THE PERENNIAL PERPLEXITIES OF MONEY
COSTS OF HEALTH CARE, AND SOCIAL SECURITY
John Q. Pridger

"All the perplexities, confusion, and distress in America arise, not from defects in their constitution or confederation, not from what of honour and virtue, so much as from downright ignorance of the nature of coin, credit, and circulation." (John Adams)

When the United States came into existence as an independent nation, the European banking system and the "money power" had long been firmly established. And real money had, for some centuries, if not millennia, been associated with precious metals, particularly gold. Gold coin was the internationally recognized money standard upon which values were determined and international trade was conducted where outright barter in internationally traded goods was impractical. Gold has always possessed the "power" to secure goods and command labor. Thus, for all practical intents and purposes, gold has always (and continues, in spite of its demonetization), served as money.

The Constitution of the United States provided that, "The Congress shall have power to lay and collect taxes, duties, imposts, and excises, to pay the debts and provide for the common defense and general welfare of the United States... To borrow money on the credit of the United States; To regulate commerce with foreign nations and among the several States... To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures..." (Article 1, Section 8), and provided that, "No State shall... make anything but gold and silver coin a tender in payment of debts..." (Article 1, Section 10).

The conventional wisdom was that government only had two means by which to raise revenue needed for its operation. (1) To take it from the citizens through taxation, or (2) to borrow it from wealthy individuals or established financial institutions. While it was clearly understood that sovereignty possessed the power to coin money and regulate the value thereof, government was not deemed capable of "creating money" — money was gold and silver and the issue of paper currency, representing money, remained the prerogative of bankers.

Though finance, economics, and monetary policy have been elevated to high science, Adam's observation is no less valid today than it was when he first scribbled out the above words. In fact, though coin, credit, and circulation, seemingly function somewhat smoothly in the present day, and (as always), are perfectly understood by the gurus banking and high finance, the people are even more ignorant of such things now than in Adam's day, and Congress has completely ceased to trouble itself with such perplexities.

While Congress still raises taxes and appropriates and spends money, its only latitude with regard to "coining money and regulating the value thereof" is the function of periodically raising the debt ceiling in order to keep the nation functioning on a "solvent" basis.

The latter circumstance is very peculiar, since the principle that no generation of government had the right to burden subsequent generations with debt had become a maxim of government soon after the birth of the republic. Few people, and few in Congress, were ever convinced that debt is a national blessing, in spite of Alexander Hamilton's early declaration to that effect.

Let us clarify this "national debt is a blessing" statement. There are still supposedly sane and well educated men who echo that belief — yes, some of them actually believe it. Economists — brilliant ones, too — have said we merely "owe it to ourselves." That "fractional truth" having worn down to a much smaller fraction, they are now telling us the debt is a blessing "as long as the economy is growing," and that "the debt doesn't ever have to be repaid, but merely rolled over."

Pridger has a liberal friend who has become so liberal that he even denies that there is such thing as "common sense." At least he claims not to know what it is. To him it's a term that conservatives use — conservatives and radical right-wing crackpots, and "true believers" like Pridger.

Though there are probably only a very few who would admit that they wouldn't know common sense if it tapped them on the shoulder, it seems common sense in monetary and fiscal policy has become an obsolete commodity.

In hopes that there are some who would recognize it, Pridger is going to invoke the "common sense" argument. Common sense, at least the way Pridger sees it, says that "good credit" is a blessing. It also says that debt is not a blessing to the debtor — only to the creditor (and that only so long as the debtor continues to have the wherewithal to pay up, or has property worth seizing).

Good credit is evidence of recognized honesty and integrity in individuals, and some facsimile thereof in nations. And while debt may sometimes be unavoidable (sometimes even desirable), it is never a blessing to the debtor. Anybody who believes in simply "rolling debt over" is merely declaring his willingness and ability to support his creditors in perpetuity. The ultimate reward of rolling debt over is slavery or bankruptcy — and, even in this economically enlightened age, neither slavery nor bankruptcy are considered a blessing. Yet personal bankruptcies are at an all time high in the United States because people have taken too much advantage of the blessings of debt.

In the case of nations such as the United States, the credit limit is as high as Congress can manage to "raise the debt ceiling." But that debt represents a claim against the assets of the people of the nation. It is they who owe the debt, and must eventually pay the piper. As some point even the public debt becomes untenable and bankruptcy must result.

This, however, is just common sense — something that is frequently deemed inapplicable to legislative committees.  

Unfortunately, the Constitution did not clarify, or even address, the "perplexities... of the nature of coin, credit, and circulation." It didn't establish a national currency, but rather left those complexities in the hands of the established money men of Europe and their already established agents in America. There were, of course, some very compelling rationales for this glaring omission.

For one thing, the government of the United States was to be a very "limited" government. Its fiscal needs were envisioned to continue to be relatively modest, easily met through modest avenues of taxation, and import duties on trade. Gold and silver coin already in circulation, supplemented by private bank paper, based on these "species," would serve the purpose of circulating currency. In short, money was something quite "apart" from government, and though government could coin money from gold and silver, and put its stamp of approval on that coin, money and paper circulating as money were really the realm of bankers.

It did not take the young nation long to discover that the perplexities of credit, money, and circulation did present a problem that needed to be addressed. Alexander Hamilton, president Washington's Secretary of the Treasury, promoted the idea of a central bank, and the first Bank of the United States was charted in 1791 for period of twenty years. Thomas Jefferson, who had exerted his influence against such a bank, helped put it out of business when its charter expired during his term as president in 1811. The second Bank of the United States (1816 to 1836), was defeated only threw the indomitable will and courageous effort of president Andrew Jackson.

While the central banking idea perhaps had considerable merit, it was nonetheless recognized by men such as Jefferson and Jackson as a device of bankers to gain control of the nation's credit and enthrone the money power above the interests of the people, rather than a creature of and for the people. For example, the the government only owned 20% of the stock in first Bank of the United States. The rest of the stock was owned by wealthy individuals and eastern and European bankers who fully intended to profit handsomely from that ownership. The means by which they would profit most, of course, was by insuring that the nation remained forever in their debt.

Just why such a central bank could not be fully owned by the people, rather than operated as a joint stock company dominated by private bankers, is one of the greatest perplexities of the credit and money debate.

After the demise of the second Bank of the United States, the the national debt was paid off and the nation stumbled along fairly well under the state banking system until the Civil War. The war turned out to be much more than anybody had planned on, and the costs were way beyond the government's ability to raise revenue through taxation or duties. Of course, the nation had good credit and could borrow almost any amount of money from willing creditors. The trouble was that the 26 to 34% interest that the eastern capitalists demanded was more than President Lincoln, his Secretary of the Treasury, and a sufficient number of Senators and Congressmen considered just and reasonable.

They decided to issue United States Notes, "greenbacks," to provide the immediate need for large amounts of cash. This was a third way for government to "get and have" money — simply "create it itself" — print it up, declare it legal tender for all debts public and private, and pay it out into circulation. Greenbacks solved a lot of immediate problems, and saved the nation a lot of money during the war. But they presented some serious problems too.

First and foremost, the issue of the greenback enraged the eastern banking establishment, as well as the European money men. Secondly, while the administration and Congress had had the guts to pass the Legal Tender Acts, they ultimately lacked the intestinal fortitude to overthrow the money power. The National Banking Acts of the same era effectively enthroned the money power in the United States, and the greenback and Legal Tender Acts themselves were ultimately manipulated and used against the interests of the people to the extent that the money power could contrive, which was considerable.

Among other things, greenbacks were deliberately made to depreciate by the exception clause placed on each note, i.e., "This note is legal tender for all debts, public or private, except..." Except for duties on imports and payments on the national debt. In other words, they weren't quite acceptable money even to the issuing authority, and certainly not considered so by the bankers who demanded gold.

There is considerable evidence (though refuted by court historians), that Lincoln intended to make the greenback permanent national monetary policy (i.e., a permanent fiat, legal tender currency to replace all others). We have accomplished it, he is alleged to have written to his friend and confidant, Col. Edmund Dick Taylor, "...and gave to the people of this Republic the greatest blessing they ever had — their own paper to pay their own debts." But, in the end, the bankers and capitalists had won the money side of the war. Lincoln was removed from the national equation and the National Banking System served the nation and the money power until passage of the Federal Reserve Act in 1913.

The greenback "Legal Tender Laws" were allowed to pass only as an emergency wartime measure. After the war, it was banking business as usual.

The nature of money and currency were very often subjects of heated debate during most of the nineteenth century, but the last time Congress did anything of great significance with regard to national credit and money was when it washed its hands of those perplexities, giving the bankers their way, with the passage of the Federal Reserve Act of 1913 — an act that squarely and unequivocally placed the nation's monetary affairs into the hands of the money power for all time.

The greenback survived the Civil War by over a century. But, as mentioned, it had been first undercut and devalued in the interests of the bankers — yet eventually redeemed in gold at full value by the bankers. In fact, after all was said and done, the bankers managed to profit handsomely on the greenback. Specie payments were resumed in the 1870s, greenback included, and the "exception clause" was removed and greenbacks.

After that, the greenback was relegated to a marginal role in the nation's monetary landscape, with National Bank Notes taking front and center from the Civil War onward. The greenback survived until about 1969, but in volumes far too small to have a significant impact on the nation's overall money supply and economy, and were seldom actually placed into circulated even at that.

In the late 1800s the monetary debate raged, sometimes hotly, between the advocates of a gold or silver standard. And, of course, there was the Greenback party. But the final shoe fell when Congress passed the banker's bonanza bill. The Bank of the United States was resurrected in a more virulent and lasting form as the Federal Reserve System.

Since the Federal Reserve Act was passed, the nation has been on and off of the gold and silver standards. Gold Certificates, Silver Certificates, National Bank Notes, United States Notes (greenbacks), and Federal Reserve Notes (all of them resembling greenbacks), have circulated as full legal tender concurrently.

The boom and bust cycles, which had so distressed the public and been the primary cause of the recurring monetary debate, were due to manipulation by the major banking and capital interests. Great fortunes could be made through them by those who knew the rules of the game being played. Depressions were the result of economy wide monetary "contractions" — and who but the bankers, who controlled credit and money issue, could contrive such things? The remedy, which was finally sold to the Washington brain trust, was to give them total control so that the economy could be scientifically stabilized by qualified professionals.

The devastating stock market crash of 1929, happened under the Federal Reserve's enlightened supervision — and the greatest sustained contraction of the money supply the nation had even known was the result. This was the period known as the Great Depression. Neither the money power, nor Franklin D. Roosevelt's brain trust, seem to have figured out what the problem was during the whole decade of the thirties. Finally, war was the solution to the nation's economic troubles.

Under the scientific stabilization policies of the Federal Reserve, the nation finally had to abandon the gold standard completely. Gold coins were permanently removed from circulation by Franklin D. Roosevelt in 1933. Though we nominally remained on a gold standard, the official price of gold went from $16.00 an ounce to $35.00 an ounce over night (the government having collected all gold currency from the public). Silver coinage was debased from 90% (about 1964), to 40% silver, before being finally abandoned in in favor of nickel-clad copper about 1974.

Now all of our circulating currency is in the form of Federal Reserve Notes and nickel-copper coinage, and no other type of currency is being issued. Greenbacks were finally totally abandoned as recently as circa 1969. The nation's circulating currency was at last totally debased, and rendered into a purely fiat debt money system.

At least until the Reagan era, a balanced budget, and at least the "hope" of eventually paying off the national debt, remained a congressional goal and a principle that seemed to square with common sense and the very meaning of "fiscal responsibility." Though Reagan successfully ran for president on a balanced budget platform, all hope of such a thing had in fact effectively evaporated, along with any hope over ever paying off the national debt.

In fact, while balancing the national budget is still theoretically possible (Clinton claims to have managed it), the very idea of paying off the national debt has become an absurd and obsolete proposition — a literal impossibility. The very money supply itself is a significant part of the debt, and to pay off that debt would be to extinguish the nation's entire money supply.

THE PERPLEXITIES OF MODERN MONEY

We mentioned that government has only two ways of getting money — taking it from the people through taxes, or borrowing it. The second option leaves the people owing a debt which they or their children will later have to pay in taxes. So borrowing is never a substitute for taxation, but merely an expedient which in the end costs the public more taxes as the debt compounds itself through interest.

However, we mentioned a third way. Simply "creating" money in the form of greenbacks — essentially out of nothing but paper and ink.

Of course, if one insists that money must be gold or silver then government cannot create money any more than the ancient alchemists were able to transform base metals into gold. Gold and silver must be seized (stolen), or purchased. But now that we are completely off of the gold standard, and all money is completely fiat money, that no longer concerns us. Yet, even in the total absence of a gold standard, our government continues to deal with money as if bankers have an exclusive God-given golden touch that conveys value to our currency.

Gold and silver coins had been the international language of money since time immemorial. England and the major European powers were on a gold money standard when the English North American Colonies gained their independence. The colonies were not industrially independent during or after the Revolutionary War, and there were no gold mines in English North America. The colonists required help in their struggle against the mother country — in the form of arms, ammunition and other supplies and, of course, money.

Since the colonies had no gold, these things had to be begged, bought, or borrowed from European powers, and the national debt was born — a birthing pain of the nation — payable in either trade goods or gold. The United States was born on a gold and silver standard, with debts owing to European creditors, and has remained locked in debtor mentality ever since. This mentality has effectively expressed in the belief that, "A nation without debt is a nation without credit — a bankrupt nation." But this is like saying a person is bankrupt if he chooses to do business on a cash basis without the use of credit cards.

A lot of water has passed under the bridge since, as a nation, we first acquired the debtor mentality. So much water has gone under the bridge, in fact, that both England and Europe have been economically eclipsed by the United States, and American currency, rather than gold, now serves as the global reserve currency. Gold still plays a background role, but is no longer on a fixed exchange rate with any major currency, and is no longer "officially" considered money.

Gold is no longer a satisfactory backing for global currencies in any case. For one thing, the production of gold and silver simply hasn't been able to keep up with the demands of modern day international commerce, and can no longer serve the role of a circulating currency in such a productive and densely populated world. Its scarcity renders it impossible to maintain a fixed value relationship to commodities, manufactured goods, and expanding volumes of circulating currencies.

Gold and silver, even more than other commodities, in addition to natural shortages of supply, are subject to artificial shortages. If there is a money power (and, of course, there is), it always has the upper hand in the ability to corner the gold and silver markets, hoard supplies and control their availability .

The shortage of gold has been with us for a long time, and bank paper, or national currencies, redeemable in gold have generally passed as a substitute for gold for at least the better part of two centuries in the United States and western Europe, until the gold standard was completely abandoned in about 1972.

Even though it was the money power that historically promoted the idea that paper currency (which only they could produce), must be backed by gold or silver, and looked with disdainful disapproval at purely fiat currency, even they have abandoned the gold standard and adopted fiat currency.

Fiat currency — particularly government issued fiat currency — has always been called "inflation money." In other words, because it can easily be created in unlimited quantities, it usually tends to be overproduced, and its "value" goes down with overproduction. But this is a fallacious argument. Gold and silver would, and do, go down when available in great quantities. They, too, are subject to the laws of supply and demand. That isn't the real problem at all. No money, of whatever it is composed or backed, is any better than the integrity of the issuing government or authority. And even gold and silver are mere commodities until minted into coins with the government's stamp of approval. If the issuing government is of "good credit," and capable of fiscal responsibility and sound bookkeeping, it's money will follow suit.

Currency is nothing more than "pay bearer on demand" tickets or tokens. It is made "legal tender" through government fiat, whether it be paper or gold or silver coin. The only difference is that the gold and silver coin do have recognized intrinsic value, even if the issuing government is in receivership and been taken over by Mothers Against Drunk Drivers or Potheads for a Drug Free America.

The money power, for centuries literally enamored with gold, has finally been freed from what William Jennings Bryant, in the late 1800s, described as the "cross of gold," and now openly refers to gold as a "barbaric relic."

Today's international reserve currency, Federal Reserve money, is now a purely fiat currency, given its legal tender status by the fiat of the United States government and world consensus (or confidence in the "full faith and credit" of the United States, and its ability to responsibly manage its fiscal affairs). There is no gold or silver backing involved, and all the money that comes into circulation is created out of nothing but paper and ink — just like greenbacks had been created.

Of course, Federal Reserve Notes are obviously also the very epitome of "inflation money," otherwise we wouldn't now have four cent dollars in terms of the dollar's 1913 purchasing power, or ten cent dollars in terms of the dollar's 1960 purchasing power.

In other words, we now have the best of both worlds and the worst of both worlds.

The big difference, the one that keeps the bankers happy and the public in perpetually increasing debt, is the oblique and confusing manner in which our currency comes into existence and circulation. Federal Reserve money is not a "national currency" though we tend to think of it as such — as "American money," or the "good old greenback," etc. It is a bank money, bottomed on debt. As such, its role is much more than that of a circulating currency. Its very existence enriches not only the bankers who comprise the stockholders of the Federal Reserve Banks, but a whole parasitic creditor class, both international in scope. And, of course, it provides the life-blood of the entire global capitalist system — a system that might have been sustainable but for the nature of the monetary system upon which it was built.

The national debt is the life blood of these creditor classes and many of the great corporations of the world. And the system is quite democratic. Anybody with the means to "loan the government money" can partake of at least a slim slice of the pie. Individuals can, and do participate — by purchasing government savings bonds. It is both a self consuming and self perpetuating system that grows ever larger, like a gigantic cancer — a cancer so large that almost nobody can get a focus on it.

BASIC MECHANICS OF DEBT MONEY

There's something mystical about bankers. They can create money out of nothing — by the mere stroke of a pen, in fact. And they have carefully perpetrated the myth that this is their exclusive prerogative, and that government (being comprised of inferior and less honest beings), should not, and cannot, be allowed to exercise this magical ability.

Yet it is perfectly okay for government to create bonds out of paper and ink, backed up by its "full faith and credit." These bonds are simply "promises to pay" — but nonetheless constitute binding and fully bankable contracts. Surprisingly, these bonds become bankable contracts — "money" in every sense of the word — to bankers and other creditors. And on the basis of these bonds, the Federal Reserve can cause money accounts to be opened and currency to be issued against them. Against deposits thus facilitated, much more money can be loaned out than is denominated on the face of such bonds. With each bond, the wonders of fractional reserve banking is given an additional shot of steroids, and money multiplies itself as if by magic.

The gold standard did serve a valuable role when it was in effect, and that was that it imposed a discipline in the expansion of currency that is no longer functioning today. It made "inflation money" truly seem dangerous, and put a damper on excessive expansion of the money supply. The downside was that in attempting to hold a fixed relationship between gold and currency, it became impossible to expand the money supply at rates necessary to served the needs of an expanding population, and the commensurate expansion of business, and commerce. Today the expansion of the money supply is not held back by any shortages of the quantities of gold available in the world.

The way money is created today is an amazing process. But it has a glaring down side. Debt accumulates faster than money can magically replicate itself, in spite of all the magic inherent in the system. The system literally defies the laws of physics — or attempts to — and it has taken on the classic attributes of a giant Ponzi scheme.

Here, in the simplest terms, is how money is both borrowed by government and created by bankers. Assume Congress has appropriated and spent more money than it has taken in in taxes — as usual. The government's credit is still good because Congress has dutifully elevated the national debt ceiling to make sure more is available. Having already taxed the public as much as it dares, it has no alternative but to borrow the money it intends to spend.

Since we have a free market system, wherein it is denied that government has any rightful creative roles to play, the government is obliged to go into the market to borrow the wherewithal to continue to function.

To do this, the Treasury creates bonds, which are nothing more than ink on paper. For all practical intents and purposes, and in spite of several incongruities that should become self-evident, these bonds are as much like money as dollar bills — with some important differences which will hopefully become clear.

There are different kinds of Treasury bonds used for different purposes. And Pridger doesn't claim to know how many kinds there are or the complete details as to how they work. It is, however, important to remember that Treasury bonds are "liabilities of the Treasury" and thus obligations of the people of the United States. Each one, once "sold," is a partial mortgage of our nation.

One type of bond is used for "in house" currency transactions between the Treasury and the Federal Reserve. Such a bond becomes a bankable obligation of government deposited in the Federal Reserve Banks, and becomes an addition to the banks' currency reserves, permitting loans to made in excess of those reserves (to the extent allowed under fractional reserve banking law). These funds, in turn, can be made available to other banks through loans, which in turn increases their cash reserves. These deposits, and the loans extended as the result of them, constitute an expansion of the nation's money supply, and actual currency, in the form of Federal Reserve Notes and coin, can be ordered up from the mint and distributed to the various banks to the extent of the value of the original bond.

"Fractional reserve" refers to the amount of actual cash reserves banks must maintain in their vaults, or on deposit in Federal Reserve banks. It is called fractional because the reserve is merely a fraction of the money the bank is allowed to deal with, and a fraction of what can actually be loaned out. This permits banks to loan out much more money than they actually have in deposits and/or reserves, and collect interest on the money thus created and loaned out.

For example, if the required reserve is 25%, and the bank has a million dollars worth of deposits and reserves, it can loan out three million dollars in currency. The interest paid on the loan, then miraculously increases their reserve, and permits them to loan out even more money. If the loaned amount is actually retained in an account at the same bank, all the better — that, too, becomes part of their reserve. In this way individual banks actually create money out of nothing.

All Federal Reserve Notes are said to be "liabilities of the Federal Reserve System" rather than the Treasury. The Treasury and the people merely have "use them" for currency purposes, for a price — which nonetheless does return to become an obligation of the people, i.e., part of the national debt.

Most of the nation's money supply remains in the form of bank account balances or bookkeeping entries rather than actual physical currency. But actual currency, in the form of Federal Reserve Notes or coin, is distributed by the Federal Reserve as it is needed to satisfy cash reserve requirements and demand at the various bank counters.

This is essentially how money is created and currency put into circulation, with private bankers intimately involved at every stage of the process, always getting their various small service fees in addition to collecting interest on all loans made. Thus all money that is created is loaned into existence and circulation, always creating a debt that exceeds the sum total of all the money thus created — thus ultimately impossible to repay in full.

Other types of bonds are used by the government to "borrow" money from individuals, institutions, and the international financial markets. We'll make up a generic bond example for the purpose of illustration. 

Let's say a bond with a face value is $10,000,000.00 is printed up at the Treasury. The bond is a government "promise to pay," to whoever purchases it, ten million dollars. But nobody is about to purchase that promise to pay for the amount printed on its face. There would be no profit in it. So it's offered at an attractive "discount."

Now, let's say the government "sells" this piece of paper to the Central Bank of the Peoples' Republic of China for $5,000,000.00 quick cash, in Federal Reserve money. China, already drowning in an overabundance of Federal Reserve money has doubled its money.

The China has loaned the United States government $5,000,000.00, and Uncle Sam has promised to pay that Central Bank $10,000,000.00 at a future time. Apparently that's one reason he's often been called "Uncle Sap," but this is business as usual these days.

Of course, the amount of discount on government securities varies with the market. But the global money market is influenced to a great degree, if not actually controlled, by the Federal Reserve Board's Open Market Committee itself, as it seeks to "fine tune" the American economy, or (at least in the present era), prevent total global economic collapse.

The discount rate determines the rate of interest on bonds and provides a guaranteed return that is usually attractive to large investors. A fifty percent discount on a twenty year bond only yields about 3.6% interest. If the maturation period were ten years, the bond would yield 7.2% interest.

Personal savings bonds work the same way. If you purchase a $10,000.00 bond for $5,000.00, you've increased the national debt by $5,000.00 by your patriotic act of acting as the nation's creditor. Nay! You have increased it by at least the full $10,000.00 face value, because the government will spend the money and it will be gone from the Treasury. But it will still owe you $10,000.00 upon "maturity" of the bond! It's an amazing thing!

Thus far U.S. Treasury bonds are considered safe investments for excess funds. Nobody invests in Treasury bonds to make a lot of money. Such bonds are considered secure investments that will at least keep up with, if not slightly exceed inflation. Twenty years, for example, might be safely consider less than half-live of the dollar's purchasing power.

One of our major concerns today is that, because of the growing "blessing" of an astronomical national debt, and an obscene and growing trade deficit, the dollar seems destined to do a swan dive. This, of course, will reduce the dollar's purchasing power half-life — and cause investors of dump U.S. Treasury securities and place their investments elsewhere. This frightening prospect, which could lead to a total collapse of the economy, is a process known as "the chickens coming home to roost."

To put it all in a nutshell, the current monetary system obliges this government of the people, by the people, and for the people, to purchase every dollar's worth of circulating currency with two dollars of credit debt.

BACK TO BASICS

Why not simply "make our own money," eliminate the need to borrow, and greatly proscribe the need to tax the public?

It would seem obvious that if the national Treasury can issue a dollar denominated bond, based on the "full faith and credit of the nation," it could just as easily issue a dollar bill. The bond increases the national debt, while the dollar bill is merely a government issued bearer ticket that functions as money.

Of course, that's what the greenback dollar was — a simple Treasury note made "legal tender for all debts, public and private." That was the simple, common sense, solution. But the banks have had their claws in the nation's throat since its founding, and the best efforts of Thomas Jefferson, Andrew Jackson, and Abraham Lincoln have thus far been in vain.

But we live in changed times, and currency reform may be more feasible now than at any other time in our history, because most of the old arguments against a national fiat currency are no longer compelling issues. The debt banking paper we now use for currency is not backed by gold, and demonstrably no less prone to inflation that national paper would be.

Furthermore, the continuing exponential rise in the national debt is clearly not sustainable, and eventual national bankruptcy in some form or degree appears inevitable as international confidence in the U.S. dollar and American economy continue to erode.

Nobody in government is talking, or even hinting, at monetary reform today, however. The subject is fraught with too many dangers. Our politicians are considering tax reform, Social Security reform, health care cost, but not monetary reform, which could solves most of the problems. A new greenback may be the only means of saving the nation, and the mechanics of doing this may not be as difficult as it would seem.

As they once did, greenbacks could circulate side by side with Federal Reserve Notes until Federal Reserve Notes are retired from circulation. But in the short term the Federal Reserve System would continue to operate in the interests of honoring foreign and other debt obligations, and FRNs continue to serve as an international reserve currency until an alternative is agreed upon.

In other words, there would be two basic kinds of currency in circulation — Federal Reserve Money for international purposes (scheduled to be replaced with an acceptable international monetary alternative), and greenbacks strictly for domestic circulation.

Greenbacks would be put into circulation only through direct government spending, public works, and domestic loans, and could not be inflated to meet Federal Reserve Obligations.

The government would use greenbacks to pay all federal elected officials, civil service employees, military payrolls, government contractors, welfare payments, Social Security, federal and military pensions, and make all domestic subsidy payments, and the payment of all domestic bond obligations. Additionally, interest free, or low interest, loans would be made available to State and local governments, municipalities, and state and local banks.

This would alleviate most of the need for taxation at the federal level, though it would be necessary to continue to tax in order to retire the national debt and withdraw Federal Reserve Money from circulation. Existing FRNs would be used to pay the national debt, but they would be gradually replaced with greenbacks, which would initially circulate at par with them. Since the idea is to pay off and extinguish the national debt, all existing Federal Reserve Notes would ultimately be retired, and a conscious effort made to prevent greenbacks from replacing Federal Reserve Notes as an international reserve currency. Only domestic currencies can be effectively controlled by the issuing government.

International trade would have to be conducted as in times past — as barter, on a gold exchange basis, or in some form of internationally accepted "currency" such as the World Bank's "Special Drawing Rights" or international "gold certificates."

The main obstacle to such monetary reform would be identical to that manifested during the "legal tender" act debates of the 1860s, but without the backdrop of the global gold standard to throw a wrench in the works. The international money power, and the Federal Reserve itself, of course, would be as vigorously against it as they were during the Civil War. It would mean the end of the banker monopoly on the money supply. It would be called "repudiation" of the public trust and an open declaration of public bankruptcy. But actually it would be nothing but a repudiation of a seriously flawed national monetary system that is clearly beginning to break down.

In the great monetary debate, bankers, as well as many others, have held that Congress cannot be deemed either competent or a trustworthy guardian of monetary affairs. Much can be made of this argument. After all, Congress has proven incapable of competently managing the fiscal affairs of the nation. They do not spend the taxpayers' money wisely, and can't use credit wisely. They've swamped the American people in unfathomable levels of debt. Their only solution they know is to raise the debt ceiling (the nation's credit line), so more money can be borrowed. How could they be expected to conduct sane monetary policy? Wouldn't they be the very first to debauch and inflate the new currency, starting with their own pay and benefit packages?

These are valid concerns, of course. But must we assume that public servants are any less honest than bankers are likely to be? Bankers, naturally, are going to answer in the affirmative, and Congress is likely to endorse their opinion. Simple answers are almost never adopted in governmental affairs.

The questions might more aptly be asked, is an inept shepherd a better guardian of the flock than the wolf? Are the chickens safer under the protection of a lazy, but well fed, dog, or a ravenous fox?

INCOME TAX
AND TAX REFORM

Our present graduated income tax system and the Internal Revenue Code are a wonderful example of how Congress can take a relatively simple concept of taxation and turn it into a literal monster and nightmare. This Code is the accumulated product of a series of Congresses over almost a century of time, and is so large and complicated that it is all but indecipherable. Yet, it could fulfill its function and be such a simple thing — and it could be fair and productive of good and just ends.

Pridger gets mad every year when he does his taxes. Not as much at the amount he has to pay, as at the Code itself, which seems a literal abomination. The very idea that ordinary working Americans should have to hire accountants or tax preparers to figure out how much tax they really owe is absurd. Pridger does his own taxes, tries to do it right (using tax software these days), doesn't knowingly cheat on them, but still suspects that he overpays, while at the same time fears a challenge or audit which might reveal that he in fact has underpaid and is liable for confiscatory interest and penalties.

This abominable system is in as much need for reform as the monetary system itself. Since everybody that operates above the underground economy has to deal with the Income Tax Code, and it seems to rub almost everybody the wrong way, we're actually hearing talk of tax reform. Unfortunately, the ones who will author any kind of tax reform will be the wrong people. The right people neither have a voice or a clue, so we're beginning to hear more an more about a federal "consumption tax" to replace the income tax. More on this below.

It wasn't exactly an accident that Federal Income Tax and the Federal Reserve System came into being at about the same time, with both becoming effective in 1913. The Federal Reserve System was about perpetual debt, and the income tax was about providing the wherewithal of servicing that debt in perpetuity.

Though an honest currency would largely eliminate the need for an income tax to raise government revenues, there does remain a very good rationale for an income tax. The capitalist system tends toward excess, monopoly, and cannibalism among the "capitalist class." If left to itself, capitalism insures that more and more money tends to gravitate into fewer and fewer hands. This would even happen, we would assume, under an honest monetary system, only a little more slowly than under a monetary system controlled by capitalist bankers. The purpose of an income tax would be to trim the sails of the high-flyers. That is, to "tax the filthy rich" which, of course, was the rationale the filthy rich bankers used to sell income tax to the people back in 1913 in the first place. It would also serve as a means to control large corporations.

Taxing the rich would not be a "penalty for success" but a social device aimed at preventing, or at lease diminishing,  the accumulations of vast fortunes by a few at the expense of the many. A system cannot be deemed just that encourages great fortunes for a few while others struggle for mere survival, having nothing but labor to exchange for their living wage.

Pridge holds that "Labor" should not, be taxed. The rationale for this is that labor (meaning "those who work for a living"), does not ordinarily gain "profit" from its labor, but rather engages in an even exchange of money for work. By definition, this equal exchange does not constitute a gain of profit. Unless wages appear to provide "excess profits" — that is, wages are such that the worker is paid appreciably more than an officially determined "fair industrial wage" — it would escape the necessity of paying income tax.

How would such a "fair industrial wage" be determined? The Consumer Price Index would be used to determine the average national cost of living for a single individual, including costs of food, clothing, shelter, utilities and the costs of ordinary amenities considered necessary to a quality modern middle class life-style. For example, if the actual average national cost of living for an individual is determined to be $3,200.00 per month, and work is based on the forty hour work week (160 hours), the fair industrial wage would be $3,200.00/160 = $20.00 per hour, or $38,400.00 per year.

This would not imply a guaranteed minimum wage, of course. The fair industrial wage would merely be used to set the income level where income tax liabilities would click in. Above that amount, labor would be deemed to be earning a "taxable profit."

This provides for a $38,400.00 per year wage upon which no income tax would be due for an individual. The amount would be doubled for married couples with one breadwinner. A married couple would not pay income tax on amounts up to $76,800.00. In other words, the stay at home spouse would have the exact same potential tax advantage as an individual employed worker. Each additional dependent would raise the non-taxable income level by $9,600.00 (or one fourth of the individual fair industrial wage), an amount reflecting the yearly extra costs of a child or elderly dependent.

This system would encourage traditional families and favor the proper nurturing of both the young and the aged, with the official acknowledgement that the homemakers and child caregivers provide an invaluable service and also deserve the prospect of a just wage for work performed in the home.    

All income above these amounts, whether wages or unearned income from investments, interest, or other source, would be taxed at progressive rates starting at 10% and doubling with each $100,000.00 of yearly income to a certain maximum to be determined by Congress.

This is Pridger's suggestion for a fair income tax system designed to allow labor its due and discourage excessive wealth accumulation by the capitalist classes, excessive production, and keep money circulating where it does the most good for the most people.

THE CONSUMPTION TAX SCAM
THIS IS NO SOLUTION!

Tax reform in the form of a consumption, either in the form of a national retail "sales tax," or a value-added tax (VAT), at the wholesale level, would not address the problem of vast accumulations of wealth into the hands of the few. In fact, the consumption tax would be a great bonanza for the rich.

Its attraction is understandable, but most people think in terms of possibly as very small tax they would hardly notice. But consumption tax rates would have to be very high in order to replace the income tax. The hope, of course, is to permanently sever the direct conduit between every individual and the IRS (and this would be nice), but, in all likelihood, we would end up with a dual tax system with both federal consumption and income taxes.

As is the case with all such taxes, the poor would be impacted much more greatly than the well to do, so labor would continue to pay an inordinate share. "Consumption" of the working classes (i.e., food, clothing, household furnishings, and other consumer products), consumes most of their income — Thus the working classes would effectively still be paying taxes on most of their income. The poor man would pay tax on almost everything he needs for survival and his modest comforts. The rich, on the other hand, would have the great bulk of their money income completely escape taxation.

One of the big sales pitches for the consumption tax is that only "discretionary" spending would be taxed. But the rich have a lot more of that than the poor. They are only "forced" to spend a very small percentage of their income, whereas the poor are forced to spend almost all of it just to survive. The fact that there would be no tax on interest on savings accounts is no great bonanza for the poor man who seldom has much savings, but would be a great bonanza for the rich who typically "earn" large amounts of money from interest on large money accounts, CDs, in the stock and bond markets, and other forms of "unearned income." So, clearly, the consumption tax would be great for the rich and an extraordinarily bad deal for the poor and the working man and woman.

The working man who earns $30,000.00 per year needs almost all of that to make purchases and pay basic living expenses. His discretionary spending is severely limited. He can't afford to save much, if any. Thus, a great percentage of his income would be subjected to consumption taxes.

A fat cat with a ten million dollar per year income many only need to spend a million of it to live in plush comfort beyond the dreams of the $30,000.00 per year worker. So the rich guy would pay consumption taxes on part of the million dollars he spends on food, clothing, etc., and all the wonderful toys his discretionary spending can buy. The other nine million can be socked away in all manner wealth generating investments — most of his income completely tax-free. 

Of course, with an honest money system, a consumption tax to replace the income tax would not be necessary.

CORPORATE TAXES

The big corporate boys like to say, "Corporations don't pay taxes. People do," to justify lower and lower taxation for corporations. Right, consumers do pay the taxes. But many corporations make excessive profits and pay out millions to stockholders in preference to giving labor its just due. Often they enjoy large direct and indirect taxpayer subsidies — even some of the most profitable corporations in the world today receive such subsidies.

Taxation is a means by which corporations can be controlled, and forced to be a little more loyal to the nation and workers. But free trade policies continue to encourage corporations to divorce the domestic work force and shift production overseas and engage in outsourcing. Under a sensible system, those corporations that do flee to cheaper labor markets should be heavily taxed until they either come home and employ American workers at American wages or forgo the American market and let real American companies take their place.

But we don't have a sensible system. Taxpayer subsidies have been used (particularly through OPIC, the "Overseas Private Investment Corporation") to help American companies move abroad. The rationale? To "crack foreign markets" and American labor need not apply for the benefits of growing corporate profits. The great middle class gets its benefits at the Wal-Mart checkout counter. What is really being cracked is American Labor. Organized labor is pretty ineffective when the government has decided corporate profitability and a booming Wall Street are more important than broad-based prosperity for We the People — the working men and women of the nation.

We're still reminded that we've never had it so good. But things aren't getting better for the working classes, though we remain overfed and over-entertained in spite of lower wages and benefits, unemployment insurance, or retraining for nonexistent or disappearing jobs. Many of us are forced to proclaim, "Thank God for Social Security," as our careers are expiring along with the jobs we once held, and the industries that once employed us.

Under an honest money system, the American dollar would be as good as gold, and the big profits would be right here in the U.S.A. where the greenback circulates. America would keep profits at home and produce for itself again. With honest money circulating in the nation, the American capitalist system could be perfected to everybody's benefit and made sustainable. And what the world needs more than anything else is a model of economic stability and sustainability for the world to see and emulate — not the growing cancer of conspicuous over-consumption and conspicuous waste that we now have, and are trying to pawn off on the rest of the world.

WELFARE AND SOCIAL SECURITY AND HEALTH CARE

The United States, as an avowed free enterprise and capitalist nation, came to socialism through the back door. The United States is thus a backward socialist state — one in which the primary characteristics of the socialist state were never established. Thus, having backed into socialism, we have backwards results.

Enactment of the Social Security System was our first major and enduring step into socialism during the modern era. There is a lot to be said for Social Security, and most Americans wouldn't want to see it ended. It was essentially a reasonably well planned "forced retirement savings program" for workers, and continues to pay great dividends. The only real problem with the Social Security System was our government's inability to keep its hands out of the kitty. It seems Congress had no idea what a "Trust Fund" is. It became just another source from which to borrow money. The actual money was co-mingled with the general revenue fund and spent as needed, leaving IOUs and the need for .

The work programs of the Depression era were another major foray into socialism, facilitated by necessity of national economic emergency rather than advanced planning. The stock market crash of 1929 was the result of bad economic and monetary policy, and, by extension, the necessity for the New Deal programs of Franklin D. Roosevelt were an ongoing result of that bad monetary policy. The catastrophic contraction of the money supply, as the result of the crash, rolled like a snowball throughout the economy at large, depriving the nation of the money circulation needed to function at the pre-crash levels. This crippling shortfall in circulation resulted in totally unnecessary hardships nation-wide.

Hunger and hardship in the land of plenty resulted. The nation's vast agricultural productivity potential was not damaged by the crash on Wall Street. The nation still had a great abundance of relatively independent family farmers, which was, and always had been, the bedrock of the economy. But they could no longer get a fair price for their production because money had become so scarce — and the contraction of the money supply was artificially continued, insuring that the farmers and general population would suffer for the previous excesses of the capitalists traders on Wall Street.

The New Deal came about as part of the remedy to this acute contraction, and the various public works programs — many of which were simply "make-work" programs — did quite a bit to get money back into the hand of many people — but the core problem was never adequately assessed or addressed.

The good accomplished through the WPA and other work programs of the 1930s stands in stark contrast to what was accomplished by the welfare programs of the 1960s. The main difference is that the New Deal programs paid men and women for work, and the welfare system paid men and women without the necessity of work. Welfare has thus had a very corrosive and corruptive influence on both the economy and society at large. It was a very backwards form of socialism that encouraged many social evils without any redeeming productive value.

For one thing, it tended to removed a large number of people from the workforce and effectively place them on a form of federally subsidized permanent vacation. This, in turn, left a great vacuum in the domestic labor market for those "undesirable" types of jobs that the poorer classes had theretofore been obliged to fill, and the need for immigrant labor to fill them. It effectively said that America's poor no longer had to work in the cotton fields or as domestic labor. That type of work is beneath the dignity of Americans, but must be filled nonetheless by immigrant labor, whose dignity has not yet ascended to the level of Americans. This, of course, has resulted other problems which have become a major concern.

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