I was recently asked by the administrator of Dandelion Salad, a news and politics website that I contribute to regularly, to review a book written by another contributor to the site. The book is entitled We Hold These Truths: The Hope of Monetary Reform and deals with a subject that I have written about at great length. While the author and I disagree about what should be done, we both agree that there is a fundamental flaw in our monetary system and that any attempts to repair our financial system that ignore the nature of money itself are bound to fail.
Anyone wishing to order a copy of the book can do so here.
“Credit should really be viewed as a publicly-regulated utility like water, clean air, or electricity.” For this thought alone, Mr. Cook’s book is worth reading.
The main thesis of the book is that by improperly ceding control of credit creation to private financial institutions, the government has abdicated its responsibility to govern this all-important tool for the benefit of society at large. The private institutions which enjoy an unfair monopoly on credit creation use it to siphon off a portion of our national productivity, thereby leaving us with a perpetually unbalanced financial situation which necessarily results in an ever-increasing debt burden hanging over the real economy.
The crux of the problem according to Mr. Cook can be summed up by looking at the differential between Gross Domestic Product and total national income. For 2006, Mr. Cook says the US had a GDP of almost $13 trillion but total national purchasing power of only a little over $9 trillion. In other words, we produce more goods and services than we have the ability to pay for. The gap between the two is filled by borrowing. And since credit is the domain of private interests, it is provided only on the basis of artificial scarcity, thereby pushing up interest rates and enlarging the slice of the overall economic pie that flows into the coffers of private banks and financial institutions.
The diagnosis of the problem is accurate, logical, and compelling. Coming as it does at a time when the entire world is focused on trying to rescue a dangerously unstable financial system, the book calls attention to the fact that it is foolish to attempt piecemeal reform of a system that is built upon a fundamentally flawed foundation. Without a thorough reexamination of the nature of money itself, any measures aimed at propping up the existing financial superstructure are doomed to failure. If credit creation is left to private institutions, any other reforms are simply band-aids on a gaping, festering wound.
Mr. Cook’s prescription for the problem is largely based on the Social Credit movement, led by the Scottish industrial engineer C. H. Douglas in the first half of the 20th Century. The centerpiece of the proposed framework is that the government should take back control of credit creation and use it to pay citizens a “National Dividend”, which would make up for the shortfall between productivity and purchasing power. According to Mr. Cook, based on current GDP the National Dividend would amount to approximately $12,000 per person per year. This amount would be paid out to every citizen regardless of whether or not they engaged in gainful employment.
While the analysis of the problem is logical and straightforward, the proposed solutions are not well supported and would certainly strike most readers as utopian. Perhaps this reflects a cynical view of human nature, but it is hard to believe that people would continue to work as hard as they currently do if they were guaranteed an annual income regardless of whether or not they work.
This example of such a sweeping proposal with little theoretical support is emblematic of the shortcomings of this book. It lacks focus and consistency of both subject matter and tone. The discussion alternates between sober, fact-based analysis and radical (and sometimes irrelevant) proposals without any explanation of how these proposals could be made to work in reality. For example, among a list of items that Mr. Cook suggests should be at the top of our national agenda are providing free college education to all US citizens and funding desalinization programs to provide water to drought-stricken areas. While these are nice ideas, they seem out of place in a book which is purportedly about monetary reform.
This problem of lack of focus is largely due to the fact that the book is actually just a compilation of articles that the author wrote between February of 2007 and January of 2008. As a result, there is a great deal of repetition and a lot of material that is not relevant to the book’s primary subject matter.
Perhaps the greatest shortcoming of the book is its blatant partisan slant. In much the same way that Michael Moore becomes his own worst enemy by insulting the opposition, thereby destroying any chance he might have of winning the hearts and minds of those who don’t already agree with him, Mr. Cook undermines his own objectives by taking sides on issues that are in no way relevant to the subject of monetary reform. In actuality, monetary reform should not pit liberals against conservatives. By giving a liberal slant to his treatment of the subject, he unnecessarily alienates anyone on the conservative side of the political spectrum.
These weaknesses notwithstanding, this is one of the only books on the market which deals with the vastly important subject of monetary reform. As a result of our current economic problems, we are at a rare point in history where real, fundamental change is possible. In good times our political system is so heavily biased toward the status quo that only piecemeal, incremental change is possible. It is only when the feces hits the fan that wholesale reevaluation of our basic institutions becomes possible. Now is such a time, and Mr. Cook’s book represents an important effort to point the way forward. If it doesn’t entirely succeed in its stated objectives, it should at least expand the reader’s understanding and point the way forward for future investigations of this monumentally important subject.