Awesome Essay on the Federeal Reserve

[Levi Philos]

HOW GUERNSEY BEAT THE BANKS by EDWARD HOLLOWAY

(Originally published in 1958 by the Social Credit Center, Montagu Chambers, Mexborough, S Yorkshire, England)

INTRODUCTION

The announcement by the Chancellor of the Exchequer in his budget speech that he intends to set up a committee to inquire into monetary and credit policy is bound to focus attention on the workings of our financial system. Over the years there have been many interesting monetary experiments undertaken in various parts of the world.

These have mainly taken place in small communities, but they are none-the-less of interest. For example, there was the experiment in the island of Guernsey in the period following the Napoleonic wars. There were also experiments in the towns of Swanenkirchen in Bavaria and Worgl in the Austrian Tyrol, which took place in the years of depression following the 1914-18 war. Another interesting example is the amazing development which took place in the island of Gosaba, off the coast of India. These, and similar experiments had one factor in common. A depressed and unproductive community was changed in a comparatively short while into an active, prosperous and happy community.

The story of the island of Guernsey is particularly interesting from our point of view, for it is a relatively easy matter to see for oneself the actual buildings which were created - as a result of these experiments. For example, the Market house, and Elizabeth College were two examples of the result of the sensible money policy adopted by the island Parliament in the early part of last century. Other improvements included better roads, a modern sewage system, all of which were constructed without a debt being incurred by the community.

These experiments have a considerable bearing upon our present monetary policy, which, as is being increasingly realized is in need of considerable revision. We make no apology therefore for re-telling the story of the successful monetary experiment in Guernsey.

THE GUERNSEY MARKET SCHEME

Our story opens in the year 1815. It was a year of considerable difficulty for the people of Britain, but the people of the little island of Guernsey were particularly hard hit. The effects of the Napoleonic wars had resulted in a state of despair on the part of the island community, due to the acute economic distress then prevailing. The following extract from a document presented by the States (as the island Parliament is called) to the Privy Council speaks very eloquently on the state of affairs: "In this island, eminently favored by nature, nothing has been done by art or science towards the least improvement; nothing for the display or enjoyment of local beauties and advantages; not a road, not even an approach to the town, where a horse and cart could pass abreast; and the deep roads only four feet six inches wide, with a footway of two or three feet, from which nothing but the steep banks on each side can be seen, appeared solely calculated for drains to the waters which running over them, rendered them ever yet deeper and narrower. Not a vehicle, hardly a horse kept for hire; no four wheeled carriage existed of any kind, and the traveler landed in a town of lofty houses, confined and miserably paved streets, from which he could only penetrate into the country by worse roads, left the island in haste and under the most unfavorable impressions.

In 1813, the sea, which had in former times swallowed up large tracts, threatened, from the defective state of its banks, to overflow a great extent of land. The sum required to avert the danger was estimated at more than £10,000, which the adjoining parishes subject to this charge were not in a condition to raise. The state of the finance was not consolatory; with a debt of £19,137 and an annual charge for interest of £2,390, the revenue of £3,000 left only £600 for unforeseen expenses and improvements. Thus, at the peace, this island found itself with little or no trade, little or no disposable revenue, no inducement for the affluent to continue their abode, and no prospect of employment for the poor."

What a tale of woe. Small wonder that the people were depressed and any that could were making their way to the mainland. As often happens in communities when there are major difficulties, a committee was appointed in 1815 to consider in particular the overcrowded state of the market, of which it was said that "humanity cries out against the crush which it is difficult to get out of; and against the lack of shelter for the people who, often arriving wet or heated, remained exposed for whole hours to wind and rain, to the severity of the cold and the heat of the sun."

The committee examined the situation, and came to the conclusion that further taxation was impossible. The alternative was to try and borrow money from the banks. But this entailed the payment of a high rate of interest, which they could not afford, particularly in view of the fact that these interest payments would continue for years and would eventually mean that, although the original sum had been repaid in interest charges, the capital sum would remain as a debt. Fortunately for the people of Guernsey, they had at that time among their leaders some honest men of keen intellect, who put forward the revolutionary suggestion that the States should take advantage of their ancient prerogative and produce their own notes to finance the re-building of the market. At first this proposal was turned down. But later in the same year the proposal to issue State notes was agreed to, for a different purpose. The finance committee reported that £5,000 was wanted for roads and a monument to the late Governor, while they had only £1,000 in hand. It was agreed that the remaining £4,000 should be raised by the issue of State £1 notes, 1,500 of which should be payable in April 1817, l,250 in October the same year, and 1,250 in April 1818. "In this manner" they said, "WITHOUT INCREASING THE DEBT OF THE STATES, we can easily succeed in finishing the works undertaken, leaving moreover in the coffers sufficient money for the other needs of the States."

(continued)

[Levi Philos]

A SUCCESSFUL VENTURE

How wise they were is proved by the event. The success of this first creation of State money was so great that it was rapidly followed by others. In June 1819 the question of the market became ever more acute, and it was agreed to finance the rebuilding of it, not in the orthodox manner by raising a loan. but by the State creating the necessary notes "interest free."

The following comment made by the finance committee at a later date shows how successful the venture had become. It was at the time when a further issue of notes was made to diminish the interest bearing debt to the States. The finance committee declared: "The States could increase the number of notes in circulation without danger up to 10,000 in payment of the debt, and the committee recommends this course as most advantageous to the States' finance, as well as to the public, who, far from making the slightest difficulty in taking them, look for them with eagerness."

And so the story went on. On 29th March, 1826, a further issue was authorized to re-build Elizabeth College which had been founded in 1563 by Queen Elizabeth, and some parochial schools. The Bailiff of that time - Daniel de Lisle Brock - in his address to the States Assembly expressed his belief that the creation of this new money was of great benefit to the States, and caused no inconvenience because of the great care with which it was issued.

Various other creations of new money took place for projects of re-building, widening the streets of St. Peter Port, reconstructing some of its buildings, making new roads and public works of many kinds. The experiments continued over a period of 20 years, by which time the people of Guernsey had developed from a depressed unhappy state to a position of prosperity and happiness. The following brief quotation shows how improved was the situation as a direct result of the wise and statesmanlike action of the Island Parliament. Daniel de Lisle Brock, to whom, it seems much of the credit must go, said in 1827:"To bring about the improvements which are the admiration of visitors and which contribute so much to the joy, the health, and well being of the inhabitants, the States have been obliged to issue notes amounting to £55,000. If it had been necessary, and if it were still necessary, to pay interest on this sum, it would be so much taken from the fund earmarked to pay for the improvements made and to carry out new ones."

To talk of joy, health and well being is a very different story from the position in 1815, when it was "little or no trade, little or no disposable revenue, and no prospect of employment for the poor." But this happy state of affairs was not to the liking of everyone, and opposition to the idea of the Island States creating their own "debt free" money had been growing over the years, particularly among the banking interests on the island. A new bank, called the Commercial Bank was founded in 1830. This institution, together with the old bank, failing to prevent the growing prosperity of the islanders, began to issue notes at its own discretion, flooding the island with paper money. Reference has already been made to the care exercised in deciding the quantity of money to be issued by the States, and now Daniel de Lisle Brock sought to restrain the private banks from this anti-social activity.

There remains on record his spirited speech to the States' meeting held in September 1836 on this subject, and the following two extracts are of particular interest.

"No one has the right to arrogate to himself the power of circulating a private coinage on which he imprints for his own profit an arbitrary value."

"With these facts before our eyes we must realize the necessity of limiting the issue of paper money to the needs and customs, and the benefit, of the community in general. Permission cannot he granted to certain individuals to play with the wealth and prosperity of society."

In spite of all, however, the banks finally won the day. Despite a careful search of the records, no explanation of what actually happened can be found - merely an exchange of letters between representatives of the banks and the Bailiff of the Island. In this, the former suggested that the States should cease to make further issue, should withdraw £1,500 from circulation, and have no more than £40,000 in circulation. To this proposal the Bailiff agreed. Having read the account of his fighting speech to the States, it is difficult to understand what combination of forces caused him to give way. But at least it can be said that the inhabitants of the island benefited materially from the monetary experiment which took place, when the island Parliament created its own money - ' interest free' over 150 years ago.

POSTSCRIPT

Although the original experiment came to an abrupt end in 1836, there was a further development in 1914, just after the outbreak of the first world war. The demand for an increase in the supply of money was then so great that the Royal Court passed an Ordinance making State notes and those issued by the Banks legal tender. But the Banks were prohibited from increasing their note issue, and all additional notes were issued by the States.

There was a great demand for these States notes, and they first had to be printed locally by two firms in the island, the Star Company and the Guernsey Press Company, who were able to provide what proved to be very serviceable five shilling and ten shilling notes. These were later replaced by notes printed on proper bank note paper with the customary watermark. The local banks have now been absorbed by the Big Five, so that there is no other local note issue, other than that of States notes, which circulate alongside the more familiar Bank of England notes.

**** End Quotes ****

FYI from Levi Philos

[Levi Philos]

Wayback Machine Archive: http://web.archive.org/web/*/http://...hives/6d.shtml

THE ISLE OF GUERNSEY


It's perfectly reasonable for anyone to ask if there is any nation in the world today smart enough to use interest-free money. And, if so, what have been the consequences. Canada's Finance Minister, who claims (on the previous page) that governments "printing money...leads to hyperinflation" obviously hasn't heard of the success of interest-free money on the Isle of Guernsey, or if he has, he must surely claim that Guernsey defies reason...his reason. Because, not only has "inflation" never been evident on the island of Guernsey, but it has had a stable and prosperous economy for over one hundred and fifty years.


Now, how do you suppose a Finance Minister, such as Canada's, would account for that? Would he say that it's because the Channel Islands are tax havens? Indeed they are, but it should also be pointed out to the Honourable Finance Minister, that Guernsey only became a tax haven this century ... whereas the citizens of Guernsey were long out of debt and well on the road to prosperity way back in the previous century.


No, Guernsey's secret of success is the fact that it has been a "protectorate" of the British Isles for centuries and, as such, is able to make its own laws and thereby determine its own destiny. By controlling its own money supply from 1816 onwards, Guernsey was able to avoid the century old trap of borrowing when it didn't have to.


[The following brief account of the history of Guernsey is largely taken from The Guernsey Experiment by Olive & Jan Grubiak and The Debt Virus by Dr. Jacques S. Jaikaran]


As Olive & Jan Grubiak describe, Guernsey in 1960 was ... a small but beautiful island ... well favoured by nature ... occupying an area of only 24 square miles .... having a population of fifty to sixty thousand ... and where resides that most uncommon of human attributes ... common sense. It is the second largest of the Channel Islands in the United Kingdom, next to Jersey.


In 1815, Guernsey was nothing like it is today. They only had a rudimentary marketplace and the roads were only cart-tracks 4� feet wide. Even though there were many able-bodied men and women to repair the roads and fix the dykes, they were leaving the island in great numbers because of the high level of unemployment.


To be sure there was lots of work to be done, but no way to pay for it. The sea walls and dykes were crumbling, the coast was eroding and the English Channel was fast making claim to what little there was left of the island. The Island Accounts in 1816 looked something like this:

Island Debt £19,000
Annual Income: 3,000
Interest Expense on the Debt 2,470
(@ 13% interest; compounded)
______

Net Revenue £530


But repairing the sea walls was estimated to be £10,000. So, the island was not only impoverished ... it was literally sinking ... in a sea of debt.


What could they do? They couldn't increase taxation. The islanders were already taxed to the limit. Nor could they afford to borrow any more money from the banks. Whatever more they borrowed could never be repaid.


It just so happened, though, that in 1815, those concerned gathered together to try to figure out a way to improve their decrepit Public Market ... the hub of their local economy. During that meeting someone came up with the brilliant idea of issuing their own "interest-free money" ... more money which the Island Government could print at little cost, spend into circulation and eventually retire, if need be ... money on which they would not have to pay any interest.


In 1816, they decided to issue £6,000 of their own "interest-free" Guernsey State Notes. This was in addition to the current supply of English pounds which two main banks were circulating on the island already.


By 1837, £50,000 had been spent into circulation by the government for the primary purpose of local projects such as the sea walls, the roads, a new marketplace, a church and a college. This £50,000 more than doubled the money supply. But there was no inflation.


In 1914, while the British restricted their own money supply, Guernsey issued more ... another £140,000 over the next four years. By 1958, over £500,000 of interest-free money was in circulation on Guernsey and still no inflation.


By 1990, there was a total of £6.5 million in circulation issued interest-free. There was no public debt as in the rest of Britain which was still paying for its war debts. And yet on Guernsey, prosperity was very much evident everywhere.


When Dr. Jacques Jaikaran visited Guernsey in 1990, he reported on the state of the Guernsey economy in his book The Debt Virus:

There were about 60,000 permanent residents; the average family owned 3.3 cars; their unemployment rate was zero and their standard of living was very high. Also, there was no public debt and a surplus of public funds was earning them interest. The Guernsey Treasury increased the money supply by 50% over a 3 year period and this increase did not cause any inflation. The price for a gallon of gas in the UK was about $5, but the price in Guernsey was about $2. Contrary to the teachings of economics in all higher institutions, inflation, it was claimed, was not related to the volume of money, but rather to the size of the commercial debt.


Dr. Jaikaran also mentioned that Guernsey's income tax was only a "flat" 20%. Not bad, compared to the rest of the world.


Perhaps Canada's Finance Minister might find a holiday on Guernsey enlightening?


Should we send him on one?

FYI from Levi Philos

[rentiap]

Levi;
I thank you for your contribution to this thread as I have enjoyed reading your contributions on another yahoo group.
There seems to be a little confusion as to who you think I am.According to your inference to post #7
Though I may be posting some of what I have learned from Eric I am not him.
If you doubt this please look up my other posts within the forum you will see that I am not as elloquent as Eric but that I am just a pilgrim.

Please continue with your posts. this is exactly why I thought it would be good to post Erics work on this forum.

Yes I (Craig)am posting to this great forum because I also see little evidence of *idiots*. just some misguided souls looking to disrupt what we have here. Most of which are on my curtain list in my normal signature line.

Eric does not post to this group because he does not feel that it is useful for him to do so.

I look forward to your future posts.

QUOTE=Levi Philos]Quoting post #6 Eric;

You are posting to the Sui Juris forum - a place where I personally find little evidence of "idiots."

FYI from Craig Painter

[Levi Philos]

Line #4 of Eric's piece says:

4. The Fed manipulates the circulating supply of money in order to intentionally cause recessions - WRONG!!

Another article in the article section clearly refutes this, and the author clearly knows about the behind the scenes actions. Read it: http://www.suijuris.net/forum/articl...recession.html

The evidence is quite clear that this piece is accurate.

Personally, I have a strong belief in Hayek's instruction that we have multiple money systems operating at competition to each other. The competition principle assures the money system of lowest extractive cost plus stability will gain market share.

FA. Hayek, THE DENATIONALIZATION OF MONEY. I had to purchase my copy from London from Institute of Economic Affairs. This is a different book, but they have the Denationalization book too. http://www.iea.org.uk/record.jsp?typ...ication&ID=232

Alternately, you could get George Selgin's 1988 book on Free Banking which is more complex and difficult to understand, but is available in the US.

Levi Philos

[mrg]

Originally Posted by Levi Philos

The real problem is one really bad assumption that seems to have been recently codified i.e. the presumption made by the fifth plank of the communist manifesto that all credit is the property of the state.

All property is presumed to belong to the state, or, effectively, by implied consent, possession through contracts of adhesion and other artful devices, backed, ultimately, by mercenary armed force, and appears or, perhaps arguably, actually does belong to the state, (or is firmly in its possession) unless one can perfect alloidial ownership of property, apparently even one's own physical bodily organism, and its blood, cells, and excretions.

When a government bond is created, is this a promise to pay based upon future tax revenues?

To pay what with what?

What is a bond by definition?

When the bureaucrat creates the bond and signs the bond, is he not assuming he owns the credit of the people?

See the fifth plank?

Where, and how is this proposition entered into--which, if any true, valid, and authentically auditable and lawfully audited ledger of account is in public record--that the original source of the value of the bond lies with the tax payer?

I thought bureaucrats went to great lengths to insure plausible denial.

So, if I have a problem making my property tax, can I write off the property tax by means of some kind of bill of exchange drawn against a vested interest in the bond?

Debt can be discharged, (if this is what you meant by "written off") through process of such an instrument.

Whether it will be lawfully honored is another question, apparently.

Municipal corporations cannot, by definition "see" Law?

Law must be spoken, and having been spoken, en-forced.

But then again if the thing is taxed, how can it possibly be "your" "property?"

If it is property and is being taxed, it may be property, but it certainly is not your property.

Chew on those questions, and get back to me with your answers.

Because my answers are so far outside the box I fear people will suspect my sanity

.

In a Kafkaesque sense the definition of insanity is demonstrating sanity in a world in which the dominant state of mind is insanity.

I would not find your answers outiside of any box, as I do not exist within a box; whether or not some artificially created entity presumes there is a box within which "persons" are resident.

I am I, and without box, even that of my own body, should I so choose and have the knowledge and determination to master.

[Shoonra]

First, the essay that begins this thread actually defends the Federal Reserve System by debunking several claims made elsewhere (including elsewhere on this website).

Second, it serves as a reminder to CHECK YOUR SPELLING.

US Bonds are issued by the US Treasury to raise money for the govt. They are, in essence, interest-accruing loans to the federal govt. The govt pays back the bonds according to the schedule, with a stated interest that is usually better than some banks. So far the federal govt has never defaulted on its bonds.

Here and elsewhere people quibble about the nature of "money" and what it is that the govt taxes and pays. Some evidently think that "money" means the same as "gold" (or gold and silver), but this is an error. This govt (or any govt) could build its chief HQ at the mouth of a gold mine and keep every crumb of gold found in that mine, and yet it wouldn't be assured of prosperity. It is only because it is traditional for people to put an exchange value on gold, and use it to obtain goods and services, that makes it money. Considering that you cannot eat gold, that gold becomes more or less scarce because of things that people (and govts) cannot control (e.g., the discovery of new gold mines on the other side of the world, the discovery of a new and important way to use up gold - such as for medicine or electrical connections), people and their govts are at the mercy of many unpredictable and foreign developments which might make even their gold less valuable.

"Money", then, has value only because people embue it with value. In some places that would be gold, in other places it could be tulip bulbs, big carved round stones, seashells, etc. The primary way to make money stable is to relate its availability to people's productivity. Instead of linking money (even paper money) to a specific commodity like gold or wheat, whose value can be wildly tossed about by uncontrollable and unforeseen events, link it to the wide variety of productivity and labor generated within a country. This the Federal Reserve does.

The US was, in fact, one of the last large countries to establish a central bank to provide some independent (or semi-independent) controls to maintain the value of the currency.

[dawgwise]

and the near 9 trillion debt and the near 70 trillion yet to be funded (unfunded mandates) debt fits in where?

[David Merrill]

Originally Posted by Shoonra

First, the essay that begins this thread actually defends the Federal Reserve System by debunking several claims made elsewhere (including elsewhere on this website).

Second, it serves as a reminder to CHECK YOUR SPELLING.

US Bonds are issued by the US Treasury to raise money for the govt. They are, in essence, interest-accruing loans to the federal govt. The govt pays back the bonds according to the schedule, with a stated interest that is usually better than some banks. So far the federal govt has never defaulted on its bonds.

Here and elsewhere people quibble about the nature of "money" and what it is that the govt taxes and pays. Some evidently think that "money" means the same as "gold" (or gold and silver), but this is an error. This govt (or any govt) could build its chief HQ at the mouth of a gold mine and keep every crumb of gold found in that mine, and yet it wouldn't be assured of prosperity. It is only because it is traditional for people to put an exchange value on gold, and use it to obtain goods and services, that makes it money. Considering that you cannot eat gold, that gold becomes more or less scarce because of things that people (and govts) cannot control (e.g., the discovery of new gold mines on the other side of the world, the discovery of a new and important way to use up gold - such as for medicine or electrical connections), people and their govts are at the mercy of many unpredictable and foreign developments which might make even their gold less valuable.

"Money", then, has value only because people embue it with value. In some places that would be gold, in other places it could be tulip bulbs, big carved round stones, seashells, etc. The primary way to make money stable is to relate its availability to people's productivity. Instead of linking money (even paper money) to a specific commodity like gold or wheat, whose value can be wildly tossed about by uncontrollable and unforeseen events, link it to the wide variety of productivity and labor generated within a country. This the Federal Reserve does.

The US was, in fact, one of the last large countries to establish a central bank to provide some independent (or semi-independent) controls to maintain the value of the currency.

If that were true then the Supreme Court would not be saying people are entitled to redeem the private credit of Federal Reserve Notes in public money.

Like usual Shoonra only paints part of the picture.


http://friends-n-family-research.inf...ublicMoney.wmv

http://friends-n-family-research.inf...ney_case_1.jpg
http://friends-n-family-research.inf...ney_case_2.jpg
http://friends-n-family-research.inf...ll_juliard.jpg


Clever to juxtaposition US Treasury bonds with US Treasury notes Shoonra. You really did come here from Quatloos huh?



Regards,

David Merrill.

[Shoonra]

Originally Posted by David Merrill

If that were true then the Supreme Court would not be saying people are entitled to redeem the private credit of Federal Reserve Notes in public money.

Please cite those Supreme Court decisions.