Excerpts from: <BR><BR> <I>The Key to World Peace - and Plenty</I> by Elsa Peters Morse

Excerpts from:

The Key to World Peace - and Plenty,

by Elsa Peters Morse


Money is defined as the sum total of currency and demand deposits. 
Money as such is a social instrument - a basic utility. It is the medium 
for easily exchanging goods and services and storing the value of wealth.

Therefore, to have a sound economy, money must be issued - and its
valued controlled by the government for the general welfare of the
nation, and its people. Money should not, as now, be issued as debt
against the collateral of private and public wealth by private business
institutions at interest for their private profits.

Few people understand how a dollar bill is issued into circulation as
debt. Nor have they been informed how the billions of dollars of the
national debt are set up on the books of the private banks under
capitalism as a loan to the nation at no financial cost to the banks and
yet drawing interest.

This is how a dollar bill is issued: When Mr. Small-Smith goes to the
bank to borrow $100, he puts up his cow, or car, or wages as collateral.
Then the bank makes a double entry in his account - a debit for $100 and
a credit-deposit for $100. Mr. Small-Smith signs on the dotted line that
he will pay back the amount of the $100 loan, with interest or forfeit
his collateral. Then the bank gives Small-Smith a checkbook and he is
ready to draw out his loan or $100 deposit  - in one dollar bills or ten
dollar bills, as he wishes.

The banking system keeps bills on hand for such transactions they are
printed at the Treasury at the cost of less than 1 cent per bill -
whether in dollar or thousand-dollar denomination. A similar transaction
takes place when Mr. Great-Trust goes to the bank to borrow a million
dollars or when the government borrows a billion dollars.

The money of modern capitalist civilization is created as debt-credit on
the books of the institutions that have the concession of issue. In the
process, debt is created, credit is created, and checks and paper bills
are put into circulation as money.




                 U.S. Senate Document No. 28


United States Senate Document #28, 1939, by Robert L. Owen, former
Chairman of the committee on Banking and Currency, United States Senate,
reveals the facts on the issuing of money under capitalism:

The Constitution of the United States gave the Congress the broad power
exclusively to create money. It is of the greatest importance to note
that the failure of the Congress to exercise this sovereign power led to
the creation of money by privately owned individual banks acting in
cooperation with their borrowers.

The modern use of the word "money" was clearly stated by the Honorable
Marriner S. Eccles, Chairman of the Board of Governors of the Federal
Reserve Bank System, before the Banking and Currency Committee of the
House of Representatives:

"The banks can create and destroy money. Bank credit is money;
it is the money we do most of our business with, not with that
currency which we usually think of as money. In purchasing
offers of Government bonds, the banking system as a whole
creates new money, or bank deposits. When the banks buy a
billion dollars of Government bonds as they are offered - and
you have to consider the banking system as a whole, as a unit -
the banks credit the deposit account of the Treasury with a
billion dollars. They debit their Government account a billion
dollars, or they actually create, by a bookkeeping entry, a
billion dollars.

"Take note that debt and credit are interchangeable terms in
that double-entry book keeping system. The failure of the
Congress of the United States to create the money required by
the people for the transaction of a greatly expanding volume of
business naturally caused the people to resort to the
manufacturing of money through the banks by loans.

"The people were compelled, of course, to pay for such
accommodation, or creation of credit, by the banks ... [the
people were fraudulently betrayed into using this system of
issuing money.]  Six percent interest was established in most
States as a legal rate of interest for loans . . . Thus the
credit money built up by this checking system was based on debt,
subject to interest [profit] and compound interest. This made
the system hazardous. "In the United States the banks were
permitted, on an average, prior to the Bank Act of 1935, to make
loans to an extent of 10 times as great as the currency [gold]
which they have available in vault or reserves held for them by
other banks. As a consequence, the banks made loans against
mortgages, on cattle and horses, houses, the hypothecation of
stocks, goods, and on those assets deemed bankable assets. But
usually the bank took security in excess of the amount of the
loan." 
Robert Hemphill, former credit manager of the Federal Reserve Bank of
Atlanta, Georgia, testified:

"If all bank loans were paid, no one would have a bank deposit
and there would not be a dollar of currency or coin in
circulation. This is a staggering thought. We are completely
dependant on commercial banks.

"Someone has to borrow every dollar we have in circulation, cash
or credit... When one gets a complete grasp upon the picture
the tragic absurdity of our hopeless position is almost
incredible - but there it is. It is so important that our
present civilization may collapse unless it is widely understood
and the defects remedied very soon."


               The 1930-1934 Depression - USA


In 1932 during the Great Depression, every bank in the U.S. was closed,
but one, because there was not enough gold to redeem the paper notes in
circulation. To prevent a nationwide run on the banks and cause national
economic collapse - the collapse of capitalism - the government gave the
order to stop redeeming paper money in gold. Then the gold notes were
exchanged for new notes reading "redeemable in lawful money" (or other
paper notes) - and not as formerly "redeemable in gold."

The gold was then buried in Fort Knox and the money of the U.S. became
based on all commodities, instead of one commodity, gold.

The system of pump-priming the economy through debt, otherwise known as
credit expansion, is technically called deficit financing. Deficit
financing through government spending or borrowing by increasing the
public debt is now necessary to subsidize the whole profit system
economy - the economy of the entire capitalist world.

The profit in interest charges, in the issuing of the nation's money as
public or private debt, creates another gap between cost and prices,
this time the production of money. And this gap is bridged by debt and
more debt - a disastrous spiral.




                        Deficit-Financing


In the United States, the Federal Reserve Banks and their affiliated
banks are privately owned and operated. It is a banking cartel. It is
not the property of the United States government, as many people
believe.

This private banking system, taken as a whole, has the concession of
issuing the nation's debt-credit money at interest to its stockholders.
- And the banks and associated loan corporations have the privilege of
issuing debt-credit money to private corporations and private
individuals - at interest-profit to their stockholders. This is true in
every capitalist country of the world.

It is important for all people to understand the system of the private
issuing of the nation's money under capitalism  - as debt - and its overall
effect on the economy.

To illustrate again: when a capitalist government spends $80,000,000 for
eighty $1,000,000 missiles, government bonds are issued at the Treasury
for this amount and are "given" to the banking system as a whole to
create a credit demand deposit for the government, for this amount on
the books of the bank. Then the government proceeds to issue checks
against this account for the labor and materials, which go into the
construction of the missiles.

Suppose the bonds draw 2.5 % interest and run for 40 years. By the time
they are due, the people will have been taxed and will have paid the
bankers (or the private holders of the bonds) $80,000,000 in interest,
for which they have done nothing but make a bookkeeping entry.

So the 80 missiles cost the people $160,000,000 - one half for the
missiles and one half for interest profit to the bankers. So it is with
all public improvements - roads, dams, houses, schools and with wars or
military expenses - all are financed by bond issues carrying the
interest profit toll.

The servicing of the public debt, or the paying of the interest charge,
(profit to the banks or other bond holders) on the capitalist nation's
state, city or county bonds - is reflected in higher and higher tax
rates as the debt load deepens. The injections of debt-credit money are
steadily increasing throughout the entire capitalist world.

All money should be issued directly by the nation - by the government -
and not run through the books of the banks as a dole to the bankers and
a debt to the people, thus throttling the overall economy through the
toll of interest in the debt-profit system of loaning money.

As long as capitalism exists, it is obvious the debt can never be paid
off, for then there would be no money in circulation. And any attempt to
reduce it will bring a corresponding drop in the national prosperity. To
get rid of debt the people must get rid of the profit system.

Deficit financing keeps capitalism running - but with mounting problems.
Capitalism's financial techniques are now based on a cycle of capital
expansion with rising debt and inflation, with the ratio of debt tending
to increase.

As the injections of debt-credit money increase to astronomical figures,
inflation takes place, and the economy becomes increasingly unstable
bringing economic insecurity to all. This intensifies the struggle
between the wage earners to cover the high prices to life and their
employers - the profit-takers - to keep up profits, causing every-rising
inflation.

In spite of the growing instability of the capitalist economy,
capitalist nations continue to attempt to keep the profit system
running. But no matter whether they struggle to survive through a
military program, cold-war economic tactics, foreign aid, East-West
trade, or the welfare state with or without market controls - the debt
problem will deepen.

To have a sound economy both goods and services and money should be
issued and their value controlled by the government for the general
welfare of the nation and its people.





             -  Elsa Peters Morse, San Francisco, 1960 -
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