I've heard John Turmel before. I'd even seen a debate between him and someone else. But I hadn't actually listened to what he had to say until today (2/13/2015). (Or if I had, his delivery had prevented me from taking him seriously.) His poetry is even more corny than mine. I think he's from my Father's generation and he's interesting to listen to. I'd suggest he has 5 important observations:
- Turmel's principles as far as I can understand them:
- 1. Interest causes inflation. It doesn't moderate inflation.
- 2. Banks should be more like an honest casino.
- 3. Deposits should be a bailment.
- 4. Banks should not be allowed to print money and lend it at interest.
- 5. Because "One cannot pay p + i when only p exists."
What I learned from Listening to Turmel
Turmel makes a lot of important points, one's he's been making for years. In fact he talks so much his words fly by and I probably will have to go back and listen to him several more times before I get everything coming out of him. My first exposure to Turmel that I can recall was with a rival "outsider" economist who was accusing all around him of plagiarizing his ideas. But Turmel has been talking since 1980, so it's possible that he was inspired by the guy, or that the guy was inspired by him. I could have heard Turmel before 2000 myself, and just hadn't "thunk" of it. But that's why I'm writing this series. I'm not blowing smoke out of my rear end. These aren't ideas I thunk of myself. And this is too important a matter to be either trying to own or to plagiarize. His arguments are similar to those of the MMT folks. For people having trouble being taken seriously, too many of the people in the anti-Money Usury crowd are too flinty. When they agree, instead of arguing over who said it first, they should debate together and agree on commonalities. Turmel doesn't seem too self conscious in his speech. I guess that is why I didn't take him serious at first. He seems comfortable with getting 400 votes for PM of Canada. Personally I'd prefer that he be listened to.
Demand Deposits "Money Multiplier" and the Money Printing Swindle
Turmel demonstrates that the reserve system is a bait and swindle. The banking system pretends we have a reserve system for our currency, and that having "reserves" actually protects the system, when we don't and it doesn't. Turmel explains that the money supply is equal to the sum of all those fractional reserve loans. Every penny of money in our system starts as a loan, with interest rent being collected from it. Thus the money supply equals
The Money Multiplier
Yes there is a "money multiplier" as I was taught in Econ 101. At one time I accepted it verbatim as a good thing. But it depends on a con that pretends that our deposits are a bailment, when we find out that banks don't treat deposits as a bailment.
I was taught that banks loaned our deposits and that created a "money multiplier". We deposit a Dollar. They can loan 90 cents (c). The loanee deposits 90c. They can loan another 81c of the 90c. Etc... The original idea was that because it takes a while for loans to be paid back, and so banks needed that 10c (10%) on hand in case people wanted their money at the til. The 90c ends up deposited in a bank and then 81c of that is loaned. As money is loaned and spent it passes through various hands until it inflates the economy. All Well and Good.
The Risk of Reserve Banking
When I studied about the money multiplier and reserve banking I also learned how that multiplier unwinds and how that used to create bank panics, recessions and even depressions.
If the money multiplier inflates the economy on the upswing. It deflates the economy on the downswing. As depositors take their money out of the system, suddenly banks are missing reserves. This contracts the money supply. Usually at the moment that it is most stressed and people are most vulnerable to not being able to pay back their loans. Essentially the Fractional Reserve system baits us with the notion of having sufficient money to keep the economy moving. But the switch comes when the business cycle inevitably heads downward due to natural events (floods, droughts, crop failures) or simply due to the banks being over-extended and no longer having sufficient "fractional reserves" to make loans. Suddenly people don't have the ability to pay payrolls, banks can't make loans, and this creates a cascading effect. Turmel refers to the consequences in his quote:
"This period of outstanding material prosperity experienced by the U.S.A. was terminated by the action of the Federal Reserve Banking system by foreclosing on most overdrafts. President Hoover drew attention to the disastrous consequences and requested reconsideration. He was ignored. The demand of the banks for repayment in cash of loans that existed only as entries in their ledgers caused the financial credit system to collapse. Yet, the real credit of the people hadn't changed. This proves that financial credit is a misrepresentation of the real credit. Those factories, raw materials and skilled people were still there but the money that represented them had disappeared. The people were so used to trusting their banker's money dial that when the dial read empty, they turned off their machines rather than check the engines." [http://turmelpress.com/watch80.htm]
The Fractional Reserve system aggravates the business cycle, just by it's existence. But it gets worse.
An Honest Casino
Turmel explains in his "Wachitsuh Hussle" article:
"Any casino is an example of inflation-free banking at work. The casino banker knows that the fundamental rule for avoiding the inflation of his chips is to make sure that all wealth coming into the game gets its own chips to represent it. There is no limit to the number of chips issued so long as wealth is stored to back them up." From The WACHITSUH HUSSLE, 1980 [http://turmelpress.com/watch80.htm]
Turmel explains that Casinos operate relatively fairly because they treat their chips as a bailment. Essentially each Casino has it's own money supply which an honest casino treats as a bailment. As long as the money stays within the casino it can be cashed in at it's stated value at any time. Banks on the other hand don't treat money as a bailment. This avoids inflating the number of chips beyond the value of the consideration (real money, credit, assets) the chips represent.
An Honest casino doesn't charge gamblers interest on their chips. Banks do.
The dishonest Casino
The For Profit banks treat the system as if it were a casino, but not an honest one. Indeed when we buy something with a credit or a debit card, they may deduct it from our balance, but they treat the transaction as a credit transaction. Our money is not treated as a bailment, but as their property and they loan it out like it was their property -- at interest they collect as rent on every money based transaction.
Turmel explains that banks essentially print the 90c they loan out. When the receiver deposits 90c, they Print the 81 cents they next loan out. And they then loan each amount at interest. By issuing money at interest they are collecting economic rent on nearly every transaction of the economy as a whole. Since the banks essentially have a monopoly on money this has to go on to ensure that there is enough money for all the transactions that people need to engage in. Money is created as loans, but consumed as purchases, investment and payrolls. The banks thus can collect rents on every transaction in the economy. Legal theft anyone?
By issuing money based on deposits that aren't really theirs banks are doing a bait and switch. If the banks were investing investor funds at their request, with say a money lender, then the investor wouldn't expect to be able to withdraw "his money" on demand.
Interest as Inflationary Rent collection
Thus our "Fractional Deposit System" is essentially as various people describe it, a means to collect rents. Most of the money circulating in our country starts in the form of loans. While the Treasury may have the monopoly on coined money, the banking system has a monopoly on notes. And so when someone needs money to do something they haven't already done, they have to borrow money at interest. If they were borrowing treasury money or from actual deposits they'd be borrowing their own money, but this money is that of the banks. And they have to pay money back at interest.
Because all the money available in the system originates in some form of credit. The total money supply necessary for transactions is equal to the sum of this money before interest. But as he notes for the economy as a whole the money supply usually equals the sum of that Money multiplier, which equals the loans outstanding and that is 100% of the sum of the deposits. This puts a drag on people's ability to payback the interest. Thus Turmel demonstrates that it is interest that causes inflation, since people have to pay back loans at interest when the money they are receiving for their investment rarely adds up to the amount of money to pay back p + i. If as he shows "p" is equal to the total amount of money in the system. Then as Turmel explains in his "Wachitsuh Hussle" article:
"This use of savings to finance new goods means that someone must deprive himself of his current purchasing power and hence creates his demand for interest. The industrialist who finances his plant with someone's savings must pay it back quicker than it depreciates and when it is paid off, again, there is real wealth in the game but no money to represent it. Again, the barter of that wealth is hampered because it is unrepresented by money. Keeping money in short supply deludes people into believing that wealth is in short supply." [From The WACHITSUH HUSSLE, 1980 [http://turmelpress.com/watch80.htm]]
Principle plus Interest becomes usury when the increase in value never keeps up with the interest rates.
Essentially fiat money, or any money issued as loans at interest, is a dishonest Casino Chip. Good money is money that faithfully represents the wealth in the game. In the old days people wanted "good money" to be gold or silver because they wanted to be sure to get their original value back. But in a dishonest casino there is never any chance they'll get paid what they are worth because someone is always taking value from their wages, payday loans, etc... We don't have good money because the banks can charge interest on every transaction they are middle-men in. To have good money we need money that is interest free as long as it is in the game. Others have explained the same thing using different explanations. The numbers never add up as long as interest is being charged.
Money should be a bailment not a source of economic rent.
Turmel recommends that deposits should go into a "bailment" type account for the use of the depositor. Not be instantly loaned up to 90% so that the economy can be artificially expanded. If deposits are the bailment most of us see our bank accounts as, then when we have money we can spend money and when we don't have money, then we have to prove we have some kind of way to earn it. Loans should be based on some kind of evidence of ability to pay, not on deposits. Money should be applied to markets to keep money flowing. Not to make banksters incredibly wealthy.
Interest should not be a source of Inflation
Essentially fiat money, or any money, is like a Casino Chip. And Good money is money that faithfully represents the wealth in the game. This is a clearer idea of what Good money is than what you hear from folks who want money to be some commodity like gold because if money is directly a commodity it tends to be pulled out of the game and kept in treasure boxes. The "better" money pushes the "worse" money out of circulation. But the issue is not what the money is made of, but the wealth backing that money. From Turmel's view (which I can support) wealth is:
"All real wealth is energy. It is the sum total of the energy expended in its fabrication. It is the cost in energy units of man, material and tool while interest is not an energy cost." [watch80.htm]
This may be a variant on the "labor theory of value," only updating for horsepower, automation and machinery. This is part of an argument that notes that when people labor for a master they are expending energy, and their pay is a compensation for energy expended. The costs of that energy, if our system were fair would be deductible from income not considered income.
Now he gets featured on Alex Jones, and Alex Jones believes the Federal Reserve is the Hellmouth and should be ended. Much as did Andrew Jackson in the 1800's. But the problem with the banking system isn't that we have one, but The Way that it is constituted This should have been fixed way back at the beginning of the country. But privateering through usury has been a lucrative employment since Hamilton wrote his first two reports on the economy. Why would you have to equip an expensive pirate ship when you can loot and steal by lending at interest? It wasn't the Federal Reserve system (or national banks) that was at fault. It was the constitution of the banking system as a whole that was the problem and the systems ability to charge interest on every transaction that made Planters feel poor and rightly paranoid about Eastern bankers. But it's also why doing away with the first, second and third National Banks didn't get those planters out of trouble or make the economy stable.
Creating money by issuing notes
Turmel and many others agree that we should create money to pay for "future contracts" and labor, not for the self aggrandizement of the banks. Money should always be backed up by tangible things and actual values. We should issue notes to pay for production and retire those notes on delivery. My friend Rick DiMare suggests that we coin money and back our notes with that. But in any case money should be spent for worthwhile enterprise and paid back. We can either pay it back through taxes or by delivering on promises to pay. The list of things that money notes and eMoney should fund, in my mind, includes roads and infrastructure, farmer equipment & fuel, and the like. That way money doesn't become a drain on the economy.
So what is important is the economic argument, not who said it first:
Turmel is Canada. Quiggin in Britain and Australia. I wonder who borrowed from whom? When Keynes was talking in London, there were economists in the United States who were preaching the same principles. Keynesianism wasn't invented solely by Keynes, and the "children" of Keynesianism aren't bedazzled by some Godlike Authority of Keynes, but by the common sense and logic of his arguments. Many "neo-Keynesians" are starting to sound like Turmel. The one thing that anyone who is honest should do is to re-examine premises. A lot of our premises about money are faulty.