Banking: the root cause of the injustices of our time
Where does the buck stop?
Abdalhamid Evans
What we want to do is to try and find out what has happened, what's gone wrong. How did we get to where we are?
Let us imagine that we are looking at the body of a crime victim. Multiple injury, heavy duty GBH, rape and robbery of an unprecedented nature. The victim's condition is serious, critical, but there is still life. It's not yet time for an autopsy, but it soon will be, if something is not done.
We have come across the scene of the crime, stumbled over the body, probably got some blood on our clothes. Naturally we are concerned, horrified, but what can we do? We could walk away, pretend we didn't see it, we weren't actually there. Its probably too much to deal with anyway. Can't handle it. Don't get involved.
Or we can accept responsibility for where we find ourselves. The victim is clearly in need; surely there is something that we can do, even if we are not experts.
The victim is the planet and its inhabitants, the people, animals plants, oceans, forests, the air, earth and water. Life itself.
But how did this happen, who did it, why? It's too awful to be an accident. How can we put it right? Can we put it right? The questions beg an answer.
One does not necessarily have answers, but let's at least try and understand what has taken place.
We do know that the official version of things, the story as we have been told it is highly suspect. It sounds very much like an alibi put out by the likeliest of suspects.
So let's try and start at the beginning. This may all sound rather simplistic, but we want to break down a complex affair into sizable bites, in order to digest it, and use it in a positive and intelligent manner.
We are dealing with something unnatural, a gross imbalance, something so out of sync at the centre, that it has thrown everything else out of step.
In trying to understand and cope with this global imbalance, it is tempting to look at the symptoms, because they are more manageable, and try and deal with it in that way. Let's save the whales, or the rain forests. Maybe concentrate on pollution, or the arms race, nuclear power, inner city crime.
These issues are all valid, but they are all symptoms of this extreme imbalance. They are the results of something, and if we only focus on them we may miss seeing the cause. For if we are to nurse the patient back to life we have to find the cause of the disease. How did the cancer start?
One could describe life as a series of transactions, some simple some complex. Chemical, personal, social, national, global, cosmic. Endless exchanges and interactions. Planets spin, seasons shift, day turns into night.
And people buy and sell, they exchange things. It's probably the most basic human social transaction. Wherever there are people, it's going on. Everything you see has probably been bought, sold or exchanged.
It is a type of social bedrock.
Transactions are exchanges that are mutually beneficial, both parties gain from the exchange, it is part of social movement and growth. I give you this, you give me that, and we are both pleased with the exchange and everyone else can see that everything is OK. 2 + 2 = 4 There is balance, equilibrium.
Things go wrong when someone wants something for nothing
10 = 11, 2+2=5
One pound + Gateway Building Society = Three pounds.
In order for you to believe it, some sleight of hand will be needed.
Barter of one thing for another, goods for goods without the use of money is the obvious basis for trade, but from earliest times a medium of exchange has been found to be necessary. You may not have the goods I need, so if I swap my goods for money, the medium of exchange, I can get what I want.
This medium of exchange must be something of actual value in itself, you are converting your goods into this other thing, this medium, in order to exchange that in turn for what you want. Why would anybody change their goods for something worthless? Would you? You're kidding! My goods represent a lot of my time and energy and sweat, they are worth something, they are real, valuable, they improve the quality of your life, they're useful. Why should I swap them for something of no value? The idea is ridiculous!
And yet this is exactly what we all do, every day.
To read more, you will have to buy the book.
The history of usury
Abdalhaqq Bewley
"Take not usury nor more than thou gavest. Fear thy God, that thy brother may live with thee. Thou shalt not give him thy money upon usury nor exact of him any increase of fruits."
"Thou shalt not lend upon usury ... usury of money, usury of victuals or usury of anything that is lent upon usury.
'And if a man hath not lent upon usury nor taken increase he is just."
These three Old Testament quotes from Leviticus, Deuteronomy and Ezekiel respectively, and they are representative of several more, show that the prohibition of usury goes right to the legal and ethical roots of European civilisation. The prohibition was confirmed and even strengthened by the early Christians. St. Augustine for instance, who defined usury as occurring when a person expects to receive anything more than he has given, held usury to be so forbidden that any profits gained by it could not even be given away as charity. St. Thomas Aquinas was still continuing this position with clarity and vigour in the 14th century.
In the classical tradition, we find usury categorically dealt with by Aristotle. He said that of all the kinds of trade, the most unnatural and most justly hated is usury. Usury not only seeks an unnatural end, but misuses money itself, for money was intended to be used in exchange, not to increase at usury. Usury is the unnatural breeding of money from money. When we add to this the condemnation of Plato, who noted that usury inevitably set one class against another and was therefore destructive to the state, and that of the Roman philosophers Cicero, Cato and Seneca, we see that both the Judaeo-Christian and Graeco-Roman traditions which together comprised the main sources of European civilisation were unanimous on this issue. Religious and secular tradition spoke with one voice.
Thus it can be seen that the practice of usury had been subject to prohibition from ancient times. To put this down to primitivism, naivety and lack of economic understanding, which many detractors did and continue to do, is arrogant and a convenient way of side-stepping the underlying intellectual issues involved. The basis of the prohibition was ethical and theological and as such was concerned with deeper issues than economic expediency and international trade. Intrinsic to the prohibition of usury was the understanding that the essence of the usurious transaction – being guaranteed to get something for nothing – constitutes a rupture of natural law and is therefore bound to result in imbalance and disintegration. Any inconvenience incurred on the level of commercial transaction was put aside in favour of the larger consideration of the overall public good.
This does not mean to say that no transactions involving usury took place. They did. Very early on the ancient Jews had claimed a scriptural licence to practice usury and the conditions under which they claimed to be allowed to do so give us a profound insight into the real nature of the usurious transaction. Deuteronomy Chapter 23 verse 20 states: "Unto a stranger thou mayest lend upon usury, but unto thy brother thou shalt not lend upon usury." The word "stranger" in this text is generally interpreted as "enemy" and armed with this text, the Jews used usury as a weapon, finding in it a means of gaining power over their enemies. By means of usury, other people's need could be transformed into their subjection.
From ghettos in the larger cities of Christendom, Jewish money-lending activities were carried on throughout the "Dark" and "Middle Ages". They were allowed to continue under strict scrutiny and were tolerated by the authorities only for as long as they were seen to provide a useful service. Even in this oppressive situation it was possible for the moneylender to gain enormous wealth by the practice of usury – Simon of Norwich, for example. At one stage in 13th century England nearly half of the country's tax revenue was collected from the Jewish community who represented less than 5% of the population – but they were never able to turn their wealth into power, being subject to frequent and terrible popular purges, which in this country, resulted eventually min their expulsion from the country in the 14th century not to return for 350 years.
Money lending continued to exist on a small scale throughout the Middle Ages. Unscrupulous local merchants would take advantage of humble people who had got into difficulties by reason of a bad harvest or mismanagement or some other misfortune and would be forced to borrow to fulfil the ordinary necessities of life. In these cases there would usually be an attempt to conceal the usurious nature of the loan and if it did come to light, the usurer was subject to heavy penalties and became a social outcast.
To read more, you will have to buy the book.
The False Growth Cycle Inherent in the Credit-based Economy Together with some Historical Illustrations
Aisha Bewley
Modern economists are obsessed with the idea of 'growth' – credit growth, money growth, economic growth – the list goes on. But the questions we must ask are: Is this growth sustainable? Is the whole concept of economic growth based on credit valid? Has it ever worked in the past?
What I intend to do in this talk is to illustrate an historical cycle which occurred in the major financial centres which were based on, or extensively relied on, "paper" money. In other words, they relied on credit. I will concentrate on certain European economies and focus on the pattern running from Genoa to Amsterdam to London to New York. To illustrate two different types of economy which fall outside of this pattern, I will refer to Venice of the 15th century and the Ottoman Empire prior to 1800 to illustrate prosperity without the extensive use of credit.
This talk will concentrate on "currency", for as Lord Keynes pointed out:
"There is no subtler or surer means of overturning the existing basis of society than to debauch the currency."
So the nature of currency is crucial.
Now, before leaping off into history, I will first touch on money and its function, and explain some of the transactions which we will refer to in the course of this talk.
The function of money is to separate buying from selling and thus enable people to trade without needing to have recourse to direct barter – like trading goats for wheat and the like. Money is therefore a medium of exchange, and by extension, it is also a unit of account so people can keep track of what they have more easily. Many things have been used as money in the course of history – salt, tobacco, pepper, cowry shells, etc., but gold and silver have been recognised and accepted as money for the past 2000 years. Gold and silver form a currency which owes its value to an inherent desirability. Both are worth something in themselves as commodities.
There are two types of paper "currency":
1) What can be termed as "fiduciary" money or promissory money, which bears the promise that it can be exchanged for gold or silver. So, in principle, it represents something of value.
2) Fiat money, which is issued by governments or banks and which is intrinsically worthless – bits of paper with no actual value in themselves other than the illusion of value. This is the form of currency in use today.
Since, as we have heard in the last talk, usury was absolutely forbidden by the church and those who were known to practise it forbidden communion in the church and sometimes even Christian burial, various credit devices
were contrived to get around the prohibition and also to circumvent the need to move large sums of cash around. These devices were employed by the money dealers and lenders of the time. These transactions also loyed by them to make themselves a handsome profit. Debt at that time was substantial. For example, in 1642, the total income of the 121 English peers was about 730,000 pounds – but their debts were 1,500,000. People were desperate to get hold of money by any means, and money lenders equally eager to make a profit of people's needs.
The major unit of credit they devised was THE BILL OF EXCHANGE.
The bill of exchange was a binding promise to pay a specific person a certain sum at some future but proximate date m another town, and hence a change into another currency. This in itself involved a loan, for even if a bill was payable "on sight", it still took time to be carried from one place to another before it could be paid. It was also agreed that for large sums the person required to pay should have time to raise that sum. This delay, known as USANCE, might be 1, 2 or 3 months from the day the bill was presented – so the merchant had a credit advance of 1 to 3 months. Fair enough, but the lenders had fixed rates of usance, or interest as we would call it today, – and also got additional profit on the loan by playing the exchange market. Some merchants would even send bills to themselves to gain credit, bills secured by absolutely no cash at all!
This transaction usually involved four people. Merchant A (call him Antonio of Genoa) owes money to Merchant B in Antwerp (call him Hans). Antonio needs to pay money to Hans, but does not know anyone in Antwerp who can pay Hans. So Antonio goes to a local banker, say the Casa di San Giorgio, which has an account with people in Antwerp, the Welsers. Antonio pays his money to the Casa which gives him a bill which he then sends to the Welsers. The Welsers then pay out the sum to Hans. Antonio has to ay the Casa more than he owed Hans to cover their interest. The difference between the two sums amounts to, say, a certain extra number of florins which is concealed interest.
These bills were also subject to discounting. Hans has this bill of exchange, but he doesn't actually have the money because the Welsers have a month in which to pay it to him. He goes to a discounter and says, "I have a bill of exchange for 300 florins at one month usance." The discounter buys it from him for 270 florins, so he has paid an interest of 10% a month to obtain this sum of money. It was clearly usury and definitely detested by the moralists of the time who saw through it.
Since the time of the Reformation, usury had become far easier in Protestant countries, and loans were effected by a simple promissory' note stating to repay a certain sum at a certain date. These promissory notes could be assigned to creditors to pay another debt. Hans has a promissory note for 20 florins from Wilhelm. He owes Antonio 18 florins, so he gives him the note and signs it over to him. So it becomes a currency. Bills of exchange were also transferred. We also find goldsmiths and silversmiths handing out credit notes based on metal deposited with them and which then were passed from hand to hand as currency.
This is the origin of paper currency, used originally to conceal the usury involved.
To read more, you will have to buy the book.