(Last update: September 1, 1999)

BORROWING CURRENCY INTO CIRCULATION

    It is true that vesting in the hands of a private entity the power to issue a fiat paper currency gives to that private entity extraordinary power over not only the economy of a nation but its society as well. While many constitutionalists are acutely aware of this fact, little discussion has been made concerning an important corollary of this power. Not only is the power to issue a fiat paper currency extremely important to the currency creators, but the ability to loan such currency into circulation gives to them absolute and complete control. The issuing power probably would be absolutely useless unless the currency so issued is borrowed into circulation by the users thereof. It is through this process of borrowing currency into circulation that our creditors, the currency creators, wield complete power over the debtors, the users of currency. This inherent flaw in our currency system has not received adequate discussion.

    The most convenient method to demonstrate the inherent flaw of borrowing currency into circulation is the extremely simple example of a card game. Let us imagine 5 people sitting in a room, and 4 of them desire to play a game of cards. Four players sit down at a card table, but, although possessing the desire to play a game, it is noticed that they have no cards with which to play. The fifth person in the room approaches the 4 players and notices their lack of cards. This fifth person just so happens to have in his possession a deck of cards, which he acquired for less than two cents per card. Being a character of predatory nature, the fifth person offers to loan his cards to the players upon stringent terms and conditions. This villain makes to the potential players the following proposal: "I have 52 cards and I will loan each of you players 13 cards apiece. However, each of you players must execute and deliver to me a promissory note wherein you promise to repay me 13 cards, plus 1 card in the way of interest, within one hour. And in order to afford me protection that I will be paid in full at the end of one hour, each of you must give me a mortgage upon certain of your real and personal property." To this "take it or leave it" offer, each player agrees, they each give to the fifth person the required promissory note and mortgage, and the fifth person delivers 13 cards to each player. Upon obtaining the cards necessary to play, our four players engage in their game. However, when one hour has passed, the fifth person notifies the players and demands payment of the notes. Each player still only possesses 13 cards apiece, and no player can repay the principle and interest due to the owner of the cards. The fifth person then forecloses upon each player and obtains possession of all pledged collateral.

    What was the fatal flaw committed by our unfortunate card players? This mistake occurred when they decided to borrow their cards into circulation in order to play their little game. An examination of the promissory notes they gave to the fifth person discloses that the aggregate principle amount borrowed was 52 cards; however, aggregate liabilities of all 4 players was 56 cards, which was 4 cards more (the interest) than were in circulation. Our fifth person was most definitely playing with a deck stacked in his favor and he most assuredly knew that by creating liabilities greater than the amount of cards in circulation, he would eventually acquire possession of all the collateral of the players.

    The above scenario can be varied in different ways, but the outcome is always the same. One player can possess enough cards to discharge his note, but invariably another player will not have such ability, thus allowing foreclosure. Whether you play the game through the execution of only one set of notes or whether you continue playing the game by means of continually renewing the notes, the position of the players never changes - the aggregate liabilities are always greater than the number of cards in circulation.

    The above simple example is an apt description of our present currency system. The four card players represent government and industry. The fifth person represents banksters, and the cards represent our currency (which is not lawful money). Three of the players, representing industries, desire to engage in trade and commerce for mutual advantage and gain. The fourth player, representing government, desires to provide public goods and services for the other three players. All will benefit and grow by engaging in trade. However, if such trade is consummated and achieved by borrowing the medium of exchange into circulation, the banksters will eventually acquire possession of all the productive facilities of government and industry.

    However, while our banksters (the Fed and private banks) could eventually acquire all of our productive facilities through the process of loaning our currency into circulation, they are not content to eventually take over through this simple process. Like the cat playing with the doomed mouse, our friendly banksters desire to manipulate the currency and add "zest" to their lives. During economic booms (currency expansions), the banksters load up the economy with debt; once the targeted society is "loaned up" as much as possible, the banksters deliberately, intentionally and with malice aforethought (ask Paul Adolph Volcker) contract the currency supply. Contraction of the currency supply allows these villains to foreclose upon collateral pledged by innocent victims. Loaning currency into circulation is an instrument of silent warfare as is also expansion and contraction of the currency supply.

    The above example of the card game and its comparison with our present currency system demonstrates a very simple economic and societal rule of natural law. Allowing any organization, either a privately owned monopoly or the government itself, to loan currency into circulation will allow the entity vested with such power to eventually take over the whole of society. Vesting such power in any entity will also allow such entity to expand and contract the currency system at will, thus allowing over a period of time such entity to eventually control all productive assets of a society through the process of foreclosure. If any entity is vested with such power, eventually that entity will either foreclose upon all of society or will make an outright attempt to buy all the productive assets of a society. Such power should not be vested in any human hands. The power to issue a fiat currency, combined with the power to loan the same into circulation, is inherently dangerous and is the chief tool for conquest of a society from within.

PAPER AS A MEDIUM OF EXCHANGE

    It may be generally stated that the American people are cognizant of some grievous defect or wrong which is the basis of our contemporary social problems and which is caused by our governmental and political institutions. However, while sensing the presence of this social malady, many Americans cannot readily identify either the cause or its consequence, and persons in this rank of society can only lay the blame at the feet of some ephemeral entity. Other Americans, after careful study, have come to realize that a great part of our national calamity is identified with our monetary system and particularly with this system's known antithesis to the U.S. Constitution. Of this group, there are two competing factions; one faction unequivocally asserts that only gold and silver coin constitute money in our country and the author hereof is a member of this faction. Another faction, schooled in monetary and economic thought to a degree, promote the issuance of Treasury Notes as an alleged cure for our great social ills. It is to this group that this short memo is addressed.

    The two groups noted above jointly and correctly attack the issuance of Federal Reserve Notes by the Federal Reserve Banks and intangible credit by our nation's private commercial banks. Beyond this mutual identity of a single issue, however, these two factions diverge. While the first mentioned group or faction challenges paper credit instruments and maintains steadfast allegiance to specie, the latter group merely wants to take control of the paper money system away from private interests and vest such control and power in the hands of Congress. While these advocates have command and understanding of some monetary issues, they are totally lacking in ultimate understanding of the system if they advocate as an end result another paper money system.

    All paper money systems use a liability of some entity as a monetary instrument. But, the use of a liability as a medium of exchange is an extremely dangerous undertaking. For the entity allowed the right to use its liability as a monetary instrument, that entity has absolute and total control over the annual produce and real wealth of a society. Carried to the ultimate extreme, the entity clothed with such power has the ability to purchase and reduce to its control the entire GNP of a nation as well as its productive facilities. Allowing such an entity to exist within any group of people or nation subjects those people to organized plunder by the entity vested with such power.

    A simple analogy will demonstrate the validity of this principle. Let's suppose that a person of great cunning and persuasive ability were upon a ship wrecked at sea and then were washed upon the shores of a remote island. After recovering from this unfortunate event, the pirate walks inland and discovers a primitive society of many people ruled by a king. After a time, the pirate becomes acquainted with the king and becomes his constant companion. Upon reaching the state where the pirate has complete confidence of the king, the pirate proposes, for some great social purpose, that the king sanction the creation by the pirate of a great commercial bank which will issue a paper currency. This is soon achieved and thereafter paper money is everywhere upon the island. Soon, the pirate's wealth rivals and surpasses that of the king; the pirate ultimately owns or controls everything on the island and the king becomes a pliant servant of the pirate.

    How did a destitute, penniless lost pirate in an alien society rise from such destitution to supreme wealth and power? The answer is simple. His bank issued bank notes which were used by the island natives as a medium of exchange. Once the pirate was clothed with the right to have his liabilities (bank notes) act as a medium of exchange, he could expand and contract his outstanding notes, and issue endless quantities of such with which he could buy everything on the island. It is through this process that our pirate acquired wealth and power and could direct all economic activity on the island.

    The above demonstration is a direct analogy to the U.S. monetary system. In our country we have 14,012 fountainheads of currency creation. The 14,000 figure is the approximate number of private commercial banks in our country; the 12 are the 12 privately owned Federal Reserve Banks. These 14,012 currency and credit creators are the "pirate" in the above illustration. The issue of these institutions, FRNs and deposits, are nothing more than liabilities which were used as a medium of exchange. However, we use these liabilities as a medium of exchange, and this will ultimately allow these institutions to purchase or control our entire GNP and productive assets. And because these liabilities are loaned to us for our use, we have a tremendous interest burden to carry simply because we use their liabilities as a medium of exchange.

    Both of the above factions recognize the ephemeral nature of our currency and the interest burden carried by such use. However, the advocates of Treasury Notes seemed to be fixed in their attack upon the monetary system and only wish to abolish the burden of the interest. Treasury Note advocates correctly point out that the interest burden is caused by issuing the currency into circulation through the loan process, with consequent interest charges. It is true that if our currency were issued interest free, then we would not have such burden; this is the primary point of Treasury Note advocates who wish to abolish the Fed and then empower the Treasury to issue into circulation, without interest, notes of the Treasury.

    However, suppose that the advocates of Treasury Notes have their way and the Fed is abolished and such notes are issued interest free. This would eliminate the interest burden our economy carries which results from loaning currency into circulation. But, have we destroyed the "pirate?" No, we have not and we have only changed the character of the "pirate" from a private to a public one. We will still be using liabilities of an entity as a medium of exchange and that entity, as noted above, will have power to purchase or control the entire GNP and all productive facilities. But, making the Treasury, as opposed to private banks, the "pirate" will not correct our social ills, it will only change the source from which such evils originate.

    It is the making of liabilities a medium of exchange that is causing our great monetary problems. To cure this problem, we must make something other than a liability our medium of exchange. This requires an inanimate object for such use and only gold and silver are capable of fulfilling this purpose.

[Note to the reader: Dr. Jacques S. Jaikaran, a physician in Houston, has written an excellent book, Debt Virus, which explores this particular problem in great detail. If you wish to learn more about this nasty little problem, please read his book.