Archive for July, 2015

Re-posting policy


There has been some confusion on this, so let me clarify. It is henceforth not allowed to take entire articles from this blog and publish them on some other web site. It is still allowed to publish short excerpts provided this is done with proper attribution and a link back to the original. Of course, there are no issues at all with sharing articles from this blog via email, Twitter, Facebook, Reddit, etc. There are no issues with publishing translations of them, but please let me know if you do so that I can link to them. Thank you.

It\'s really very simple


[En français] [V češtině] [En español]

[Credit to Dmitry Leikin, whose brief post at served as the source and the inspiration for this piece.]

There are times when a loud cry of “The emperor has no clothes!” can be most copacetic. And so, let me point out something quite simple, yet very important.

The old world order, to which we became accustomed over the course of the 1990s and the 2000s, its crises and its problems detailed in numerous authoritative publications on both sides of the Atlantic—it is no more. It is not out sick and it is not on vacation. It is deceased. It has passed on, gone to meet its maker, bought the farm, kicked the bucket and joined the choir invisible. It is an ex-world order.

If we rewind back to the early 1980s, we can easily remember how the USSR was still running half of Europe and exerting major influence on a sizable chunk of the world. World socialist revolution was still sputtering along, with pro-Soviet regimes coming in to power here and there in different parts of the globe, the chorus of their leaders\’ official pronouncements sounding more or less in unison. The leaders made their pilgrimages to Moscow as if it were Mecca, and they sent their promising young people there to learn how to do things the Soviet way. Soviet technology continued to make impressive advances: in the mid-1980s the Soviets launched into orbit a miracle of technology—the space station Mir, while Vega space probes were being dispatched to study Venus.

But alongside all of this business-as-usual the rules and principles according which the “red” half of the globe operated were already in an advanced state of decay, and a completely different system was starting to emerge both at the center and along the periphery. Seven years later the USSR collapsed and the world order was transformed, but many people simply couldn\’t believe in the reality of this change. In the early 1990s many political scientists were self-assuredly claiming that what is happening is the realization of a clever Kremlin plan to modernize the Soviet system and that, after a quick rebranding, it will again start taking over the world. People like to talk about what they think they can understand, never mind whether it still exists.

And what do we see today? The realm that self-identifies itself as “The West” is still claiming to be leading economically, technologically, and to be dominant militarily, but it has suffered a moral defeat, and, strictly as a consequence of this moral defeat, a profound ideological defeat as well.

It\’s simple.

1. How can they talk of the inviolability of private property while confiscating the savings of depositors in Cypriot banks?

2. How can they talk of safeguarding the territorial integrity of countries while destroying, in turn, Yugoslavia, Iraq, Libya, Syria and Ukraine?

3. How can they talk of free enterprise and then sign contracts to build ships but refuse to deliver them because of pressure from Washington, as happened with Mistral ships which Russia ordered from France?

4. How can they talk of democracy and then use naked threats against the premier of Greece—the birthplace of European democracy—forcing him to ignore the unprofitable results of the Greek national referendum?

5. How can they talk about fighting racism while in the US they are constantly shooting mass quantities of unarmed Negros, all the while forbidding people to call them Negros.

6. How can they accuse the Serbs of genocide while refusing to acknowledge what they did to supposedly “independent” Kosovo, which has been turned into a European criminal enclave specializing in the production and distribution of narcotics?

7. How can they claim to oppose extremism and terrorism while training, arming and financing ISIS and the Ukrainian Neo-nazis?

8. How can they talk about justice while the US maintains the largest prison population in the history of the world and has executed many people subsequently discovered to have been innocent?

9. How can they talk about freedom of religion after the US federal government exterminated the Branch Davidians in Waco, Texas, and then imprisoned the survivors, even though the government\’s allegations against the sect have subsequently been proven to be false?

10. How can they accuse others of corruption after the colossal financial embarrassment of 2008, in the run-up to which obvious financial bubbles that were ready to bust were assigned the highest ratings?

What has happened is the worst thing that could have possibly happened: in full view of the entire world, “Western values” have been demonstrated to be null and void.

If you think that these are just some specific examples of difficulties or mistakes that could potentially be overcome in some dim and foggy future, then you are wrong: this is all of the “Western values” worth mentioning, and they have all been invalidated by observation. Note the past tense: they already have been invalidated. Are there any “Western values” left intact? Oh yes, just one: the rights of sexual minorities. But it is not possible to maintain Western civilization on the strength of gay marriage alone.

Is it any wonder then that the rest of the world is trying to put as much distance between itself and the morally bankrupt “West” as it possibly can, as quickly as it can? China is working on developing its own model, Russia is striving for self-sufficiency and independence from Western imports and finance, and even Latin America, once considered the backyard of the US, is increasingly going its own separate way.

The ranks of the fools who are still buying the West\’s story are shrinking, while the ranks of the rebels are growing. There is the truth-teller Edward Snowden, who was forced to flee to Moscow to avoid persecution back home. There are European parliamentarians who recently broke ranks and visited Crimea. There are French and German military men who are volunteering to defend Eastern Ukraine against Western attack. There are the many European businessmen who came to the Economics Forum in St. Petersburg to sign trade deals with Russia, never mind what their politicians think of that.

On the other side, the rapidly emerging new world order was recently on display in Ufa, capital of the majority-Moslem Republic of Bashkortostan in Southern Urals, Russian Federation. Leaders of more than half the world\’s population came there to sign deals, integrate their economies, and coordinate security arrangements. India and Pakistan set their differences aside and walked in through the door at the same time; Iran is next. “The West” was not represented there.

Now that all Western values (other than the rights of sexual minorities) have been shown to be cynical exercises in hypocrisy, there is no path back. You see, it is a matter of reputation, and a reputation is something that one can lose exactly once. There is a path forward, but it is very frightening. There is the loss of control: Western institutions can no longer control the situation throughout much of the world, including, in due course, on their own territory. There is the abandonment of the Western narrative: Western pontificators, pundits and “thought leaders” will find that their talking points have been snatched away and will be reduced to either babbling apologetically or lapsing into embarrassed silence. Finally, there is the loss of identity: it is not possible, for the non-delusional, to identify with something (“The West”) that no longer exists.

But the most frightening thing of all is this: behind a morally bankrupt civilization there are morally bankrupt people—lots and lots of them. Their own children, who will be forced to make their way in the world—however it turns out to be—will be as disrespectful of them as they were of their own vaunted civilizational values.

So you say you don\'t want a revolution?


[En français]

Over the past few months we have been forced to bear witness to a humiliating farce unfolding in Europe. Greece, which was first accepted into the European Monetary Union under false pretenses, then saddled with excessive levels of debt, then crippled through the imposition of austerity, finally did something: the Greeks elected a government that promised to shake things up. The Syriza party platform had the following planks, which were quite revolutionary in spirit.

  • Put an end to austerity and put the Greek economy on a path toward recovery
  • Raise the income tax to 75% for all incomes over 500,000 euros, adopt a tax on financial transactions and a special tax on luxury goods.
  • Drastically cut military expenditures, close all foreign military bases on Greek soil and withdraw from NATO. End military cooperation with Israel and support the creation of a Palestinian State within the 1967 borders.
  • Nationalize the banks.
  • Enact constitutional reforms to guarantee the right to education, health care and the environment.
  • Hold referendums on treaties and other accords with the European Union.

Of these, only the last bullet point was acted on: there was a lot made of the referendum which returned a resounding “No!” to EU demands for more austerity and the dismantling and selling off of Greek public assets. But a lot less was made of the fact that the results of this referendum were then ignored.

But the trouble started before then. After being elected, Syriza representatives went to Brussels to negotiate. The negotiations generally went like this: Syriza would make an offer; the EU officials would reject it, and advance their own demands for more austerity; Syriza would make another offer, and the EU officials would reject it too and advance their own demands for even more austerity than in the last round; and so on, all the way until Greek capitulation. All the EU officials had to do to force the Greeks to capitulate was to stop the flow of Euros to Greek banks. Some revolutionaries, these! More like a toy poodle trying to negotiate for a little more kibble to be poured into its dish, if it pleases the master to do so. Stathis Kouvelakis (a Syriza member) summed up the Greek government\’s stance: “Here’s our program, but if we find that its implementation is incompatible with keeping the euro, then we’ll forget about it.”

It is not as if revolutions don\’t happen any more. Just one country over from Greece there is a rather successful revolution unfolding as we speak: what used to be Northern Iraq and Syria is controlled by the revolutionary regime variously known as ISIS/ISIL/Daash/Islamic Caliphate. We can tell that it is a real revolution because of its use of terror. All revolutionaries deserving of the name use terror—and what they generally say is that their terror is in response to the terror of the pre-existing order they seek to overthrow, or the terror of their counterrevolutionary enemies. And by terror I mean mass murder, expropriation, exile and the taking of hostages.

Just so that you understand me correctly, let me stress at the outset that I am not a revolutionary. I am an observer and a commentator on all sorts of things, including revolutions, but I choose not to participate. Remaining an observer and a commentator presupposes staying alive, and my personal longevity program calls for not being anywhere near any revolutions—because, as I just mentioned, revolutions involve mass murder.

Good old Uncle Joe.
The kids loved him.

In the case of the French revolution, it started with liberté-égalité-fraternité and proceeded swiftly to guilliotiné. The Russian revolution of 1917 remains the gold standard for revolutions. There, thanks to Uncle Joe, so-called “red terror” went on and on, eventually claiming millions of victims. Mao and Pol Pot are also part of that revolutionary pantheon. The American revolution wasn\’t a revolution at all because the slave-owning, genocidal sponsors of international piracy remained in power under the new administration. Nor does the February 2014 putsch in the Ukraine qualify as a revolution; that was an externally imposed violent overthrow of the legitimate government and the installation of a US-managed puppet regime, but, as in the American Colonies, the same gang of thieves—the Ukrainian oligarchs—continue to rob the country blind just as before. But if the Nazi thugs from the “Right Sector” take over and kill the oligarchs, the government officials in Kiev and their US State Dept./CIA/NATO minders, and then proceed with a campaign of “brown terror” throughout the country, then I will start calling it a revolution.

* * *

The fact of mass murder does not automatically a revolution make: you have to make note of who is getting killed. So, if the dead consist of lots of volunteers, recruits, mercenaries, plus lots of nondescript civilians, that does not a revolution make. But if the dead include a good number of oligarchs, CEOs of major corporations, bankers, senators, congressmen, public officials, judges, corporate lawyers, high-ranking military officers, then, yes, that\’s starting to look like a proper revolution.

Other than big huge pools of blood littered with the corpses of high-ranking representatives of the ancien régime, a revolution also requires an ideology—to corrupt and pervert. In general, the ideology you have is the ideology you make revolution with. It stands to reason that if you don\’t have an ideology, it\’s not really a revolution. For instance, the American Colonists had no ideology—just some demands. They didn\’t want to pay taxes to the British crown; they didn\’t want to maintain British troops; they didn\’t want limits on the slave trade; and they didn\’t want restrictions on profiting from piracy on the high seas. That\’s not an ideology; that\’s just simple old greed. With the Ukrainian “revolutionaries,” their “ideology” pretty much comes down to the statements “Europe is wonderful” and “Russians suck.” That\’s not an ideology either; the former is wishful thinking; the latter is simple bigotry.

Taking the example of ISIS/ISIL/Daash/Islamic Caliphate, they are Islamists, and so the ideology they corrupt and pervert is Islam, with its Sharia law. How? Islamist scholars have been most helpful by compiling this top-ten list:

1. It is obligatory to consider Yazidis as “People of the Scripture.”
2. It is forbidden in Islam to deny women their rights.
3. It is forbidden in Islam to force people to convert.
4. It is forbidden in Islam to disfigure the dead.
5. It is forbidden in Islam to destroy the graves and shrines of Prophets and Companions.
6. It is forbidden in Islam to harm or mistreat Christians or any “People of the Scripture.”
7. Jihad in Islam is a purely defensive struggle. It is not permissible without the right cause, the right purpose, and the right rules of conduct.
8. It is forbidden in Islam to kill emissaries, ambassadors, and diplomats — hence it is forbidden to kill journalists and aid workers.
9. Loyalty to one’s nation is permissible in Islam.
10. It is forbidden in Islam to declare a Caliphate without consensus from all Muslims.

But, as Lenin famously put it, “If You Want to Make an Omelet, You Must Be Willing to Break a Few Eggs.” And if you want to make a revolution, then you must be willing to pervert your ideology. Those Islamist scholars who eagerly exclaim “That\’s not Islam! Islam is a religion of peace and tolerance!” are missing the point: the ideology of ISIS/ISIL/Daash/Islamic Caliphate is still Islam—revolutionary Islam.

The example of ISIS/ISIL/Daash/Islamic Caliphate is germane to the topic of Greece, because it is a contemporary example of what is definitely a revolution, and it is taking place just one country over from Greece. But the ideology of Syriza is not Islam—it\’s socialism, and philosophically they are Marxists. And so a better example for Syriza to follow, were they to suddenly stop being Europe\’s pathetic poodles and don the mantle of fearless, heroic revolutionaries, is still the good old Russian revolution of 1917.

* * *

As I mentioned, one of the most important tools of a revolution is terror. In Russia, revolutionary terror was called “red terror,” which, the revolutionaries claimed, arose in opposition to “white terror” of the Russian imperial regime, with its racist bigotry (Jews weren\’t allowed in any of the major cities), numerous forms of oppression, some major, some quite petty, and rampant corruption. An interesting feature of the Russian revolution is that the terror started several years prior to the event.

Let us pause for a second to consider why revolutionary terror is necessary. A revolution is a drastic change in the direction of society. Left alone, society tends to worsen its worst tendencies over time: the rich get richer, the poor get poorer, the police state becomes more oppressive, the justice system becomes more riddled with injustice, the military-industrial complex produces ever less effective military hardware for ever more money, and so on. This is a matter of social inertia: the tendency of objects to travel in a straight line in absence of a force acting at an angle to its direction of motion. The formula for momentum is


where p is momentum, m is mass and v is velocity.

To make a radical course change, revolutionaries have to apply force, counteracting the social inertia. To make it so that it is within their limited means to do this, they can do two things: reduce v, or reduce m. Reducing v is a bad idea: the revolution must not lose its own momentum. But reducing m is, in fact, a good idea. Now, it turns out that, with regard to social momentum, most of the mass that gives rise to it resides in the heads of certain classes of people: government officials, judges and lawyers, police officers, military officers, rich people, certain types of professionals and so on.

The rest of the population is much less of a problem. Suppose some revolutionaries show up and tell them that

  • they don\’t have to worry about paying taxes (because we are confiscating the property of the rich),
  • medicine and education are now free, 
  • those with mortgages can stop making payments; they automatically own their real estate free and clear
  • renters now automatically own their place of residence,
  • employees are automatically majority stockholders in their businesses,
  • they should fill out an application if they want a free (newly liberated) parcel of land to farm,
  • there is a general amnesty and their loved ones who have been locked up are coming home,
  • ration cards are being issued to make sure that nobody ever goes hungry again,
  • the homeless are going to be moving in with those whose residences are deemed unduly spacious,
  • they are now their own police and are in charge of patrolling their neighborhoods with the revolutionary guards available as back-up, and
  • if any non-revolutionary authorities, be they the former police or the former landlords, come around and bother any of them, then these traitors and impostors shall face swift, on-the-spot revolutionary justice.

Most regular people would think that this is a pretty good deal. However, government officials, the police, military officers, judges, prosecutors, rich people whose property is to be confiscated, corporate officers and shareholders, those living on fat corporate or government pensions, etc., would no doubt think otherwise. The revolutionary solution is to take them as hostages, exile them, and, to make an example of the most recalcitrant and obstructive, kill them. This dramatically reduces m, allowing the revolutionaries to effect drastic course changes even as v increases. I compiled this list because it would be such an easy sell—piece of cake, a slam-dunk, a no-brainer. But I lack the uncontrollable desire to smash eggs and the insatiable appetite for omelets. As I mentioned, I am no revolutionary—just an observer.

In the run-up to the Russian revolution, from 1901 through 1911, there were 17,000 such casualties. In 1907, the average toll was 18 people a day. According to police records, between February 1905 and May 1906, there were among those killed:

  • 8 governors
  • 5 vice-governors and other regional administrators
  • 21 chiefs of police, heads of municipalities and wardens
  • 8 high-ranking police officers
  • 4 generals
  • 7 military officers
  • 79 bailiffs
  • 125 inspectors
  • 346 police officers
  • 57 constables
  • 257 security personnel
  • 55 police service personnel
  • 18 state security agents
  • 85 government employees
  • 12 clergy
  • 52 rural government agents
  • 52 land-owners
  • 51 factory owners and managers
  • 54 bankers and businessmen
Good old Zinka
Schoolteacher, Revolutionary, Assassin

Clearly, these terrorist acts must have had some not inconsiderable effect in softening the target, making the government overthrow easier. This was not an accident but a matter of well-articulated revolutionary policy. The concept of “red terror” was first introduced by Zinaida Konoplyannikova, a rural schoolteacher who first got on the police radar for being an atheist and was later convicted as a terrorist for shooting a notorious general-major at point-blank range. At her trial in 1906, she said this: “The [Socialist-Revolutionary] Party has decided to counter the white, yet bloody, terror of the government with red terror…” She was executed by hanging that same year, aged 26.

After the revolution, red terror became government policy. Here is Lenin\’s response to being questioned by Communist party members about his “barbaric methods”: “I reason soberly and categorically: what is better—to imprison a few tens or hundreds provocateurs, guilty or innocent, acting consciously or unconsciously, or to lose thousands of soldiers and workers? The former is better. Let them accuse me of any deadly sins and violations of liberty—I plead guilty, but the interests of the workers win.”

Grandpa Lenin belting out a tune
Grandpa Trotsky going wild on the harmonica

Trotsky produced a particularly crisp definition of “red terror.” He called it “a weapon to be used against a social class that has been condemned to extinction but won\’t die.”

Estimates of the exact number of victims of “red terror” vary. Robert Conquest claimed that between 1917 and 1922 the revolutionary tribunals executed 140,000 people. But the historian O. B. Mozokhin, after an exhaustive study of the data available from government archives, put the number at no more than 50,000. He also noted that executions were the exception rather than the rule, and that most of those executed were sentenced for criminal rather than political acts.

But this was nothing compared to what Stalin unleashed later on. The ideological foundation of Stalin\’s terror was “intensification of class struggle at the culmination of the building of socialism,” which he articulated at the plenum of the Central Committee in July of 1928. According to his logic, USSR was economically and culturally underdeveloped, surrounded by hostile capitalist states, and as long as there remained the threat of foreign military intervention with the goal of reestablishing the bourgeois order, only the preventive destruction of the remnants of “bourgeois elements” could guarantee the security and independence of the USSR. These elements included former police officers, government officials, clergy, land-owners and businessmen. The peak of Stalin\’s repression occurred in 1937 and 1938. During these two years 1,575,259 people were arrested, of which 681,692 were shot.

You may be forgiven for thinking of Stalin as a psychopathic murderer, because he was certainly that, but more importantly he was a competent, and sufficiently ruthless, head of a revolutionary state. For a revolutionary regime, killing too many people is rarely a problem, but killing too few can easily prove fatal. To play it safe, a revolutionary should always err on the side of murder. This attitude tends to pervade the entire power pyramid: if you give Stalin a memorandum recommending that 500 priests get shot, and Stalin crosses out 500 and pencils in 1000 in red pencil, then you better find 500 more priests to shoot, or the number becomes 1001 and includes you.

This guarantee of security and independence did seem to hold. After all, there was a subsequent invasion by a hostile bourgeois capitalist state (Germany) and bourgeois order was temporarily reestablished on the territories it occupied. But there was nobody left to instigate anti-revolutionary rebellion elsewhere in the USSR because most of the would-be counterrevolutionaries were by then dead.

Of course, this took a terrible toll on society. Here is what Putin had to say on the subject of “red terror”: “Think of the hostages who were shot during the civil war, the destruction of entire social strata—the clergy, the prosperous peasants, the Cossacks. Such tragedies have recurred more than once during the history of mankind. And it always happened when initially attractive but ultimately empty ideals were raised above the main value—the value of human life, above the rights and liberties of man. For our country this is especially tragic, because the scale was colossal. Thousands, millions of people were destroyed, sent to concentration camps, shot, tortured to death. And these were primarily people who had their own opinions, who weren\’t afraid to voice them. These were the most effective people—the flower of the nation. Even after many years we feel the effect of this tragedy on ourselves. We must do a great deal to make sure that this is never forgotten.”

Given that the price is so high, perhaps it would be better after all if we just sat quietly, allowed the rich get richer as the poor get poorer, watched listlessly as the environment got completely destroyed by capitalist industrialists in blind pursuit of profit, and eventually curled up, kissed our sweet asses good-bye and died? Good luck selling that idea to young radicalized hotheads who have nothing to lose—except maybe you, if you happen to stand in their way as they change the world! No, revolution is here to stay, and one of its main weapons is terror. No matter how well we remember, the annihilation of counterrevolutionary social elements is bound to recur.

* * *

Getting back to Greece and Syriza: what if Syriza were not just a particularly fluffy breed of miniature Europoodle but actual honest-to-goodness revolutionaries, ready to do whatever it takes? How would they act differently? And what would be the result?

Well, one thing that comes to mind immediately is that they wouldn\’t try to stay in the Eurozone—they would seek to destroy it. The solution is simple: no Eurozone—no Euro-debt—no problem. There is a general principle involved: never accept responsibility for that which you cannot control. Speaking from experience, suppose you invite a plumber to fix your toilet, and the plumber finds that the toilet has been Mickey-moused in multiple ways by an incompetent amateur. In this situation, the professional thing for the plumber to do is to completely obliterate that toilet. Now the solution becomes simple: install a new toilet.

Here\’s a very simple one-two punch which Greece could have delivered instead of futile attempts at negotiation:

1. Immediately announce an open-ended moratorium on all debt repayment, taking the position that Greece has no legitimate creditors within the Eurozone—it\’s all financial fraud at the highest levels. After a few months, the fake bail-out financial entities that magically convert garbage Eurozone debt into AAA-rated securities (because they are guaranteed by Eurozone governments) are forced to write off Greek debt. In turn, Eurozone governments, being pretty much broke, balk at refinancing them out of their national budgets, showing to the world that their guarantees aren\’t worth the paper they are written on. There follows a bond implosion. Shortly thereafter, the Euro goes extinct, and along with it all Eurozone debt.

2. Start printing Euros without authorization from the European Central bank. When accused of forgery, make the forgery harder to detect by changing the letter at the front of the serial number from Y (for Greece) to X (for Germany). Flood Greece and the rest of the Eurozone with notionally counterfeit (but technically perfect) Euro notes. As the Euro plummets in value, institute food rationing and issue ration cards. Eventually convert from the now devalued and debased Euro to a newly reintroduced Drachma and reestablish trade links with the now “liberated” former Eurozone countries using trade deals based on barter and local currency swaps with gold reserves used to correct any minor imbalances.

Could this have been done without any “red terror”? I doubt it. Greece is very much oligarch-ridden; even the celebrated former Syriza FM Yanis Varoufakis is the son an industrial magnate. The Greek oligarchs and the rich would have had to be rounded up and held as hostages. Numerous people in the government and in the military have a split allegiance—they work for Europe, not for Greece. They would have had to be sacked immediately and held incommunicado, under house arrest at a minimum. No doubt foreign special services would have run rampant, looking for ways to undermine the revolutionary government. This would have called for drastic preemptive measures to physically eliminate foreign spies and agents before they could have had a chance to act. And so on. This wouldn\’t have been a job for fluffy mini-poodles. As Stalin famously put it, “Cadres are the key to everything.” You can\’t make revolution without revolutionaries.

But is this a job for anyone? Anyone at all? I leave this question as an exercise for the reader.







What\'s Wrong with Our Monetary System and How to Fix It


[In italiano]

[Guest post by Adrian Kuzminski]

[Promoted by the comments, Adrian has provided an update.]

Something\’s profoundly wrong with our global financial system. Pope Francis is only the latest to raise the alarm:

“Human beings and nature must not be at the service of money. Let us say no to an economy of exclusion and inequality, where money rules, rather than service. That economy kills. That economy excludes. That economy destroys Mother Earth.”

What the Pope calls “an economy of exclusion and inequality, where money rules” is widely evident. What is not so clear is how we got into this situation, and what to do about it.

Most people take our monetary system for granted, and are shocked to learn that the government doesn\’t issue our money. Almost all of it is created by loans made “out of thin air” as bookkeeping entries by private banks. For this sleight-of-hand, they charge interest, making a tidy profit for doing essentially nothing. The currency printed by the government – coins and bills – is a negligible amount by comparison.

The idea of giving private banks a monopoly over money creation goes back to seventeenth century England. The British government, in a Faustian bargain, agreed to allow a group of private bankers to assume the national debt as collateral for the issuance of loans, confident that the state would be able to service the debt on the backs of taxpayers.

And so it has been ever since. Alexander Hamilton much admired this scheme, which he called “the English system,” and he and his successors were finally able to establish it in the United States, and subsequently most of the world.

But money is too important to be left to the bankers. There is no good reason to give any private group a lucrative monopoly over the creation of money; money creation should be the public service most people mistakenly believe it to be. Further, privatized money creation allows a few large banks and financial institutions not only to profit by simply making bookkeeping entries, but to direct overall investment in the economy to their corporate cronies, not the public at large.

Ordinary people can get the financing they need only on burdensome if not ruinous terms, leaving them as debt peons weighed down by mortgages, student loans, auto loans, credit card balances, etc. The interest payments extracted from these loans feed the private investment machine of Wall Street finance, represented by the ultimate creditor class: the notorious “one percenters.”

There are two main critics of our privatized financial system: goldbugs and public banking advocates. The goldbugs would return us to a gold standard, making gold our currency. The problem is that it would become almost impossible to borrow money since the amount of gold which could be put into circulation is relatively miniscule and inelastic. They is no way easily to expand the supply of gold in the world

Credit—the ability to borrow money—is vital to any economy. If we cannot borrow against the future for capital investment—roads and infrastructure, housing, businesses, hospitals, education, etc.—then we cannot fund essential services. To that end, we need an elastic money supply.

Public banking advocates—like Stephen Zarlenga and Ellen Brown–appreciate the need for credit. Their aim is to transfer the monopoly on the creation of credit from private to public hands. Unfortunately, there is no guarantee that this form of \”progressive\” state finance would be any better than private finance.

If we had a truly democratic government actually accountable to the public, such a system might work. But in fact governments in the United States and most developed countries are oligarchies controlled by special interests. A centralized public bank—without a political revolution–would likely favor government contractors and continue to squeeze borrowers for interest payments, now supposedly directed to “the public good.”

This is curiously reminiscent of the system in the old Soviet Union and today\’s China, where a political nomenklatura ends up calling the shots and enriching itself. Our current system of centralized private finance, as well as the \”progressive\” proposal of centralized public finance, are no more than twin versions of top-down financial control by an elite.

Fortunately, there is another model available. There is a long tradition in America, beginning with colonial resistance to “the English system,” and continuing with anti-federalists, Jeffersonians, Jacksonians, and post-Civil war populists. This tradition opposed any kind of centralized banking in favor of some kind of decentralized issuance of money.

The idea they developed is to prohibit any kind of central bank—public or private—and instead have money issued exclusively locally on the basis of good collateral to individuals and businesses. It\’s a grassroots, ground-up approach. Priority is given to local citizens and businesses, who can get interest-free loans from local public credit banks to finance what they need to do.

Such a system would have to be publicly regulated to ensure fair and uniform standards of lending at the local level. It would, in that sense, be a public banking system. The absence of a centralized issuing authority, however, would prevent any concentration of financial power, public or private.

Any top-down system of financial control—private or public—presupposes some kind of control by elites, that is, some kind of central planning, whether in corporate board rooms or in the offices of government agencies, or some combination of both. The historical record suggests that such top-down decision-making is inevitably self-serving, distorted, and socially counter-productive.

Indeed, whether public or private, it is the love of money empowered by centralized finance which creates the “economy of exclusion and inequality” which Pope Francis decries.

The decentralized system of populist finance would operate with no central planning. Instead, countless local decisions about lending and credit-worthiness would function as a genuine “hidden hand” of finance, one which would be self-regulating. Here the love of money would find no way to leverage its power. Instead it would be dispersed among the general population, as it should be, without burdensome interest charges, to the benefit of all.

Adrian Kuzminski lives on a farm in upstate New York and is the author of The Ecology of Money: Debt, Growth and Sustainability and Fixing the System: A History of Populism, Ancient & Modern, among other works.

Since my brief comments on the gold standard seemed most provoking, let me add this update to my article, \”What\’s Wrong with Our Monetary System . . .\”

When people talk about the gold standard they usually mean defining money in terms of some fixed quantity of the stuff. At one time, for instance, the US government guaranteed that $35 would buy you a troy ounce of gold.

That\’s not a pure gold standard, but one in which gold is mixed up with paper money, that is, bills, certificates, or other so-called token guarantees whose ratio to gold is supposed to be fixed, but which historically has in fact fluctuated wildly.

A pure gold standard would be one in which only gold coins circulated as currency, with no piggy-backing paper money or other so-called token guarantees redeemable in gold available.

Until the invention of credit on a large scale in the seventeenth and eighteenth centuries, that was basically the case. Most Western economies at that time relied on gold and/or other precious metal coins, and little else, for their currency. If there was ever a pure gold standard, that was it.

Gold coins were the basic medium of exchange. Silver and other portable valuables were also used, but let\’s stick to gold for the sake of simplicity. The key point is that all such items all had an intrinsic value; we can call them commodity monies.

Most exchanges were therefore reciprocal, that is, equal value for equal value. Since gold has an intrinsic value, its exchange for a product or service fully satisfied any transaction. This is in contrast to an exchange based on debt, or a promise to pay, which is not immediately satisfied, but deferred.

Such credit as was available locally for most people back then was relatively short term or seasonal, say in advance of the next harvest. Such promises were often recorded, but did not circulate as a medium among third parties, that is, they were not yet money.

More extended forms of credit certainly existed—most notably the bills of exchange of merchants—and they were important, particularly in long-distance trade for luxuries and some basic commodities (grain, salt, etc.). But they were specialized and limited in scope. Usury was widely condemned, making lending even less attractive to anyone with money. Savers tended to be hoarders.

It is difficult to create credit with a commodity currency like this because money has to be lent out almost entirely from existing savings. The money supply, as a result, was highly inelastic; it could expand only in the event of significant new discoveries of precious metal reserves.

Indeed, it was only the discovery of vast gold reserves in the New World which allowed the gold-based money supply to expand. This permitted new investment in commerce, and helped fuel the expansion of trade and manufacturing we associate with the rise of early Modern Europe.

But credit, still tied to gold, remained hard to get, and the bulk of early modern economies remained on a largely local and subsistence level. It was the goldsmiths of seventeenth century England who were among the first to figure out how to get around the inelasticity of gold and commodity monies.

They discovered that only a relatively few depositors would claim their gold at any one time; as a result they found they could lend out far more to borrowers—in the form of certificates redeemable in gold–than the amount of deposits they actually had on hand, and that they could get away with it (most of the time).

This multiplication of credit through what we now call fractional reserve banking, along with other credit innovations in what some call the financial revolution of the late seventeenth and early eighteenth centuries, made it possible to fund economic growth far beyond what a pure gold standard would allow.

The key thing was the substitution of various tokens purportedly redeemable in gold for gold itself. At that point gold became identified with and highly leveraged by these various new financial tokens, which were ever less tethered to their gold base.

The so-called classical era of the gold standard—even at its height between 1870 and 1914—was not a pure gold standard at all, but one enormously amplified by credit instruments pyramided on top of gold reserves.

When we talk about the gold standard in modern times, we are really talking about a series of financial instruments—fractional reserve banking, a national debt, central banks, securities markets, usurious interest, etc.—which created a ballooning pyramid of tokens merely representing gold.

The final, long-delayed collapse of the largely symbolic modern gold standard during the Depression, confirmed by Nixon\’s removal of the United States from any last link to gold in 1971, made official what was already plain: that most money had in fact long been issued as debt, with less and less significant backing by any precious metals.

In this light, it isn\’t hard to see what the call for a return to any sort of gold standard really means. In its pure form, it means the return to a highly inelastic money supply, last seen in the Middle Ages. I don\’t think that\’s what goldbugs have in mind, though it might be where we end up in a severe post-collapse scenario.

Otherwise, it means a mostly symbolic link to a precious metal, no doubt psychologically satisfying to some, but unfortunately little more than a convenient obfuscation to the powers that be for how the monetary system, which is killing us, really works. I don\’t think that\’s what the goldbugs want either.

(For anyone interested, this and related issues are discussed at length in my book, The Ecology of Money: Debt, Growth, and Sustainability.)

Financial Nonsense Overload

Kelly Hensing

[En français] [In italiano]

“Those whom the gods wish to destroy they first make mad” goes a quote wrongly attributed to Euripides. It seems to describe the current state of affairs with regard to the unfolding Greek imbroglio. It is a Greek tragedy all right: we have the various Eurocrats—elected, unelected, and soon-to-be-unelected—stumbling about the stage spewing forth fanciful nonsense, and we have the choir of the Greek electorate loudly announcing to the world what fanciful nonsense this is by means of a referendum.

As most of you probably know, Greece is saddled with more debt than it can possibly hope to ever repay. Documents recently released by the International Monetary Fund conceded this point. A lot of this bad debt was incurred in order to pay back German and French banks for previous bad debt. The debt was bad to begin with, because it was made based on very faulty projections of Greece\’s potential for economic growth. The lenders behaved irresponsibly in offering the loans in the first place, and they deserve to lose their money.

However, Greece\’s creditors refuse to consider declaring all of this bad debt null and void—not because of anything having to do with Greece, which is small enough to be forgiven much of its bad debt without causing major damage, but because of Spain, Italy and others, which, if similarly forgiven, would blow up the finances of the entire European Union. Thus, it is rather obvious that Greece is being punished to keep other countries in line. Collective punishment of a country—in the form of extracting payments for onerous debt incurred under false pretenses—is bad enough; but collective punishment of one country to have it serve as a warning to others is beyond the pale.

Add to this a double-helping of double standards. The IMF won\’t lend to Greece because it requires some assurance of repayment; but it will continue to lend to the Ukraine, which is in default and collapsing rapidly, without any such assurances because, you see, the decision is a political one. The European Central Bank no longer accepts Greek bonds as collateral because, you see, it considers them to be junk; but it will continue to suck in all sorts of other financial garbage and use it to spew forth Euros without comment, keeping other European countries on financial life support simply because they aren\’t Greece. The German government insists on Greek repayment, considering this stance to be highly moral, ignoring the fact that Germany is the defaultiest country in all of Europe. If Germany were not repeatedly forgiven its debt it would be much poorer, and in much worse shape, than Greece.

The brazen hypocrisy of all this cannot but have a destabilizing effect on Europe\’s politics, with the political center cratering and being replaced with radical left-right coalitions. Note how quickly France\’s right-wing presidential front-runner Marine Le Pen applauded the result of the Greek referendum organized by Greece\’s left-wing government. The disgust with officialdom that pervades the European Union is beginning to transcend political boundaries, making for strange bedfellows.

In the end, finance—at any level—has to be about rules and numbers, or it becomes about nonsense. Break enough of your own rules, and your money turns to garbage, because in a world where money is debt and debt is garbage, money is garbage. But there is a proven method for solving this problem and moving on: it\’s called national bankruptcy. Greece is bankrupt; if its resolution brings on the bankruptcy of Spain, Italy and others, and if that in turn bankrupts the entire Eurozone, then that\’s exactly what must happen.

But something else might happen instead. The Eurocrats are already appalled by the Greek show of democracy, and will work hard to derail any such democratic effort in the future using all of the means of political and economic manipulation at their disposal—all simply to muddle along for a bit longer, making the end-game, when it finally comes, all the more painful. I am sure that the Eurocrats plan to follow model of the British Civil Service, which reached its maximum staffing level right when the British Empire ceased to exist. Let\’s look for ways to not help them do this.