THE GREAT BANK SWINDLE

...If the banks could sufficiently recover from their outrage that such presumptuous questions were raised, they could give several answers...

...There must be a reason...

...If the quantity of money in circulation roughly keeps pace with the output of a society, assuming a reasonably constant velocity of circulation, money maintains its value and prices normally are stable...

...It would not be correct to argue that most bankers are engaged in a conscious conspiracy against the government to insure continued receipt of their annual pay-off...

...Once a public is persuaded that a certain type and shape of metal or paper, inscribed in appropriate fashion, will be accepted in payment for goods and services, that metal or paper becomes money...

...At any hint that the government was even contemplating the withdrawal of its bank subsidy, the bankers of America would raise a racket such as has not been heard since the days of William Jennings Bryan...

...How do we adjust our money supply...

...When these are kept in equilibrium, it matters not at all whether money is "backed" by gold, silver, the bark off jubjub trees, or frankincense and myrrh...

...It is not surprising that the Eisenhower Administration lived comfortably with it, since that business-minded and banker-minded Administration could hardly be expected to crusade against its warmest friends...

...Such money simply is not "sound...

...Money gets its value from its scarcity— and from the fact that people accept it as a medium of exchange...

...The notion that money, to be sound, must be backed by gold is pure myth compounded of ancient superstition and chronic suspicion concerning the fiscal probity of governments...

...Since banks would lose the interest they derive from government bonds, they would either be obliged to reduce the current interest rate on time deposits or substantially raise their charges for bank services...

...Accusing the banks of legalized theft on dimensions that reduce the Brinks' gang to petty larcenists requires some explaining, to say nothing of the temerity entailed...

...Then they have had the audacity to demand over $2 billion a year for the privilege of using Uncle Sam's name as collateral for the "loan...

...As for the effectiveness of existing fiscal restraints, the nation ran staggering deficits during World War II despite the necessity to pay interest on bank loans...

...There is evidence, moreover, that the bankers deliberately sought to drive down the value of the greenback in order to prove their point that money was not good unless they got a cut out of its issuance...

...If prices are to remain stable, the money supply in circulation should decrease as the output of goods and services decreases, and increase in proportion to any increase in goods and services...

...Moreover, it is always irresistibly tempting to politicians seeking the easy way to finance their vote-getting schemes...

...The answer is almost certainly "No," for an obvious reason...

...Jefferson disagreed, holding that national bills could be issued "on pledges of specific taxes for their redemption...

...Inflation did accompany the greenback issue, but the same result would have followed if the government had borrowed $450,000,000 from the commercial banks...

...Thus, our monetary system could be just as secure as it is today if the government chose to pursue a do-it-yourself policy...

...Politicians and political parties are acutely aware of this fact, and their instincts for political survival are the best insurance we have against fiscal abuses...

...They would hoist the specter of runaway inflation and predict the decline and fall of our beloved land once the public presses started to whir...

...They have purchased nearly $65 billion of government bonds with money they have created with the flourish of a pen, money backed by nothing more than Uncle Sam's spotless reputation for paying his bills...

...Whenever the Board wants to reduce the volume of bank loans it need only raise the requirement of the minimum ratio of reserves to deposits which each Federal Reserve member bank must hold...

...True, but only if the Federal Reserve Board was grossly delinquent in carrying out its obligations...

...Assuming the above explanation is correct, why does the government endure these fiscal monkeyshines...

...The effect of new money on the economy is precisely the same whether the money is issued by the national government or by banks...

...All that the public can do is to utter some derisive horse-laughs next time the great banks, without even winking at their stockholders, solemnly deplore those awful farm subsidies and "giveaway" programs in general...

...Perhaps the most remarkable thing about the whole operation is that the banks, far from being apologetic about their plunder, seem to regard it as a constructive national service...

...Although the Constitution gives Congress the exclusive right to "coin money, regulate the value thereof," Hamilton was convinced it was too risky lor the government directly to exercise its constitutional right...

...Voorhis one of the three ablest members of the House, he got nowhere...

...One can predict with perfect confidence, however, that any Administration would get the jitters at the very thought of bank reform along these lines...

...Why should it pay the banks more than $2 billion interest (and add nearly $65 billion to the national debt) for a simple paper and ink transaction in which the banks charge the government for using its own credit...

...And why is it a certainty that the Kennedy Administration, for all its high-voltage intelligence, will follow suit...

...The all-important factor is the ratio between the total circulating medium and the total supply of goods and services...

...He is the author of one book, "The Brannan Plan: A Study of Farm Politics and Policy," and co-editor of another, "The Voice of the People...

...This in turn could produce dangerous inflationary tendencies, it could be alleged...

...This money does add to the money supply because these banks are lending money created by the stroke of their pens—money that simply was not in existence prior to the purchase of the bonds...

...Lincoln well knew that interest payments to private banks did not magically confer "soundness" on money...

...To pay its bills the government sells its bonds to a variety of persons and institutions and uses the money exchanged for those bonds...

...The only thing wrong with this line of reasoning is its gross inaccuracy...

...Rather, it is an article of faith with most bankers that government money is dangerous money...

...The explanation is not too complicated, however, and academic tenure sometimes does wonders in making lions out of Otherwise mild scholarly types...

...Abraham Lincoln incurred the undying enmity of the banking community by printing $450,000,000 worth of greenbacks during the Civil War...

...As for any educational program undertaken by a President, it would leave them wholly unconvinced simply because of the remarkable capacity of people to rationalize that which has long endured, and which happens to be in their multi-billion dollar self-interest...

...and now executive director of the Cooperative League of the U.S.A., sought to make an issue out of this piracy...

...The most interesting thing about this ingenious swindle is that it is pulled off in broad daylight, by men regarded as pillars of respectability, and without so much as a whimper from the taxpayers...

...The story, in one sense, is not new...

...When more money is needed, banks may create it by lending money, which they do not have, to private borrowers—that is, they create demand deposits credited to the borrowers, deposits limited by the Federal Reserve Board to about six times the volume of their reserves, and thereby swell the circulating medium to that extent...

...If the government needs to inject new money into the economy, as it often quite legitimately does, why should it pay the banks three per cent interest for conjuring up money which the government could just as well conjure up itself...

...Lewis W. Douglas, former Director of the Budget and the very essence of fiscal rectitude, once declared that "in a country in which more than ninety per cent of all business is done by the use of checks there is no essential difference between the creation of bank deposits by fiat and the creation of printing-press money...

...Instead of limiting their expenditures to the tax-take, they become fiscal alcoholics, spending their debased money with ever-increasing abandon and touching off an inflationary spree which would undermine the currency, public confidence in the government, and perhaps the nation itself...

...He fought long and hard to persuade the government to exercise the powers vested in it by the Constitution and wrote a book, Out of Debt, Out of Danger, about the issue...

...They can intimidate any Administration which threatens their gravy and muster an aroused public in support of their right to exact this tribute...

...One of the surest ways to antagonize voters is to engage in reckless fiscal practices pregnant with serious inflation...

...The bankers have been at this business in a big way since the early days of the New Deal...

...But though Washington newsmen once voted Mr...

...But a substantial part of "deficit financing" frequently derives from money borrowed from commercial banks...

...Currently the commercial banks help themselves to $2 billion of interest on the national debt in return for rendering a wholly superfluous "service...

...The question is not printing press money versus "sound" money, but private printing-press money versus public printing-press money...

...What matters, again, is the total volume of money in active circulation in relation to the total production of goods and services...

...But Hamilton prevailed, and he has been the patron saint of bankers ever since...

...But would government printing-press issues intensify and exaggerate the problem...

...Since the war the issue has vanished, except in occasional economics classes where professors regale students with accounts of this Brobdingnagian fraud...

...The custom is firmly established, but conceivably a custom so lavish with the taxpayers' money bears re-examination...

...Governments were not to be trusted in matters of money coinage, and whatever national debt that was contracted should be in the form of interest-bearing Federal bonds, sold to the banks and other institutions and persons, and usable as a basis for a medium of exchange...

...Because ninety-eight per cent of the people do not understand money or the money system, and because any explanation tends to become involved and confusing to the average citizen, there is no doubt that a "crisis of confidence" could be induced which would indeed jeopardize public faith in the government and its currency...

...It is as old as the Republic itself, going back to some of the earlier battles between Hamilton and Jefferson over monetary policy...

...So long as governments must borrow from the banks and pay a respectable interest rate, effective spending brakes exist...

...These banks, committed to the immutable principles on which civilization rests, are appalled at the fat subsidies going to the farmers...

...But when the government wants to stimulate purchasing power during periods of recession and unemployment, it is important to borrow money which for some reason is not circulating, or to create new money to finance its spending ventures...

...When inflation is a problem, the government tries to avoid borrowing from these banks, since additional money creates additional purchasing power which in turn tends to bid up the price of goods and services...

...They believe passionately that the current system is a protection to the public...

...Thus the banking fraternity and its highly vocal right-wing allies hold a novel, wholly effective, and utterly ruthless club over the head of the government...

...If the ratio gets out of kilter, and increases more rapidly than the supply of goods and services, it will ordinarily lead to inflation whether or not it is "backed" by precious metals or by the most impressive pronouncements of kings, dictators, or bank presidents...

...So the alarums they would raise at a proposed change in the system would reflect, for the most part, not a cold-blooded attempt to deceive the public, but a normal reflection of deeply held beliefs...

...Money borrowed from private individuals, insurance companies, mutual savings banks, corporations, state and local governments, foreigners and foreign institutions does not add to the total money supply, since money is simply transferred from non-Federal to Federal hands...

...Remove this restraint, and fiscal disaster will surely follow...

...This action, he once wrote a friend, "gave to the people of this Republic the greatest blessing they ever had—their own paper to pay off their own debts...

...Preventing inflation is a political imperative these days...

...President Eisenhower, whose deepest impulses ran toward fiscal conservatism, went almost $13 billion in the red during the 1957-58 recession...

...To understand this phenomenon, a few facts about money and monetary policy need to be kept in mind...

...no interest would be necessary or just...

...Several important byproducts should be considered if the government were to print its own money when new money was needed...

...During the Roosevelt era, former Representative Jerry Voorhis, defeated by Richard Nixon in the malodorous campaign of 1946, REO M. CHRISTENSON, formerly an editorial writer for the Toledo Blade, is an associate professor of government at Miami University (Oxford, Ohio...

...This would also give the nation's financial magnates a stake in the survival of the new government, a prime desideratum with Hamilton...

...Secondly, banks would be able to lend more money to private borrowers if their government bond holdings were liquidated...

...Not being privy to the high-policy discussions of our government, I cannot speak with authority...

...But why did neither the Roosevelt nor the Truman Administration raise a finger against it...

...The results could be, temporarily at least, almost as serious as the bankers predict...

...This would be lamentable, no doubt, but if we are in the business of deploring unnecessary subsidies, why should the American taxpayer subsidize bank customers...

...If the situation is as flagrant as this explanation suggests, why doesn't the government do something about it...

...What possible public purpose is served by this...

...Clearly the restraints do not restrain when public considerations having higher priority are present...

...Nothing—and their voices would tremble with conviction—but nothing is a greater threat to the fiscal integrity of any government than printing-press money...

...Meanwhile the banking brethren quietly raid the Federal treasury of more than two billion dollars a year in what must be the most outrageous scandal in American financial history —more outrageous, even, than the oil depletion allowance...

...New money may also be created when the national government spends more money than it receives from taxes...

...So the government will not so much as twitch an eyebrow at the bankers...

...Look at the record—see the wreckage of nation after nation strewn on the sands of history because of fiscal depravity...

...This could re-establish the equilibrium at any desired point...

...Admittedly, an increase in money supply which stimulates a sluggish economy into greater productivity may precede an increase in goods and services without being inflationary...

...But he was obligated to make the money legal tender except for interest on the public debt and duty on imports, and the banks were able to demand more than a greenback for a gold-backed dollar...