I’m going off topic a bit because of the Occupy Wall St (OWS) movement. They say they are 99% of the people who are overly affected by the 1% that hold most of the wealth, and have spawned a counter group referring to themselves as the 53%, the 53% of Americans that pay taxes. The second group seems to think that the first group is asking for handouts and suggests that if they want to occupy something, they should occupy a job. I think they are missing the point.
From what I’ve read, the OWS doesn’t seem to want handouts, but rather is arguing for change in a system that leads to such concentration of wealth. They don’t seem to be complaining about the wealth disparity as much as they are the power concentration that comes from the wealth. I think they would be happy to be in a level playing field with rich people, but are arguing about the playing field not being level. And while I think they may be right and are sort of aiming in the right direction, they haven’t identified the real underlying cause.
It’s not so much the greed of the banks or the greed of Wall St that has caused the problems, but rather it’s the fact that banks control the money supply. It may seem odd to talk about banks not controlling the money supply, but in the history of the country, except for brief periods, the money supply was controlled by the people until 1913 with the creation of the Federal Reserve Bank.
The Federal Reserve Bank seems to be able to create money out of nothing by loaning it to the government. The government then deposits this money in other banks which get the first use of it. These banks, that have a requirement set by the Federal Reserve to keep a certain amount of money in reserve against bad loans, can loan out about 10 times what they have in deposits. This increases the money supply several fold and inflates the economy. In times of inflation people make bad economic choices based on false assumptions. When these bad choices are concentrated by whims of culture they go to extremes and are referred to later as bubbles (tulip, south sea, and more lately, housing). But the source of the bubble is always the creation of more money than would have been created through normal economic means.
Most people don’t see inflation because it happens so slowly, but the bankers have a front row seat. I think that if all of us knew what they knew, we’d probably want big bonuses too. Because they see that the ultimate end of this is that the money they get is worthless, so their normal human reaction is to get as much as possible, as fast as possible, and buy with it things that will retain their value. And the rest of us have been okay with that as long as we’ve been able to get by. But the whole process of inflation has had dire consequences for our thinking and our culture.
While most of us don’t consciously notice it, I think we do at core. While we don’t have the resources to buy a house in the Hamptons, we do have the ability to choose a X-box rather than saving the money. And when the money is losing its value due to inflation, we, like the bankers, will buy things that will seem to hold their value. Inflation makes us all overvalue immediate reward; it has changed our culture.
So rather than the 53% looking at the OWS and saying, “Get a job,” I think we in the 53% need to look at ourselves and ask why we are willing to live with a system that gives the economic power of money creation to banks and bankers. If we got rid of fractional reserve banking and had a truly distributed system such as a free mint gold standard the power would rest with the people, all the people. We’d have a reason to save, and we’d invest our savings carefully. Our economy would grow as it did between 1870 and 1913, some of the greatest growth we’ve ever had.
If you know me, you know that I don’t believe that addiction is any more common now than it was in 1789 when the constitution was written. But if it is, the best possible reason is not a new drug or anything else that most people associate with addiction. If there is more addiction now then when the founders wrote the constitution it is more likely the normal effect on the midbrain reward system of a depreciating money supply. Not surprising that we wouldn’t notice it because everyone alive now has grown up since 1913 (the founding of the Federal Reserve Bank) and most since 1932 (when circulation of gold coin stopped) and even most since 1971 (when the dollar was completely removed from a gold standard). We don’t think of money and wealth in the same way as most of the world has for most of human history. It’s pretty to think that we’re right and they’re wrong, but not very likely.
© Howard C Wetsman MD FASAM