The Mystery of Money and Banking –
The Origins of the Current System
95% or more of our money is account money
5% or less of our money is coins and bills
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Monetary view of the rise and fall of Rome
Whirlwind tour through Western monetary
history after the fall of Byzantium
Our current money system
Thesis of The Lost Science of Money
What is money?
Origins
of Money
3 definitions
with Systems
different results
cool discussion
Monetary
view of the rise and fall of Rome
Whirlwind tour through Western monetary
history after the fall of Byzantium
Our current money system
What is money?
3 definitions with different results
cool discussion
“Over time, whoever controls the money system,
controls the nation.”
- Stephen Zarlenga
Director, American Monetary Institute (AMI)
Stephen Zarlenga
THE LOST SCIENCE OF MONEY
(2002)
The Mythology of Money – the Story of Power
“While much attention is focused on the elections of presidents,
prime ministers, and representatives, the real outcomes in society,
such as whether there will be general economic justice, or whether
some groups will get special privileges, are often quietly
determined by the structure of the society's money system.”
[LSM, 2]
“a main area of human struggle is
over the monetary control of
societies”
[LSM, 3]
“this control … is … exercised
through obscure theories about the
nature of money.”
[3]
“by misdefining the nature of money, special
interests have often been able to assume
the control of society's monetary system,
and in turn, the society itself.”
[3]
another version of the Golden Rule:
He who has the gold, rules.
:(
MONETARY HISTORY HAS BEEN IGNORED
“... it can take generations for the effects of a money system to
become apparent.
“Therefore the available empirical data – the facts – on money
exist mainly in history.”
[4]
MONETARY HISTORY HAS BEEN
CENSORED
“For example, in the Athenian Constitution that comes down to us, we can find
how the garbage was collected, but search in vain to learn how the Athens
state coinage system operated.
“… Solon's great monetary reforms can barely be pieced together from his
poetry.”
[5]
MONETARY DATA IS OFTEN
MISINTERPRETED
“19th and 20th century historians tend to apply Adam Smith's monetary
concepts in their work and mis-evaluate the monetary data that has survived.
“Economists often do worse. When the recorded facts conflict with their
favorite theories, it's not unusual for them to dispute the facts with a statement
such as: 'we know that can't be right.'
“They reverse the proper relation between facts and theory. Sound thinking
requires theories to conform to the observed facts.”
[5]
CATTLE WAS AN EARLY MONETARY
STANDARD
“... especially as a measure of value.
… They appear to have had a fairly stable value, with three to four cows exchangeable
for one slave woman in ancient Ireland and in Homeric Greece.”
[11]
CIVILIZATION'S TIMELINE
a progressive refinement in
human existence is apparent
starting ~ 30,000 BC
agricultural revolution
animal husbandry
hoe gardening, mainly by women
10,000 – 7,500 BC
horse tamed, sheep, goats, cows
domesticated
6,000 – 5,000 BC
great plow revolution
city civilizations arise
4,500 – 4,000 BC
[12]
ANCIENT EASTERN MONEY
SYSTEM
Mesopotamia (present-day Iraq) and Egypt

invention of the plow freed labor to move to the cities

powerful royal family with powerful temple hierarchy

agricultural commodities by weight

metallic commodities (esp. silver) by weight

loans of seed grains, animals, and tools to farmers, bookkeeping on clay tablets




beginnings of interest (sharing of the result)
Sumerians used the same word “mas” for both calves and interest
donations and fees to the temples – agricultural goods would not last, but gold and silver
would pile up in storage
“In Homeric times, just before the widespread introduction of coinage, the relation between
gold bullion and cattle was 1 cow or ox equaled 130 grains weight of gold” – arbitrarily
determined
[16 - 20]
many gold coins later issued weighed in close to 130 grains or a multiple (half or twice 130)
[12-26]
THE USURY ERROR
“It would have ben a major conceptual error to allow usury to be charged on agricultural
loans denominated in metals … For one thing, metals are 'barren' – they have no powers
of generation. Any interest paid in them must originate from some other source or
process, outside of the borrower's understanding or control. Money and power would
concentrate in the hands of lenders.
“This structural flaw was alleviated by the central authority. ... the Royal household (the
largest lender and charger of interest) took decisive action to minimize the harmful effects
of usury, by periodically declaring agricultural debt forgiveness.”
[13]
MONEY TOOK ON MORE
ABSTRACT FORMS IN THE
WEST


abstract “tool” money

tokens representing rather than embodying value

not carefully weighed and examined
Greek city-states introduce coinage (state monopoly)


[15]
Each city used its own coinage
Lycurgus of Sparta, 8th century BC

Iron money with the metal's 'intrinsic value' purposely destroyed
Greek city-states introduce
coinage (state monopoly)





Coinage standardized (acc to numismatists)
~700 BC at Lydia (W coast of present-day Turkey)
EACH CITY USED ITS OWN COINAGE
Coins from other cities could circulate only if counter stamped by
the city authorities.
“The issuer in all identifiable cases proves to be the supreme
political power in each city or state; there is no evidence in the
Greek world for the private issue of coins by bankers or
merchants.”
Coinage of gold and silver has been viewed as a compromise
between the more abstract fiat tool money forms of the West and
the more materialistic metal by weight system of the Orient. For
while the money was made of gold, it was valued by tale – the
official form and stamp.
Lycurgus of Sparta
8th century BC

Introduced reforms, including new monetary system

Illegal to use gold or silver as money

Elongated iron disks (Pelanors) used as money


These were purposely made useless for anything else by
dipping them in vinegar while they were hot to make them
brittle. The 'intrinsic' value of the pieces was purposely
destroyed.
Publicly controlled fiat money system
MONEY TOOK ON MORE
ABSTRACT FORMS IN THE
WEST

Plato and Aristotle agree on money – fiat of the
law

“The law enjoins that no private individual shall possess or hoard gold or
silver bullion, but have money only fit for domestic use.”
and
“Then they will need a market place, and a money-token for purposes of exchange.“
– Plato, Dialogues and Republic

“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 [G. 'nomos' – binding law or custom] –
because it exists not by nature, but by law (nomos) ...“
– Aristotle, Ethics, p 1133
fiat
a formal authorization or proposition; a decree
ORIGIN late Middle English : from Latin, ‘let it be done,’
from fieri ‘be done or made.’
Two kinds of money
Commodity money
Fiat money
Value from the intrinsic value of
its substance.
Value from the official stamp –
fiat of the law.
More prevalent in the East
More prevalent in the West
ARISTOTLE GAVE US THE
SCIENCE OF MONEY
“and this is why it [money] has the name nomisma
– because it exists not by nature, but by law
(nomos)”
THE ORIGINS OF MONEY
SYSTEMS
“The battle for control over society's monetary
power is fought at many levels, even in theories
about monetary beginnings. The origins of
money are shrouded in uncertainty. Very few
facts are yet available, making most ideas about
it a kind of educated guesswork. But the
dominant theory reflects the desire of present
day forces intent on keeping government from
exercising an appropriate monetary role.”
[9]
LSM Chapters
1. The Origins of Money Systems
13. The Usury Debate Continues
2. Rome's Bronze Nomisma: Better Than
Gold
14. U.S. Colonial Moneys
3. A Monetary View Of Rome's Decline
15. The Money Power vs. The Constitution
4. Re-Instituting Money In The West
16. U.S. Government Money vs Private Money
5. Crusades End Byzantium's Monetary
Control
17. The Greenbacks: Real American Money
6. Renaissance Struggles For Monetary
Dominance
18. Nineteenth Century Monetary Crimes The Great Deflations
7. The Scholastics - The Moral Economists
19. Establishment Of The Federal Reserve
8. 1500 - History's Pivot: Power Shifts From
The Mediterranean To The North Sea
20. Federal Reserve System Wrecks America
9. The Rise Of Capitalism In Amsterdam
21. Germany's 1923 Hyper-Inflation Under A Private
Central Bank
10. Transferring Capitalism To England
22. International Monetary Organizations
11. Hatching The Bank Of England
23. The European Monetary Union
12. Political Economists: Priesthood Of The
Bankers Theology
24. Proposals For U.S. Monetary Reform
Rome
village
kingdom
753 – 509 BC
republic
509 – 27 BC
empire
27 BC – 476 AD (West)
– 1453 AD (East)
CHAPTER 2
ROME'S BRONZE NOMISMA –
BETTER THAN GOLD

State-issued money was bronze coins (copper + tin)

State controlled the quantity in circulation

Gold had no monetary power – used only for jewelry and
foreign trade
ROME WAS MONETARILY
ISOLATED

Numa, Rome's second King (716 – 672 BC)
institutionalized the use of bronze instead of
gold and silver for money

Copper would be easier to get since much of
the precious metals were stored away in
eastern temple establishments.

But even more important was the
disenfranchisement of the gold/silver hoards,
and therefore much of the power of the
eastern temples and merchants.
Roman republic's greatest extent
44 BC
The culmination of Roman thought on money is in the 6th
century code of Justinian, tenth book, a passage of Julius
Paulus, a Jurisconsult of around 300 AD:
“This device being officially promulgated, circulated and maintained its purchasing
power not so much from its substance as from its quantity.”
This concise statement of the principles of nomisma helped to
convince Del Mar that the Romans indeed must have used
and understood such a system. Otherwise how could Paulus
be so aware of it?
So the historical record, up to and through Rome shows the
money power to be a convention or legal institution, of either
the Temples (religion), the government, or both.
Alexander Del Mar (1836-1926)
monetary historian
ROME vs. CARTHAGE
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266 AD Italian peninsula unified under one
commonwealth
Great double war with Carthage (264 – 41 BC
and 218 – 201 BC)
Destruction of Rome's Money System in the
Punic Wars

“Most 19th and 20th century economists, favoring gold and silver over copper,
have misinterpreted the introduction of silver as progress. Only Del Mar
recognized the use of silver and gold as a regression from legally based
nomisma back toward more primitive commodity money.”
MONETARY “SECRET OF THE
AGES” –

A DICHOTOMY IN THE GOLD/SILVER
RATIO BETWEEN EAST AND WEST
~ 12 to 1 in the West (kept high over millennia)

~ 6 to 1 in the East

For thousands of years this mechanism was a great source
of power to whoever held it. Elements of the Roman establishment drew
great strength from their control over it, until its effects helped bring down Rome
from within. Venice's profits from it helped spark the Renaissance. It was quietly
used for centuries by Jewish merchants getting transplanted from Asia into Europe.
Control over it helped shift the balance of commercial power in Europe in 1500
from Venice to Portugal/Antwerp, then to Holland, and finally to England. In short, it
was one of the primary forces that shaped modern capitalism.
Roman Empire's greatest extent
Byzantine Empire


Emperor Constantine

By 324 AD, converted the Pagan Church to Christianity

331 AD, moved the seat of empire to Byzantium (Constantinople)
Fourth Crusade, “fall of Byzantium” 1204

Marked the passing of Caesar's money system, which had lasted over
1200 years.

The money power slipped from religious to secular control.

A struggle began for the control of money.
THE GREAT DISCOVERY:
BANKS CREATE MONEY [161]
It must have soon become apparent to the Templars, the Italian merchant bankers and the great
German lending houses that they possessed the power to create money in the form of
bookkeeping credits on their books.
Deposits were received in coinage, or if a bill was deposited, drawn upon another bank, ultimately
coinage could be collected from that bank. However, the loans would not have to be made in
coinage, but could be in credits to the borrower's account at the bank – in bookkeeping entries.
The borrower would have the ability to write checks on that account. Such checks might not
actually be cashed, but be credited to another account on the books of the same bank.
Once their clients got into the habit of conducting business with bills of exchange (checks) rather
than actual coins, it became possible for the bankers to greatly multiply the apparent amount
of money in circulation in the form of these credits.
In many ways this was a monetary power greater than the King's control over the mint. This bank
money was a more true fiat money form and further removed from crude barter than the
“precious metals” coins. But the bankers were usurping a power that derives from and belongs
to society, and using it for personal benefit.
Whirlwind monetary history

Bookkeeping

Rise of banking in northern Italy (Florence, Venice, Genoa) – Bardi,
Peruzzi, Medici families

Medieval trade fairs

Venice

Plunder of the Americas


Gold and silver flow into Spain and Portugal

Commerce sends the gold and silver into northern Europe
(“History's Pivot)
Amsterdam

Bank of Amsterdam, 1609

Amsterdam Stock Exchange, 1611
LSM Chapters
1. The Origins of Money Systems
13. The Usury Debate Continues
2. Rome's Bronze Nomisma: Better Than
Gold
14. U.S. Colonial Moneys
3. A Monetary View Of Rome's Decline
15. The Money Power vs. The Constitution
4. Re-Instituting Money In The West
16. U.S. Government Money vs Private Money
5. Crusades End Byzantium's Monetary
Control
17. The Greenbacks: Real American Money
6. Renaissance Struggles For Monetary
Dominance
18. Nineteenth Century Monetary Crimes The Great Deflations
7. The Scholastics - The Moral Economists
19. Establishment Of The Federal Reserve
8. 1500 - History's Pivot: Power Shifts From
The Mediterranean To The North Sea
20. Federal Reserve System Wrecks America
9. The Rise Of Capitalism In Amsterdam
21. Germany's 1923 Hyper-Inflation Under A Private
Central Bank
10. Transferring Capitalism To England
22. International Monetary Organizations
11. Hatching The Bank Of England
23. The European Monetary Union
12. Political Economists: Priesthood Of The
Bankers Theology
24. Proposals For U.S. Monetary Reform
Mixt Moneys Case (Ireland)



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Queen Elizabeth issued base metal coinage
as legal tender in 1600.
An Irishman paid a 100 pound debt to a
London merchant in the new coinage.
The merchant sued for the 100 pounds in gold
and silver coin.
The case was decided in favor of the Irishman.
The nature of money was identified as a
societal institution rather than merely metal.
Bank of England, 1694

Privately-owned

Correlation with England's national debt:
War period
Cost of the war
Accrued national
debt
1688 – 97
32.6 million
14.5 million
1702 – 13
50.7
21.5
1739 – 48
43.7
29.2
1756 – 63
82.6
59.6
1776 – 85
97.6
117.3
831.5
504.9
1793 – 1815
Adam Smith's definition of money
“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.”
Adam Smith retrogressed the concept of money backwards from an advanced
numerary based on law, not just back to a “Moneta” level of unlimited coinage, but
all the way back to “Ponderata,” pure metal by weight. Smith virtually obliterated any
concept of money in the law.
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 would cause confusion and
create mystery.
[313]
Whirlwind monetary history

London


Bank of England, 1694
New York

Federal Reserve System, 1913

Federal income tax, 1913

Stock market crash, 1929

Great Depression, 1930s

“Financial crisis,” 2008

Inflation (food), unemployment, foreclosures
SELECTED BIBLIOGRAPHY
of
The Lost Science of Money book by Stephen Zarlenga
Items with a star * are referenced in the book. Items with a ** are especially recommended, and items with a *** were of direct
importance in developing elements of the thesis. Some unusual materials are identified by their call letters at the NY Research Library.
The abbreviation NY is used below to denote New York City. For a bibliography organized by subject matter, please see the works listed
in the endnotes after each Chapter.
A
*Ackroyd, P.R. and C.F. Evans. Cambridge History of the Bible.
Cambridge Univ. Press, 1970.
** Adams, Brooks. The Law of Civilization and Decay. NY: Alfred Knopf, 1943. ________.The Emancipation of Massachusetts. NY:
Houghton Mifflin, 1887.
*Addison, C.G. The Knights Templar. London: Green & Longmans, 1842.
*Alison, Sir. Archibald. History of Europe From Fall of Napoleon to Accession of Louis Napoleon. Edingurgh: William Blackwood,
1852.
Analectics Magazine. On Banks and Paper Currency. USA: December, 1815.
*Anderson, Benjamin. The Value of Money. 1917. NY: Richard Smith, 1936.
*Andreades, Andreas. History of the Bank of England. London Univ., 1909.
**______. History of Greek Public Finance. Cambridge: Brown, Caroll, 1933.
** Anonymous. The Paper Money Issued by Pennsylvania. By a "member of the Numismatic Society of Philadelphia." 1862.
*Appian's Roman History. Book 4. Loeb Classical Library. 1979.
*** Aristotle. Politics, and Ethics.
*Aufricht, Hans. The International Monetary Fund. NY: Praeger, 1964.
Three questions

Where does money come from nowadays?

Who controls the Federal Reserve System?

When banks make a loan, where does that
money come from?
Our current money system


95% or more of our money is account money
5% or less of our money is coins and bills
Money is created when banks make loans.


Money is extinguished when loan principals
are repaid.


By an accounting entry
If all our debts were paid, we'd have no money except the coins!!
Thus the overall money supply is the
haphazard result of these millions of private
decisions.
The Federal Reserve System

Privately owned, by its shareholders.

Its shareholders are the member banks.


The US President appoints the 7 members of
the Federal Reserve Board of Governors.
Who do you think controls the System?
“Money's essence … is an abstract social
power embodied in law, as an unconditional
means of payment.”
[657]
3 definitions of money

as some valuable commodity (e.g. gold)

as credit

as an abstract social power
with different results – who
controls the money system?