Part II: How the Economists Facilitated the Crisis and Must Now Be Held Accountable

Economists' most glaring error is not understanding or appreciating the difference between money and credit. Most can't conceive of practical ways we can use real government-issued money instead of private debt.
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This article is part II of III, of Mr. Zarlenga's address at the Eastern Economic Association Annual Meeting in NYC on February 26th, 2011. Listen to it here.

Part I stressed that those in control of the world's monetary/economic agenda and the theories supporting it have helped bring the world to its knees. They and their theories must be held accountable!

Economists' most glaring error is not understanding or appreciating the difference between money and credit. Using credit (which is also debt) for money is dangerous, harmful and unnecessary. Unfortunately, in our present badly structured monetary system -- a "fractional reserve" banking system -- most of what we use for money comes into existence as an interest bearing debt, when banks make loans. While people think the banks are loaning money they have, in fact most of what they loan has been created out of thin air as accounting entries.

In that sense, most money in our fractional reserve banking system is debt. But economists can't grasp that those rules can and must be changed. Perhaps afraid to confront their paymasters, who are benefiting from the injustice, most economists can't conceive of practical ways we can use real government-issued money instead of private debt.

The economists ignore previous attempts such as the Chicago Plan of the 1930s; and smear prior periods when such money was used successfully.

What's so wrong with using private credit/debt for money? Look how it unfairly concentrates power and wealth with little or no regard for productive work -- for justice. Watch how it emphasizes destructive speculation. See how it has ignored our infrastructure, education and health care systems! Observe how prone to collapse such credit money is during any crisis! Remember credit collapses and disappears during a crisis, thereby greatly aggravating the crisis. Credit collapses, but government money does not collapse.

The economists mangle definitions to re-define government-issued money as a form of debt! To do this, economists also had to mangle some monetary history. A hundred years ago, the great monetary historian Alexander Del Mar wrote:

"As a rule political economists do not take the trouble to study the history of money. It is much easier to imagine it and to deduce the principles of this imaginary knowledge!"

This has led to the silliest errors of principle and fact, regarding important monetary history. For example, economists are generally:

  • Unaware of the American colonial periods' good experience with government fiat money and how it built real colonial infrastructure.
  • Unaware the Continental Currency was destroyed by the British counterfeiting billions of them. And they ignore that the Continentals gave us a nation!
  • Unaware the Greenbacks ultimately exchanged one for one with gold and have allowed them to be characterized as worthless paper money.
  • Unaware of the British counterfeiting of the French Assignats, and have enshrined the propaganda book Fiat Money Inflation in France, written by Andrew Dickson White, a banking heir, as unbiased fact!
  • Unaware that the German Hyperinflation occurred under a privately owned and privately controlled German Reich bank with no government involvement.
  • Have generally allowed the Federal Reserve to be regarded as part of our government!
  • Have allowed a level of economic ignorance to prevail such that political leadership can now threaten to close down our government with impunity; for supposed economic reasons, without being branded as morons or traitors!

While economists deserve much of the blame for their dysfunctional "theories," politicians, who still "rely" on those theories, should know better by now and are as responsible for our monetary and economic problems.

Jamie Galbraith concluded his testimony to the Senate's Crime Subcommittee on May 4th, 2010 with this warning:

But you have to act... let me suggest, the country faces an existential threat. Either the legal system must do its work, or the market system cannot be restored... [We need a thorough] cleaning of the financial sector and also of those public officials who failed the public trust. The financiers must be made to feel, in their bones, the power of the law... [emphasis added]

The American Monetary Institute agrees and warns that regulation isn't enough in a money system that obscenely concentrates wealth, because that concentration of power will overcome the regulators.

This is what's been happening. The Carter and Reagan administrations de-regulated airlines, trucking, and savings and loans, leading to the Savings and Loan Crisis. It accelerated under Clinton when Gramm-Leach-Bliley repealed part of Glass-Steagall; and the Gramm Commodity Futures Act of 2000 exempted over-the-counter derivatives from regulation. The great and heroic American, Brooksley Born, was forced out of the Commodity Futures Trading Commission (CFTC) Chairmanship, replaced by the wife of anti-regulator Senator Phil Gramm! NAFTA led the attack on American jobs. Clinton signed The Telecommunications Act of 1996 allowing media concentration, which has kept any reasonable discussion of the monetary and economic travesties off the airwaves until the banker's malfeasance broke onto the front pages! Concentrated media ownership promotes a divisive, even treasonous politics of hatred.

These events can all be viewed as a slow moving "Coup d'État" that reached the US Supreme Court when it installed a president who twice could not be elected; who then appointed hack justices who engineered an obscene decision allowing corporations to dominate our electoral process.

(Legal scholars can and must show how to reverse this particular madness. The obvious starting point is Franklin Roosevelt's well-designed proposals to reform a Supreme Court run amok in his presidency.)

Our next article, Part III, will show how to use money, not debt, as the basis of our money system, just as Dennis Kucinich proposed with his groundbreaking bill, HR 6550, that changes the way money in our nation is created and issued to reduce our nation's deficit and debt and create millions of vital jobs to transform our economy.

Edited by Jules Brouillet
Zarlenga is co-founder and Director of the American Monetary Institute and author of

The Lost Science of Money. Meet him at The 7th Annual Monetary Reform Conference!
Brouillet is a researcher for the American Monetary Institute.

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