Deflation Made Simple (Part II)

A falsely vilified phenomenon (Entry 151)

The misleading substitution of the word credit with currency (Umlaufsmittel) that we discussed in Entry 150 was not performed in a conceptual void; rather, it reflected the very myth about money that Von Mises was seeking to dispel, not bolster — namely, that counterfeit is a prerequisite for credit without which an economy cannot prosper.

Not surprisingly, this phony paradigm of currency finance has been with us since the time of Oliver Cromwell, Lord Protector of the Commonwealth of England, Scotland, and Ireland, who ruled king-like in London from 1653 until 1658. During this period the city of London was plagued by merchants who clipped and shaved coin in an effort to adjust for the relentless drain of real money brought about by the stupid governmental notion that you could fix the relative price of two competing commodities without important market ramifications on the presence or absence of either commodity (Entry 150).

I apologize for the redundancy, but surely you can imagine by now why it is that I am insisting.

Rather than removing the false standard and punishing the cheaters of London the English parliament came up with the self-serving idea of shifting the theft from the many to the few in the belief that it could profit from the changing of the thief — or was that guard. It was thus that the so-called “modern system” of money was born and would be spread around the world via the not yet fully formed English Empire.

No, counterfeit money was not a market invention discovered by cheating guildsmen-bankers — though it was surely something that they, in part, encouraged —; rather, it was the creation of a sovereign government colluding with wealthy merchants to overcome a problem that this same government created in its “infinite wisdom” and by its lack of energy to cope with widespread merchant debasement of the very medium on which the merchants’ own livelihoods depended.

But, how could you blame the merchants? After all, were they not behaving in accordance with good common sense (Images 10-12)? Were they not simply creating smaller units of the same base commodity and standard for trade that was becoming increasingly scarce and ever more valuable as a result?

Now, you will surely recall that it was during Lord Cromwell’s parliamentary reign that the Marranos from Amsterdam began arriving in London at Lord Cromwell’s invitation (Entries 124-5 and 127-8). It was also during this period that we discover the first historical mention of proposals for a public bank.

Of what, exactly, was this notion of a bank to consist is clear from the words of Samuel Lambe, a London merchant who stated:

“A bank is a certain number of sufficient men of estates and credit joint together in a joint stock; being as it were the general cash keepers or treasurers of that place where they are settled, letting out imaginary money (i.e., credit) at interest at two and a half or three per cent, to tradesmen or others, who agree with them for the same, and making payment thereof by assignation, and passing each man’s account from one to another with much facility and ease.”

Assignation means pay by a given date.

Somewhat later, Francis Cradocke, a member of the Board of Trade appointed by the profligate Charles II, strongly advocated the idea of a bank that he defined as

“… a certain number of sufficient men of credit joined together in a stock, as it were, for keeping several men’s cash in one treasury, and letting out imaginary money (i.e. credit) at interest for three or more in the hundred per annum, to tradesmen or others that agree with them for the same, and making payment by assignation, passing each man’s account from one to another, yet paying little money”.

With the exception of the following additional remark from Mr. Cradocke,

“… the aforesaid bankers may furnish another petty bank (or mount) of charity.”

it were, as if the two men were reading from the same criminal playbook.

In other words, these English “gentlemen” were advocating

1. that imaginary money issued via imaginary credit (debt) — money-in-use-ex=nihilo posing as money-in-use — to merchants who were granted the right to pretend for the sake of trade that they were dealing with real wealth that they would never see, but against which they could promise their wares with the blessing of government to other merchants and citizens,

2. that these merchants would pay for this privilege with an annual fee of two to three percent in real wealth to others of greater real wealth (Note: if 100 pounds of counterfeit banknotes are issued, and three additional pounds must be paid upon return of the hundred, in what form must the additional three pounds be paid, if not real money?), and

3. that this scheme of wealth transfer of real wealth from small merchants and ultimately the people of England to a few already wealthy persons incorporated by government charter

should be approved by Parliament.

In effect, the government’s solution to rampant monetary debasement brought about by the government’s own stupidity was more theft. Indeed, it was believed that by flooding the English economy with imaginary money (money-in-use-ex-nihilo, or more simply, money-ex-nihilo) that the shortage of real money would be resolved.

In passing, please note that where these “gentlemen” were proposing a rate of interest of three percent, the shareholders of the Bank of England would upon implementation of this criminal notion be guaranteed a rate of eight percent!

It is this pathetic governmental “currency genius” that is praised today as modern money — a system predicated on a fundamental error of market understanding whose solution was to enrich the few at the expense of the many with the express approval of government eager for a ready source of real wealth to perpetuate war — wealth that could be acquired from the people by stealth — i.e., the indirect tax of inflation (Images 25 and 26).

Even worse, this criminality is still being promoted by academicians today as a brilliant discovery and watershed in the evolution of money and public finance. So, why do they not teach it for what it is? A blatant act of theft!

Once again, I would refer you back to the Wisselbank and how well it kept The Estates of Holland in check even through the Dutch rampjaar. That the later moral impropriety of the bank’s management not detract from the originating principle upon which the bank was founded!

In liberty, or not at all,
Roddy A. Stegemann