News & Analysis
Usury or Taxes?
It's the Interest, Stupid! Why Bankers Rule the World ... In the 2012 edition of Occupy Money released last week, Professor Margrit Kennedy writes that a stunning 35% to 40% of everything we buy goes to interest. This interest goes to bankers, financiers, and bondholders, who take a 35% to 40% cut of our GDP. That helps explain how wealth is systematically transferred from Main Street to Wall Street. The rich get progressively richer at the expense of the poor, not just because of "Wall Street greed" but because of the inexorable mathematics of our private banking system. – Ellen Brown/Huffington Post
Dominant Social Theme: Usury must be stopped.
Free-Market Analysis: Ellen Brown has been building a case for public banking for years now, ever since writing about it in her book, Web of Debt. We've been in discussions with her for several years and have watched her case grow and change. Dr. Gary North has done extensive debunking of some of her arguments.
She continues, of course. In this article, she focuses on the current, fashionable "black beast" of a certain part of the alternative media: interest. Her work is based on the analysis of Margrit Kennedy who in turn utilizes some of the theorizing of a German Green Party founder, Helmut Creutz.
Creutz is an interesting fellow. This is taken from a paper of Creutz's, "Globalisation and Public Welfare with Respect to the Money and Land Order":
As the only legal means of payment in our economy, money should not only be connected to an acceptance compulsion – as is already the case today – but it should be associated to a (much more important) obligation to pass it on, so that disturbances in the circulation of money come to an end, which are harmful for the future of public welfare.
In order to achieve this end, the only available means of ascertaining the circulation of money at present, i.e. interest and inflation, have to be supplemented or rather be replaced by a constructive, steadily effective means of safeguarding circulation - a circulation safeguarding that guarantees the circulation of money, even if the interest rates drop to zero in compliance with the market situation ...
Creutz is a proponent of Silvio Gesell, whose theories are now being propounded once again by a cadre of believers. Gesell believed that money ought to depreciate month to month so as to ensure that people spent it. Another monetary theorist, Major Douglas, labeled Gesell's theories a terrible tax, which indeed it is.
Creutz backs Gesell's so-called demurrage (depreciating) currency and in his writings is also a proponent of banking and money regulation. A "Georgist," he apparently doesn't like the concept of private land ownership, and he claims one needs to reform "money-supply management."
Gesell's theories were tried famously at Wörgl in Germany. Recently, the Wörgl experiment, which is held up as an affirmation of Gesell's views, was analyzed by free-market thinker and Daily Bell feedbacker "Bionic Mosquito." His conclusion (from a lengthy and factual article available at his website) is as follows:
Wörgl was not a miracle, but an example of Gresham's Law and Keynesian spending. It is certain that the experiment could not have continued much longer even if the national government did not shut it down. Virtually all of the money used to pay for the projects came from one-time events:
• Taxes paid in arrears cannot be again paid in arrears annually and repetitively. The balance owed to the parish was almost paid completely in the first year – with little more to collect thereafter.
• Taxes paid in advance certainly have a natural life – for how many years will taxpayers pay two years' future taxes? For how many years can they economically afford to do this?
• The annual increase in normal tax receipts when due to an artificial boom cannot be sustained – witness the fiscal impacts of the dot-com bubble bursting or the subsequent real-estate bubble bursting.
• The Tyrol government credit was a factor fully outside of any local "experiment."
• Defaulting on a portion of the loan certainly freed up resources, but is also not a sustainable method of financing.
Thus ends the saga of Wörgl: one more money fallacy in the long list of funny-money miracle fallacies sent to the grave.
Creutz is indebted not only to Gesell but also to John Maynard Keynes who made the case in his famous (if incomprehensible) book General Theory that government ought to be responsible for stimulating slumping economies by printing endless amounts of currency via central banking. Here is more Creutz:
More than one hundred years ago, Silvio Gesell has already pointed at these options, mainly in his basic work "The Natural Economic Order by Means of Free Land and Free Money". With a circulation safeguarding of that kind, which can be called money fee, money holding fee or money usage fee, the superiority of money compared to human labor and exchange goods could be dismantled.
Up to now money has a "liquidity premium" – as John Maynard Keynes called it in following Silvio Gesell. Just as humans have to expend work for their survival and maintenance and produce is to be sold at right time (to avoid losses due to aging), money ought also to be equipped with a "maintenance fee."
Creutz's admiration for Keynes seems emphatic. Yet no one made a more misguided (or powerful) case for government interference in the markets than Keynes. He did this by skipping right over the cause of recessions and depressions – modern, monopoly central banking – and simply suggesting a solution: Big governments ought to stimulate via gouts of fiat currency.
For Keynes, the stimulation didn't seem to matter. Government could basically employ people to dig holes and fill them up again. Of course, this is a variant of the "broken windows fallacy" that any sort of employment is good, even if it is the result of war. Taken to its extremes, one ends up advocating that societies ought to destroy themselves to generate full employment.
Additionally, Keynes's theories plain don't work. They were tried in the US, especially in the 1970s and now again in the 2000s, and they simply enrich the powerful and facilitate the current (despicable) commercial banking system.
It is not surprising, however, that Keynes was sympathetic to the modern banking system. Early in his career he worked in central banking, and he was also a Fabian. Fabians were an upper crust phenomenon – along with the Bloomsbury Group – that sought to replace Adam Smith's Invisible Hand with increasingly virulent socialism ... the regulatory hand of government, in other words.
The Bloomsbury Group even celebrated a famous stained glass window of a wolf in sheep's clothing, which was how they proposed to penetrate society.
The Fabians were basically authoritarian believers in government compulsion. They were (and are) an excrescence of Money Power that seeks to create global governance via the use of government and its byproduct, mercantilism.
The Fabians reportedly published a lot of both Gesell and Douglas's work, in part because much of what these two were proposing probably couldn't have come to pass without government compulsion.
This is the real reason that proponents of free markets are attacked by followers of Gesell and Douglas. These believers never write about the fundamental truth of such systems, that they must be compulsory on some level – presumably the larger the better – to work with maximum efficiency.
Keynes was a Fabian and affiliated with the Bloomsbury group as well. The authoritarian agenda of the Fabians and Bloomsbury continues to this day. It can be found in much of the work of the UN.
It is no surprise, therefore, that Margrit Kennedy and her husband have close ties to both the Green movement and the UN. Creutz himself was an ardent Green campaigner in Germany in his younger years. The UN is a proponent of certain kinds of alternative money systems to which Kennedy and Creutz seem sympathetic. You can see some of our articles here:
New Book Further Confirms Eco-Affinity of Alternative Currency
Paper Money and the UN Perfect Together? More Currency and Credit Exchanges Supported by the UN
Poison of Neo-National Socialist Public Banking
Regarding Ellen Brown's perspective specifically, we will not bother to try to defend the current indefensible system. However, the answer is not yet more public involvement and laws banning "usury." The answer is a freer market and more money competition.
Within such an environment we believe gold and silver would circulate as they have before. Over at Strike the Root we find several pithy comments about Ellen Brown's article:
"In this proposal 'public' = government. So we just need to have government and politicians own and run all banks. What could possibly go wrong?" – Bradley Keyes, posted on November 12, 2012
"I had the same reaction. Public banking ought to be about as successful as public schools." – Paul, posted on November 12, 2012
Ms. Brown points to BRIC economies as running successfully because of public (central) bank involvement. But actually, all four countries are struggling with terribly overheated economies as a result of reckless monetary inflation. Her North Dakota public bank example is problematic, as well, as we have pointed out in past articles.
Finally, Ms. Brown neglects to mention the taxes that are larded throughout Western economic supply chains and surely cause the kind of damage, as well, that she attributes to interest.
People should have a right to charge interest if they choose. In a normal (non-monopoly central bank) environment it would not be destructive but merely recognition of the time preference of money.
The numbers used by people who believe in mathematically perfected economies are suspect ... and so are their interest rate conclusions. For one thing, they may not recognize black and gray markets. For another, Austrian human action shows us clearly it is impossible to put such complex systems into practice without unintended results. The main results of Gesell's system seem to have been that it increased tax revenue.
Finally, despite all of the above, we're not against any monetary system freely chosen, even Gesell's or Douglas's. We are suspicious, though, that such systems cannot be implemented on a large scale without significant coercion, as we are dubious about the real results as well.
Conclusion: If you want to solve the money problem, make money freer. Don't give it to the government to run.
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Posted by taxesbyanyothername on 11/15/12 08:23 PM
This year, the IRS is charging me almost 36%, on back taxes, on money that they know I never had, and that noone ever said I was supposed to have. What constitutes usury is debateable but I think this may be worse.
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Posted by Summer on 11/15/12 05:59 PM
Anthony Migchel's Article on Worgl:
Click to view link
"... The Mayor smiled forgivingly. He knew that bigger men would make the same mistake. Even Professor Dr. Bundsmann, lecturer of macro-economics at the University of Innsbruck and honored with the Austrian title of 'Honorary Civil Servant' would call the success of Wörgl with its fast circulating money a hoax, because he could not understand how 5100 Schilling in taxes could be paid from an issue of only 1000 Schillings. That was beyond the expectancy of the Mayor himself. But every Schilling coming as Bill was re-circulated right away to pay an invoice, and was back and out again in short order, because this money attracted a penalty when idle. At that time the National Bank of Austria kept in circulation a constant amount of about 914 million Schillings for a population of some 6 million, or 153 Schillings per person. At the issuing peak, the value of Wörgl Bills was 7443, less than 2 Schillings per person. But these 2 Schillings gave more income and profit to each person than the 153 Schillings of the National Bank. Why? Because they were designed to entice people into using them, which is what money is for: to pay, to do business, to exchange. A. Hornung, who was against this 'free money' and the whole experiment, reported grudgingly: 'The issue of relief money was back in the coffers of the municipality within days. From there it could be re-used for payments. The total average in circulation was: August 1932 3675 September 3375 October 3525 November 6350 December 5725 January 1933 5450 February 5650 March 5625 April 5750 May 5675 June 5875 July 5800 August 5825 September 5825 Average: 5,294
How ludicrous is the thought of people with no inkling of the importance of money's velocity of circulation for the economy.
AM: the total amount of trade financed by the certificates amounted to the equivalent of 2,5 million Schillings. While only about 5,500 worth of certificates were circulating on average. Meaning that the small demurrage of 12% made the certificates circulate at least a hundred times faster than the Schilling."
Anthony Migchel's comment on BM's article in a feedback stream:
Click to view link
"Well, it was far from impressive, was it not? It's really strange to write two articles on Worgl and not notice that velocity was the key issue.
It has nothing to do with 'Keynesianism'. Wat the demmurrage did was to get the scarce cash out of hiding and people started to use it for what it was actually meant: to pay with.
But this is a very difficult concept to grasp for those infested with Austrianism, which is only concerned with the sacred rights of those holding money. This 'Entire society be damned, it's MY CASH and I CHOOSE' kind of mentality is really very hard to get rid of. The fact that 'the fear of demurrage' solved unemployment and the associated profound suffering is really irrelevant in the face of the fear of that great ogre of Austrianism: INFLATION.
By the way: there was no threat of inflation in Worgl: the endgame would have been that all backward payments would have been settled and then the certificates would have been converted back to Schilling and out of circulation.
BM doesn't mean badly, he tried to write an even handed article, he just completely missed the point."
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Posted by Himagain on 11/14/12 06:13 PM
THe Chinese because of the inherent difficulty of their languages in communication, tend to resort to fables or direct demonstration. They can ask VERY direct questions which can be unnerving, like this one:
Okay, the idea of a socialist/communist society does mean nobody starves and health help is free and near at hand. But it is hard to improve your lot. "Lack of incentive."
The capitalist/free market concept is simple: everyone for themself and competition will create growth. Some small part of which might be shared with the losers. But, no work, no food.
The one constant I observe after the last 3 score and ten is:
USA style Republicanism is GREAT if you come from a Good Background or are very lucky or inherited well.
USA style Democratism is the must-fail socialism-without working-for-it idea.
But, it is worth looking at what China has accomplished overnight with a mix of the two... .
For my part, having lived thru times of both, there is nothing human in the totalitarian fake of the "free market" to commend it to a reasonable human. Look at the German invention of the Common Market. Look at the inhumanity of it.
The Modern Austrian School has one glaring hole in it: it is to be run by humans and ALL humans need checks and balances.
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Posted by Summer on 11/14/12 05:53 PM
For those who are interested, most of the themes in this article (including BM's view) were dealt with in the feedback section here:
Click to view link
Let's see what Kennedy herself has to say:
Click to view link
An eloquent outline of why interest must end:
Click to view link
Enjoy!
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Posted by laceja on 11/14/12 05:38 PM
"As the only legal means of payment in our economy, money should not only be connected to an acceptance compulsion - as is already the case today - but it should be associated to a (much more important) obligation to pass it on, so that disturbances in the circulation of money come to an end, which are harmful for the future of public welfare."
Why do you think Obama wants to tax it away. He wants to spend it back into the economy. Not agreeing, mind you, but that obviously is how he thinks he can save the economy.
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Posted by bionic mosquito on 11/14/12 03:37 PM
DB, thank you for the acknowledgment
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Posted by 1776 on 11/14/12 12:56 PM
What is the 'fiscal cliff'? By Patrick Martin Global Research, November 14, 2012
Click to view link
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Posted by Hugh on 11/14/12 12:54 PM
"Interest on money is therefore utterly essential from both a moral and economic perspective. 0% interest says that a man's capacity to reason, labor, create and produce has no value." ~Ann Barnhardt
Click to view link
Warning to Paulians: She has some harsh words for the good doc in Part 8.
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Posted by dave jr on 11/14/12 11:07 AM
Seen,
Until now, I didn't equate public/private partnerships (PPP) with National Socialism. But that is exactly what it is. Thanks.
The compulsion to 'spend spend spend', or the need to induce the velocity of money is another piece of evidence that our liberties are being usurped by economic means. The usurpers need fuel, so to speak.
It also indicates that these national monetary proposals are part of the global centralist's agenda.
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Posted by Danny B on 11/14/12 10:44 AM
@Seen, good observations. The State does it's damnedest to proliferate the idea that State and Society are inseparable. Lacking a convincing argument, there is always force.
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Posted by Seen on 11/14/12 05:57 AM
"Usury or Taxes?"
Definitely usury.
Public Spending seems to tend to move the society towards accepting governmental coercion for the sake of coercion. This coercion advocates forming public-private partnerships or the movement evolution towards national socialism. Then, civil rights, liberties, and freedoms disappear and are replaced with civil privileges capable of being removed at the discretion of that public-private or national socialist governance.
The system reminds me quite a bit of the LETS that was advocated for Greece earlier in the Euro demolition largely designed to aim to continue problem-reaction-solution.
Posted by dave jr on 11/13/12 08:44 PM
"I will go with incredibly dishonest."
Definitely agree.
"so spend spend spend. The bigger question is why?"
For non-governmental fiefdoms, it means that the wealth distribution is a payoff for the public-private partnership decreasing and immobilization of class mobility. The class structure enables people to climb and fall down the ladder through free-market capitalism preventing standing political and financial classes for generations. Eliminate class mobility to force people to by declining purchasing power and artificial (limited capital creation for accumulation), and the classes turn into castes. The only portion to continually move up and down at best is the Poverty-Lower-Middle and Middle-Lower-Poverty
Reply from The Daily Bell
"Public Spending seems to tend to move the society towards accepting governmental coercion for the sake of coercion. This coercion advocates forming public-private partnerships or the movement evolution towards national socialism. Then, civil rights, liberties, and freedoms disappear and are replaced with civil privileges capable of being removed at the discretion of that public-private or national socialist governance."
Good analysis.
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Posted by Joe on 11/14/12 05:22 AM
We can have a free money system... where people are free to choose whatever commodity they want as money with no legal tender laws or government taxes demanding payment in 'government paper money' only.
We can also have a moral law and a government law that bans money lending and charging interest, those who refuse to adhere to these laws can create their own market elsewhere.
Money lending and charging interest is repugnant because there is little risk to the money lender and they grow rich with little or no effort. In a free commodity based money system with interest based money lending things would be slightly better than they are now... but realistically the money lender would still have less risk because they would only loan capital if there is security. An interest free economy by contrast would allow a less concentrated distribution of wealth (over more people than under interest based) and it would be less volitile socially without dangerously big millitary and WMDs in existence.
Reply from The Daily Bell
"We can also have a moral law and a government law ..."
So big government is OK, so long as it is "moral." Good luck!
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Posted by ilpatino on 11/14/12 04:07 AM
@ RR; you say "Money should be Gold and Silver."
I say; Gold and Silver should trade freely against fiat-currency.
The problem is not that central banks print fiat, the problem is that they create paper gold and silver, sell that on the market and thus keep the fiat-price of gold and silver artificially "low."
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Posted by Danny B on 11/13/12 10:56 PM
Dear Bell, I know that you have found some of my links to be interesting. I have a few links but, I can't find an appropriate thread to post them. You know what that means.
Once more, I go off topic. Everyone is free to ignore them.
As you know, the banking business is very expensive to run. The banks are sucking in assets like a black hole. They have ever increasing competition from E-Trade.
Click to view link
This article is relevant to the discussion of food shortages. It has interesting numbers.
Click to view link
Martin Weiss has an excellent article about markets forcing GOV action.
Click to view link
This paper compares discretionary spending to mandatory spending,,, very interesting.
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2 good articles on sociopaths.
Click to view link
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Zero Hedge has a good set of articles about the dollar and Euro.
Click to view link
Hopefully, you will be able to find something here to analyze and present to your ever inquisitive readers.
Reply from The Daily Bell
Thanks ...
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Posted by Summer on 11/13/12 09:51 PM
For once I agree with the 'dominant social theme'! :)
Reply from The Daily Bell
OK, good we agree on something, Summer ... :-)
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Posted by dave jr on 11/13/12 08:44 PM
"These people either are dumb beyond salvation, or incredibly dishonest."
I will go with incredibly dishonest.
Demurrage of currency has been accomplished and lending (investing) is not an option; so spend spend spend. The bigger question is why?
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Posted by mava on 11/13/12 08:23 PM
These people either are dumb beyond salvation, or incredibly dishonest.
Today, we are already operating with negative interest. What they want to achieve had already been achieved.
Example: Take a mortgage with 4% "interest". The current real inflation is about 9-10 percent, if you don't add up most of the exotic factors. So, 9% - 4% = -5% (negative).
This is great for a borrower who understands this. What about a lender? I would not loan anything to anyone with interest less than real inflation + risk + worthy profit.
Would you?
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Posted by dave jr on 11/13/12 08:22 PM
Helmut Creutz: 'As the only legal means of payment in our economy, money should not only be connected to an acceptance compulsion - as is already the case today - but it should be associated to a (much more important) obligation to pass it on, so that disturbances in the circulation of money come to an end, which are harmful for the future of public welfare.'
I wonder how this is harmful. I assume Creutz means that by not spending money, a job somewhere is diminished. But if I acquired the money from doing a job, then the value of my work is already in the economy while I hold nothing but paper. How is not immeadiately demanding compensation in goods harmful to anyone but a currency manipulator? I suppose Creutz would say, because those working jobs need money. Well, then he should be seen as another socialistic elitist con man because money is created to facilitate trade. Trade is not created to facilitate money.
There should be no obligation to pass it on as there should be no obligation to accept it. It is a backdoor approach to the communistic doctrine of an obligation to produce. Soft spoken words of another beggar tyrant.
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Posted by NAPpy on 11/13/12 06:59 PM
Great article, DB. If the Austrians are correct:
Click to view link
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... then banning interest is problematic. Humans demonstrate time preference every time they act by preferring the action over its counter-factual opportunity cost. Time preference is inescapable, even in autistic exchanges.
Humans also demonstrate positive originary interest whenever they conduct labor. Labor demonstrates that ends are valued more than means. Both time preference and originary interest in labor can't be arbitraged away. Whenever you have the conditions of a monetary economy, the division of labor, and relative differences between actor's valuations of originary interest, monetary interest will emerge (an a priori deduction). Ban it, and people will immitate the middle ages--they'll use "fees" instead of "interest".
But maybe Austrians have reasoned incorrectly. The solution is simple and profound. Don't interfere with voluntary exchange. If opponents of interest are right, then actors will voluntarily adopt Worgl, etc.
Reply from The Daily Bell
"If opponents of interest are right, then actors will voluntarily adopt Worgl, etc."
If people WANT such systems, they are welcome to them. But we would still argue in the long term that experiments like Worgl will likely yield unexpected and negative results for those who support them. Even the few operational anti-interest (Gesellian) banks likely add on fees that are commensurate with the interest forgone in loans.
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