The Weiner Component #81 – The Concept of National Wealth

Franklin Delano Roosevelt, 1933. Lietuvių: Fra...

Franklin Delano Roosevelt, 1933. Lietuvių: Franklinas Delanas Ruzveltas (Photo credit: Wikipedia)

The question of wealth is confusing. To an individual it appears to be the amount of money he or she possesses; but to a nation it would be the goods and services they produce in a given period of time, usually a fiscal year measured in terms of dollars and cents. This is the Gross Domestic product, the GDP. Which is the actual wealth? The productivity or the money?

Looking at a small area of United States’ history should answer this question.

On Tuesday, Black Tuesday, October 29, 1929 the New York Stock Market collapsed. Over a period of time the value of the Market dropped from 89 billion dollars to 18 billion dollars. (This was when a one ounce gold coin was a $20 gold piece and was officially worth $16.) That event was concurrent with downturns in all the other industrial nations. The rest of the U.S. economy would follow the stock market with massive unemployment, part time employment, and underemployment. Unemployment would drop to 25% of the working population. The President, Herbert Hoover, and his Secretary of the Treasury, Andrew Mellon, believed that the Market Mechanism would eventually bring the Market back to where it had been before the crash. It did not.

From October 1929 until the end of 1932 the country sank into deeper and deeper depression. The President and his Secretary of the Treasury kept stating that “Prosperity was just around the corner.” That corner was never reached.

John Maynard Keynes, an English economist, developed the theory of Keynesian Economics. Government, during times of recession and depression must spend more than they collect in taxes. During times of prosperity it can pay off its debt. Some of this was attempted on a small scale by President Hoover.

In 1933 Franklin Delano Roosevelt was elected President of the United States. He began, what he called, The New Deal; a process of massive spending that it was hoped would bring about recovery.

Roosevelt funded this in a very interesting way. Money at that time was gold and silver coins. All the gold coins in the country, with the exception of a small number held as souvenirs, were collected, melted down into gold bars, and stored in depositories like Fort Knox. Gold certificates, equaling the value of the gold coins, were issued to the Federal Reserve. The value of the gold was then by Act of Congress doubled from $16 an ounce to $32 an ounce. The ounce of gold had traditionally been the $20 gold piece. Each one was replaced by two $20 dollar paper bills marked Federal Reserve Notes. In one simple act the money supply of the United States had been doubled.

We were actually off the gold standard but the fiction of its continued existence remained. The money was as good as the gold that stood behind it. Roosevelt could now easily fund the early New Deal. All it took was a simple act of Congress and the money supply was doubled.

As the New Deal progressed, from 1933 to 1940 shortly after World War II broke out, Congress authorized spending by the Roosevelt Administration far beyond the amount of taxes that were collected or the extent of the money supply. The government followed the principles of Keynesian economics. This did not get the country out of the depression. In order to do that the money supply would have had to have been more than quadrupled. But it did allow recovery to begin. It took World War II for complete recovery to occur.

From the outbreak of W.W.II in 1939 to the end of 1941 when the U.S. became directly involved in the war the country could not meet the demands of Europe and Asia for goods. The depression ended; there was full employment. The Allied nations shipped their gold (money) to the U.S. to pay for their purchases of goods (food and assorted war materials) until they ran out of money, then purchases were made on credit until that became too large. At this point the Roosevelt Administration evolved the concept of Lend Lease, which was a fiction. From this point on the United States gave the necessary war materials to the Allied Powers.

World War II was a very expensive enterprise. How great was the cost to the United States? The best we can do is an approximate answer to this question. According to the Oxford Companion to WWII the cost to the U.S. was $306 billion. President Truman in an address to a joint session of Congress stated that the U.S. contributed $341 billion to World War II. This did not include the $50 billion given out in Lend Lease.

During WWII the United States became the “Arsenal of Democracy,” supplying all the allied nations with food and the materials of war. Within the country all efforts were aimed at fighting and winning the war. Practically all manufacturing was for the war effort. Farmers could not produce enough food. Many people set up “victory gardens,” growing vegetables on their lawns, while those in apartments used window boxes. Virtually everyone on the home front was involved in the war effort. Children collected scrap metal and old newspapers that could be reconstituted and used again. Housewives saved their used grease from cooking and turned it in to their butchers. It was used in the production of munitions.

With everyone on the home front employed, men, high school students after school, and women, and many people working double shifts money was readily available but there was little upon which to spend it. People could not freely spend money; most items were rationed or not produced; everything was focused upon the war effort.

The government, presumably to raise money for the military effort, sold war bonds. They could be bought in numerous denominations. The smallest was a $25 bond which cost $18.75 and was redeemable after ten years. School children bought 50 cent war stamps that they collected in books, until they saved $18.75, then turned them in for war bonds. All the resources in the country was focused upon the war effort.

Where did all this money come from? What was its effect upon the economy of the United States? Obviously Congress passed bills and the President signed them. And the money was created. Also all this currency that the country created was spent upon goods and services in the U.S. It was all this spending that took the country out of the depression and into a new level of economic prosperity. During the war people had money, many for the first time in their lives, but could not spend it.

In 1944 the Serviceman’s Readjustment Act (G.I. Bill) was passed by Congress and signed by the president. It was a law that provided a range of benefits for returning WWII veterans: low cost mortgages, low interest loans to start a business, cash payments of tuition and living expenses to attend college, high school, or vocational training, as well as up to one year of unemployment compensation. It was available to every veteran who had been on active duty during World War II for at least 90 days and had not been dishonorably discharged. Combat was not required.

By 1956 about 2.2 million veterans had used these benefits to attend colleges and universities. An additional 6.6 million had taken some kind of training program. This does not count the number who started small businesses with low government interest loans or who bought a house with a low interest VA loan.

In April 1948 Congress passed the European Recovery Program, generally called the Marshall Plan. In this bill the United States gave economic support to help rebuild European economies after the end of WWII in order to prevent the spread of communism. During the four years that the plan was operational the U.S. donated $13 billion in economic and technical assistance to help the recovery of the European nations.

If we consider the inflation factor in terms of the value of gold, then an ounce of gold was worth $32; today an ounce of gold is worth in the area of $1,300. If you divide $32 into $1,300 you get an idea of the level of inflation since 1948.

How was all this paid for? The answer is by an acts of Congress. The government legislated the funds into being. What then is the real wealth of the United States? The goods and services it produces.

What happened to all this debt that Congress generated? How did the U.S. pay for the depression, WWII, the GI Bill, and the Marshall Plan? Of course the answer is obvious. Congress approved the expenditures and the government printed and issued the money.

Before we consider the National Debt there are some other factors to consider. First the population of the U.S. in 1930, several months before the census was taken, was 122,775,046. By 1940 it had gone up approximately by ten million people; and by 1940 by another eighteen million. By 1960, the year of the next census the population was 179,323,175 Americans, an increase of over twenty-five million. While the executive in each introduction to the official census has apologized for the sloppy enumeration, this number of individuals was actually counted.

With the constantly increasing population the economy needs an ever growing amount of money in the National Cash Flow. In no year, from the beginning of the Great Depression on, did the economy increase by less than one million people, generally the number was larger. If money had not been added to the economy there would have been mad inflation and total economic collapse.

What the Federal Government did was to add by acts of fiat multi-billions of dollars to the national economy. The initial cost of the New Deal was covered by doubling the money supply and creating the fiction of gold being behind every dollar. Later paper money was simply created for the latter part of the New Deal, Lend Lease and W.W.II, the G.I. Bill and the Marshall Plan. There was never any real gold behind the dollar. In fact, there was never enough gold in existence to make up an adequate gold supply for money.

What was the advantage of using this token money? It allowed full productivity to occur within the United States and the industrial world. World War II, forgetting for the moment its horrors, put everyone back to work. The G.I. Bill made this country into a middle-class nation by educating millions of people with college and providing for them to start their lives on a more secure level than their parents had lived. The Marshall Plan, in addition to allowing European nations to recover from the devastation of war, was also a six plus billion dollar checkbook of funds to be spent in the U.S. creating an endless number of well-paying jobs.


The wealth all this paper money produced was the production of goods and services that allowed America and a good part of the world to emerge after the Second Great War.


The Weiner Component #79 – A Letter to Elizabeth Warren


English: Elizabeth Warren speaking at March 29...

English: Elizabeth Warren speaking at March 29, 2010, at the Women in Finance symposium. Warren was part of a five-woman panel discussion. (Photo credit: Wikipedia)

On Tuesday, April 22, 2014, Senator Elizabeth Warren appeared on two television programs, the Rachel Maddow Show and with Jon Steward on Comedy Central. She was promoting her new book, A Fighting Chance, and in approximately fifteen minute interviews explained her position in the Senate and the meaning of her book, which, from what I understand, deals with the great financial burdens the Federal Government places upon those youngsters with their college loans, charging them extensive interest when they pay them off over goodly periods of time. She concentrated upon the unfairness of this.

(As a footnote it is interesting to remember that the reason the college loan interest rates are so high is because the Republican dominated House of Representatives refused pass a bill to lower them. Both the Democratic majority in the Senate and the President wanted to lower the rates.)

I sent the following letter to Senator Elizabeth Warren.

April 28, 2014

Dear Senator Warren:

I felt a need to communicate with you for two reasons:

First to tell you how much I enjoyed watching you on the two Tuesday broadcasts stating your position and promoting your new book. My son-in-law, who was present for the Maddow interview, said he would vote for you for president.

My second, and more important reason, was your position on education and student debt. This obviously was one of the main purposes of your new publication. I particularly appreciated your point about paying $15 a semester as an undergraduate and comparing that amount with the current costs of a college education.

If we go back to the 1950s and 60s many cities and states valued an educated citizenry and were willing to pay for it from a far smaller GDP than we have today. The Federal Government in 1945 also inaugurated the GI Bill which allowed a large number of returning veterans to go back to school and eventually graduate from college. At that time the country on all levels put money behind its words.

Today, with an irrational distribution of the national income, the majority of college students, with help from their parents, do not have the funds available to go to college. The Federal Government has allowed them to borrow the money with usurious rates of interest. This puts the student after graduation in a position where most of their newly earned income is devoted to paying back debt for a large number of years. They cannot really get on with their lives, living the American dream, instead they are debt encumbered.

The overall effect of this upon the society is also very negative. This process impedes economic growth. These graduates cannot afford to buy houses, decent auto-mobiles, or what is needed for middle-class living. A large

Percentage of their earnings go back to the government limiting economic growth in the economy. Money spent in the general society is re-spent a number of times generating six to eight times the initial amount while money used to pay off debt remains at the initial level. In addition these students will live for years in this fashion.

In your comments you spoke of lowering student debt by new legislation and you also stated that the funds spent for any purpose have to be made up. You suggested closing tax loopholes. While this would be worthwhile it is not really necessary. The two items are not interdependent or are they in any way related. One can be done without the other. For example a massive rebuilding of the infrastructure of the United States does not require new taxes. In fact if it were done it would generate, after an initial increased expenditure, a great deal of new wealth and probably lower the national debt below its present level.

Historically, the only time the country spends freely without any concern to debt is during time of war. Where did all the money expended during World War II come from? The Government created it and the nation became more prosperous. How was the Government able to pay for the GI Bill after the end of the Second World War and the Marshall Plan in 1948 that brought Europe out of the decay caused by W.W.II? We can also consider George Bush’s two wars in Afghanistan and Iraq or, for that matter, the Korean and Viet Nam Police Actions.

These were done by the government simply creating the funds needed. The money was not the wealth; it was and is the productivity. The goods and services brought about by the expenditure of these funds is the real wealth. It would be the new and refurbished bridges and roads, the new electric grids and structures that would bring the country into the 21st Century. All this would increase the wealth of the United States and its people. Fiscal policy expenditures would actually decrease the dollar value of the national debt. It would act similar to the Kennedy tax cut which substantially increased the GDP.

A bill that would begin this process would be one that forgave most of the student debt. One, for example, that wiped out the student debt of all students who graduated with a C or better average or who completed training for some specific occupation. The money these individuals would spend over the years becoming and being part of the middle-class or better would more than pay for the small amount of the GDP the government would have spent on their educations.


Bernard Weiner

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The Weiner Component #30 – Irony: The GDP & the National Debt


National-Debt-GDP (Photo credit: Wikipedia)

The Gross Domestic Product (GDP) is the dollar and cents value of all the goods and services produced and consumed or purchased in one fiscal year.  It is a measure of the productivity of the nation expressed as a number, which is reported quarterly and allows us to see growth or shrinkage in the overall economy.  It can also be measured by a comparison of all yearly incomes and is, then, a statistic that tells us the immediate economic condition of the nation.

Toward the end of 2008, with the Real Estate Debacle, the National Economy crashed.  The country was saved from falling into a deep depression by the actions of Presidents Bush, Obama, and Congress.  Even though the economy was saved from disaster unemployment fell to over ten percent, with many other people being either partly employed or under employed.  The value of most homes fell with many either being underwater or, with constant refinancing, being at the bottom of the ocean.  From 2010 on, with the election of a Republican majority in the House of Representatives, nothing was done to alleviate the poor economic situation.  In fact there was more job shrinkage with the Republicans in the House and the filibustering Senate minority undergoing a policy of economizing.  There has been no fiscal policy from Congress since 2011.  In the Federal Reserve, imaginative ways have been utilized to increase the amount of money in circulation and help solve the housing disaster.

What has happened since 2009 is that there has been economic recovery but today unemployment is hovering just below eight percent.

The hue and cry around Congressional Washington D.C. is that we have to economize, gain control over our National Debt.  The U.S. currently owes over sixteen trillion dollars and is spending more than it is taking in taxes.  The current argument is that we cannot bankrupt our children by leaving them owing this inordinate amount of money.

If we go back to the amount of money this country spent fighting World War I and the amount we lent to our allies then which, after 1929, was never paid back; to the amount spent by the Roosevelt Administration from 1933 on, when he assumed office; fighting the Great Depression; to World War II when we were the Arsenal of Democracy and paid for ourselves and our allies fighting the war; to the European Recovery Act of 1948 (The Marshall Plan), and to Korea and Viet Nam.  All of these required negative financing, presumably spending money we did not have.  Yet none of these massive expenditures brought poverty or hardship to future generations of Americans.  In fact what these outputs of money did was to greatly grow the economy so that debt as a percentage of the GDP actually diminished because of the economic growth. 

After World War II the United States emerged as a middle class nation with full employment and there was a much higher standard of living for everybody.  The Marshall Plan was a checkbook to European countries to enable them to recover from the war by spending the money we gave them in the U.S.  In both the Korean and Viet Nam Wars the United States was able to produce both guns and butter, fight the wars and provide for the population of the country.

In none of these cases was any real debt transferred to future generations.  What occurred was a growing standard of living for everyone.  Why would the situation be different now if the government used fiscal policy to create jobs by rebuilding the infrastructure of the United States?  The result would be a lessening of unemployment and a lessening of the National Debt as a percentage of the GDP.  A little bit of money spent would create a lot of money collected by all levels of government in taxes.

As a footnote: the National Debt consists of two parts, private and public debt.  Public debt is the money the government has borrowed from many of its own agencies that have surplus funds, like social security which holds over two and a half trillion dollars of the debt.  The Federal Reserve is and has been spending forty billion dollars a month purchasing its own debt.  In fact the government admits to holding over forty percent of the National Debt.  By my estimate it owns well over sixty percent of its own debt.  Twice, that I’m aware of, in 2012 the Federal Reserve quietly transferred 89 billion dollars to the Treasury.

Where are the real economic problems?  The Republicans are creating them by their actions in Congress.  They and a number of Democrats agree that the major problem is the Debt and not creating jobs for the unemployed.  What these people have created is a sense of irony, creating problems that exacerbate the negative aspects of our current situation.  Isn’t it time to take a realistic look at the economic problems of the United States and focus on job creation rather than shrinking the economy to attempt to pay off the National Debt?

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The Weiner Component #12 – Money Makes The World Go Round


In the Broadway musical “Cabaret” there is a song that the Master of Ceremonies sings called, “Money Makes The World Go Round.”  The musical number emphasizes the importance of money in pre-Nazi Germany.  Did it really?  Is this concept true?

When World War Two broke out in 1939 the European nations at first paid for their purchases from the United States in paper currency, then in gold bullion.  After the Allied nations had run out of money the Roosevelt Administration came up with the idea of “Lend Lease,” which actually was a way of freely supplying these nations with war materials.  Where did the U.S. get the money to pay for these goods and services?  They printed it.  The effect was to get the country out of the last dregs of the Great Depression and help stop the Nazi advance.  After December 1941 the U.S. became directly involved in W.W.II and “Lend Lease” continued.  We became the “Arsenal of Democracy,” supplying the needs of all the nations fighting Germany, Japan, and Italy.  How did the U.S. pay for this?  Simple.  They printed the money.

Did the European and Asian nations we helped ever pay us back for the value of the goods they had gotten from us in the war?  The answer, of course, is not in money but in helping to defeat the Axis Powers.

What was the result of W.W.II?  The U.S. and all the nations involved emerged after the war as more prosperous than they had been before the fighting.

Could the war have been avoided?  The answer is, yes; if the nations involved had been able to accept the reality of the money supply.

From 1933 on, first the United States and then gradually the rest of the industrial nations took gold out of their money while maintaining the fiction that there was a gold supply behind the dollar, pound, lira, or whatever.  In 1933, the Roosevelt Administration collected all the gold coins from its citizens.  This had been the money supply up to that point; they melted it down into large blocks and buried it in places like Fort Knox.  Gold certificates were issued which, supposedly, maintained the value of the money.  This was a fiction.  There was no way anyone could get gold for his money.  We were, on a practical basis, off the gold standard.  The United States doubled its money supply by raising the value of gold from $16 dollars an ounce to $32 an ounce.  Among other things this paid for Roosevelt’s New Deal.  It helped lessen the ordeals of the Great Depression but did not end its effects in the U.S. where the money supply had dropped to less than one fifth of where it had been before the crash.  The effects of W.W.II brought the money supply well beyond where it had ever been before the Great Depression.  There had never been enough gold available to maintain that level of the money supply.  The Federal Government was then on a paper economy, with the paper being freely issued.

After W.W.II the government spent hundreds of millions of dollars on the GI Bill, sending a whole generation of veterans either to college or funding them in new business areas.  A few years later the Secretary of State came out with the European Recovery Act, The Marshall Plan, which helped war torn nations recover from the effects of W.W.II.  We spent 71/2 billion dollars on that.  It was a checkbook to these nations that allowed them to spend the money mostly in the United States buying the goods and materials they needed to recover from the war.  Where did all this money come from?  Obviously the government printed and issued it.

President Ronald Reagan, who believed that the Soviet Union was better armed than the United States and started a massive arms build-up in the U.S., which included, among many other things, his “Star Wars” program, where we would be able to shoot and explode oncoming missiles from outer space, raised the debt ceiling eleven times during his two administrations.  He even threatened to veto every bill coming out of Congress if they did not pass bills raising the debt limits.  Of course we can always congratulate Reagan on his adeptness in bankrupting the Soviet Union when they tried to keep up with us in the armaments race.

Again, where did all this money come from?  It simply came into existence when Congress passed its continual new debt ceilings, which were then signed by the president into law.

How did we pay for all these jumps in funding?  The economies grew and they just became part of the natural flow of money through the economy, the jumps in money were absorbed by the economic growth and rising standards of living within the society.  In essence we grew out of our debt and it became non-noticeable.

Toward the end of 2008 there was an economic implosion of the money supply in most of the industrial nations.  This began in the United States with the Real Estate Crash that threatened to totally decimate the money supply within the nation.  Virtually all the major banks were on the point of collapse.  If they had been allowed to crash then the money supply within the country would have been reduced to a slow dribble.  There would have been a resulting depression that would have made the one in 1929 look like a weekend disruption.  Unemployment would have probably dropped to at least fifty percent; every industry would have been affected; the amount of business failures would have been unimaginable.  The entire economy would have come to a halt.

Presidents Bush and later President Obama poured multibillions of dollars into the banks and the economy.  The depression was averted; the rapid falling rate of unemployment was gradually reversed and slowly rose from that point on.  It has remained high but is still slowly contracting.  Will the country eventually be able to create enough jobs to satisfy everyone who wants to work?  An interesting question!  Only the future will determine an answer to that question.

If we go back to the title of this article we can ask, does money make the world go round?  And obviously since it is the means of exchange the answer is, yes.

What does this mean?  In order to live in our sophisticated societies we must have a mean of exchange for the goods and services we need and desire.  And that is money.  It is in the form of a different currency for each individual nation.  It is printed on paper and has no real intrinsic value except that attributed to it by the government of each particular nation and what it can be traded for in other nations.

Gold and silver coins could be used as an international means of exchange; but they are both too expensive and there certainly are not enough of either metal to supply the exchange needs of all the nations on this planet.  Consequently every nation is stuck with paper currency, which has no real value except that assigned to it.

Money then is the tool that allows for all exchanges of goods and services.  It is issued in each nation by the government of that particular country.  The amount in immediate circulation is determined by various forces within each society, which in most cases do not really work together.  These are the central government, the financial institutions, people, companies, and institutions using credit.  In the United States it was the banks issuing credit based upon real estate until 2008 that allowed for a phenomenal expansion of the national money supply.

The point here is that it was “bank created valueless money” that allowed for industrial expansion in that nation for over thirty years.  Money is “the tail that waves the dog.”  The overall public sees it as being the true object of value.  Wealth, in reality is the goods and services produced; money allows them to be exchanged from producers to consumers.

In essence money does make the world go round.  Its shortage in a society causes recession, unemployment, and hard times for the bulk of the population.  The market for goods and services disappears because people cannot afford to buy what they need and want.  An excess of it in circulation brings about rapid inflation because not enough goods and services can be produced to equal the money supply.  Again intense human hardship will occur as prices soar and currency rapidly decreases in value.

What is the answer to these problems?  There has to be a more realistic distribution of the money supply and the government has to have much more control of the amount of money, at any one time, in circulation.

Another important factor to consider is that the amount of goods and services produced is dependent upon them being consumed, used.  Consumption of goods and services are as important as the production of those items.  In order to have and maintain full employment and full production people must have enough money to buy and consume those goods and services produced.

This can be engendered in either of two ways.

(1) An inordinately fair system of taxation that allows for a fair distribution of the national income without any privileged groups within the society.

(2) By developing both a negative income tax and an honest graduated income tax the Federal Government would set a minimum level of income for every man, woman, and child within the country.  If the person or family unit did not earn that amount then it would be supplied by the Federal Government.  Income taxes would begin at a reasonable level above that amount for everyone on a graduated level with the percentage of the tax rising as individual incomes rise.

This process would most fairly distribute the national income and allow for the highest level of productivity and consumption.  It would also benefit every segment of society by enlarging the Gross Domestic Product to its possible maximum for each fiscal year.  The upper one percent would earn, even with this system of taxation, greater profits than they are currently since the GDP would be considerably larger.  There would be no poverty or homelessness in the nation.  Everyone would have a better attitude toward themselves and everyone else.  The National Debt would shrink and eventually disappear.  Priorities could be aimed toward scientific research and clean energy.  Everyone would be secure and be able to make real choices for themselves.  That would be both real freedom and a decent minimum standard of living for everyone in the nation..

And best of all the Federal Government would control the money supply, which makes the world go round.  It could keep it going at a successful rate.

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