The Lost Science of Money – Wars Are Won By Bankers, Not Armies

The Lost Science of Money: The Mythology of Money – The Story of Power

by Stephen Zarlinga

American Monetary Institute (2002)

Book Review

This book, by co-author of Congressman Dennis Kucinich’s HR 2990 to abolish the Federal Reserve (see HR2990: Historic Bill to Abolish the Federal Reserve), is one of the most amazing books I’ve ever read. At 775 pages, the lowest price I could find for a used copy was $225 from Alibris. Fortunately it’s also available in PDF format at Lost Science of Money

It’s clear from Zarlenga’s extensive documentation and footnotes that the research for this book took decades. He essentially rewrites western history dating back to the ancient Sumerians. His goal is to expose and correct all the distortions and myths introduced into official history historians in the pay of merchants and bankers. Both are fiercely committed to perpetuating our current global monetary system in which private central banks create and control the money supply.

Among many others, two of the myths Zarlenga explodes are that the Roman Empire collapsed due to barbarian invasion (he demonstrates very convincingly that Rome collapsed due to a debasement of their currency) and the often repeated claim that excessive government printing of money was responsible for the deadly inflation in the early years of the Third Reich – as Zarlenga points out, it was actually the privately owned central Reichsbank that issued the money and created the inflation.

The Concept of “True Money,”

Zarlenga begins by establishing a clear difference between “true money,” which he defines as money with a fixed value set by law and “commodity money,” in which private merchants and banks issue and control the value of money. In the rare historical periods where governments have issued and controlled money by law, the result has been long periods of political stability and flourishing industry and culture.

The Romans enjoyed the longest continuous period (200 years) of monetary stability. Roman leaders maintained control of their money by prohibiting silver and gold coinage for domestic use – issuing fixed value copper and bronze coinage instead. In this way they prevented foreign merchants from capturing control of their money supply and manipulating the value of their currency.

He Who Controls the Money Controls the World

Zarlenga carefully traces how after the fall of the Roman Empire, control of western money shifted from Constantinople (after the 4th Crusade which sacked Constantinople – see link), to Venice, to Portuguese traders in Antwerp (after they opened the trade route around the southern tip of Africa), to Amsterdam (following the civil war splitting the Netherlands into Holland and Belgium), to London (after the Dutch prince William of Orange seized the English throne). In each case, control of the money supply was far more important than military strength in consolidating political control.

Zarlinga also clarifies, though careful research, the historical role played by the Knights Templar and Jewish merchants and money lenders in the development of global monetary centers.

The Dutch Usurper Who Chartered the Bank of England

One of the sections that interested me most concerned the founding of the Bank off England – which set the global standard for all private central banks – in 1694. Previously I hadn’t realized that the Bank of England was started by a Dutch king (William of Orange), who usurped the English throne from James II. Nor that his purpose for chartering the Bank of England was to advance the interest of the Dutch merchants and bankers who initially controlled it.

“True Money” in the Americas

I also enjoyed the detailed section outlining the history of government issued money in the US. Again Zarlenga presents extensive and convincing evidence that it was the ability of colonial governors to issue their own money that enabled commerce and industry in the 13 original colonies, as well as enabling them to organize a successful war of independence against England.

Zarlenga also describes in detail the battle Jefferson, Andrew Jackson and their allies fought against the creation of a privately controlled central bank, as well as the immense popularity of the Greenback Congress issued during the Civil War – and the immense national uprising (the populist movement) launched at the end of the 19th century to save them.

The Federal Reserve Engineers the Great Depression

Obviously the book wouldn’t be complete without a chapter on the criminal conspiracy that lead to the formation of the Federal Reserve in 1913, the Federal Reserve’s role in engineering the Great Depression 26 years later, and Roosevelt’s prolonged battle with Wall Street to implement the New Deal recovery.

Did Global Economic Growth End 15 Years Ago?

life after growth

According to London Broker, Global Economy is Shrinking

The main premise of Life After Growth: How the Global Economy Really Works – and Why 200 Years of Growth are Over  is that global economic growth has ended. Western governments conceal this fact through debt creation, inflation and clever manipulation of statistical economic indicators. According to Tim Morgan, leading analyst at the London financial brokerage Tullett Prebon, economic growth ended in 2000 and the economy has been shrinking ever since.

Morgan attributes the end of global economic growth to the high cost of fossil fuels.* This is because the real economy (which many people confuse with the financial economy) is a direct function of surplus energy. In pre-agricultural times, there was no energy surplus: human beings derived exactly the same amount of energy from their food as they expended acquiring it. With the advent of farming, they managed to produce a small surplus of energy that enabled a small minority to engage in work other than food production.

In the 18th century the invention of the heat engine enabled surplus energy (and the real economy) to grow exponentially over the next 200 years. Now that the cheap fossil fuel has been used up, our energy surplus is declining. This, in turn, is reflected in the gradual shrinkage of the global economy.

Measuring Surplus Energy

Energy surplus is measured as EROEI (Energy Returned Over Energy Invested), the ratio between the energy produced and the energy consumed in the extraction or production process. 1930s oil fields had an EROEI of 100:1. Once the easily accessible oil was used up, the EROEI began to decline. It was 30:1 in 2000 and it declines by about 2% a year. In 2014 it stood at 14:1. Unconventional oil sources have an extremely low EROEI (eg tar sands and fracked shale oil have an EROEI of 3:1).**

Declining EROEI’s are always accompanied by a spike in oil prices. This translates into higher prices for everything, due to the energy required for food production and manufacturing. Owing to higher prices, people consume less and the economy slows.

Globalization Has Been Extremely Damaging

Morgan is highly critical of politicians who fail to distinguish between the real economy of goods and services and the shadow economy of money and finance. He also feels globalization and rampant consumerism have been extremely damaging to the real economy. The mistake western countries made with globalization was reducing their production without reducing consumption. Instead they increased consumption levels by increasing borrowing and debt. Globalization was extremely beneficial for banks, due to the voracious demand for their product (loans). Meanwhile the diversion of large sums from production to the finance sector – aggravated by consumerism and the rise of consumer debt – hastened the decline of the real economy.

This wholesale debt creation and the widening split between the real economy and the financial economy is largely reflected in inflation and the destruction of the value of money. The US dollar lost 87% of its purchasing power between 1962 and 2012, which the government systematically conceals through misreporting of key economic indicators.

All economies function best when the financial economy coincides with the real economy. At present the primary methods of debt destruction are quantitative easing*** and inflation (it’s always easier to repay debts with devalued money). Other methods in the wings are cuts in pensions and Social Security payments and eventually bank failures and government defaults. Morgan feels that resource poor countries like Japan and the UK are at highest risk for default.

How Governments Lie with Statistics

My favorite chapter details the decades of statistical manipulations that have made government indicators of inflation, growth, output, debt and unemployment totally meaningless. John Kennedy was the first to exclude “discouraged” workers (who weren’t actively seeking work) from the unemployment rate. Johnson was the first to conceal the size of the government deficit by including the Social Security surplus in the federal budget. Nixon was the first to exclude energy and food costs (which rise the fastest) from core inflation calculations.

I was most shocked to learn that 16% of GDP consists of “imputations” or dollars that don’t actually exist. The largest single imputation the US government adds is “owner equivalent” rent. This is an amount equivalent to the rent all rent homeowners would have to pay if they didn’t own their own home. In 2011, this added up to $1.2 billion (out of a total GDP of $12.7 trillion).

The second largest imputation involves non-cash benefits employers give their workers (medical insurance, meals, accommodation, etc) and free banking services.

The US Government is Technically Bankrupt

This over-reporting of GDP, combined with under-reporting of inflation, makes it appear that the US economy is growing when it’s not. .

Morgan estimates that as of 2011 true US debt (government, business and personal) was 449% of GDP. Technically this means the US is insolvent as collective liabilities far exceed any realistic prediction of future income.

Politicians Need to Stop Lying

Morgan maintains that industrialized societies urgently need to living with less surplus energy. Rather than continuing to delude themselves (and us), our political leaders must face up to the reality that our claims on future energy surpluses (aka debt) are totally unrealistic.

They need to end globalization and rampant consumerism and enact policies (support for renewable energy, public transport and strong local economies) that will help people adapt to the new economic reality.

*Most analysts predict oil prices will return to $100+ a barrel in June 2015, once the US surplus is used up.
**Some other EROEI’s (for the sake of comparison):
• Coal 8:1
• Solar PVC panels 8:1
• Solar concentrating power: 17:1
• Large hydro generation: 22:1
• Small hydrogenation 32:1
• Landfill/sewage gas cogeneration 40:1
• Onshore wind 20:1
*** Quantitative easing (QE) is an unconventional form of monetary policy where a Central Bank creates new money electronically to buy financial assets, like government bonds. This differs from conventional money creation, in which private banks create money out of thin air as new loans (see An IMF Proposal to Ban Banks from Issuing Money).

Also published in Veterans Today