Contemporary economists, have a central premise by which they diagnose economic ills, and by which they prescribe selected human actions as cures for the ills. This premise is best referred to as the "Bankers' Law of Money Multiplication." Basically, economists argue that money injected into an economy by a government multiplies itself each time that it is deposited in a bank. In the monetarists' reasoning, a bank loaning $100 will get the money back eventually as savings or checking; at that point, the bank will lend out all the $100 except for the amount required by law for a reserve. With a 15% reserve requirement against deposits, the bank can relend $85.

In the reasoning of the monetary economists, the original $100 will multiply to equal $185. When relent the money will again be multiplied when the $85 is returned except for the 15% requirement. On this relending each time the money returns minus the reserve requirement is considered a multiplication of money. There are a number of things wrong with this reasoning--faulty reasoning which is used to justify certain economic measures when an economy goes sour, e.g., budget-cuts and/or tax-cuts.

Given the involvement of banks as the roundhouse to which the money must return before it multiplies, a more complete description.

The Actual Rate of Money Multiplication

Bankers' Law is misleading in many regards. First of all, money--as an economic stimulant--multiplies each time that it changes hands. If a $100 changes hands 10 times before it reaches the bank again, a $1000 worth of goods and services has been transacted, stimulated, or facilitated by the injection of the original $100 into the economy. More production of goods and services would occur if money never multiplied itself through banking; the bank retires 15%--or whatever the reserve requirement is--each time that the bank handles the money. In addition, the productive value of the money is diluted by a "handling charge," better known as the interest on the loan, that is, money that could be stimulating production is instead fattening the roles of bankers.

A philosophical question may have practical relevance in consideration of the true nature of the Banker's Law of Money Multiplication. If a glass has water in it up to the mid-line, is it better to say that the glass is

half-full, or

It depends. Either expression would be equally appropriate if the glass was standing with the water in it. However, one description would be more apt than the other depending on whether the glass was being filled or drained. A similar consideration should be taken in describing the bankers' handling of money with regards to production: Is production rising or falling, multiplying or dividing? When banker handle money?

If the bankers are handling the currency so as to multiply production, then the appropriate description of the bankers' law would be one of money multiplication. However, if the money is re-circulated within the system of production so as to drain or dilute production, then a better phrase would be

Bankers' Law of Money Division.

As mathematical operations, multiplication and division are reciprocals of each other, two sides of the same coin. If bankers channel money so as to divide up and dilute production, then their handling of the money supply should be called one of Money Division, not Multiplication. Stated another way, they are not increasing (multiplying) the product value of money. Rather, they are consistently dividing or cheapening the value of the money each time that they handle it.

Each time that the bankers mishandle the nation's money, some product worth is "subtracted" in the way of the reserve requirement, the handling charge, and the inflationary loans. Herein is another way of arguing that the appropriate name for the bankers' use of money is not one of multiplication but one of division: repeated instances of subtraction are the same as division.

As with all systems of production, America needs institutions to harbor savings and to act as currency clearinghouses. But does America need a financial system which effectively divides money and dilutes production? The present financial institutions are in the forefront of the problems destructive of the very system of which they are a part.

These words are not too strong in describing the premises on which bankers operate nor in describing the destructive nature of how bankers channel the nation's currency away from production. This currency dislocation occurs foremost with production of essential goods and services.

Money Is a Product of Human Production

A second and much more important short-coming of Bankers' Law of Money Multiplication is the sanctification of the scribbled-on-paper products known as money. Money is no different than all the other currencies which have existed and do exist in the world. All currencies are products of human production if used. No currency has ever been of any production other than human production.

People suffer when any currency, including the variety known as money, is deified and treated like manna from heaven. Deification of money is what the Keynesians, the monetarists, and the politicians attempt. Increasing the money supply (that is, the currency supply) does not simultaneously increase the production of bread and other essentials. Quite to the contrary. Consequently, Bankers' Law should be a law of money division on two accounts: frequency of division and what is divided.

As noted above, money multiplies each time it passes through anybody's hands, not merely and only when it passes through bankers' hands. Previously, it was noted that more production of goods and services would occur if the money never multiplied/passed through bankers' hands. After all, the bankers have to keep 15% each time they handle it, along with their own service charges.

This dilution or drain of buying power is compounded by the counter-productive loans which bankers make as they redirect the money into the general economy. Few individuals would lend money so as to put themselves out of work, home or life. Unknowingly, many people are doing just that indirectly through their banks, savings and checking. People don't harm themselves directly; banks do it indirectly for the unsuspecting, injured people. The best examples of banks pooling the money of the small people to indirectly put the people out of job, home, and life are the acquisition loans made to Seagrams of Canada: $3 billion!

As Seagrams acquires production south of the Canadian border it will streamline and vivisect the production--read that as meaning more U.S. unemployment, taxation, inflation, and probable violence. Why don't the banks organize the small savers to pool the small savers' money to buy ownership of their own employment settings, instead of doing it for foreign take-overs and foreign domination. Why won't the banks help the small persons become their own bosses, so as to be budding capitalists, who capitalize their own production and thereby fulfill the American dream.

As a central institution for directing the money supply, banks exact not only a heavy handling charge, but a heavy inflationary charge. The solution to America's problems is not people saving more money--voluntarily or involuntarily. Financiers are not channeling the savings and pensions of Americans into the production of anything but dollars and very rarely into production. The solution, in part, is where Americans save their money.

Grandma's Law of Product Multiplication

Any initial revision of Bankers' Law should note that money multiplies more often, and at face value (not unity minus 15%, the reserve requirement), when it does not go through financiers' hands. A second revision of the Bankers' Law would require that money be understood and accepted as merely another product of human busytime. The uniqueness of all currencies is how they are supposed to function as the common, standardized, intermediate product of production; currencies can facilitate the exchange of all other human products (goods and services) between producers. As such, money has the capacity to be a tool of productivity like any other time-saving innovation of man's conscious or accidental ingenuity.

The productive version of Bankers' Law is the law that most any Grandma could tell you:

Grandma's Law of Product Multiplication

Most any Grandma will tell you that one will reap as one sows--that one will have the products of where one is busying his perspiration or inspiration. With Bankers' Law, individuals and nations invariably fall into the delusion of thinking that the multiplication of money is synonymous with more wealth, and synonymous with an improved standard of living, or synonymous with a greater gross national product.

Fortunately, the delusion is not as great as it once was. People are realizing that a pay raise may result in less buying power, i.e., fewer products for the greater number of scribbled-on-paper products. Nations are distinguishing between the dollar GNP and the "real" GNP; Spring quarter of 1980 saw the rise in the dollar GNP while the product GNP was dropping. Unfortunately, individuals and nations are skipping from the common sopps (scribbled-on-paper products) that serve as national stock certificates--currencies--to private sopps or private currencies: bonds, stocks, or precious metals, a skipping that is also a skipping-out on anti-inflationary production of useful goods and services. Why aren't the politicians educating us with the common sense of Grandma?

What Products?

The destructive delusions of Bankers' Law does not exist with Grandma's Law. Before one's reading of Grandma's Law is finished, one has to confront the spontaneous question: what products should be multiplied? This question has been asked several times, e.g., what products, what producers, what production. If this question had been asked back in 1928, we would not have had the Great Depression or maybe Hitler. Then, as now, scribbled-on-paper products were multiplying faster than other production; counter-productive busynesses consume an increasing percentage of the available human time, matter and energy.

Unfortunately, the sopphists and the necronomists did not listened to their Grandmas. If they had, they would have asked the question: "What products do we want in circulation and what relative rates of velocity do we want for each product?" Clearly in times of sky-rocketing sinflation of the essential products, essential circulation is insufficient. The solution is not providing further stimulus to circulation of less- or non-essential production, especially production of scribbled-on-paper products which are merely symbols of production.

Eurobonds: Foreign Control and Counterfeiting of the Dollar

As described in previous chapters, an October 1980 article in the Wall Street Journal reported a meeting of financiers to discuss the Euromart. The Euromart primarily refers to financial transactions in Europe using foreign currencies. It is composed of mostly dollars (80% of the total), initially from Russia but mostly from OPEC sources thereafter, e.g. "petrodollars." These dollars have multiplied in the form of loans. The size of the Euromart is estimated at over $1.3 trillion (81JA). This number of dollars is equal to or greater than the value of all the stocks (corporations) listed on the New York Stock Exchange. An uneasiness prevails as to the exact size of the Euromart. Some financiers are unsettled by the low reserve requirements. The expansion or growth of the Eurodollar money supply is twice that of the U.S. due to this lowered reserve requirement.

There are many financial time bombs ticking away. One bomb, or domino, is the Euromart. Properly appreciated, the soppy expansion of Eurodollars by the multiplication of loans constitutes a counterfeiting of dollars, a counterfeiting of the common American Stock Certificate. As a result of this foreign counterfeit multiplication of dollars--in the form of loans, a private complex form of currency--at a faster rate than the domestic rate of money expansion, the basic stockholder of America is having the value of his dollars eroded away. One area where the American citizen is clearly having his dollar eroded is in the real estate market. The number of foreign-derived dollars inflating the cost of American real estate, beyond the means of more and more Americans, is greater than is realized. Phony domestic corporations buffer the nature of foreign ownership as counterfeit dollars, or dollar-backed securities are used to buy up American real estate or production. Why are the politicians allowing a foreign cheapening of the US citizens' dollars--of the citizens' common currency?

More important than why the politicians tolerate foreign counterfeiting is why the domestic, productive individuals tolerate ANY counterfeiting of the dollar--foreign or domestic. Furthermore, why do people tolerate the skewing of the American System of Production away from the business of producing essential goods and services. The tolerance has metastasized the lop-sided growth of the busynesses which manipulate SOPP's: currencies, stocks, bonds, commercial paper, T-bills, etc.

As the reader can hopefully see, under the present narrow minds and their money multiplication laws, the immediate future looks good only for the soppy enterprises, not for the basic producers. For the future, the age-old and the ignored truth foretells the demise of even the "sopphists" with their Pyrrhic monetary victories:

No One Beats Inflation,

Letting Inflation Soar.


Noble knowledge of productive, relevant truths is the source of the wisdom that can--in simple, peaceful, and unsacrificial steps--stop inflation in a month, unemployment in a month, over-taxation in a few months, and all the resultant sequential domestic and international violence.

Rationally and factually, more human production would multiply if soppy financial institutions were not allowed to participate in the multiplication process of money. The separation of destructive money multiplication from production multiplication will have to be done by an informed and educated citizenry; the politicians will not do it, nor will the blindly, suicidal bankers practicing necronomics: the laws of the dead or the dying. If we are to have essential product multiplication, it must come from the common citizenry from whence it always came.

Warning: Anyone found stealing lifehours will be forever banned from participation in and rewards of Better Democracy and Capitalism.


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