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Let’s Cut the Middleman Out of the System

Posted by msrb on July 18, 2009

In December 2008 a reader wrote:

Thought for the Day: The Church and Banks

The Church and banks in their role as middlemen work in quite similar ways:

One steals your spiritual enlightenment;
the other swindles you out of material possession!

A scan of the Magna Carta. The Magna Carta commands, “If any one has taken anything, whether much or little, by way of loan from Jews, and if he dies before that debt is paid, the debt shall not carry usury so long as the heir is under age, from whomsoever he may hold. And if that debt falls into our hands, we will take only the principal contained in the note.” Im age and caption: Wikipedia

What if you cut the middleman out of the system? What if you didn’t have to pay any interest on the money you borrow?

Adrian Kuzminski, Resident Scholar in Philosophy at Hartwick College, and the author of Fixing the System: A History of Populism, Ancient & Modern, says:

This time around, with dense populations and a scarcity of natural resources, especially energy, across the globe, and widespread ecological destruction, there is little prospect that economic growth can or even should be re-stimulated.

He says the populists in the United States in the bygone days wanted the money flow to be controlled by Main Street, not Wall Street:

Why, they asked, should credit— for mortgages, home equity, consumer spending, auto loans, education, etc.—be available almost exclusively from private lenders at high rates of interest? Why shouldn’t citizens be able to access credit directly by borrowing at nominal rates of interest from a decentralized public system of lending?

Below is his short essay, also mirrored at Information Clearing House; however, we find it difficult to fathom why (and how) he brands  Sarah Palin as a “populist.” Is he re-branding Palin, who has proven herself to be an abject failure as a parent, politician, human being … , as a “populist” to give her a “good” name, or does he intend to doublespeak himself out of the “populism” argument?

Taking Populism Seriously

By Adrian Kuzminski

July 17, 2009 “Information Clearing House” — Populism persists as an uncomfortable element in American and global political life, neither left nor right, liberal nor conservative. Populists are widely portrayed as economic losers resentful of rich elites. Our bi-partisan political and media establishment routinely downplays this resentment, castigating it as the source of misguided “class warfare,” even though mainstream politicians, when desperate enough, don’t hesitate to arouse just enough populist resentment to gain votes, while artfully evading the substance of populist complaints.

Contemporary populists, like Sarah Palin and Glenn Beck, appear to the establishment to be “no-nothings” who don’t understand “how the system works.” They, and increasing numbers of Americans, do, however, know something that their critics don’t: that the system is unjust and failing. Should the predictions of blogosphere doomer prognosticators — like Mike Whitney, Paul Craig Roberts, Michael Hudson, and others — come true, the principal victims will be liberals, progressives, and the Democratic party. They will all be identified with attempts to save a failed system, and discredited for propping up Wall Street and “the money power.” Obama will go the way of Gorbachev, if he’s lucky.

After the real crash — which we still await — the populists will inherit political power, if only by default. Are they ready for it? On this score their critics have a point: so far populists display no coherent alternative to the system whose evils they rightly decry. Until they develop one they are more likely to bring chaos and anarchy than stability and justice. Fortunately for the populists such an alternative already exists, and they can find it in their own history if they bother to look.

The populist impulse of today, widespread but fragmented and disorganized, is what’s left of a once proud and impressive mass political movement in this country. In its heyday, in the 1880s and 90s, fifty populists from the People’s party, were elected to the US Congress, with many others winning state and local offices. Such a showing by a third party today would be cataclysmic.

The old populists were out-maneuvered and finally marginlized by what they and earlier Jeffersonians and Jacksonians called “the money power,” the privatized and largely unregulated banking and credit system which reduced many small independent producers — farmers, artisans, shopkeepers — to debt peonage by unnecessary, that is, usurious interest rates. Today that same “money power,” after decades of ascendency, stands insolvent in the wake of the Great Crash of 2008, and the nation faces a second Great Depression. Hundreds of trillions of dollars of outstanding debt far outstrip the productive potential of the nation and the planet ever to be repaid.

This time around, with dense populations and a scarcity of natural resources, especially energy, across the globe, and widespread ecological destruction, there is little prospect that economic growth can or even should be restimulated. Nonetheless, in the face of this crisis, both liberals and conservatives, Democrats and Republicans, and Obama like Bush before him, desperately seek to reinflate the credit bubble, this time on the backs of taxpayers. Insofar as already maxed-out taxpayers cannot carry that burden, the dollar and much of our economy is poised to collapse.

Our fixation with economic growth is largely driven by a usurious financial system. If credit is available only on the condition of onerous rates of interest, then borrowers (individuals and businesses) must put the money they borrow to work, not only to repay the principal and leave some profit for themselves, but to repay as well the interest owed to creditors. It is this, more than anything else, which forces the economy to “grow.”

We’ve gotten gotten away with it for over 200 years of the industrial revolution mostly because we’ve been able to exploit natural resources, especially fossil fuels, to enable this growth. But global population growth and resource depletion, including “peak oil,” appear to have finally caught up with us. The real cause of the depression and the credit crisis is the dawning realization by investors that these resource constraints are contraints on growth, and that the high growth rates enjoyed since the eighteenth century may be a thing of the past.

The populists were the last movement in the United States to offer a viable alternative to the privatized usurious financial system. They wanted Main Street, not Wall Street, to control money. Why, they asked, should credit — for mortgages, home equity, consumer spending, auto loans, education, etc. — be available almost exclusively from private lenders at high rates of interest? Why shouldn’t citizens be able to access credit directly by borrowing at nominal rates of interest from a decentralized public system of lending?

This was actually possible in colonial America, when land banks and paper currencies made credit widely and cheaply available. As historian Terry Bouton makes clear in his account of the American revolution in Pennsylvania in his compelling book, TAMING DEMOCRACY, the suppression of this public credit by Parliament in Britain led to depression and the revolution. The counter-revolution of propertied elites in the 1780s, culminating in the US Constitution, strangled this impulse for cheap credit. The 19th century witnessed a long but losing struggle against privatized usurious financial interest, who finally sealed their control over money and the economy with the establishment of the Federal Reserve in 1913.

But the idea of cheap public credit was kept alive by Jeffersonians, Jacksonians, and populists. It was developed probably in greatest detail by an early American populist, Edward Kellogg (1790-1858), especially in his postumously published A NEW MONETARY SYSTEM (1861). Kellogg and other populists argued that we ought to have a public not a private financial system. In his plan, citizens would go to local public credit banks and offer collateral for personal loans for any purpose; the money, issued locally but held to a federally enforced standard of a fixed, nominal rate of interest (about 1 percent), would be legal tender, everywhere interchangeable, and so circulate throughout the nation.

Today our money is created top-down as loans from the privately owned Federal Reserve to big banks, who relend to corporations and to the public at rates of interest profitable (when repaid) to themselves. This is a system which demands economic growth and insures that wealth will be concentrated in the hands of creditors. By insisting on a fixed nominal rate of interest Kellogg aimed to forstall tranfers of wealth to creditors. There should be no private charge for money, he reasoned, insofar as money is a public function. And with money issued locally to local borrowers, there would be no need for a central bank.

Now there’s a revolutionary idea, and a liberating one. The opportunity to borrow money without unnecessary interest would be economically and politically transformative. It would also be ecologically responsible. The major engine of economic growth, after all, is the need to pay back debt with interest. By making money available at zero or nominal interest, the incentive for economic growth would be removed.

Moreover, in gaining widespread access to capital, individuals would be able to invest in themselves (in education, housing, consumer goods, starting a business, etc.) without having to transfer their wealth to creditors (consider the interest on a typical credit card or mortgage). Freed of the burden of usurious interest, the pursuit of happiness and genuine liberty would be widely possible. And, not least, the power of the special interests would be broken, restoring the promise of genuinely democratic government.

Related Links:

2 Responses to “Let’s Cut the Middleman Out of the System”

  1. alfon said

    what an amazing information
    i like to see that script picture

  2. msrb said

    The full text of Magna Carta is available at numerous webpages including the following:

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