Chapter XIII
Cash is Not a Part of Our Money Supply
All discussions of money stress the importance of the volume of cash, giving it an undue influence on the money supply. . . even today we hold to the fallacy that silver and gold have a great influence on the money supply. In its latest edition of the Reserve book, "The Reserve System — Its Purposes and Functions," the writers urge the importance of great floods of cash flowing at certain times, and assert that the money supply consists of cash and bank deposits.
To make the cash a part of the money supply is absurd, because that is like saying that you have two men working all of the time, when as a matter of fact, they never work at the same time. When one is asleep, the other is working. If man was like money, tireless, one man working continuously would accomplish the same thing, you might see the fact better. This can be verified with electric engines. They work on endlessly and never tire. It would be foolish to buy two engines to do the work one can easily do.
Depository deposits and cash are both used in buying and selling, but never at the same time. You either cheque the cash out, or use a cheque book to pay seller. When you take cash out of the bank, say $50, your deposits will be lowered $50, which will lower total volume of deposits $50, but when you or the seller returns the $50, the deposits will be brought back to normal volume.
Cash is exactly like the personal cheque. When in the hands of the buyer, it is active, real value. Take your own bank account. You cannot have both the amount in cash and on deposit at the same time. Say you have $500 deposits in the bank. When you write a cheque and draw out $75 in cash, your account is debited $75, and your new account is $425.
In trying to establish the fact that you must add cash to deposits to arrive at the total money supply, the Reserve book says: "When a person has $10 in his pocket and $100 in the bank, he is in a position to spend $110. These two kinds of money represent his cash resources." The writer forgot to say that he or some other person had to write a cheque against his deposits and draw the $10 out; and when the $10 cash reached his hands, his deposits were $10 less.
The very circulation statement (of cash) disproves that cash is apart of our money supply. Circulation Statement of United States Money, May 31, 1957, gives total cash supply at $55,095,658,926, and out of the Treasury and in circulation, only $35,191,638,399; then they whittle that down again, having "in circulation," that is in all of the 12 Reserve Banks and some 14,537 commercial banks" $30,636,348,266. So you see that $24,259,310,640 of the total never leaves the Treasury. . . and to all intents and purposes is dead.
There is an interesting observation we may make here: while gold certificates are outlawed, and cannot circulate, and get in Joe Doe's hands, this statement shows that the Treasury has printed for the Reserve Banks $21,964,687,524 Federal Reserve Gold Certificates.
Then this same circulation statement shows under kinds of money gold, which, too has been outlawed as circulating money, total $22,620,251,821. If you add this column, and we must admit that every item listed is "money" (when in circulation), you find that the grand total is $79,457,122,476. That indicates that we have just lying around, not active, dead, $48,620,774,190, about $18 billion more than the banks find use for in the circulation of money.
It is interesting to note that in 1934, on the insistence of the Reserve folks that we go off the gold standard, take gold coin and gold certificates out of circulation; then raise the price of gold from $20.67 an ounce to $35 an ounce; then buy up all of the gold in sight, the Treasury, not the Reserve authorities paying for it; that now we find that those Reserve boys' Midas hands have gripped Uncle Sam's throat, compelling him to print at no cash outlay to them over $21 billion Federal Reserve Gold Certificates) which gives them title to the gold Uncle Sam bought, and spends millions guarding as if it were a sacred cow. And it is a sacred cow to scheming bankers.
Why print the gold certificates if they cannot circulate? They can't even reach a commercial bank; they lie in the treasury, another police risk, and doing the people not one bit of good. It is merely some of that gobbledegook bankers peddle. If they base bank deposits on Corporation stock, why do they want Gold Certificates?
Well, from absurdity to absurdity you travel if you follow the mysterious trail the bankers blaze for you when they dare to talk.
Since either a cheque or cash must be used by the buyer in paying for a purchase, then they are identical, and not by any stretch of the imagination can be made separate monetary funds. The only volume of money is reflected, or would be if all deposits were reported in the bank statements, in total deposits (all deposits ) in all the banks of the nation. These deposits are used in buying and selling, or should be, and whether the seller takes your cheque, or whether you cheque the cash out and hand it to him, is immaterial. The fact remains, as admitted by the Reserve book, that someone must write a cheque and present it to his bank, before cash can leave the bank. And when you leave the bank with $10 you just drew out, your deposits are debited $10.
I bought an American Express Company's $10 travellers cheque, a few days ago that I might photograph it for use in this story. It cost me 50 cents, or I had to add 50 cents to a Reserve $10 note, to get this American Express Company's $10 travellers cheque. So the cheque seems to be better money than Reserve notes. For the same reason I bought an express money order, and a postal money order, again paying a high tariff for the exchange.
Then if we must add to the bank deposits the volume of cash in the treasury and the banks arrive at a total volume of money; we should as the total of all companies' travellers and money orders, also total p.o. money orders, to arrive at a grand total, for these are just as good money as Reserve notes or silver certificates, as for that matter. The same as with personal with personal checks . . . . good when signed and presented to seller.
You never saw a report of postage stamps in the post offices, total amount, and volume, etc. The postage stamps have no value until taken out, and Uncle Sam is paid for them, not when he sends them to the post-offices.
Had you ever thought that banks do not lend their capital, nor surplus, nor undivided profits, nor the cash in their vaults, and that they never report their deposit credits? That when you read a bank statement appearing in your papers, that it tells little or nothing about the true business of banking? A teller in a bank brought to my office once, the bank statement which the Government requires must be printed periodically, and when he handed it to me, he remarked: "I don't see why those statements are printed. Nobody understands them, and they don't reveal half the banks do.
So my dear fellow victims, it matters not how many billions of dollars in cash may be minted and printed, the only "cash" available to you is the amount of your deposits. You ordinarily will pay with a cheque, but when you do not, you chequed the money out of the bank, and the check just did it work before you made the purchases.
I have gone to this length to prove to you that the cash should not be added to the volume of deposits in all banks, to arrive at the volume of money in the Nation. There is no relationship between volume of cash and volume of deposits. Cash is provided for your convenience as cheques are provided, that you may trade your deposits for goods. Your cheque is not good until you sign it; the cash is not good until you draw it out of the bank. As with postage stamps, the amount or volume minted and printed is of no importance, beyond having an ample supply or volume to meet the demands of the people.
Cash (coin and bills) is nothing in the world but tokens, having one advantage over personal cheques, and that is it will be received without question by all sellers, and does not have to be signed. Cash is a general cheque, and like all cheques, of no value until in your possession.
If Congress would compel all banks to report all funds (deposits and cash) on their books, additional width would have to be given the deposit totals, for it would run into the trillions of dollars.
The cry the bankers make is that their system is the only way a flexible and fluid money may be provided in times of business high activities. When the Government takes over the keeping of the people's deposit credits, cashes and clears their cheques, Congress will see that the volume of Depository Credits is ample to meet the highest business demands; and when business is slack, the surplus deposits, like cash in the vaults, will just lie there and slumber until some phase of the moon sets the people about new and frenzied enterprises, as since World War II, but under the Depository System there will not be high and low business activities-normal, steady, purposeful progress at all times. The gamblers, create cycles of low and high activity; and bankers are gamblers!
Honest, legitimate enterprises, and industries, and businesses will never lack funds under the Depository system; for that will be the constant responsibility of Congress, to see that the volume of deposits is adequate at all times; and there will be no "pumping in and siphoning off" as now practiced by banks. There will be no indebtedness requiring siphoning money off that debt may be foreclosed. When people are rushing ahead building, developing, advancing as in the early 50's, the Congress would not grow alarmed about the luxuries the people were enjoying; it would not, as the 19 Reserve men did in 1955, stop the pumps, which had been pumping money into the people's pockets; and turn to the exhaust pumps and begin frantically siphoning (pumping) the money out.
Don't let them frighten you by saying that there will be no money for advancement, improvement if we stop them. They now plead for lower income taxes that they may "save funds" for expansion and development — never using them for expansion, always, issuing more corporation stock! If they are only using profits for expansion, the banks serve them no purpose. As we need more money, Congress will order the Treasury to give the Government deposit credits for the needed additional amount. This will be chequed out for expenses of the Government, and flow right into the deposits of the people. It would be a creative act, but an act only Congress can Constitutionally perform, and it would benefit every person in the Nation, because it would save taxes, as the money would first pay Government costs.
That is what we do under the Reserve System, add new deposits to the credit of the Government; but the bankers do a lot more: they require Uncle Sam to issue bonds to amount of new deposits, say $100 billion, which the people must pay taxes to pay the interest on these bonds and still owe the bonds. So under the Depository system, there would be no bonds, no debt to private corporations, no taxes to pay interest.
And remember this: under the Depository system, new deposits would be created at rare intervals, and then by an act of the Congress; but under the present Reserve system, every time the commercial, or Reserve Banks, make a loan or buy an investment obligation, they create the face of the loan or purchase in new deposits, which find their way into the total volume of all bank deposits. That sum is, so stupendous that I don't think the banks will try to amass them, total them. . . or maybe that is what they have done, and when the 19 men who meet tri-weekly in New York to puzzle over the banking business, saw that stupendous total, it scared the wits out of them, and they at once stopped the pumps pumping deposits into the deposit totals, and hastily started to siphon it out of the hands of the average man.
They did this in 1955, and gradually economic paralysis is extending over the entire economic body. Building is off, manufacturers are finding their goods mounting with no one to buy, men are now walking the streets looking for a job. . . men are always anxious to work; and only a cold-blooded corporation would sit and squeeze money out of their pockets by making jobs scarce because money is shut off.
Yes, the Depository system will dry up this flood of new deposits pouring in daily; but the Congress would see to it that the body would always have adequate blood in its arteries. And inasmuch as both cash in the vaults and deposits are dormant, and have no influence on the deposits and cash circulating, we arrive at the conclusion that only the active money affects industry, business, our economy.
There might be too much deposits in the volume on the books of the Depositories, but there would never be too little to meet an legitimate enterprises of the Nation. I have just received through the mails an expensively engraved formal announcement of the "formal opening of their newest H.E.B. Food Store." There is an engraved picture of this "store," which covers several thousand feet of floor space; and there have been paved thousands of feet of parking space for customers' cars. The whole covers approximately four blocks.
There is an old H.E.B. Food Store a few blocks down the same street, vacant now, which has been adequately serving such customers as needed its service; but another "big food" man who has climbed from rags to riches via the grocery basket, had opened a grocery store in a new trade centre, and was no doubt taking a lot of trade from the old H.E.B. store, so the H.E.B. company just dug into its stock till and came up with some $500,000 new deposits to build this "emporium," that it might hit the less big fellow a wallop on the head.
Until recent years, even great cities like London and New York, got along nicely with the little corner grocery; but now in this town of 160,000 people, we have many, many great food stores, many, many trade centres; and we understand a fellow is now developing a $30 million trade centre, and it will have its great "food emporium." There are now many littler Du Ponts, who have their fingers in both industry and banking, and the easy way of getting deposits through the issuing of new stock, and selling them to the Reserve authorities, is expanding every line of trade and commerce beyond a wholesome limit. Not only was there no need for these great stores, but in creating them, thousands of small grocery-men have been driven out of business. That is what cheap, unlimited new deposits is doing for us. As said elsewhere in this book — too much forms tumours, and death follows unless expert surgery is performed.
First we had the one-car family; then the two-car family; now the many-car family, one for each child, and one for each parent; but now we have expanded housing to the two-family house status. Our just abdicated governor has several — one in the Valley, one in Woodville, his birthtown, and a mansion here in Austin!
Our U.S. Senator Johnson, as a life-time public servant, has gone from rags to millions; our last two governors have gone from rags to millions, and they have been in public service all their majority lives. They could not have gotten these riches if deposit credits were not mountainous, and the transferring of them was not so easy with no detection possible. I think of two statesmen before every loan created new deposits: Clay and Webster. They too had been in public service all of their majority lives. One day Webster said to Clay, "Would you please go on my note for $500 at the bank?" And Clay replied, "Certainly; but, by the way, I need $500 dollars; my grocery bill is pas It due; so you sign my note and I'll sign yours, and both of us can ease our financial embarrassments."
Ex-president Martin Van Buren spent his declining years in New York, and he was a familiar person, with grocery basket on his arm, as he did the grocery buying for himself and the former First Lady of the Nation. And be sure to get this: I am not advocating poverty, I'm advocating honesty!
The hundreds of thousands of new cottages, residences, palaces which have sprung up like mushrooms over the entire Nation, were an built on the credit dollar. They could have been built at a fourth of the cost under the Depository system, with an honest dollar. Had money been available in ample volume, there would not be trillions in notes, vendors lien notes, investment obligations in the hands of a few thousand people.
Whatever you enjoy on credit, is not wealth; it is a tumour which will utterly and ultimately destroy our Nation. These silly "housing projects" will disappear, and Congress will have sense and guts enough to enact a law which will set a minimum standard for all houses to be rented; and for a family of two to build a fourteen-room "ranch monstrosity" to wander about in, when a little five room cottage would afford them all the housing they need, will be outlawed. You say you have a right to build any size or sort of house you want. Well, you may find that a priority could be employed, which would not let you take scarce materials and labour to build for you unneeded space when others are in shanties and shacks.
The Government would not be, under the Depository system, interested in profits for itself. It would have no mountain of investment obligations to collect. There would be no incentive to slow down production, and foreclose. Its whole effort would be to keep the normal activities of the people moving smoothly, unobstructed. There is as great demand for goods, aye greater, now than in 1954, when the sky, was the limit in employment and business activities. As long as people will work, and produce and consume, nothing should interfere with their progress. No 19 men should have the "legal" power to pump money into the bloodstream, or pump it out.
Don't feel that we just couldn't do without the banks. If you will recall the hundreds of billions of dollars we have paid and must continue to pay the bankers for the privilege of using the Nation's, our own credit, and know that all these costs have been not only unnecessary, but as clean a steal from the people, as the stealing of your horse, never to recover him, you will not want to continue the banking system.
All this prosperity (?) you see about you is not the making of bankers. It all grows out of the fact that people want to work, they want to produce, they want to consume; they want cars, TV s, gadgets, good clothes, and homes, and days off to relax. Instead of the bankers giving us all this, they have charged us 300 percent on every dollar they have permitted us to use. Go over again the cost of the World War II. $250 billion bonds given them gratis. We have paid them in the last 10 years $100 billion in interest; and they have an added free $1,250 billion funds they can lend or use to buy any investment obligation. Add the $250 billion U.S. Bonds, and they got $1500 billion gratis out of the war. The people got only the $250 billion deposits given the Government for the bonds. The bankers got six times as much. This alone should make you swear that private corporations shall not coin our money and then do nothing about regulating its value. The banker does not plan, or promote industry. He sits there and compels you to pour your earnings and your savings into his pockets.
Contractors, big contractors who are developing housing projects running into the millions, after the little fellow has been choked off by the bankers, are finding it profitable to sell $20,000 residences on the right side of the river, for as low as $500 down payment, and take long-stretched-out instalment notes for the balance. They prefer this method, because the banks take their "investment obligations" off of their hands (of course at a big discount, but then they have a big profit), and they have to pay income only on the $500!
A few days ago my neighbour, the operator of a one chair barber shop, living in one of the "small-down-payment" cottages valued at $7500, finagled his small investment in the cottage down here where the melting pot is going on with a might, and "bought" a $20,000 home in the Hills, where only the rich are supposed to live. He must pay all costs of this mansion, pay the taxes (which are not so high a rate as his cottage, because the rich have a way of getting low renditions), pay for the repainting and repairs of the mansion (for the "articles of sale" provide that he must keep it painted and in good repair or the lien holders can do the work, and assess the costs against the "owner," which become a first note to be paid, and you pay or they foreclose, and you lose your little investment; and on top of that he must pay the premium on the $20,000 credit insurance policy the same articles of a sale demand, and they can pay the premium themselves, and present the bill to the "owner of the $20,000 mansion," and it too becomes a first note to be paid.
Who owns that mansion? Certainly not the barber; perhaps his entire cash investment was not over $500. Then why the sale? The owners of that "mansion" did not want, nor desire the cash. Had they taken the cash, that pesky, snooping robber Uncle Sam, would have come in some fine morning and said, "I don't find where you reported the sale of that $20,000 mansion for cash!" But the dumb very dumb Uncle Sam, lets the big boys write the income rules, so they don't have to report the "investment obligations," only the cash they receive; yet the "investment obligations" are lying in the bankers' vaults, and are monetary values just as much as are the deposit credits (cash) in the banks.
What the owners were looking for was a caretaker, a keeper in whose hands they could leave their valuable property; and instead of paying the caretaker for his services, they not only made him pay costs of upkeep, including replacing busted gas pipes, etc., but they made him pay interest (rent to stay there). Not only that, he had to pay the taxes for the owner, and keep it insured at his own cost with the credit insurance (also fire, storm, hail, and what-have-you insurance added); so that should he fail to pay the loan, or should the property be destroyed by fire, they could just take over the lot, and the insurance companies would have to pay the difference between what the "owner" owed and the value of the lot.
Now that is not just an isolated case. Hundreds of billions of just such "monetary" values exist. Are we a home-owning Nation? Has home-ownership increased in last 10 years, during this building boom? No for a man does not own his home until the last note is paid; and if you could see the figures, you would find that the note holders' title is flawless, and that the home owners' investment in cash is infinitesimally small compared to the volume of investment obligations the bankers hold. They do hold them in most part, because these "home boys" — these fellows whom we grew up with, and who we thought were just common fellows like ourselves — were developing acres of residential property- $6,000,000, $20 million, $30 million projects — on borrowed "capital" which they got from the banks.
Well, during the late 20's boom, bankers got a belly full of "little" investments, the selling of houses to little folks. The crash left them with too many of these notes un-collectable, and the boys just moved out and there was no recourse worth taking. So following World War II, after finding Uncle Sam the biggest sap in Christendom, and that his Congressmen would go along with anything the bankers asked for, the bankers decided deeds of trust and first mortgage notes were not good enough; so they went to Uncle Sam (Barney did again — he is now 88, and seems good for 88 more years) and said, "We must not forget that these veterans have faced shot and shell, placed our flag atop of a mountain in Iwo Jima and their buddies died on many battlefields, so we can't be too good to them; they came back with families, they must have houses to live in; we, 'our Government,' should finance those houses."
Well, that is not all Barney said. He said, of course the Government hasn't money, revenues, enough to pay the costs; "and we feel that it would be unfair to ask the people to pay interest on more Government Bonds, and, too we have about all of them we can store; so in the goodness of our great bankers' hearts, they are willing to finance these homes, if you will just endorse the costs."
Well, Congress, again, said the bankers say they wanted to give the people something, and let's let them do it; so legislation passed, and it was called "Veterans Home Loan Act," and that set the people to saying, "The Government is financing the Veterans' homes; so a veteran can buy it for less down payment, get a lower interest rate, and a longer time to pay for the house." And veterans fell for it like a ton of brick. And the cautious father or neighbour said, "But, Joe, you are promising more for the house than the carpenter would build it for; that's why you get it at less interest costs - they have already added the interest, enough at least."
And Joe said, "Well, I can live in it until rents are cheaper than instalments on the house, then I will move out; I am buying it and moving in because the monthly instalments are much less than the rent I pay. I am paying $80 a month for a house not as good as the one I am "buying" and my monthly instalments are only $60."
And John, who was classed as F, but who worked hard, aided the war effort just as essentially at home as Joe did on Iwo Jima had no part in it.
Well, the father told the son, "But you can't get loose that easy. You move out, and the Bankers will sue you not Uncle Sam, and get judgment, covering unpaid instalments, plus interest to the day the court renders judgment, plus costs of court, lawyers' fees., etc., and of course you can't pay it; but that judgment may lie there on the records of the court for 100 years. Should you in the future become prosperous, the holders of the judgment could enter and possess your property, cash or goods. Of course, in the meantime, Uncle Sam will have paid off; but you are stuck for life, or until you payoff, too."
But Joe, in the interval between his 13th birthday to now, had lost confidence in the "old man's" advice and judgment, so he said, "Well, I'll take a chance."
So of the billions against "veterans' homes" are in reality obligations of the Government, but the Government would get no benefits, any more than an endorser would get should you default, and the banker collect from the friend who endorsed your note, or perhaps, signed with you.
If I could (and Uncle Sam could) get access to all bank books, all records of instalments, all financial facts, I would come up with the answer; and I would by actual figures show that in actual deeds or instalment obligations against all real estate, all industry, all transportation, all business the bankers of the United States could buy the United States many times over with their "wealth." And that "owners" own very little.