Stephen Zarlenga: founder of the American Monetary Institute and author of The Lost Science of Money
Is it really possible that one rather humble and unpretentious scholar, working independently from major universities, financial institutions and government at every level, holds in his published work the key to solving the world’s major economic problems?
It seems far-fetched… until one applies the same type of analysis to mainstream economics that’s employed with increasing frequency to make sense of the antics of mainstream media.
More and more people (I include myself in this category) have come to regard the mass media less as a bona fide vehicle for communicating truthful information to a mass audience – and more as a system of social control, willing to purvey quite shameful lies to protect powerful and partly clandestine vested interests.
If one seriously believes – as I do – that a loose yet remarkably effective cabal exercises a high level of control over the output of the western mass media, isn’t it likely these same powerful vested interests would seek similar control over the field of ‘professional economics’ - the academic theory and practice that’s arguably most central to safeguarding their own disproportionate economic power? I think so.
Mainstream economics ‘professionals’ have few incentives to propound economic reforms that dramatically undermine the interests of their ultimate sponsors. Many disincentives deter them from even contemplating such a project.
In these circumstances, it’s entirely plausible independent thinkers can make crucial theoretical breakthroughs that simply don’t occur to the burgeoning ranks of professionals.
Yet successfully propounding a fundamentally different and superior way of managing the economy is not a task that anyone is likely to accomplish. It requires special expertise. A background in ‘real world’ finance and economic practice is likely to be advantageous, if not essential. Perhaps even more important is broad knowledge of economic history, because understanding the past is crucial when designing a better future.
While there are many active practitioners of the economic and financial ‘arts’, mastery of economic history is less common. Stephen Zarlenga has covered both bases. He worked for various financial institutions in the early part of his career, then plunged deep into a self-directed study of economic history. Zarlenga’s depth of understanding is obvious when he speaks and his written material is clear and jargon-free. Hearing him discuss economic and financial policy is a real pleasure. One has the feeling of someone with a firm intellectual grasp of his subject matter, keen to speak with clarity because he’s way past trying to fool anyone: he wants to share his insights and proposals and see them put into action – urgently!
The Lost Science of Money: Zarlenga's monumental book, available from the AMI
‘Alternative economic theories’ are neither uncommon nor new. This is a field in which charlatans run rampant. We certainly don’t need more implausible, poorly thought out snake-oil ‘solutions’. Over the years I’ve read a fair amount of alternative economic theory, much of it left-wing in inspiration, but I looked also at the work of theorists on the right. I also tried to get a basic grounding in mainstream contemporary economic theory – and I’ve had a long-standing interest in ecological economics and dabbled in anthropological economics too.
I can honestly say I’ve never before been as impressed by any ‘big picture’ economic analysis as the work of Stephen Zarlenga, which I encountered for the first time only in the last year.
Zarlenga has had success in promoting his ideas. He’s a founder of the American Monetary Institute and author of the The Lost Science of Money. Unsurprisingly, the AMI has not been one of the think tanks most favoured by the mainstream US media, but it has had notable achievements. The well-respected progressive Democrat Denis Kuchinich promotes AMI-style monetary reform in the US House of Representatives; in 2010, the US Green Party recently adopted a policy platform of monetary reform based on AMI recommendations. The kernel of the AMI’s proposals have been drafted as a Bill ready to introduce to Congress.
What draws me above all else to Zalenga’s work is that he seems to offer feasible – although necessarily audacious – economic strategies that are potential solutions to global problems of first-order importance.
Here’s my best attempt at summarising in a single paragraph what I consider the over-arching ‘global’ predicament of our times:
Greater economic activity is required in most societies to alleviate poverty and provide sufficient economic stimulus to sustain and enhance the quality of human life. Yet most governments are indebted and highly constrained in their capacity for new expenditure to facilitate sustained economic growth. The other important twist to the story is that in recent decades it’s become clear that simply expanding the economy along existing development paths risks ecological disaster so severe it has even greater potential to cause human misery than the social consequences of economic stagnation. So what’s needed is not just rapid economic growth – but a very special kind of economic growth that actually decreases our collective ecological impact, especially in wealthy societies whose resource consumption is much higher than the norm. This amounts to a colossal renewal of existing infrastructure with sophisticated, carefully planned new infrastructure. We literally need to re-design our economy and way of life to achieve ecological sustainability on a global scale. Unfortunately, given so much government indebtedness already.. it seems we simply can’t afford it!
Of course, there’s a lot missing from that account. I haven’t even mentioned what many of us in the peace movement regard as a crucially important issue: the increasing misdirection of human skills and economic resources into military expenditure and the like. I said nothing about the vast disparity of wealth in the world, both within and between different nations. There’s plenty missing from the paragraph for sure… but summaries do have obvious limitations.
Even so, I think it represents a reasonable summary of our current planetary dilemma. We can see the depth of the gloomy tunnel we’re in. We can sense the crumbling walls of ecological damage – walls that in the worst case might cave in on us completely. We know only too well the jagged rocky floor of human suffering and economic stress, experienced by most people on earth from the over-burdened American middle class to the poorest folk on earth. We can even see light at the end of the tunnel – and hey presto, we know about futuristic-looking monorail technology that could carry us all safely out of harm’s way and deliver us into a much more prosperous, happier and safer future…
But… we can’t afford to build it!
Stephen Zarlenga shows us that the last of these propositions is a myth. It’s a myth residing only in our minds, a myth that’s the result of centuries of ideological struggle in which opponents of The Myth have been largely banished from mainstream debate. What most people intuitively thought all along is correct… We can ‘afford’ to invest productively in a better future. The truth is we can’t afford not to!
Drawing on historical instances when governments did issue debt-free money – and through discussion of intellectual debates that have simmered within economics since the term was first coined – Zarlenga shows the notion that governments can only borrow from interest-demanding external sources has no rational basis. Nor is it supported by history. Needless to say, it’s a myth that serves powerful vested interests at the expense of the many and the whole.
Zarlenga’s case flows from his understanding of the correct definition of money. He mentions approvingly Aristotle’s comment that “money exists, not by nature but by law”. According to Zarlenga, money is NOT the same thing as wealth – and attempts to mis-define money as equivalent to wealth are also ideologically driven mischief with a very long history.
Money, Zarlenga tells us, need not be borrowed by governments to cover expenditure needs. Money can simply be created, debt-free and interest-free. The ‘need’ to borrow from private banks and external institutions is imaginary – yet the prevailing ideology is so strong few imagine anything else might be possible. Yet it’s hard to fault the simple proposition that “if governments can print bonds, they can print notes”.
Freed from the need not only to pay interest on government debt but also to repay capital sums issued in the first place, governments would be able to spend much more ambitiously to re-flate their economies and undertake the massive new infrastructure programs required for a sustainable future. There are few losers in such a scenario; on the contrary, almost everyone (including future generations) are beneficiaries.
The most obvious objection is that ‘printing of money’ by governments would fuel inflation. Inflation is certainly a possible outcome – but is it inevitable and unavoidable? Zarlenga adduces historical evidence that inflation is not an inevitable outcome of issuing debt-free money. Whether the outcome is inflationary depends greatly on what funds are used to purchase. If expended on useful new infrastructure, issuing debt-free money may not be inflationary at all. If inflation does occur, governments have various mechanisms for combatting it – including contracting demand in other areas of the economy. Many governments currently have a superabundance of options for achieving that goal, most notably by reducing bloated military, ‘security’ and ‘intelligence’ budgets.
Certainly it’s true that subtle demand management is needed now and would continue to be needed. In this respect many of the tools of modern economics would retain their usefulness. But Zarlenga’s suggestion about government monetary creation – without recourse to borrowing – is akin to Alexander’s use of a sharp blade to slice through the Gordian knot. In one fell swoop, Zarlenga slices through the most crucial apparent impediment to economic stimulus and success.
Governments don’t have to borrow money. It’s a matter of choice, not necessity. They also have the option, likely to be a superior option, of creating money themselves out of thin air – just as banks currently use the fractional reserve system to create money out of thin air. The key difference is banks charge interest for the privilege to enrich their shareholders and operators. Governments, on the other hand, can expend newly created monies in the broad public interest and have no need to pay interest or to repay capital on monies spent into the economy.
I said there are few losers in Zarlenga’s scenario. Banks and financial institutions that do well out of the current system are the most obvious losers. They represent an extremely powerful interest group and I don’t wish to minimise the importance of their likely opposition. Nevertheless, could they really resist an awakened and united humanity? Given a choice between bankers’ bonuses and the common good, most folk don’t take long to decide..
There is, however, a real problem that would potentially affect us all. If Governments were to transition rapidly from the current financial system to a new system in which much less frugal government expenditure become the norm, the result would be booming economies. Yet under existing circumstances that means a higher ecological impact. We need the exact opposite. How to ensure this?
There are other objections.
What about the possibility that instead of utilising newly acquired liquidity to undertake socially useful and ecologically sound investments for which there’s general consensus, governments chose to increase expenditure on outlays such increased national military expenditure, threatening their neighbours and provoking an intensified arms race?
That consideration is a really subset of the issue of international constraints. Zarlenga and his American Monetary Institute are based in the USA, which has the biggest national economy in the world, the world’s major transacted currency and (lest we forget) by far the world’s largest military machine. It just conceivable that a US President and like-minded Congress could enact profound monetary reforms and face down international opposition – if they ever had the will to do so. It’s harder to imagine any other single nation being able to carry it off with success.
Suppose, for instance, that after the next Federal election in Australia, by a most unexpected miracle it turned out that every Member of Parliament supported Mr Zarlenga’s proposals and was keen to enact legislation accordingly on the first sitting day. Could a country with an economy the size as Australia’s really carry out this reform to its monetary system in the face of a hostile world in the 21st century? That’s hard to imagine. A likely outcome would be the Australian dollar plummeting in value, shredding the nation’s wealth and quickly forcing policy reversion to something more ‘normal’ and acceptable to ‘international markets’.
If the USA ever united around such a proposal – on the other hand – it might have the clout to carry it out alone – and I hope the AMI is successful in helping to bring this about. But it seems to me there are problems with that scenario too.
The most obvious is how on earth to get domestic political consensus (or near-consensus) for such a radical change in the US financial system?
Beyond that – how would the USA deal with opposition from the majority of the world’s people who are not Americans and who might well dread a US Government able to spend even more than it does at present on the machinery of global military dominance. I for one would not wish to see the Pentagon get even more blank cheques. It’s burned through quite enough trillions already.
For me, the whole idea becomes more attractive – and more feasible too – when reformulated as a potential GLOBAL tool for increasing liquidity, providing a solution to what currently appear to be insurmountable problems with funding the transition to global prosperity and sustainability.
Power to create new, debt-free money is best invested in a new global body – a global body with two major functions:
- Developing and continually updating an overall plan of action for renewing global society and the global economy to achieve, within the shortest feasible time-frame, genuine ecologically sustainability that fosters the long-term prosperity of all.
- Creating debt-free money to be expended by various levels of government worldwide on implementation of this plan (and to audit expenditure and implementation).
By common agreement, expenditure of this globally issued debt-free money should be spent only on projects conducive to general human well-being within constraints imposed by the need for sustainability. Debt-free global funding would ensure that henceforth there’s no shortage of money for this end. Avoiding inflation, corruption and wastage would also be important policy objectives.
What's not to like about money to make our society work - globally?
It would, I think, be wise to include provision of basic universal health care, welfare and educational services within the global debt-free budget. Nurturing ‘human infrastructure’ is of crucial importance. A healthy and well-educated population is foundational.
Globally disbursed budgets should be subject to a quite rapid program of convergence. In other words, over a given period of time, disbursements would be adjusted so all nations eventually receive similar sums on a per capita basis to assist with equivalent goals in health care, education and basic welfare. In the short-term, current inequalities in labor rates and general costs might need to be reflected in disbursements – but those disparities should diminish to zero over time. Similar rules should apply to expenditure on new ecologically benign infrastructure and any other agreed expenditures.
What’s a realistic timeframe for achieving: global convergence in living standards and global sustainability?
It’s obviously a topic for debate. I envisage something in the order of a generation, such as a 25-year program. Humanity should be thinking in terms of a sustainable, convergent world by mid-century – sooner if we can. But that would indeed be an ambitious achievement. To be clear, it would be a world with negligible disparities of wages and resource usage between communities currently as disparate as Bangladesh and California, Lesotho and Japan. A world in which everyone has the potential for prosperous, fulfilling, high-quality lives. A world in which humanity at long last lives harmoniously with our global environment and conserves the extraordinary biota with which we share this planet.
Worth a go? I think so. What do we have to lose in the attempt?
To adapt Karl Marx’s old maxim:
“People of the world unite. You have nothing to lose except your myths!”
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The Lost Science of Money (Part 1)…
Jan Irvin’s First Interview with Stephen Zarlenga
The Lost Science of Money (Part 1)…
Jan Irvin’s Second Interview with Stephen Zarlenga
The above interviews are also available for download as a single audio file via the Gnostic Media website – along with three follow-up interviews: Origins of Money / A Virtual Round-Table Discussion
I chose to present the Gnostic Media material here because Jan Irvin conducts excellent, well-researched interviews – and his four discussions with Stephen Zarlenga are easily accessible via the web.
There’s plenty more material available about Zarlenga and the American Monetary Institute.
The Lost Science of Money (book) can be ordered here.
