by Stephen A. Zarlenga, Valatie, NY
The following presentation was made August 24,
2002 at the Council of Georgist Organizations conference in
London, Ontario, Canada. Stephen Zarlenga is the Director
of the American Monetary Institute, established in 1996,
and has published 20 books on money and banking. In 12
years of research, he drew on over 800 monetary books for
materials for data for his newly published book, "The Lost
Science of Money" (see separate column in this GroundSwell
issue.)
Reading "Progress and Poverty" I found strong
indications that Henry George, at age 40, held an advanced
view of money. One line stood out:
"The laborer who receives his wages in money
(coined or printed it may be) really receives in return for
the addition his labour has made to the general stock of
wealth, a draft on that general stock, which he may
utilize... and that neither the money, which is but the
draft, nor the particular form of wealth which he uses it
to call for, represents advances of capital for his
maintenance..." (P&P, 29)
This distinguishing between wealth and money is
usually the first key step on the road to monetary
awareness. It's not an obvious step. It requires
abandoning a more comfortable view of money as a tangible
physical thing and adopting a view of money as an abstract
social power embedded in law. For example, those insisting
on gold backing for "money" have not yet taken this step.
Why is this so important? Because all that is
necessary to plutocratically undermine and eventually
destroy society is for the monetary power to be in private
hands; and the mechanism used to place that power into
private hands has been to misdefine the nature of money.
George identifies the modern source of this
problem:
"That this universal truth is so often obscured, is
largely due to that fruitful source of economic obscurity,
the confounding of wealth with money... since Dr. Adam
Smith made the egg stand on its head..." (P&P, 62)
The regression to metallism in the 19th and 20th
centuries is traceable back to Adam Smith's monetary
errors. The Greenbackers of the mid-1800s, including Henry
George, overcame this. But "hard money" advocates have
regressed back to Adam Smith's primitive notions.
Research graciously funded by Schalkenbach more
than confirmed George's high monetary awareness especially
in his book "Social Problems". Compared to Adam Smith,
Karl Marx, Von Mises, and Keynes, George was a highly
accurate writer on money.
What led to that? - George's methodology and
orientation!
George used logic and deduction in what he called
"mental experiments":
"There is at our command a method... what may be
called mental experiments. You may separate, combine or
eliminate conditions in your own imagination, and test in
this way the working of known principles."
But the problem with that method is that the
tiniest error gets magnified, the further one gets from the
initial definitions and assumptions. Like firing a
long-range rifle - the smallest deviation at the rifle
sight gets magnified the further the bullet goes.
George usually controlled this problem through a
healthy respect for the facts: "Bring it to a test of
the Facts," he wrote, and "To the supreme and final test of
facts we can easily bring this theory." (P&P, 140)
The phrase "supreme and final test" is very
telling. If the facts contradict theory, the theory falls.
George's outlook was humanistic, and seeking
justice. He saw Mankind on a path of Progress and he used
two core principles to evaluate that path: equal rights
and self-determination. Yet Progress is his great value,
defined this way:
"Association in equality is the law of progress.
Association frees mental power for expenditure in
improvement..." "The law of human progress, what is it but
the moral law?" (P&P, 508, 526)
Evil is that which acts to block such progress:
"To trace the force which stops progress, would go
far to the solution of the problem of the genesis of evil"
(P&P, 515)
To George, good or evil is not determined by an old
thunder god, but by considerations of human justice.
Thus the Georgist movement's wide appeal was not so
much about economics as it was a great moral crusade for
economic justice.
George made excellent monetary distinctions.
Over decades his monetary views were consistently
accurate. First he distinguished between money and wealth.
While wealth is tangible, George repeatedly identified the
abstract nature of money:
"It is important that this purely representative
character of money should be thoroughly understood and
constantly kept in mind, for from the confusion resulting
from the confounding of money with wealth have flown the
largest and most pernicious results." (Science of Political
Economy, 493-4)
He observed that:
"These are not the effects of the confusion of a
term. The confusion of the term is one of the effects of
the influence upon thought of the same special interest..."
(SPE, 141, 142)
To George it was self evident that such
conspiracies against accurate thought were operating, and
he felt that to eliminate such thought control required
eliminating the financial source of the controller's power.
Second, George distinguished between money and
credit. He understood how credit could function as money:
"...the great volume of domestic exchange is
carried on by the giving and cancellation of credits..."
But unlike the bankers and most economists, George
forcefully distinguished credit from money:
"...though (Credit) may be made into money, it is
not itself money, a real and very important distinction -
the distinction between money and credit. Checks, drafts,
negotiable notes and other transferable obligations...
(pass for money) only when accompanied by trust... or
credit. Thus there is a quality attaching to money which
clearly distinguishes it from all forms of credit." (SPE,
491-3)
George realized that Money is on a higher order
than Credit. It is unconditionally accepted as payment:
"The curse of credit as a flux of exchanges is that
it expands when there is a tendency to speculation, and
sharply contracts just when most needed to assure
confidence..." (Standard 2/11/88)
Third, He distinguished between privately created
credit used in place of money for private profit, and
government or publicly created money for the common good.
Writing on money and government, at age 44, in
Social Problems (1884), he had an advanced concept of how a
money system should operate:
"It is not the business of government to direct the
employment of labor and capital...
"On the other hand it is the business of government
to issue money... To leave it to every one who choses to
do so to issue money would be to entail general
inconvenience and loss, to offer many temptations to
roguery, and to put the poorer classes of society at a
great disadvantage. These obvious considerations have
everywhere... led to the recognition of the coinage of
money as an exclusive function of government.
"...The evils entailed by wildcat banking in the
United States are too well remembered to need reference.
The loss and inconvenience, the swindling and corruption
that flowed from this ended with the war, and no-one would
now go back to them.
"Yet instead of doing what every public
consideration impels us to, and assuming as the exclusive
function of the General Government the power to issue
money, the private interests of bankers have, up to [now],
compelled us to the use of a hybrid currency." (Social
Problems, 178-9)
At age 46, he repeated that theme in "Protection or
Free Trade", stating why government created currency is
preferable to private bank currency:
"What can be clearer than that a note directly
issued by the government is at least as good as a note
based on a government bond?" (PFT, p. 12)
At age 48 George repeated this in the Standard in
1888, focusing on how the fractional reserve banking system
gave the bankers special privileges. And the year before
he died he wrote a newspaper article on the same lines.
Why did George understand the nature of money
better than most economists?
Because the private money creation process is so clearly
immoral. It is not rocket science. It requires:
1) Access to enough of the historical facts;
2) Independence of mind and Honesty of purpose to
evaluate the facts within a structure of fairness.
Also the Greenback movement, which grew out of our
good experience with government greenbacks during the Civil
War, had a literature and understanding of this concept in
the 1860's through 1880's that is unknown today.
The question seems more complex now, because
students and economists don't have the facts, or the
moral approach, and because a lot of money and
energy has gone into whitewashing the existing money
system, to keep it from being identified as theft and
fraud.
George didn't allow economists to substitute a
questionable utilitarianism in place of
morality.
A great enjoyment of reading George is he never let
the forms of economic oppression hide behind obtuse
theories. He openly identified them as slavery, stripping
away the veneer of academic respectability from those
serving injustice:
"Even the intellectually courageous have shrunk
from laying stress upon principles which might threaten
great vested interests; while others have exercised their
ingenuity in eliminating from the science everything which
could offend those interests... a science which seems but
to justify injustice, to canonize selfishness by throwing
around it the halo of utility..." Thus George destroys
utilitarianism in one sentence. (Study of Political Economy
Lecture p. 6)
And he tells us why economics has always been
purposely corrupted:
"...a powerful class whose incomes could not fail
to be endangered by a recognition... that what makes
them... wealthy is... only robbery, must from the
beginning... have beset (political economy's) primary
step..." (SPE, 140; also see SPE: xxxviii; xxxix; 134, and
138)
Why is this attitude toward economics so important?
Because much of that science has a strong class warfare
element deeply embedded in it.
This warfare has spawned a 250 year attack on
government.
Every day we see examples of how this disease has
reached epidemic proportions. It has spreading from Hayek
and Ayn Rand to their intellectual heir Rush Limbaugh and
his propaganda radio. It's not entertainment. The
American Monetary Institute's research finds that this
attack on government originated largely in Adam Smith - the
arch-enemy of government issued money, in his efforts to
keep government from exercising its proper monetary role in
issuing currency. Smith glorified the private Bank of
England with high praise, and by rhetorically downplaying
its failures. He attacked government issued money.
Only once does Smith refer to the main question:
why he wants the central bank to be private and not
publicly owned and controlled. But he didn't want to
clearly frame the question so he obscured it as whether the
English Government should be in the banking business for
profit. He should have asked why the bank was trespassing
in the government's sphere by issuing currency!
"A revenue of this kind has even by some people
been thought not below the attention of so great an Empire
as that of Great Britain... But whether such a Government
as that of England - which, whatever may be its virtues,
has never been famous for good economy; which, in time of
peace, has generally conducted itself with the slothful and
negligent profusion that is perhaps natural to monarchies;
and in time of war has constantly acted with all the
thoughtless extravagance that democracies are apt to fall
into - could be safely trusted with the management of such
a project, must at least be a good deal more doubtful."
(Adam Smith, Wealth of Nations; p.358 - in the Great Books
collection, vol. 39)
Smith's insulting the English Government marks the
modern beginning of a relentless attack on society - the
belittling and smearing of its organizational form -
government. The single organization potentially able to
block plutocracy's evil encroachments. (Evil, by George's
definitions.) Smith also inadvertently illuminates the
major purpose of this attack - to keep the money power in
private hands.
George offers a cure for this anti-government malaise,
especially in Social Problems, and the Standard. Some
brief excerpts:
On The Purpose of Government he wrote:
"As society develop(s)... it becomes necessary for
government, which is properly that social organ by which
alone the whole body of individuals can act, to take upon
itself... certain functions which cannot safely be left to
individuals..." (Soc. Pr., 177)
On The Problem of Corruption:
"(Corruption) is no reason why we should shrink
from political action, for it is only through political
action that we can improve conditions which produce
corruption." (Standard, Jan 7, 1888)
On The Abuse of Government:
"But beneath everything... there lies as the vital
danger to the Republic, the increasing inequality in the
distribution of wealth... but consider what is the
cause?... the power of government has been deliberately and
continuously prostituted to make the rich richer and the
poor poorer." (Standard, Sept 14, 1889)
A Forgotten Principle of Government:
"...Any considerable interest having necessary
relations with government is more corruptive of government
when acting upon government from without then when assumed
by government..." (Soc. Pr., 185-6)
On Government Efficiency
"...In regard to public affairs we too easily
accept the dictum that faithful and efficient work can be
secured only by the hopes of... profit, or the fear of...
loss."
Remember - it was a government job as a state
inspector of gas meters that allowed George to write
"Progress and Poverty" in the first place.
The attack on government is serious enough, but it
becomes really obnoxious when combined with the attack on
humanity, as seen in Adam Smith's selfishness "error".
Following Buckles lead, George identified the false axiom
on which Smith's Wealth of Nations is based:
"Buckle's understanding of Political Economy was
that it eliminated every other feeling than selfishness."
Wherein Smith 'generalizes the laws of wealth, not from the
phenomena of wealth, nor from statistical statements, but
from the phenomena of selfishness; thus making a deductive
application of one set of mental principles to the whole
set of economical facts. He everywhere assumes that the
great moving power of all men, all interests and all
classes, in all ages and in all countries is selfishness...
indeed Adam Smith will hardly admit common humanity into
his theory of motives.'" (SPE, 89, 90)
Consider the negative impact on humanity of Smith's
selfishness assumption: Supporters of his doctrine argue
that it is merely in harmony with human nature. But
clearly, if Man is defined in such a base manner and
systems of laws with their rewards and punishments are
enforced along those lines, then over time, they will tend
to create a form of humanity in "harmony" with their false
conception of an economic mankind.
This de-evolutionary process, encouraging a lower
form of humanity has been ongoing especially in the English
speaking world for well over two centuries. The work of
great English novelists such as Charles Dickens may have
slowed it, but didn't stop it. Henry George saw exactly
where it would lead:
"Nor can we abstract from man all but selfish
qualities in order to make as the object of our thought...
what has been called 'economic man', without getting what
is really a monster, not a man." (SPE, 99)Ecco Homo -
circa 2000!
George substituted a different concept for Smith's
destructive error:
"The fundamental principle of human action... is
that men seek to gratify their desires with the least
exertion." (P&P, 203)
Then taking a giant step, he poetically described
the essence of humanity - the "Force of Forces":
"It is not selfishness that enriches the annals of
every people with heroes and saints... that on every page
of the world's history bursts out in sudden splendor...
that turned Gautama's back to his royal home or bade the
Maid of Orleans lift the sword from the altar; that held
the Three Hundred in the Pass of Thermopylae, or gathered
into Winkelreid's bosom the sheaf of spears... Call it
religion, patriotism, or the love of God - give it what
name you will; there is yet a force which overcomes and
drives out selfishness; a force which is the electricity of
the moral universe; a force beside which all others are
weak... I call this force destiny toward human nature - a
higher, nobler nature than we generally manifest... And
this force of forces - that now goes to waste or assumes
perverted forms - we may use for the strengthening, and
building up, and ennobling of society, if we but
will..."(P&P, 463)
George's Ideas Are Highly Relevant to American
Monetary Reform:
Let's look at the four major groupings advocating
reform:
The Gold standard faction.
Composed largely of people involved in gold mining
or coin investments, conservatives, and some fundamentalist
religious folk, they have been unable to comprehend the
abstract nature of money. Are all "stuck in the metaphor,"
to borrow Joseph Campbell's phrase. Succumbing to
centuries of propaganda, they have confused money with
wealth.
But History shows the so called gold standard has
been a shell game and a ruse and a tool of plutocracy.
They get no sympathy from George, who wrote "we are digging
ore out of holes in the ground in Nevada and California,
refining it and poking it back into holes in the ground in
New York and Washington." And if anything, George
understated this problem with precious metals money.
The Free banking faction
This movement was spawned by Hayek's
Denationalization of Money essay, which was mainly an
attempt to throw a monkey wrench into the early plans for
the Euro. It is mostly composed of Libertarians who
mistake Ayn Rand novels as historical evidence! They are
making the historical claim that the old free banking
period was not really all that bad!
They use poorly defined or undefined concepts, and
have not even uniformly defined "free banking," or money.
I take it to mean that bankers would be allowed to create
as much "money" as their clients will accept. But it's
really up to them to give their definitions. Some problems
with them:
1) That they have misread history as is clear from
George's utter condemnation of free banking. They have
mislabeled the "free banking" period as 1836 to 1864, when
it was mainly pre 1836. They make this huge mistake
because the New York law in 1836 which imposed
much greater legal restrictions on banking, was called
a "Free Banking Law."
2) They have disregarded as "anecdotal," the
universal condemnations of free banking by expert witnesses
of various persuasions, including Henry George.
3) They use extremely poor, actually silly logic.
For example they think they have logically "proved" that
bankers will be honest, because in the long run it's good
for business!
4) They treat the banks statistically as if they
were deposit institutions, but they were always banks of
issue.
5) They totally ignore the stock fraud, mostly in
bank shares, that always accompanied banking, etc, etc.
The "L.E.T.S." groups
Local currency advocates. Henry George did help
set up such a temporary system for his friend Tom Johnson's
company during a tight money period. But while L.E.T.S.
are well meaning and not harmful, they usually end quickly.
It's hard to make them work without the taxation power.
They don't stop the continued dispensation of monetary
injustice from above, through the privately owned and
controlled Federal Reserve System. My main concern is that
potential activists are being drawn away from the real
battle, of reforming the Federal Reserve System, into
futile side shows.
Reform of the Federal Reserve System - What
George's Ideas Imply
This is the real solution, but also the tough one.
Best to face it head on:
A) Nationalize the Fed, as the Bank of England was
nationalized after WW II.
B) Institute the 100% Reserve Solution (Not just
100% reserves!) It works like this:
(Please refer A.M.I. website, http://www.monetary.org, to
Robert De Fremery's "Rights vs. Privileges" review, which
goes into all the details.)
C) Institute mandatory monetary expansion rules, or
there would be deflation.
D) Ultimately this becomes constituted as a fourth
branch of government - a monetary branch. The nature of
society requires four branches of government, not three.
From this point on, a true science of money, and then a
much altered science of economics will emerge and develop.
We still have to learn much of that part, and society will
use Aristotle's method - it will learn by doing.
This talk highlights Stephen Zarlenga's paper,
completed in January 2001, which resulted from a
Schalkenbach Foundation grant. Zarlenga has 35 years of
experience in the world of finance, securities, insurance,
mutual funds, real estate and futures trading. He holds a
degree in psychology from the University of Chicago and has
done graduate work at NYU. Zarlenga may be contacted at
the American Monetary Institute, PO Box 601, Valatie, NY
12184. Tel. 518-392-5387, email ami@taconic.net, web
http://www.monetary.org] The full text of the Henry George
paper can be viewed at
http://www.monetary.org/henrygeorgeconceptof money.