William Bramley/The Gods of Eden/Monetarism and the Paper Aristocracy

William Bramley's book, The Gods of Eden, gives one of the most succinct descriptions of the development and (dys)function of the global monetary system that I've ever read. (Emphasis and subheadings added):

A New Aristocracy

The newly-weakened monarchies and parliamentary governments allowed for greater power to be assumed by a new institution being installed by the revolutionaries: a new banking and monetary system. This new monetary system was a major element of the revolutions of the 16th, 17th, and 18th centuries, yet this fact is only minimally discussed in the majority of history books. Those who ran, and still run, the new monetary system have been aptly labeled by one author, Howard Katz, "the paper aristocracy." The revolutions which began to sweep the world after the Reformation heralded the diminishment of powerful political aristocracies in favor of the less visible, but in many ways equally potent, "monetary aristocracies." This happened because, during the Reformation, banking and moneylending, which were once viewed as lowly occupations, were being forged into a renewed power due to a clever new science of money. This new money was a type of paper currency that could have its value deliberately and systematically diminished through a process known as "inflation." It is the type of money still in use today. This new money, and the institutions which arose from it, have had an enormous impact on our modern civilization. We cannot fully appreciate the effects of Protestantism and the revolutions which arose out of it without comprehending just how the new money system works.

Funny Money

FEW TOPICS OCCUPY as many minds or stimulate as many emotions as money. This is largely because money is an overwhelming problem to a majority of people. One thing which causes modern money to be a problem is inflation, whether inflation is climbing at 3% annually or 300%. Inflation, of course, is the situation in which the costs of goods and services steadily rise due to the ever-decreasing value of money. This happens when the money supply becomes larger in proportion to the supply of valuable goods and services.

Economy is Production

Money itself is not valuable; only the goods and services that can be bought with it are. The wealth of any individual or nation, therefore, is ultimately determined by what it produces in terms of valuable products and services, not by how much money it prints, distributes or holds. A nation could actually survive without any currency at all as long as it was otherwise productive.

Money as Barter

The purpose of money is to facilitate the exchange of goods and services. Money is therefore an extension of the barter system. Barter is the act of trading something one possesses or does for something of someone else's. Production and barter are the bases of all economy.

Coins and paper money were originally created to assist in barter. They allowed people to barter without having to carry around actual goods or immediately deliver a service. This permitted individuals to trade more easily and to save the profits of their labors for the future.

Promissory Notes

Paper money initially began as "promissory notes." A promissory note is a written promise to pay a debt. A person would write a note on a piece of paper promising the bearer of the note a certain quantity of goods or services that the notewriter could provide on demand. To illustrate, let us look at the following fictitious example:

Let us pretend that a chicken farmer was in the village market and wanted to trade for a basket of apples. He did not have his chickens with him, so he might write a note to the apple seller entitling the bearer of the note to come up to the farm at any time to pick out two healthy chickens. The chicken farmer would be able to walk away with his basket of apples and it would be up to the apple grower to visit the farm one day to redeem the note by getting his two chickens. As long as people have faith in the chicken farmer's ability to honor his notes, he will be able to use them for barter.

Notes exchanged in lieu of goods

Let us now pretend that as the day draws to a close, the apple grower decides to have a look around the market. He comes across the cloth merchant. The apple grower's wife has been henpecking him for days to buy some of the new silk that just arrived on a caravan from the Far East. The apple grower's home life has been made miserable by her unceasing demands and her denial of wifely comforts, so he negotiates with the cloth merchant for some silk. The cloth merchant, however, does not need any more apples, so the apple grower, remembering that he has a note for two chickens, asks the merchant if the merchant needs poultry. The merchant says that he does, and the apple grower gives him the note for two chickens in exchange for silk. It is now up to the cloth merchant to trudge on up to the chicken farm to redeem the note. The chickens themselves have never left the coop, yet they have changed ownership twice in one day. This type of exchange was all that paper money was initially created for; but do you see the temptation that it can open up?

Fraud & proto-inflation

If the chicken farmer knows that some time will pass before he must redeem his notes with actual chickens, or that some if his notes will circulate forever and never come in for redemption, he may be tempted to issue more notes than he has in actual chickens, thinking that he will be able to cover all the notes by the time they come back to him. Temptation now gets the best of the chicken farmer.

The chicken farmer has a big family get-together coming up and he wants to impress his in-laws for once by putting on an opulent feast. Down to the market he goes where he writes notes for chickens not yet hatched and stocks up with an abundance of goods from other merchants. Several things can now happen. The chicken farmer will get away with it if he is always able to meet the demand for chickens when his notes come in for redemption. Another thing that may, and often will, occur is that he has so saturated the marketplace with his chicken notes that most people just do not want any more of them, so he must offer even more hens for each trade to make people feel that it is worth their while. He is now writing notes for two or three chickens in exchange for items for which he previously only had to issue single-chicken notes. As these chicken notes circulate, they become less and less valuable because there are so many of them. A vicious spiral ensues: the more notes the chicken farmer issues, the less valuable they become, and the more he has to issue in order to get what he wants. This is known as inflation.

Now comes the worst part.

Devaluation & futures

With more and more notes outstanding, an increasing number of notes will start coming in for redemption. Soon the farmer will see that his true wealth, which is his supply of chickens, is becoming rapidly depleted even though only a small portion of his outstanding notes have come back. To preserve his chickens, he must decrease the value of his notes by declaring that the outstanding notes are now only good for half of what they say. This is called devaluation. Since the farmer may find it difficult to admit that he had issued many more notes than he had chickens, he may try to save his reputation by lying, such as by saying that a fierce chicken plague had wiped out half of his flock. That will probably not prevent him from becoming very unpopular. Public faith in his notes will be destroyed. He will either have to revert back to straight barter, or else he will need to acquire someone else's notes in order to continue trading in the market.

Notes represent commodities

As we can see, paper notes, or money, are rooted in actual commodities and are meant to be an expression that the creator of the notes has something valuable to trade.

Metal coins

In contrast to notes are coins, which functioned somewhat differently. Metals have always been considered valuable, and so pieces of metal were convenient trading tools. Metal pieces were imprinted with various designs, thereby becoming coins, and their metallic purity was guaranteed by the imprinter. Coin values were initially determined by the quantity and purity of the metal contained within the coins. Gold was a rare and popular metal, so coins made from gold were more expensive and had a higher barter value than, for instance, copper coins.

Metal coins are less useful, thus less valuable, than commodities

Metal coins became a popular tool of barter because they were durable and quantities could be controlled. They did create some problems, however. Realistically, people were only trading pieces of metal for other goods. This created a disproportionate emphasis on metals. The acquisition of coins and coin metals became an obsession to a great many people, and such obsessions tend to drain away energy better spent producing other valuable goods and services. The system also gave a disproportionate amount of power to those who possessed large quantities of coined metals, even though other commodities, such as food, are ultimately more valuable. The person with the coin metals could immediately acquire any good or service, but a farmer first had to go through the intermediate step of exchanging his product for a coin or coin metal before he could have the same spending flexibility.

Coins as money

Coin metals merged with paper notes to create the foundation of our modern monetary system in the 1600's. Those who laid this foundation were reportedly the goldsmiths. Goldsmiths usually owned the strongest safes and lockboxes in town. For this reason, many people deposited their coin metals with the smiths for safekeeping. The smiths issued receipts to the depositors that promised to pay to the receipt holders on demand those quantities of gold or silver shown on the receipts. Every such receipt was actually a note which could be circulated as money until a holder of the note went back to the goldsmith to redeem it for the specified amount of metal.

Fractional reserve of gold deposits

Gold receipts as debt pseudo-money & inflation

The goldsmiths made an important discovery. Under normal circumstances, only about 10% to 20% of their receipts ever came back for redemption at any given time. The rest circulated in the community as money, and for good reason. Paper was easier to carry than bulky coin and people felt safer holding receipts in lieu of actual gold and silver. The smiths realized that they could lend out the unredeemed metals and charge interest, and thereby earn money as lenders. In making such a loan, however, the smith would try to convince the borrower to accept the loan in the form of a receipt instead of actual metal. The borrower could then circulate that note as money. As we can see, the goldsmith has now created "money" (his receipts) for double the actual quantity of metal he has in his safe: first to the original depositor, and then to a borrower. The goldsmith did not even own the metal in his safe, yet by simply writing upon a piece of paper, someone now owes him money up to the full value of the gold in his safe. The smith could continue writing his notes as long as the notes coming in for redemption did not exceed his actual deposits of precious metals. Typically, a smith would issue notes four to five times in excess of his actual supply of gold.

Parasitic goldsmiths and the first 'bank runs'

As profitable as this operation may have been, there were some pitfalls. If too many of the goldsmith's notes came back for redemption too rapidly, or the smith's borrowers were slow to repay, the smith would be wiped out. The credibility of his notes would be destroyed. If the smith ran his operation cautiously, however, he could become quite wealthy without ever producing anything of value.

The privilege of fractional reserve always leads to poverty

The injustice of this system is obvious. If for every sack of gold the smith had on deposit people now owed him the equivalent of four sacks, someone had to lose. As public debt to the goldsmith increased, more and more true wealth and resources were owed to him. Since the goldsmith was not producing any true wealth or resources, but was demanding an ever-increasing share of them because of his paper notes, he easily became a parasite upon the economy. The inevitable result was the enrichment of the careful goldsmith-turned-banker at the cost of the impoverishment of other people in the community. That impoverishment was manifested either in the people's need to give up things of value or in their need to toil longer to create the wealth needed to repay the banker. If the goldsmith was not careful and his monetary bubble burst, the people around him suffered anyway due to the disruption caused by the collapse of his bank and the loss of the value of his notes still in circulation.

Such was the birth of modern banking. Many people feel that it is an inherently dishonest system. It is. It is also socially and economically destabilizing, yet all of the world's major monetary and banking systems today operate on a close variation of the system I just described.

Gold-backed paper currency

By the 17th century, the Medici banking house of Italy had come up with the idea of using gold as the commodity upon which to base all paper currency. Gold was touted as the perfect basis for paper notes because of the scarcity and desirability of gold. This was the beginning of the "gold standard" in which all other goods and services are valued in relation to gold (and sometimes silver). The gold standard was certainly a terrific idea for those people who owned plenty of gold and silver, but it created an artificial reliance on a commodity that is not nearly as useful as many other products. To base an entire monetary system on a single commodity is better than basing it upon no commodities at all, but even under a gold standard paper notes will far exceed the metals used to back the notes. The best solution is to root a money supply firmly in a nation's entire valuable output so that the money acts as an accurate reflection of that output.

The 'Gold standard' inevitably succumbs to inflation

Once the gold standard was created, paper notes were thought to be "as good as gold" because people could redeem the notes for actual gold. This created a false sense of security. As more and more gold notes entered the market, they gradually became worth less and less, resulting in a steady inflation. The gold owners/bankers had to keep issuing a constant stream of notes because that is how they earned their profits. As long as the bankers planned carefully and the people retained faith in the notes, the note writers could stay ahead of the inevitable inflation they created and make an enormous profit from it. If, on the other hand, they issued an overabundance and too many of their notes came back for redemption, they could, as a last resort, devalue the notes to save their gold. In this fashion, inflatable paper money, even under a gold standard, became a source of wealth and power to those entitled to create the money. It also generated indebtedness on an enormous scale because most of the "created-out-of-nothing" gold notes were released into the community as loans repayable to the bankers. If people did not borrow from the bankers, little new money would enter the market and the economy would slow down.

Money as commodity undermines the economy

This method of creating money clearly destroyed the true purpose of money: to represent the existence of actual tradeable commodities. Inflatable paper money allows a handful of people to absorb and manipulate a great deal of true wealth, which are the valuable goods and services people produce, simply through the act of printing paper ahd then slowly destroying the value of that paper with inflation. It causes money to become its own commodity which can be manipulated on its own terms, usually to the detriment of the production-and-barter system. Money was meant to assist that system, not to dominate and control it.

The inflatable paper money system described above was the new "science" of money being installed by Brotherhood revolutionaries. An early version of the system was established in Holland in 1609. That was the year in which Dutch and Spanish forces signed a truce suspending the hostilities of the Eighty Years War. The truce marked the birth of the independent Dutch Republic and the founding of the Bank of Amsterdam in the same year.

Private central banks enslave states by financing war

The privately-owned Bank of Amsterdam operated on the inflatable paper money system described above. It was run by a group of financiers who pooled some of their precious metals to form the asset base of the Bank. By prior agreement with the new Dutch government, the Bank helped Dutch forces resume the wars against Spain by issuing notes four times in excess of the Bank's asset base. The Dutch magistrates were then able to draw on three quarters of the "created-out-of-nothing" money to finance the conflict. This reveals the primary reason why the inflatable paper money system was created: it enables nations to fight and prolong their wars. It also makes the human struggle for physical existence in a modern economy more difficult due to the massive debt and parasitic absorption of wealth that the system causes. Furthermore, steady inflation reduces the value of people's money so that their accumulated wealth is gradually eroded. The Custodial aims expressed in the Garden of Eden and Tower of Babel stories were greatly furthered by the new paper money system.

Private central banks spread like a cancer

The initial success of the Bank of Amsterdam encouraged similar banking arrangements in other nations. The most notable offspring was the Bank of England, founded in 1694. The Bank of England established the pattern for our modern-day central banks by refining the inflatable paper money system of Holland. The Bank of England system was subsequently spread from nation to nation, often on the backs of revolutions led by prominent Brotherhood network members. The worldwide reformation announced in the Fama Fraternitis was well underway by the end of the 17th century, and the "new money" was a big part of it, as we shall see more of later.

...

William and Mary Have A War

Upon his assumption of the British throne, William III quickly undertook to erect the same institutions in England as those which had been established by his dynasty in Holland: a strong parliament with a weakened monarchy and a central bank operating on an inflatable paper currency. William and his queen, Mary II, also promptly launched England into expensive wars against Catholic France.

The man chosen to organize the English central bank under William III was a mysterious Scottish adventurer named William Paterson, of whom very little was apparently known. The British House of Commons (parliament) was at first reluctant to accept Paterson's central bank scheme, but relented as the British national debt continued to skyrocket from the conflicts launched by the very warlike William III. The paper money system with its built-in inflation was touted as the way to finance the costly wars. Taxes were already as high as they could reasonably go and so the House of Commons felt that it had no alternative but to institute the scheme. The Bank of England was thereby born and warfare could continue, just as war could continue in Holland after the Bank of Amsterdam had been created there.

The mother of endless war and debt slavery

The Bank of England has been labeled by some economists the "Mother of Central Banks." It became the model for all central banks which followed it, including the central banks of today. Under the Bank of England scheme, the central bank was to be the nation's primary bank, and it would lend exclusively to the national government. The central bank's entire purpose was to put the government into debt and to be the government's major creditor. The central bank's notes would be lent to the government and those notes would then circulate as a national currency. This would cause the nation and its people to rely on those notes as money. The establishment of the Bank of England caused Britain to go deeply into debt to a monetary elite (the "paper aristocracy") which could then influence the use of the nation's resources. This is the modus operandi of every central bank today.

Britain's 16-to-1 'gold standard'

Like most modern central banks, the Bank of England was a privately-owned or privately-operated bank with quasi-governmental status. In accordance with Paterson's plan, the financiers who pooled their resources to create the Bank of England received approval from the government to issue gold and silver notes in a quantity many times exceeding the financiers' pooled holdings. The standard practice of bankers during that period was to issue notes four to five times in excess of their precious metals. The Bank of England, however, issued an incredible multiplication of 16 2/3. The British government agreed to borrow those notes and honor them as legal money for use in its purchases. The government accepted this plan because the government was not required to repay the initial loan, only the interest on the loan. Would not the Bank of England lose money on such a deal?

Not at all.

Bank of England owns England in one year by printing paper

The face value of the loan notes were many times in excess of the value of the actual assets on which the notes were based. The interest on the loan in just one year surpassed the total value of the precious metals of the Bank of England! Specifically, the financiers had put together a total base of 72,000 pounds of actual gold and silver. By issuing notes valued at 16 2/3 times the base, the bank was able to make a loan to England of 1,200,000 Pounds in paper money. The yearly interest rate was 8 1/3%, which equaled 100,000 Pounds. This amounted to a profit of 28,000 Pounds, or 39% in just one year!

France blackmailed and beguiled by the war-profiteers

Twenty-two years after the Bank of England was established, an identical bank was set up in France in 1716. The founder of the French version was John Law, who became the Finance Minister of France. Law has been dubbed the "Father of Inflation" for his efforts. This title is not accurate, of course, because the practice of inflation had begun earlier. However, the spectacular inflation which occurred in France after Law's central bank was nationalized gave Law the dubious, honor of the title.

...

Law had played upon France's justifiable paranoia of England in order to convince the French government to establish a central bank identical to that of Britain. The warfare which had earlier been instigated by William III was causing a serious drain on the French treasury. Law's proposal seemed an attractive solution and so it was finally adopted.

France's upheaval by 'paper gold'

At first, the new French currency issued under Law's plan appeared to revitalize the French economy. This happened because the banknotes could be redeemed for coins in which the people had faith. After the Bank of France became nationalized, however, it issued a severe overabundance of notes, not just a careful and gradual increase. People quickly realized that there were far more paper notes in circulation than there were coins to back them up. The result was a shattering of popular confidence in the notes and a consequent upheaval of the French economy.

...

Britain becomes ruled by German royalty (and German financiers)

The first Hanoverian king to take the British throne was George Louis, who became George I of England. George I could not speak English and he viewed England as a temporary possession. He continued to devote most of his attention and care to his German homeland. As generations of Hanoverians ascended to the British throne, they became permanently entrenched in British society. The Hanoverians provided England with all of its monarchs through 1901, and Hanoverian descendants from Queen Victoria's side have furnished the rest all the way up until today. During all of that time, the dynasty continued to maintain strong ties to other German noble families. During the first century and a half of Hanoverian rule in England, for example, the British Hanoverian kings married only the daughters of other German royal families.

Dependent on German mercenaries (sound familiar?)

Not surprisingly, there was widespread opposition in England to the Hanoverians after they took over. Many Englishmen understandably felt that German monarchs had no business reigning over British subjects. Anti-Hanoverian factions arose seeking to put the Stuarts back on the throne of England. Because of this, the Hanoverians decided not to allow a large standing army of native Britons, fearing they might stage a coup. Instead, whenever England required a large number of troops, the Hanoverians used money from the British treasury to rent mercenaries from their German friends and from their own German principality of Hannover, all at a most handsome fee. The greatest number of mercenaries were provided by the royal family of Hesse, which had close and friendly ties to the German House of Hannover. A curious aspect of the mercenary arrangement is that some important members of those German families, especially from Hesse, later emerged as leaders of a new type of Freemasonry which had been created to topple the Hanoverians from the English throne!