NESARA
The National Economic Stabilization and Recovery Act

Monetary and fiscal policy reform that will double the standard of living for every American
within one generation and restore economic and social prosperity across the land.

 
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Currency as Debt: A New Theory of Money
Back To Basics—The Nature of Money
Part 4 of 4
 

A Moral Monetary System

The first requirement of any monetary system is that it be a moral system, honesty being a step in that direction. Honesty requires that the total amount of any paper currency issued with a promise of redemption be 100% redeemable at any time. Furthermore, any individual must be able to redeem even the smallest unit of currency on demand. Mere appearance will not serve. This was the problem with Ben Franklin’s plan to coin land in Pennsylvania.

There have been many proposals for monetary systems in which the currency is presumably supported by wealth but not redeemable. Such a land bank scheme was attempted in the 1790s in France. The revolutionary French national assembly issued paper currency, called “assignats,” on the value of lands seized from the church, not just once, but several times on the same land. Specie began to disappear from circulation under the operation of Gresham’s law: “Inferior money will drive out and replace the better money.” Note that Gresham’s law only holds when legal tender laws force compelled acceptance of an inferior currency or, lacking legal tender laws, when the inferior currency is voluntarily accepted because of the recipients’ faith in fraudulent statements guaranteeing its ultimate redemption.
 

Prices rose as the volume of irredeemable paper currency increased. Radical leaders replaced moderate ones. They guillotined the royal family, including Queen Marie Antoinette, and continued to issue ever greater amounts of the worthless paper. The price of a loaf of bread increased to what had been the equivalent of nearly a year’s wages. When the citizens of Paris rebelled in the fall of 1785, Napoleon Bonaparte, a 26-year-old artillery officer, squelched the protest with “a whiff of grapeshot.” Four years later, it was this same Napoleon who seized control of the country and restored economic order. He established a new money system with a private, autonomous Bank of France responsible for paper money. It lasted until 1945 when a socialistic government returned the nation to financial chaos.[35]

In 1922–23 the Weimar Republic of Germany suffered a similar fate. After its defeat in World War I, Germany was required to pay reparations to the victors. Stripped of most of its gold reserves, much of its industrial capacity dismantled and removed by the Allies, and facing chronic unemployment, the country desperately needed operating capital. Realizing this, foreign holders dumped German currency (marks), driving the international exchange rate down to one-third of a cent.[36] Unable to default on its war debt or to raise taxes, the Reichsbank (the German central bank) printed more of the unbacked, irredeemable currency. Advocates of the plan assumed that small amounts of new currency would help solve the problems with only modest amounts of inflation. Among other economists, Dr. Ludwig Von Mises warned against the policy.[37]

Naturally the Allies were unhappy receiving payments for war damages in depreciated German marks. Some demanded payment in real goods, and France, determined to get its share, occupied part of the Ruhr coal mining district. German workers effectively stopped coal production, eliminating the nation’s major source of foreign currency. As its only politically feasible choice the government printed more money and quickly lost control.

An exchange rate that had been 4 marks to the dollar spiraled higher, reaching 4,500 marks to the dollar by October 1922. The Reichsbank, operating 2,000 printing presses, could not keep up with the demand for currency. Within nine months of the Ruhr’s occupation the exchange rate was 4.2 trillion to the dollar. When the paper it was printed on became more valuable than the currency, the bank issued paste-on stamps increasing its value.

Hyperinflation reduced government and bank bonds to junk status, worth maybe a cup of coffee. Bank loans were indexed to inflation but workers’ wages were not. Retirees and most workers, unable to shift immediately to a barter economy, lost everything they had. As the rich got richer, the middle classes were wiped out, their savings gone, their property confiscated for debt payments.

Economic chaos, coupled with the tremendous shift of wealth from the middle classes to the rich, fueled the rise of the National Socialist German Worker’s Party (Nazis), active in Berlin since 1919. Despondent German citizens would now embrace anyone promising economic stability and prosperity, even an obscure ex-army corporal named Adolf Hitler who marched to power through a skillful combination of intimidation and public persuasion. Thus the misguided economic policies by both sides at the end of one world war contributed to the next.

New “rentenmarks” were issued in November of 1923, one for each trillion inflated marks. In theory, the nation’s land backed the rentenmark. In practice, it worked because the government limited the supply and the people had no other choice.
 

Recent examples of excessive inflationary economies include those of Argentina, Bolivia, Brazil, Chile, Egypt, Greece, Israel, Mexico, Poland, Russia, South Africa, and Uruguay. Even the United States experienced rates in double digits during the 1970s. Despite nationality, public officials invariably succumb to the lure of decreasing a nation’s debt by increasing its money supply. The strategy fails because rapid inflation kills the patient while only superficially treating the disease. Net productive activity declines. Investors, attempting to preserve their assets, turn to gold and precious stones or send their money out of the country. Black markets spring up. Tax avoidance increases. Private capital is consumed or deteriorates, along with public roads, buildings, water supply and sewage disposal systems. Society decays under the burden of other costs: increasing welfare and unemployment rolls, reductions in personal earning and purchasing power, the breakup of families, and escalating crime rates.

Inflation need not be galloping or trotting to be destructive—crawling or walking suffices. An average rate of just 3 percent over a period of ten years increases prices by over 34 percent. Between 1982 and 1992 the American economy did not achieve even this poor standard, the Consumer Price Index increasing by 40 percent. During this period family incomes for most Americans rose by 5 to 7 percent, definitely not an offsetting amount. Of course those living on fixed incomes watched helplessly as their purchasing power declined by more than one-third.

In a moral monetary system, currency must hold its value year after year. The only acceptable inflation rate is zero.
 


Footnotes

35 Jerome F. Smith, The Coming Currency Collapse (1980, Books In Focus, Inc., P.O. Box 3481, Grand Central Station, New York, NY 10163) pp. 173–175, 182 
36 Ibid., pp. 176–178 
37 Larry Burkett, The Coming Economic Earthquake (1991, Moody Press, Chicago), pp. 71–75
 

Then suddenly…he understood the abstract symbolic nature of money. These pretty pictures and bright medallions were not ‘money’; they were concrete symbols for an abstract idea which spread all through these people, all through their world.

Valentine Michael Smith, the Man from Mars, striving to understand Earth’s customs, from the novel Stranger in a Strange Land by Robert A. Heinlein

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