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Thomas Edison On The Money Question

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I have only seen brief snippets of this New York Times article of Dec. 6, 1921 as it was printed in the "Congressional Record". But a kind reader sent this to me a couple of weeks ago and I've been too busy to read it. Now I see why it was sent!

It's a story about a water dam project in Muscle Shoals, Alabama that Henry Ford wanted the government to lease to him so that he could complete it. Big infrastructure projects are typically funded by big bond issues, so this subject came up. I have removed most of the discussion about the water dam project because it's not relevant to the monetary reform issue. The first 4 paragraphs give just a bit of this background to relieve the reader that I am not just making all this up.

All of you who may wonder whether you are right on this money reform issue should take heart that the two giants of the American industrial world of their day not only agreed on the issue, but none of us could have framed it any better. As Edison's opening shot put it: "... if only the currency method is tried in raising money for public improvements, this country will never go back to the borrowing method."

FORD SEES WEALTH IN MUSCLE SHOALS

Says Development Will Bring Great Prosperity to That Section of the South

EDISON BACKS HIM UP

He will Urge Congress to Lease It to Ford as the Logical Man to Carry Out Great Project.

SUPPORTS CURRENCY PLAN

Old Way, He Asserts, Compels Us to Add to the Public Debt to Increase the National Wealth.

Special to The New York Times

FLORENCE, Ala., Dec. 5 [1921] – Henry Ford left for Detroit today, convinced that if Congress will complete and lease to him the water-power developments started by the Government at Muscle Shoals, on the Tennessee River, during the war, he can make this whole section of the South more prosperous, industrially and agriculturally, than it has ever been before.

As he shook hands with scores of citizens of Florence and Suffield just before his special train pulled out for Detroit, he told them so.

“I have been deeply impressed by the possibilities here,†he told C.W. Ashcraft, President of the Florence Chamber of Commerce, a body of 140 men who have been fighting for years to get the Government to develop the property. “The water power that can be developed here will equal or surpass, I believe, any other development in this country to date. There are coal, iron, useful kinds of rocks, minerals and metals right close at hand on every side. The wonder to me is that they have gone so long undeveloped.

“Whether or not we take hold of Muscle Shoals is now up to Congress. We have made our offer – the only constructive bid made for the property. We do not seek to make money out of it. We will have to take a small profit out of it, of course, say 8 percent, but we do not ask the 20 to 30 per cent profit which others would demand. We would like to build here a great and perpetual benefit to the people, always to be owned by them and operated in their service. All I ask of Congress is to give me the opportunity. And I’m going to leave that to you, if you wish me to come down here, to see that Congress does.†His remarks were loudly applauded.

Thomas A. Edison indorsed Mr. Ford’s views. Not only does he believe that the great power plant should be completed and that Ford should be the man to get the operating lease, but he is very earnest in his support of Ford’s suggestion by which the Government can complete the property and make its operation possible without cost, by issuing currency against the property instead of interest-bearing bonds….

Support for Ford’s Currency Plan

On the point of Mr. Ford’s suggestion to the Government for financing the completion of the dam, Mr. Edison reiterated his belief, expressed yesterday that it was a good plan and that if only the currency method is tried in raising money for public improvements, this country will never go back to the borrowing method.

“Make it perfectly clear that I’m not advocating any changes in banks and banking,†said Mr. Edison. “Banks are a mighty good thing. They are essential to the commerce of the country. It is the money broker, the money profiteer, the private banker that I oppose. They gain their power through a fictitious and false value given to gold.

“Gold is a relic of Julius Caesar and interest is an invention of Satan,†Mr. Edison continued. “Gold is intrinsically of less utility than most metals. The probable reason why it is retained as the basis of money is that it is easy to control. The probable reason why it is retained as the basis of money is that it is easy to control. And it is the control of money that constitutes the money question. It is the control of money that is the root of all evil.â€

“How can the system be improved or changed?†Mr. Edison was asked.

“It can come about in several ways. One way would be to produce so much gold that its psychological hold would be broken. If we all had minds in our backyards or a synthetic gold could be made and sold for $.10 a pound you would soon see Gold disappear as the basis for money….

“Money ought to be plentiful and gold is not plentiful. It would be plentiful if it were mined in as large quantities as it could be, but an artificial scarcity is maintained by those who use goal to monopolize money.

“That is one way to do it—make it so plentiful that it drowns its fictitious value and drowns the superstition of the people along with it.â€

Would Forget About Gold

“Then there is another way—the method my friend Ford proposed the other day. He proposes just to go along and forget about gold. He says that the government can finance Muscle Shoals without applying to money brokers for permission, and I think he is absolutely right about it.

“Of course, as long as the world is on the gold basis, we shall have to recognize it as an element in international trade, but it is not necessary for commerce within our own borders. An internal business we can forget it. And we do forget it. If everybody in the United States suddenly demanded goal for their money, they would not be enough gold.

“Golden money are separate things, you see. Gold is the trick mechanism by which you can control money.

“Gold is not money until the people of the United States and other nations put their stamp on it. It is not the goal that makes the dollar. It is the dollar that makes the gold. Take the dollar out of the gold, and leave it merely yellow metal, and it sinks in value. Gold is established by law, just as silver ones, and gold could be disestablished, demonetized by law, just as silver was. When silver was demonetized the former so-called dollar became worth about $.50.â€

“But would not Mr. Ford’s suggestion that Muscle Shoals be financed by a currency issue raised some objection?†Mr. Edison was asked.

“Certainly. There is a complete set of misleading slogans kept on hand for just such outbreaks of common sense among the people. The people are so ignorant of what they think are the intricacies of the money system that they are easily impressed by big words. There would be new shrieks of ‘fiat money,’ and ‘paper money’ and ‘greenbackism,’ And all the rest of it—the same old cries with which the people have been shouted down from the beginning.

“But maybe we have passed beyond the time when the thoughtful 2%--you know, I gather from my questionnaire that only 2% of the people think,†and Mr. Edison smiled broadly.

“Maybe they can’t shout down American thinkers of a longer. The only dynamite that works in this country is the dynamite of a sound idea. I think we are getting a sound idea on the money question. The people have an instinct which tells them that something is wrong, and that’s the wrong somehow centers and money. They have an instinct also, which tells them when a proposal is made in their interests or against them.

Based on Soil and Energy

“Now, as to paper money, so called everyone knows that paper money is the money of civilized people. The higher you go in the civilization the less actual money you see. It is all bills and checks. What are bills and checks? Mere promises and orders. What are they based on? Principally on two sources—human energy and the productive earth. Humanity and the soil—they are the only real basis of money.

“Don’t allow them to confuse you with the cry of ‘ paper money.’ The danger of paper money is precisely the danger of Gold—if you get too much it is no good. They say we of all the gold of the world now. Well, what good does it do us? When America gets all the chips in a game the game stops. We would be better off if we had less gold. Indeed, we are trying to get rid of our goal to start something going. But the trade machine is at present jam. Too much paper money operates the same way. There is just one rule for money, and that is, to have enough to carry all the legitimate trade that is waiting to move. Too little or too much are both bad. But enough to move trade, enough to prevent stagnation on the one hand and not enough to permit speculation on the other hand, is the proper ratio.â€

“Then you see no difference between currency and government bonds?†Mr. Edison was asked.

“Yes there is a difference. But it is neither the likeness nor the difference that will determine the matter; the attack will be directed against thinking of bonds and currency together and comparing them. If people ever get to thinking of bonds and bills at the same time, the game is up.

“Now here is Ford proposing to finance muscle Shoals by an issue of currency. Very well, let us suppose for a moment that Congress follows his proposal. Personally, I don’t think Congress has imagination of enough to do it, but let us suppose that it does. The required sum is authorized—say $30 million. The bills are issued directly by the government, as all money ought to be. When the working men are paid off they received these United States bills. When the material is blocked it is paid in these United States bills. Except that perhaps the bills may have the engraving of a water dam, instead of a railroad train and a ship, as some of the Federal Reserve notes have. They will be the same as any other currency put out by the government; that is, they will be money. They will be based on the public wealth already in Muscle Shoals, and their circulation will increase that public wealth, not only the public money but the public wealth—real wealth.

“When these bills have answered the purpose of building and completing Muscle Shoals, they will be retired by the earnings of the power dam. That is, the people of the United States will have all that they put into Muscle Shoals and all that they can take out for centuries—the endless wealth making water power of the great Tennessee River—with no tax and no increase of the national debt.â€

But suppose Congress does not see this, what then?†Mr. Edison was asked.

“Well, Congress must fall back on the old way of doing business. It must authorize an issue of bonds. That is, it must go out to the money brokers and borrow enough of our own national currency to complete great national resources, and we then must pay interest of the money brokers for the use of our own money.â€

Old Way Adds to Public Debt

“That is to say, under the old way any time we wish to add to the national wealth we are compelled to add to the national debt.

“Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, but for the loan of $30 million of their own money to people of the United States should be compelled to pay $66 million—that is what it amounts to, with interest. People who will not turn a shovel full of dirt nor contribute a pound of material will collect more money from the United States that will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public Works cost more than twice the actual cost, on that account. Under the present system of doing business we simply had 122 150%, to the stated cost.

“But here’s the point: if our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good, also. The difference between the pond and the bill is that the bond lets the money brokers collect twice the amount of the pond and an additional 20%, whereas the currency pays nobody but those who directly contribute to Muscle Shoals in some useful way.

If the government issues bonds, it simply induces the money brokers to draw $30 million out of the other channels of trade and turn it into Muscle Shoals; if the government issues currency, it provides itself with enough money to increase the national wealth at Muscle Shoals without disturbing the business of the rest of the country. And in doing this it increases its income without adding a penny to its debt.

“It is absurd to say that our country can issue $30 million in bonds and not $30 million in currency. Both are promises to pay; but one promised fattens the usurer, and the other helps the people. If the currency issued by the government were no good than the bonds issued would be no good either. It is a terrible situation when the government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious values of gold.

“Look at it another way. If the government issues bonds, the brokers will sell them. The bonds will be negotiable; they will be considered as gilt-edged paper. Why? Because the government is behind them, but who is behind the government? The people. Therefore it is the people who constitute the basis of government credit. Why then cannot the people have the benefit of their own gilt-edged credit by receiving non-interest-bearing currency on Muscle Shoals, instead of the bankers and receiving the benefit of the people’s credit in interest-bearing bonds?â€

Says People Must Pay Anyway

“The people must pay anyway; why should they be compelled to pay twice, as the bonded system compels them to pay? The people of the United States always except the government’s currency. If the United States government will adopt this policy of increasing its national wealth without contributing to the interest collector—for the whole national debt is made up of interest charges—then you will see an era of progress and prosperity in this country such as could never have come otherwise.â€

“Are you going to have anything to do with outlining this proposed policy?†Mr. Edison was asked.

“I am just expressing my opinion as a citizen,†he replied. “Ford’s idea is flawless. They won’t like it. They will fight it, but the people of this country ought to take it up and think about it. I believe that points the way to many reforms and achievements which cannot come under the old system.â€

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“I am just expressing my opinion as a citizen,†he replied. “Ford’s idea is flawless. They won’t like it. They will fight it, but the people of this country ought to take it up and think about it. I believe that points the way to many reforms and achievements which cannot come under the old system.â€

The problem with this approach, IMHO, is that you rely on an accurate assessment of how much "wealth" the target for this increased money supply will produce.

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Good find, and the logic is inescapable.

Why should an enterprising, industriuous, trading people have to borrow into existence their means of exchange, at interest, from a parasitic, unproductive cartel of commercial bankers?

Look with fresh eyes and THINK.

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This especially true when the greed of plutocracy, by its very nature, returns the rest of humanity bit by bit to a state of serfdom.

Perhaps the most essential quality of political freedom is the ability of a people to issue their own money without debt.

Good find, and the logic is inescapable.

Why should an enterprising, industriuous, trading people have to borrow into existence their means of exchange, at interest, from a parasitic, unproductive cartel of commercial bankers?

Look with fresh eyes and THINK.

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No, it never happened. Imagine how frustrating it must have been for these two giants of the America's industrial age to have this fall on deaf ears.

By Jove! I think I've finally got it! I take it this never happened in the end; I'm sure the banksters would have stopped it.

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Surely you jest.

If you think banking is so profitable - why don't you buy some shares? You can't lose. Surely?

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Money ought to be plentiful and gold is not plentiful. It would be plentiful if it were mined in as large quantities as it could be, but an artificial scarcity is maintained by those who use goal to monopolize money.

i want money for everyone lets see how the value of it drops though

Based on Soil and Energy

hmm similar idea to John Law which ended in disaster - some thought they were rich initially though

“Gold is not money until the people of the United States and other nations put their stamp on it. It is not the goal that makes the dollar. It is the dollar that makes the gold. Take the dollar out of the gold, and leave it merely yellow metal, and it sinks in value. Gold is established by law, just as silver ones, and gold could be disestablished, demonetized by law, just as silver was. When silver was demonetized the former so-called dollar became worth about $.50.â€

they have value without the government stamp on them

“Gold is a relic of Julius Caesar and interest is an invention of Satan,†Mr. Edison continued. “Gold is intrinsically of less utility than most metals. The probable reason why it is retained as the basis of money is that it is easy to control. The probable reason why it is retained as the basis of money is that it is easy to control. And it is the control of money that constitutes the money question. It is the control of money that is the root of all evil.â€

control is the issue

and paper money can be far more easily controlled than commodity money

let there be a free market in money and let people use what they wish

http://www.amazon.co.uk/Good-Money-Birming...1/dp/0472116312

This book looks at private enterprise and the foundation of modern coinage."Good Money" tells the fascinating story of British manufacturers' challenge to the Crown's monopoly on coinage. In the 1780s, when the Industrial Revolution was gathering momentum, the Royal Mint failed to produce enough small-denomination coinage for factory owners to pay their workers. As the currency shortage threatened to derail industrial progress, manufacturers began to mint custom-made coins, called 'tradesman's tokens'. Rapidly gaining wide acceptance, these tokens served as the nation's most popular currency for wages and retail sales until 1821, when the Crown outlawed all moneys except its own.Historian George Selgin presents a lively tale of enterprising manufacturers, technological innovations, and struggles over the right to coin legal money.

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I beg to differ on a couple of points, sir.

First of all, remember, you are arguing with Thomas Edison, not me. This is a fascinating piece of long-lost history, however. It showed that Edison was on the right track, but he did not have the benefit of this fine forum to round off the sharp edges. I included it all for the benefit of history.

Certainly, if money were too plentiful, inflation would occur. Pretty obvious.

Equally obvious, money's value is more than "soil and energy".

Lastly, "control" is indeed the issue. We see what the "free market" in money creation has wrought today, eh? I would be happier with government if it maintained roads and bridges and controlled the quantity of the money supply without national debt in accordance to the will of the voting electorate, and shut down all other governmental functions. Perhaps most of the rest could be sorted out by the free market.

"Sound" money does not mean gold money to folks who understand monetary history. Soundness is merely a function of the quantity and who controls it -- will it be bankers, or the people in general through their elected representatives?

Those who do not believe that the quantity should be controlled by the people, believe in neither freedom nor democracy; they only actually believe in plutocracy for the few, and serfdom for the vast majority.

I'm not a socialist. Effective civilized society must be built on the incentive system. If you work hard, or come up with a better idea, then you get more money, period.

If we wish to remain a free people, we must understand that one of the most essential -- if not THE most essential roots of that freedom is the ability of the people to control the quantity of their money; not quibble over what commodity the money should be "backed" by -- as though that will magically control the quantity issued. History has put the lie to that theory a thousand times.

i want money for everyone lets see how the value of it drops though

hmm similar idea to John Law which ended in disaster - some thought they were rich initially though

they have value without the government stamp on them

control is the issue

and paper money can be far more easily controlled than commodity money

let there be a free market in money and let people use what they wish

http://www.amazon.co.uk/Good-Money-Birming...1/dp/0472116312

Edited by bill still

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I beg to differ on a couple of points, sir.

First of all, remember, you are arguing with Thomas Edison, not me.

matters not who he is if he is wrong

Lastly, "control" is indeed the issue. We see what the "free market" in money creation has wrought today, eh?

we dont have a free market in money it is controlled by the bankers and their puppets the government

"Sound" money does not mean gold money to folks who understand monetary history. Soundness is merely a function of the quantity and who controls it -- will it be bankers, or the people in general through their elected representatives?

Those who do not believe that the quantity should be controlled by the people, believe in neither freedom nor democracy; they only actually believe in plutocracy for the few, and serfdom for the vast majority.

the people wont have control - you think you have a real choice at elections republicans/democrats - more of the same as far as i can see

perhaps it would be different with more people like Ron Paul or Dennis Kucinich

If we wish to remain a free people, we must understand that one of the most essential -- if not THE most essential roots of that freedom is the ability of the people to control the quantity of their money; not quibble over what commodity the money should be "backed" by -- as though that will magically control the quantity issued. History has put the lie to that theory a thousand times.

looks like the inflation tax was a bit less of a problem for my ancestors

British_Pound.jpg

and let there be a free market in money and let people use what they wish

http://www.amazon.co.uk/Good-Money-Birming...1/dp/0472116312

QUOTE

This book looks at private enterprise and the foundation of modern coinage."Good Money" tells the fascinating story of British manufacturers' challenge to the Crown's monopoly on coinage. In the 1780s, when the Industrial Revolution was gathering momentum, the Royal Mint failed to produce enough small-denomination coinage for factory owners to pay their workers. As the currency shortage threatened to derail industrial progress, manufacturers began to mint custom-made coins, called 'tradesman's tokens'. Rapidly gaining wide acceptance, these tokens served as the nation's most popular currency for wages and retail sales until 1821, when the Crown outlawed all moneys except its own.Historian George Selgin presents a lively tale of enterprising manufacturers, technological innovations, and struggles over the right to coin legal money.

post-2696-1250784733_thumb.jpg

Edited by lowrentyieldmakessense(honest!)

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If we wish to remain a free people, we must understand that one of the most essential -- if not THE most essential roots of that freedom is the ability of the people to control the quantity of their money; not quibble over what commodity the money should be "backed" by -- as though that will magically control the quantity issued. History has put the lie to that theory a thousand times.

I do understand what you are saying and would agree in principle. I just can't get my head around how do you achieve in practice this idealistic level of social and economic responsibility and wisdom that are required to sustain this monetary system. Not everyone is an Edison or Ford, or simply an honest man. Can written and enforced rules protect such system from abuse/corruption? Can it be unambiguously pre-defined when to issue new bills and when not? You surely do need a religious support and understanding of an overwhelming majority of people on top of rules and courts.

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Bill - if you were to limit the money supply, what do you think would happen to 'wealth' as measured by cash and deposits?

Wealth would increase only as did population. Of course, since the supply of money in the system would be controlled by the people via their elected representatives, the nation might decide -- is did Guernsey to build their public market -- to increase the quantity of money to build something for the public good. If this were done as outright spending, instead of a loan, and the money was not later called in by taxation, then the money supply ould go up as would inflation. But at least, the inflation would be by mutual consent for the public good.

Secondly, if you were to limit that growth to say inflation, or population, how would you see the people without money being able to acquire it?

Well, they would have to get onboard the incentive system. My relatives came here from Ireland 300 years ago with NOTHING.

What is the difference between hoarding and saving in the current system and how would those terms differ under a 100% reserve system?

First of all, there what I call "full reserve" banking, banks could loan out the full value of their Net assets. It has come up that some call this a 50% reserve solution. I'm not technical enough to figure this out, but I'm sure someone on this forum can lend a hand. As to your question re: hoarding/saving, I'm not sure. What would say? What is your point?

Under a 100% reserve system how can you stop people saving/hoarding to the detriment of money circulation?

Hmmm. This is a bit over my head, but I'll take a stab at it. My short answer is I'm not sure. Since I don't know, I'd have to look to how others have responded in the past. Here is what Benjamin Franklin said:

“In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. . .

“In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one.â€

So is it fair to respond by saying that since we (a government controlled by the people) would have control of the quantity, then we would issue enough so that the products passed easily from the producers to the consumers.

It is not government's role to parcel out money to individuals. It is only government's responsibility to provide a debt-free, medium of exchange to ensure good commerce.

Does this make sense to you?

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I suspect we agree on most of this. It's mostly semantics, eh?

matters not who he is if he is wrong

we dont have a free market in money it is controlled by the bankers and their puppets the government

the people wont have control - you think you have a real choice at elections republicans/democrats - more of the same as far as i can see

perhaps it would be different with more people like Ron Paul or Dennis Kucinich

looks like the inflation tax was a bit less of a problem for my ancestors

British_Pound.jpg

and let there be a free market in money and let people use what they wish

http://www.amazon.co.uk/Good-Money-Birming...1/dp/0472116312

QUOTE

This book looks at private enterprise and the foundation of modern coinage."Good Money" tells the fascinating story of British manufacturers' challenge to the Crown's monopoly on coinage. In the 1780s, when the Industrial Revolution was gathering momentum, the Royal Mint failed to produce enough small-denomination coinage for factory owners to pay their workers. As the currency shortage threatened to derail industrial progress, manufacturers began to mint custom-made coins, called 'tradesman's tokens'. Rapidly gaining wide acceptance, these tokens served as the nation's most popular currency for wages and retail sales until 1821, when the Crown outlawed all moneys except its own.Historian George Selgin presents a lively tale of enterprising manufacturers, technological innovations, and struggles over the right to coin legal money.

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Is the whole basis of this argument relying on the honesty and integrity of our elected reresntatives? Given the recent MPs' expenses scandal (which I'm sure Bill has heard of since it made The Daily Show), I fear we would be sorely disappointed.

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“In the Colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. . .

“In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one.â€

the problem is who is watching the gatekeepers regarding money supply whether it be the bankers or the government

i think it should be neither of them

Now, you will easily find that the vast majority of Franklin’s lauding of paper money was in his younger years. One of his first pamphlet’s was called “A Modest Enquiry into the Nature and Necessity of a Paper Currency†at the age of 23.

Franklin states the nature of the Pennsylvania paper money system:

“coined land†or a properly run land bank will automatically stabilize the quantity of paper money issued — never too much and never too little to carry on the province’s internal trade. If there is too little paper money, the barter cost of trade will be high, and people will borrow more money on their landed security to reap the gains of the lowered costs that result when money is used to make transactions. A properly run land bank will never loan more paper money than the landed security available to back it, and so the value of paper money,

through this limit on its quantity, will never fall below that of land. If, by chance, too much paper money were issued relative to what was necessary to carry on internal trade such that the paper money started to lose its value, people would snap up this depreciated paper money to pay off their mortgaged lands in order to clear away the mortgage lender’s legal claims to the land. So people could potentially sell the land to capture its real value. This process of paying paper money back into the government would reduce the quantity of paper money in circulation and so return paper money’s value to its

former level. are accommodated by a flexible internal money supply

directly tuned to that demand. This in turn controls and stabilizes the value of money and the price level within the province.â€

Now, problems arose and Franklin was well aware of these problems. As always when there is the ability to issue paper money there must be care that the power of issuance is restrained. The Colonial Legislature of Pennsylvania didn’t always follow the strict design of the Land-Bank paper money system. In fact, as usual, they issued large amounts of paper money beyond the land-tax base. This was not just a one-time occurrence, but it happened often. Now remember, these Pennsylvania Scrip was to be redeemed at the time of tax collection, but since the legislature issued more Scrip than future taxes many people were left holding worthless paper with no redemption value what-so-ever. So, this was a problem and it was a problem that Franklin never really solved.

Now Franklin proposed such a system for the entirety of the British Colonies and in 1765 he sought to solve Lord Grenville’s desire to raise British Taxes on the colonists; remember Franklin was still very much Loyal to the Crown. He wrote the proposal that a universal paper system similar to that of Pennsylvania be imposed on the Colonies. The British would run the land-banks, collect interest and taxes from the colonists.

In 1765, in response to Lord

Grenville’s challenge to come up with some palatable way

for the British to increase taxes on the colonists to help pay

for the Seven Years War, Franklin writes up a proposal for

a North-America-wide universal paper currency modeled

on Pennsylvania’s land bank system. The British would

run the colonial land bank and collect the interest on the

paper money loaned out to colonists in place of any new

direct taxes placed on the colonists. During the early1770s, it appears that the Crown began to institute Franklin’s system over the colonies in various ways, including the Stamp Act. At that point Franklin abandoned his proposal for such paper money system and he even distance himself from his authorship of the system.

By 1775 however, Franklin had drastically changed his tune on the subject of paper money. Although he suggested a better paper money system to Congress, it was rejected because of the experience of the colonies and later the Continental Scrip. In 1781, in a pamphlet entitled “Of the Paper Money of America†Franklin states that the depreciation of the Continental Dollar operated, as we now know, a tax on the money itself, or inflation. He states that such a tax unfairly fell on those who could afford it the least and that every man who held on to the Continental Scrip too long between the time of issue and the time he spent it would pay a higher rate of tax because of inflation.

In 1785, Franklin, 79 years old, returns to American and is elected Governor of Pennsylvania. Right before he arrived and assumed office, the Pennsylvania Legislature issued 150,000.00 in new paper money. Two years later, in 1787, in several letters he mentioned that:

“It [the paper money issue] was made before my arrival, and not being a legal tender can do no injustice to anybody, nor does any one here complain of it, though many are justly averse to an increase of the quantity at this time.†This gives an indication of his later view of paper money. He also said: “Paper money in moderate quantities has been found beneficial; when more than the occasions of commerce

require, it depreciated and was mischievous; and the populace

are apt to demand more than is necessary.â€

Franklin was however, far more pleased with the new bank-based money after the Revolution, because he said: “…the bank’s management is so prudent, that I have no doubt of it continuing to go on well. Their notes are always instantly paid on demand in gold and silver, and pass on all occasions as readily as silver.â€

It appears that with age comes wisdom, even in a man of such stature as the Honorable Benjamin Franklin.

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I understand your skepticism, but when you think it through, what is the alternative?

I maintain that our governments -- the UK and the US -- are a step up from the serfdom of the middle ages. If we don't agree on that, then I can't really discuss this with you.

As long as you don't take the "Injin" position, that no government is worthwhile other than the law of the jungle, then we can agree that the ideal of good government is good.

Then the only question is can good government be achieved this side of heaven?

But what is the alternative? There is only one it seems to me; plutocracy -- in one of its many guises; anarchy, autocracy, fascism, communism, socialism, or monarchy, which, at best is a benign dictatorship. You Brits, if I may say so, seem to harbor very little hope that you can affect the governing process to save or enhance the freedoms you currently enjoy.

Seems to me that humanity has struggled so hard to make these first baby steps in elective government. I think government would be more responsive to the voting electorate if banks did not have the money power.

Sure, it's easy to criticize the effects of government to date, but again, the alternative is far more worrisome.

I do understand what you are saying and would agree in principle. I just can't get my head around how do you achieve in practice this idealistic level of social and economic responsibility and wisdom that are required to sustain this monetary system. Not everyone is an Edison or Ford, or simply an honest man. Can written and enforced rules protect such system from abuse/corruption? Can it be unambiguously pre-defined when to issue new bills and when not? You surely do need a religious support and understanding of an overwhelming majority of people on top of rules and courts.

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I do understand what you are saying and would agree in principle. I just can't get my head around how do you achieve in practice this idealistic level of social and economic responsibility and wisdom that are required to sustain this monetary system. Not everyone is an Edison or Ford, or simply an honest man. Can written and enforced rules protect such system from abuse/corruption? Can it be unambiguously pre-defined when to issue new bills and when not? You surely do need a religious support and understanding of an overwhelming majority of people on top of rules and courts.

and that is the problem

tis a better system than the bankers controlling it though

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most things

and if we had honest politicians and a free election system (without media/big business influence) then paper money controlled by the government could work

And if my aunty had balls she'd be my uncle.

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Rude of me to respond to questions addressed to Bill (sorry), but these are good questions, and interacting with you is usually of value.

Bill - if you were to limit the money supply, what do you think would happen to 'wealth' as measured by cash and deposits?

Money perceived as wealth would be much as it is now, quantified purchasing power.

Secondly, if you were to limit that growth to say inflation, or population, how would you see the people without money being able to acquire it?

Not sure what you mean by limiting the money supply growth to inflation, but in any case people would work/buy/sell/cheat/scrounge/hire etc. for their livelihoods, much as they do now.

The big, big difference is that there would be far less scope for profiting from unproductive money manipulation, far more scope from productive enterprise – real goods and services that others are willing to pay for in a free market.

What is the difference between hoarding and saving in the current system and how would those terms differ under a 100% reserve system?

In the current system the difference is mostly a matter of emphasis/semantics. A suitcase full of tenners under the bed is more “hoardingâ€, an interest earning deposit account is more “saving.â€

In a 100% reserve system the bank would charge for simply keeping your money on deposit (hoarding?) but would pay you some interest if you permitted it to lend it on.

In both cases, "hoarding" has connotations of taking the money completely out of circulation for a considerable time.

Under a 100% reserve system how can you stop people saving/hoarding to the detriment of money circulation?

Deliberate, consensual and transparent slight inflation (1% p.a.?) of the money supply over and above GDP would be one possible driver. Also, there would be bank charges on stagnant money (see above).

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Deliberate, consensual and transparent slight inflation (1% p.a.?) of the money supply over and above GDP would be one possible driver. Also, there would be bank charges on stagnant money (see above).

why not have zero inflation and let the banks operate like warehouses - you pay a fee to store your money

or they act as brokers if you wish to lend it to a third party (and the banks charge a fee for this service)

Edited by lowrentyieldmakessense(honest!)

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Well, that's good. As you point out, paper money works well if there is just enough to maintain commerce.

And of course Franklin didn't like the Continental Dollar. No one did. Why? Because the British anchored literal floating currency factories in Boston harbor and counterfeited it by the bail -- economic warfare. Too much quantity = a complete lack of confidence.

It is small wonder that he wrote what he wrote in 1781. That's the way the entire colonial nation felt. We had very little gold and silver and an overwhelming supply of counterfeited paper money. Therefore, the colonies were convinced to establish the Bank of North America in 1781 -- a debt-based monetary system fashioned after the BoE. This experiment didn't work either and so Congress killed it 4 years later after prices had risen 72%.

That's why the Bank's most outspoken opponent, William Findley of Pennsylvania to state:

"[This Bank exists] for the sole purpose of increasing wealth. Like a snow ball perpetually rolled, it must continually increase its dimensions and influence. This institution, having no principle but that of avarice, will never be varied in its object ... to engross all the wealth, power and influence of the state."

Franklin died in 1788, 3 years after the Congress killed the Bank of North America, and a year after the acceptance of the US Constitution.

Do you suspect for an instant that the British would have given up the fight? No! just three years later, they were able to once again convince the Congress that the evils of (counterfeit) made it imperative to give the money system over to a new private central bank, the 1st Bank of the United States, which was modeled after and controlled by the BoE.

Is it any wonder that America was having trouble getting its money system stabilized in the wake of the American Revolution?

To pluck out this stippit of US history and thereby try to deduce that America's initial experiment with debt-free government issued money was folly is just plain bad scholarship.

the problem is who is watching the gatekeepers regarding money supply whether it be the bankers or the government

i think it should be neither of them

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why not have zero inflation and let the banks operate like warehouses - you pay a fee to store your money

or they act as brokers if you wish to lend it to a third party (and the banks charge a fee for this service)

Sure, as I said, both are drivers, and they are not mutually exclusive.

People could vote for their preference at election time.

Edit: Smash the hoarders, vote for the Controlled Inflation Party!

Or: Smash the diluters, vote for the Value Retention Party!

Edited by The Spaniard

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As I've said before; what is the alternative to attempting to bring about a freely elected government that attempts to treat all citizens fairly, and not merely favor the plutocrats?

Is the whole basis of this argument relying on the honesty and integrity of our elected reresntatives? Given the recent MPs' expenses scandal (which I'm sure Bill has heard of since it made The Daily Show), I fear we would be sorely disappointed.

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