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:
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.
If you want to solve the money problem, make money freer. Don't give it to the government to run.