Debt Based Economies

Throughout time there have been many societies that built debt-based forms of money and even entire debt-based economies. The purpose of this article is to explain how that is accomplished, particularly in the United States.

The first type of debt-based economy that was frequently seen in the United States was called Company scrip. Scrip is a substitute for government-issued legal tender, like the United States Dollar issued by a company to pay its employees. ‘Scrip’ can only be exchanged in a company store owned by said company. This currency often looked like buttons or tokens, and in the United States mining companies and logging camps frequently issued these tokens as payment to workers, particularly in remote areas who had little choice but to purchase their food, clothing and all other necessary goods from their employer for survival. It isn’t difficult to imagine that their prices were high because there was absolutely zero competition.

This Scrip system is a form of debt slavery that can never be worked out of due to the inability to form capital to improve one’s life circumstances. Also, the prospect of explaining to a Marxist that this is not capitalism is an even more difficult accomplishment that better men than I have tried and failed to do.

Because of this economic monopoly large markups on the goods kept workers dependent, but let’s just call this ‘employee loyalty’.
One example in the lumber business was in Wisconsin where state law exempted lumber companies from having to require employers from paying workers their wages in cash. Because government regulations are so effective, scrip was issued for ‘forest-products’ to these sorry saps who lucky enough to buy their work boots at exorbitant prices at the company store, I’d bet they didn’t have red wing boots or Levi’s jeans under non-competitive circumstances.

You’re probably wondering if you could change your scrip to cash generally, you could not, but if you wanted to do so it would be at a discount.This is an obvious debt based system, it is no different than living off Disney Dollars which the Simpsons brilliantly mocked when Homer buys ‘itchy & Scratchy’ dollars and nobody will exchange them at the theme park.

Coal scrip was another form of token money issued by the employees of coal companies in remote locations. It basically worked the same as Lumber companies.

The point is that by creating a closed economic system where laborers have little economic freedom they can easily become so indebted to their employer that they are unable to leave the system legally. Keep that thought in mind for the last part of this essay.

The next American nightmare I would like to share with you was called Sharecropping. This is a form of agriculture where a landowner allows a tenant to use the land in return for a share of the crops produced on their portion of land.

This arrangement took several forms, most times the cropper was required to remain on the land, at the same time, the cropper pays in shares of his harvest so both parties (owners and croppers) share the risk of harvests being too small or even too large and of prices being too low or high.

Tenants had some incentive to work harder and invest in better methods than under slavery, which is hardly motivating; in fact, that is incredibly depressing.

In the U.S. “tenant” farmers owned their own mules and equipment, and “sharecroppers” do not, and thus sharecroppers are poorer and of lower status. Right here we see the exact flaw in socialism, the ‘means of production’ is another way of saying the ‘mules and equipment’ on a farm; moreover, the further you are removed from the means of production only upheld under private property rights (capitalism) the poorer you will be. Socialism is absolutely nothing more than a way to get people to vote for their own impoverishment, it is failure by design.

Farmers who own their own equipment>sharecroppers who use other people’s equipment

Sharecropping occurred extensively in the South which had been devastated by the civil war – planters had plenty of land but little money for wages. Freed slaves had labor but no money and no land.

Sharecropping was barely a step up from slavery and it too focused on cotton, which was the only crop that could generate cash for the croppers, landowners, merchants and the tax collector.

Sharecropping was absolutely exploitative because of the large debts that effectively tie down the workers and their family to the land. It is quite similar to serfdom and socialism.

In the south the disadvantages of sharecropping soon became apparent. Unscrupulous landlords and merchants often kept tenant farm families severely indebted because inevitably the debt just compounded year after year.

Debt is the new slavery. Interest makes that debt impossible to pay off and you will see that the two fastest ways to control people are to: make their money useless or out of debt and to remove private property rights meaning to ‘collectivize’ the means of production which we just saw under sharecropping.
These first two types of debt based economies absolutely pale in comparison to the one I am about to explain to you that we are currently living under. Instead of just assuming debt to try and work your way out of it or using scrip that isn’t really money, which is escapable, you could take your skills and your family elsewhere, (under the cover of darkness most likely).

We are currently living in a completely debt based economy where all money is debt and debt is nothing more than a form of slavery. This debt is completely inescapable, Scrip money and sharecropping were escapable because they were localized.

Instead of scrip, today we use ‘fiat currency’ which is defined by The American Heritage Dictionary as “paper money decreed legal tender, not backed by gold or silver.”

There is no greater source to turn to in order to understand how all money is created out of debt than G. Edward Griffin’s “The Creature from Jekyll Island”:

“Let us step back for a moment and analyze. In the beginning, banks served as warehouses for the safe keeping of their customers’ coins. When they issued paper receipts for those coins, they
converted commodity money into receipt money. This was a great convenience, but it did not alter the money supply. People had a choice of using either coin or paper but they could not use both. If
they used coin, the receipt was never issued. If they used the receipt, the coin remained in the vault and did not circulate.

When the banks abandoned this practice and began to issue receipts to borrowers, they became magicians. Some have said they created money out of nothing, but that is not quite true. What they did was even more amazing. They created money out of debt.

Obviously, it is easier for people to go into debt than to mine gold. Consequently, money no longer was limited by the natural forces of supply and demand. From that point in history forward, it
was to be limited only by the degree to which bankers have been able to push down the gold-reserve fraction of their deposits.

From this perspective, we can now look back on fractional money and recognize that it really is a transitional form between receipt money and fiat money. It has some of the characteristics of both. As the fraction becomes smaller, the less it resembles receipt money and the more closely it comes to fiat money. When the fraction finally reaches zero, then it has made the complete transition and becomes pure fiat…it became zero.”

What Griffin is saying is that, years ago gold was stored in vaults by bankers. The owner of that gold was given a receipt made of paper which is where our modern concept of ‘cash’ comes from. At some point the bankers began issuing more paper receipts (cash) than there was gold in that vault. The ratio between the amount of receipts and the amount of gold is called ‘fractional money’ and it is the midway point between ‘receipt money’ and ‘fiat money’, which we currently use. ‘Fiat money’ is not based off of any gold inside of a vault it is created solely out of debt and that is the primary reason why we live in such an inflated society. This is the primary cause of income inequality and it is extremely destructive.

Remember how destructive sharecroppers debt was? This is global, not just located in the southern parts of the United States. This is inescapable debt far greater in size that just the United States dollar. In fact, all money on earth is backed by nothing other than debt, all money on earth is fiat currency.

It gets worse, since all money is debt it is thereby owned by someone else. Through the Federal Reserve’s process of open market operations, all money is lent into the system with the expectation of it being paid by in interest with money that does not yet exist. So the system is perpetual debt slavery, that is why there is so much poverty and inequality in the world.

G. Edward Griffin continues: “One of the most perplexing questions associated with this proc-
ess is ‘Where does the money come from to pay the interest?” If you borrow $10,000 from a bank at 9%, you owe $10,900. But the bank only manufactures $10,000 for the loan. It would seem, therefore, that there is no way that you — and all others with similar loans — can possibly pay off your indebtedness. The amount of money put
into circulation just isn’t enough to cover the total debt, including interest. This has led some to the conclusion that it is necessary for you to borrow the $900 for the interest, and that, in turn, leads to still more interest. The assumption is that, the more we borrow, the more we have to borrow, and that debt based on fiat money is a never-
ending spiral leading inexorably to more and more debt.

This is a partial truth. It is true that there is not enough money created to include the interest, but it is a fallacy that the only way to pay it back is to borrow still more. The assumption fails to take into account the exchange value of labor. Let us assume that you pay back your $10,000 loan at the rate of approximately $900 per month
and that about $80 of that represents interest. You realize you arc hard pressed to make your payments so you decide to take on a
part-time job. The bank, on the other hand, is now making $80 profit each month on your loan. Since this amount is classified as “interest,” it is not extinguished as is the larger portion which is a return of the loan itself. So this remains as spendable money in the account of the bank. The decision then is made to have the bank’s floors
waxed once a week. You respond to the ad in the paper and are hired at $80 per month to do the job. The result is that you earn the money to pay the interest on your loan, and — this is the point— the money you receive is the same money which you previously had paid. As long as you perform labor for the bank each month, the
same dollars go into the bank as interest, then out the revolving door as your wages, and then back into the bank as loan repayment.

It is not necessary that you work directly for the bank. No matter where you earn the money, its origin was a bank and its ultimate destination is a bank. The loop through which it travels can be large or small, but the fact remains all interest is paid eventually by human effort. And the significance of that fact is even more startling
than the assumption that not enough money is created to pay back the interest. It is that the total of this human effort ultimately is for the benefit of those who create fiat money. It is a form of modern serfdom in which the great mass of society works as indentured servants to a ruling class of financial nobility.”

Okay so let’s back up here a second: all money is debt, debt is slavery and all money is owed back at interest from the American tax-payer to the Federal Reserve. Still think that rich people, like Bernie Sanders not paying their ‘fair share’ is the cause of income inequality? I thought not.

The government does not solve income inequality, it causes it, upon learning this, I was no longer able to be a Socialist, Marxist or a Liberal as these are the people advocating for this debt slavery system.

This is why socialism is such a devastating system, the means of production are to be removed so far from the average person that freedom becomes absolutely impossible. All that occurs from socialism is poverty, scarcity and the equal sharing of misery. Karl Marx knew that in order to have communism you need 10 planks and the fifth plank calls for the centralization of credit in the hands of the state.

The first plank of the communist manifesto is “the abolition of property in land and the application of all rents of land to public purposes”, this essentially destroys all notion of private property. Private property rights and sound money are all that stands between us and incomprehensible poverty. If debt, unpayable interest and being removed from the means of production still sounds like heaven to you, why don’t you just ask a sharecropper.