revolution.

To remedy the tight-money problem that resulted when the Greenbacks were halted after Lincoln's assassination, Coxey proposed that Congress should increase the money supply with a further $500 million in Greenbacks. This new money would be used to redeem the federal debt and to stimulate the economy by putting the unemployed to work on public projects.8 The bankers countered that allowing the government to issue money would be dangerously inflationary. What they failed to reveal was that their own paper banknotes were themselves highly inflationary, since the same gold was "lent" many times over, effectively counterfeiting it; and when the bankers lent their paper money to the government, the government wound up heavily in debt for something it could have created itself. But those facts were buried in confusing rhetoric, and the bankers' "gold standard" won the day.

The Silver Slippers: The Populist Solution
to the Money Question

The Greenback Party was later absorbed into the Populist Party, which took up the cause against tight money in the 1890s. Like the Greenbackers, the Populists argued that money should be issued by the government rather than by private banks. William Jennings Bryan, the Populists' loquacious leader, gave such a stirring speech at the Democratic convention that he won the Democratic nomination for President in 1896. Outgoing President Grover Cleveland was also a Democrat, but he was an agent of J. P. Morgan and the Wall Street banking interests. Cleveland favored money that was issued by the banks, and he backed the bankers' gold standard. Bryan was opposed to both. He argued in his winning nomination speech:

We say in our platform that we believe that the right to coin money and issue money is a function of government. . . . Those who are opposed to this proposition tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business. I stand with Jefferson . . . and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business. . . . [W]hen we have restored the money of the Constitution, all other necessary reforms will be possible, and . . . until that is done there is no reform that can be accomplished.

He concluded with these famous lines:

You shall not press down upon the brow of labor this crown of thorns, you shall not crucify mankind upon a cross of gold.9

Since the Greenbackers' push for government-issued paper money had failed, Bryan and the "Silverites" proposed solving the liquidity problem in another way. The money supply could be supplemented with coins made of silver, a precious metal that was cheaper and more readily available than gold. Silver was considered to be "the money of the Constitution" although the Constitution only referred to the "dollar," because the dollar was understood to be a reference to the Spanish milled silver dollar coin then in common use. The slogan of the Silverites was "16 to 1": 16 ounces of silver would be the monetary equivalent of 1 ounce of gold. Ounces is abbreviated oz, hence "Oz." The Wizard of the Gold Ounce (Oz) in Washington was identified by later commentators as Marcus Hanna, the power behind the Republican Party, who controlled the mechanisms of finance in the administration of President William McKinley.10 (Hanna was reportedly admired by Karl Rove, who followed the model as political adviser to President George Bush Jr.11)

Frank Baum, the journalist who turned the politics of his day into The Wonderful Wizard of Oz, marched with the Populist Party in support of Bryan in 1896. He is said to have had a deep distrust of big-city financiers. But when his dry goods business failed, he bought a Republican newspaper, which had to have a Republican message to retain its readership.12 That may have been why the Populist message was so deeply buried in symbolism in his famous fairytale. Like Lewis Carroll, who began his career writing uninspiring tracts about mathematics and politics and wound up satirizing Victorian society in Alice's Adventures in Wonderland, Baum was able to suggest in a children's story what he could not say in his editorials. His book contained many subtle allusions to the political and financial issues of the day. The story's inspirational message was evidently a product of the times as well. Commentators trace it to the theosophical movement, of which Baum was an active member.13 Newly-imported from India, it held that reality is a construct of the mind. What you want is already yours; you need only to believe it, to "realize" it or "make it real."

Looking at the plot of this familiar fairytale, then, through the lens of the contemporary movements that inspired it . . . .

An Allegory of Money, Politics
and Believing in Yourself

The story began on a barren Kansas farm, where Dorothy lived with a very sober aunt and uncle who "never laughed" (the 1890s depression that hit the farmers particularly hard). A cyclone came up, carrying Dorothy and the house into the magical world of Oz (the American dream that might have been). The house landed on the Wicked Witch of the East (the Wall Street bankers and their man Grover Cleveland), who had kept the Munchkins (the farmers and factory workers) in bondage for many years.

For killing the Wicked Witch, Dorothy was awarded magic silver slippers (the Populist silver solution to the money crisis) by the Good Witch of the North (the North was then a Populist stronghold). In the 1939 film, the silver slippers would be transformed into ruby slippers to show off the cinema's new technicolor abilities; but the monetary imagery Baum suggested was lost. The silver shoes had the magic power to solve Dorothy's dilemma, just as the Silverites thought that expanding the money supply with silver coins would solve the problems facing the farmers.

Dorothy wanted to get back to Kansas but was unaware of the power of the slippers on her feet, so she set out to the Emerald City to seek help from the Wizard of Oz (the apparently all-powerful President, whose strings were actually pulled by financiers concealed behind a curtain).

"The road to the City of Emeralds is paved with yellow brick," she was told, "so you cannot miss it." Baum's contemporary audience, wrote Professor Ziaukas, could not miss it either, as an allusion to the gold standard that was then a hot topic of debate.14 Like the Emerald City and the Great and Powerful Oz himself, the yellow brick road would turn out to be an illusion. In the end, what would carry Dorothy home were silver slippers.

On her journey down the yellow brick road, Dorothy was first joined by the Scarecrow in search of a brain (the naive but intelligent farmer kept in the dark about the government's financial policies), then by the Tin Woodman in search of a heart (the factory worker frozen by unemployment and dehumanized by mechanization). Littlefield commented:

The Tin Woodman . . . had been put under a spell by the Witch of the East. Once an independent and hard working human being, the Woodman found that each time he swung his axe it chopped off a different part of his body. Knowing no other trade he "worked harder than ever," for luckily in Oz tinsmiths can repair such things. Soon the Woodman was all tin. In this way Eastern witchcraft dehumanized a simple laborer so that the faster and better he worked the more quickly he became a kind of machine. Here is a Populist view of evil Eastern influences on honest labor which could hardly be more pointed.

The Eastern witchcraft that had caused the Woodman to chop off parts of his own body reflected the dark magic of the Wall Street bankers, whose "gold standard" allowed less money into the system than was collectively owed to the banks, causing the assets of the laboring classes to be systematically devoured by debt.

The fourth petitioner to join the march on Oz was the Lion in search of courage. According to Littlefield, he represented the orator Bryan himself, whose roar was mighty like the king of the forest but who lacked political power. Bryan was branded a coward by his opponents because he was a pacifist and anti-imperialist at a time of American expansion in Asia. The Lion became entranced and fell asleep in the Witch's poppy field, suggesting Bryan's tendency to get side-tracked with issues of American imperialism stemming from the Opium Wars. Since Bryan led the "Populist" or "People's" Party, the Lion also represented the people, collectively powerful but entranced and unaware of their strength.

In the Emerald City, the people were required to wear green-colored glasses attached by a gold buckle, suggesting green paper money shackled to the gold standard. To get to her room in the Emerald Palace, Dorothy had to go through 7 passages and up 3 flights of stairs, an allusion to the "Crime of '73," the congressional Act that changed the money system from bimetallism (paper notes backed by both gold and silver) to an exclusive gold standard. The Crime of '73 proved to all Populists that Congress and the bankers were in collusion.15

Dorothy and her troop presented their requests to the Wizard, who demanded that they first vanquish the Wicked Witch of the West, representing the McKinley/Rockefeller faction in Ohio (then considered a Western state). The financial powers of the day were the Morgan/Wall Street/Cleveland faction in the East (the Wicked Witch of the East) and this Rockefeller-backed contingent from Ohio, the state of McKinley, Hanna, and Rockefeller's Standard Oil cartel. Hanna was an industrialist who was a high school friend of John D. Rockefeller and had the financial backing of the oil giant.16

Dorothy and her friends learned that the Witch of the West had enslaved the Yellow Winkies and the Winged Monkeys (an allusion to the Chinese immigrants working on the Union-Pacific railroad, the native Americans banished from the northern woods, and the Filipinos denied independence by McKinley). Dorothy destroyed the Witch by melting her with a bucket of water, suggesting the rain that would reverse the drought, and the financial liquidity that the Populist solution would bring to the land. As one nineteenth century commentator put it, "Money and debt are as opposite in nature as fire and water; money extinguishes debt as water extinguishes fire."17

When Dorothy and her troop got lost in the forest, she was told to call the Winged Monkeys by using a Golden Cap she had found in the Witch's cupboard. When the Winged Monkeys came, their leader explained that they were once a free and happy people; but they were now "three times the slaves of the owner of the Golden Cap, whosoever he may be" (the bankers and their gold standard). When the Golden Cap fell into the hands of the Wicked Witch of the West, the Witch had made them enslave the Winkies and drive Oz himself from the Land of the West.

Dorothy used the power of the Cap to have her band of pilgrims flown to the Emerald City, where they discovered that the "Wizard" was only a smoke and mirrors illusion operated by a little man behind a curtain. A dispossessed Nebraska man himself, he admitted to being a "humbug" without real power. "One of my greatest fears was the Witches," he said, "for while I had no magical powers at all I soon found out that the Witches were really able to do wonderful things."

If the Wizard and his puppet were Marcus Hanna and William McKinley, who were the Witches they feared? Behind the Wall Street bankers were powerful British financiers, who funded the Confederates in the Civil War and had been trying to divide and conquer America economically for over a century. Patriotic Americans had regarded the British as the enemy ever since the American Revolution. McKinley was a protectionist who favored high tariffs to keep these marauding British free-traders out. When he was assassinated in 1901, no conspiracy was proved; but some suspicious commentators saw the invisible hand of British high finance at work.18

The Wizard lacked magical powers but was a very good psychologist, who showed the petitioners that they had the power to solve their own problems and manifest their own dreams. The Scarecrow just needed a paper diploma to realize he had a brain. For the Tin Woodman, it was a silk heart; for the Lion, an elixir for courage. The Wizard offered to take Dorothy back to Kansas in his hot air balloon, but the balloon took off before she could get on board. Dorothy and her friends then set out to find Glinda the Good Witch of the South, who they were told could help Dorothy find her way home.

On the way they faced various challenges, including a great spider that ate everything in its path and kept everyone unsafe as long as it was alive. The Lion (the Populist leader Bryan) welcomed this chance to test his new-found courage and prove he was indeed the King of Beasts. He decapitated the mighty spider with his paw, just as Bryan would have toppled the banking cartel if he had won the Presidency.

The group finally reached Glinda, who revealed that Dorothy too had the magic tokens she needed all along: the Silver Shoes on her feet would take her home. But first, said Glinda, Dorothy must give up the Golden Cap (the bankers' restrictive gold standard that had enslaved the people).

The moral also worked for the nation itself. The economy was deep in depression, but the country's farmlands were still fertile and its factories were ready to roll. Its entranced people merely lacked the paper tokens called "money" that would facilitate production and trade. The people had been deluded into a belief in scarcity by defining their wealth in terms of a scarce commodity, gold. The country's true wealth consisted of its goods and services, its resources and the creativity of its people. Like the Tin Woodman in need of oil, all it needed was a monetary medium that would allow this wealth to flow freely, circulating from the government to the people and back again, without being perpetually drained into the private coffers of the bankers.

Sequel to Oz

The Populists did not achieve their goals, but they did prove that a third party could influence national politics and generate legislation. Although Bryan the Lion failed to stop the bankers, Dorothy's prototype Jacob Coxey was still on the march. In a plot twist that would be considered contrived if it were fiction, he reappeared on the scene in the 1930s to run against Franklin D. Roosevelt for President, at a time when the "money question" had again become a burning issue. In one five-year period, over 2,000 schemes for monetary reform were advanced. Needless to say, Coxey lost the election; but he claimed that his Greenback proposal was the model for the "New Deal," Roosevelt's plan for putting the unemployed to work on government projects to pull the country out of the Depression. The difference was that Coxey's plan would have been funded with debt-free currency issued by the government, on Lincoln's Greenback model. Roosevelt funded the New Deal with borrowed money, indebting the country to a banking cartel that was surreptitiously creating the money out of thin air, just as the government itself would have been doing under Coxey's plan without accruing a crippling debt to the banks.

After World War II, the money question faded into obscurity. Today, writes British economist Michael Rowbotham, "The surest way to ruin a promising career in economics, whether professional or academic, is to venture into the 'cranks and crackpots' world of suggestions for reform of the financial system."19 Yet the claims of these cranks and crackpots have consistently proven to be correct. The U.S. debt burden has mushroomed out of control, until just the interest on the federal debt now threatens to be a greater tax burden than the taxpayers can afford. The gold standard precipitated the problem, but unbuckling the dollar from gold did not solve it. Rather, it caused worse financial ills. Expanding the money supply with increasing amounts of "easy" bank credit just put increasing amounts of money in the bankers' pockets, while consumers sank further into debt. The problem proved to be something more fundamental: it was in who extended the nation's credit. As long as the money supply was created as a debt owed back to private banks with interest, the nation's wealth would continue to be drained off into private vaults, leaving scarcity in its wake.

Today's monetary allegory goes something like this: the dollar is a national resource that belongs to the people. It was an original invention of the early American colonists, a new form of paper currency backed by the "full faith and credit" of the people. But a private banking cartel has taken over its issuance, turning debt into money and demanding that it be paid back with interest. Taxes and a crushing federal debt have been imposed by a financial ruling class that keeps the people entranced and enslaved. In the happy storybook ending to the tale, the power to create money is returned to the people, and abundance returns to the land. But before we get there, the Yellow Brick Road takes us through the twists and turns of history and the writings and insights of a wealth of key players. We're off to see the Wizard .

Chapter 22


Waves of immigrants are now pouring over the Mexican border into the United States in search of work, precipitating an illegal alien crisis for Americans. Vigilante border patrols view these immigrants as potential terrorists, but in fact they are refugees from an economic war that has deprived them of their own property and forced them into debt bondage to a private global banking cartel. When Mexico was conquered in 1520, the mighty Aztec empire was ruled by the unsuspecting, hospitable Montezuma. The Spanish General Cortes, propelled by the lure of gold, conquered by warfare, violence and genocide. When Mexico fell again in the twentieth century, it was to a more covert form of aggression, one involving a drastic devaluation of its national currency.

If Montezuma's curse was his copious store of gold, for Mexico in the twentieth century it was the country's copious store of oil. According to William Engdahl, who tells the story in A Century of War, the first Mexican national Constitution vested the government with "direct ownership of all minerals, petroleum and hydro-carbons" in 1917. When British and American oil interests persisted in an intense behind-the-scenes battle for these oil reserves, the Mexican government finally nationalized all its foreign oil holdings. The move led the British and American oil majors to boycott Mexico for the next forty years. When new oil reserves were discovered in Mexico in the 1970s, President Jose Lopez Portillo undertook an impressive modernization and industrialization program, and Mexico became the most rapidly growing economy in the developing world. But according to Engdahl, the prospect of a strong industrial Mexico on the southern border of the United States was intolerable to certain powerful Anglo-American interests, who determined to sabotage Mexico's industrialization by securing rigid repayment of its foreign debt. That was when interest rates were tripled. Third World loans were particularly vulnerable to this manipulation, because they were usually subject to floating or variable interest rates.1

Why did Mexico need to go into debt to foreign lenders? It had its own oil in abundance. It had accepted development loans earlier, but it had largely paid them off. The problem for Mexico was that it was one of those intrepid countries that had declined to let its national currency float. Mexico's dollar reserves were exhausted by speculative raids in the 1980s, forcing it to borrow just to defend the value of the peso.2 According to Henry Liu, writing in The Asia Times, Mexico's mistake was in keeping its currency freely convertible into dollars, requiring it to keep enough dollar reserves to buy back the pesos of anyone wanting to sell. When those reserves ran out, it had to borrow dollars on the international market just to maintain its currency peg.3

In 1982, President Portillo warned of "hidden foreign interests" that were trying to destabilize Mexico through panic rumors, causing capital flight out of the country. Speculators were cashing in their pesos for dollars and depleting the government's dollar reserves in anticipation that the peso would have to be devalued. In an attempt to stem the capital flight, the government cracked under the pressure and did devalue the peso; but while the currency immediately lost 30 percent of its value, the devastating wave of speculation continued. Mexico was characterized as a "high-risk country," leading international lenders to decline to roll over their loans. Caught by peso devaluation, capital flight, and lender refusal to roll over its debt, the country faced economic chaos. At the General Assembly of the United Nations, President Portillo called on the nations of the world to prevent a "regression into the Dark Ages" precipitated by the unbearably high interest rates of the global bankers.

In an attempt to stabilize the situation, the President took the bold move of taking charge of the banks. The Bank of Mexico and the country's private banks were taken over by the government, with compensation to their private owners. It was the sort of move calculated to set off alarm bells for the international banking cartel. A global movement to nationalize the banks could destroy their whole economic empire. They wanted the banks privatized and under their control. The U.S. Secretary of State was then George Shultz, a major player in the 1971 unpegging of the dollar from gold. He responded with a plan to save the Wall Street banking empire by having the IMF act as debt policeman. Henry Kissinger's consultancy firm was called in to design the program. The result, says Engdahl, was "the most concerted organized looting operation in modern history," carrying "the most onerous debt collection terms since the Versailles reparations process of the early 1920s," the debt repayment plan blamed for propelling Germany into World War II.4

Mexico's state-owned banks were returned to private ownership, but they were sold strictly to domestic Mexican purchasers. Not until the North American Free Trade Agreement (NAFTA) was foreign competition even partially allowed. Signed by Canada, Mexico and the United States, NAFTA established a "free-trade" zone in North America to take effect on January 1, 1994. In entering the agreement, Carlos Salinas, the outgoing Mexican President, broke with decades of Mexican policy of high tariffs to protect state-owned industry from competition by U.S. corporations.

By 1994, Mexico had restored its standing with investors. It had a balanced budget, a growth rate of over three percent, and a stock market that was up fivefold. In February 1995, Jane Ingraham wrote in The New American that Mexico's fiscal policy was in some respects "superior and saner than our own wildly spendthrift Washington circus." Mexico received enormous amounts of foreign investment, after being singled out as the most promising and safest of Latin American markets. Investors were therefore shocked and surprised when newly-elected President Ernesto Zedillo suddenly announced a 13 percent devaluation of the peso, since there seemed no valid reason for the move. The following day, Zedillo allowed the formerly managed peso to float freely against the dollar. The peso immediately plunged by 39 percent.5

What was going on? In 1994, the U.S. Congressional Budget Office Report on NAFTA had diagnosed the peso as "overvalued" by 20 percent. The Mexican government was advised to unpeg the currency and let it float, allowing it to fall naturally to its "true" level. The theory was that it would fall by only 20 percent; but that is not what happened. The peso eventually dropped by 300 percent – 15 times the predicted fall.6 Its collapse was blamed on the lack of "investor confidence" due to Mexico's negative trade balance; but as Ingraham observes, investor confidence was quite high immediately before the collapse. If a negative trade balance is what sends a currency into massive devaluation and hyperinflation, the U.S. dollar itself should have been driven there long ago. By 2001, U.S. public and private debt totaled ten times the debt of all Third World countries combined.7

Although the peso's collapse was supposedly unanticipated, over 4 billion U.S. dollars suddenly and mysteriously left Mexico in the 20 days before it occurred. Six months later, this money had twice the Mexican purchasing power it had earlier. Later commentators maintained that lead investors with inside information precipitated the stampede out of the peso.8 These investors were evidently the same parties who profited from the Mexican bailout that followed. When Mexico's banks ran out of dollars to pay off its creditors (which were largely U.S. banks), the U.S. government stepped in with U.S. tax dollars. The Mexican bailout was engineered by Robert Rubin, who headed the investment bank Goldman Sachs before he became U.S. Treasury Secretary. Goldman Sachs was then heavily invested in short-term dollar-denominated Mexican bonds. The bailout was arranged the very day of Rubin's appointment. Needless to say, the money provided by U.S. taxpayers never made it to Mexico. It went straight into the vaults of Goldman Sachs, Morgan Stanley, and other big American lenders whose risky loans were on the line.9

The late Jude Wanniski was a conservative economist who was at one time a Wall Street Journal editor and adviser to President Reagan. He cynically observed of this banker coup:

There was a big party at Morgan Stanley after the Mexican peso devaluation, people from all over Wall Street came, they drank champagne and smoked cigars and congratulated themselves on how they pulled it off and they made a fortune. These people are pirates, international pirates.10

The loot was more than just the profits of gamblers who had bet the right way. The pirates actually got control of Mexico's banks. NAFTA rules had already opened the nationalized Mexican banking system to a number of U.S. banks, with Mexican licenses being granted to 18 big foreign banks and 16 brokers including Goldman Sachs. But these banks could bring in no more than 20 percent of the system's total capital, limiting their market share in loans and securities holdings.11 They wanted the whole enchilada. By 2004, all but one of Mexico's major banks had been sold to foreign banks, which gained total access to the formerly closed Mexican banking market.12

The value of Mexican pesos and Mexican stocks collapsed together, supposedly because there was a stampede to sell and no one around to buy; but buyers with ample funds were sitting on the sidelines, waiting to pick over the devalued stock at bargain basement prices. The result was a direct transfer of wealth from the local economy to international money manipulators. The devaluation also precipitated a wave of privatizations (sales of public assets to private corporations), as the Mexican government tried to meet its spiraling debt crisis. In a February 1996 article called "Militant Capitalism," David Peterson blamed the rout on an assault on the peso by short-sellers. He wrote:

The austerity measures that the U.S. government and the IMF forced on Mexicans in the aftermath of last winter's assault on the peso by short-sellers in the foreign exchange markets have been something to behold. Almost overnight, the Mexican people have had to endure dramatic cuts in government spending; a sharp hike in regressive sales taxes; at least one million layoffs (a conservative estimate); a spike in interest rates so pronounced as to render their debts unserviceable (hence El Barzon, a nation-wide movement of small debtors to resist property seizures and to seek a rescheduling of their debts); a collapse in consumer spending on the order of 25 percent by mid-year; and, in brief, a 10.5 percent contraction in overall economic activity during the second quarter, with more of the same sure to follow.13

By 1995, Mexico's foreign debt was more than twice the country's total debt payment for the previous century and a half. Per-capita income had fallen by almost a third from a year earlier, and Mexican purchasing power had fallen by well over 50 percent.14 Mexico was propelled into a crippling national depression that has lasted for over a decade. As in the U.S. depression of the 1930s, the actual value of Mexican businesses and assets did not change during this speculator-induced crisis. What changed was simply that currency had been sucked out of the economy by investors stampeding to get out of the Mexican stock market, leaving insufficient money in circulation to pay workers, buy raw materials, finance loans, and operate the country. It was further evidence that when short-selling is allowed, currencies are driven into hyperinflation not by the market mechanism of "supply and demand" but by the concerted action of currency speculators. The flipside of this also appears to be true: the U.S. dollar remains strong despite its plunging trade balance, because it has been artificially manipulated up by the Fed. (More on this in Chapter 33.) Market manipulators, not free market forces, are in control.

International Pirates Prowling
in a Sea of Floating Currencies

Countries around the world have been caught in the same trap that captured Mexico. Henry C K Liu calls it the "Tequila Trap." He also calls it "a suicidal policy masked by the giddy expansion typical of the early phase of a Ponzi scheme." The lure in the trap is the promise of massive dollar investment. At first, returns are spectacular. But as with every Ponzi scheme, the returns eventually collapse, leaving the people massively in debt to a foreign banking cartel that will become their new economic masters.15 The former Soviet states, the Tiger economies of Southeast Asia, and the Latin American banana republics all succumbed to these rapacious tactics. Local ineptitude and corrupt politicians are blamed, when the real culprits are international banking speculators armed with tsunami-sized walls of "credit" created on computer screens. Targeted countries are advised that to attract foreign investment, they must make their currencies freely convertible into dollars at prevailing or "floating" exchange rates, and they must keep adequate dollars in reserve for anyone who wants to change from one currency to another. After the trap is set, the speculators move in. Speculation has been known to bring down currencies and national economics in a single day. Michel Chossudovsky, Professor of Economics at the University of Ottawa, writes:

The media tends to identify these currency crises as being the product of some internal mechanism, internal political weaknesses or corruption. The linkages to international finance are downplayed. The fact of the matter is that currency speculation, using speculative instruments, was ultimately the means whereby these central bank reserves were literally confiscated by private speculators.16

While economists debate the fiscal pros and cons of "floating" exchange rates, from a legal standpoint they represent a blatant fraud on the people who depend on a stable medium of exchange. They are as much a fraud as a grocer's scales with a rock on it. If a farmer's peso was worth thirty cents yesterday and is worth only five cents today, his dozen eggs have suddenly shrunk to two eggs, his dozen apples to two apples. The very notion that a country has to "defend" its currency shows that there is something wrong with the system. Inches don't have to defend themselves against millimeters. They peacefully co-exist side by side on the same yardstick. A sovereign government has both the right and the duty to calibrate its medium of exchange so that it is a stable measure of purchasing power for its people. How a stable international currency yardstick might be devised is explored in Section VI.

The Tequila Trap and "Free Trade"

The "Tequila Trap" is the contemporary version of what Henry Carey and the American nationalists warned against in the nineteenth century when they spoke of the dangers of opening a country's borders to "free trade." Carey said sovereign nations should pay their debts in their own currencies, issued Greenback-style by their own govern-ments. Professor Liu also advocates this approach, which he calls "sovereign credit." Carey called it "national credit," something he defined as "a national system based entirely on the credit of the government with the people, not liable to interference from abroad." Carey also called it the "American system" to distinguish it from the "British system" of free trade.

Abraham Lincoln was forging ahead with that revolutionary model when he was assassinated. Carey and his faction, realizing the country was facing the very real threat that the banking interests that had captured England would also capture America, then moved to form a bulwark against this encroaching menace by planting the seeds of the American system abroad. In the twentieth century, the British system did prevail in America; but the American system was quietly taking root overseas .

Chapter 37


You shall not crucify mankind upon a cross of gold.

-- William Jennings Bryan, 1896 Democratic Convention

At opposite ends of the debate over the money question in the 1890s were the "Goldbugs," led by the bankers, and the "Greenbackers," who were chiefly farmers and laborers.1 The use of the term "Goldbug" has been traced to the 1896 Presidential election, when supporters of gold money took to wearing lapel pins of small insects to show their position. The Greenbackers at the other extreme were suspicious of a money system dependent on the bankers' gold, having felt its crushing effects in their own lives. As Vernon Parrington summarized their position in the 1920s:

To allow the bankers to erect a monetary system on gold is to subject the producer to the money-broker and measure deferred payments by a yardstick that lengthens or shortens from year to year. The only safe and rational currency is a national currency based on the national credit, sponsored by the state, flexible, and controlled in the interests of the people as a whole.2

The Goldbugs countered that currency backed only by the national credit was too easily inflated by unscrupulous politicians. Gold, they insisted, was the only stable medium of exchange. They called it "sound money" or "honest money." Gold had the weight of history to recommend it, having been used as money for 5,000 years. It had to be extracted from the earth under difficult and often dangerous circumstances, and the earth had only so much of it to relinquish. The supply of it was therefore relatively fixed. The virtue of gold was that it was a rare commodity that could not be inflated by irresponsible governments out of all proportion to the supply of goods and services.

The Greenbackers responded that gold's scarcity, far from being a virtue, was actually its major drawback as a medium of exchange. Gold coins might be "honest money," but their scarcity had led governments to condone dishonest money, the sleight of hand known as "fractional reserve" banking. Governments that were barred from creating their own paper money would just borrow it from banks that created it and then demanded it back with interest. As Stephen Zarlenga notes in The Lost Science of Money:

[A]ll of the plausible sounding gold standard theory could not change or hide the fact that, in order to function, the system had to mix paper credits with gold in domestic economies. Even after this addition, the mixed gold and credit standard could not properly service the growing economies. They periodically broke down with dire domestic and international results. [In] the worst such breakdown, the Great Crash and Depression of 1929-33, . . . it was widely noted that those countries did best that left the gold standard soonest.3

The debate between these two camps still rages. However, today the Goldbugs are not the bankers but are in the money reform camp along with the Greenbackers. Both factions are opposed to the current banking system, but they disagree on how to fix it. That is one reason the modern money reform movement hasn't made much headway politically. As Machiavelli said in the sixteenth century, "He who introduces a new order of things has all those who profit from the old order as his enemies, and he has only lukewarm allies in all those who might profit from the new." Maverick reformers continue to argue among themselves, while the bankers and their hired economists march in lockstep, fortified by media they have purchased and laws they have gotten passed, using the powerful leverage of their bank-created fiat money.

Congressman Ron Paul of Texas is one of the few contemporary politicians to boldly challenge the monetary scheme in Congress. He is also a Goldbug, who argued in a February 2006 address to Congress:

It has been said, rightly, that he who holds the gold makes the rules. In earlier times it was readily accepted that fair and honest trade required an exchange for something of real value . . . . [A]s governments grew in power they assumed monopoly control over money. . . . [I]n time governments learned to outspend their revenues [and sought] more gold by conquering other nations. . . . When gold no longer could be obtained, their military might crumbled.
. . . Today the principles are the same, but the process is quite different. Gold no longer is the currency of the realm; paper is. The truth now is: "He who prints the money makes the rules". . . . Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system.
. . . The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value.4

Modern-day Greenbackers, while having the highest regard for Congressman Paul's valiant one-man crusade, would no doubt debate the details; and one highly debatable detail is his assertion that it is the government that now has monopoly control over money and is counterfeiting the money supply. Greenbackers might say that the government should have monopoly control over money creation, but it doesn't. Wars are fought, not to preserve the dollars of the U.S. government but to preserve the Federal Reserve Notes of a private banking cartel; and it is this private cartel that has monopoly control over money. Moreover, its monopoly grew out of a shell game called "fractional reserve banking," which grew out of the very "gold standard" the Goldbugs seek to reinstate. We have been deluded into thinking that what is wrong with the system is that the government has a monopoly over creating the money supply. The government lost its monopoly when King George forbade the colonies from printing their own money in the eighteenth century. Banks have created most of the national money supply for most of our national history. The government itself must beg from this private cartel to get the money it needs; and it is this mounting debt to an elite class of banker-financiers, not profligate government spending on social goods, that has brought the United States and most other countries to the brink of bankruptcy. If Congress had used its Constitutional power to create money to fund its own operations, it would not have needed to pursue imperialistic foreign wars to extort money from its neighbors.

Is Gold a Stable Measure of Value?

Goldbugs maintain that the value of money needs to be pegged to something to keep it consistent and dependable. In a September 2002 statement urging Congress to abolish the Federal Reserve, Ron Paul argued:

[A]bolishing the Federal Reserve and returning to a constitutional system will enable America to return to the type of monetary system envisioned by our nation's founders: one where the value of money is consistent because it is tied to a commodity such as gold. Such a monetary system is the basis of a true free-market economy.5

Again the Greenbacker camp might agree in part and disagree in part. They would agree that money needs to be pegged to something to keep it stable, but they would question whether the price of gold is stable enough to act as such a peg. The nineteenth century farmers knew the problem firsthand, having seen their profits shrink as the gold price went up. Real-world models are hard to come by today, but one is furnished by the real estate market in Vietnam, where sales are now undertaken in gold. When the price of gold soared to over $500 an ounce in the fall of 2005, buyers suddenly had to pay tens of millions more Vietnamese dong for a house valued at 1,000 taels of gold. As a result, the real estate market ground to a halt.6

The purpose of "money" is to tally the value of goods and services traded, facilitating commerce between buyers and sellers. If the yardstick by which value is tallied keeps stretching and shrinking itself, commerce is impaired. During the Gold Rush of the 1850s, the supply of gold shot up, and consumer prices shot up with it. From 1917 to 1920, the gold supply surged again, as gold came pouring into the country in exchange for war materials. The money supply became seriously inflated and consumer prices doubled, although the money supply was supposedly being strictly regulated by the Federal Reserve.7 During the 1970s, the value of gold soared from $40 an ounce to $800 an ounce, dropping back to a low of $255 in February 2001. If you were on a fixed income and paying your rent in gold coins that you had stashed away earlier, you would have made out well in the 1970s; but you might be paying double or triple the effective rent thereafter. Again, people on fixed incomes generally prefer a currency that has a fixed and predictable value, even if it is made of paper. Some alternatives for pegging currencies that would be more stable than the price of gold alone are discussed in Chapter 46.

Practical Limitations of Using Gold as Money

Beyond the question of price stability, there are major practical problems involved in using gold as a medium of exchange. If only gold is used, pennies, nickels and dimes will be so small that they will get lost in your wallet; while large purchases such as houses will have to be transacted in gold bars too heavy to carry in a suitcase. To be workable and efficient, the monetary system needs to be supplemented with checkbook money and electronic money; but that means exposing it to the same tampering and manipulation to which the current fiat system is subject.

There is also the problem, discussed earlier, of keeping gold coins in circulation. If the coins are stamped with a value that is the actual market value of the metal at the time the coins are produced, they are liable to get smelted for their metal as soon as its market value goes up. Coins are therefore usually issued with a face value (or nominal value) that is far in excess of their intrinsic worth.8 But that destroys the very thing the coins are supposed to be good for – preserving value.

A more serious downside of using gold as a medium of exchange is that productivity becomes tied to the availability of the metal. When gold flooded the market after a major gold discovery in the nineteenth century, there was plenty of money to hire workers, so production and employment went up. When gold was scarce, as when the bankers raised interest rates and called in loans, there was insufficient money to hire workers, so production and employment went down. But what did the availability of gold have to do with the ability of farmers to farm, of miners to mine, of builders to build? Not much. The Greenbackers argued that the work should come first. Like in the medieval tally system, the "money" would follow, as a receipt acknowledging payment. The paper money issued by the government did represent something of real value, but it wasn't gold. The Greenback was a receipt for a quantity of goods or services delivered to the government, which the bearer could then trade in the community for other goods or services of equivalent value. The receipt was simply a tally, an accounting tool for measuring value.

Goldbugs argue that there will always be enough gold in a gold-based money system to go around, because prices will naturally adjust downward so that supply matches demand.9 But we've seen that this fundamental premise of the classical "quantity theory of money" has not worked well in practice. The drawbacks of limiting the medium of exchange to precious metals were obvious as soon as the Founding Fathers decided on a precious metal standard at the Constitutional Convention, when the money supply contracted so sharply that farmers rioted in the streets in Shay's Rebellion. When gold left the country during the Great Depression, a vicious deflationary spiral was initiated in which insufficient money to pay workers led to demand falling off, which led to more goods remaining unsold, which caused even more workers to get laid off. Fruit was left to rot in the fields, because it wasn't economical to pick it and sell it.

To further clarify these points, here is a hypothetical. You are shipwrecked on a desert island . . . .

Shipwrecked with a Chest of Gold Coins

You and nine of your mates wash ashore with a treasure chest containing 100 gold coins. You decide to divide the coins and the essential tasks equally among you. Your task is making the baskets used for collecting fruit. You are new to the task and manage to turn out only ten baskets the first month. You keep one and sell the others to your friends for one coin each, using your own coins to purchase the wares of the others.

So far so good. By the second month, your baskets have worn out but you have gotten much more proficient at making them. You manage to make twenty. Your mates admire your baskets and say they would like to have two each; but alas, they have only one coin to allot to basket purchase. You must either cut your sales price in half or cut back on production. The other islanders face the same problem with their production potential. The net result is price deflation and depression. You have no incentive to increase your production, and you have no way to earn extra coins so that you can better your standard of living.

The situation gets worse over the years, as the islanders multiply but the gold coins don't. You can't afford to feed your young children on the meager income you get from your baskets. If you make more baskets, their price just gets depressed and you are left with the number of coins you had to start with. You try borrowing from a friend, but he too needs his coins and will agree only if you will agree to pay him interest. Where is this interest to come from? There are not enough coins in the community to cover this new cost.

Then, miraculously, another ship washes ashore, containing a chest with 50 more gold coins. The lone survivor from this ship agrees to lend 40 of his coins at 20 percent interest. The islanders consider this a great blessing, until the time comes to pay the debt back, when they realize there are no extra coins on the island to cover the interest. The creditor demands lifetime servitude instead. The system degenerates into debt and bankruptcy, just as the gold-based system did historically in the outside world.

Now consider another scenario . . . .

Shipwrecked with an Accountant

You and nine companions are shipwrecked on a desert island, but your ship is not blessed (or cursed) with a chest of gold coins. "No problem," says one of your mates, who happens to be an accountant. He will keep "count" of your productivity with notched wooden tallies. He assumes the general function of tally-maker and collector and distributor of wares. For this service he pays himself a fair starting wage of ten tallies a month.

Your task is again basket-weaving. The first month, you make ten baskets, keep one, and trade the rest with the accountant for nine tallies, which you use to purchase the work/product of your mates. The second month, you make twenty baskets, keep two, and request eighteen tallies from the accountant for the other baskets. This time you get your price, since the accountant has an unlimited supply of trees and can make as many tallies as needed. They have no real value in themselves and cannot become "scarce." They are just receipts, a measure of the goods and services on the market. By collecting eighteen tallies for eighteen baskets, you have kept your basket's price stable, and you now have some extra money to tuck under your straw mattress for a rainy day. You take a month off to explore the island, funding the vacation with your savings.

When you need extra tallies to build a larger house, you borrow them from the accountant, who tallies the debt with an accounting entry. You pay principal and interest on this loan by increasing your basket production and trading the additional baskets for additional tallies. Who pockets the interest? The community decides that it is not something the tally-maker is rightfully entitled to, since the credit he extended was not his own but was an asset of the community, and he is already getting paid for his labor. The interest, you decide as a group, will be used to pay for services needed by the community -- clearing roads, standing guard against wild animals, caring for those who can't work, and so forth. Rather than being siphoned off by a private lender, the interest goes back into the community, where it can be used to pay the interest on other loans.

When you and your chosen mate are fruitful and multiply, your children make additional baskets, and your family's wealth also multiplies. There is no shortage of tallies, since they are pegged to the available goods and services. They multiply along with this "real" wealth; but they don't inflate beyond real wealth, because tallies and "wealth" (goods and services) always come into existence at the same time. When you are comfortable with your level of production -- say, twenty baskets a month -- no new tallies are necessary to fund your business. The system already contains the twenty tallies needed to cover basket output. You receive them in payment for your baskets and spend them on the wares of the other islanders, keeping the tallies in circulation. The money supply is permanent but expandable, growing as needed to cover real growth in productivity and the interest due on loans. Excess growth is avoided by returning money to the community, either as interest due on loans or as a fee or tax for other services furnished to the community.

The NESARA Bill: Restoring Constitutional Money

One other proposal should be explored before leaving this chapter. Harvey Barnard of the NESARA Institute in Louisiana has suggested a way to retain the silver and gold coinage prescribed in the Constitution while providing the flexibility needed for national growth and productivity. The Constitution gives Congress the exclusive power "to coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures." Under Barnard's bill, called the National Economic Stabilization and Recovery Act (NESARA), the national currency would be issued exclusively by the government and would be of three types: standard silver coins, standard gold coins, and Treasury credit-notes (Greenbacks). The Treasury notes would replace all debt-money (Federal Reserve Notes). The precious metal content of coins would be standardized as provided in the Constitution and in the Coinage Act of 1792, which make the silver dollar coin the standard unit of the domestic monetary system. To prevent coins from being smelted for their metal content, the coins would not be stamped with a face value but would just be named "silver dollars," "gold eagles," or fractions of those coins. Their values would then be left to float in relation to the Treasury credit-note and each other. Exchange rates would be published regularly and would follow global market values. Congress would not only mint coins from its own stores of gold and silver but would encourage people to bring their private stores to be minted and circulated. Other features of the bill include abolition of the Federal Reserve System, purchase by the U.S. Treasury of all outstanding capital stock of the Federal Reserve Banks, return of the national currency to the public through a newly-created U.S. Treasury Reserve System, and replacement of the federal income tax system with a 14 percent sales and use tax (exempting specified items including groceries and rents).10

The NESARA proposal might work, but the question remains, why use gold at all? If the government can issue both paper money and precious metal coins, the coins won't serve as much of a brake on inflation. So why go to the trouble of minting them, or to the inconvenience of carrying them around? The problem with the current financial scheme is not that the dollar is not redeemable in gold. It is that the whole monetary edifice is a pyramid scheme based on debt to a private banking cartel. Money created privately as multiple "loans" against a single "reserve" is fraudulent on its face, whether the "reserve" is a government bond or gold bullion.

Precious metals can preserve value in the event of economic collapse, and community currencies are viable alternative money sources when other money is not to be had. But in the happier ending to our economic fairytale, the national money supply would be salvaged before it collapses; and what is threatening to collapse the dollar today is not that it is not backed by gold. It is that 99 percent of the U.S. money supply is owed back to private lenders at interest. The result is a massive and growing federal debt, on which the interest burden alone will soon be more than the taxpayers can afford to pay. The debt is impossible to repay in the pre-Copernican world in which money is created as a debt to private banks, but the Wizard of Oz might have said we have just been looking at the matter wrong. We have allowed our money to rotate in the firmament around an elite class of financiers, when it should be rotating around the collective body of the people. When that Copernican shift is made, the water of a free-flowing money supply can transform the arid desert of debt into the green abundance envisioned by our forefathers. We can have all the abundance we need without taxes or debt. We can have it just by eliminating the financial parasite that is draining our abundance away.


Ellen Hodgson Brown J.D.

Audio of Book Introduction Read by Duane Thorin

Christian Business Daily, April 4th 2008

Jeff Rense Show 4-10-2008