by Anthony Migchels (Real Currencies) on April 14, 2015
(Left/Above: the erudite Dick Eastman)
Recently, Social Crediters have been campaigning against the notion that Usury is the core of our monetary problems. To them, it's the "Gap" – the difference between output of the productive sector and purchasing power of the consumer base.
However, the Gap is mostly caused by Usury, and it's becoming more and more difficult to understand why the Social Crediters are not willing to admit this.
(Here's my analysis of Social Credit, for those new to the issue.)
Here's a recent effort by Oliver Heydorn for the Social Credit camp on the socred.org website.
Dick Eastman convincingly took him to task on the issue of Usury being the Gap. Dick mostly communicates via his email list; email me if you want to get on Dick's list to receive his top-notch work.
Next, Dick wrote me a friendly letter (see below this article), looking to bridge our differences.
The Gap is the difference between what workers produce and the wages they receive. Because wages are lower than the value of production, there is a constant lack of purchasing power for the workers to consume their own production.
Major Douglas was the one to point out this phenomenon. He proposed having Government print debt-free money and allowing the people to spend the new money into circulation. If you print only as much money as is necessary to buy up 'excess' production, no 'inflation' (rising prices) will ensue, Douglas claimed.
I'm not really convinced that this will be 'inflation'-free. I don't think Dick Eastman is either; but he doesn't care much, and correctly notes that inflation is really the very least of our problems, as inflation stimulates economic growth and reduces the value of debts – things only bankers and the ultra-rich hate.
Be that as it may, the bottom line is that Social Credit compensates, to some extent, for Usury; this is why I personally sympathize with the scheme.
Dick Eastman, who wants to use an upgraded form of Social Credit to end Rothschild tyranny, has been making the case for years that Douglas' 'Gap' is basically the interest on loans of money. As Eastman correctly notes, the Bankers don't spend the money back into circulation – but hoard it, to cause deflation.
I'm adding that they lend the interest back into circulation, as the extra interest drain of the collected interest lent back into circulation will only worsen the deflationary pressures, both in the medium and long term. In this way, the Bankers let compound interest work to crunch us with ever worsening money scarcity (while printing ever more money! neat trick, huh?).
The Gap is calculated by Social Crediters to be around 50% of production. Obviously, it's no coincidence that about 40% of the prices we pay for goods and services are Usury passed on by the producers – as calculated in Helmut Creutz' The Money Syndrome.
It seems to me that this more or less speaks for itself; in the to and fro between the Social Crediters and Dick Eastman, I could not find any real rebuttal of this by the SC-ers. Dick is simply right. It's not an 'accounting issue' (as the SC-ers put it), it's the interest drain.
Downside of Social Credit
Clearly, this being the case, we need to solve Usury first; what remains of the 'Gap' after we do, can be solved with some extra liquidity, if need be.
Social Credit's main problem is that, while it compensates to some extent what people lose to Usury, people will still be paying Usury, even with freshly printed notes.
Why do the Usurers need to continue to suck up trillions per year? That's the whole issue, is it not? We have a couple of trillionaires at the top of the food chain who have stolen the rightful inheritance of Earth's people – through compound interest.
It's all unearned income. All that those guys do during the day to 'make' this money is bribe (and threaten) politicians, newspapers, and 'economists'.
Compensating people for the interest drain is not enough. The interest drain itself must be stopped.
Responding to Dick Eastman
As Dick notes, we do agree on a great many issues. We share a hobby too: preparing 'Austrian School economists' for luncheon. The Austrians' criminal defense of deflation is something both Dick and I feel especially strongly about.
Furthermore, while I do have a proposal of my own, I'm not at all hung up on it.
The goals of monetary reform, as I see them, are to:
1) end Usury and its associated scarcity of money;
2) end artificial inflations and deflations (the boom–bust cycle);
3) democratize credit allocation, so neither bankers nor technocrats can direct the economy.
These are the parameters along which I have analyzed the different monetary reform proposals out there, including Dick Eastman's (the latter in email correspondence, not on Real Currencies).
I support, with reservations, anything that moves in the right direction; and unreservedly, all proposals that achieve the three main goals of monetary reform, as I see them.
Dick wants to replace the current usurious credit-based money supply with Populist Social Credit, and allow for full-reserve banking, assuming that competition among banks will lead to low interest rates and decent behavior by these institutions.
In the diagrams in his letter, we can see how his proposal would lead to constant circulation of all the money, including that used for interest payments. So the interest drain, or gap, will be solved.
But in doing so, Dick, like the wider Social Credit community, overlooks that Usury is paid by those who don't have money to those who do, i.e. the poor will borrow from the middle class, who in turn will borrow from the rich. At least some of the wealth transfer through Usury will continue. It will still be the rich depositing money to lend in these banks.
Furthermore, while Eastman hopes to reach out to our Muslim brethren in the faith, he ignores why Islam rejects Usury: because it is unearned income. In Islam, every transaction must lead to both participants adding to the greater whole. The Usurer just takes. He adds nothing, risks nothing, and loses nothing. [In fact, Eastman proposes that lenders/banks share half the risk of business failure with entrepreneurs. So there is a potential monetary loss alongside the potential monetary gain; thus, a strong incentive for bankers to assess business ventures carefully, and for individual investors to assess bankers carefully. –AD]
In an interest-free environment, there is no 'risk': all risk is mutually insured, just as the credit is mutual. 'Debtors' (people promising to pay) pay a one-off service charge to cover the risks for the community. Since most lending will come with collateral, risk is minimal anyway.
This is, in fact, already the case today. There is no real 'risk' in the financial industry. For instance: house payments (mortgages) go underwater because of the deflation that the banks willfully cause; since banks hold houses as collateral, they have no 'skin in the game' (no risk of loss).
Last, I'm not as optimistic as Dick is about the disciplining effects of the market on bankers. Bankers will be bankers, experience shows. Eastman puts them in a cage, but a wild animal can find ways to escape – especially if its incentive, Usury, remains in place. They will be colluding again in no time. Such is the power of the love of money and its weaponization: interest on loans of money.
He puts my position as: "Your answer is simple enough. Kill the vampire, and have government make loans at zero interest. Certainly that remedy would fix the problem. Usury is killed. You are happy. Martin Luther is happy. Mohammed (pbuh) is happy. God is happy. Right?"
Then Eastman points out the problem of Government being in control of credit creation and allocation.
And that is indeed a major problem, if Government is the one to dole out the credit.
That is not my position, however, because it would not achieve goal number three: democratic credit allocation.
I'm looking for interest-free credit facilities that work according to a clear-cut charter: semi-private, semi-public, not-for-profit institutions. And they should allocate the credit based on rights. The understanding must be that people simply have a right to credit, as it is their promise to pay which is monetized. The Money Supply and the Credit of the Nation are part of the Commons; all commoners have rights to access their fair share of the available credit, based on rules that balance the needs and rights of both individuals and the community (other individuals).
Borrowers must show creditworthiness, include collateral, and have a reasonable plan (e.g. a normal business, a mortgage). The credit facility must provide no more credit than stable prices allow.
In this way, credit allocation can be made predictable, to a large extent: no technocrats looking for control, but professionals simply facilitating people's natural rights.
90% of society's demand for credit can be covered in this way. What remains are risky ventures. These need financing too, but this can be reasonably done on an investment basis, where those providing the capital also share in the risk. Brokerages can provide the infrastructure for this.
What's more (and this is the key point): what Eastman proposes – full-reserve banking – can be done, just as well, interest-free! People can save with 'banks' (for lack of a better word) interest-free, and their money can be used for lending, as long as the 'bank' guarantees the deposit, which can be done well by having borrowers pay a one-off charge to cover uncollateralized defaults. This is known as JAK banking.
And let us not forget that Usury is the main cause of defaults to begin with. Clearly, the creditworthiness of people vastly increases if they don't have to pay interest on their loans.
Solving Usury will solve at least 80% of the gap. It's really hard to see how the Social Crediters can get around this.
However, Usury is worse than just the gap. It's a wealth transfer from those who don't have money – and thus, must borrow – to those who already have more of it than they can spend.
It is unearned income.
The whole idea that money should breed money is unreasonable.
The time value of money is a hoax, cooked up by 16th century Jesuit monks in Salamanca, who laid the groundwork for what later became Libertarianism. This was the end of Usury prohibition in Europe. It paved the way for centuries of Usury, and is leading directly to the destruction of the West, and to World Government.
There is no need for Government or Banks to control lending; it can all be done in democratic, decentralized, and not-for-profit fashion.
Let us end all rents and unearned income. The economy should be based on production, not parasitism.
Having said this, I admire Dick's work, and I'm grateful for this opportunity to make the case against Usury once more, and to fire up everyone to take up arms against the Money Power menace.
Let us not rest until that Demon is defeated once and for all!
Social Credit With Demurrage
More on Mutual Credit
Rationalizing Usury: The Time Value Hoax
The Difference Between Debt-Free Money and Interest-Free Credit
The Goal of Monetary Reform
Forget About Full-Reserve Banking
Dick Eastman's letter:
Very good to receive this email from you.
We have been sharing thoughts and friendship for a long time. We agree on almost everything – including the deflation that results from the practices and systems of usury. Our common goals might be better attained if we could agree on the same remedy. I think we can.
As I understand it, you are saying that usury is wrong – in the sense of breaching a morality that best serves people. The last I looked, it appeared to me that you advocate the elimination of interest on loans under all circumstances, and that you would have a government agency make all loans interest-free. Yes, that would eliminate usury. The structure of the financial system would be so changed that the gap in purchasing power due to the draining of interest to financiers/ capitalists/ bankers would be gone. End of problem. End of story.
In my opinion, and not without some thought, your charging a fee to allow others to spend your money today, instead of your spending it – provided they promise and do give you that same amount of money later on – is a freedom that, in a well-designed market economy/ money system/ lending system, could be a positive benefit to borrower, lender, and society as a whole.
My idea has been to find out exactly where interest under the present system is killing us, and to do something about that. Why is the usury system killing us?
I think I have isolated what is good and what is bad about usury under the present system – and what would be all good without bad under a different system.
The system of today's usury I call the Bank-of-England/Rothschild system, named after both the bank that initiated the system and the family name of those who have most effectively used the system to the detriment of all nations and peoples except their own.
I have identified elements of the Bank-of-England/Rothschild system that cause the most trouble. Sometimes the gold standard. Always the private issue of the nation's money. Also the tendency to want deflation – to make the money they monopolize be worth more per unit, so they can increase their real wealth by simply hoarding money and not spending. This deflation is the cause of the leakage of purchasing power from the real economy, causing hardship and loss in the "lower loop" (most households; businesses; local government that provides public services). The Bank-of-England/Rothschild system has always opposed national treasury money – the greenbacks backed only by the word and authority of a good government. Such a national treasury money system would cut down Rothschild power from that just short of gods, to something more on a scale of their standing among common humanity.
In the past, I have used this diagram, which has hinted at the problem.
But now, I have two diagrams that, I think, together capture the essence of the problem.
Flow of lending:
The diagram above shows the inevitability, under a system where all money is borrowed at interest, of a tendency to deflation, default, and depression for the many (lower course), and unearned windfall gain for those operating the Bank-of-England/Rothschild system (upper course).
The effect of one loan on quantity of money in circulation:
This diagram does not show the circular flow of buying, earning, and taxpaying among the household, government, and business sectors. The flow here does not involve injections of new money, or leaks of money from the economy; every loan by a bank, however, does. We show one loan and its effect above; all loans have the same effect.
New money comes in only a few ways; all involve borrowing at interest. These ways are: 1) commercial bank loans at interest, secured by collateral or primacy lenders' claims in any bankruptcy; and 2) bond financing, where money comes when a corporation or government writes an IOU (promising to pay some amount in the future), which is then sold for a lower price in the current bond market. The new money is not really new; it comes from the interest earnings that are being hoarded by those who have been holding on to money simply to create deflation and to gain from deflation.
As with commercial bank lending, bond financing also involves interest drain. The creditor class gives up the (deflation) gain from hoarding, for the bigger (interest) gain from buying an IOU (bond). The bond maker gets the money and spends it on war, or new Walmart outlet buildings, or high-fructose processing plants – which, for a time, increases money in circulation (monetary inflation). But, as with bank lending and interest collecting, the IOU stipulates a face value that must be paid, at a future date, that is bigger than the bond price that the bond sold for; on many bonds, there is also a coupon amount that must be paid at regular intervals.
The surge in money circulating from the purchase of a new bond with money that was being hoarded, is soon followed by the payment of coupon amounts and bond face value back to the hoarders: more deflation, unless the corporation or government chooses to roll over the debt by writing new IOUs to get money to pay the obligation on the old IOU. This is the true heart of darkness. Both bond financing and bank loan financing have the same effect: an increase in money supply, followed by a decline – as principal and interest are paid, and as coupon and face value are paid – that takes the money circulation lower than before the financing was undertaken.
There is one more mechanism for making new money: the bonds themselves can be sold, by those holding them, to the central bank, in exchange for funds – referred to by the concealing euphemism "Quantitative Easing" (QE). This, of course, gives money only to the hoarding class – the people who only part with their money deposits when interest rates are very high, or when bankrupt assets and privatized public utilities come up for distress sales in extreme buyer's markets.
The above explains everything. Why depressions happen. Why bust follows boom. How the debt increases to trillions upon trillions of dollars owed. Why possession of the world is being transferred to the credit monopoly that provides the credit money (the all-borrowed money supply).
I know, Anthony, this has been your understanding of the matter too. This is the great evil exposed. The vampire has two fangs: the all-borrowed money supply; and deflation intensified by hoarding, where only higher interest rates, or a coveted Greek island, or Chrysler Motors going up for auction in a distress sale, can induce the hoarders to spend.
This is the system we both do not like. This is the system that grips our countries – Holland and the US – and everyone else's country as well.
Your answer is simple enough. Kill the vampire, and have government make loans at zero interest. Certainly that remedy would fix the problem. Usury is killed. You are happy. Martin Luther is happy. Mohammed (pbuh) is happy. God is happy. Right?
But then comes the old crotchety American who says that the government passing out money interest-free is socialism – even communism – where Congress, our federal legislature, is the biggest whorehouse in the world. I am sure the Tweede Kamer of the Netherlands operates in the same way. Selling votes. Giving contracts to those who contribute to the elections, or who control the political parties that decide who will be the ministers running the government.
But once your country's politicians, or my country's politicians, have the power to create money and then lend it out at their own discretion, you will have created a monster of state power that is just as terrible and corrupt as Bank-of-England/Rothschild power. The state will be a god. People will wait in line for loans, like people wait in line for an operation or a CAT scan under socialized medicine. And only those who contribute to the party and to the politician will get moved to a shorter line. To heck with that scheme. Can't a European see the problem there?
I can't join with you if you insist upon replacing usury with a government that creates money and then passes it out in loans to those the government chooses to lend to – those the state deems to be "deserving". A government can't just lend to everyone all that the borrowers want at zero interest, or else everyone would borrow and borrow with promises to repay later, until they die; just try to recoup after they are dead. So there must be some kind of rationing, some constraint on who gets loans. You would leave that process up to the government, politicians, political parties, those who pay the bosses of the political parties – in fact, the same people who already own Congress and the Tweede Kamer under the Bank-of-England/Rothschild system that our two countries have now.
So I ask you: Can we agree to be rid of the Bank-of-England/Rothschild system – but not replace it with the all-powerful National Money Power that you have been so naively proposing?
Now, you are not the only one I would like to come to full agreement with. There are also the Moslems (peace be upon them all in this world and the next). They too are against usury. Like you, they reject my proposals, which they most likely consider haram.
Well, I have extended an olive branch to you and to them, but have not gotten a response. I propose a system where businesspeople who want, for example, to make a new kind of device, can get a lot of money from a lot of people – on condition that those people get their money back after the device is built and selling, plus some more money for their willingness to lend.
But would that necessarily be usury?
No. I am thinking of a replacement for usury, that is not usury, but which does allow little people to pool their money to support an entrepreneur with a good idea, in the hope of a gain for themselves later on. What I propose to accomplish this with will not be usury, but will be an actual silent partnership, where the vampire "lender" is transformed into a small silent partner – sharing in risk, having the rights of a small partner rather than a creditor.
Here is how it would work:
The economy has plenty of money in it, coming from the state and being introduced exclusively through the new money dividend – debt-free money to each person in each household on a regular, unfailing basis.
There will be people with great inventions or ideas for products that people would enjoy, if only someone would make them; but these inventors have no money to realize their idea and put it on the market. They need money – an "advance" – so they can pay employees and materials suppliers and tool suppliers, until the product is selling and can pay for itself.
Instead of going to a bank for a loan like they do now, and instead of writing up an IOU and selling it as they do now (bond financing), we would instead have, not a bank, but a populist institution we could call a "pank". I slightly change the name because I want to underscore the idea that the "pank" is something completely different, for the following reasons.
Here is how Anthony Migchels would start a "pank". He calls up his internet friends and says, "I know a sharp young fellow named Daan, whose wife Isa is a great dress designer, really different and cool. And Daan has invented a new treatment for fabric that makes it really fantastic to touch, and that drapes in a really attractive way, so that every woman will want to own such a dress. We need to hire five hundred seamstresses and buy 500 sewing machines, plus the material, plus the building, plus the chemicals for the treatment, and so forth. I want to open a "pank" to provide Daan and Isa with the advance they need. Will you subscribe (this replaces becoming a depositor in a bank)?
And what if I, Anthony Migchels the "panker", am wrong, and Daan's idea is no good, or the government will not let him use his chemicals, or the style of dress Isa designs just doesn't sell? Well then, in that case, we as silent partners must share the loss with Daan and Isa. If you put up ƒ300 (gulden – post-euro) and the business fails, you are only entitled to claim half of what you subscribed. That is what makes this no longer usury. A banker would lay claim to the full debt obligation, and would have priority before Daan and Isa could get one tiny penning from liquidation. But under the new Dutch "panking system", no such loan contract would be legal. "Pankers" and the subscribers the "panker" attracts will not be insured by the government. "Panker" and subscriber would be exposed to all the risk Daan and Isa are exposed to.
Then why would anyone ever become a subscriber to Anthony Migchels' pank? Because everyone knows that, since the early 21st century, Migchels has been renowned as one of the most honest men in Holland, a man with good sense and an eye for a good deal, a man with a good heart who would not ask people to subscribe to his pank to fund a venture unless he was sure it would succeed. In other words, when you subscribe your money to a panking venture, you are putting your trust in the integrity of the panker to pick the right entrepreneur with the right idea in the right market at the right time, given all the factors that might affect the success or failure of such fashion design innovation.
So, is panking usury? You might look at the fact that the panker takes money from people with an understanding that he will return that much and more later on, if the venture of Daan and Isa succeeds. That looks like banking, and therefore like usury. But then again, notice that the panker and the subscribers are taking the same risk as Daan and Isa. Notice that in the event that the business fails and cannot pay the pank what was hoped, Anthony and Daan and Isa and the subscribers divide the loss among themselves. That is partnership, not usury. Under usury, the lenders must get completely paid before employees, or other creditors, get a penning.
Furthermore, it is not a percentage of the loan that is owed to the pank and the subscribers, but a return of the advance plus a share of the profits. And the venture's successful outcome would involve the hard work, intelligence, and shrewdness of Anthony Migchels the panker (remember, a panker is one who creates the lending institution that replaces the usurious bank of today).
Now, in Islamic banking, riba (usury) is haram (sinful and prohibited), with no exceptions; however, partnerships are halal (acceptable and permitted). The pank, with Anthony Migchels as panker in this case (anyone can be a panker if they have the name and reputation that earns the confidence of subscribers to take the risk), calls the shots for who gets the money – for whom to partner with (in this case, partnering with Daan and Isa).
There is no riba or usury involved in repaying the amount of the advance (called "paying the principal" in the Bank-of-England/Rothschild system); so the big question is whether the extra money that Anthony and the subscribers get back is riba (or, in Christian eyes, usury), or whether it is shared profit or some other thing.
For example, the arrangement could be a joint venture (Musharakah, rather than a borrower–lender arrangement); or it could be set up as a work-and-earn-to-own arrangement, where the pank funds the business and its early operations, paying Daan and Isa fully for their contributions of entrepreneurship, management, know-how, and labor – enough for them to live on while the ownership of the business is sold to Daan and Isa in installments, using a pre-specified formula. The pank would take profit left over after paying Daan and Isa what is owed them, until the business – Daan en Isa Mooie Jurken – becomes completely owned by Daan and Isa.
The deal is this: The pank says, we will pay for starting the business you want and fund its early operations, paying Daan and Isa a fee for all of their contributions – including Isa's original designs, and the worth of the chemical formula as purchased by the pank from Daan. The pank will take profits over that sum; half of the profits go to the pankers (Anthony and his subscribers – the subscribers replace the savers who put their money in time deposit accounts in the old Bank-of-England/Rothschild system). The point is that the pooling of money – so that good business ideas can be undertaken – can be done without usury, riba, or "charging interest".
Whether theologians against usury, and Moslems against riba, give American populist social credit a "pass" on avoiding sin, the fact remains that the creation of a permanent money supply provided for free to every citizen; and the ending of money creation by banks; and the requirement that banks only lend money that savers entrust them to lend, will end the tendency and incentive for the financial system to deflate the quantity of money in circulation. That in itself will end deflationary depression, end the mounting indebtedness to lenders, end the waves of defaults and bankruptcies, end the transfer of real asset wealth from the borrowing class to the lending class. It will make businesses more profitable. It will allow businesses expanding and innovating from their own profits, to replace their borrowing from banks because money is not available to innovate without going to the usurers.
So, Anthony, can we agree that the Bank-of-England/Rothschild system leads to national ruin all the time – that it is an instrument of class warfare and piracy, of rich exploiting the helpless poor? And can we also agree that, with competitive "panking", anyone can become a "panker" if he has a good reputation to attract subscribers (buyer beware! subscriber, be prudent, because we allow panks to fail)? If the panker cannot pick good enterprises to invest in, cannot properly evaluate factors that may affect supply and demand, and thus cannot select the right entrepreneur with the right venture – whether giving a retailer money to stock his shelves, or betting on a new invention – then no one will want to subscribe to his pank again. If he fails, he fails.
This would be highly competitive panking. A pank is only as good as the ventures it is investing in. The pank would allow little people to invest in something big – to receive gains that, today, only the rich can do.
Today, under the Bank-of-England/Rothschild system, there is no competitive banking. Interest rates are fixed. Everything is fixed. The game is rigged in favor of the lender and against the borrower. That will end.
But remember this: Companies that satisfy customers will never suffer a bad day because of macroeconomic deflation. There will be no deflation – no lapse in consumer purchasing power. Firms will be as successful as the businessman dreamed when he started his business – if he is a good businessman and entrepreneur. That means we will be back in a land of opportunity.
There will be no more macroeconomics. No monetary policy. No tending to the national economy. There will be no national interest rate, no international money markets. I have not gotten into the other phase of American Populist Social Credit: the elimination of corporations, and a return to having all businesses as either single proprietorships (single owner) or partnerships – with full liability for owners.
There is no democracy unless the people – all of the people equally – are the ones who spend all new money into circulation. The Rothschilds and Rockefellers, owning Goldman Sachs and JPMorgan Chase, should not be creating money and lending it to people at interest to give the economy its money supply. Nor should politicians have that power to create money and spend it into circulation, because that power would lead to corruption and a totalitarian state at least as bad as what we have now.
Let the people have all new money, and let them be free to pool their money and jointly undertake big things, if they want to – with a populist banking system (or "panking system"). The populist banks will not be able to create money; they will just be places where good opportunity spotters will find the best entrepreneurs to provide money to. "Advances", or "investment money", or "partnership funds", can replace the term "loans".
Let us have a system that Moslems and Christians against riba and usury can participate in, with a clear conscience that no sin is being committed against God and the ways of righteousness as found in the Holy Books.
But most of all, let us do away with the evil lies and theft of the Bank-of-England/Rothschild system, that plunders the people who create the wealth from the world that God has provided us all to enjoy.
Not banks, not government, but people (households) hold sovereign sway over money and purchasing power. The consumer, not corporations or Congress, will be the first spender of all new money.