Ellen Brown on the Efficiencies of the State and the Progress of Her Public Banking Vision
The Daily Bell is pleased to present an exclusive interview by Ellen Brown.
Introduction: Ellen Brown developed her research skills as an attorney practicing civil litigation in Los Angeles. In Web of Debt, her latest book, she turns those skills to an analysis of the Federal Reserve and "the money trust." She shows how this private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Brown developed an interest in the developing world and its problems while living abroad for eleven years in Kenya, Honduras, Guatemala and Nicaragua. She returned to practicing law when she was asked to join the legal team of a popular Tijuana healer with an innovative cancer therapy, who was targeted by the chemotherapy industry in the 1990s. That experience produced her book Forbidden Medicine, which traces the suppression of natural health treatments to the same corrupting influences that have captured the money system. Brown's eleven books include the bestselling Nature's Pharmacy, co-authored with Dr. Lynne Walker, which has sold 285,000 copies.
Daily Bell: Hello again. We've interviewed you before. But for those unfamiliar, please give us a sense of how you came to be interested in monetary issues and how you came to write Web of Debt.
Ellen Brown: As Mike Whitney says, I'm really just a writer in search of a good subject. My first degree was in English literature from Berkeley, but when I figured out that I couldn't make a living as a writer in my twenties I went to law school (UCLA). I married another law student, practiced civil litigation for 10 years in L.A. and had two delightful children. My husband (now ex-husband) finally burned out on Beverly Hills law and signed up to be a lawyer for USAID, taking us abroad for 11 years – to Kenya, Honduras, Guatemala and Nicaragua – giving me a chance to try my hand at writing again. I wrote 10 books on health and the politics of health, including one co-authored bestseller that sold 285,000 copies ("Nature's Pharmacy").
I jumped from there into economics after reading Ed Griffin's "World Without Cancer," linking the pharmaceutical cartel to the banking cartel, which actually got its power through the private creation of money. When I discovered that "The Wizard of Oz" was written as a monetary allegory, growing out of the populist money reform movement of the 1890s, I had the plot line to make a dry subject interesting, and I proceeded to write.
I spent six years exploring the issues and perfecting my prose, until the two Bear Stearns hedge funds collapsed in June 2007, when I figured it was time to forget about art and rush to press. "Web of Debt" was in print two weeks later, self-published by print on demand through Lightning Source.
Daily Bell: For those new to this subject, what is Web of Debt's main thesis?
Ellen Brown: The thesis is that the power to create money has been usurped by a private international banking cartel, which issues our money as debt and lends it back to us at interest. The cartel makes it appear that governments are creating our money, and governments get blamed when things go wrong; but they are actually just pawns of the cartel. We the people can get back our government and our republic only by reclaiming the power to create our own money. We can use the same credit system that private banks use, but administered as a public utility, monitored and overseen by public servants on the model of libraries and courts. To be a sustainable system, profits need to be returned to the community rather than siphoned off into private coffers.
Daily Bell: Can you expand on debt-based money versus money that is issued into the economy without debt – and why the latter is preferable. Some would say the latter exercise comes with debt as well ...
Ellen Brown: I don't think debt is necessarily bad. The flip side of debt is credit, which is a very good thing. Inventing credit is probably the most innovative thing bankers ever did. But because the Italian bankers who first came up with that scheme were on a gold-based system, they had to do it essentially by cheating, pretending to have more money than they actually had. There would be periodic runs on the banks and the system would collapse. A public banking system would acknowledge credit to be just a legal agreement to pay over time. Creditworthy borrowers would get credit. Their access to credit needn't be contingent on someone else's agreement to give it up. The system would be mathematically sustainable.
Daily Bell: Let's back up. You believe that gold and silver only circulated as money once government got involved? True? Can you expand on this?
Ellen Brown: I think that's true by definition. Webster's dictionary defines a "coin" as "a usually flat piece of metal issued by governmental authority as money." Wikipedia says: "King Croesus, ruler of Lydia (560–546 BC), began issuing the first true gold coins, . . . with a standardized purity, for general circulation. They were quite crude, and were made of electrum, a naturally occurring pale yellow mixture of gold and silver."
Daily Bell: What about ancient archeology showing drowned cities off the coast of India?
Ellen Brown: I made an effort to look that up, since you asked; but I could find nothing to support your contention. If you would point me to some specific research, I could formulate a better answer. My research indicates that Indian gold coins came in later, and like coins generally were issued by the government. Here's what came up on a quick search:
"Although the world's first coins were Greek coins made in Lydia about 640 BC, it seems clear that India and China both invented coins independently within a few centuries of the Lydians. The earliest Indian coins were silver, and it was not until about 100 AD that the Kushan emperor Vima Kadaphises introduced the first Indian gold coin, which was a gold dinar bearing the image of Shiva."
Daily Bell: What makes you think that gold and silver, mined together as electrum, were not a store of value prior to the temple period?
Ellen Brown: Define the temple period please. The Sumerian temple period? That would be the third millennium B.C. The Sumerians did not use coins as money. Rather, they had what could be characterized as the first public banking system, based on accounting entries on cuneiform tablets. To say gold and silver were a store of value is a bit vague. Gold wedding rings are a store of value, but I wouldn't classify them as money.
Daily Bell: Why do you believe that government is superior to the free market?
Ellen Brown: Why do you believe that I believe government is superior to the free market? I believe government is necessary to have a free market. Otherwise you have the law of the jungle, the exploitation of the weak by the strong.
Daily Bell: Do you believe that government is effective at all levels big and small?
Ellen Brown: Without meaning to be rude, I have to say I'm slapping my forehead at some of these questions. Government can be effective at a variety of levels. Not all government is effective. Some government is very ineffective. It depends largely on the political structure.
Daily Bell: Do you believe in central banking so long as it is publicly controlled?
Ellen Brown: A publicly-owned central bank can be very effective in serving the people. The Commonwealth Bank of Australia is my favorite model. Not all publicly-owned banks, however, are effective for that purpose. I often hear British money reformers complaining that the publicly-owned Bank of England is still serving the interests of the private banking establishment, just as when it was private. It is public in name only.
Daily Bell: Do you believe that government was responsible for a good deal of mayhem in the 20th century?
Ellen Brown: Sure, but somebody manipulates governments into wars and other mayhem. I believe a government could be structured so that it actually served the people; but first, it would have to recapture control of its monetary system. Few governments are in that position today.
Daily Bell: Do you believe in the Invisible Hand? Do you believe in Misesian human action. How can you reconcile it with your preference for government decision-making.
Ellen Brown: You'll have to define your terms. I'd say the Invisible Hand that is at work right now is chiefly the hand of Goldman Sachs.
Daily Bell: OK, what are some triumphs of big government in your opinion?
Ellen Brown: National highway systems, bridges, waterways, dams, FDIC insurance, Medicare and social security, to name a few. If you doubt the latter two, consider what life was like in the depression of the 1890s, when there was no Medicare or social security, and people froze in the fields or starved. My grandmother, for whom I was named, died in Detroit during the Great Depression at age 42, trying to self-abort her eighth child, at a time when my grandfather was an unemployed auto worker and they could barely feed the other seven. My father was the oldest child and supported the family on a paper route. He never really recovered from that traumatic period. I suspect he is hovering about and prodding me on.
Daily Bell: Do you still believe the DARPA and the US federal government invented the Internet.
Ellen Brown: So says Wikipedia, http://en.wikipedia.org/wiki/History_of_the_Internet. I read an interesting article that I can't find now called something like, "The Government Does Some Things Right," I think in the L.A. Times. It said the inventor of the internet went from one major private company to another and got rejected for funding. Only the government was willing to do research for its own sake, just because it was a good idea, simply to see what could be developed from it.
Daily Bell: You've used China and India as examples of public central banking in a positive sense. Yet both these countries have terrible inflation now. (As in too much money.) How do you respond to that?
Ellen Brown: China and India are the fastest growing economies in the world. They are hot investor targets, so money has been flowing in, both as foreign currency and as credit expansion for new projects. This is largely speculative investment, which has driven up prices because goods and services have not increased in tandem.
As Max Keiser observed recently, India is suffering more from inflated prices in commodities than we are because food and staples are a substantially larger proportion of the average Indian's budget than of ours. Commodities are going up for a variety of reasons, including (a) heavy competition for these scarce goods from developing countries, whose economies are growing much faster than ours; (b) in the case of soaring food prices, disastrous weather patterns; (c) the flight of "hot money" from the real estate market, which has nowhere else to go; (d) speculation, which is fanning the flames; (e) the growth of ETFs, which have made it easy for ordinary investors to jump in and out of commodities; and (f) the U.S. dollar carry trade created by the extremely low interest rates made available by the Fed to its banking constituents following the credit crisis of 2008.
Daily Bell: Define inflation.
Ellen Brown: There are two types of inflation, price inflation (an increase in prices over time) and inflation of the money supply (an increase in the amount of money circulating in the economy). These are often confused. Individual prices may be going up (as commodities are today), yet the overall money supply may be falling (as it is today). Many factors can be involved in price inflation. An excess of demand (money) over supply (goods and services) is one possibility; but price inflation can also result from an increase in costs (including interest costs, scarcity of raw materials, etc.) or from speculation, with "hot money" rushing from one investment to another and competitively driving prices up.
Daily Bell: Is it monetary?
Ellen Brown: The question needs to be refined. "Monetary" means pertaining to money, which inflation obviously does.
Daily Bell: Is the US money supply shrinking in your view?
Ellen Brown: Yes. According to the New York Times of September 2010, it is shrinking at the fastest rate since the Great Depression. See http://www.nytimes.com/2010/09/12/opinion/12bove.html
Daily Bell: Why is that?
Ellen Brown: Per the NY Times, it's because banks are making fewer loans, largely because capital requirements have been raised. My proposed solution would be to supplement the supply of credit through state-owned banks, which have huge potential capital and deposit bases that can be leveraged into credit for local needs.
Daily Bell: How do you define the money supply?
Ellen Brown: I'll go with the NY Times: MZM (the liquid money supply in the economy); M1, M2, M3 (the broadest measure).
Daily Bell: How do you define deflation?
Ellen Brown: A shrinking MZM, creating insufficient liquidity to maintain business and productivity at optimum levels.
Daily Bell: Are you aware that some of your supporters want to shift the responsibility for printing money from the Fed to the Treasury in America? Do you agree with this?
Ellen Brown: I'm aware of a particular school of money reform that you may be talking about, but I doubt they would look charitably on being called my supporters. My own preferred alternative would be to nationalize the Federal Reserve.
Of course you realize that money is not actually printed by the Fed. It is printed by the Bureau of Engraving and Printing, which is already part of the Department of the Treasury. http://www.moneyfactory.gov/aboutthebep.html.
Daily Bell: Do you believe your movement has been penetrated by military intelligence?
Ellen Brown: Not to my knowledge. I don't know why they would take an interest. I haven't even seen any Wall Street bankers take an interest. The opposition so far all seems to be from the other money reformers!
Daily Bell: Hard money economist Dr. North has made many criticisms of your work. How do you respond?
Ellen Brown: I haven't actually spent much time reading Dr. North's theories. He said in an email that I was a threat to the Tea Party movement, that his intent was to destroy me, and that there would be no compromise, so I've decided that arguing with him is an unproductive venture. He can have his theories and I'll have mine; may the best human win. If you want to present me with a particular criticism, I could respond to that. ***
Daily Bell: You've stated that you will no longer use Benjamin Franklin's Pennsylvania money or the Nazi era as examples of successful public money. What will you use?
Ellen Brown: Au contraire, I will definitely continue to use the Pennsylvania colonial bank, America's first publicly-owned bank, as an example. I think it's an excellent model. It wasn't "Benjamin Franklin's money" though; the bank was established by the Quakers, who came from England. Franklin just saw how well it worked and wrote about it in glowing terms. I won't mention 1930s Germany unless it comes up, because it's too controversial. My favorite modern-day models are the Bank of North Dakota and the Commonwealth Bank of Australia.
Daily Bell: How can anyone know how much money is enough money? Or when to stop lending in your paradigm?
Ellen Brown: Lending is an organic process, responding to the needs of the borrowers. Contrary to popular belief, banks do not lend their own money or their depositors' money; they create new money on their books every time they make a loan. I think lending is a much more natural and efficient way to get new money into the money supply than to have an independent body trying to dictate what the economy needs. But private banking institutions have proven they cannot be trusted with this powerful tool. Except for coins, which are a very marginal part of the money supply, all money today is just credit – the credit of the people. It should be a public utility, administered through publicly-owned banks.
Daily Bell: Won't your paradigm end up injecting too much money into the economy nonetheless?
Ellen Brown: No. Loans grow organically in response to the demands of trade, and that credit-money disappears when the loans are paid off. When demand for loans is low, the money supply shrinks naturally. You may be thinking of the paradigm of another school, which in your last article you referred to as representing a "Brownian Schism." I'm flattered, but they actually came first.
Daily Bell: How will you value the land and other goods used to secure the loan?
Ellen Brown: Just as bankers do now. I'm not talking about putting politicians in charge of running the banks. Publicly-owned banks are run by bankers, just as privately-owned banks are. See, e.g., the very well run Bank of North Dakota. The Commonwealth Bank of Australia worked so well because it was set up by a professional banker who decided to apply his insider knowledge to serve the public interest. Knowing that banks simply created credit on their books, he proceeded to finance massive infrastructure with this sort of book-created credit – and it worked, brilliantly well.
Daily Bell: Who will make the decisions? Won't they inevitably be corrupted?
Ellen Brown: What decisions? The question is too vague. At the Bank of North Dakota, the decision to advance loans is made by professional loan officers, just as it is elsewhere. Creditworthy borrowers get loans.
Daily Bell: Didn't Franklin disown state money as inflationary before he died?
Ellen Brown: Not to my knowledge. Anyway, it was set up by the Quakers. He just wrote about it.
Daily Bell: Why not fight for freedom instead of government intervention?
Ellen Brown: I am fighting for freedom – freedom from a corrupt banking monopoly that collects tribute for letting us use our own public credit. Freedom from starvation and disease resulting from an artificial scarcity imposed by a private monopoly over the creation of money and credit.
Daily Bell: What do you think is responsible for human progress – individual human action or government?
Ellen Brown: Both are obviously responsible. Without government you would not have roads, bridges, court systems, etc. Government sets the rules and provides a protective umbrella under which individual human endeavor can bear fruit.
Daily Bell: Does government create and invent things?
Ellen Brown: Sure, many things. My brother comes to mind. He has degrees in physics and engineering and works for SLAC, the Stanford Linear Accelerator Center, a government-funded agency. It says in its mission statement:
"SLAC programs explore the ultimate structure and dynamics of matter and the properties of energy, space and time – at the smallest and largest scales, in the fastest processes and at the highest energies – through robust scientific programs, excellent accelerator based user facilities and valuable partnerships."
Government researchers can do "pure research" -- research for its own sake – because they aren't focused on quarterly profits. My brother took reduced pay at a government job for that reason: he did not want to sell out to industry. Mondragon, a large and very successful cooperative in France, has a "department of good ideas," where people can go with their creative inventions and get them developed.
Daily Bell: What makes you think that a government based public money system wouldn't be taken over by powerful private forces just like this one has been? We call it mercantilism. If you give government power, won't the wealthiest end up with their hands on the levers of government?
Ellen Brown: That hasn't happened in North Dakota, which currently has the only state-owned bank in the country. Certainly a public institution that returns its profits to the public, which has full public accountability and transparency, and employs civil servants who make no bonuses or commissions for churning loans, has a better chance of serving the public than the corrupt private system we have now.
Daily Bell: Isn't there a small group of Anglo-American banking families that has hijacked the West and intends to build a world government?
Ellen Brown: So I have read.
Daily Bell: Would you be in favor of one world government?
Ellen Brown: Definitely not of the sort projected by that group. I think national and state sovereignty is very important, particularly in matters of money. But the internet and global trade are increasingly bringing us closer together, and we probably do need some sort of international rules to keep things running smoothly. For example, I think there needs to be a global yardstick for measuring the value of currencies against each other – not the "floating" exchange rates we have now, which are subject to speculative manipulation, but something based on the real cost of goods and services in each country. I have a chapter on that in Web of Debt, including a proposed model.
Daily Bell: OK, thanks for answering the tough questions again. How is your movement doing?
Ellen Brown: Very well, thank you! I did two presentations in the California Bay Area in December, which generated so much interest that we have just launched a Public Banking Institute to follow though. The website is http://www.publicbankinginstitute.org.
Daily Bell: Are banks being established in the US that conform to your model?
Ellen Brown: Not yet, but legislation is pending or being proposed in a number of states, and there has been a great deal of interest in the idea. That's why we set up the Public Banking Institute -- to handle inquiries, do research, generate literature, and advise interested groups.
Daily Bell: Where do you go from here?
Ellen Brown: I'm trying to get another book out on public banking, but I seriously need a staff. My mother's caregiver used to do some computer work for me, but she has moved on to become a nurse practitioner. Hopefully the Public Banking Institute will relieve me of some of my networking functions.
Daily Bell: What recent books and articles would you refer our readers to?
Ellen Brown: I used to be an avid reader of books but I no longer have time! My own articles are posted here: http://www.webofdebt.com/articles
Ellen Brown: The latest is posted on Huffington Post here: THE FED HAS SPOKEN: NO BAILOUT FOR MAIN STREET
Daily Bell: Thank you for your time and courtesy as always.
Ellen Brown: And thank you for yours!
***Editor's Note: In fact, Ellen Brown did respond in detail to Gary North (see feedback thread, below, for link). The back and forth is considerable – and detailed. In the After Thoughts below we have tried to focus on a larger overview to try to return the discussion to the simplest and most fundamental issue, which is state control versus the free market.
We thank Ms. Ellen Brown once again for her time and patience in exploring the subject of public banking. We have often stated it might be better than what we have now, and she makes her usual eloquent case for her views. Of course being free-market thinkers our preferred system would be one of private or free-banking, which would surely include gold and silver as money. Since she mentions the Bank of North Dakota, we thought we might expand on that institution. Here's an excerpt from a Huffington Post/AP article that describes the bank:
Bank Of North Dakota: America's Only 'Socialist' Bank Is Thriving During Downturn ... The Bank of North Dakota serves as an economic development agency and "banker's bank" that lessens the loan risks of private banks and helps them finance larger projects. It offers cheap loans to farmers, students and businesses. The bank had almost $4 billion in assets and a $2.67 billion loan portfolio at the end of last year, according to its most recent quarterly financial report. It made $58.1 million in profits in 2009, setting a record for the sixth straight year. During the last decade, the bank funneled almost $300 million in profits to North Dakota's treasury.
The bank has the advantage of being the repository for most state funds, which can be used for loans and occasional relief for private banks that need a jolt of cash during sluggish credit markets. "We think of ourselves as kind of a little mini-Federal Reserve," Hardmeyer said. The state earns roughly 0.25 percent less interest than state agencies would get from a commercial institution. The bank also pays no state or federal taxes and has no deposit insurance; North Dakota taxpayers are on the hook for any losses.
The article provides the following history:
The Bank of North Dakota was a cornerstone of the agenda of the Nonpartisan League, a farmers' political insurgency spawned by anger about outside control of North Dakota's credit and grain markets. Founded in 1915 by A.C. Townley, who became a Socialist Party organizer after he went broke raising flax in western North Dakota, the NPL advocated state-owned banks to provide low-interest farm loans, along with state flour mills, grain elevators, meatpacking houses and hail insurance. Supporters gained control of the legislature and the governorship within five years. The movement's power quickly waned, but two of its state-owned businesses survived – the Bank of North Dakota and a state flour mill and grain elevator in Grand Forks.
From the 1940s until the early 1960s, the bank served mostly as a public funds depository and municipal bond buyer, said Rozanne Enerson Junker, author of a 1989 history of the bank. Its economic development activity has greatly expanded since. Gary Petersen, president of the Lakeside State Bank of New Town, a community on the Fort Berthold Indian Reservation in northwestern North Dakota, said the state bank is often willing to take a stake in local development projects. "In my experience, you make a contact with the (Bank of North Dakota), and their question is, 'How do we get this done?'" Petersen said. "They're not looking at ways to knock it down."
From the above we learn the provenance of the Bank of North Dakota was "socialist" and that currently, if there is a problem with the bank or its loans, "the taxpayer is on the hook." We are not sure how much of an improvement this is from the current banking system except the bank's loans are apparently lower-cost than commercial banks and the bank seems locally oriented.
Nonetheless, as Ellen Brown informs us above, the state-banking movement is alive and well. So, in fact is another kind of public banking movement supported by Stephen Zarlenga, director of the American Monetary Institute who can also lay claim to triumph (along these lines) with Congressman Dennis Kucinich's (D, Ohio, 10th District) introduction of the National Emergency Employment Defense Act of 2010, abbreviated NEED. The bill number is HR6550. We wrote about Zarlenga recently (in "Brownian Schism") as follows:
Zarlenga has been toiling arduously in the sovereign money pits, convinced, like Ellen Brown, that if the US government itself prints fiat-money that the problems of the day will gradually fade and prosperity will reign once more. The Kucinich bill calls for the Treasury to take over the functions of the Federal Reserve and basically issue debt-free money. It is a bill that parallels much of what Zarlenga has been campaigning for (along with Ellen Brown) for a number of years. Here, condensed, is what Zarlenga proposes for the US's monetary economy:
• Put the Federal Reserve System into the U.S. Treasury.
• Stop the banking system from creating any part of the money supply.
• Create new money as needed by spending it on public infrastructure, including human infrastructure, e.g. education and health care.
• Genuine monetary reform is the solution to the nation's fiscal problems and that can only be achieved at the national level.
In an email sent out on the 18th of December, Zarlenga celebrates NEED as follows: "While the bill focuses on our unemployment crisis, the remedy proposed contains all the essential monetary measures being proposed by the American Monetary Institute in the American Monetary Act. These are what decades of research and centuries of experience have shown to be necessary to end the economic crisis in a just and sustainable way, and place the U.S. money system under our constitutional checks and balances. Yes it can be done!"
While both Zarlenga and Brown agree that money ought to be issued debt-free, the two have had a falling out over Ellen Brown's advocacy of sovereign money at a state-banking level, which Zarlenga believes only confuses the issue. Actually the issue is made more confusing because Ms. Brown has been a proponent of Zarlenga's theories about money and has acknowledged his primacy.
In an interview with the Daily Bell, she stated: "We need to set up our own public banks, which cannot run short of ‘the full faith and credit of the United States' because they ARE the United States (or whatever local government is setting them up). In the U.S., we should nationalize the Federal Reserve and let it operate like a real government-owned bank, issuing money and credit on behalf of the public for infrastructure and other government expenditures. States could also set up their own credit mechanisms by setting up their own banks."
Despite Ellen Brown's backing for his ideas, Zarlenga disagrees on this head. He does not believe that states ought to issue money (through any mechanism) and even believes the idea to be unconstitutional. Ms. Brown now returns fire. In a feedback yesterday was kind enough to inform us that she had abandoned her notion of sovereign money at the federal level because of the complexities involved. She is now focused specifically on states – especially North Dakota.
In our interview, above, Ellen Brown once again reaffirms her perspective regarding sovereign money at a FEDERAL level by stating the Federal Reserve ought to be nationalized – so she has apparently changed her mind regarding this issue. Also, in a feedback to a long ago article, we recall her writing she'd decided to stop using the Franklin/Pennsylvania public bank example (along with pre-war Germany) because of questions raised about it. In the interview above she indicates she still intends to use it.
Following all this is a little confusing and apparently is destined to remain so. (See the back-and-forth between Brown and North for confirmation of this perception.) It is complicated further by Zarlenga who wants the Treasury to take over Fed duties and is adamant that Ellen Brown's ideas about state banking are unconstitutional. But maybe that's unfair. Ellen Brown believes her ideas are entirely constitutional and is obviously trying to put them into practice, just as Zarlenga is.
We've pursued the issue of public money with Ellen Brown (more than Zarlenga) because she has been gracious about sharing her time and ideas with us and because we think she is a strong – highly visible – proponent for her views. While it is a bit difficult to grasp the subtleties of what she (and Zarlenga) is generally proposing (even with all that has been written on the subject), we will do our best to summarize, as follows:
At root, the argument (Brown and Zarlenga) is that the "state" ought to be in charge of the price and quantity of money, not a "private cartel" such as the Federal Reserve (even though the Federal Reserve is a quasi-public institution). Presumably, if those administering the money are honest and incorruptible then businesses will be fairly and economically funded and terrible booms and busts will be avoided.
Here are counterarguments. If the state wishes to spend more than it has, those in charge of these banks can still be tasked to raise money (thus stimulating spending and mal-investments) by issuing out more money than is actually needed. Thus the boom/bust business cycle in our opinion would still hold sway. China and India, for instance, have sovereign banks and inflation is becoming a terrible problem in these two large countries. Ellen Brown provides us with many reasons why these two countries have price inflation problems but in our view the basic problem is simple: too much paper money printed by the central banks of each government. Central banks are inflation machines. Nationalizing them doesn't alleviate the problem.
Certainly, it boils down to individual preference. Brown and Zarlenga want the state to control money while libertarians want money to be controlled by individuals within the context of a free market. Central banks would not exist in such an arrangement except privately as clearinghouses without the color of government power.
In a free-market gold and silver are dug up from the ground and circulate freely. Banks, private partnerships or equity pools would generate capital for business ventures. Banks might offer fractional reserve currency or not, depending on market acceptance. This informal and unstructured setup is apt to provide better results (and less of a boom/bust cycle) than a formal banking structure in our view. Real Bills would no doubt circulate in such a free-banking environment as well.
It is really that simple. Would money be more expensive than under Ellen Brown's proposals? Perhaps – or perhaps not. It would depend no doubt on the market; but eventually we would have to believe, price inflation would become a problem as it always does when government is involved. The bottom line with all of this has to do with whether people want free-market money or money issued out by the state. Given governments' recent track records, we wonder why anyone would want to set up yet a new bureaucracy.
We would also note that Ellen Brown makes a number of statements supporting government and government efficiency. As libertarians we generally disagree with them. The Internet's popularity resulted from the invention of the PC, which was a private elaboration. The Great Depression in our view as created by Federal Reserve policies and aggravated by the misguided laws and regulations of the Roosevelt administration. We don't believe that Social Security in particular is an effective government program in the long term or that it will provide much of an aid to Baby Boomers later in life.
We don't believe government is effective because it lacks the competition that disciplines the private market. We don't believe in government solutions to private problems generally. We believe with George Washington that government is "dangerous as fire." We don't believe that government has ever created anything of much worth and that most of what government provides or elaborates on is borrowed from the private sector and then repackaged – badly.
We hope the interview with Ellen Brown has clarified some points that were previously unclear despite the long dialogue that the Bell has had with her – especially on the role of government. We will continue to follow the progress of her ideas at the Huffington Post and elsewhere.
Edited on date of publication.
Posted by Robert South on 02/17/11 09:41 PM
Something like Ellen Brown's solution will be necessary due to the existing national debt, but the government need not continue to rely on fiat money. To correct a bad past mode of operation, buy back the debt with fiat money ( which would entail reforming the system to make that possible) but then keep a balanced budget thereafter.
The debt is a big part of why a budget imbalance, and it is too late to fix it by simply spending less and or taxing more. Trying to do so is either naive or part of a hidden radical libertarian agenda to bust the big bad gov (and hurt everyone in the process).
Conservatives and liberals should have the liberty to debate the size of government, but the debt and bust agenda takes that freedom away, there is increasingly only necessity.
Ideology tends to make people only able to think of one set piece solution rather than a process. This way rather than that way, never this then that.
Posted by John Williams on 02/16/11 05:08 PM
The bank also pays no state or federal taxes and has no deposit insurance; North Dakota taxpayers are on the hook for any losses.
While this is true for North Dakota it is true for any system of Banking. The current financial meltdown has taxpayers on the hook for the bailout and for the inflation that has resulted from giving banks billions, or trillions depending on the source, that have fled into speculative ventures we all pay for with higher prices.
Te FDIC shell game deludes people into believing we are not on the hook for losses when we most assuredly are. The current banking system is a hall of mirrors that is nothing more than an upside down pyramid where 10% reserves back loans and the FDIC with its own reserve percentage backs reserves.
Why not also have the FDIIC and the FDIIIC going on ad-infinitum in order to really confound all sense of logic and reality. This is a response to all those who point out that the Bank of North Dakota is not FDIC insured and puts the taxpayer on the hook without realizing that this is always the case even though institutions like the FDIC attempt to obfuscate this fact in a manner analogous to the obfuscation rampant in the entire banking sector with loans being backed up by %10 reserves.
As far as the statist vs free-market argument goes I wish I could think in such simplistic black and white thought patterns it would make the world a much safer and more easily understandable place, at least in my head.
In reality it is not so cut and dry because they are interdependent philosophies that rely on each other to thrive. Without a government it would be the law of the jungle as Ellen said and without a free-market we would likely revert to a state controlled mercantilism or communism but neither can survive and thrive without the other. The only way of coming to the best solution is pragmatism based on the end results of the greatest freedom and prosperity.
Pragmatism is a natural enemy to the dogmatism and ideology rife on this message board so for many this type of change in thought is very unlikely since their worldview and comfort rest upon their ideologies and beliefs with pragmatism and best results relegated a back seat to the comforts of close minded certainty.
The best solution will give the bests ends of freedom, security of individuals and prosperity without the use of conflicting means that ,throughout history, have inevitably undermined those ends. I personally have no personal dogma and have not rested my world view on a particular ideology so whether that is free banking or a public bank set up in such a way not to entice corruption I do not care. The only thing I care about is the results.
I also believe some people on this board need to reconsider whether people are inherently corrupt irregardless of the context or whether it is the environment embedded in our current systems which encourages corruption. In my opinion corruption is a systemic problem that is a direct result of how institutions are organized and in many cases the very things put in place to solve a foreseeable problem that is feared are the exact mechanisms that in the end analysis created the problem.
The current government/private system are setup in such a way to be the worst of both worlds where private institutions with the control of money are a corrupting influence on government with strong motivations and means to do so. Without that control of money the ability to corrupt government agencies manipulatively, non-transparently from the outside is curtailed drastically.
State owned banks are a good solution because it is a very good first step to decentralizing power. The current fed is much more akin to the central control of communism where a small group of people decide the amount of toilet paper, or money, is needed generally with disastrous results resulting from misallocation of resources and lopsided distribution.
I definitely agree with Ellen Brown that state banks and the decentralization it brings is a step in the right direction whereas changing nothing but the currency would equate to a communistic fed controlling gold or silver reserves with nothing of real significance being changed.
Posted by Debra on 02/06/11 11:29 AM
The type of banking that Ms. Brown proposes is actually what most people believe is our actual banking system -- and therefore these same people would likely be quite cozy with her ideas. I must admit her system would be a huge improvement.
Posted by Ingo Bischoff on 01/25/11 06:10 AM
"Bischoff himself admits that a bank charter (government oversight) is necessary to ensure that banks do not over-issue notes via fractional reserve practices against a purchased Real Bill."
I want to make clear the reason a bank charter is required to oversee the operation of a "commercial bank".....
For a default on a due payment of a Real Bill there is no remedy in law. The "redeemable currency" allowed to be circulated by commercial banks are in lieu of the Real Bills they hold.
The volume of the un-matured Real Bills a bank holds varies all the time. Therefore, the currency kept in circulation has to be constantly adjusted. If it is not, the bank in essence creates "Double Bills" causing defaults to occur for which there is no remedy in law. That is where the obligation of the State comes in.
The capital requirement in gold set forth by the State charter serves as a guarantee to be able to absorb a default on payment of a Real Bill. It has nothing whatsoever to do with any deposit against which to loan.
A "commercial bank" does not depend on deposits. It strictly depends on acquiring Real Bills at a discount. Therefore, the term "fractional reserve banking" in connection with commercial banks has no meaning.
Redeemable currency is circulated in lieu of Real Bills. They do not constitute an asset against which a loan is initiated. Unless this is clearly understood, commercial banking will always remain a mystery.
Posted by Ingo Bischoff on 01/25/11 05:27 AM
@ Pat Fields
"It would simultaneously return the despicable Banksters and Politicos to the purely fiduciary and administrative roles they genuinely ought to occupy."
You seem to understand the connections quite well. I am gratified.
Posted by Karen-Lynette Bauer on 01/24/11 10:03 AM
It is refreshing to read someone brilliant who understands the world so clearly.
I have been talking about both the banking system and the health systems here in the U.S., and few seem to believe that a moneyed elite would try to establish a hegemony.
Why not? When it involves billions upon billions (trillions, really) of dollars, and their entire purpose and meaning in life is to accumulate more and more money, why would they not do it? It is as natural to them as breathing is to the rest of us. (Yes, I'm insinuating that these people are not human, but only as a metaphor.)
Ellen is a breath of fresh air. Ahhhh!
Posted by Pat Fields on 01/22/11 09:51 PM
DB ... "You believe in copper as pre-eminent money ..."
I do not. Cite what I'd written, that gave you that impression. My proposal is to re-establish commodity money on a poly-metallic scheme to engender for each strata of society a relative niche of economic independence. What I envision is an environment of co-operation to emerge from that sectional independence, toward consistancy in trade ratios between the metals.
Transition out of our present dilemma naturally points toward a first step through copper, so that all the financial superstructures can remain undisturbed and everyone retains their relative equitable standings. No one gains and no one is damaged. Current banknotes simply haven't sufficient residual real expression in a handy silver form to initiate the change-over. Such a coin would be tiny. Copper happens to be perfect for the task.
Going forward, copper's true (much 'higher') exchange ratio will equilibrate across the broad spectrum, which will of course include silver, gold and others ... which can then be sequentially coaxed into the flow as their holders find the results agreeable.
How does that make copper "the pre-eminent money"?
Posted by Pat Fields on 01/22/11 06:56 PM
DB ... "We have never claimed that banks and banks loans are the ultimate form of capital and capitalism."
I didn't say that you did.
Now, Friends, we shouldn't be overly sensitive in our reading. I meant no denigration in my comment, merely a jocular chiding.
You've consistently expressed preconception of 'Loan at Interest' as the pre-eminent manner of 'credit conveyance'.
I find that an amusing dichotomy, given your 'mission' of examining 'memes' (and I repeat ... not in a derogatory or diminutive way), because I rather view it as the central 'meme' of the Banksters.
It is otherwise impossible to enslave the world in perpetually compounding interest debt, when an alternative to interest-subjugation is recognized. That's what Real Bills are. The alternative to Loan (or 'Usury Laws').
This fixation was made clear when you again persisted arguing that Real Bills ought have an inflationary effect on an economy. That misreckoning flows directly from confounding the very different operational mechanisms between Real Bills and banknotes.
As Ingo Bischoff has intimated repeatedly (though not so formulated), Bills of Exchange can not be inflationary because they're unconnected to interest, which depletes circulation. In fact, when they're prematurely liquidated, their discounting allows for commensurate additional 'capital formation' that would be shunted away from trade by interest service.
On the matter of converting banknotes to copper ... I'll simply say that you appear to have a severely distorted estimation of the ultimate ratio of 'valuation' inherent in silver and gold. I contend that they're far and away more precious than you apparently imagine, which accounts for your disdain of copper's co-ordinate situation.
Reply from The Daily Bell
You believe in copper as pre-eminent money despite all historical evidence to the contrary; for third time, Bischoff himself admits that a bank charter (government oversight) is necessary to ensure that banks do not over-issue notes via fractional reserve practices against a purchased Real Bill.
(Though as market-libertarians we would argue there is nothing with inflation via Real Bills and that does not make them any less viable.)
Posted by Pat Fields on 01/22/11 03:25 PM
Ingo Bischoff ... "
The statement by "The Daily Bell" that Real Bills are inflationary is incorrect."
You'd indirectly highlighted a rather amusing observation.
The 'Meme Hunters' themselves have fallen, hook, line and sinker, for the greatest 'meme' of the Banksters ... that Loan is the principal means of conveying (what I conveniently refer to as) Credit; to the near eradication of all other means.
To re-institute the market in Bills of Exchange would render 'Loan' as the far inferior alternative it is!
It would simultaneously return the despicable Banksters and Politicos to the purely fiduciary and administrative roles they genuinely ought to occupy.
Reply from The Daily Bell
1. We mentioned that Real Bills are likely a historical valid mechanism of transaction just the other day in an article. We didn't "fall" for anything.
2. We have never claimed that banks and banks loans are the ultimate form of capital and capitalism. We have written on the contrary that there are numerous funding mechanisms, from private partnerships to investment trusts to family-capital pooling.
3. You must have missed several dozen Bell articles explaining that banking is the biggest bubble in the world, that the industry is artificially stimulated by central banking and that the world could do without the vast majority of its current banks. Banks are nothing but warehouses for gold and silver, which is money.
Of course that would mean little to you, Pat Fields, as you are convinced the world should voluntarily place itself on a COPPER standard, which is about as realistic as a visit from an ambassador from planet Betelgeuse and just as illogical.
Posted by Peter J. Ritter on 01/22/11 11:24 AM
It appears Mr. Bischoff doesn't know the answer either, otherwise why would he ignore this substantial point. Maybe to study it further?
Posted by Bionic Mosquito on 01/21/11 03:05 PM
The key word is "source". Dr. Fekete must be using this in a manner I do not understand, and a manner different than its conventional meaning. In the manner I understand the term, and in its conventional meaning, I conclude real bills, via monetary inflation, facilitate production. His own statement (and statements you have made) only confirm this for me.
There is a difference in my statement and Dr. Fekete's. Source does not mean "incentive to provide." I do not know how to explain it differently.
Ellen Brown defines the source of credit as a claim on future production (to the extent she even has an answer, as her comments to Schiff demonstrated her confusion more than anything else). This is, of course, wrong. This is the similarity in a nutshell.
In any case, we have gone in circles, and I have taken up too much of your time. My point is not to convince you, as I am sure that will not happen in any case. My point is to try to gain clarity myself as to real bills and inflation, and secondly to put the conversation in a public forum such that others can draw their own conclusion. In this, I think enough has been done on this thread and on this aspect of real bills.
I thank you again.
Posted by Ingo Biscchoff on 01/21/11 02:37 PM
@ Bionic Mosquito
I read your statement and Dr. Fekete's statement to mean the very same thing. How your statement differs in its meaning from that of Dr. Fekete's, I cannot see.
To associate his statement that "ready consumer demand" gives rise to a commercial banking system based on monetizing Real Bills is the same thing as the confused advocation of the use of "sovereign" money by Ellen Brown, is something that is difficult for me to grasp.
Posted by Bionic Mosquito on 01/21/11 12:43 PM
Respectfully, Dr. Fekete did not say: I made the central point that the INCENTIVE TO PROVIDE commercial credit is not saving but consumption.
Such a statement would fit in with your explanation. And it would be somewhat understandable.
I will quote him again: "I made the central point that the source of commercial credit is not saving but consumption."
He made "THE CENTRAL POINT" that the "SOURCE" of commercial credit is not saving but consumption. This is a combination of Ellen Brown and central banking. I will not repeat again all of the reasons I conclude this. It is so.
The more I hear statements trying to explain away this seeming impossibility of his "central point", the more I conclude it is a wrong statement. With his "central point" he is, in fact, advocating inflation as the source of wealth creation.
Posted by Ingo Bischoff on 01/21/11 12:22 PM
@ Bionic Mosquito
As civilization evolved, the farmer created a surplus to use as his "savings". Just extend this to each of the other parties, and you can see that their savings are contained in the facilities and the machinery which process the "savings" of the farmer.
Dr. Fekete correctly points out that it is the ready demand by people for the bread which allows the farmer to feel confident to give up his "savings" against a promise to be paid for it in 90 days.
If there was any doubt in the farmers mind that people wouldn't by the bread, he would never let go of his savings to the grainer.
Therefore, Dr. Fekete's declaration that it is consumption that drives Real Bills, not savings is correct. The farmer doesn't depend on the net worth of the grainer to let go of his savings, he lets go of his savings because he trusts the grainer, and because he knows that there is a ready market for bread.
Posted by Bionic Mosquito on 01/21/11 11:32 AM
Thank you for the understandable example. I will only add that every participant in the chain (the owner of the granary, the miller, the baker) must also have savings (or access to savings) in order for production of bread to occur. There must be savings (in the form of consumption goods previously produced but not consumed) in order to provide credit (commercial or otherwise) to fund the production that serves consumption. Absent savings, the credit is inflation.
I return to Dr. Fekete's statement: "I made the central point that the source of commercial credit is not saving but consumption."
I have attempted to gain clarification on this many times before (I apologize, as I don't recall if I had this discussion with you in addition to others). The terms used by Dr. Fekete must have meanings different than I understand and different than what I can glean from your example. Or his theory is different than your theory, or I can not grasp the nuance, or ???
In any case, I feel as if we are now talking in circles. I am satisfied that I understand your explanation. However, if Dr. Fekete again emphasizes this statement in an editorial at DB, I will again raise my question.
Posted by Peter J. Ritter on 01/21/11 05:53 AM
To Ingo Bischoff.
Let us assume we are under a well functioning gold standard and RB's, and worldwide the quantity of available gold is in balance with economic activity. But economies grow faster, say 3%, than gold mining at 1.5%. Medium to long term more and more RB's will mature into gold coin and the imbalance of fast growing RB's vs. slow growing gold will increase over time. At some point the physical shortage of gold could become an impediment to economic activity.
To compensate for physical shortage, one way out would be to periodically revalue gold (upward) to reconcile the imbalance. Simply, if the quantity of gold is not enough, its value has to go up to accommodate the higher amount of RBs.
Higher gold prices would be good for savers, but what are the ramifications for the general economy? Prof. Fekete has not addressed this aspect so far, and I have yet to see a reasonable answer to this question from anyone.
Should ecomomic growth be limited by the growth of gold mining? Is there a way around it?
A related question id if we need perennial growth at all, or was/is that necessary only to keep servicing our mounting debts to the fiat paper racket?
Posted by Ingo Bischoff on 01/21/11 01:11 AM
@ Bionic Mosquito
Please look at it this way...
Before there was a grainery, before there was a flour mill, before there was a baker...there was a farmer. He planted wheat, then harvested it boiled it an ate it. However, his farming was so successful that it yielded much excess of wheat. He planned to save it for future consumption when a grainery offered to buy it from him if he would accept payment in 90 days. The farmer agreed and give up his savings to be returned to him in 90 days.
The grainery in the meantime lent the farmers savings to the miller who milled it into flower. The farmer's savings were payed back to the grainer by the miller in 90 days. The miller in turn lent the farmer's savings, which now is in the form of flower, to the baker who turns the flower into bread. The bread, as the end consumption item constitutes the savings of the farmer, which is readily preferred by people over boiled wheat. With the proceeds from the sale of the bread, the baker returns the savings of the farmer to the miller.
Now enter money (redeemable currency) as a medium of exchange and you have Real Bills. Real Bills enable the savings of the farmer alone to finance the entire chain of production in turning his wheat into bread.
Without Real Bills, the grainer would have to pay the farmer for his wheat from his savings, the miller would have to pay the grainer out of his savings, and the baker would have to pay the miller out of his savings. Instead, Real Bills enabled the savings of the farmer alone to finance the entire production which ended up in a loaf of bread which everybody loved over having to eat boiled wheat.
Do you see why the farmer could get paid back his savings in 90 days, as long as all the people in the chain were honest and followed up on what they had promised in the Real Bill?
Do you see how the farmer's savings in the form of excess wheat made possible wonderful bread which everybody desires?
Thank Real Bills for making it possible.
Posted by Bionic Mosquito on 01/20/11 05:55 PM
(3 of 3)
6: By your own statements, I can conclude this is inflation. You state that "In the absence of Real Bills, all steps in the production of a consumption item would have to be financed by savings." The problem is ALL steps MUST be financed by savings. Real Bills cannot change this fact. Your statement indicates that Real Bills offers credit (not in the legal sense, but in an economic sense: meaning accepting deferment of an immediately consumable good in trade for my output) absent savings. This is inflation. It is the same as the actions practiced by central banks. They also offer credit absent savings.
Posted by Bionic Mosquito on 01/20/11 05:54 PM
(2 of 3)
4: "In the absence of Real Bills, all steps in the production of a consumption item would have to be financed by savings."
But all steps in the production of ANY good requires savings, and must be "financed" by savings. The miller must have access to previously saved bread to sustain his life in order to attend to the task of milling. The baker must have access to previously saved bread for the same reason. Real Bills cannot provide the bread for sustenance during the production of bread if the bread doesn't exist as savings.
5: Please see my comments to 1-4 above. I do not hold this position due to my growing up under Fed central banking, Keynes, or Friedman. I hold these positions because I know if I am to spend time milling, I must in the meantime rely on previously saved bread to live. It is a question of needing to eat while I work on something I cannot immediately eat. It is not due to a supposed mis-guided economic ideology.
Posted by Bionic Mosquito on 01/20/11 05:53 PM
@Ingo Bischoff (1 0f 3)
I thank you again for your diligent and detailed comments in this dialogue. You offer a wonderful example of the positive aspects of such forums.
1-3: I believe I haven't been clear in my use of the term "saved consumption good." I am not speaking of milled flour being "saved" to deliver to the baker. I am speaking of (in this example) bread, not milled flour. There can be no production of milled flour without there first being a savings of previously produced bread. The miller must eat while he is milling. The baker must eat while he is baking. Neither is living on the bread that is yet to be produced. The previous "savings" of milled flour is not edible to the producer of bread while the producer of bread is producing bread. The producer of milled flour cannot produce milled flour without the savings of previously produced and saved bread.
There must be savings in the form of goods immediately ready for consumption for there to be further production of consumption goods. To have time to produce, one must have access to bread in the meantime.