The Story of Real Money (Entry 366)
In 1935 Smedley Darlington Butler (1881-1940), a former, highly distinguished Major General in the United States Marine Corps described a racket as
“… something that is not what it seems to the majority of the people. Only a small ‘inside’ group knows what it is about. It is conducted for the benefit of the very few, at the expense of the very many.”
Smedley Butler. 1935. War Is a Racket.
No, he was not referring to America’s banking industry; rather, he was referring to the act of war.
Banking and war make for an ideal joint racket, for they combine the shared secrets of the state and banks in a joint effort to exploit the citizenry that both are supposed to serve — well, at least, in America’s best tradition.
Indeed, war and statutory counterfeit were combined at the foundation of the Bank of England, and 222 years later World War I and statutory counterfeit were combined to create America’s Federal Reserve System.
By the end of 1914, the year in which the FED (Federal Reserve System) opened its doors for business, Europe had been embroiled in war for several months. Already, general price inflation in the United States had reached one percent. By the close of 1917, the year in which the United States declared war on Germany, average annual price inflation in the US had risen to 17.4 percent. By the end of 1918, however, the rate of inflation in the US had risen by only 0.6 percent; overall it stood at 18.0 percent per annum. This astoundingly timid increase in the rate of inflation suggests two things: one, the mobilization effort greatly decreased the demand for goods and services in the US as our nation’s youth were conscripted into war; and two, the United States economy had already been on a war footing long before our troops stepped onto European soil. In effect, our war-related supplies to Europe were merely transferred from our Allies to our own expeditionary force.
The estimated cost of World War I to American citizens was $52 billion (wartime dollars) or about $400 (wartime dollars) for every American man, woman, and child. This money was spent in defense of the British empire and whomever else the US banking industry decided to fund before our own entry into the war. Expressed in current dollars this totaled between $8,000 - $12,000 per American citizen depending on the year of the war that is used as the base year for price comparison. In effect, as much as 20 percent of today’s medium annual household income!
In contrast, DuPonts’s average annual earnings — the principal producer of gun powder in the United States at the beginning of the 20th century — was approximately $6,000,000 for the period between 1910 and 1914. During the next four years the firm’s average annual earnings rose to $58,000,000 — a nearly ten-fold increase.
Bethlehem Steel, a US firm whose earnings were comparable to those of DuPont during the prewar period witnessed a more than eight-fold increase in profit. United States Steel, a much larger firm earned on average $105,000,000 per year before the war and during the war it earned on average $240,000,000 per annum — a nearly two-and-one-half increase in profitability.
The earnings recorded for commodities manufacturing — even more basic than steel production — also rose. During the prewar period, Anaconda, a copper manufacturer, was earning $10,000,000 per year. During the war its average annual earnings increased to $34,000,000 — a nearly three-and-a-half-fold increase! Utah Copper enjoyed a more than four-fold increase in profitability. The International Nickel Company saw its annual prewar earnings rise from $4,000,000 to $73,000,000 per annum — a whopping 18-and-a-quarter-fold increase!
While the 65th Congress was in session the US Senate considered the corporate earnings “of 122 meat packers, 153 cotton manufacturers, 299 garment makers, 49 steel plants, 340 coal producers during the war”. A return on equity (ROE) under 25 percent was “exceptional”. Depending on the firm, individual coal producers earned between 100 and 7,856 percent on their invested capital.
These kinds of increases do not represent a mere increase in the demand for specialized goods and services that require expensive research and development specific to war; rather, they represent government largesse, corporate indulgence, and financial complicity on the part of banks. This was money-ad-prodigo fueled by money-ex-nihilo that was lent and spent into a world in which the state was now viewed as a benevolent good rather than a necessary evil toward which we should maintain the greatest circumspect.
Indeed, it the issuer of promeritum-ex-nihilo and those closest to the issuer who benefit most from its issue. Hopefully, by now, this is nothing new to you.
Our founding fathers had agreed that only Congress could declare war. As a nation we came to this agreement long before the members of Congress had been delivered over to the bankers and the “industrial-military” complex. During his White House farewell address, after serving as our nation’s 34th president for eight years (1953-1961) in the wake of World War II, Dwight D. Eisenhower (1890-1969) stated:
“Until the latest of our world conflicts, the United States had no armaments industry. American makers of plowshares could, with time and as required, make swords as well. But now we can no longer risk emergency improvisation of national defense; we have been compelled to create a permanent armaments industry of vast proportions. Added to this, three and a half million men and women are directly engaged in the defense establishment.”
“This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual — is felt in every city, every state house, every office of the federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications.”
“We must never let the weight of this combination endanger our liberties or democratic processes. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals so that security and liberty may prosper together.”
“In the councils of government we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.”
“The prospect of domination of the nation's scholars by Federal employment, project allocations, and the power of money is ever present and is gravely to be regarded.”
Dwight D. Eisenhower. Farewell Speech. January 17, 1961
President Eisenhower’s successor, John F. Kennedy (1917-1963), was assassinated on November 22, 1963. Since then, the plight of America has grown steadily worse, and the call for a return to sound money has become ever louder.
Let us now return to the 2nd Committee of the Reparation Commission.
In liberty, or not at all,
Roddy A. Stegemann, First Hill, Seattle 98104
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