A block-buster book: "The Science of Money" by Stephen Zarlenga

The New Civic Revolution:
Review of Stephen Zarlenga’s The Lost Science of Money
by Richard C. Cook *
http://www.monetary.org/gracchusjones.html

Stephen Zarlenga, the director of the American Monetary Institute, has written a book entitled The Lost Science of Money, which is one of the most important books published in the world in the past 200 years. Someday it will be recognized for the classic that it is. The fact that many of the ideas seem unfamiliar only shows how lost the science of money really has become. This review will demonstrate that monetary reform along the lines Zarlenga recommends could transform the economy of the world into a system that would benefit everyone, not just the monetary plutocrats who preside over the globalistic cannibalism that runs amok today.

During the 18th and 19th centuries, Americans had a much better grasp than we do of the importance of monetary policy and its political significance. Virtually no one knows anything about the battles over the British Currency Act of 1764, or over the First Bank of the United States in the 1790s and the Second Bank in the 1820s, or over the Greenbacks issued by the Lincoln administration during the Civil War, or the battles waged by the Greenback Party and the silver crusaders of the late 1800s. Those of us who so readily comment on every kind of economic issue would benefit vastly from the knowledge of past generations, for people once knew that WHO issues and controls a nation’s money is more critical and decisive than any other economic matter. In fact, our more progressive ancestors would consider it both comical and tragic if they beheld our incredible ignorance and passivity with regard to monetary issues.

Today everyone in public life or academia takes it for granted that the monetary system nominally presided over by the Federal Reserve is the only one ever conceived by the mind of man that is safe, functional, worth having, or even possible. I suppose we assume that the near-panic that grips the minds of millions of people every time the Federal Reserve contemplates an interest rate hike is the way Almighty God intended human beings to live on this good earth. But then again, maybe not. In his book, The Lost Science of Money, Stephen Zarlenga has proven once and for all how wrong these assumptions are, how rotten and ill-conceived this system really is, and how a few basic reforms could make an enormous difference in the life of the people of our nation and the world.

Zarlenga’s ideas of monetary reform are part of a longstanding underground intellectual current that has surfaced from time to time even within the federal government. 20 years ago, a study group on alternative monetary policy was starting to be set up within the White House just before President Carter was voted out of office in favor of the most fiscally-irresponsible president in U.S. history, Ronald Reagan. Attention had been attracted by the Social Credit theories which originated with Major Douglas in Great Britain during the 1920s and which were promoted by A.R. Orage, publisher of the progressive periodical the New Age.

Douglas’s ideas were an important pioneering effort to create the theoretical foundations of a genuinely scientific and democratic currency suited to modern industrial conditions. He had a really revolutionary idea: that the money in circulation should be directly issued by the government and should be sufficient for the people of the nation to purchase what they were able to produce at full employment levels. This would mean that rational people in the government would be able to calculate how much money was needed and assure that it was entered into circulation. Douglas’s ideas were partially but successfully implemented in some of the Canadian provinces several decades ago before the financiers put an end to the experiment.

The reason we cannot accomplish this seemingly simple task of balancing currency with production is that our government does not exercise its sovereign prerogative of controlling the money supply. You weren’t taught this in school, but by an act of Congress in 1913, that prerogative was ceded to the private banking industry. The aim of that industry—surprise—is to maximize its profits by earning interest on money it does not possess but which it creates out of thin air under a monopolistic government charter called the Federal Reserve System. Unfortunately, the people who sit in Congress and make our laws seem to have forgotten this ever happened, which is why Mr. Zarlenga’s book and the work of the American Monetary Institute and related organizations are so important.

Let’s be clear. The Federal Reserve System is not a public institution, although it serves certain well-defined but very limited public purposes as the Treasury Department’s fiscal agent and as a national clearinghouse of monetary transactions. But the fact that the chairman of the Federal Reserve is appointed by the president is mainly for show, which would become clear if the president tried to appoint a true monetary reformer to the position. Rather the Federal Reserve is the instrument of the private banking interests which own its stock, and it is those interests which issue and control our currency.

Stephen Zarlenga has enunciated the most important principle of all by defining money (through logic and case studies) in its rightful sense as an “instrument of law” which should be created and controlled by the central government to facilitate the legitimate commerce and investment of the nation. He traces this principle through world history, but the key event for us in America was the issuance of paper money by the colonial governments in the English colonies through the simple expedient of spending it into existence in payment for public expenses. This is the real meaning of fiat money, and our ancestors understood it.

By contrast, the money issued by the Federal Reserve is often called fiat money but it really isn’t. Rather it is a degraded debt-based currency issued by the banks through loans. It’s pseudo-money. Open your wallet and look at a Federal Reserve note. It’s really a kind of play money, because it is encumbered by the requirement to repay the loans which produced it and to repay them with interest. The Bureau of Engraving and Printing is constantly looking for better ways to print money to prevent counterfeiting, not realizing that the Federal Reserve notes they already print are made with a kind of disappearing ink. This ink strangely causes the value of the notes to vanish into the vaults of the banks.

Much of the reserve base for bank loans is federal government debt instruments—Treasury notes, T-bills, and the like—meaning that the larger the national debt, the better for the banks, because they are then authorized by reserve policy to lend more money to you, to me, and to Argentina. Now you know why Republican presidents like Reagan or George W. Bush couldn’t care less about running up more government debt. Nothing more effectively lines the pockets of their foremost patrons, the financiers.

By contrast, true fiat money, which is the money most suited to the democratic form of government, would be paper, or, today, electronic money spent into existence for legitimate public purposes. This money would then circulate throughout the national economy, fueling every kind of economic endeavor imaginable, but with no debt burden and no overwhelming carrying charges by the banks.

This type of true fiat money was used extensively in colonial times until further production was outlawed by the British Parliament, in league with American colonial hard-money merchants, through the Currency Act of 1764. The result was a deepening economic depression that was a primary cause of the American Revolution. Once the Continental Congress declared independence in 1776, it authorized fiat currency through the famous Continental currency. While popular textbooks speak derisively of the inflation of this currency, they fail to note two crucial facts. One is that the Continentals were a great success in financing the early war effort before the later infusion of French gold, and the other is that the inflation was caused to a considerable extent by massive British counterfeiting of the Continental currency in the British-held city of New York. Stephen Zarlenga covers this aspect of our monetary history in detail.

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