Response by the author of The Lost Science of Money to book review
|April 26, 2003||Posted by Staff under Book Reviews|
Author’s Reply to Review of The Lost Science of Money
The Lost Science of Money: The Mythology Of Money — The Story Of Power
by Stephen A. Zarlenga
published 2002 by the American Monetary Institute, Valatie, NY.
686 pages, plus a subject index, for a total of 724
Author Stephen A. Zarlenga responds to the book review by Edward J. Dodson
First of all thank you for reviewing my book, The Lost Science of Money and bringing attention to its themes of monetary history, theory and reform. This field must be seriously examined now, as almost every state of the union is in fiscal (and really monetary) crisis.
Second, thanks for the opportunity to comment on the review. Right up front Mr. Dodson appropriately alerts the reader that there are significant differences in our viewpoints on what constitutes a just and sound monetary system. My brief comments will clarify some of the positions in the book, and then examine some implications of the more important of our agreements and disagreements.
One of the themes throughout The Lost Science of Money is the great importance of how a society’s concept of money is defined and how that will ultimately determine the level of justice and kind of money system it uses. For example whether money is a power, embodied in a commodity like gold; or a creation of the law. That is does its value come from its ‘intrinsic’ (commodity) value or from sponsorship or even legal requirements of government?
An examination of historical cases in over 800 monetary source materials shows conclusively that money in its essence is an abstract institution of society embedded in law. Thus Aristotle writes: Money exists not by nature but by law. And Plato concurs (p. 35).
Regarding my historical examination, I thank Mr. Dodson for writing:
Mr. Zarlenga brings together the results of his penetrating research (and) provides evidence to show that even the most common items exchanged in barter did not evolve into money.
The concept of money a society embraces becomes the main factor determining whether the money system will be under private control, for example of bankers as in the U.S. or under public control, by the government. Private control normally operates to benefit the privates in control, and tends to unfairly concentrate wealth and power in their hands. Public control has a much better potential (and record as well), to act for the public good and to promote the general welfare. I consider this private vs. public control factor to be the most important dividing line in monetary reform.
For example, if the dominant view in the society confuses money with wealth, say gold and silver, then the control of the monetary system tends to fall into the hands of the wealthy - the holders of those metals.
When some Greek city states on the border of Asia Minor (now Turkey) first issued such coins, they probably represented a compromise between more abstract monetary concepts in advanced Greek elements, and the more backward metal by weight habits of the Ancient Oriental Culture. But I’d regard Sparta’s ancient Pelanor system as a more accurate and higher application of monetary theory (p. 31), than any gold or silver coinage. The Spartans under Lycurgus began making their money out of iron bars weighing about a pound. But they dipped the iron in vinegar while it was hot, to make it brittle and purposely destroy any commodity value that it had as iron.
This system, which we call nomisma, after Aristotle’s description, was developed to a much fuller extent in Republican Rome, which thrived on its monetary isolation from the gold and silver systems of the East. And yes, the fall of the Republic is marked by the replacement of fiat copper money with gold and silver. These are not the kind of things you are used to hearing from most economists who mistakenly viewed the move to silver and gold as progress! But these are the facts.
The Lost Science of Money maintains that the monetary problem within the ensuing Roman Empire, which shifted headquarters to Constantinople, was generally of deflation rather than the widely advertised inflations. The deflation in the western sections of the Empire (Europe) were aggravated by the breakdown of law, and the tendency of silver to flow eastward, due to the little known fact that silver exchanged for twice as much gold in India and points east, as it did in Europe. Indeed this was a powerful (and today still unrecognized) factor in shaping modern capitalism.
These themes are discussed in detail in the book, with evidence and sources presented. And the evidence is historical, from experience, rather than theoretical or deductive. This important methodological approach focuses on what actually happened rather than what should have happened according to current viewpoints (prejudices really).
When Constantinople, the World headquarters of Christianity was looted and burned by Europe’s Christians, it finally brought an end to Caesar’s monetary system, which had lasted about 1250 years. The Caesars had controlled the money power through the religious office of Pontifex Maximus, in Rome, renamed Basileus in Constantinople. With the fall of Constantinople, the monetary power became secularized and was dispersed among Europe’s nobles.
Regarding the Bank of Amsterdam, Mr. Dodson’s conclusion is very different from mine. He writes:
Clearly, the story of the Bank of Amsterdam is one more piece of evidence that the short-run interests of political decision-makers have a tendency to result in corruption of sound economic institutions.
But that’s not the picture that emerges from reading through various descriptions of several private and public banks of the medieval and later periods. What stands out about this bank is not that it didn’t run into any trouble, but that it ran into so little trouble, and so rarely, in its 200 year run. There is little doubt in my mind that the main feature that allowed the Bank of Amsterdam it to meet its obligations from its commencement in 1609 to its orderly liquidation in 1820, (in favor of a bank of issue sponsored by the Dutch Monarch) was that it was publicly owned and managed. All accounts at this bank received payment in full.
A large part of the reason for this was the intent to run the bank in the interests of the city of Amsterdam, and later Holland, not just for those controlling the bank. Even when the bank engaged in what I describe as the dark side of the Bank (p. 232), its fraudulent operations upon the coinage of France and England, it appears that the profits went to the city. These activities are not condoned, but they must also be viewed within their historical context, or one will end up with a re-writing of history based mainly on present day attitudes and outlooks.
Mr. Dodson’s bringing the Bank of Amsterdam managers into the docket, would probably not have been of much concern to Amsterdam’s citizens. They lost nothing, and probably benefited from the Bank’s operations. The same could not be said of England and France, both of which apparently lost a great deal, and saw their coinages molested for decades, if not longer. I’d consider it a type of monetary warfare on Holland’s neighbors.
By the way, the overdrafts made to the city were or became public knowledge. The bank charged the city interest on these loans, but then reduced the interest rate to zero when they realized in a Eureka moment that they were just paying interest to themselves! They used the bank’s retained earnings to pay off the overdraft. As I point out, the records of all these activities are still in Amsterdam gathering dust and going unanalyzed.
In perhaps our biggest disagreement, Mr. Dodson writes:
I do argue that one important lesson of history is that the potential for despotism increases the broader is the scope of governmental functions One of the most dangerous powers government can be allowed to possess is the self-creation of credit
I don’t think that position is really supported by the balance of historical evidence. My position, backed up by the facts presented throughout The Lost Science of Money is that an actual examination of history conclusively demonstrates that the best monetary systems mankind has ever had real experience with, were those run by public authority - that is by government. Furthermore, I stress that this view is not theoretical only for some distant advanced future of mankind, but even for past societies lesser developed than we are at present. I expect this will be recognized as an important accomplishment of The Lost Science of Money. The evidence is in the book. In theory, once the money power is properly established in government, other governmental powers designed to ameliorate the negative effects of an unjust money system can be eliminated. There is a money back guarantee on this book.
Why then is it so commonly known that government can’t be trusted with the monetary power? Because there has been a 250 year attack on government and a poisoning of our attitudes toward government, beginning with Adam Smith’s Wealth of Nations. Hayek and Rand continued in this vein and now you hear it daily in Limbaugh’s propaganda radio. The AMI’s research (presented in The Lost Science of Money, Chapter 12) traces the reason for Smith’s attack to his desire to keep the monetary power out of government hands, in the hands of the private Bank of England. The Lost Science of Money shows that the attack on government started as an attack on England, to keep it from issuing money.
Mr Dodson notes that:
Mr. Zarlenga attempts to make the case that by comparison, government issuance of currency throughout the history of the United States was done with greater care and responsibility than by private banks. Insofar as the comparison goes, I agree with his conclusion.
The Lost Science of Money‘s historical analysis continues through American monetary history starting with the pre-colonial period moving through the many colonial paper money issues; the Continental Currency; the Constitutional Convention; the first and second Banks of the U.S. and the Civil War Greenbacks. Several knowledgeable persons have considered chapter 17 on the Greenbacks as of special significance to the present fiscal crisis in our nation as it offers a highly workable solution. Among other things it demonstrates the fallacy of regarding the Greenbacks as mere inflationary paper money, the view that economists have allowed to dominate.
It is in the analysis of American Monetary History that the most important examples are found for guidance in how to best structure a just and workable monetary system.
We then examine foreign developments including the German hyperinflation (under a privately owned and privately controlled central bank, it turns out) the international monetary organizations (IMF, BIS, World Bank), Moslem monetary developments and the important new Euro system. Chapter 24 concludes the book with proposals for U.S. Monetary reform.
The book demonstrates over and again that the law does have the power to reign in and stop bankers abuses. No need to cut their hands off to get their attention! Also demonstrated is how banking elements have continually operated with bribery, threat, assassination attempts, misinformation and trickery to keep the nation and its representatives in monetary ignorance, and subservience.
Mr. Dodson proposes that:
I believe the practical answer is to enact legislation permitting investors to create a private sector network of deposit banks, the operations of which would be regularly audited (the auditing firm selected based on very stringent criteria that prevents the kind of collusion between auditors and corporate management that has come to the surface recently). Criminal penalties, vigorously enforced by government regulatory agencies, need to be adopted. An additional market response comes from insurance companies, which are in business to protect investors from losses associated with these and other types of risk
Mr. Dodson might be surprised to learn that I fully support this proposal, and that such deposit banks are exactly what would result from properly implementing the Simon/Soddy Hundred Percent Reserve Solution as proposed in Chapter 24. But there is one crucial proviso: The deposits accepted by these deposit institutions and the loans they extended to borrowers would be in fiat paper money issued by our government. In other words only the government would be empowered to create money. Those Greenbacks would either be spent into circulation by our federal government, or be loaned or granted interest free to lower level governmental bodies from school boards to States, based on straight-forward, non-political per capita formulas to be developed.
REGARDING HENRY GEORGE’S VIEWPOINT
It’s important to understand George’s monetary position, especially at the Progress Report web site. George held a highly advanced concept of money and moreover studied and wrote during America’s Greenback period. George was an informed supporter of the Greenbacks. To him it was up to government not the banks, to issue money in its highest form - fiat paper Greenbacks. Readers can see for themselves by consulting my paper on George at http://www.monetary.org/henrygeorgeconceptofmoney. Also please be sure to check our web page on The Lost Science of Money at http://www.monetary.org/lostscienceofmoney.
Especially crucial is George’s frequent admonition to his readers to be aware of the important distinction between money, and wealth:
It is important that this purely representational character of money should be thoroughly understood and constantly kept in mind, for from the confusion resulting from the confounding of money with wealth have flown the largest and most pernicious results. (Science of Political Economy, P. 493-4) George also understood the important distinction between money and credit (see SPE, p.491-3) Thus George, like the AMI research, and myself, is saying that money is really an abstract power rather than commodity wealth. The Lost Science of Money goes into much more detail on this theme.
Regarding the objection that George, (or I) propose an inflationary money system, George was once asked whether he would support the too easy creation of Greenbacks resulting in inflation. His answer according to Louis Post was as follows:
(Ecclesiastic expletive!) I’m a Greenbacker, not a fool! Post does not tell us exactly which expletive was used!
I’ll close this note on a point of strong agreement with Mr. Dodson, when he writes that:
- The bottom line for Stephen Zarlenga is ending privilege, an objective with which I am in full agreement:
‘A society such as the U.S., depending on private bank credits in place of government-created money, is operating in moral quicksand. It has established a special privilege of power for those private parties issuing the credit, the bankers.’
I’m confident that people who share that objective strongly enough will arrive at very similar methods to reach it, though that may require re-examining some long held views, based more in habit, and assumptions about history rather than a factual examination of it. I maintain that the monetary debate has been held until now without real knowledge of that factual background to the extent that it can be known. I wrote The Lost Science of Money to correct that problem.
America Monetary Institute
You can order The Lost Science of Money by clicking here
What are your reactions? Let us know!