The Roaring Twenties
It is well enough that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.
The Roaring Twenties, the Jazz Age, was an extraordinary period in the rich world, a time of sustained economic prosperity and an explosion of a new modernity. The use of cars, electricity, telephones, aeroplanes quickly spread, and science seemed to be capable of anything.
We’ve mentioned that Henry George was the third most famous person in the USA in the late 19th century, after Mark Twain and Thomas Edison. We’ve heard from Mark Twain here and there but nothing from Edison yet, and he’s going to make up for that here. Edison is most famous for inventing proper electric lightbulbs, and hundreds of other brilliant inventions that had a seminal influence on manufacturing and telecommunications. He also had a lot to say beyond his technology, particularly about money. In 1921, he undertook a publicity tour with his great friend, Henry Ford, and he was interviewed by the New York Times (Dec. 5, 1921), and this is some of it.
By the way, Muscle Shoals is a city in Tennessee which Ford and Edison planned to turn into a great metropolis. This didn’t happen, it’s population is around 13,000 and it’s more famous for its music. Anyway, Edison said:
. . . under the old way any time we wish to add to the national wealth we are compelled to add to the national debt. Now, that is what Henry Ford wants to prevent. He thinks it is stupid, and so do I, that for the loan of $30,000,000 of their own money the people of the United States should be compelled to pay $66,000,000 — that is what it amounts to, with interest. People who will not turn a shovelful of dirt nor contribute a pound of material will collect more money from the United States than will the people who supply the material and do the work. That is the terrible thing about interest. In all our great bond issues the interest is always greater than the principal. All of the great public works cost more than twice the actual cost, on that account. Under the present system of doing business we simply add 120 to 150 per cent, to the stated cost.
But here is the point: If our nation can issue a dollar bond, it can issue a dollar bill. The element that makes the bond good makes the bill good. The difference between the bond and the bill is that the bond lets the money brokers collect twice the amount of the bond and an additional 20 per cent, whereas the currency pays nobody but those who directly contribute to Muscle Shoals in some useful way.
… if the Government issues currency, it provides itself with enough money to increase the national wealth at Muscles Shoals without disturbing the business of the rest of the country. And in doing this it increases its income without adding a penny to its debt.
It is absurd to say that our country can issue $30,000,000 in bonds and not $30,000,000 in currency. Both are promises to pay; but one promise fattens the usurer, and the other helps the people. If the currency issued by the Government were no good, then the bonds issued would be no good either. It is a terrible situation when the Government, to increase the national wealth, must go into debt and submit to ruinous interest charges at the hands of men who control the fictitious values of gold.
Look at it another way. If the Government issues bonds, the brokers will sell them. The bonds will be negotiable; they will be considered as gilt edged paper. Why? Because the government is behind them, but who is behind the Government? The people. Therefore it is the people who constitute the basis of Government credit. Why then cannot the people have the benefit of their own gilt-edged credit by receiving non-interest bearing currency on Muscle Shoals, instead of the bankers receiving the benefit of the people’s credit in interest-bearing bonds?
Certainly there is a complete set of misleading slogans kept on hand for just such outbreaks of common sense among the people. The people are so ignorant of what they think are the intricacies of the money system that they are easily impressed by big words. There would be new shrieks of ‘fiat money,’ and ‘paper money’ and ‘green-backism,’ and all the rest of it – the same old cries with which the people have been shouted down from the beginning.
But maybe we have passed beyond the time when the thoughtful 2 per cent – you know, I gather from my questionnaire that only 2 per cent of the people think,” and Mr. Edison smiled broadly. “Maybe they can’t shout down American thinkers any longer. The only dynamite that works in this country is the dynamite of a sound idea. I think we are getting a sound idea on the money question. The people have an instinct which tells them that something is wrong, and that the wrong somehow centers in money. They have an instinct, also, which tells them when a proposal is made in their interests or against them.
He also said:
Interest is the invention of Satan.
But it was difficult to see the common sense that Edison saw, for this was boom time in America. Who wants to hear about stuff like that when things are swinging?
There's plenty of other people alarmed by the reality they saw. The Mayor of New York, John F. Hylan, said in 1922:
The real menace of our Republic is the invisible government, which like a giant octopus sprawls its slimy legs over our cities, states and nation. To depart from mere generalizations, let me say that at the head of this octopus are the Rockefeller–Standard Oil interests and a small group of powerful banking houses generally referred to as the international bankers. The little coterie of powerful international bankers virtually run the United States government for their own selfish purposes.
They practically control both parties, write political platforms, make catspaws of party leaders, use the leading men of private organizations, and resort to every device to place in nomination for high public office only such candidates as will be amenable to the dictates of corrupt big business.
But nobody wanted to think about a slimy octopus spread over everything. There were new fashions, and new dances. The Federal Reserve fuelled the party by increasing the money supply by 60% or so over these boom years.
In the August of 1929, like the throwing of a switch, the Federal Reserve started to restrict the money supply. On October 24th, Black Thursday, bankers called in their business loans forcing everyone to dump their stocks at whatever price. Black Tuesday followed. The snare was triggered, the Wall Street Crash. Luckily, or with extraordinary prescience, some people got out of the market just in time.
The Great Depression set in around the world, years of gloom and ruined dreams. The Wall Street crash was the headline but, actually, though it wiped out many investors, it’s claimed that this wouldn’t of itself have caused even a depression. Behind the headline, what had happened was that the Federal Reserve, having spent the 1920s pumping up the money supply, were now tightening the supply of money, and continued squeezing, between 1929 and 1933 reducing the money supply by a third. The party was well and truly over for most.
It seems like the Great Depression was just a special edition of what had been going on for a very long time, the fattening up of economies and consolidating assets, then calling the tide out and picking up the beached and exposed wealth. And the same thing is going on today, with ever more sophistication and scale.