After my post last week about the American cheese burger and our bailout I continued reading up on our money supply and discovered a story, written over 100 years ago, that seems all to relevant to our situation today.
The parallels of the story astound me in how it illustrates just how tied to credit we are; and I don’t mean in the sense that people live on credit cards.
The realization comes from the illustration that while our country is in an economic crisis we as a people are no different then we were before the crisis. Albeit many are over extended financially we still have the same workforce, creativity, talent and raw materials we had before.
We just happen to have temporarily run out of credit…
A Quote on Banking
Before moving on to the story I will begin with this quote from one of our most respected Founding Fathers and President.
“I sincerely believe, with you, that banking establishments are more dangerous than standing armies”
Full Text: University of Virginia Library Charlottesville, Va. http://tinyurl.com/4h8tzt
The Wonderful Wizard of Oz
The Wonderful Wizard of Oz was first published in Chicago in 1900. Its author, L. Frank Baum, was the editor of a South Dakota newspaper and a supporter of William Jennings Bryan who stood three times, unsuccessfully, as a U.S. Presidential candidate for the Democratic Party.
The particular concern of both Baum and Bryan was the nature of the money supply then prevalent in the United States, and in the Mid-Western States in particular.
In America during the 1890s, as in Britain, there had been a severe depression. Many businesses had gone bankrupt, farmers forced to sell up, factories closed and workers made unemployed. True, some farms in the Mid-West were suffering from drought, but most were still capable of growing food; the businesses and factories were still capable of providing the things that people needed; the workers still wanted to work to provide those things, and people would still want the goods and services produced if they had the money to buy them.
The money in the USA then, as now, was entirely created by the private banking system. The pretence existed then that money was based on gold. (Even now some people still think that it is!) The major banks, based on the East and West coasts, could vary the amount of money in circulation, lending more to encourage commercial activity, then fore-closing on loans to put people out of business, enabling the banks to acquire their businesses cheaply.
Baum and Bryan wanted money to be based on silver, not gold, as silver was more readily available in the Mid-West, where it was mined. Such a money supply could not be manipulated by the banks. So the story of the Wizard of Oz starts with a cyclone in the form of imagined electoral success for Bryan…
Dorothy, a sort of proverbial ‘Everywoman’, lands on the Wicked Witch of the East (the East-coast bankers), killing her, so freeing the Munchkins, the down-trodden poor, but the Wicked Witch of the West (the West-coast bankers) remains loose.
To deal with her and to get back to Kansas (normality), the Good Witch of the North, representing the electorate of the North (this is less than 40 years after the civil war), tells Dorothy to seek out the Wizard of Oz (‘oz’ being short for ounce, the means of weighing both gold and silver). She also gives her a pair of silver slippers (as they were in the book – they became ruby ones in the film). Only these silver slippers will enable her to remain safe on the yellow-brick road, representing the bankers’ gold standard, as she heads towards the Emerald City, representing Washington DC.
On her journey, Dorothy encounters a Scarecrow, representing the farmers, who do not have the wit to understand how they can end up losing their farms to the banks, even though they work hard to grow the food to feed a hungry nation. If only they could think it through!
Next, she encounters a Tin Woodsman, representing the industrial workers, rusted as solid as the factories of the 1890s depression, and who have lost the sense of compassion and co-operation to work together to help each other during hard times. Also, a spell cast upon him by the Wicked Witch of the East meant that every time he swung his axe, he chopped off a bit of himself – he downsized!
Then the growing party encounters a Cowardly Lion, representing the politicians. These have the power, through the power of Congress and the Constitution, to confront the Wicked Witches, representing the banks, but they lack the courage to do so.
Dorothy is able to motivate these three potent forces and leads them all towards the Emerald City, whence ‘greenbacks’ had once come, and an encounter with the omnipotent and wonderful Wizard of Oz.
The Wizard of Oz is initially quite majestic and apparently awesome, but he turns out to be a little man without the power that people assume he possesses. He does, of course, represent the President of the United States. With the Wizard’s illusion of power shattered, he is replaced by the Scarecrow who would ‘be another Lincoln’.
The Wicked Witch of the West, fearful for her own power, then attempts to destroy Dorothy but is herself dissolved in a bucket of water, as rain relieves the Mid-West drought, saves the farmers’ livelihoods and prevents repossession by the banks.
The Good Witch of the South, representing the Southern electorate, tells Dorothy that her silver slippers, silver-based money, are so powerful that anything she wishes for is possible, even without the help of the Wizard. Dorothy wishes to go home. There all is now well, because the land has a stable and abundant money supply.
Still a Pertinent Message
So ends this famous modern American ‘fairy-tale’. Its true message has been lost to the mists of time and the demands of Hollywood, but its message is no less pertinent now than when it was written.
William Jennings Bryan was neither the first nor the last American politician to try to reform the US money supply. In fact, two money reformers achieved the office of President and attempted to put money reform into action, but just like in the Oz story, the ‘Most Powerful Man in the World’ was not as powerful as people believed.
In 1865, Abraham Lincoln introduced the original ‘greenbacks’, which were paper money issued by the US Government, largely to pay for the Federal war effort during the civil war. It was ‘fiat’ money, money made legal tender by Act of Congress. Unfortunately, Lincoln died suddenly a few weeks later and his plans died with him.
In 1963, John F. Kennedy issued Executive Order 11110 which would have removed the power of money creation from all US private banks, including the privately-owned Federal Reserve, and invested that power in the US Government. Unfortunately, Kennedy died suddenly a few weeks later and his plans died with him.
The Problems of Debt
In the USA 100% of the money supply is created by the private banks. In Britain the figure is over 97%. In the rest of the world, the figure is estimated to be over 95%. All this money is created as a debt. It is created when people borrow money, as banks do not lend existing money; they just create new money out of thin air to lend.
Money created as a debt by the banks bears a charge of interest. This increases the amount of money that the economy owes by an amount greater than the amount in existence. This means that the economy is a saddled with a debt that can never be paid off, merely passed around like a game of Pass-the-Parcel in a Belfast pub. It is like a game of musical chairs, where someone has to lose out.
Money does not have to be based on debt, nor indeed does it have to be based on precious metals. Real wealth is the goods and services that people create for each other. Money is merely a means of exchange. It could be created by the Treasury and spent on providing public services, saving us all a modicum of taxation, and then the economy would not have to be saddled with large debts.
The above synopsis was found on the website of the Money Reform Party in the UK. While I am not going to claim that the conspiracy type portions about Lincoln and Kennedy are true or false I am leaving them in there entirety to allow for comments.