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markets. Price inflation from changes in exchange rates, as we™ll see
later, is a different thing from inflation due to an increase in the supply
of “money” over “goods and services.”

The Remarkable Island of Guernsey

While U.S. bankers were insisting that the government must bor-
row rather than print the money it needed, the residents of a small
island state off the coast of England were quietly conducting a 200-
year experiment that would show the bankers™ inflation argument to
be a humbug. Guernsey is located among the British Channel Islands,
about 75 miles south of Great Britain. In 1994, Dr. Bob Blain, Profes-
sor of Sociology at Southern Illinois University, wrote of this remark-
able island:
In 1816 its sea walls were crumbling, its roads were muddy
and only 4 1/2 feet wide. Guernsey™s debt was 19,000 pounds.
The island™s annual income was 3,000 pounds of which 2,400
had to be used to pay interest on its debt. Not surprisingly,
people were leaving Guernsey and there was little employment.
Then the government created and loaned new, interest-free
state notes worth 6,000 pounds. Some 4,000 pounds were used
to start the repairs of the sea walls. In 1820, another 4,500
pounds was issued, again interest-free. In 1821, another 10,000;
1824, 5,000; 1826, 20,000. By 1837, 50,000 pounds had been
issued interest free for the primary use of projects like sea walls,
roads, the marketplace, churches, and colleges. This sum more
than doubled the island™s money supply during this thirteen year
period, but there was no inflation. In the year 1914, as the British
restricted the expansion of their money supply due to World
War I, the people of Guernsey commenced to issue another
142,000 pounds over the next four years and never looked back.
By 1958, over 542,000 pounds had been issued, all without
Guernsey has an income tax, but the tax is relatively low (a “flat”
20 percent), and it is simple and loophole-free. It has no inheritance
tax, no capital gains tax, and no federal debt. Commercial banks ser-
vice private lenders, but the government itself never goes into debt.
When it wants to create some public work or service, it just issues the
money it needs to pay for the work. The Guernsey government has
been issuing its own money for nearly two centuries. During that
time, the money supply has mushroomed to about 25 times its original
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size; yet the economy has not been troubled by price inflation, and it
has remained prosperous and stable.6
Many other countries have also successfully issued their own
money, but Guernsey is one of the few to have stayed under the radar
long enough to escape the covert attacks of an international banking
cartel bent on monopolizing the money-making market. As we™ll see
later, governments that have dared to create their own money have
generally wound up dealing with a presidential assassination, a coup,
a boycott, a war, or a concerted assault on the national currency by
international speculators. The American colonists operated success-
fully on their own sovereign money until British moneylenders leaned
on Parliament to halt the practice, prompting the American Revolu-
tion. England had a thriving economy that operated on the sovereign
money of the king until Oliver Cromwell let the moneylenders inside
the gates. After 1700, the right to create money was transferred to the
private Bank of England, based on a fraudulent “gold standard” that
allowed it to duplicate the gold in its vaults many times over in the
form of paper banknotes. Today governments are in the position of
the disenfranchised king, having to borrow money created by the banks
rather than issuing it themselves.

The Gold Humbug

In 1863, Eleazar Lord, a New York banker, called the gold standard
itself a humbug. He wrote:
The so-called specie basis [or gold standard], whenever there is
a foreign demand for coin, proves to be a mere fiction, a practical
humbug; and whenever, by an excess of imports, this pretended
basis is exported to pay foreign debts, the bank-notes are
withdrawn from circulation or become worthless, the currency
for the time is annihilated, prices fall, business is suspended,
debts remain unpaid, panic and distress ensue, men in active
business fail, bankruptcy, ruin, and disgrace reign.7
The requirement that paper banknotes be backed by a certain
weight of gold bullion, Lord said, was a fiction. Banks did not have
nearly enough gold to “redeem” all the paper money that was sup-
posed to be based on it, and there was no real reason the nation™s
paper money had to be linked to gold at all. The gold standard just
put America at the mercy of the foreign financiers who controlled the
gold. When national imports exceeded exports, gold bullion left the
country to pay the bill; and when gold stores shrank, the supply of
Chapter 10 - The Great Humbug

paper money “based” on it shrank as well.
The real issue, as Vernon Parrington pointed out, was not what
money consisted of but who created it. Whether the medium of ex-
change was gold or paper or numbers in a ledger, when it was lent
into existence by private lenders and was owed back to them with
interest, more money would always be owed back than was created
in the first place, spiraling the economy into perpetual debt. A dollar
borrowed at 6 percent interest, compounded annually, grows in 100
years to be a debt of $13,781.8 That is true whether the money takes
the form of gold or paper or accounting entries. The banks lend the
dollar into existence but not the additional $13,780 needed to pay the
loan off, forcing the public to go further and further into debt in search
of the ephemeral interest due on their money-built-on-debt. Merchants
continually have to raise their prices to try to cover this interest tab,
producing perpetual price inflation. Like the Tin Woodman whose
axe was enchanted by the Witch to chop off parts of his own body,
the more people work, the less they seem to have left for themselves.
They cannot keep up because their money keeps shrinking, as sellers
keep raising their prices in a futile attempt to pay off loans that are
collectively impossible to repay. (See Chart opposite.)

Challenging Corporate Feudalism

If the Scarecrow in search of a brain represented the unschooled
farmers matching wits with the bankers, the Tin Woodman who had
chopped out his own heart reflected the plight of the working man
exploited by the corporation, which was increasingly replacing the
small family business competing in a “free market.” In 1886,
corporations were given the rights and privileges of “individuals”
although they lacked the morality and the conscience of live human
beings. Their sole motive was profit, the sort of single-minded devotion
to self-interest that in a live human being would be considered
pathological. Corporations are feudalistic organizations designed in
the structure of a pyramid, with an elite group at the top manipulating
masses of workers below. Workers are kept marching in lockstep,
passing orders down from above, out of fear of losing their jobs, their
homes and their benefits if they get out of line. At the top of the
pyramid is a small group of controllers who alone know what is really
going on. Critics have noted that the pyramid with an overseeing eye
at the top is also the symbol on the Federal Reserve Note, the privately-

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from: www.mwhodges.home.att.net/

issued currency that became the national monetary unit in 1913.
The popular grassroots movements that produced the Greenback
and Populist Parties in the 1890s represented the interests of the com-
mon man over these corporate and financial oppressors. “Populism”
today tends to be associated with the political left, but the word comes
from the Latin word simply for the “people.” In the nineteenth cen-
tury, it stood for the “government of the people, by the people, for the
people” proclaimed by Abraham Lincoln. According to Wikipedia
(an online encyclopedia written collaboratively by volunteers):
Populism . . . on the whole does not have a strong political identity
as either a left-wing or right-wing movement. Populism has
taken left-wing, right-wing, and even centrist forms. In recent
years, conservative United States politicians have begun adopting
populist rhetoric; for example, promising to “get big government
off your backs.”
Although the oppressor today is seen to be big government, what
the nineteenth century Populists were trying to get off their backs was
a darker, more malevolent force. They still believed that the principles

Chapter 10 - The Great Humbug

set forth in the Constitution could be achieved through a democratic
government of the people. They saw their antagonist rather as the
private money power and the corporations it had spawned, which
were threatening to take over the government unless the people inter-
vened. Abraham Lincoln is quoted as saying:
I see in the near future a crisis approaching that unnerves me
and causes me to tremble for the safety of my country.
Corporations have been enthroned, an era of corruption in high
places will follow, and the money power of the country will
endeavor to prolong its reign by working upon the prejudices of
the people until the wealth is aggregated in the hands of a few
and the Republic is destroyed.9
Lincoln may not actually have said this. As with many famous
quotations, its authorship is disputed.10 But whoever said it, the in-
sight was prophetic. In a January 2007 article called “Who Rules
America?”, Professor James Petras wrote, “Today it is said 2% of the
households own 80% of the world™s assets. Within this small elite, a frac-
tion embedded in financial capital owns and controls the bulk of the
world™s assets and organizes and facilitates further concentration of
conglomerates.” Professor Petras observed:
Within the financial ruling class, . . . political leaders come from
the public and private equity banks, namely Wall Street --
especially Goldman Sachs, Blackstone, the Carlyle Group and
others. They organize and fund both major parties and their
electoral campaigns. They pressure, negotiate and draw up the
most comprehensive and favorable legislation on global strategies
(liberalization and deregulation) and sectoral policies . . . . They
pressure the government to “bailout” bankrupt and failed
speculative firms and to balance the budget by lowering social
expenditures instead of raising taxes on speculative “windfall”
profits. . . . [T]hese private equity banks are involved in every
sector of the economy, in every region of the world economy
and increasingly speculate in the conglomerates which are
acquired. Much of the investment funds now in the hands of
US investment banks, hedge funds and other sectors of the
financial ruling class originated in profits extracted from workers
in the manufacturing and service sector.11
It seems that the Tin Man has indeed been stripped of his heart
and soul by the Witch of the East ” the Wall Street bankers ” just as
Lincoln, the Greenbackers and the Populists foresaw . . . .
Section II

The Wicked Witch of the East held all the Munchkins in bondage for
many years, making them slave for her night and day.
“ The Wonderful Wizard of Oz,
“The Council with the Munchkins”
Chapter 11 - No Place Like Home

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Chapter 11

“No matter how dreary and gray our homes are, we people of flesh
and blood would rather live there than in any other country, be it ever
so beautiful. There is no place like home.”
“ Dorothy to the Scarecrow,
The Wonderful Wizard of Oz

P eople today might wonder why Dorothy, who could have
stayed and played in the technicolor wonderland of Oz, was
so eager to get home to her dreary Kansas farm. But readers could
have related to that sentiment in the 1890s, when keeping the family
homestead was a key political issue. Home foreclosures and evictions
were occurring in record numbers. A document called “The Bankers
Manifesto of 1892” suggested that it was all part of a deliberate plan
by the bankers to disenfranchise the farmers and laborers of their
homes and property. This is another document with obscure origins,
but its introduction to Congress is attributed to Representative Charles
Lindbergh Sr., the father of the famous aviator, who served in Con-
gress between 1903 and 1913. The Manifesto read in part:
We must proceed with caution and guard every move made,
for the lower order of people are already showing signs of restless
commotion. . . . The Farmers Alliance and Knights of Labor
organizations in the United States should be carefully watched
by our trusted men, and we must take immediate steps to control
these organizations in our interest or disrupt them. . . . Capital
[the bankers and their money] must protect itself in every possible
manner through combination [monopoly] and legislation. The
courts must be called to our aid, debts must be collected, bonds

Chapter 11 - No Place Like Home

and mortgages foreclosed as rapidly as possible. When through
the process of the law, the common people have lost their homes, they
will be more tractable and easily governed through the influence of
the strong arm of the government applied to a central power of
imperial wealth under the control of the leading financiers. People
without homes will not quarrel with their leaders.1
The Farmers Alliance and Knights of Labor were the Scarecrow
and Tin Woodman of Baum™s tale. They were a serious force to be
reckoned with. They were militant, and they were mad. To split


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