The Mystery of Money and Banking – The Origins of the Current System

1. The Mystery of Money and Banking – The Origins of the Current System 95% or more of our money is account money 5% or less of our money is coins and bills

2. Thesis of The Lost Science of Money • Origins of Money Systems • Monetary view of the rise and fall of Rome • Whirlwind tour through Western monetary history after the fall of Byzantium • Our current money system • What is money? 3 definitions with different results cool discussion • Thesis of The Lost Science of Money • Origins of Money Systems • Monetary view of the rise and fall of Rome • Whirlwind tour through Western monetary history after the fall of Byzantium • Our current money system • What is money? 3 definitions with different results cool discussion

3. “Over time, whoever controls the money system,controls the nation.”- Stephen ZarlengaDirector, American Monetary Institute (AMI)

4. The Mythology of Money – the Story of Power Stephen ZarlengaTHE LOST SCIENCE OF MONEY(2002)

5. “While much attention is focused on the elections of presidents, prime ministers, and representatives, the real outcomes in society, such as whether there will be general economic justice, or whether some groups will get special privileges, are often quietly determined by the structure of the society's money system.” [LSM, 2]

6. “a main area of human struggle is over the monetary control of societies”[LSM, 3]

7. “this control … is … exercised through obscure theories about the nature of money.”[3]

8. “by misdefining the nature of money, special interests have often been able to assume the control of society's monetary system, and in turn, the society itself.”[3]

9. another version of the Golden Rule:He who has the gold, rules.: (

10. “... it can take generations for the effects of a money system to become apparent. “Therefore the available empirical data – the facts – on money exist mainly in history.” [4] MONETARY HISTORY HAS BEEN IGNORED

11. “For example, in the Athenian Constitution that comes down to us, we can find how the garbage was collected, but search in vain to learn how the Athens state coinage system operated. “… Solon's great monetary reforms can barely be pieced together from his poetry.” [5] MONETARY HISTORY HAS BEEN CENSORED

12. “19th and 20th century historians tend to apply Adam Smith's monetary concepts in their work and mis-evaluate the monetary data that has survived. “Economists often do worse. When the recorded facts conflict with their favorite theories, it's not unusual for them to dispute the facts with a statement such as: 'we know that can't be right.' “They reverse the proper relation between facts and theory. Sound thinking requires theories to conform to the observed facts.” [5] MONETARY DATA IS OFTEN MISINTERPRETED

13. “... especially as a measure of value.… They appear to have had a fairly stable value, with three to four cows exchangeable for one slave woman in ancient Ireland and in Homeric Greece.” [11] CATTLE WAS AN EARLY MONETARY STANDARD

14. [12]

16. ANCIENT EASTERN MONEY SYSTEMMesopotamia (present-day Iraq) and Egypt • invention of the plow freed labor to move to the cities • powerful royal family with powerful temple hierarchy • agricultural commodities by weight • metallic commodities (esp. silver) by weight • loans of seed grains, animals, and tools to farmers, bookkeeping on clay tablets • beginnings of interest (sharing of the result)Sumerians used the same word “mas” for both calves and interest • donations and fees to the temples – agricultural goods would not last, but gold and silver would pile up in storage • “In Homeric times, just before the widespread introduction of coinage, the relation between gold bullion and cattle was 1 cow or ox equaled 130 grains weight of gold” – arbitrarily determined [16 - 20] • many gold coins later issued weighed in close to 130 grains or a multiple (half or twice 130) [12-26]

17. “It would have ben a major conceptual error to allow usury to be charged on agricultural loans denominated in metals … For one thing, metals are 'barren' – they have no powers of generation. Any interest paid in them must originate from some other source or process, outside of the borrower's understanding or control. Money and power would concentrate in the hands of lenders. “This structural flaw was alleviated by the central authority. ... the Royal household (the largest lender and charger of interest) took decisive action to minimize the harmful effects of usury, by periodically declaring agricultural debt forgiveness.” [13] THE USURY ERROR

18. MONEY TOOK ON MORE ABSTRACT FORMS IN THE WEST • abstract “tool” money [15] • tokens representing rather than embodying value • not carefully weighed and examined • Greek city-states introduce coinage (state monopoly) • Each city used its own coinage • Lycurgus of Sparta, 8th century BC • Iron money with the metal's 'intrinsic value' purposely destroyed

19. Greek city-states introduce coinage (state monopoly) • Coinage standardized (acc to numismatists)~700 BC at Lydia (W coast of present-day Turkey) • EACH CITY USED ITS OWN COINAGE • Coins from other cities could circulate only if counter stamped by the city authorities. • “The issuer in all identifiable cases proves to be the supreme political power in each city or state; there is no evidence in the Greek world for the private issue of coins by bankers or merchants.” • Coinage of gold and silver has been viewed as a compromise between the more abstract fiat tool money forms of the West and the more materialistic metal by weight system of the Orient. For while the money was made of gold, it was valued by tale – the official form and stamp.

20. Lycurgus of Sparta8th century BC • Introduced reforms, including new monetary system • Illegal to use gold or silver as money • Elongated iron disks (Pelanors) used as money • These were purposely made useless for anything else by dipping them in vinegar while they were hot to make them brittle. The 'intrinsic' value of the pieces was purposely destroyed. • Publicly controlled fiat money system

21. MONEY TOOK ON MORE ABSTRACT FORMS IN THE WEST • Plato and Aristotle agree on money – fiat of the law • “The law enjoins that no private individual shall possess or hoard gold or silver bullion, but have money only fit for domestic use.” and “Then they will need a market place, and a money-token for purposes of exchange.“ – Plato, Dialogues and Republic • “All goods must therefore be measured by some one thing … now this unit is in truth, demand, which holds all things together … but money has become by convention a sort of representative of demand; and this is why it has the name nomisma [G. 'nomos' – binding law or custom] – because it exists not by nature, but by law (nomos) ...“ – Aristotle, Ethics, p 1133

22. fiat • a formal authorization or proposition; a decree • ORIGINlate Middle English : from Latin, ‘let it be done,’ from fieri ‘be done or made.’

23. Two kinds of money

24. ARISTOTLE GAVE US THE SCIENCE OF MONEY • “and this is why it [money] has the name nomisma– because it exists not by nature, but by law (nomos)”

25. THE ORIGINS OF MONEY SYSTEMS • “The battle for control over society's monetary power is fought at many levels, even in theories about monetary beginnings. The origins of money are shrouded in uncertainty. Very few facts are yet available, making most ideas about it a kind of educated guesswork. But the dominant theory reflects the desire of present day forces intent on keeping government from exercising an appropriate monetary role.” • [9]

26. LSM Chapters

29. CHAPTER 2ROME'S BRONZE NOMISMA – BETTER THAN GOLD • State-issued money was bronze coins (copper + tin) • State controlled the quantity in circulation • Gold had no monetary power – used only for jewelry and foreign trade

30. ROME WAS MONETARILY ISOLATED • Numa, Rome's second King (716 – 672 BC) institutionalized the use of bronze instead of gold and silver for money • Copper would be easier to get since much of the precious metals were stored away in eastern temple establishments. • But even more important was the disenfranchisement of the gold/silver hoards, and therefore much of the power of the eastern temples and merchants.

32. Roman republic's greatest extent 44 BC

33. The culmination of Roman thought on money is in the 6th century code of Justinian, tenth book, a passage of Julius Paulus, a Jurisconsult of around 300 AD: “This device being officially promulgated, circulated and maintained its purchasing power not so much from its substance as from its quantity.” This concise statement of the principles of nomisma helped to convince Del Mar that the Romans indeed must have used and understood such a system. Otherwise how could Paulus be so aware of it? So the historical record, up to and through Rome shows the money power to be a convention or legal institution, of either the Temples (religion), the government, or both.

34. Alexander Del Mar (1836-1926) monetary historian

35. ROME vs. CARTHAGE • 266 AD Italian peninsula unified under one commonwealth • Great double war with Carthage (264 – 41 BC and 218 – 201 BC) • Destruction of Rome's Money System in the Punic Wars • “Most 19th and 20th century economists, favoring gold and silver over copper, have misinterpreted the introduction of silver as progress. Only Del Mar recognized the use of silver and gold as a regression from legally based nomisma back toward more primitive commodity money.”

36. MONETARY “SECRET OF THE AGES” –A DICHOTOMY IN THE GOLD/SILVER RATIO BETWEEN EAST AND WEST • ~ 12 to 1 in the West (kept high over millennia) • ~ 6 to 1 in the East • For thousands of years this mechanism was a great source of power to whoever held it. Elements of the Roman establishment drew great strength from their control over it, until its effects helped bring down Rome from within. Venice's profits from it helped spark the Renaissance. It was quietly used for centuries by Jewish merchants getting transplanted from Asia into Europe. Control over it helped shift the balance of commercial power in Europe in 1500 from Venice to Portugal/Antwerp, then to Holland, and finally to England. In short, it was one of the primary forces that shaped modern capitalism.

38. Roman Empire's greatest extent

39. Byzantine Empire • Emperor Constantine • By 324 AD, converted the Pagan Church to Christianity • 331 AD, moved the seat of empire to Byzantium (Constantinople) • Fourth Crusade, “fall of Byzantium” 1204 • Marked the passing of Caesar's money system, which had lasted over 1200 years. • The money power slipped from religious to secular control. • A struggle began for the control of money.

41. THE GREAT DISCOVERY: BANKS CREATE MONEY [161] • It must have soon become apparent to the Templars, the Italian merchant bankers and the great German lending houses that they possessed the power to create money in the form of bookkeeping credits on their books. • Deposits were received in coinage, or if a bill was deposited, drawn upon another bank, ultimately coinage could be collected from that bank. However, the loans would not have to be made in coinage, but could be in credits to the borrower's account at the bank – in bookkeeping entries. The borrower would have the ability to write checks on that account. Such checks might not actually be cashed, but be credited to another account on the books of the same bank. • Once their clients got into the habit of conducting business with bills of exchange (checks) rather than actual coins, it became possible for the bankers to greatly multiply the apparent amount of money in circulation in the form of these credits. • In many ways this was a monetary power greater than the King's control over the mint. This bank money was a more true fiat money form and further removed from crude barter than the “precious metals” coins. But the bankers were usurping a power that derives from and belongs to society, and using it for personal benefit.

42. Whirlwind monetary history • Bookkeeping • Rise of banking in northern Italy (Florence, Venice, Genoa) – Bardi, Peruzzi, Medici families • Medieval trade fairs • Venice • Plunder of the Americas • Gold and silver flow into Spain and Portugal • Commerce sends the gold and silver into northern Europe(“History's Pivot) • Amsterdam • Bank of Amsterdam, 1609 • Amsterdam Stock Exchange, 1611

43. LSM Chapters

44. Mixt Moneys Case (Ireland) • Queen Elizabeth issued base metal coinage as legal tender in 1600. • An Irishman paid a 100 pound debt to a London merchant in the new coinage. • The merchant sued for the 100 pounds in gold and silver coin. • The case was decided in favor of the Irishman. The nature of money was identified as a societal institution rather than merely metal.

45. Bank of England, 1694 • Privately-owned • Correlation with England's national debt:

46. Adam Smith's definition of money • “By the money price of goods it is to be observed, I understand always, the quantity of pure gold or silver for which they are sold, without any regard to denomination of the coin.” • Adam Smith retrogressed the concept of money backwards from an advanced numerary based on law, not just back to a “Moneta” level of unlimited coinage, but all the way back to “Ponderata,” pure metal by weight. Smith virtually obliterated any concept of money in the law. • The Bank of England had advanced to abstract paper money 80 years earlier; not in theory, but in practice. Adam Smith regressed to commodity money, not in practice, but in theory. His theory applied to their practice would cause confusion and create mystery. • [313]

47. Whirlwind monetary history • London • Bank of England, 1694 • New York • Federal Reserve System, 1913 • Federal income tax, 1913 • Stock market crash, 1929 • Great Depression, 1930s • “Financial crisis,” 2008 • Inflation (food), unemployment, foreclosures

48. SELECTED  BIBLIOGRAPHY of The Lost Science of Money book by Stephen Zarlenga Items with a star * are referenced in the book. Items with a ** are especially recommended, and items with a *** were of direct importance in developing elements of the thesis. Some unusual materials are identified by their call letters at the NY Research Library. The abbreviation NY is used below to denote New York City. For a bibliography organized by subject matter, please see the works listed in the endnotes after each Chapter. A *Ackroyd, P.R. and C.F. Evans. Cambridge History of the Bible.    Cambridge Univ. Press, 1970. ** Adams, Brooks. The Law of Civilization and Decay. NY: Alfred Knopf,  1943. 
________.The Emancipation of Massachusetts. NY: Houghton Mifflin, 1887. *Addison, C.G. The Knights Templar. London: Green & Longmans, 1842. *Alison, Sir. Archibald. History of Europe From Fall of Napoleon to Accession  of Louis Napoleon. Edingurgh: William Blackwood, 1852. Analectics Magazine. On Banks and Paper Currency. USA: December, 1815. *Anderson, Benjamin. The Value of Money. 1917. NY: Richard Smith, 1936. *Andreades, Andreas. History of the Bank of England. London Univ., 1909. **______. History of Greek Public Finance. Cambridge: Brown, Caroll, 1933. ** Anonymous. The Paper Money Issued by Pennsylvania. By a "member of   the Numismatic Society of Philadelphia." 1862. *Appian's Roman History. Book 4. Loeb Classical Library. 1979. *** Aristotle. Politics, and Ethics. *Aufricht, Hans. The International Monetary Fund. NY: Praeger, 1964.

49. Three questions • Where does money come from nowadays? • Who controls the Federal Reserve System? • When banks make a loan, where does that money come from?

50. Our current money system • 95% or more of our money is account money 5% or less of our money is coins and bills • Money is created when banks make loans. • By an accounting entry • Money is extinguished when loan principals are repaid. • If all our debts were paid, we'd have no money except the coins!! • Thus the overall money supply is the haphazard result of these millions of private decisions.