[macro-economic delusions] part five – the island

Here is Part 4

Scenario 1

Let's imagine that seven men meet on the island of Iona to discuss the new British Central Bank they're thinking of setting up in three years. They are:

John Nelson, Chairman of the National Monetary Commission and associate of Whites Investment Services.

Andrew Platt, Permanent Head of the Treasury.

Frank Jones, president of the International Bank, representing BIS interests.

Henry David, senior partner of Whites Investment Services.

Norman Charles, president of Whites Investment Services' London branch.

Magnus Pike, head of Whites Investment Services' Trust Company.

Warren Paul, board member of the BIS and the financial brain of the meeting.

They travel to the island separately, under cover of darkness and at the meeting, use only first names.

What would you conclude from that meeting, had you known about it? When word gets out later that there had been such a meeting, an explanation is given to parliament that a feasibility study was being undertaken, representing all spectra of the financial community and the government.

The two MPs who tabled questions in parliament on the issue are killed when their aeroplane crashes, two years later, on the way to a European summit. All innocent and above board, yes?

... ... ...

Let's change the topic.

Here is a list of those present at the 1910 Jeckyll Island meeting which mapped out the form of the Federal Reserve idea, to be passed in 1913:

Nelson W Aldrich, Republican whip in the Senate, Chairman of the National Monetary Commission, business associate of J P Morgan, father-in-law to John D Rockefeller, Jr., and maternal grandfather to Nelson Rockefeller.

Abraham Piatt Andrew, Assistant Secretary of the US Treasury.

Frank A Vanderlip, president of the National City Bank of New York, the most powerful of the banks at that time, representing William Rockefeller and the international investment banking firm of Kuhn, Loeb, and Co,

Henry P Davison, senior partner of J P Morgan Company.

Charles D Norton, president of J P Morgan's First National Bank of New York.

Benjamin Strong, head of J P Morgan's Bankers Trust Company.

Paul M Warburg, a partner in Kuhn Loeb and Company, and a representative of the Rothschild banking dynasty in England and France, and brother to Max Warburg, who was head of the Warburg Banking consortium in Germany and the Netherlands.

Paul M Warburg was the only expert on the European Model of a central bank, and thus he became the principle architect and guiding mind throughout all the discussions.

Benjamin Strong, head of J P Morgan's Bankers Trust Company would eventually become Chairman/Head of the Federal Reserve, from 1914 to his death in 1928.

They travel to the island separately, under cover of darkness and at the meeting, use only first names.

Scenario 2

Based on Lewis Even: The Money Myth Exposed

Frank, the carpenter, Paul, a farmer, Jim, an animal breeder, Harry, an agriculturist, Tom the prospector and a mineralogist are shipwrecked on an island.

Under the simple economic system which developed, one thing was beginning to bother them more and more: they had no form of money.

Barter, the direct exchange of goods for goods, had its drawbacks. The products exchanged were not always at hand when a trade was discussed. For example, wood delivered to the farmer in winter could not be paid for in potatoes until six months later. Sometimes one of the men would have a large item that he wished to exchange for a number of smaller articles produced by different men, at different times.

It was agreed that a money system would be convenient, but none knew how to set up one. They knew how to produce true wealth - goods - but producing money (a symbol of this wealth) was quite beyond them.

One day, a banker was shipwrecked on the island and he promised them he could set up a money system quite easily and everyone would be happy. He had the men unload, from the wreck, a printing press, paper and a special container, then they built him a house to live in and trade from.

But what was in that container? He promised to tell them the next day. In the middle of the night, he went into the forest, found an excellent spot and buried his container there.

Next day, he told them that it contained gold and asked how much money they'd need to start off. They decided $200. Oliver went off and printed up enough money in $1 bills, distributed them and told them that the bills only had value in terms of gold, the gold hidden away on the island, to remove temptation.

Frank asked whether the money was all theirs. ''Oh no,'' said Oliver. ''You own only what you make. This money is lent to you at a nominal interest rate but to keep things all shipshape, I'll need you to just sign here that your goods you've produced this year are collateral against this loan.''

Mightily impressed by these notes, which carried that touch of gravitas, they took their supply away and began trading in them. With trade now simplified, the Gross Island product doubled and everyone was prosperous.

As the day of repayment drew near, Tom was in a quandary. He had to repay $216 but only had $35 in his pocket. Actually, everyone was in bother because they were so busy producing goods that they hardly gave the matter their attention and the mathematics said that there were $1000 circulating but the interest was $80 – money which didn't exist.

Oliver could claim their goods.

As it turned out, he was a kindly soul, dedicated to the interests of the islanders and he told them they need only repay the $8 and hold on to the $1000 between them, which, through normal attrition, had reduced anyway to $900. The $900 still belonged to Oliver, plus the now non-existent $100 debt. He assured them though that he'd not ask for the capital, as long as they kept repaying the interest.

He further suggested that they collect a portion of money every so often in what they could call taxes and that would be held for the common good. He'd be happy to handle the running of these taxes.

Once they'd gone, Oliver sat back in his counting house and reflected that the five men were good men but quite stupid, really quite stupid. If they woke up, not only to this but started asking about the container, he might be thrown off a cliff. His safety was in his respectability and the signatures he had on the documents – these five were good citizens and would never break their word.

As each contributed taxes for the common good, some were annoyed that they had to contribute more for the same services. Not only that but more and more was being left with Oliver to mind and so they had to up production to compensate, causing overwork and sleepless nights.

They had a meeting with Oliver. ''We're going further and further in debt to you.''

''Well yes, boys but whenever you find yourself in a tight corner, come to me and I'll lend you more to tide you over. The taxes will go up and the interest rate might change to reflect changing economic circumstances but your production will also be up so all will be well.''

Now it got nasty and they finally refused to pay another cent. Oliver immediately foreclosed on Bill, to frighten the others and it worked but he wasn't safe yet. So, having noticed a difference in political opinion between two who held more staid views, two progressives and one who had no opinions, he printed newspapers for each group and divided the island.

With their minds on parliamentary politics, they wouldn't be thinking as much about the banking scheme.

One day, a bottle washes up on the beach and Harry finds it. In it are some notes a young man had obviously been writing on a boat somewhere. It mentioned social credit and Harry set to in the evenings and read it. Next day, he explained it to the others.

''Each wants $200 to begin with. Very well. We write $200 to the credit of each. Each immediately has $200."

''Frank buys some goods from Paul for $10. I deduct $10 from Frank, leaving him $190. I add $10 to Paul, and he now has $210."

''Jim buys from Paul to the amount of $8. I deduct from Jim $8, leaving him $192. Paul now has $218."

''Paul buys wood from Frank for $15. I deduct $15 from Paul, leaving $203. I add $15 to Frank's account, and it goes back to $205."

''Yes but where will we get these notes?'' asked Jim.

''It hardly matters what the notes are. We'll decide on these palm leaves as our money but only palm leaves all five of us sign. No one can cheat for either that reason and because we all know the total amount issued anyway.''

Next day, they paid back the $900 plus pledging sufficient man-hours of labour to make up the shortfall to Oliver and that was all he was going to get. The interest payments stopped immediately and they forced him, on pain of being thrown off the cliff, where the container of gold was.

Oliver knew this was his death warrant and inadvertently glanced anxiously at a log. The other five searched and eventually found the container under the log. With one blow of an axe, the lid came off and all there was inside was sand, like the sand on the beach.

Oliver ran hell for leather towards the beach. although they wouldn't have killed him just yet as they'd pledged man-hours to make up the shortfall, remember.

My notes: The A+B theory has practical problems but the nice thing about Social Credit is that it:

1. prevents money being an end and turns it into a tool of exchange;
2. wealth then is tied into productiveness, as it should be;
3. there is a CBI involved, which is nice;
4. it is stable, cutting out the banking scam and preventing artificial ups and downs;
5. Fabians and bankers [peas from the same pod] hate it because it prevents the forcing of citizens into a cycle of poverty and debt and gives effective power back to them without the need for socialism.

It produces happiness in that people have enough from their labour to give them the things needed for a comfortable life. It stresses the work ethic - that if you work hard on non-economic sabotage things, in other words, things people actually need, then you can increase the benefit to your family through your own hands.

The CBI covers you during natural fluctuations.

For modern conditions, it would need an overhaul but the principle is sound, which is why you'll always see it vehemently opposed by the groups just mentioned plus LSE economists.

If you put this together with Lord T's Libertarianism Lite [not yet published], then you have a practical system which really can be implemented. It's exciting just thinking about it.