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The American Monetary Institute is the world’s leading organization for understanding monetary history and how to reform monetary policy. These six articles reprint AMI’s principle information, available at AMI’s website, with their express permission to share widely: 

  1. Explaining the need for monetary reform: the heart of our economic crisis
  2. Monetary history: synopsis of Stephen Zarlenga’s The Lost Science of Money
  3. How to reform our monetary system: understanding the mechanics of creating money
  4. The American Monetary Act: monetary reform legislation for Congress
  5. FAQ of monetary reform
  6. What can Americans do for monetary reform?

This article is part 2. The other titles above will have live links as I add one each day. The following eight paragraphs are a common introduction that begins each article.

The Lost Science of Money (LSM) is a superlative accomplishment of historical analysis. It explains with academic professionalism how money has historically evolved and its capture by oligarchic corporate, political, and media “leaders” for their own use rather than public benefit. Stephen Zarlenga is an unsung hero for his years of work in reviewing nearly a thousand books on money, its creation, and its manipulation. LSM is the most historically authoritative, most comprehensively researched, and most important book on monetary reform available. It is clearly written for all readers to understand this topic of trillions of dollars of yearly benefits for the American public. 

As the founder and Director of AMI, Mr. Zarlenga draws on 35 years of experience in the world of finance, securities, insurance, mutual funds, real estate, and futures trading. He has published 20 books on money, banking, politics and philosophy (including The Anglo American Establishment, by Prof. Carrol Quigley). While in his mid 20s he incorporated the Athenian branch of an English life insurance company, earlier opening several European markets for the parent firm, IOS. He built the U.S. distribution network of the then leading American mutual fund concentrating in gold shares. As a member of the New York Futures Exchange (a subsidiary of the New York Stock Exchange) he specialized in trading the complex CRB futures index for several years.
Our “modern” banking system is a Robber Baron-era cartel, expert only in creating price bubbles, bursting them, consolidating power, using political control for taxpayer subsidization of trillions of our dollars (so-called “bailout”), and then repeating the process. It is an Orwellian comic-tragedy of economic management; fraud to consolidate money and power to an elite group of families and organizations.
My summary of leading economic professionals alert to these facts and communicating them to the American public, along with the obvious solutions, is here. The background paper I have for students to understand monetary reform is here. A summary of many of America’s brightest historical minds who have argued for monetary reform, here. The evidence that corporate media doesn’t report these obvious solutions because they are in collusion with the current power structure of government and money, here. Evidence that professional economic journals are controlled by the Federal Reserve to censor any information that would provide an alternative monetary system, here. A simple example is censoring the obvious alternative of paying the national debt rather than increasing it; that is, shifting from a government-created “debt supply” to an actual “money supply.” Corporate media near-absolute silence on these issues is revealing and stunning in its implications.
I also work with Ellen Brown, author of the outstanding Web of Debt, and other colleagues for states’ legislatures’ understanding of monetary reform, and in particular their legislative option to create state-owned banks. Under existing bank laws, states could issue their own credit to purchase their outstanding debt. If California were to do this, they would save $5 billion every year on their state debt interest cost. To put that number in perspective, California could rehire their 20,000 laid-off teachers (I am one) and still have $3.4 billion left.
The power of a two-pronged strategy to work for national monetary reform while educating state legislators of the advantage to their state of creating their own credit rather than going to banks is the education of over a thousand powerful law-making partners all across the US. As a professional educator, I can tell you that research agrees with our observation that education is greatly helped by linking what students (state legislators) already understand (their state economic crisis) to their interests (solving their state crises), and then to the broadest curricular objectives (national monetary reform).
A weakness in any monetary reform strategy is its “Catch-22” nature. The nation’s money supply (not the current debt supply) needs to be managed at a centralized national level. However, the current central national management are the criminal frauds keeping Americans as debt peons. The structural answer is simple, but requires honest management: transparency and public accountability. A probable scenario for Americans to achieve an honest and accountable monetary system is a Truth and Reconciliation process to uncover all the facts keeping our systemic fraud in place.
Mr. Zarlenga and I have discussed this political strategy; he currently disagrees. His view is that investing time for state use of the current non-public-serving system is a distraction from the real reforms required at the national level. His views are expressed in the following and on AMI’s website. I observe the lack of movement in Congress, the sterling example of North Dakota being one of only two currently solvent states in the US with their state-owned bank, and prefer the benefits of unleashing thousands of state lawmakers for national monetary reform step-by-step from seeing their state benefits first.

The World’s greatest problem, besides poor spiritual values, is that the governments of the World do not create their own money, but have allowed private banks to usurp the special privilege to lend their credits into circulation in place of actual money. Whether a nation has a private or a governmentally owned central bank the private bank loans function as money within the world’s economies. Two major problems arise:
First the obvious interest cost which the banks receive when they create money out of thin air. This costs the US government about $400 billion per year in interest charges on the national debt – about 18-20 % of the annual federal budget. Not to mention the interest the banks also charge against all the private borrowings. So the private creation of fiat money acts like a private tax on all of society, to the benefit of those with the privilege to create such money. This has spread poverty and has concentrated wealth to obscene levels!
Societies might survive even with such a ball-and-chain around every producer’s leg, but the second problem is even worse: It’s the bankers, not the society, who decide the direction of the nation – what gets funded and what does not. Will money go into fixing New Orleans levees and Minneapolis bridges, or into real estate bubbles and Wall Street gambling, and warfare?
Understanding The Nature of Money
Mankind can survive under all sorts of political systems from democracy to dictatorship, but the best systems will be those in harmony with the nature of man. Likewise all sorts of things can be used as money; but the best will be that in harmony with the nature of money. Therefore evaluating what constitutes proper monetary reform requires us to examine the nature of money.
In 1718, John Locke wrote: “Observe well these rules: It is a very common mistake to say that money is a commodity… [but] Bullion is valued by its weight…money is valued by its stamp.” America’s great Ben Franklin agreed, writing: “Silver and gold…(are) of no certain permanent value…We must distinguish between money as it is bullion, which is merchandise, and as by being coined it is made a currency; for its value as merchandise, and its value as a currency are two different things…” (LSM, Ch. 14*)
The Aristotelian Concept of Money – a legal fiat
Both Locke and Franklin echoed Aristotle’s concept of money as an abstract legal power, a fiat of the law, summed up in Aristotle’s phrase “Money exists not by nature but by law.” (Ethics, 1133) To Aristotle money isn’t a commodity that comes out of a mine or a farm. It comes from “nomos” - the law or binding custom, and the Greek name for money was “nomisma.” Aristotle makes the supreme distinction between money which is abstract, and wealth which is tangible. He is the creator of the “science of money.” (Ch.1) The history of ancient systems shows a pattern of Aristotle’s science of money being discovered; used to build the society; corrupted and then lost; and again rediscovered over the centuries.
American Colonial Development
Massachusetts rediscovered the science of money in 1690 when she issued “bills of credit,” the first paper money in the West. She spent them into circulation paying for colonial expenses. In 1723 under Franklin’s guidance Pennsylvania loaned such money into circulation and used the interest earned for colonial expenses. The colonial fiat currencies dramatically improved life in the colonies, facilitated the building of real infrastructure, reversing the flow of emigrants who for decades had been moving back to England.
Dutch and English laws forbade sending money to the colonies. By necessity we became a monetary laboratory trying everything from agricultural and metallic commodities to ‘land banks.’ Finally Massachusetts issued paper “bills of credit,” spending them into circulation. They were not a promise to pay anything, but were a promise to receive them back in payments to the colony. It turned life around, building real infrastructure in the colonies. Right from the earliest days we have been a
nation of fiat paper money. Without it there is no United States of America.
Founding Father Ben Franklin, the great scientist (early work with electricity) and statesman (guided the Continental Congress; convinced France to support our revolution) was a monetary genius. His 1729 essay The Nature and Necessity of a Paper Currency summarized the ideas he used to help Pennsylvania with its money system in 1723 rescuing her from a prolonged usury crisis. Franklin told the world: “Experience, more prevalent than all the logic in the World, has fully convinced
us all that paper money has been of the greatest benefit to the country”- thereby also identifying good thinking methodology.
Such American “nomisma” -the Continental Currency- helped us win our independence. The Continental Congress authorized $200 hundred million in Continentals and issued $200 million (plus replacement notes). They have been smeared as inflation money, and while the British counterfeiting billions of them eventually destroyed the Continentals, still they carried us over 5 ½ years of warfare to within 6 months of final victory. They gave us a nation! Later the Greenbacks let us keep it. $450 million Greenbacks were authorized and $450 million were issued. Eventually they exchanged dollar for dollar with gold coins, but few people bothered to exchange them. Examining the real facts surrounding government money creation, a very different picture emerges than from the propaganda on them.
Why does this concept supporting government “fiat money” seem alien to investors and economists today? The answer was given by the great monetary historian Alexander Del Mar in 1905:
“As a rule political economists…don’t take the trouble to study the history of money; it is much easier to imagine it and to deduce the principles of this imaginary knowledge.”
Thus there is a mythology – a reigning error – that government always issues money irresponsibly. But this is the result of centuries of propaganda sponsored by those benefiting from privately issued money. The Continental Currency is attacked, without discussion that the British counterfeited untold $ billions. They did the same for the French Assignats – the details became public when the counterfeiters sued each other in the English courts. The German hyperinflation is cited by the private money promoters without pointing out that the German Reichsbank was privately owned and controlled, and that the hyperinflation began the month that all governmental influence over it was removed on the insistence of the allied occupiers. The hyperinflation ended when the German government re-asserted its control over the money system. These and other cases are detailed in The Lost Science of Money book, which all statesmen must read.
Tom Paine, Father of the Revolution, praised the Continental Currency:
“Every stone in the bridge, that has carried us over, seems to have a claim upon our esteem. But this was a corner stone, and its usefulness cannot be forgotten.”
“…But to suppose as some did, that, at the end of the war, it was to grow into gold or silver, or become equal thereto, was to suppose that we were to get 200 millions of dollars by going to war, instead of paying the cost of carrying it on.” (Ch. 14)
This Battle to Control the Money Power has raged for millennia over the same dividing line: will the money system be privately controlled by the few, to favor the few; or will it be publicly controlled by government, potentially for the common good.
How a society defines money determines who controls it. Define money as wealth, and the wealthy will control. Define it as credit, as is done today, and the “lenders” will be in control. Define it as Aristotle did - an abstract legal power - and government can control it to promote the general welfare. Despite the prevailing prejudice against government, historical case studies show much better results from publicly controlled money systems, than privately controlled ones. (see The Lost Science of Money book)
This battle is summarized as Aristotle’s science of money vs. Adam Smith’s metallic view of money. Smith’s definition (Wealth of Nations, 1776) obliterated the concept of money in the law: “By the money price of goods it is to be observed, I understand always, the quantity of pure gold or silver for which they are sold, without any regard to denomination of the coin.” He took the concept of money back to metal by weight (ponderata), where it had been before the Romans arrived in England. (Ch. 12)
“Adam Smith vs. Aristotle” summarizes the battle to control the Money Power. Whether money should be tangible wealth and thereby be privately controlled to benefit the wealthy (Smith), or be an abstract legal fiat power publicly controlled to promote the general welfare (Aristotle). To all Goldbugs: Fiat money is not the problem – the private issue of fiat money is the problem, which is like a private tax on all society.
What was Smith’s motive? We’re not mind-readers; however we note that his Patron’s family (The Scottish Duke of Buccleugh) had recently intermarried with the English House of Montagu, which was the power behind the private Bank of England. We also note that Smith’s Wealth of Nations book came out in 1776, the year after the American Continental Congress began issuing our Continental Currency which enabled us to fight and win the revolution against England, then the world’s strongest military power. (Ch.12)
Was it ever Feasible to Use Gold for Money?
Aside from going counter to the true nature of money as an abstract legal power, there is a very practical matter that supporters of Gold money can’t address: There is never enough supply of gold sufficient for such a money system. The Gold supply has not kept pace with the growth of population and commerce. This periodically increased the real value of gold.
Money systems usually solved this problem by cheating – pretending to be operating a gold based system but really mixing private bank paper into the money supply, pretending it was convertible; leveraging the amount of gold in the system through fractional reserves of one type or another. Because this bestowed great power and unearned wealth onto bankers, there has never been a shortage of apologists for such mixed systems - we call them “economists!”
The Bank of Amsterdam – A Gold Deposit Bank
The greatest growth rate ever recorded in gold supplies occurred from 1500 to 1600 as centuries of gold accumulation was stripped from the Central and South American Indians at gunpoint. Spain did the bloody work on the ground, while English and Dutch Navies intercepted much of the loot in the Atlantic. Thus the value of gold and silver to fall 80% from about 1500 to 1650 as the metallic reserves of Europe rose over 400% and so did prices. But industry thrived during this period as money became much more plentiful and more widely distributed sparking what’s been called the “Renaissance of the North.”
The Bank of Amsterdam (1609-1815) was owned by the city. It was supposed to be a classic gold “deposit bank” holding deposits and transferring them from account to account. No interest was paid and no loans were to be made, except to the city of Amsterdam. But it did extend large secret loans to the Dutch East India Company, making it a “covert” bank of issue. Even during this greatest period of growth in the European gold supply, taken at gunpoint from the America’s, it wasn’t possible to base a money system on metal alone, though if there was ever a time when that could be done, it was then. (Ch.9)
Andrew Jackson & Martin Van Buren Attack the “MONEY POWER”
The only attempt at a true metallic money system in America was made by Presidents Jackson and Van Buren in the 1830s. Jackson paid off the entire US debt in 1835. He took the private 2nd Bank of the U.S. out of government affairs. Van Buren set up 15 branches of the U.S. Treasury to handle government payments. But this real move to metallic money caused the worst deflation and depression crisis in the nation until then. Van Buren quickly introduced government issued money in the form of U.S. notes. (Ch. 15)
Such notes had earlier been carefully issued from 1812 in various denominations. A total of $60.5 million had been authorized, but only $36.7 million had actually been issued. Government error, if any, was on the side of taking great care, not recklessness. The note issuing process was not abused by government. (Ch. 15)
Presidents Jackson and Van Buren acted to end special bank privileges. In the late 1830s
They removed government funds from the private 2nd Bank of the United States and refused to accept inconvertible state chartered bank paper for land purchases from the government. But while cutting off bank created money, they neglected to provide government created money in its place, thereby causing the worst deflation seen up to then in America.
The Civil War Greenbacks from 1862
The Greenbacks provided a daily lesson in the nature of money. Greenbacks were eventually redeemable one for one with gold coin, but they were so convenient that hardly anyone bothered to redeem them. (Ch. 17)
A brief summary of developments since the Greenbacks:
The National Banking System
From 1864-1913 the National Banking Act shifted bank charters from the state level to the national level. It required more capital and reserves, and removed much petty corruption that plagued banking. But it formalized institutional corruption in allowing a form of fractional reserves, where banks were able to create money based on reserves (Ch. 17-18) It culminated in the Panic of 1907, which then led to establishing the “Fed.”
The Greenbacks were created by our Government and spent into circulation interest free and debt free. $450 million were authorized and $450 million were issued, and they couldn’t be counterfeited. Greenbacks didn’t promise to pay something else – they were the money. Being printed, not borrowed, they didn’t create any more national debt or interest payments. Thus they were called “The best currency that ever a nation had.” (Ch. 17)
The Federal Reserve System
In 1913 the Federal Reserve System was surreptitiously created by America’s banking “elite.” (Ch. 19). In summary, the Fed is “ambiguous” it’s not a part of the Judicial, the Executive or the Legislative Branches. *It oversees itself. *It gets its own budget from its money operations *The 12 regional Fed’s shares are owned by the member banks in their district.*It is not owned by the Rothschild’s, or the Morgan’s, etc, as rumored. *The U.S. President appoints the Chairman for 4 years and the 5 member Washington board for 14 years. *There are no “shares” in the Washington Board. *It is controlled by the banking “fraternity” and delegates powers to private bankers that should always remain under our constitutional system of “checks and balances.”
The Great Depression
By December 1932, it’s been only 20 years since the establishment of the Fed, but in that brief time the Federal Reserve System had wrecked and taken America down to its knees: *Farms were wrecked with huge debt and falling land prices; *factories were closed; *banks were closing; *exchanges were destroyed; *the economy collapsed – people couldn’t find work and many were hungry.
From 1929 to 1932: National income dropped 52%. Industrial production fell 47%. Wholesale prices fell 32%. The real value of debt rose 140%! Unemployment rose 329% from 3.5 million to 15 million people. Over a quarter of our workforce was unemployed. All that destruction in less than 20 years! (Ch. 20)
The “Chicago Plan” Solution
Clearly changes in the monetary system were called for, but most economists were useless, and J. M. Keynes merely entrenched the problem, advising that government must borrow money that they allow the banks to create out of thin air, instead of doing the right thing and creating the money itself. What nonsense!
Then Henry Simons and Paul Douglas, great University of Chicago economists, correctly diagnosed the problem: “The mistake lies in fearing money and trusting debt.” Simons’ elegant solution, called the “Chicago Plan,” would substitute money for the debt in circulation as bank loans. It was supported by great economists across the country (Irving Fisher of Yale; Frank Graham and Charles Whittlesley of Princeton; Earl Hamilton of Duke; to name a few). This brilliant plan nationalized the Federal Reserve System and stopped the banks from creating any part of the money supply (The American Monetary Act incorporates these 2 elements).
Though Keynes’ advice dominated, yet some good but minimal banking reforms, such as the Glass-Steagal laws curbing speculation were enacted with the expectation that something more comprehensive like the Chicago Plan would follow; but once the crisis devolved into WW2, it was ignored. The main good achieved out of the horrible and deadly Great Depression was the Social Security System, America’s most important anti-poverty legislation.
Deification of Free Markets and Removal of Regulations
A most destructive part of the late 20th century was the continued transformation of economics into a clandestine religion, which deified markets, and demanded de-regulation for unproven theoretical reasons: Don’t try to pass laws over the market – it will crush your puny laws (Omnipotence). Don’t try to dictate results to the market, it has the input of millions of participants and will always know more than any regulator (Omniscience). Do the right things and the market will reward you; misbehave and you will be punished (Benevolence). Clearly the economists are defining a GOD, not a mere mechanism for buying and selling.
Unfortunately, Libertarians considered Ayn Rand’s novels promoting capitalism, as historical evidence. One of her followers was Alan Greenspan, Federal Reserve Chairman for 20 years, and the person most responsible for de-regulation of markets. He allowed the banking system to run amok, and bring down the world economy.
Plutocratic Abuse and Criminal Activity Have Dominated
Faced with the horrendous effects of his actions and inactions, Alan Greenspan, in late 2008, did admit his error in trusting financial leaders to act in the long term interest of themselves and their shareholders. What Greenspan missed was that sometimes in the short term it is possible to grab so much loot that these villains will not care about the long term. No one else has admitted this error! Interestingly, this same mistake underlies all free market theology. When one appreciates it, the structure falls.
Substantial regulation is always required, but substantial reform needs to be enacted first.
Our apologies for cramming so much history into so few pages. The Lost Science of Money covers all this and much, much more, in detail, in 736 pages. It’s strongly recommend for your permanent family library.