From the June 2003 Idaho Observer:

The Search for Monetary Truth

by Dave Cassel

I am an engineer, but for many years I have also been a student of monetary economics. After just completing one year of formal graduate studies in economics at a major university, the subject is a little clearer. The higher one goes in formal education in economics, the more everything must be expressed in mathematics. Even to express simple theoretical concepts mathematically, the math becomes very difficult (How is your mastery of calculus and differential equations, and your ability to think in terms of n dimensions?). So my favorite books on money are not studied in the universities, but are found in the popular press. They are written by ordinary people who have studied the history and practical applications of monetary policies; not by economists whose understanding of monetary matters are kept within the confines of mathematical equations.

To really learn about monetary theory, one must study history. Stephen Zarlenga, director of the American Monetary Institute, just completed and published a landmark book, “The Lost Science of Money.” The subtitle appropriately describes this historical framework: “The Mythology of Money - the Story of Power.” I recommend this book as a starting point for anyone who wants to seriously study the subject of money. Unfortunately, economic history is not taught very much in universities these days. It is crowded out by mathematical analysis.

What everyone “knows is true” about money probably isn't. Congressman Jerry Voorhis, in his 1943 book, “Out of Debt, Out of Danger,” described one such idea. He called it the “Great Deception.” Here is a quote from page 29 of the 1991 reprint by Populist Action Committee:

The philosophy of a public debt being a public blessing was fastened upon the young republic, or at any rate upon its government, and we have not yet got rid of the idea. Upon that idea has been built the Great Deception under which modern mankind has labored. That Great Deception is this: that money which comes into being as a result of a government or an individual going into debt and contracting to pay interest to a private bank is “sound” money, but that any money which comes into being debt and interest free, as a result of the action of a government itself, is not “sound” money but a very dangerous thing.

Another of my favorite books on money is “Money Creators,” by Gertrude M. Coogan. The first printing was in 1935, during the Great Depression. Chapter XI, The Historical Facts, begins with an insightful comment about history that is worth repeating here:

It is emphasized that what we are about to state has not appeared in the text books from which we “learned” history. The complete omission of rational reasons for events accounts for the dryness of history. When we investigate the facts and place upon them the only interpretations permitted by common sense, history becomes intensely alive. Our patience is lost with the tommy-rot taught, the pretended reasons which caused peoples and nations to take strong action.

Jack Metcalf, former member of the Washington State Senate, in 1986 wrote a short book entitled “The 200 Year Debate.” The subtitle is “Who Shall Issue the Nation's Money?” In the book, Metcalf represents the two sides of the debate by Thomas Jefferson and Alexander Hamilton. Jefferson wanted the government to issue the money, and Hamilton wanted private banks to issue the money. Gertrude Coogan, in “Money Creators,” describes how Alexander Hamilton actually reversed his stand on this issue after he discovered that he was only being used by the banking interests to accomplish their goals. Quoting from page 204 of Money Creators:

“Hamilton did not derive the expected benefits from the debt system which he had just saddled upon the young nation. He saw that the Bank “of the United States” was in hands that wanted to push him aside.”

Then on page 205 we find an interesting comment regarding the economic profession:

“In passing, the writer wishes to note that since the appearance of The Wealth of Nations, by Adam Smith, a group of medicine men, Houdini worshipers and cabalistic artists have been employed at very remunerative salaries to beguile the unsuspecting public. “Economist” is the learned term still applied to those who write unintelligible discussions of money, prices, public finance, and so-called political science. A strange but true fact is that many of the people drawing high salaries in this “profession” are totally innocent of the part they play in propagating false principles and in enslaving their fellow human beings. However, their very innocence tends to discredit their promulgations.”

I agree, and furthermore I have found modern economists to be in quite a bind. To maintain standing in their profession, they must express all concepts mathematically. The burden of high-level mathematical analysis has two important consequences. First, no non-economist can understand what they are saying. Second, the economists cannot “see the forest for the trees.” The mathematical analysis takes so much effort that they cannot take the time to see their work in proper historical perspective. A fellow graduate student told me that, when he attends economic conferences, he notices the participants spend all the time discussing the mathematical models, and not the underlying reasons for the study or the major conclusions.

“What Banks Don't Want You to Know” is a 1993 pamphlet by Monetary Science Publishing, Wickliffe, Ohio. The 26-page pamphlet was compiled and edited by Peter Cook, a long-time private researcher of the money system. On the last page is a quote from Sir Josiah Stamp at the time he was president of the Bank of England. In the late 1920s, in an informal talk to about 150 history, economics and social science professors, at the University of Texas, he explained the following:

“Banking was conceived in inequity and born in sin. . . The bankers own the world. Take it away from them, but leave them the power to create money and control credit, with a flick of the pen they will create enough money to buy it back again. . . . Take this power away from bankers and all great fortunes like mine (he was the second richest man in Great Britain) will disappear, and they ought to disappear, for this would then be a happier and better world to live in. My sons should not object. They are well educated, and should be willing to take their places in the business world and forge their own fortunes. . . But, if you want to continue to be slaves of bankers and pay the cost of your own enslavement, then let the bankers continue to create money and control credit. . . However, as long as governments will legalize such things, a man is foolish not to be a banker.”

My particular interest in monetary theory is the link between the debt-based money system and inflation. One of my earliest readings on money was The Truth In Money Book, by Theodore R. Thoren and Richard F. Warner, first published in 1980 by Truth In Money, Inc., Chagrin Falls, Ohio. In Appendix 2, Inflation Explained, the authors define inflation as “debt-induced monetary devaluation.” They say that the value of the dollar must decrease so that the outstanding money, which was created as debt, can pay the interest on itself. Therefore, the underlying cause of inflation is the debt-based money system.

I am opposed in principle to inflation. Stable money should be provided by the government. The mandate to the Federal Reserve by the U.S. Congress includes stable prices. To underscore the meaning of stable prices, I quote President Franklin D. Roosevelt in a nationwide radio address, October 22, 1933 (from Out of Debt, Out of Danger, page 129):

“It is the Government's policy to restore the price level first. When we have restored the price level we shall seek to establish and maintain a dollar which will not change its purchasing and debt-paying power during the succeeding generations. I said that in my message to the American delegation in London last July and I say it now once more.”

It would be ideal for the value of the dollar to remain the same year after year. To the contrary, it has lost approximately 99 percent of its value in the last century. I wrote a term paper for economics class this spring on monetary policy in the 1990s. In that paper I pointed out that, although the 1990s is said to be a period of low and stable inflation (averaging about 3 percent per year), the U.S. Dollar lost 25 percent of its value during that 10-year period. The authors of The Truth In Money Book may be correct in that this base rate of inflation cannot be lowered to zero due to our debt-based money system. The consequences of trying to do so would be to throw the country into economic depression.

If the system were changed such that, instead of private banks creating money at interest, the government were to pay money into circulation interest free, that would eliminate one major source of inflation. The rate of creation of money in this manner would have to be carefully controlled to avoid a second cause of inflation. That second cause is simply the larger supply of money relative to the supply of goods and services that it buys.

I need to make it perfectly clear here that our government does not print money. It borrows money from private banks. If it did print money, as governments in some countries do, it would have to exercise extreme discipline to not print more than the necessary quantity to keep prices constant.

Some say this would not be possible within the context of our political system. For those of you who believe we should tie the value of the dollar to gold or some other commodity, I recommend that you study this subject with an open mind. The Lost Science of Money and The Truth in Money Book are excellent sources of information on the relationship between gold and money. You will be amazed how gold has been manipulated through the ages. The “gold standard” was abandoned for many very good reasons.

It doesn't look like our money system will change soon. Therefore, inflation will probably be here in the foreseeable future. That would be a safe bet, so you may want to plan your personal finances accordingly. But let's work toward elimination of inflation for the good of us all. One of the evils of inflation is that it does not promote personal saving. It promotes current consumption and borrowing. One thing I did learn in economics school this year is that, for the prosperity of future generations, we should be saving and investing more, and borrowing and consuming less. This is one way that clearly the debt-based money system is working against our best interest and the best interest of future generations.

Modern macroeconomics originated with John Maynard Keynes in the 1930s. Most modern macroeconomists are “Keynesians.” The trouble with this line of study is that is was developed entirely within our modern banking system, after the Federal Reserve was established (1913).

I have observed that much effort is expended in the area of analysis of the current system. Debt-based money is, of course, an underlying factor in our current economic system. To really solve many of the current economic problems one must look beyond the current system. It seems that few researchers are doing this, and the economic establishment makes it very hard to study the science and history of monetary issues in our universities.

The study of monetary theory, when done properly and within a historical context, is exciting. It is one of the most important areas a person can study. You may wish to start with some of the books I have mentioned and then expand to other information. The more people who study this area, the less able the financial elite would be to control us and continue the Great Deception. In the area of monetary economics, the old saying “knowledge is power” is certainly true.