Review of “BUDGET – SMUDGET Why balance what, how, and when?” a paper by William Vickrey

Copyright 1996 by American Monetary Institute.

* The original paper is available at $8 per copy from : Columbia University, Office of Public Affairs, N.Y.,NY, 10027 (full address)

An American tragedy occurred on the night of October 9, 1996 on the Hutchinson Parkway, about an hour from here, when William Vickrey died of a heart attack three days after being awarded the Nobel Prize in Economics. Where is the tragedy in the death of an honored 82 year old gentleman? It is in American society missing the crucial and completely unique contribution he was determined to make to the current political and economic debate, or one could say stampede, toward requiring a balanced Federal budget. You see, under present conditions, Prof. Vickrey was strongly opposed to balancing the budget.

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Review of Robert De Fremery’s “Rights vs. Privileges”

An Analysis Of Two Powerful Privileged Interests That Have Deprived Us Of Fundamental Rights

Provocative Press, 128 pages, quality paperback. Available from AMI at $25 per copy, postpaid.

Reviewed by Stephen Zarlenga

For the last 5 decades, Robert De Fremery has been one of the most consistent forces for monetary reform in America. Though not generally known to the public, De Fremery’s persistent correspondence with Federal Reserve authorities, and nationally known economists has had a lasting influence upon many of them. His ideas on one hundred percent reserve banking and increasing the money supply in proportion to population growth, have appeared over the years in prestigious financial journals, as well as in his previous book MONEY AND FREEDOM.

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Review of Richard C. Cook’s “We Hold These Truths”

Reviewed by Jamie Walton, American Monetary Institution (AMI) researcher

[This book is available from the American Monetary Institute, at $30, post paid.]

This book is for anyone and everyone who wants to solve the world’s deepening crisis and to avoid a looming catastrophe.  Richard C. Cook hits all the economic nails on the head in his latest book, We Hold these Truths: The Hope of Monetary Reform. Very rarely does a book appear that lays out what’s really wrong with ‘the economy’ and what’s required to really fix it. This is one of those very rare books. It’s a must-have handbook to build your own clear and deep understanding of what’s really going on, why, how, and what can be done about it.

Many readers probably first discovered Richard C. Cook when his far-reaching articles began hitting the Internet like lightening-bolts in early 2007, sounding a wake-up call for monetary reform around the world. In these articles, Cook busts open the ‘econo-myths’ to expose the lies that ‘econo-speak’ tries to keep hidden. This book is based on 16 of the very best of these articles, updated and pieced together to form a real-world economics lesson that reveals the big picture.
With more than 32 years of experience as a government analyst to draw from, including 21 years in the U.S. Treasury, Cook shares his inside knowledge of the economy from a rational, analytical standpoint. Combine this with the culmination of his own research and deep understanding of the way the economy actually works, then add in his rare ability to convey this knowledge and understanding with clarity, passion and compassion, and the result is a very important overview of the way things are, and the way they can be.
While I had already read all of the articles in this book as they were released on the Internet, it was a real treat to read them again in one flowing sequence, and I found them as fresh and exciting as the first time. What struck me was, even though I had read them before, the articles took a long time to read again – not because of a difficult writing style (the articles are beautifully written), but because they are packed with such profound statements of truth that I found myself just thinking about a sentence or paragraph for about half an hour or so. In trying to pick out the most important points for this review, I found myself underlining almost every sentence, so I had to re-read it and mark the margins. Only some of the triple-marked points have made the cut to be covered in this review, otherwise the review would be a very long essay.

What’s it all about?

Have you ever wondered … Why are we working harder just to make ends meet, despite centuries of labor-saving technological advancements? Why is it that the more ‘productive’ we are, the worse off we get financially? Why do all of the ‘solutions’ offered by the ‘experts’ only make things worse?
Cook answers these fundamental economic questions with analytical authority and inspired insight.
More importantly, Cook asks some fundamental moral questions, and goes straight to perhaps the most pertinent one of all right up front:
“Does the earth exist so that the few can use its bounty to enslave the rest?” (p. xv)
Cook explains how we are being denied freedom over our own lives. How we’re being forced to spend our precious time tied to a treadmill in a vain attempt to keep an artificial perpetual-debt-machine running. How our lives are being stolen from us because money has been switched for debt, and this debt has been made to hang over us like a curse, taking a very heavy toll on our well-being.
Cooks shows that this ‘debt-perception’, like a curse, is only real if we believe it’s real – when we stop believing the lies that underpin it, and see that they’re not real at all, we can free ourselves very quickly.
Cook goes straight to the heart of the matter
Cook identifies that the root cause of our needless suffering is a debt-based monetary system.
It’s this system which wrongfully ties us to perpetual debt. As Cook describes it, it’s:
“an outdated and terribly corrupt system whereby money, the lifeblood of economic life, is introduced into circulation only as interest-bearing debt.” (p. xv)
Cook suggests this “system of institutionalized debt oppression may be deeply unconstitutional” as it can be shown to work for “the benefit of the few over the well-being of the many” (p. 77), rather than ‘promote the general welfare’, and its effect may even more directly contravene our Constitution:
“this system … might even violate the Thirteenth Amendment, which states that, ‘Neither slavery nor involuntary servitude … shall exist within the United States.’” (p. 179-80)
Thus, the very existence of a debt-based monetary system is “a travesty which negates democracy at every step.” (p. 248)
He explains why things can only get better when we overcome this system, and why, without doing this, any moves to achieve significant and lasting improvements will ultimately be ineffective.
Cook accurately identifies the problem
Cook examines the problems that plague society and our economy: war, poverty, the ‘immigration crisis’, ‘outsourcing’, ‘bubbles’, ‘inflation’ and ‘recessions’, etc., and shows that they’re all really effects of a deeper problem, all lead back to a common cause: the practice called ‘fractional reserve banking’.
He reveals that the world’s central bankers can’t stop these ill effects and the eventual downward slide of the economy “because the systems they operate are the primary cause.” (p. 138)
Cook highlights why and how this situation is totally unjustifiable, because:
“fractional reserve banking … grants the banks a privilege which is undeserved. Essentially this makes the banks the owners of the money supply.” (p. 211-12)
While the iniquity of this should be obvious, Cook shows how a ‘fractional reserve banking’ system is also woefully inadequate to meet the needs of society, achieve the stated aims of the U.S. Constitution or even the stated aims of the Federal Reserve System – in fact it works against all of them.
Cook stays on target
Cook separates cause from effect, only referring to effects to trace them to their cause. He exposes the extent to which reason, reality and morality are ignored by ‘conventional thinking’, and how instead:
“We’ve learned to blame the victim, failing to see that … one thing is connected to another. A good investigator always asks, ‘Who benefits?’” (p. 12-13)
Cook’s investigation clearly demonstrates who is benefiting and who isn’t:   “The effects of current economic and monetary policies are starting to approach the level of genocide against large segments of society, if not in their intention, at least in their effects. Crime, health, and income statistics identify vast areas of both urban and rural environments as what have aptly been called ‘death zones’.” (p. 127)
Cook describes how control of the money supply by the banking system has diverted resources more toward real estate, speculation and warfare than toward the productive sector, i.e., toward bidding-up and betting on the prices of existing things or destroying them instead of developing new things. This adds new money and debt to the economy without necessarily adding any real wealth. The result is the U.S. dollar has lost over 95% of its purchasing power in 95 years under the present system.
Much worse is the link between the present system and war. Cook explains why ‘full-spectrum’ military dominance is really “a weakness, showing a broad-spectrum failure to devise rational, humane, and multilateral solutions to trade and economic issues.” (p. 2) He goes on to explain how “The number one cause of war in the modern world is the debt-based monetary system run by the banks.” (p. 200)
Cook knows the importance of defining terms
Cook writes about money and credit being a public utility. This is where precise definitions are so vitally important, as it could be misinterpreted in a number of ways. Fortunately, Cook makes it explicitly clear precisely what he means by credit, and that it is not the same as money:
“The idea of credit when viewed from a macroeconomic perspective refers to the ability of an economy to produce goods and services of value to the members of that community. It refers to the potential value of that economy to support life. What it does not and cannot refer to is money in and of itself, because money, as we have seen, has no intrinsic value. Without the credit- potential of a producing economy, money has no meaning.” (p. 57)
Obviously this credit belongs to the whole of society, it doesn’t belong to any particular part of it, certainly not any banking system and certainly not any government. So when Cook talks about “public” he’s talking about something societal, not institutional. Likewise, when he talks about “utility” what he’s talking about is a general means of provision, not any specific institution (he’s certainly not advocating that government takes on or takes over commercial banking activities).
Cook clearly distinguishes between credit and money and clearly shows that money is that general means of provision; it’s what’s needed to pay for the things a producing economy can provide. Obviously somebody has to create, issue and regulate our money, and as Cook rightly says throughout the book, that somebody should be the U.S. Government, as provided for in the U.S. Constitution, since it’s U.S. law which makes the U.S. dollar the officially-accepted – and therefore generally-accepted – money of national currency of the U.S. – nothing else makes it so. Cook is very clear on this:
“Money is obviously an indispensable component of our economic system. If it is properly constituted and managed, it has the ability not only to command goods and services produced within the system, but also to encourage and call forth new types and quantities of production. … how it is created and introduced into circulation, how its value is established and maintained, and how it is used … to further the ideals of society are critical issues that properly fall within the purview of political debate. … history shows that money serves its socially-beneficial purposes only when it is regarded as an instrument of law and an economic medium-of-exchange and when it is regulated by a government which can responsibly direct its benefits to the welfare of all citizens.” (p. 178-79)
Cook explains how the mis-definition and misconception of money has been used to keep us shackled to “a medieval relic” of a system which pretends to see money as wealth and debt at the same time: “Fractional reserve banking … has resulted in a condition of growing debt slavery fixed upon our population which is afflicted with a chronic shortage of purchasing power sufficient to absorb our national production.” (p. 179)
The lesson: if money is confused with wealth or debt, then our democratic and human rights are bound to be stamped on.
Cook shows the way forward
Cook makes it clear how our world is being kept in continuous ‘crisis mode’ due to the way the present monetary system is constructed, but precisely because it’s a man-made system, we can always change it – “Since the causes of the crisis are monetary, so would be the solutions.” (p. 135)
Cook says if we really want to solve things, we need fundamental monetary reform at the national level – “as the American Monetary Institute (AMI) is proposing with its draft American Monetary Act.” (p. 8 ) – as the key to making it happen. Cook knows exactly what has to be done first:
“The first measure in bringing about change, taking the U.S. as an example, would be for the federal government to create a Monetary [Authority] as envisioned by the American Monetary Institute … [to assure] that the money supply is sufficient to express the real credit demands of the nation in paying for the GDP.” (p. 65)
Cook explains this means ensuring there is always enough money in the system to finance and purchase the goods and services that our economy produces, and explains how it can easily be done:
“The key to any real change is fundamental monetary reform that would restore balance to the economic system. … The best kept secret on earth is how easily this system could be changed, not only in the U.S. but in any nation …” (p. 128)
Throughout, Cook makes a clear distinction between what is real and what is financial. Once this is realized, the absurdity of our present situation becomes clear:
“The U.S. and world economies are on the brink of collapse due to the lunacy of the financial system, not because we can’t produce enough.” (p. 149)
Importantly, Cook always brings morality to the fore as a measure by which to judge results:
“An economic system should reflect what is right and fair for those it affects” (p. 153-54)
Cook shows us how we can and must move away from the bad practices and bad attitudes of the past
– in order to “resolve the present crisis and carry us into a future that will benefit everyone” (p. 167)
In summary, Cook gives us a roadmap toward making our systems work to provide prosperity, peace and justice for all. Regarding monetary reform, he absolutely nails it, with the American Monetary Act.
This book is for anyone and everyone who wants to solve the world’s deepening crisis without a catastrophe. This book will move you, and hopefully move you towards positive action. In that sense, it’s a ‘dangerous’ book – dangerous for the status quo that is – even more reason to get it!
For disclosure purposes, I met Richard Cook at the inaugural AMI Monetary Reform Conference in 2005 and have been in contact ever since. I have been acknowledged for making some contribution to this book.



To view the actual 20 page paper text, click here.

Here below is a two page summary plus communication with the Austrian School

A challenge to the Austrian School of Economics and the Ludwig Von Mises Institute. Of much more general importance than it sounds, obeisance is universally paid to Menger’s 19th century re-incarnation of John Law’s theory of money, by present day Austrian economists. Menger’s origin theory is also at the base (often explicitly) of much so-called libertarian thinking and writing today. For example Robert Nozick uses it to launch his book Anarchy, State , And Utopia, (p.18) one of the Libertarian’s “bibles”.

This paper most likely deals a “death blow” to this core thesis of the Austrian School, as formulated by Carl Menger, the school’s founder. In effect the Austrian’s are left without a viable theory of money. It would be difficult to imagine that one could be provided by Von Mises confused and self contradictory book THE THEORY OF MONEY AND CREDIT.The understandable reluctance of “Austrian gatekeepers” to address this issue are documented below.

The paper challenges Menger on three grounds:

Though it is generally assumed that Menger’s theory is at least in part derived from historical evidence, the paper demonstrates that its derivation is entirely theoretical, by showing that all the historically based evidence cited by Menger, is 180 degrees counter to his theory. The paper points out the inappropriateness of attempting to divine an historical event or process with only deductive logic.

The paper points out that even within the framework of Menger’s scheme, there are two fatal flaws. First the circularity of his reasoning in determining his causes of liquidity, which arises from his use of the “development of the market and of speculation in a commodity” as a cause of liquidity, when in fact it is a definition of liquidity and even Menger uses it as such. The paper explains the crucial difference. This is not quite an example of what has been called “Weiser’s Circle”. Second, the paper points out that within Menger’s scheme, it is not liquidity, but volatility (or lack of it) which is much more important.

The paper shows that some of Menger’s closely held general views of the stability of gold and silver and their universal use as money, are simply false. In addition the existence of the millennia long dichotomy in the gold-silver ratio between east and west, which Menger seems to be unaware of, appears sufficient to doom his theory.The paper presents some of the factual evidence gathered by William Ridgeway, in the ORIGIN OF METALLIC WEIGHTS AND STANDARDS; by A.H. Quiggin in A SURVEY OF PRIMITIVE MONEY; by Paul Einzig in PRIMITIVE MONEY; and by Bernard Laum in HEILEGES GELD; all as an indication that an institutional origin of money, whether religious or social, is much more likely to have occurred than Menger’s assumed market origin. (25 pages, footnoted, charts, a real barn-burner. Suggested donation $20 postpaid; students $10.)

Attempts to bring this paper to the attention of members of the Austrian School, through their publication, were at first blocked and then ignored, as seen in the following copy of their reply and critique of the paper; and the answer to their critique, to which they have not responded. “Make the most of it” indeed! Lets see if Internet culture can end such academic stonewalling, and flush the Austrians from their ivory towers down at good ole Auburn University.

A normal note.

Comments on “A Challenge of Menger’s Origin of Money”
“The author seems to ignore economic theorizing in general and Austrian theorizing in particular. The author does not comprehend that Menger is using “essentialist” methodology to prescind from specific facts to arrive at a theory of history, in this case a theory of the origin of money. All of the author’s alleged empirical “refutations” of Menger are not refutations at all, and they have been largely known for a century; the fact that some primitive societies got stuck in barter, or that cattle has been used for money; are all well-known, and so what? The author does not seem to realize that money is a general medium of exchange, and a common denominator of prices, and that therefore any explanation of its origin requires an explanation of how such a general medium came about. Talk about a religious cult of gold explains nothing (except, perhaps, a part of the high non-monetary demand that gold has always enjoyed). For a summary of monetary history from a pro-gold standard perspective incorporating his alleged “refutations,” the author can look at J. Laurence Laughlin, Money, Credit, and Prices, (vol.1, chap. 1, 1931).

Finally, of course, the author seems to have no knowledge whatever of the pons asinorum (the “bridge of asses”) of monetary theory; Mises regression theorem of 1912, in which Mises showed that, logically, no money could have arisen in any way other than the Menger scenario. If this be “a priori history,” then make the most of it! It is inherent in the logic of the situation, and the logic of money as containing an historical component of demand a value.(sic)I am afraid that I am not able to recommend this article for publication in the RAE.

I responded with the following letter, which has remained unanswered (to Ocotber,96):
Mrs. J. T.
Managing Editor, Review of Austrian Economics
Ludwig Von Mises Institute, Auburn University
Auburn, Alabama, 36849
Dec. 30, 1994

RE: my refutation of Menger’s Origin of Money theoryDear Mrs. Thommesen,Thanks for your letter of November 10, which I am a bit late in answering, as some writing assignments came up. I must take exception to the brief comments on the paper which were included. Its as though the Commentor didn’t read my paper very carefully, or ignored much of it. I respectfully request that you obtain a second opinion, for the following reasons:

First I can assure you that the paper is much more serious than the comments suggest. Looking at the comments sentence by sentence:

Sentence #1 – I’m not ignoring Austrian theory. My whole paper carefully considers Menger’s theory!

Sentence # 2 – My paper clearly makes the point that Menger does not identify any facts, from which he has abstracted his theory. There is no mention of times and/or places, whatsoever. What are the facts Commentor refers to? He has missed one of the papers main points.

Sentences #3 – #5 – Commmentor is not doing his job here. He is ignoring the 130 grain institutional convention on coinage. One of at least three ancient standard systems. Furthermore, the empirical refutation is only one part of the case against Menger. Commentor has completely ignored the logical refutation of Menger’s theory contained in the paper – Menger’s definitional circularity – as well as the clear demonstration that volatility, not liquidity, is the real feature to look for, within Menger’s logical scheme.Sentence #6 – Regarding Laughlin’s “pro-gold standard perspective”, that is a curious description. I’m familiar with Laughlin’s historical narrative from his 1911, PRINCIPLES OF MONEY. It doesn’t refute or challenge what I wrote on Menger. However out of courtesy to Commentor, I’ll check out the 1931 version, soon.

The bigger picture here though is that if Laughlin was aware of some facts which disqualify Menger’s theory, Laughlin, and Commentor’s ignorance of the relevance of those facts, does not invalidate the power of those facts to refute Menger! For example the great dichotomy in the gold-silver ratio between east and west.Commentor should be made aware that Laughlin is not a very objective source on monetary science; his work invariably supports special monetary privileges for bankers. To his discredit, he was either unable, or unwilling to identify that the effect of bankers creating deposits was nearly the same as bankers printing notes, in the newly organized Federal Reserve System, which he helped to author, or thought he did. Another low point in Laughlin’s career can be found in his comments on U.S. Treasury notes, issued in 1812, upon the dissolution of the 1st Bank of the U.S.

Next, regarding Commentor’s reference to Von Mises “Bridge of Asses”. Isn’t this the same argument which Benjamin Anderson (see THE VALUE OF MONEY, P. 89, Publisher R. Smith, 1936 edition) considered and rejected as inadequate, as a means out of Weiser’s “Austrian circle” on the value of money, even before Mises wrote his THEORY OF MONEY AND CREDIT in 1912? Anderson’s point was that “whats necessary is not a temporal regressus…but rather a logical analysis of existing psychic forces.” I think there is a reason why that won’t work for Austrian monetary theory, but that’s another matter.The point however is that my paper is addressed to Menger’s theory. Is Commentor saying that Menger’s “origin” can’t stand on its own merit and must be propped up by von Mises?

Commentor’s statement that “No money could have arisen in any way other than the Menger scenario” is an affront to science, and to consciousness everywhere, and should be identified as such. Economics will not likely be advanced by stubborn shouting. The facts must be examined in an open and logical manner.

Lastly, Commentor’s overdramatic assertion “If this be a’priori history then make the most of it” seems to say that its not whether Menger’s theory is accurate or not that matters, but whether there’s enough influence to put it over!

Before sending out my paper for publication, three people with advanced monetary knowledge read it. One an instructor of several years in monetary thought and history, at the graduate level. Another a professor of economics (Austrian) at a prestigious university; and the third a lifelong student and author of books on monetary history and theory. The first encouraged me to work toward publishing the paper. The second considered the volatility argument to be “good and interesting”, and the third wrote “This paper should be brought to the attention of scholars.” That’s why it was sent to you; but Commentor has dropped the ball, big time.

I request that you get a second opinion of the paper, and suggest that someone of Prof. Rothbard’s intelligence and maturity be asked to read it.

Sincerely Yours,
Stephen A. Zarlenga
(note: sadly, Prof. Rothbard died at about this time)

The full text of Menger’s theory of the origin of money can be found at

Stephen Zarlenga’s refutation of Menger’s theory is available from
AMI, PO. Box 601, Valatie, NY, 12184
( $20 postpaid; students $10)


Economics as a Science?

On December 23, 2010, in Research & Articles, by AMI

Economics as a Science?


Capitalism with a Human Face?

Radford University, June 25 to 28, 2004

The Lost Science of Money: World Peace through Monetary Justice

Why Philosophers Should Decertify Economics as a Science

By Stephen Zarlenga

It’s a great honor to address this group and I thank Professor Glen Martin … for inviting me.

What chance do philosophers really have to move the world toward peace? Maybe pretty good. You’re uniquely qualified to evaluate and expose the methods of what’s become a science of conflict – a body of presumed knowledge called “Economics” encompassing many assumptions, half truths and worse that has promoted the conditions for warfare. And while positive viewpoints are found among exceptional economists, such as Herman Daly, still the dominant corrupt interests assure that they rarely get aired, let alone enacted into public policy.

Therefore economics itself must be called onto the carpet and you Philosopher Kings, in Plato’s vision, can have a crucial role in bringing this so called “science of Economics” to heel. Your dominion is to determine what constitutes knowledge and evaluate the methods of gaining it.

As guardians of clear thought you could sound the alarm when economists don’t define basic terminology on which laws affecting billions of people are based. Laws which usually bestow more privilege on wealthy predators.

As referees of valid methodology you could raise bloody hell when an Austrian School economist claims his theories can’t be disproved by mere facts! Or cry “Foul” when they smear Benjamin Franklin, arguing that he supported paper money because he would be paid for printing it!

Philosophers could flash the pinball “Tilt” warning when economists engage in incestuous self congratulation, like the Swedish Riksbank with no connection to the Nobel foundation issuing the so called Nobel Prize in economics. And shout “Time Out” when some economists keep repeating the same arguments that have already been decisively shot down, rising like Zombies to harass mankind.

Not to mention the economists probable misuse of the mathematical equal sign.

In effect philosophers alone have the standing To De-Certify Economics As A Science, pending improvements in definition, methodology, purpose and focus of study.

On the positive side, give your own awards and honors … to those economists and schools whose work unequivocally supports economic justice and the plight of humanity.

If you were to do this in the philosophical realm and the Churches joined in from the moral sphere; legislative reforms become possible much more quickly.


Not long ago – philosophy, religion and economics – were combined in one group – the Scholastics. Church philosophers including Aquinas who were deeply concerned with morality in commercial dealings. They focused on USURY, which was not merely taking interest. It was always permissible to take interest in certain ways, for example the Societas and the Census contracts. Venice used advanced financial forms for centuries without violating usury bans.

The Scholastics distinguished between earning interest, and the detested usury: USURY BEING A MISUSE OF THE MONEY SYSTEM FOR PRIVATE GAIN. Similar to the Islamic concept of Riba. Jeremy Bentham foisted the present misdefinition of Usury on us, as taking more interest than normal – again the importance of definitions.
The Scholastics’ mentor from across the centuries was Aristotle and they drew conclusions based on his work and on observation; but mostly on Logic; which is appropriate for moral questions. Aristotle was the bulwark against usury:

“The most hated sort [of wealth getting], and with the greatest reason, is usury, which makes a gain out of money itself and not from the natural object of it. For money was intended to be used in exchange but not to increase at interest. And this term interest (tokos), which means the birth of money from money is applied to the breeding of money because the offspring resembles the parent. Wherefore of all modes of getting wealth, this is the most unnatural.” (1258b, Politics)

And that is why all those promoting usury from Bacon to Bentham found it necessary to attack Aristotle.

Now the Economists have kept the Scholastics’ theoretical method but they have ditched morality in favor of utilitarianism; despite their logical approach being more suited to moral issues. Today Economics primary effect is to justify forms of usury and to empower those misusing the world’s money systems.


Over a century ago the great reformer Henry George derided economics as:

“…a science which…seems but to justify injustice, to canonize selfishness by throwing around it the halo of utility…” (Study of Political Economy Lecture p. 6)

And he noted the purposeful corruption of economics:

“…a powerful class whose incomes could not fail to be endangered by a recognition…that what makes them…wealthy is…only robbery, must from the beginning …have beset (political Economy’s) primary step…” (SPE, 140; also see SPE: xxxviii; xxxix;134,and 138)

But except for brief periods in the 20th century (After the Great Depression) the major religions and even philosophers seem scared of the economists. That now changes as the future horrors awaiting society under this new Market Religion become more apparent.

A GREAT PART of the injustice wreaked by economics has been done with poorly defined monetary concepts. AMI offers six conceptual steps to monetary justice.

The 1st step is to accurately identify the nature of money.

The chief failure of economics is its inability, from Adam Smith to the present to properly define money. It’s still argued whether the essence of money is a concrete power in a commodity like gold; or a credit/debit issued by private banks.

Or as we conclude, is money an abstract social power – an institution of the law, having value because its accepted in exchanges due to the sponsorship of government.


We have two basic approaches to understanding money: A theoretical method based on logic; and an empirical approach based on experience or history. Practitioners of the two methods normally arrive at very different conclusions. Support for commodity money or private credit money tends to be based on theory, while Historians normally want a much larger role for government.

Alexander Del Mar the great monetary historian wrote “As a rule political economists…don’t take the trouble to study the history of money; it is much easier to imagine it and to deduce the principles of this imaginary knowledge.”

This over-reliance on logic and downplaying of the facts has worsened with students sidetracked into higher mathematics of questionable use.

Aristotle defined money 2400 years ago: “All goods must therefore be measured by some one thing…now this unit is in truth, demand, which holds all things together…but money has become by convention a sort of representative of demand; and this is why it has the name nomisma – because it exists not by nature, but by law (which in Greek was nomos) and it is in our power to change it and make it useless.”

So Aristotle identifies money as a creature of the law -  an abstract social institution. Its essence is not tangible wealth, but a power to obtain wealth. This distinction between money and wealth is crucial.

Plato agreed with Aristotle and advocated fiat money for his republic:

“Then they will need a market place, and a money-token for purposes of exchange.”(Republic)

Both Aristotle and Plato noted the paramount principle – the nature of money is a fiat of the law, an invention or creation of mankind. This concept is part of a lost science of money which must be relearned as we enter the 3rd millennium if mankind is to move back from the brink of nuclear disaster, to move away from a future dominated by fraud and ugliness toward a future of justice and  beauty.

Significantly, the term “nomisma” is seldom found in early Greek texts. It’s in Herodotus in the 400s BC, but not again until Aristotle, over a hundred years later. This concept of money was probably suppressed in an ongoing struggle between oligarchic forces – a kind of “old Boy Network” relying on personal relations, arrayed against public money, and the developing, more democratic, public sphere of the Greek Polis, which introduced and controlled the nomisma payment mechanism. (LSM, Ch. 1)

THE SECOND CONCEPTUAL STEP – realize that this “PRIVATE VS. PUBLIC” battle for the control of the money power is an ongoing social battle to this day. This struggle determines how well a money system works. A good one functions fairly; helping the society create values for living. A bad one obstructs the creation of values; places special privileges in some hands to the disadvantage of others; promotes unfair concentrations of wealth and power, and disharmony and social strife.

The concept of money – how money is defined – determines whether the system will be publicly or privately controlled. If money is misdefined as wealth, for example gold, then the wealthy will control the monetary System. And if you are only exchanging things, then you are still in the Barter stage.

Credit can legally be made into money, but it’s not itself money. Money is on a higher order than Credit. It is unconditionally accepted as payment. Credit depends on the creditor remaining solvent. Real money does not promise to pay something else.

Furthermore Credit expands when there is a tendency to speculation, and sharply contracts just when most needed to assure confidence. If money is misdefined as credit, then the bankers will control the system.

If money is correctly defined as an abstract legal institution then the society has a chance to democratically use the money system to promote the general welfare.

So there’s a great deal at stake in how money is defined.

THIRD we must see through a mythology of money created  to keep the money power in private hands and not used for the benefit of the whole society. This mythology pretends that government has always abused the money power. Please Realize that this is a fiction; that Despite the current prejudice against government, the historical record actually shows that publicly controlled money functions better than private systems. This evidence goes back 3000 years.

HERE ARE TWO very ANCIENT CASES OF this monetary science from Greece and Rome reflecting Aristotle’s nomisma concept:

Plutarch describes Lycurgus 8th century BC monetary reform when Sparta’s wealth became overly concentrated. He banned using gold and silver and used iron slugs for money. Furthermore those iron pieces were dipped in vinegar while hot, to render them brittle and purposely destroy any commodity value that they had as iron! They received their value through legal sanction. This nomisma system lasted over 3 centuries and Sparta became a premier power. Polybius tells it faltered when Spartas involvement in empire reregressed her back to gold and silver money and they lost the science of money.

REPUBLICAN ROME  based her money on copper,  isolating herself from the East and “disenfranchising” the gold/silver hoards and therefore much of the power of the East. Gold could be traded as merchandise; but without the monetary power, the ability of the East to control Rome’s money was reduced and she had a better chance to control her destiny. Roman Nomisma, were bronze discs legally valued far above their commodity content through the law.

Rome won the Punic wars, but they destroyed her money system and she regressed to Eastern moneys-  first to silver, and then Julius Caesar established a gold standard using the weight system of the ancient temples. The growth of plutocracy accelerated; wealth concentrated in its hands and the population degenerated into slavery. Adopting the East’s money caused power and even the Empire’s headquarters to shift eastward to Byzantium.

Economists misinterpreted this shift to gold and silver as progress when it was more likely a breakdown of an advanced nomisma system.

The breakdown of law and money operated negatively, one upon the other for centuries in a downward spiral of societal decay. The concept of money regressed to crude metallism and the science of money was lost again, especially in the West.


The science of money was not fully recovered until the late 17th century in the American Colonies, where it was used successfully to benefit society. And concurrently with the formation of the Bank of England where it was misused for private purposes, spawning warfare and famine. America provides some of the best case histories to understand the science of money. We may go into one or two in the question period.

JUST HOW DID THE SYSTEM GET INTO THE PRESENT MESS? Largely through propaganda and constant undermining of economic thought.

THE FATHER OF ECONOMICS, ADAM SMITH, took a giant leap backward and obliterated any concept of money in the law, by defining money this way:

“By the money price of goods it is to be observed, I understand always, the quantity of pure gold or silver for which they are sold, without any regard to denomination of the coin.”

He regressed the concept of money backwards from being based in law, not just back to a  level of unlimited coinage, but all the way back to pure metal by weight, where the concept of money was before the Romans arrived in England!

The Bank of England had advanced to abstract paper money 80 years earlier; not in theory, but in practice. Adam Smith regressed to commodity money, not in practice, but in theory. His theory applied to their practice caused confusion and created mystery to this day. (LSM, Ch. 12) Interestingly, Marx did no better.

What was Smith’s motive? Hard to say. Fredriech List tells us that while Smith was on his deathbed, he had all his papers burned so that no one could figure out his true beliefs.

THE FAILURE OF DEFINITION among economists is legendary. Malthus’ 1827 book Definitions In Political Economy pointed out that  “It is quite astonishing that political economists of reputation should be inclined to resort to any kind of illustration however clumsy and inapplicable, rather than refer to money.”

And then a definition of money is conspicuously absent when he offers better definitions for 60 terms!

Today there is a high level campaign to actually remove the concept of money from the English language and substitute it with the concept of credit.

The FOURTH crucial concept is to understand that the attack on government, on society’s one organizational form capable of standing up against the plutocracy began with Adam Smith’s vicious attack on England.

We find that the modern 250 year attack on government originated largely in Adam Smith’s efforts to keep the monetary power within the Bank of England. Smith glorified the Bank and obscured its private ownership calling it as a great engine of state. He attacked English government issued money.

“A revenue of this kind has even by some people been thought not below the attention of so great an Empire as that of Great Britain…But whether such a Government as that of England – which, whatever may be its virtues, has never been famous for good economy; which, in time of peace, has generally conducted itself with the slothful and negligent profusion that is perhaps natural to monarchies; and in time of war has constantly acted with all the thoughtless extravagance that democracies are apt to fall into – could be safely trusted with the management of such a project, must at least be a good deal more doubtful.” (Adam Smith, Wealth of Nations; p.358 – in the Great Books collection, vol. 39)

Smith’s insulting attacks mark the modern beginning of a relentless attack on society – the belittling and smearing of its organizational form – government. The single organization potentially able to block plutocracy’s encroachments. Smith also inadvertently illuminates the major purpose of this attack: – to keep the money power in private hands.

Every day in America we see examples of how this disease has reached epidemic proportions. It has spread from Hayek and Ayn Rand to their intellectual heir Rush Limbaugh and his propaganda radio. Its not entertainment. Its even gone beyond politics and into treason.

HERE ARE THE INDICATED AMERICAN REFORMS, which will also automatically generate positive international results as well.

A) Nationalize the Federal Reserve System as the Bank of England was nationalized in 1946. Reconstitute the Fed within the US Treasury, to evolve into a fourth branch of government.

B)Remove the awesome privilege which banks presently have to create money, and convert all the credit money they have already created into real US government money. At the same time there is a way to turn all of the existing bank credit into real government money, with the banks paying interest on it to our government.

C)Provide for automatic, constitutionally determined government money creation, starting with the 2 trillion $ which that American Society of Civil Engineers tell us is needed to bring our infrastructure up to acceptable levels.

From there we go forward carefully determining how to best run the monetary system, and thoughtfully use Aristotle’s method,
we learn by doing.

Thank you for your attention.


The attack on government is serious enough, but it becomes really obnoxious when combined with THE ATTACK ON HUMANITY, as seen in


Following Buckles lead, Henry George identified the false axiom on which Smith’s Wealth of Nations is based:

“Buckles understanding of Political Economy was that it eliminated every other feeling than selfishness.”  Wherein Smith ‘generalizes the laws of wealth, not from the phenomena of wealth, nor from statistical statements, but from the phenomena of selfishness; thus making a deductive application of one set of mental principles to the whole set of economical facts. He everywhere assumes that the great moving power of all men, all interests and all classes, in all ages and in all countries is selfishness…indeed Adam Smith will hardly admit common humanity into his theory of motives.’” SPE, 89,90

Consider the negative impact on humanity of Smith’s selfishness assumption: Supporters of his doctrine argue that it is merely in harmony with human nature. But clearly, if Man is defined in such a base manner and systems of laws with their rewards and punishments are enforced along those lines, then over time, they will tend to create a form of humanity in “harmony” with their false conception of an economic mankind.

This de-evolutionary process, encouraging a lower form of humanity has been ongoing especially in the English speaking world for well over 2 centuries. The work of great English novelists such as Charles Dickens or great philosophers like Bishop George Berkeley may have slowed it, but didn’t stop it. Listen carefully to Dickens movie script. Henry George saw exactly where it would lead:

“Nor can we abstract from man all but selfish qualities in order to make as the object of our thought…what has been called ‘economic man’, without getting what is really a monster, not a man.” (SPE, 99)        Ecco Homo – circa 2000!

George substituted a different concept for Smith’s destructive error:

“The fundamental principle of human action … is that men seek to gratify their desires with the least exertion.”(P&P, 203)

Then taking a giant step, he poetically described the essence of humanity-


“It is not selfishness that enriches the annals of every people with heroes and saints… that on every page of the world’s history bursts out in sudden splendor…that turned Gautama’s back to his royal home or bade the Maid of Orleans lift the sword from the altar; that held the Three Hundred in the Pass of Thermopylae, or gathered into Winkelreid’s bosom the sheaf of spears…Call it religion, patriotism, or the love of God – give it what name you will; there is yet a force which overcomes and drives out selfishness; a force which is the electricity of the moral universe; a force beside which all others are weak…I call this force destiny toward human nature – a higher, nobler nature than we generally manifest…And this force of forces – that now goes to waste or assumes perverted forms – we may use for the strengthening, and building up, and ennobling of society, if we but will…”(P&P, 463)


Zarlenga Interview with Alistair McConnachie, Prosperity, 2004


by Alistair McConnachie, Part 1.
PROSPERITY, JUNE 2004: Stephen, it was a pleasure to meet you at the Reformers bookshop in Edinburgh in May, and to see a copy of your book, The Lost Science of Money. Please tell readers about yourself?

Thanks Alistair, it was good to meet, after hearing about you from Peter Challen and James Robertson.

My parents emigrated from Europe to Chicago and achieved the “American Dream” – owning a home, a job, more opportunity for their children. They sacrificed and I attended the University of Chicago, under the Hutchins curriculum, a unique program that focused on “The Great Books of the Western Tradition” and on critical thinking and using primary source materials – as much as possible.

What do you do for a living?

I’m the Director of the American Monetary Institute.

What is the American Monetary Institute, what is its aim, why did you set it up, and where is it?

The AMI is a Charitable Trust dedicated to the independent study of monetary history, theory and reform. Emphasis on Independent. The universities have let society down regarding progress in economics, especially money and banking

It can be contacted at AMI, PO Box 601, Valatie, NY 12184, USA; Tel: (USA) 518-392-5387

When did you become interested in Money Reform and why?

I’ve always been interested in it, even as a teenager. The subject as taught, never made full sense. I remember civics class in high school when the Federal Reserve was “explained.” I exchanged glances with my childhood friend Chuck and we both shook our heads in disbelief.

Are you a full-time campaigner now?

Yes . Feels like, more than full time though! Thanks to good fortune and growing interest from the Institute’s supporters and friends I devote all my time to spreading our research results.

What sort of campaigning do you do to spread the message – other than writing this amazing book, that is? For example, have you spoken at any conferences?

Thanks. The book is our main vehicle for the message and funding. I talk wherever I’m invited. Recently at TOES (The Other Economic Summit) in Brunswick Georgia, June 10th, contra the G8 finance ministers meeting.

In May I spoke at the International Philosophers for Peace conference at Radford College.

I told them that as philosophers – the guardians of human knowledge – they had the standing to de-certify economics as a science until the economists cleaned up their act regarding methodology, and definitions.

They laughed in the aisles as I described typical economist methodology.

What were your impressions of the Money Reform scene over here?

People in the UK have a more advanced view of monetary reform than in the US.

We’re burdened by nonsense spread by the Austrian School of Economics – a monetarily and methodologically illiterate group in my view. Libertarians are generally under their sway.

That’s why we still have “goldbugs” in the US. “Goldbug” is the term we generally use here to describe proponents for going “back onto a gold standard” [See Prosperity, December 2003].

There is a mythology that there was great stability under the so-called gold standard.

The goldbug folk tend to be conservatives, often from the fundamentalist Christian community, combined in an unlikely alliance with generally atheistic Libertarians, who learned to be goldbugs from the novelist Ayn Rand, as exemplified in the cocktail party speech of one of her fictional heroes Francisco D’Anconia. She was mentally fixed on this subject by the Austrians.

Sorry to bring in such fictional writers, but in fact one of the methodological weaknesses of the Libertarians is that they have confused Ayn Rand novels with historical evidence!

Some Austrian sympathizers criticize me for being so gruff with them, but that’s all they merit, as I demonstrate in the book.

I regard it as a kind of duty to wean my fellow Americans off their pablum.

Traditionally the US was ahead of the UK in monetary thought. We were a monetary laboratory from the start, and tried everything; whereas the UK was quickly put on the false path of private bank credit money with the formation of the Bank of England in 1694. In our monetary struggles, the UK would send financial “experts” like Walter Bagehot and Bonamy Price to befuddle the Americans. Normally they failed.

Let’s talk about your book. What gave you the idea for The Lost Science of Money, and how long did it take to write?

One of my major goals was to discover a solution to our unjust monetary system. That took years of focused research begun in 1991. Over 800 monetary source books and papers and materials were studied to reach the main thesis.

Your book is heavily based on history. What was your reason for covering history so fully?

The history of money has been ignored – even censored. Yet, that history presents some self-evident conclusions regarding money and banking, that are counter to the practices of today’s financial establishment.

Those supporting corrupt monetary power find it easy to hide behind obtuse theories, but historical case studies are usually clear and instructive.

The monetary system is a source of so much power to those who control it that the area is purposely confused. So a detailed historical format was considered necessary to help do an initial cleaning up of the error and misinformation which we have all suffered under.

Without history, you are in what some Brits used to call “cloud-cuckoo-land.” You need the facts to utilize the empirical method to the extent possible, and those monetary experiences are found in mankind’s history.

It’s also the easiest way to understand the subject and explain it to others. Since I did the studies chronologically, that’s the way I present them.

Finally, since money is always so close to power, following the money thread gives a fascinating historical perspective. It’s not about remembering dates, it’s about clashes of power!

What’s the main point you aim to make in the book?

The main point is the importance of the concept or nature of money as an abstract social power embedded in law.

Not a commodity, not really a form of tangible wealth, and certainly not to be confused with private credit; money is on a higher order as an unconditional means of payment.

The main political battle over money, from Aristotle’s time to the present, has been whether society’s money power be in private hands, and thus used for the benefit of the few in control; or in public (governmental) hands thus potentially used for “promoting the general welfare.” That is the big divide – public v private. Today it’s Aristotle v Adam Smith, with Smith on the wrong side of that battle.

Part 2 of this interview will be continued in the July 2004 issue of Prosperity.

AN INTERVIEW WITH STEPHEN ZARLENGA, with Alistair McConnachie, Part 2.


Continuing Part 2 of our interview with author of The Lost Science of Money, Stephen Zarlenga. Part 1 of this interview appeared in the June 2004 issue of Prosperity.

Stephen, as a consequence of your study, what are your suggested policy proposals for the government of the USA?

To reform our system and assert societal control we have to understand how it was stolen in the first place. It’s always relied on bribery but the main weapon has been Manipulation of Language through obscure theories on the nature of money.

By mis-defining the concept of money, corrupt interests grabbed control of society’s Money Power and the society itself. Definitions have been used as heavy artillery!

The latest form of this attack is an effort to remove the real concept of money from the English language and replace it with a concept of credit!

When I mentioned that at the House of Lords meeting of monetary reformers on 6th May, a number of people recognized how that process of language manipulation works and I saw a reaction go through the room.

There are three parts to the American reforms:

First: Nationalize the Federal Reserve System as the Bank of England was nationalized in 1946.

Reconstitute the Fed within the US Treasury, to evolve into a fourth branch of government, on a par with the executive, judicial and legislative branches.

Only our government would create money, and it would do so directly, not by making loans. Money’s nature is not a loan credit. That is crucial to remember.

Once the money is in existence, it could be loaned, but you don’t want a situation where repaying loans then liquidates the money. Using loans to create money would make it too easy for banking elements to regain their private control over money.

Second: Remove the privilege which banks presently have to create money. They continue to be private companies but can only lend what has been deposited with them. An elegant process automatically turns the previously issued bank credit into real American money. 100% reserves are reached not by calling in loans and wrecking the economy but by increasing reserves.

Third: Provide for automatic, constitutionally determined government money creation, starting with the 2 trillion dollars which the American Society of Civil Engineers say is needed to bring infrastructure up to acceptable levels.

From there we go forward carefully determining how to best run the monetary system, and thoughtfully use Aristotle’s method, we learn by doing.

Do you think these policies are also suitable for the UK?

Yes, you have already done step number 1, thanks to the Archbishop of Canterbury’s initiative, which I describe in Chapter 20.

Next remove the money creation privilege from private banks. Figure out how that money power is best applied, based on desired social goals.

What difference would these policies make to the life of the average person, if they were implemented?

Government money tends to go into infrastructure, like education, roads, clean water, health care and social security.

Control over how the money is used directs the money to solving pressing problems rather than into useless speculation that merely concentrates wealth. This assures a better quality of life not dominated by arcane forces with whatever hidden agendas.

Have you faced any outright opposition to your ideas, and if so, from whom?

The opposition doesn’t want to draw attention to the book so they ignore it, or misreview it – create false reviews putting forward things that are not in the book.

If a reviewer gives an accurate picture of a book and then attacks it, many people still say – “but I find those ideas interesting” and get the book anyway.

False reviews don’t give the reader that chance. Nasty reviewers try to make a book sound either dull, or weird, and turn people away. There have been two reviews like that, apparently from Austrian School sympathizers – one an American goldbug, the other a Canadian economist.

Outright opposition doesn’t work against my book because I present so much of the factual evidence that destroys their arguments and outright lies.

The opposition prefers such evidence never be seen or discussed. In other words the facts beat them.

So getting interviewed in positive publications such as prosperity is really quite important.

Now because my book breaks much new ground, reviewing it requires a really good mind to start with. And I’m happy to report that we are getting some great reactions as more people read the book. PROSPERITY readers can see the reactions, including reviews at our website

I can’t over-emphasize the importance to the AMI of people purchasing and reading this book. It’s only when people help by purchasing our research results in book form, that we can continue with more research.

What sort of people are most interested in your book?

Those looking for an uncensored, accurate presentation of the monetary problem and its solution. It’s strongly enjoyed by those with an inkling something’s wrong with the monetary system but can’t put their finger on it; or have done a bit of reading in this area or even devoted a lot of effort but still haven’t put all the pieces together.

We do put the pieces together and give tons of factual ammunition of which most specialists are not aware. For example, a substantial part of my presentation in London was dispelling the myth that government money systems have been more dangerous and inflationary than privately controlled ones. We aim to make monetary reform the 21st Century’s top priority.

Can you give us an idea of the Money Reform scene in the USA?

After WW2, the Bank of England was nationalized and the locus of the world’s money power had a little earlier shifted over from London to New York. With it came the Austrian School of Economics with their monetary obfuscations and wearing the “freedom” mantra on their cuffs, while the real effects of their ideas were to promote plutocracy.

This culminated in Hayek’s, Denationalization of Money book in the 70s – an unsuccessful attempt to throw a monkey wrench into the Euro plans and an affront to all thinking people. Ayn Rand put the Austrians on the map in America, through her “Objectivist” movement.

She was stuck in a backward “money is gold” framework. And so we have small pressure groups promoting goldbug viewpoints and these are easily ignored in public debates, and they expect to be ignored also. Normally they are promoted by mining companies, coin dealers and related investment groups and much of their leaderships focus is on making money rather than achieving reform.

The Libertarians are either backing these gold standard ideas, or even worse, Hayek’s free banking viewpoints.

I demonstrate to the free bankers 6 major errors in Chapter 16. The first is that they have misidentified the free banking period of American history.

The local currency people are very decent people who understand that there is a serious monetary problem, and I’m very interested in reaching them, as a believer in moving forward along many fronts toward monetary reform. But some of their leadership seems to think they can ignore the national reform scene and will be allowed to escape into their local enclaves.

That kind of escapism was promoted by Ayn Rand – her heroes in Atlas Shrugged escape to a secret valley in Colorado, as civilization crumbles around them!

Then there is the American Monetary Institute promoting the reform proposals described above. We have to do a great deal more than we have so far.

Politicians are still afraid to get involved in any of these movements because they are all counter to the Fed. That will happen when the bankers malfeasance creates the next crisis.

Our battle is not only with the financial establishment, it’s with a confused atmosphere where some who think of themselves as reformers are actually serving to confuse the situation.

Life is interesting, and it would be strange indeed if this key power area had been left undefended. It’s up to the AMI to work harder and smarter to get our message across to those who have maintained open minds. We could use as much help in that as we can get.

Now remember, although the book is printed on 300-year paper, I am highly optimistic that we will be successful in this work. Why?

TINA! There Is No Alternative! (Note: the Brits were constantly barraged with this abbreviation by Prime Minister Thatcher in her drive to de-regulation and pseudo-free markets)

The alternative is too terrible to imagine. Mankind’s “fate” is not to have civilization derailed by the characters presently controlling our money systems!

Stephen, best of luck in your important work, and thank you for a very insightful and instructive interview.

Thank you Alistair!


Was the Iraqi Shift to Euro Currency to “Real” Reason for War?

Dear Friends,
Several persons have asked the American Monetary Institute to comment on the viewpoint that the “real” reason for the war against Iraq was Sadam Hussein’s decision to price Iraqi oil in the new EURO currency of the European Union rather than in U.S. Dollars. The argument goes that unless the price of oil is denominated only in Dollars, then the U.S. would not be able to continue to run huge balance of payments deficits. The argument is based on the idea that the motivation for other nations to hold accounts and reserves in Dollars is that they can use them to pay for oil.

We do not agree with this viewpoint and here are some of the reasons and background. The Euro and its potential beneficial effect for humanity is discussed in much more detail in chapter 23 of our book The Lost Science of Money: The Mythology of Money – the Story of Power, a 736 page work in 24 chapters, with 119 illustrations; presenting the research results of the American Monetary Institute to date. (see

Launching the Euro

The planning and preparations for the Euro Currency are at least three decades old. The plans were adjusted in stages as the “Common Market” evolved into the European Community, prior to the currency’s recent inauguration. The official structuring of the Euro was apparently designed to be at par with the U.S. Dollar, at launching in January 1999 – that is 1 $ = 1 Eur. However in the last part of 1998, some European currencies, such as the German Mark rose substantially in speculative foreign exchange trading so that the Euro was launched at about $1.18. That was too high and from that level it had nowhere to go but down. It dropped for 21 months, causing most financial operators to proclaim it dead on arrival.

Our view at the American Monetary Institute was decidedly different: that until the Euro came on the scene, there was only one “world class” currency – the U.S. Dollar. Now there would be two. That represented progress. For quite apart from the ideologies motivating the present Euro monetary managers, even if they, like the Federal Reserve System, were strongly biased towards deflation, it was now structurally possible for the Europeans to get out from under Alan Greenspan’s “Dollar Hammer.” In our view a now developing Asian area currency will also be a good addition to the international monetary order and could have avoided the currency crisis that occurred there in the late 90s – i.e. there would be three “world class” currencies instead of two.

We had for some time concluded that Greenspan’s Fed was engaging in a deflationary monetary policy, under cover of vast substitute money forms being generated in the “Dot Com” and other market bubbles, where stocks were being used as money. For example to pay workers with stock options, or when AOL used its stock to buy Time Warner in the largest merger of all time. In April 2,000 we warned about what would happen when, not if those high Price Earnings ratios would disappear. See the Deflation Studies at this web site.

The Euro thus gave the Europeans the ability to take substantial non-deflationary monetary action independently of the Fed. If in the arcane world of currency machinations, there was ever anything to fight about over the Euro, it was that fact.Thus I wrote (August 2002) in Chapter 23:

Conflict with Europe? Hard as it is to imagine, there is now a potential for monetary (even military?) warfare between the U.S. and Europe.”

As the value of the Euro plunged down to about $1.07, we pointed to the earlier overpricing at its launch and we predicted that it would continue falling down to 82 cents, from where it would rise to about 109, fall back under 100 and then oscillate around 100 (at “par” where 1 Eur = $1). The reasoning behind our prediction was that the Euro managers had probably done their job well, and “par” was the “correct” value. However once markets are in motion they tend to go too far, up or down. Thus our prediction was that it would over-react down to 82 – as much under par as it had been previously over par.

Well the Euro declined exactly as we predicted, reaching 82 cents in October 2000. Iraq is reported to have shifted $ reserves into Euro around then. The Euro rose to 96, fell back to 83 in July 2001, and has since risen to just over its launching peak at about 119. The point is that the rise from 82 is not so easily attributable to Iraq’s action. It was also predictable from normal market mechanics. Any real trading professional will confirm that. Overshooting our prediction of a rebound back to 109 was due to the weakening of the US Dollar attributable to the Iraq war and America’s unnecessary alienation of its main trading allies.

The Petro Dollar vs the Petro Euro Argument
Now we see arguments that the real reason for the 2nd Iraqi war was Saddam Hussein’s shift to the Euro, and to keep the U.S. Dollar’s dominant position as a reserve currency, enabling the US to continue running deficits by sending Dollars abroad. While Iraq’s switch was perhaps one more factor in the equation, I strongly doubt such an over-arching explanation for the warfare. Indeed, if anything, so far the second Gulf War has served to increase the Euro’s value and weaken the Dollar. Furthermore, this weakness could become more permanent, unless the administration alters its “in your face” attitude which is keeping our traditional allies from helping with the desperately needed policing and rebuilding costs for Iraq.

In addition, there is no hesitancy for foreign countries to continue accepting U.S. Dollars in payment for their goods and services. Most countries are cash starved and require dollars to pay interest and principal on huge Dollar loans. They eagerly seek dollars, since much of the world’s debt, private and public, is denominated in Dollars. Even in Iraq, we found vast amounts of dollars being hoarded in banks and even by Sadaam Hussein himself where over 800 million Dollars in cash were found stashed away in one of his palaces.

Still another problem with the argument is its commodity bias. It is the International Monetary Fund (IMF) with its rule setting procedures that will probably have more to say about the power of currencies, than the OPEC Oil Cartel. Although the Bretton Woods agreement gave a specially privileged position to the Dollar in 1946, as we point out in Chapter 22, since 1975, the Pound Sterling, Japanese Yen, Swiss Franc, German Mark and French Franc were also empowered to serve as reserve currencies by central banks. And superceding some of these currencies, the Euro has that status also (or soon will) – acceptable as a reserve currency under IMF rules. We are not promoting the IMF (see another article on the IMF at this website) as a fairly run institution, but legal factors usually supercede commodity markets in determining the power of currency.

While the process of using other currencies to obtain Dollars to buy oil would provide a demand for Dollars; after the oil is paid for, the same dollars still have to be attractive for the new owner to hold on to them – an owner who presumably does not need the Dollars to pay for oil! And other major oil suppliers exist outside the Middle-East, such as Norway and Russia. Does anyone really believe that Norway with its vast reserves, would withhold sales from the European Community paid for with Euros? Are we contemplating war with Norway?

Consider that the very existence of two world class currencies implies and necessitates that world reserves will to varying degrees be held in both of them.Thus any such “threat” to the dollar would obviously have originated long before Iraq’s decision, in the European community’s long standing plans for its own currency, which are decades old. And yet we find no serious attempts to block the Euro, from any of seven U.S. Administrations – not a one. On the contrary they were encouraged, according to Mr. Prodi, the European Commission President in a recent Charlie Rose Interview. He remarked (in January/February 2003) that we could have stopped their Euro plans, “with just a word.” Yet America did not lift a finger to stop the Euro. So much for the “monetary sky is falling” because of the Euro argument.

I found only two notable attempts to sabotage the Euro, both originating from British elements. The first was “Austrian School” economist F. A. Hayek’s immature essay entitled “The Denationalisation of Money – The Argument Refined” – really a childish attempt to throw a monkey wrench into Euro plans, published by London’s Institute of Economic Affairs in 1976 and 1978. (That book is strongly critiqued in Chapter 16 of The Lost Science of Money). But the only people who took Hayek seriously were American Libertarians and other “Austrian Schoolers.” Then in the mid 90s, Connolly’s Dirty Rotten Heart of Europe, fell flat in its name calling attack on the Euro.

As to what happens next to foreign exchange markets, gold prices and inflation/deflation, welcome to the casino! When the rule of law is attacked in such fundamental ways as has needlessly been done in the pre-emptive strike against Iraq – especially by the U.S. – the country which should be at the forefront of advancing international law; it tends to generate an element of panic in general, which spills over into markets as well. With large amounts of speculative cash sloshing around (and that’s about the only place you’ll find so much liquidity these days), markets and prices can become violent.

A particular danger may exist in the gold futures markets, where violence in that market can easily be mistaken as a monetary “signal” in a way that a similar price disruption in Pork Bellies would not. The existence of a small but vocal group of monetarily illiterate pro-gold Americans egged on by gold mining and investment interests makes this more than a theoretical danger. However, the exchanges do have the power to solve such a problem – if they want to – as was done in the Hunt Brothers corner of the silver market in 1980-81. The Billionaire Hunts had the silver market makers on the hook for six to eight billion dollars, but were then driven to complete ruin and bankruptcy when the Comex Exchange simply altered its trading rules. The Hunts said “You can’t do that!” The exchange lawyers told them they should have read the futures contract fine print, and the courts agreed. The Hunts lost not only the $6-8 billion in profits, but their entire fortune as well.

So at present, foreseeing the future becomes a bit more difficult. You see there is no longer a countervailing media power to keep watch over what various gangs are doing. Bad ideas – even really bad ones – for example tax cuts for the super-rich, which could cause a form of currency debasement combined with economic contraction, and a de-funding of government, do not get reported as poor public policy, or more accurately as insanity, but instead get presented as valid questions for economists to argue over. Obscene Power Grabs are made in broad daylight such as the recent FCC de-regulation of the media – one of the most irresponsibly run industries in the U.S. All this prompted Nobel Laureate in economics (2001) George A. Akerlof to recently remark:

“I think this is the worst government the US has ever had in its more than 200 years of history.
It has engaged in extraordinarily irresponsible policies not only in foreign policy and economics
but also in social and environmental policy.”  (SPIEGEL Online interview, thanks to Alanna Hartzok)

What can best be described as the “Ministry of Propaganda,”euphemistically referred to as “talk radio” represents the interests – day in and day out – of only one tiny element in the nation – the owners of the networks – all super-rich. At present there is no democratic (small d or big D) opposition. The way that elections, and communications are financed has demolished both, except for the rare PBS presentations of Hedrick Smith, or Bill Moyers.

As to what the real cause of the war was, I’ll close with this observation:
Watching Hedrick Smith’s recent P.B.S. Frontline documentary on the Worldcom and other financial scandals, the thought struck me that if we had not been distracted by war reporting, museum lootings, library burnings, and daily reports of continuing casualties among our troops, then these financial scandals, would have been center stage for many months. Smith’s condemning evidence reached all the way up to Alan Greenspan; it went beyond personalities, to indict “free market ideology” as well. That is long overdue!

So that “distracting process” could have been a major war motive. (Remember how Richard Nixon tried to scramble the strategic air defense bombers, during the watergate disaster?) Throw in the oil-grab factor; throw in the Neo-Conservatives Middle East agenda shared by the evangelical Christians supporting Israel’s interests. Then too we’ve all been reminded (many times) that S. H. tried to kill Mr. Bushes’ daddy. Add in the Arab League’s now forgotten watershed peace initiative toward Israel last year and the problems that posed for the war parties on both sides, etc, etc, etc. Mix all these factors into an environment of panic over the World Trade Center disaster, and Voilà – Gulf war II.

External policy should not worry about the Euro, but focus on rebuilding respect for international law and co-operation toward justice. That strengthens the U.S. Dollar. That fosters a respect for human life and well being everywhere. That will reduce the level of anger and hatred directed at Americans – yes it reduces the causes of terrorism.

This young, inexperienced President needs to separate himself from older elements in his administration that are against that – the empire promoters. And he must hold fast to formulating and enforcing a viable “roadmap” for peace between Israel and Palestine. Success there would really help erase the recent blemishes on America’s worldwide standing, abroad, and at home. Domestic policy should focus on rebuilding respect for our rights – for privacy, dissent, and due process matters; so that we can get to the crucial issues of monetary reform, so needed to get America off the road to serfdom, which has been paved by the Austrian School and other economists, and back on track toward liberty and justice for all.
Stephen Zarlenga
Director, American Monetary Institute


Monetary Transparency Act

On December 23, 2010, in American Monetary Act, by AMI

Monetary Transparency Act

Transparency in the Creation of Wealth Act of 2008


2d Session

H. R. 7260

To increase the quality and public accessibility of research by the Board of Governors of the Federal Reserve System on the effects of monetary policy on the distribution of wealth in the United States, and the proportion of newly created monetary resources directed into various sectors of the economy, and for other purposes.


October 3, 2008

Mr. KUCINICH introduced the following bill; which was referred to the Committee on Financial Services


To increase the quality and public accessibility of research by the Board of Governors of the Federal Reserve System on the effects of monetary policy on the distribution of wealth in the United States, and the proportion of newly created monetary resources directed into various sectors of the economy, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,


This Act may be cited as the `Transparency in the Creation of Wealth Act of 2008′.


The Board of Governors of the Federal Reserve System shall devise, calculate and publish a replacement for the discontinued M3 monetary statistic, in order to provide a transparent estimate of the nation’s total money supply.


The Board of Governors of the Federal Reserve System shall tabulate and publish a statistical description of the current distribution of wealth in the United States by quintile, including a further examination of the uppermost 1% sections by 0.1% each.


The Board of Governors of the Federal Reserve System shall calculate and report to the Congress the total annual seigniorage interest income received by financial institutions as a result of their being allowed to create money in the form of the credit they extend above their own cash deposits or reserves prior to extending the loans.


The Board of Governors of the Federal Reserve System shall calculate and publish semi-annually the loss or gain in economic output due to the deviation of the previous year’s actual unemployment rate from the 4% level required by the Humphrey Hawkins Full Employment and Balanced Growth Act of 1978 (15 U.S.C. 3101 et seq.), including such loss or gain, in income by quintile.


(a) In General- The Board of Governors of the Federal Reserve System shall tabulate and publish data showing the amount of credit and the percentage of credit now being created and directed into each of the following:

(1) Public infrastructure.

(2) Primary residences.

(3) Secondary residences.

(4) Stocks, bonds, commodities.

(5) Foreign currency and derivatives trading.

(6) Mergers and acquisitions.

(7) Education.

(8) Manufacturing infrastructure.

(9) Military expenditures.

(b) Additional Analysis- Each category referred to in a paragraph in subsection (a) shall be further analyzed by type, gender, race, wealth status, and location, if applicable.


The Board of Governors of the Federal Reserve System shall develop a market-based estimate of the value of residential, corporate and publicly owned land and report figures.


The Board of Governors of the Federal Reserve System shall make projections, in 10 year increments, of the net foreign debt, and estimate and report on the location of Federal reserve notes, by country and type of holder; including an estimate of lost notes.


Notwithstanding the requirements, limitations, and exceptions contained in section 714 of title 31, United States Code, the Comptroller General shall conduct a full audit of the Federal reserve system in every year before a Presidential election year.


The Board of Governors of the Federal Reserve System shall undertake the Survey of Consumer Finances every year.


The Board of Governors of the Federal Reserve System shall publish a summary of total credit market debt, quarterly and annually.


The Board of Governors of the Federal Reserve System shall release–

(1) the statistics required to be compiled by this Act at a quarterly news conference; and

(2) the survey of consumer finances and the total credit market debt report at an annual news conference.



Internship and Voluntary Work Programs

On December 18, 2010, in Uncategorized, by AMI

Internship and Voluntary Work Programs

As a 501c3 Publicly Supported Charitable Trust, the American Monetary Institute sponsors both internship programs and voluntary work programs for specified time periods under the supervision of Director Stephen Zarlenga. Participants combine a program of learning the methodology and results of the Institutes research with their own focus on monetary system matters. Through their concurrent contribution of time and effort on tasks necessary for the continued operations of the Institute they help the Institute fulfill its educational and charitable purposes in spreading the results of our research into monetary history, theory and reform.

The work focuses on several areas: normal administrative tasks; website assistance; help with the many aspects of our annual international monetary reform conference; grant writing; development of AMI chapters throughout the U.S.; editing our video and audio presentations; student out reach programs; etc. We do try to make sure that while this is serious work, that its done in an enjoyable atmosphere. And you’ll meet interesting people, at the forefront of monetary research and reform in the U.S.A.

For further information or applications please email Stephen Zarlenga at and tell us about yourself – your background and your objectives – and please send in a resume, including any relevant personal info.


A Refutation of Menger’s Theory of the “Origin of Money”

To download the full Power Point Presentation of the
Refutation of Menger.
Click here. Then please donate $10 to the Institute.

Here is a summary:


The paper challenges Menger on three grounds:


Though it is generally assumed that Menger’s theory is at least in part derived from historical evidence, the paper demonstrates that its derivation is entirely theoretical, by showing that all the historically based evidence cited by Menger, is 180 degrees counter to his theory. The paper points out the inappropriateness of attempting to divine an historical event or process with only deductive logic.


The paper points out that even within the framework of Menger’s scheme, there are two fatal flaws. First the circularity of his reasoning in determining his causes of liquidity, which arises from his use of the “development of the market and of speculation in a commodity” as a cause of liquidity, when in fact it is a definition of liquidity and even Menger uses it as such. Second, the paper points out that within Menger’s scheme, it is not liquidity, but volatility (or lack of it) which is much more important.


The paper shows that some of Menger’s closely held general views of the stability of gold and silver and their universal use as money, are simply false. In addition the existence of the millennia long dichotomy in the gold-silver ratio between east and west, which Menger seems to be unaware of, appears sufficient to doom his theory.

The paper presents some of the factual evidence gathered by William Ridgeway, in the ORIGIN OF METALLIC WEIGHTS AND STANDARDS; by A.H. Quiggin in A SURVEY OF PRIMITIVE MONEY; by Paul Einzig in PRIMITIVE MONEY; and by Bernard Laum in HEILEGES GELD; all as an indication that an institutional origin of money, whether religious or social, is much more likely to have occurred than Menger’s assumed market origin.

The Continuing Importance of Menger’s Theory of the Origin of Money is demonstrated in recent books by the way that Austrian/Libertarian authors supporting Free Banking usually begin by asserting Menger’s theory as accepted wisdom. Robert Nozick used Menger’s “Origin” to launch (p.18) his book, Anarchy State and Utopia, a Libertarian “bible” that put Libertarianism back on the intellectual map in 1974.

A chief failure of economics is its continuing inability to define a valid concept of money consistent with logic and history.

Since money touches every aspect of economics, this indefiniteness has spread to other aspects of the science, leading to basic moral and political questions as the proper monetary role of government and of institutions such as the Federal Reserve System.

It is still being argued whether the nature of money is a concrete power, embodied in a commodity such as gold; or whether it is an abstract social invention – an institution of the law.  Does it obtain its value from the material of which it is made, or from its acceptability in exchanges due to the sponsorship or legal requirements of the government?  Or is it some kind of hybrid “economic good” starting as a valuable commodity and evolving “in its more perfect forms” into a socially valued token?

These questions are of great practical importance, and lead directly to conclusions about the proper role of government in monetary matters; will shed light an whether the power to create and control money should be lodged, as at present in an ambiguously private issuer – the Federal Reserve Systems member banks.  An accurate concept of money will indicate whether “free banking” should be promoted, tolerated or should be strenuously blocked.

For if money is primarily a commodity; which is convenient for making trades; which obtains its value out of “intrinsic” qualities; then it can be more a creature of merchants than of governments.  It becomes possible to regard its evolution as some unconscious process, not involving human planning or institutional decision.  For example no decision would have been made that wheat, or apples were valuable as food – they simply were, and over time it would have become apparent to all, either through experience or example.

On the other hand if money in its origins and development, or even just in its most perfect forms, is properly an abstract social institution embodied in law – i.e. a legal institution, then it is more a creature of governments than of merchants.  Its evolution and possibly even its origin would have been matters of conscious decision, whether by ancient temple cults, governments, or merchants.  It would have been one of the greatest human inventions.

The three methodological approaches to these questions are:

The Theoretical Method: Using a’ priori principles held to be accurate, deductive reasoning has been applied to the questions surrounding money.  This would be embodied in what von Mises called “praxeology”, wherein “The proof of a theory is in its reasoning”[i].

This is the time honored method of mathematics, and is important in moral reasoning. It is a primary tool of the Austrian school. However it is not especially useful in discovering historic events.  Thus while it can be helpful on some aspects of money, it may not help much with the origin question.

Empirical Method: Based on observation and cataloging of data and on experimentation if possible, under controlled, repeatable conditions, where variables can be observed and their effects noted.  Logical reasoning is applied to the data to “explain” them by theoretical constructs.  More often than admitted the theoretical constructs come first, with researchers later searching out the facts.  The great advances in the physical sciences of the past three centuries are laid to the empirical approach or the scientific method.

In the study of monetary systems this approach must rely on history and in some cases on archeology and numismatics for the observed facts, for two reasons: first, only history provides mankind’s actual experience with money; secondly, as the effects of monetary systems often require several generations to become apparent, a monetary system must be observed over time for its good or bad effects to become known.  Note that we have introduced a moral criteria in the evaluation of monetary systems, to which we shall return.  Now applying the Scientific Method to historical study is limited. Experiments can’t be created where variables are controlled. Still, the historical facts contain the data to which theoretical constructs must conform. William Ridgeway, Alexander Del Mar, George Knapp, and at times Milton Friedman have been among those utilizing an historical or archeological approach.

The Anthropological Approach falls within the empirical method, and on the origin of money, is summarized by A.H. Quiggin’s work, A Survey of Primitive Money:

“If … attention is turned to what is happening at the present day (1949) among the less advanced peoples, a clearer idea can be obtained of the process of evolution, with the possible discovery of the reason why certain objects became ‘money’ while others with equal claims do not.”[ii]

Animosity Between Empirical And Theoretical Researchers

There has existed a certain animosity between practitioners of these methods:

Ludwig Von Mises:

“Knapp … as one of the standard bearers of historicism in political economy, had thought that a substitute for thinking about economic problems could be found in the publication of old documents.”[iii]

Alexander Del Mar:

“As a rule political economists … do not take the trouble to study the history of money; it is much easier to imagine it and to deduce the principles of this imaginary knowledge.”[iv]


“I hold the attempt to deduce (the nature of money) without the idea of a state to be not only out of date, but even absurd.”[v]

One reason for this friction is that normally historicists reach an abstract view of money, and conclude that government has an important role in monetary matters; and normally those who conclude that concrete or economic aspects put money primarily in the realm of merchants, are theoreticians.

With this introduction, we are better prepared to consider Carl Menger’s effort in THE ORIGIN OF MONEY, published in June, 1892.

Carl Menger’s Effort and Method In The Origin Of Money[vi]

While the origin of money need not necessarily answer our questions on the nature of money, it might at least provide valuable clues.  On examination however, and contrary to normal expectations from the title of the piece, Menger’s effort does not utilize an empirical approach, in any except the most superficial sense. This becomes clear when Menger makes no mention of places or times, in support of his thesis, even generally.

Indeed the only historical references are footnoted away to one of his earlier works, PRINCIPLES OF ECONOMICS[vii], and only a few pages are referenced.  Upon examining them we find brief descriptions of various commentators views on the origin of money, including Plato and Aristotle from antiquity, and Paulus from the Byzantine Roman Empire.  The list continues through the commentators of the middle ages, But these views as Menger correctly points out are based on Aristotle, and bring nothing new to the study.

In the referenced Menger work, he finally comes to what he considers historical support for his thesis, but in order to read it we are again footnoted off to yet another work, John Law’s MONEY AND TRADE CONSIDERED.  Only a few pages are indicated, but Menger assures us that law has correctly figured out the question and is therefore the originator of “the correct theory of the origin of money”, which coincides with Menger’s.

Here we observe a rhetorical device Menger has employed.  Had he plainly stated in his theory article, that John Law’s “origin” was the same as his, many readers would react negatively, because of Law’s reputation as having destroyed France’s monetary system in the 1720′s.

However, the indicated pages of Money and Trade Considered, provide no historical material on the origin of money, but give more supposition, deduction, and description of the physical properties, mainly of silver, and its suitability as money.[viii]

In fact, All of Menger’s Historical Evidence Is Against Him

There are only 4 pieces of what could be considered historical evidence presented by Menger – the first three being the commentaries of Plato, Aristotle, and Julius Paulus.  All three of these sources describe systems and concepts 180 degrees counter to Menger’s thesis.  These authorities were closer to the ‘origin’ event than we are, and we may reasonably expect them to have been aware of whatever accounts were available in the literature coming down to them regarding the possible origin of money.  Literature which may have been lost to us through the extensive censorship of Greek and Roman works by Imperial Rome, or in the sacking of Byzantium. That such censorship occurred in the monetary area appears likely.  For example, in the Athenian Constitution coming down to us, we can find out how the garbage was collected, but we will search in vain to learn how Athens state coinage system was run.

Even barring that possibility, these three observers, being from an early period (4th century BC, and the 4th century AD, their accounts of their own systems could lend valuable clues.

Plato’s description:

Money is “a token for purposes of exchange.”[ix]

Aristotle’s description:

“All goods must therefore be measured by some one thing… now this unit is in truth demand, which holds all things together … But money has become by convention a sort of representative of demand; and this is why it has the name ‘nomisma’ – because it exists not by nature, but by law (nomos) and it is in our power to change it and make it useless.” (Nicomachean Ethics,1133A)

Thus Menger is incorrect when in endnote 5, P.21 of the Origin of Money, he claims nomisma is based on the shape of the coin. The crucial nature of this “error” does strain belief.

Julius Paulus’ description:

“A substance was selected whose public evaluation exempted it from the fluctuations of the other commodities, thus giving it an always stable external (nominal) value.  A mark (of its external value) was stamped upon its substance by society.  Hence its exchange value is based, not upon the substance itself, but upon its nominal value.”[x]

This historical evidence against his position does not phase Menger in the least.

Isolating Menger’s Method

Indeed, Menger’s only historically based evidence is his assertion that:

“tested more closely, the assumption underlying (the governmental origin of money) gave room to grave doubts…(as) no historical monument gives us trustworthy tidings of any transactions either conferring distinct recognition on media of exchange already in use, or referring to their adoption by peoples of comparatively recent culture, much less testifying to an initiation of the earliest ages of economic civilization in the use of money.”(p.7, emphasis added) We aren’t told exactly who had these “grave doubts”.

Apparently then, Menger accepts the importance of factual historical evidence, and even demands it from competitive theories!  But he presents this evidence not to support his theory but to undercut his opposition.

Thus we can argue conclusively that Menger arrives at his thesis only through theoretical, not historical facts, and does so in spite of those historical indications available to him.

Menger’s Reasoning and Conclusions

Menger sets out to explain the adoption of the precious metals as money by market forces, excluding the intervention of governments to make them a “product of convention and authority.”

He starts by asserting the difficulties of barter:

“But how much more seldom does it happen that these two bodies meet!  Think, indeed, of the peculiar difficulties obstructing the immediate barter of goods in those cases, where supply and demand do not quantatively coincide.” (p.8)

Menger’s use of the “spread”

Menger points out that one usually cannot immediately resell a purchased item at the purchase price, i.e. that if one is buying or selling, rather than making a market professionally in the commodity, one normally purchases at the asked price and sells at the bid price.  The difference between these prices is called the “spread.”

Menger’s Definition of Liquidity

Menger measures liquidity by the tightness of the spread between bid and asked prices, and notes that some commodities are more liquid than others:

“If we call any good … more or less liquid according to the greater or less facility with which they can be disposed of at a market at any convenient time at current asked prices, or with less or more diminution of the same, we can say…that an obvious difference exists in this connection between commodities.”(p.11)

Its important to note that Menger qualifies this on the next page: “again, account must be taken of the quantitative factor in the liquidity of commodities.”(P.11)

He then posits that a trader would tend to barter goods for more liquid ones, even if he didn’t need the particular commodity, in an effort to eventually be able to barter the more liquid items for actually desired items, gaining “the prospect of accomplishing his purpose more surely and economically than if he had confined himself to direct exchange.”…

“Each individual would learn…to take good heed that he bartered his less liquid goods for those special commodities…qualified…to ensure to the possessor a power…over all other market goods at economic prices.”(p.13)

By this market process, according to Menger, the most liquid commodities slowly, starting with the most discerning people, achieve the status of money, without “general convention or a legal dispensation” making it so. Then once certain commodities become “money”, they become even more liquid than other goods:

“The effect produced by…goods…becoming money is widening the chasm between their liquidity and that of all other goods.  And this difference in liquidity ceases to be gradual altogether, and must be regarded in a certain aspect as something absolute.” (p.17)

According to Menger it is “only from this point that the state” intervenes:

“And the ground of this distinction we find, lies essentially in that difference in the liquidity of commodities set forth above – a difference so significant for practical life and which comes to be further emphasized by intervention of the state.”(p.17)

It should be significant for modern researchers who embrace Menger’s work; and of relevance to our initial questions, that even assuming Menger was correct, the government is involved in money at a very early period, in all likelihood, just before the actual introduction of coinage.  Menger may have been aware that there are no monuments – no identifiably merchant coins extant whatsoever in the disciplines of archeology, or numismatics.  Furthermore, the reason he postulates for government involvement, is not nefarious, but due to the great significance the money designation has upon practical life.  Champions of Menger have taken neither of these points to heart.

That is Menger’s theoretical construct.  He gives 6 causes of liquidity; 5 space or place factors affecting liquidity; and 7 time limits to a commodity’s liquidity. (see Appendix 1)


Critique of Menger’s Method

For Menger to attempt to discern an historical event, or even an historical process utilizing only a’ priori reasoning must have taken some daring.  Logical reasoning alone is not a promising approach to such questions, which involve numerous specific time, place, and cultural variables, of unknown importance.

Logical reasoning can be used to explain how and why factual events are related and develop; it can point to areas where subsequent observation can establish facts; but logical reasoning in itself cannot establish or discover the fact.  That must be done by observation.

Where Menger draws upon generally accepted “facts”, they are highly selective, often inaccurate, and universally from much more modern periods, and thus have little bearing on his thesis. (see below)

The Circularity of Menger’s Reasoning

There is a degree of circularity of reasoning in Menger’s causes of liquidity and time and place factors.  Remember, he is supposed to be defining causes of liquidity of a commodity, not causes of acceptability of a money.  Of Menger’s 6 causes (see Appendix 1), points 1,2,and 6 really reduce to one point – the effective demand for the commodity.  Point number 2 furthermore should have referred to the trading power rather than purchasing power, as he is discussing a pre-monetary situation.  Cause #6 would be entirely reflected in the effective demand.

Causes #3 and #4 are reducible to the supply of the commodity.

So we are left with 3 causes of liquidity – supply, demand, and his cause #5, the development of the market and of speculation in the commodity.

The circularity arises from the fact that cause # 5 can be viewed as much as a defining element of liquidity, as a cause of it. And indeed Menger uses it in that way!  This can be seen in his use of quantity or volume of trading, as a qualification of liquidity:

“Again, account must be taken of the quantitative factor in the liquidity of commodities.”(p.11)

But the quantitative factor is a part of cause number 5 – the development of markets. Thus the tight spread and volume traded in the market (quantity) becomes his definition of liquidity.  Thus liquidity, by one defining element of it (development of market mechanisms) causes liquidity by another defining element of it (the tight spread).

So liquidity is caused by liquidity.  I stress that I’m not

referring to the increased liquidity which a money commodity would exhibit by virtue of its becoming money.  We are considering its liquidity before it would have become money.

Thus to really explain a commodity’s liquidity, he would have to explain why supply, demand, and markets develop for a commodity.  If you use only liquidity to explain them, you are in a circle.  We know why markets develop for cattle or wheat.  But has Menger really explained why markets would have developed for “These little discs… which in themselves seem to serve no useful purpose” (His words, P.6) except if they were already money?

Critique of Menger’s Choice of the Spread as the Money Determining Factor

Menger’s use of the spread as the measure of liquidity, and therefore the money determinant, because of the ability to realize ‘economic’ prices for goods traded in markets would only be one factor, and primarily a short term one.  Probably a more important factor is volatility, or rather the lack of it – stability.

Consider the two hypothetical situations as depicted in graphic form below.  Commodity A has a tight spread – high liquidity according to Menger, but a “value” in terms of another commodity – say wheat or olives – which fluctuates substantially over time. i.e. it has a high volatility.


COMMODITY G (perhaps gold) – solid line is bid “price”, dotted line is asked “price”

value in

wheat or

olives       _____________________________________________________________________

time, in days, weeks, months

COMMODITY C (perhaps cattle) has a wider spread, but lower volatility solid line is bid “price”,

dotted line is asked “price”

value in

wheat or

olives      ____________________________________________________________________

time, in days, weeks, months

Assume the quantities traded are “adequate” and substantial.

While commodity A is more liquid by Menger’s definition, clearly commodity C could be more convenient and suitable as a commodity money candidate for a given society, because its price is much more stable. Thus the spread alone, may not determine which commodity evolved into money, since spread alone, or liquidity alone cannot determine or cause stability, and stability can clearly be a more important factor for realizing “economic prices” than the spread.  This stability factor could then foster liquidity. Other factors than the spread would have an influence on the evolution of a money commodity.

If the objection is made that the situation depicted above could not exist for a’priori reasons, it could only be on the grounds that a tight spread must be accompanied by low volatility.

But it can be argued that in a primitive situation, locally produced and consumed goods such as cattle and grain, would tend to be less volatile especially in relation to each other, than goods such as precious metals, that are more likely to be dependent on more sophisticated, even foreign markets; more sophisticated means of transport; and more sophisticated and possibly more capricious traders/arbitrageurs.  To this must be added the extra-cultural factors, and the potential for cultural/societal conflict or even warfare in an international setting.

This could be altered if a major force or forces in the markets, price fixed the precious metals, gold in particular, against a local commodity , and then used its deep pockets and/or political power to maintain that fixed parity, whenever challenged.  This would be especially effective if the commodity against which it fixed gold’s value, were the dominant money commodity already selected by a society, such as cattle.  We’ll discuss empirical evidence below that something like this may have occurred.

Critique of Mengers views on the Stability of Precious Metals

Menger’s 2 sentence discussion of Aristotle’s and Xenophon’s observations that precious metals were steadier in price than other goods, completely misses the point that gold and silver were already being used for money.  Thus the observations do not apply to them as commodities evolving into a role as money, but to commodities which were already money.

Menger asserts that:

“This development (becoming money) was materially helped forward by the ratio of exchange between the precious metals and other commodities undergoing smaller fluctuations…than that existing between most other goods – a stability which is due to the peculiar circumstances attending the production, consumption and exchange of the precious metals, and is thus connected with the so called intrinsic grounds determining their exchange value.”

Note that Menger deals with the stability factor as separate from the liquidity factor.

The Volatility of The Precious Metals Against Menger’s Thesis

In fact, historical experience with the precious metals, in cases where they were and were not money, has demonstrated both periods of abrupt short lived changes in value in terms of other commodities, and of long drawn out changes where gold and silver lost as much as 80% of their value, and never recovered it.

For example in Greece, after Alexander’s conquests and importation of captured gold, prices are reputed to have risen over 50%.  In Italy, we read in Mommsen’s classic work of “The severe gold crisis – as about the year 600 AU…. when in consequence of the discovery of the Taurisian gold seams, gold as compared with silver fell at once in Italy by about 33%”[xi]. Later, with the plunder of precious metals from the Americas, prices in Spain rose about 300%, and prices in Holland and England rose by as much as 500 %, over about a century and a half.  William Jacob’s classic, The Precious Metals, found a 470% increase in prices in France, from 1500 to 1589; and a 400% increase in the Oxford Tables corn prices in England.[xii]

In more recent years, we have observed that the precious metals, on modern markets have been very volatile commodities.  Stanley Jevons pointed out in Money and The Mechanism of Exchange[xiii] that gold had been undergoing substantial changes in value in the 18th and 19th centuries:

1789 – 1809         fell 46%

1809 – 1849     rose 145%

1849 – 1875         fell 20%

This volatility has increased in the 20th century.

According to Milton Freidman and Anna Schwartz, from June 1914 to April 1917, the U.S. money stock rose 46%.  Eighty seven percent of this increase was from gold stock increases, and a 65% rise in wholesale prices resulted.  Gold, which was money, thus lost over half its value in a three year period, by this measure.[xiv]

1914-19                     fell 65%

For more recent periods, when for all practical purposes, gold had lost its governmental sanction as money, it became even more volatile.

From 1971 to 1974 we saw gold increase over 500% from $38 to $200 an ounce.

In 1975, we saw gold drop almost exactly 50%, from $ 200 an ounce to $103.

We then saw an increase of over 700% to over $850 an ounce, and then a multiyear decline to $232. Now its reached $570 an ounce! It’s not possible to explain these movements as just due to changes in the dollar.  Gold is volatile!

The East-West Dichotomy of the Gold Silver Ratio Contra Menger

In addition, Menger’s statement on the stability of the ratio of exchanges of the precious metals and other goods, would require a similar stability in the gold-silver ratio.  Menger is apparently unaware of the great dichotomy in the gold – silver ratio itself, between east and west.

The ratio in the west was generally around I to 10 up to I to 14 in Ancient Greece, and was later fixed by decree at I to 12 throughout the Roman Empire.  However, in the east – in India, China and Japan, as well as in Moslem Africa and Moslem Spain, the ratio was usually closer to 1 to 6 or 7. The immense importance of this fact of the ratio dichotomy, to monetary theory has gone unrecognized by both classical and modern economists, with the exception of Alexander Del Mar.[xv]

Historical Facts are Against Menger’s Assertion of the Universal Use of Gold and Silver as Money

Menger makes a typical assertion regarding money:

“The reason why the precious metals have become the generally current medium of exchange among all peoples of advanced economic civilization, is because their liquidity is far and away superior to that of all other commodities, and at the same time because they are found to be specially qualified for the concomitant and subsidiary function as money.” (p.17)

In reality, some very important societies of early and late antiquity did not utilize gold or silver in their monetary systems.  For example:

In Sparta, Lycurgus, in the eight century BC instituted a monetary system reputed to be based on the Cretan system, utilizing 600 gram (about 1.3 pounds) iron ingots, called Pelanors.  The system remained in use for approximately 3 1/2 centuries – a period during which Sparta was a premier Hellenic power. (see Plutarch’s PARALLEL LIVES , Lycurgus and Numa)

In Rome, from its founding in the 8th century BC. until about 207 BC, a copper (bronze) money system was utilized, which during the Republican period appears to have been nominally valued, by law, not by weight.  Silver coinage first introduced by the patricians as legal tender in about 221 BC, then dominated.  Though gold was minted in a Punic war emergency period, it did not become the monetary standard in Rome until after the fall of Republican Rome, and the rise of the dictatorship of the Caesar’s.  Julius Caesar placed the empire on a gold standard by decree when he assumed power, making it a legal tender, and raising its value against silver, from I to 9, to 1 to 12; where it roughly remained for the next 1200 years. See Chapters 1-3 of The Lost Science of Money.[xvi]

The rise of the Caesar’s finished off what was left of the separation of church and state.  The emperor was not only a dictator, but a deity.  His religious office was called the Pontifex Maximus, later in the eastern empire, the Basileus.  The control of money was vested in this religious office of the emperor for 12 centuries. (see Alexander Del Mar, History of Monetary Systems[xvii], and Del Mar’s Middle Ages Revisited[xviii]; also Peruzzi’s, Money in Ancient Rome[xix])

In China, Quiggin notes that “It is noteworthy that Chinese coins are, and have always been, almost exclusively of bronze,…gold and silver, the usual metals for coins elsewhere, were not current in China.”

In Peru, “The lack of any conception of money value in the vast hoards of Inca gold seems as strange to us as it did to the Spaniards 4 centuries ago.  It was all dedicated to religious service and neither external trade nor money were included in the strictly regulated state.”[xx]

Thus gold and silver were far from universally used as money among advanced nations.

Ridgeway’s Archeological Work is Against Menger’s Thesis

Perhaps not coincidentally, Menger’s Origin of Money, reworked from an earlier book, was issued in the same year that Sir William Ridgeway’s The Origin of Metallic Weights and Standards  was published.  Ridgeway’s work, making extensive use of archeology, numismatics, and historical documents, indicates an institutional origin of money rather than a market origin, and has become a classic in the field.

One of the main points developed by Ridgeway is that early gold coinage was designed to represent the ox/cow commodity money unit, already recognized in most advanced societies:

“The gold unit represented originally simply the conventional value of the cow as the immemorial unit of barter.”[xxi]

Ridgeway has catalogued a remarkable consistency in the coinages of the Mediterranean city states.  A large number of issues are consistent at 130-135 grains of gold. (8.4 grams)(see Ridgeway’s chapters 5 and 6)

Here is a partial list of 130 grain gold coins:

Croesseus’ gold stater (c.550 BC)………………………………128 grains

Darius’ Persian Daric (c.505 BC)………………………………130 grains

Rhodos gold coin (5th century BC) ………………………130-135 grains

Thasos gold coin (411 BC) ……………………………….130-135 grains

Athens gold coin (about 400 BC)………………………………130 grains

Macedonian Stater of Philip II (345 BC)……………………….130 grains

Babylonian and Phoenician coinage……………………………260 grains

A double 130, perhaps indicating that a yoke (pair)

of oxen was more normal in this advanced area.

Here then may be the historical “monuments” giving us “trustworthy tidings” of a transaction conferring distinct recognition on media of exchange. Ridgeway considered this phenomena to represent a merging of two traditions, with the gold unit being based on the ox/cow unit.  Sometimes the coins had representations of an ox on them. Why 130 grains?  Ridgeway speculated that this was about what would fit in the palm of your hand.  A coin that was not so small as to be easily dropped or lost; nor so large as to employ more gold than necessary, to be convenient.

The importance of this to Menger’s thesis is that this 130 grain standard was a “convention”, and not just of one government, but of several of them.  Menger would have to argue that the gold had already become a money commodity before the states took over.  But cattle was already there as a money unit.  If gold was in the process of supplanting the old money unit, without institutional conventions, there is no way to explain the international 130 grain consistency.  If it had already supplanted cattle, there is no reason for it to symbolize or represent a cows value.  What it may really represent is a way to give 130 grains of gold, the stable value of a cow!

Ridgeway’s work emphasizes the importance of the ancient temple cults, in both economic and monetary matters:

“The Temple shrines of Delphi and Olympia, Delos and Dodara were centers not merely of religious cult but likewise of trade and commerce… merchants and traders taking advantage of the assembling together of large bodies of worshippers from various quarters, to ply their calling and to ‘tempt’ them with their wares.  The temple authorities encouraged trade in every way; they constructed sacred roads, which gave facility for traveling at a time when roads were almost unknown … and placed those who traveled on them under the protection of their god… at the time of the sacred festivals all strife had to cease… offering a breathing space for trade and commerce – hence the probability is considerable that the art of minting money… first had its birth in the sanctuary of some god.”[xxii]

Laum’s Work on Religion is Against Menger’s Thesis

Investigating the temple cult-monetary link, Bernard Laum’s Hieleges Geld (Holy Gold) was published in 1924; an important German work. Some of its conclusions are:

“The roots of money lie in the cult, originating first out of sacrifices to the gods, then payments to the priests.”…

“The history of money is the history of the secularization of the cultic forms…”

“The Greek states became the creators of money because they were the holders of the cult.”

Then commenting directly on Menger’s theory:

“The theorist claims general validity for his deductive statements, because he has come to his results in the ‘exact’ way.  The historian is more modest.  He will not assert that Menger’s theory never and nowhere materialized in reality.  Had the ‘homo oeconomicus’ of today appeared in the world 3,000 years ago, he would have certainly invented money according to Menger’s rationalist principles.  I only claim that the historical origin of money does not correspond with this theory… according to our researches money is a creature of the religious-political legal rights system… I know very well, that mainly in the latter phases, profane (economic and fiscal) factors determined the development of money just as much as religious factors, but it is difficult to draw a line separating the two spheres.”[xxiii]

Anthropological Evidence Contra Menger

In 1949, A.H. Quiggin’s study of money in contemporary primitive societies – A Survey of Primitive Money – was published.  Her findings are universally against Menger’s thesis, she wrote:[xxiv]

“But it would be hard to find any among the simpler societies consciously troubled by the inconveniences of barter, and money is usually the introduction of the trader and troubles from outside.” (P.5) and

“The objects that are the nearest approach to money-substitutes may be seen to have acquired their functions by their use, not in barter but in social ceremony.” (p.12) and

“Where a cattle standard exists, this is adequate and discourages the growth of primitive currencies… it is noteworthy that the largest and most varied collections of primitive money come from cattle – less areas.” (p.277) and finally

“The evidence suggests that barter – in its usual sense of exchange of commodities – was not the main factor in the evolution of money.  The objects commonly exchanged in barter do not develop naturally into money and the more important objects used as money seldom appear in ordinary barter.  Moreover the inconveniences of barter do not disturb simple societies… this is the state of affairs over about half the world at the present day (1949) …

… the use of a conventional medium of exchange, originally ‘full bodied’ but developing into token money, is first noted in the almost universal customs of ‘bride price’ and ‘wer geld’ (blood money for deaths and injuries) … It is not without significance that in any collections of primitive currency the majority of the items are described as used in bride price.” (p. 321,322)

We recognize the limitations of this anthropological approach – it is not possible to establish history through such contemporary studies – but the evidence mounts up.

That ends our critique of Menger’s Origin, or perhaps it is more accurate to say our refutation of Menger’s theory.  This has deeply negative implications for the Austrian School, for the Libertarians, and for the free bankers, which they would be well advised to investigate now. Most of them begin their monetary expositions with reliance on Mengers theory.


We have called Menger’s theory on the origin of money into question on methodological , rational, factual, and anthropological grounds.

We have shown that he proceeded using only deductive logic, and have noted the problems with doing so.

On rational grounds, we have shown a circularity of his reasoning in his determinations of liquidity, and have called into question his use of liquidity rather than volatility as the primary factor determining the evolving of money, even within his system.

On factual grounds, we have shown that some of his closely held general views of gold and silver money are incorrect, and we have presented and referred to factual evidence which indicates an alternative (and more probable) path to the development of money.

Stephen A. Zarlenga

Director, American Monetary Institute

V.    APPENDIX 1 The Causes of Different Degrees Of Liquidity

From Menger’s ORIGIN OF MONEY, available as monograph # 40, from the CMRE, BOX 1630, Greenwich, Conn. 06836.

The degree to which a commodity is found by experience to command a sale, at a given market, at any time, at prices corresponding to the economic situation (economic prices), depends upon the following circumstances.

1.     Upon the number of persons who are still in want of the commodity in question, and upon the extent and intensity of that want, which is un supplied, or is constantly recurring.

2.     Upon the purchasing power of those persons.

3.     Upon the available quantity of the commodity in relation to the yet unspoiled (total) want of it.

4.     Upon the divisibility of the commodity, and any other ways in which it may be adjusted to the needs of individual customers.

5.     Upon the development of the market, and of speculation in particular. And finally

6.     Upon the number and nature of the limitations imposed politically and socially upon exchange and consumption with respect to the commodity in question.

We may proceed in the same way in which we considered the liquidity of commodities at definite markets and definite points of time to set out the spatial and temporal limits of their liquidity. In these respects also we observe in our markets some commodities, the liquidity of which is almost unlimited in space or time, and others the liquidity of which is more or less limited.

The spatial limits of the liquidity of commodities are mainly conditioned-

1)     By the degree to which the want of the commodities is distributed in space.

2)     By the degree to which the goods lend themselves to transport, and the cost of transport incurred in proportion to their value.

3)     By the extent to which the means of transport and of commerce generally are developed with respect to different classes of commodities.

4)      By the local Extension of organized markets and their intercommunication through arbitrage.

5)     By the differences in the restrictions imposed upon commercial intercommunication with respect to different goods, in inter local and, in particular, in international trade.

The time-limits to the liquidity of commodities are mainly conditioned -

1)     By permanence in the need for them (their independence of fluctuation in the same).

2)     Their durability, i.e. their suitableness for preservation.

3)     The cost of preserving and storing them.

4)     The rate of interest.

5)     The periodicity of a market for the same.

6)     The development of speculation and in particular of time bargains in connection with them.

7)     The restrictions imposed politically and socially on their being transferred from one period of time to another.

Dear Reader- be sure to read our critique of Menger’s points here, where we show how they all reduce merely to supply/demand.


[i] Von Mises, Ludwig. Theory of Money & Credit. 1912. Capetown: J.Cape, 1934, p.82.

[ii] Quiggin, A.H. Survey of Primitive Money. London: Metheun, 1949, p.12.

[iii] Von Mises, Ludwig. Cited above,p.478.

[iv] Del Mar, Alexander. History of Monetary Systems. 1895. Repr., NY: A.M. Kelley, 1978. p.101.

[v] Knapp, George. State Theory of Money. 1905. London: on behalf of Royal Economic Society by Macmillan, 1924, p.vii.

[vi] Menger, Carl. Origin of Money, C.M.R.E. monograph # 40, 1984. translator not noted.

[vii] Menger, Carl. Principals Of Economics. Trans. J. Dingwall; NY.; NYU Press, 1976

[viii] Law, John. Money and Trade Considered. London: W. Lewis, 2nd edit, 1720.

[ix] Republic, II, 371, Jowett trans.  The Dialogues of Plato, London, Oxford U. press, 1892 III,52.  As quoted in Principles of Economics Appendix

[x] L.I. Dig. de Contr.  EMT.IE3,1; as quoted in appendix, Menger’s PRINCIPLES OF ECONOMICS

[xi] Mommsen, Theodore; The History of Rome. Trans. W.P. Dickson. 5 vol. NY: Scribners, 1903, Vol. 4, p.495

[xii] Jacobs, William. The Precious Metals. 1831. Repr., NY: A.M. Kelley, 1968, p. 70 – 100, and p.388-391

[xiii] Jevons, Stanley W. Money and the Mechanism of Exchange. 1875. NY: Appleton, 1897, p. 313-330.

[xiv] Friedman, Milton and Anna Schwartz. A Monetary History of the U.S. 1867-1960. Natl. Bureau of Econ. Res., Princeton Univ. Press, 1971,p.195-209.

[xv] Del Mar, Cited above, Appendix A

[xvi] Zarlenga, Stephen. The Lost Science of Money. NY: American Monetary Institute, 2002, Chapters 1-3.

[xvii] Del Mar, cited above, Ch.5.

[xviii] Del Mar, Alexander. Middle Ages Revisited. NY: Cambridge Encyl., 1900, appropriate chapters.

[xix] Peruzzi, Emilio. Money in Ancient Rome. Academia Toscana Di Sciencze E Lettere, 1985.

[xx] Quiggin, cited above, p.229, p.314

[xxi] Ridgeway, William. Origin of Metallic Weights and Standards. Cambridge, 1892, p.155.

[xxii] Ridgeway, cited above, p.215

[xxiii] Laum, Bernard. Heileges Geld. Section trans. by Stephanie Watjen.Tubingen: J.C.B. Mohr, 1924.

[xxiv] Quiggin, cited above, pages noted in text.