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 Ingo Bischoff on 01/17/11 02:23 AM
@ Bionic Mosquito
I'll take another stab at explaining "Credit" versus "Real Bills".
Let's assume a worker in a bakery gets paid with script good for "x" number of loaves of bread. A worker in a dairy gets paid with script for "y" number of gallons of milk. The bakery worker has more script for bread than he can consume and the dairy worker has more script for milk than he can consume. They can exchange some of the script with each other. Both will have then at least bread and milk. No credit involved in this transaction. You would call it strictly barter via barter script.
Enter an organization which offers to clear all "commodity script" in circulation from bread and milk to kleenex and diapers. Instead of dealing with all this different script to complete barter transactions, this organization prints a uniform note based on the total value of the commodity script rendered to it. Does this organization thereby create more script? Hardly. Is there greater demand for the commidities with which the workers were paid just because a uniform note was issued? No. When the workers handed their script over to an organization for clearing, did the organization receive credit from the workers? NO.
If you follow my reasoning in this case, you should be able to apply it to Real Bills.
Economic theory is one thing. Money and credit are quite another thing. Just because money and credit effect an economy, they cannot be lumped together.
Money/currency and credit is governed by laws. An economy is the the result of human nature and the decision of families and other groups.
With the right monetary system, such as a "commercial banking" system creating a redeemable currency based on Real Bills, an economy will flourish. In contrast, a "central banking" system based on an irredeemable currency created by extending "credit" will always fail sooner or later.
Posted by Wrusssr on 01/17/11 02:02 AM
The question I would ask Ms. Brown is: How can the government nationalize something that already owns it?
Unless. . .it's all part of their never-ending fraud and the Fed thieves are going to hand Barney and Christopher and congress the keys and, along with friends and scoundrels on Wall Street and high places, walk briskly away knowing congress' new treasurer will have to declare force majeure before the sun sets on this giganticus raticus farcicus.
At which time banksters and financial buzzards and other inter- or multi-national players allowed a seat at the table would only be responsible for securing their newly acquired physical assets. (Mercenaries would be quite suitable for the job.)
It's doubtful liquidation of US assets would cover its [estimated] $200 trillion exposure"all of which was deliberately perpetrated by the congress-Fed tag team on behalf of the above, but which could be written off since the latter's English handlers already 'hold' [through the Fed] the paper for these assets.
Adding this acquisition to their growing list would be a crown jewel, so to speak.
All other discussions about future [fiat] money at this point are moot, in my opinion; with gold and/or silver being the reliable [and only] asset it has always been.
Posted by Jimi BigBear on 01/17/11 02:02 AM
Excellent interview, Ellen. The only way the Bell could refute your points was to muddy the waters by bringing in Zarlenga's AMI and Kucinich's NEED bill. If one just reads the interview and dumps the "afterthoughts" – it's scintillating! Thanks Bell for helping educate US.
Posted by Bionic Mosquito on 01/17/11 01:29 AM
@Ingo Bischoff, thank you for your detailed and reasoned response.
"The legal distinction between a "Credit Agreement" and a "Real Bill" makes all the difference in the world."
Not as it relates to inflation. Credit extended without savings is inflation, an unavoidable law of economics. By contract, two parties can agree to anything. However, just as they cannot, by contractual agreement, defy the laws of gravity when jumping off a cliff, they also cannot agree by contract to defy the laws of economics.
"I would be grateful to you, if you could explain what you mean by "legal terms" in contrast to "economic terms" when it comes to "Real Bills" and "Credit"."
In economic terms, anything other than final settlement upon transfer of goods is credit. From a legal standpoint this "agreement" can be accomplished via extended payment terms, the time required for a check to clear, the billing cycle of a credit card, or final settlement in coin via real bills. The legal form is irrelevant to the fact that credit (a delay in final settlement) was extended.
"If "Real Bills" circulate on their own, are they inflationary? Decidedly, they are not."
Private money not backed by savings (my interpretation of your statement "circulate on their own") is inflationary just as easily as any other money not backed by savings.
Posted by Ingo Bischoff on 01/17/11 01:15 AM
@ Jacob on 1/17/2011 12:45:46 AM
You praise the forum provided by the DB as an expression of libertarian sentiment. That's totally fine with me.
I give great credit to the DB for providing to us with a forum where we can present an individual "view of reality" or as the Germans would say "Meine Weltanschaung".
As a fan of Richard Feynman's thinking, I believe there are an infinate number of universe/realities. It is to the extent these realities overlap, that collective "wisdom" is gained. Anyone who claims his reality "the only reality" to be considered soon finds the answer to his claim from "feedbackers".
No doubt, the DB does the "Lord's work" by providing this forum.
Posted by Jacob on 01/17/11 12:45 AM
Kudos to DB and the highly intelligent commentators to this article.
The dispute between Ellen Brown and those who disagree with her highlights libertarianism's most redeeming characteristic, that no position – political, economic or otherwise, ever needs to prevail against any other. Libertarianism renders such disputes moot, perhaps anachronistic, as its philosophy of maximal individual freedom holds that people may pursue their private interests with no consequences other than opposition from those they improperly violate.
In politically free environments, individuals choose their own economic arrangements and suffer the risks and rewards. Ellen Brown's thesis is that a government monopoly over money would be superior to the current semi-private arrangement. I don't care if she is right or wrong. My only concern is the freedom to make my own private arrangements, and I would rather choose wrongly than abide by the dictates of others. Through this lens, does this dispute really much matter?
Posted by Ingo Bischoff on 01/17/11 12:28 AM
@ Bionic Mosquito (2 of 2)
To my statement that production can be financed by a 90-day Invoice or a by a "Real Bill", you claim that in both cases "credit" is involved, because you state, "This is credit. It is not clearing. Anything beyond COD is credit in economic terms, whatever the legal terms might be."
To answer your claim, I must simply say that you are incorrect. A 90-day Invoice is a "contract" governed by "Contract Law". A "Real Bill", when properly endorsed is a "promise to pay" governed by the "Law of Bills and Notes". A "credit" contract requires "consideration". A "Real Bill" does not require consideration. The distinction in law is very important, and it cannot be dismissed by bringing in a concept such as "economic terms".
I would be grateful to you, if you could explain what you mean by "legal terms" in contrast to "economic terms" when it comes to "Real Bills" and "Credit".
As to "Real Bills" being inflationary, you say, "they are only inflationary for the period they are outstanding. As it is expected that real bills would constantly exist due to the continuance of economic activity, when exactly do they mature as a paper (fiduciary media) instrument? This seems like the same as saying government debt is retired...when in fact it merely rolls over (and grows)."
"Real Bills" can circulate without the interference by "commercial banks". If "Real Bills" circulate on their own, are they inflationary? Decidedly, they are not.
A "commercial bank" acquires "Real Bills". By charter a commercial bank is authorized to create "bank notes" against the value of the "Real Bills". When it deposits the "Real Bills" in its vaults and circulates the bank notes instead, is the bank guilty of inflating? Decidedly, it is not.
"Real Bills" have a maturity period of 90 days. Any bank note created against a specific "Real Bill" expires with the maturity date of the "Real Bill". It would of course be absurd to print new bank notes for every new "Real Bill". For that reason all "commercial bank" charters include the requirement that banks withdraw from circulation any bank notes in excess of the value of un-matured "Real Bills" in their vaults.
As I wrote before, problems with "commercial banks" arose when the excess currency was not withheld from circulation, but it was instead used for long-term investments. Failure of bank supervision to check the disposition of excess bank notes allowed bankers to use the temporary excess of bank notes to "invest long" by "borrowing short", a recipe for disaster. "REAL BILLS" DID NOT CREATE INFLATION. UNSUPERVISED COMMERCIAL BANKERS DID."
Just as "War is too important to be left to the Generals", so "Banking is too important to be left to the Bankers".
Posted by Ingo Bischoff on 01/17/11 12:23 AM
@ The Editors of DB....My sincerest apology for attributing to you comments which were actually made by Bionic Mosquito.
@ Bionic Mosquito (1 of 2)
Your comment: "Please explain...maybe a "real bills for dummies" would help. Is it credit, or isn't it?"
I'll try to explain. "Credit" in relation to commercial transactions is defined as "a contractual agreement in which a borrower receives something of value now and agrees to repay the lender at some later date".
The operative words in this definition are "contractual agreement". A 90-day invoice is a contractual agreement. A "Real Bill" is not a contractual agreement. Law covering "Real Bills" is separate from Law covering "Contracts".
You cannot dismiss the distinction between "Credit" under "Contract Law" and "Real Bills" under the "Law of Bills and Notes" by saying may be there is a valid legal distinction, but I do not see it as an economic one.
The legal distinction between a "Credit Agreement" and a "Real Bill" makes all the difference in the world. The development of "Real Bills" goes all the way back to the medieval faire. The "clearing function" of "Real Bills" is best demonstrated by the medieval "Faire Script". Such script was issued at the gate to a medieval faire against a merchant's declared value of goods brought to the faire. With this script, a merchant could immediately conduct business without having to first sell his wares. Upon exiting the faire, the merchant had to deliver up the same amount of script he had drawn. Any shortage had to be settled with coin, any overage yielded coin. Failure to settle was dealt with by medieval law.
The merchant didn't borrow the faire script and the faire operator didn't lend it. The faire script simply facilitated the more efficient operation of the faire and cleared a merchant's transactions when exiting the faire. The clearing function of the "medieval faire script" is mirrored in the modern "Real Bill".
To explain my statement: "THERE IS NOTHING MORE CREDITWORTHY THAN THE "READY DEMAND" OF CONSUMERS", I must explain that the word "creditworthy" here means "dependable" or "reliable" and it is not used in a legal sense in relation to Contract Law.
What I am trying to explain is that the ready demand by consumers for consumption items provides assurance to the supplier that the producer/retailer will be able to "clear" the "Real Bill" drawn on him.
If the producer/retailer defaults on a "Real Bill", the holder of the "Real Bill" cannot find remedy in "Contract Law". The holder of the "Real Bill" in this case will have sustained a total loss. However, the default on a "Real Bill" will also spell the end of the business on which the "Real Bill" was drawn, because ostracism from the business community and commercial bankers will set in immediately.
Though the consumers in their "ready demand" for consumption items are "creditworthy" meaning "reliable" to readily buy consumption items, there does not exist a contractual agreement between the consumers and the producers/retailers to actually buy the items. I used the word "creditworthy" to make a connection. Maybe "reliable" would have been a less confusing word.
Your comment: "How can you describe something as "creditworthy" and also state it is not credit? If it is not credit, why do I care if it is creditworthy?" I hope to have answered your question above. If I haven't, let me know, and I will take another stab at it.
You further ask: "Also, please reconcile your statement with that of Dr. Fekete, where he describes an attribute of real bills as follows: "I made the central point that the source of commercial credit is not saving but consumption." He is describing the source of credit, not the source of clearing (although I recognize he also attributes to RB the latter function as well).
The operative words in Dr. Fekete's statement are "commercial credit". By commercial credit, Dr. Fekete means the "ready demand" of consumers to purchase consumption items. This is right in line with what I explained above. I should be very surprised, if Dr. Fekete would disagree with my interpretation of the way he uses the term "commercial credit".
If you read Dr. Fekete's statement with this understanding of "commercial credit" as I supplied it, you can see that it is the ready demand for "consumption" which gives impetus to the creation of "Real Bills" and not the net worth of a producer/retailer.
Posted by Taylor on 01/16/11 11:40 PM
Well, you gave her a chance. Of course, she blew it, as she must.
An outstanding interview of a truly clueless, pseudo-intellectual woman. You were as fair as you could be. Great work! Ellen Brown is definitely staying on my "Safely Ignore" list. Thanks!
Posted by Julius Abanise on 01/16/11 10:53 PM
Apologies. Thanks for the correction.
Posted by Ernie Messerschmidt on 01/16/11 10:45 PM
To Richard Johnsson: "But do you have to have a monopolist govt."
The term "monopoly", which is from Greek meaning one seller, does not apply to government. Good government provides the rules that allow competitive free enterprise to function for the benefit of the people, but disallows unfair monopoly. Said good government is something we have too little of now, if you haven't noticed.
Go back to the 50's when we had a lot more competition and a lot more honest government and look how good the results were. Getting rid of banker/corporate control of Congress would be a good step toward good government. Look at any instance of prosperous, vibrant society and you see good government as a prime cause. Why are you so dead set against government per se? I think Ellen Brown has looked deeper than you have! Read her book Web of Debt!
Posted by Sovereignthink on 01/16/11 10:24 PM
There seems to be a division in the Ellen Browns/Bill Stills and the Ed Griffins/Ron Pauls on Some Federal Organizations and Institutions.
Both however are strong believers in a secure monetary system and understand that if a small group of individual's have the power to control any one aspect of the measurement of a Nations value then the Nation will have a System that is corrupted.
Both Believe in a Currency that is Owned, Valued and Controlled by the people.
There's Ultimately seems to be a battle of Non-Commodity Based vs Commodity Based currency.
Either way both agree the Federal Government/Fed Reserve world monetary system is too large for the individual to regulate from our local towns.
I believe that every State can now be self sufficient in energy generation, water generation, food production and supply enough commerce to virtually sustain all need within its own borders, allowing all regulation to be state and locally managed, just as the Founders had intended.
This is hampered by corporate charter law, patent law, copy right law, federal law and international law but mostly by the Imbalance that has been created in the International Monopoly that the Dollar has enjoyed as the world's reserve currency for almost a century.
Each State has resources and geographic differences that would change the type of community, production, economy and regulations that could best serve the Public Domain.
The Technology and Capacity now available allows for smaller self sustained, Locally Manageable, Just, Equitable and Thriving Local Re-Publicing of America.
We either Submit and Go Global with IMF Debt Based Corporate Carbon Credit Austerity
We take Control and Go Local With State Banks
And I think State Commodity Depositories (gold, silver, tine, zinc, cotton, wool, wheat, water or whatever)
The state can then offer Premium loans for State Commodity Research, Refining Plants, Processing Companies, Scholarship Studies because it will be an investment in the Literal Wealth of the State and Making the Commodity and Value of the State as Valuable as Possible.
The value of the Individual and what they are able to create
The State Banks Commodities and State Commodity Depository Act
Click to view link
Idaho Silver State Bank and Depository ACT
Click to view link
A Nation Divided DEM v REP or A Nation United The Democratic Republican Party
Click to view link
Posted by Wayne Herrod on 01/16/11 09:39 PM
I am suspicious of someone whose most common references are Wikipedia. I believe there is more to history than that source alone.
Posted by A Mann on 01/16/11 09:29 PM
"Thanks, I wasn't sure if anyone saw that. It seems to be impolite to point out the gun in the room when communist ideas are proposed. The Daily Bell is much more polite in the wording of it. Myself, I see dead people when this stuff is seriously considered."
I would like to add, that I see what you point too with all forms of Government rule, ie. "The State". All their actions are carried out through the real threat of violence, [the Gun In The Room]. That is the operational method of The State, always.
Posted by KP on 01/16/11 08:52 PM
All I remember of State banking was that the NZ Govt bailed out the Bank of NZ at least twice before admitting defeat and selling it to the Aussies.
Like anything else, Govt would run a bank very poorly and it would end up being corrupted to political ends, not economic ends.
This woman is short of a brain cell or two in the 'real world dept', or she is just another keen politician hoping to get power. It seems so obvious that anyone should be able to issue money or credit,and the free market will sort out which is good and which is not.
Posted by Bionic Mosquito on 01/16/11 08:51 PM
@Ingo Bischoff (2 of 2)
"The statement by "The Daily Bell" that Real Bills are inflationary is incorrect. The bank notes created against a "Real Bill" expired with the maturity of the "Real Bill"."
Again my statement, not that of DB. So, they are only inflationary for the period they are outstanding. As it is expected that real bills would constantly exist due to the continuance of economic activity, when exactly do they mature as a paper (fiduciary media) instrument? This seems like the same as saying government debt is retired...when in fact it merely rolls over (and grows).
I am open to simple, straightforward explanations regarding real bills. Please see the commentary I posted to Dr. Fekete's latest editorial at DB. My objections remain.
Posted by Bionic Mosquito on 01/16/11 08:50 PM
@Ingo Bischoff (1 of 2)
As mentioned above, the comments were mine, not DB's. Please see the commentary at:
Click to view link
"It is critical to understand that there is NO CREDIT involved in creating "Real Bills"."
The distinction may be a valid legal distinction; I do not see it as an economic one. Later in your post, you seem to describe the credit aspects of real bills. For example: "THERE IS NOTHING MORE CREDITWORTHY THAN THE "READY DEMAND" OF CONSUMERS." Please explain...maybe a "real bills for dummies" would help. Is it credit, or isn't it? How can you describe something as "creditworthy" and also state it is not credit? If it is not credit, why do I care if it is creditworthy?
Also, please reconcile your statement with that of Dr. Fekete, where he describes an attribute of real bills as follows: "I made the central point that the source of commercial credit is not saving but consumption." He is describing the source of credit, not the source of clearing (although I recognize he also attributes to RB the latter function as well).
"This can be done by a 90-day Invoice or a "Real Bill"."
This is credit. It is not clearing. Anything beyond COD is credit in economic terms, whatever the legal terms might be.
Posted by Agent Weebley on 01/16/11 08:47 PM
I deftly crafted an angry response
Click to view link
But since you responded to my wife so gracefully, I'll let you off. . . but what's this about the Chinese and silver?
Posted by Heuristic on 01/16/11 08:40 PM
I'm reposting the preceding message because the retarded site software removes mathematical symbols such as plus signs:
Ingo, thanks for the explanation of Real Bills, which I now "get." It reinforces my view that there don't need to be banks and bankers in order to do banking. It is so simple: Real Bills PLUS trading houses making the market in them PLUS commodity money which would emerge without the taxes and legal tender law.
That's what we'll have when we start colonizing space.
Posted by Aaron on 01/16/11 08:32 PM
As always with Ellen Brown, the only statement that needs to be made is TANSTAAFL.