Dr. E. Michael Jones New Book, “Barren Metal: A History Of Capitalism As State Sponsored Usury”
In this interview, Catholic author Dr. E. Michael Jones examines economics and the effects of usury, banking, and capitalism.
These are all topics featured in his upcoming book that will be released in the fall. Here’s the interview:
Question: So for your latest project, you are working on a book about capitalism?
Dr. Jones: Yes, I’m calling it Barren Metal. I got it from Shakespeare, if you remember the “Merchant of Venice”, there’s a discussion at the beginning of the “Merchant of Venice” between Shylock and Antonio and during this discussion, Shylock is talking about how he can make his money multiply faster than lay man’s mules and rams. Antonio is kind of skeptical and he refers to “barren metal” as a way of rebuking and repudiating what Shylock is saying. He is referring, of course to Aristotle’s statement that money is sterile. The reason I think this is significant is because from an economic point of view, I think there are only two options when it comes to value. The one is human labor, which is the Christian option that got its first chance after the fall of the Roman Empire when the Germanic tribes swept through Europe and the Benedictines tried to hold onto civilization. The motto of the Benedictines was “Ora et Labora” which means to pray and to work. Heinrich Pesch, who was a big influence on my life, has said this was the first time they had a culture that honored work, that saw work as the source of value because the Roman Empire, in many ways, held the same belief the Shylock did. The Roman Empire was a slave economy that was heavily involved in usury. So, the starting point of this book is going to be a distinction between these two approaches to the economy. I’m saying that when the Church is strong, usury is illegal, as it was during the time of the Holy Roman Empire. When the Jews are strong, usury is the norm for the economy and labor gets cheated and short changed and I think that’s the situation we’re in right now.
Question: Yeah, you talk about the history of usury. Regarding religions, doesn’t Islam prohibit usury as well?
Dr. Jones: That’s correct and I think that in many ways, Islam was more successful in dealing with usury than Christianity was. Even Pope Benedict XVI, who was no friend of Islam as far as I can tell, has even admitted this. That one of the reasons for the success of Islam was that is simply abolished usury, that it would not tolerate usury. This is what the Church should have done, this is what was on the books but they never dealt with it. You had a period at the beginning of the money economy, when the money economy was emerging from the feudal economy in Italy around the beginning of the 15th century. You had a hundred years of preaching by the new orders, the Franciscans and the Dominicans against usury, leading to the culmination of the campaign in Florence, which was one of the leading banking centers of Europe at that time. Girolamo Savonarola, the Dominican, takes over Florence, the Medicis are expelled, and here’s a moment where the Church could have taken control of the whole situation. Savonarola and a Franciscan by the name of Strutzi, one of the big banking families in Florence, created a Christian alternative to usury. It was called the “Monte di Pieta” which was basically a pawn shop for poor people as an antidote to the Jewish pawn brokers who were charging 43 1/3 percent interest at that time. But unfortunately, Savonarola got caught up in Church politics, he attacked the Pope, the Pope counterattacked, and Savonarola was murdered, and the issue was never resolved. To this day, it’s pretty clear that the usury issue has not been resolved. All you have to do is look around you, look at Greece in the news today, you realize that usury has not been resolved. Now, this doesn’t mean that theoretically, the Church has ever repudiated its teaching, the Church has not repudiated its teaching. The teaching of the Church is still that taking interest on loans is sinful. This is in an encyclical called “Vix Pervenit”, you can type it into Google and you can read it yourself. That was issued in 1745 and that is the Church’s teaching. This is a solemn, magisterial document, issued by the Pope, which means that it is the Church’s teaching. No pope has ever contradicted it, this is the Church’s teaching. But obviously if you look at this history, it was not implemented in the way that Islamic banking implemented that teaching.
Question: Can you explain how Islamic banking works?
Dr. Jones: In “CULTURE WARS”, my colleague Dave Wemhoff has done a very deep and extensive look into Islamic banking. In a sense, what we’re talking about here is that fees are legitimate but compound interest is not. So you can charge fees for banking services but you cannot charge compound interest.
Question: So the fee is upfront, it is not this growing debt which we have today?
Dr. Jones: Right, another article in “CULTURE WARS” magazine by Anthony Santelli makes this clear. He says that one dollar borrowed at the time of Christ with five percent interest, there aren’t enough zeros in the universe to cover a figure this big. That is the intrinsic nature of compound interest and that is why compound interest always destroys an economy. I don’t think we need any more proof of this. It’s all around us right now. Compound interest is going to destroy every economy on the face of the earth. So in terms of Greece, there was another bailout, the bondholders had to take haircuts, fifty percent, the pension funds are going to pay, there’s going to be suffering and misery among the Greek population . Because of compound interest. in two years, they’re going to be back exactly where they are right now. It’s simply something that does not work in the natural world. It is unnatural, there is no amount of wealth production in the world that can keep up with compound interest. That’s why it always wrecks an economy.
Question: Can you explain how compound interest works?
Dr. Jones: It’s a mathematical formula, basically, just that the interest that you earn gets added to the principle and it builds in a geometrical progression. Nothing grows in a geometric progression, fast enough to keep up with compound interest. The best example I can give you from the historical research I have done is from the chapter I have done on the Fugger family, which were the Catholic bankers who succeeded the Medicis, the papal bankers. The Fugger family were the bankers for the Hapsburgs, the family that was basically the premier family of the Roman Emperors, the Holy Roman Empire. The Fugger family made their first loan to the Hapsburgs in 1494. Over the course of the next seventy years, the Hapsburgs came into possession of all the gold and silver mines in the new world. Now, this is an enormous amount of gold and silver at a time when gold and silver were money. It was the only source of money you had. If you wanted money, it had to be gold and silver. They had all of this, including all of the gold and silver that had already been mined and was already being used in ornament in places like Mexico by the Aztecs. All of this flowed into the coffers of the Hapsburgs because Philip II, a Hapsburg, was King of Spain and he owned the new world. But in spite of this, the Hapsburg family went bankrupt in 1560. Now, this just shows you that if the Hapsburgs owning all the gold and silver can’t keep up with compound interest on the loan they had to make to get elected Roman Emperor, no force on earth, no productive capacity on earth can keep up with it. So therefore, we have to get rid of it. Period, end of discussion.
Question: So did someone invent compound interest or did it just sort of gradually evolve?
Dr. Jones: Someone invented it but no one knows who. It’s so ancient that no one knows who did it but it’s well known in the ancient world and it has the same effect everywhere. So if you’re asking what’s the name of the guy, we don’t know. But it’s ancient and it’s been around for as long as civilization.
Question: So capitalism does not have its origins within the Anglo Protestants in the 18th century?
Dr. Jones: First of all, my definition, the definition I’m working with is that capitalism is state sponsored usury. So, usury has existed long before capitalism if you want to define it in the modern sense of the word. Usury existed at the time of the late medieval period when the money economy came into being in the city states of northern Italy. So you could say what the Medici were doing in Italy as a result of the cloth industry, you could call that capitalism. Double entry book keeping came into existence back then, bills of exchange, they came into existence, if you want to call that kind of a thing capitalism. But what I’m saying is that capitalism really came into existence when the state decided it was going to become involved in enforcing what you would call usurious contracts. So there were Catholic Kings and Popes as well who would borrow money but the trouble from the bankers point of view was that you didn’t know if they were going to pay you back, because these contracts were illegal. There was a long history in Italy of subterfuge, dry exchange. They were basically contracts that were usurious contracts based on compound interest where you would disguise it as insurance payments, and so on and so forth. So from the historical point of view, the crucial moment did come in England during the time of the Glorious Revolution. When basically it looked as if Catholic, James II was going to take the throne by the Whig oligarchs staged a revolution because they wanted to put the interest of Capital over law. In other words, the state was now going to enforce these usurious contracts. And so shortly thereafter, you had the founding of the Bank of England. The Bank of England was virtually the same things as our Federal Reserve system, a private bank that would lend money to the sovereign which meant that a certain group of people, namely the Whigs, would profit from all of the interest payments. That I suppose, if you’re talking about modern capitalism and the English version of it, that’s where I think you would have to say it began.
Question: Yeah, most people believe that Capitalism is simply the absence of government regulation in the economy.
Dr. Jones: Yeah, generally when you say “capitalism”, people think you mean economic exchange. So therefore if you’re against capitalism, you are against economic exchange. No, that’s not what I’m talking about. Capitalism is a perversion of economic exchange. Capitalism is economic exchange skewed to the interest of a certain group of people. That’s what, sort of, has to be teased out of this historical discussion. Basically what you had was a revolution that commandeered the economy and said from now on, the economy is going to serve the interests of a certain group of people, to the detriment of everyone else. Now, that is the antithesis of what an economy is. Economy means the entire group of people in a nation. The nation is the parameter under which the economy works. The goal of the economy is the good of everyone in the nation. Now, this is not socialism. Socialism is a reaction to Capitalism. Socialism is the puss that forms when the body politic becomes sick with Capitalism. I’m not talking about that, I’m talking about a distribution of good where the exchange benefits are maximized for everyone. It doesn’t mean everyone earns the same amount of money but it does mean that you’re not going to allow a certain group of people, namely the usurers, the freeze up the entire economy for their benefit, which is the situation we’re in right now.
Question: Was Marxism set up by the bankers or is it just a reaction to Capitalism?
Dr. Jones: It’s a reaction to Capitalism, it had to happen. OK, if you begin with Adam Smith, let’s take Adam Smith as the man who sort of codified the science of economics. I mean before that, it was a part of moral philosophy, he was a professor of moral philosophy.
Question: So Adam Smith is considered the father of modern Capitalism, was he in favor of state sponsored usury?
Dr. Jones: He accepted it, yes. I mean, Adam Smith was a Whig, he was a Scotsman at the time of probably the biggest upheaval in Scotland, namely the Jacobite rising of 1745. During the Jacobite rising, Adam Smith was at Oxford and he was unhappy, he felt that the Jacobites were in control of Oxford. He was not a part of that, he was a part of the Whig party. The Jacobites got their name from James II, that was the rightful King of England. He was deposed and William of Orange was put in his place, and that was the beginning of the Whig, Oligarchic rule of England. That Whig oligarchic rule meant the promoting of the interests of the merchant class and that’s precisely who Adam Smith represented in Scotland. It was a battle in Scotland between the lowlands and the highlands, between the Presbyterians who were the merchant class in places like Glasgow and Edinburg and the highlands, which were still a feudal economy that was Catholic and loyal to the Stuarts, and that’s why they were called Jacobites. So the Jacobite rising of 1745 stuns everyone, Bonnie Prince Charlie shows up in Scotland, they raise an army overnight, and they march, and they get to within one hundred miles of London. So they nearly conquered England and everyone’s shocked. So Adam Smith comes on the scene after that, after the Jacobite rising, the brutal suppression of the Jacobite rising after the Battle of Culloden in 1746, and he’s there in a sense to represent the interests of the Whig Oligarchs because that’s who he is. He said, at one point to describe himself, that “My family kicked the Pope and the pretender out of Scotland”, the pretender obviously being Bonnie Prince Charlie at that particular moment. So, this is a man who in a sense had many great insights, he created the modern science of economics, much of what he says is true. He begins at the right point, labor is the beginning of the wealth of nations. He understands that labor is the source of value. That’s the only thing, except for the competing source which is magic, which is alchemy, which is usury. Now, instead of thinking this thing through to its logical conclusion, Adam Smith just sort of says “These are my boys, I guess we just have to accept it as part of life.” At that point, he defeats all of his insights into labor by accepting the legitimacy of usurious contracts.
Question: So how was Marx a reaction to Capitalism?
Dr. Jones: Well, it comes down to labor. Basically after Smith, he’s got some insights but it’s something that needs to be clarified. So this discussion of state debt at the end of “The Wealth of Nations”, he starts talking about the feudal era and useless mouths. The feudal lord would sustain useless eaters, useless mouths. Well, that’s not my understanding of the way the Holy Roman Empire valued labor, but that’s his understanding. What you see here is that there are going to be people who read this. So, one guy who read this is Malthus, who reads it and goes off and starts talking about population. Then Ricardo reads it, and he starts saying it’s a zero-sum game. In other words, as soon as the wages of the worker go up, he procreates and has more children. As soon as he has more children, the effect of his money goes down and there are more people competing for wages and so the wages go down. So, it’s a zero-sum game, it always ends up as an equilibrium. Lassalle, the socialist from Germany, called this the Iron Law of wages. Now if you believe this, there are two options. Either you kind of ring your hands, the way Malthus and Ricardo do it, and say “Gee it’s too bad, but that’s just the way life is and you can’t tamper with it because Newton says this is the order of the universe”, or you can accept it the way Marx did and say “Yeah, that’s the way it is but it’s an intolerable situation because look at the working class in all sorts of misery and all these other people were rich so what we need is revolution.” So they both begin with Smith and they both head off in opposite directions and start taking Smith to different conclusions.
Question: So was Marx against usury?
Dr. Jones: Well again, he was more against Capital. He saw Capital as theft. It was the appropriation of surplus value. The contractual appropriation of surplus value and he came up with what is the labor theory of value which in a sense, I believe in the labor theory of value because I’m saying the only source of value in this world is human labor. This is what Locke believed, this is what Adam Smith believed, this is what Karl Marx believed, but they all believed it in different ways and Karl Marx came up with what you would call an exaggeration of the value of labor. Primarily because I think he was an atheist and an atheist cannot understand the purpose of creation. Creation was made by God and human wealth comes about by a collaboration between man and God, through creation. So what he had was a labor theory of value which said that all value comes from labor. Well, that’s not true. You could say there is no value without labor, I think that is true. I think that Locke would agree with that, I think Smith would agree with that. But, you can’t say that all value comes from labor because you’re leaving creation out of the picture. So for example, let’s take a vineyard. There’s a vineyard in a place like France that grows great wine with little effort. Okay, that’s the value. There’s relatively little human labor that goes into it. On the other hand, you could have a vineyard in let’s say… Iceland, in which case there’s a huge amount of human labor that goes into it and you get crappy wine or virtually nothing. This is the refutation of the labor theory of the value and I think this runs aground on Marx’s atheism.
Question: So what is your opinion about labor unions and “Right to Work” legislation?
Dr. Jones: Yeah, Indiana passed a “Right to Work” law which is a disaster for the economy. Adam Smith says corporations are a conspiracy. But, this is a conspiracy that is promoted by this country because it is part of its Capitalist origin and its origin in Whig culture. In order to counter this conspiracy, you have to have a working man’s conspiracy, if you want to use that term, or a union, whereby labor can unite and withhold his labor to pull up the price. Because if you don’t, the wages will be driven down, and down, and down, and you will end up defeating the economy which is precisely what happened in Florence during the course of the 14th and 15th centuries. They had a booming textile industry, this is where the wealth came from. The wealth came from skilled workers being able to produce high quality wool, dyed wool that was in demand all over Europe. What they did though, because this was the beginning of the Capitalist impulse, they appropriated all of the surplus value and left the working man with basically a subsistence wage and then it went below a subsistence wage. How do we know that its below a subsistence wage? Because the working class population, over the fifty years of the biggest prosperity in Florence, the population went down, it dropped, because the worker could not sustain a family. That is the ultimate criterion of a just society, of an equitable and a successful society. The working man must be able to maintain a family with his wage, which means he must earn something like double or triple what you would call a subsistence wage. Well in Florence after this wealth was created, the Florentine oligarchs, the people like the Medici family, took all the surplus value out of the economy and took it away from the worker to the point where the worker could not reproduce. The workers could not have families, the population went down and as a result, they destroyed the goose that laid the golden egg, namely the textile industry that was the source of all wealth in Florence. Surplus labor, by surplus labor I mean, when you have a pound of flour, it has a certain value. If you apply human labor to it, you can create “x” amount of bread, which has a much higher value than a pound of flour because it’s much easier to use. You can eat the bread right then and there, so therefore what you’ve created is value, and this is called surplus value. The big question for any economy or any culture is, how do you divide up that surplus labor? Now, I’m not going to deny that Capital has certain rights because they provided the wherewithal. That’s not the issue in our economy. The issue in our culture is, does the worker have any rights? That’s always been the issue here. For some reason, this country thinks that it can get by without labor. I don’t know where they get this idea, but this is what’s behind all these “Right To Work” laws, you can simply drive down wages and somehow the country will prosper. You can’t drive down wages and have a country prosper because you’re killing the economy. That’s precisely what all of these “Right To Work” laws do.
Question: So what’s the definition of “Right To Work”?
Dr. Jones: No union shop, no close shop. At least that’s the way it’s been defined in Indiana. Which means you’re weakening the ability of the labor to bargain with the owners of Capital.
Question: What’s your opinion on public employee unions?
Dr. Jones: They get trotted out as a way of discrediting unions in general. This is what happened in Wisconsin. What we need to do is to look at the big picture here. Why are we in economic trouble? Is it because of high wages? No, it is not because of high wages. It is because of usury, that is the source of our problems right now. That is because of government debt tied to compound interest which always, even Adam Smith said this, always spirals out of control and always enfeebles every economy where it takes place. Whenever this happens, the people who control the culture in a capitalist society invariably turn and decide to loot labor as their way out of the problem. This invariably makes the situation worse because in cutting wages, you’re cutting the size of the economy and the economy then ends up in a death spiral. Which is precisely what happened after the stock market crash of 1929. The powers that be decided to drive down wages, they drove down wages by fifty percent in this time, and they sent the country into the Great Depression. It happens over and over and over again because the country is controlled not by the working man, it’s controlled by bond holders and their interests. So they want a full return on their usurious contracts, and the only way they can get it is by looting the pension funds, driving down wages, and even more recently, we have to cut social security. They try to disguise this by calling social security an entitlement, which is not what it is.
Question: So are labor and wages destroyed by free trade and the mass immigration issues?
Dr. Jones: Well, mass immigration guarantees cheap labor. That’s the whole purpose, that’s the reason the government will never clamp down on immigration, because they want cheap labor. All of these rich people want Guatemalan maids and people from Mexico to mow their lawns and it drives wages down. That’s why it’s in their interests, so that’s how it fits in with the whole cheap labor issue.
Question: So, does your book also address the Federal Reserve?
Dr. Jones: I’m going to… I’m in the middle of talking about Adam Smith right now. Some of the articles that have appeared in “CULTURE WARS” so far. One chapter on the Ciompi Rebellion about Florence, a chapter on Sir Isaac Newton and the metaphysics of Capitalism, a chapter on John Law and paper money, and a chapter on Adam Smith.
Question: So it’s in historical order?
Dr. Jones: That’s right, that’s exactly what I’m trying to do. I think you can only understand economics as it came into existence. The worst thing that ever happened to economics was people thinking that it was a kind of physics, pseudo-physics. It is not, it is not physics. It is philosophy, it is moral philosophy because the heart of economics is two people getting together and agreeing to make an exchange. That has nothing to do with physics whatsoever. That has to do with the human will, choosing the good, so therefore it should be part of practical reason and moral philosophy which is where it was originally.
Question: You talk about economic alternatives, but what is your thought on social credit?
Dr. Jones: Well, the trouble is you’re flying in the face of what money is. In order to understand what money is, you have to start with how it came into existence as a replacement for barter. So economic exchange began, basically, with people from two different areas where the surplus was different. They would come together and you sometimes see this with primitive tribes, the beginning of economic exchange was basically leaving whatever you had a lot of in a clearing and then the other tribe would come and see it. If they liked it, they’d leave what they had a lot of and you would make an exchange. It was called blind barter because this avoided the possibility of hostility, an attack, if you got into an argument about haggling over the price of it. Now, Aristotle says, this is obviously unwieldy because if you have a cow and you want eggs or a coat, it’s clear that the cow is worth a lot more than a coat, so how do you divide up the cow? You can’t divide up the cow, so what you want to do is find something that everyone values, everyone would want, and over the course of time, this basically came down of course to gold and silver. So, there was a real concentration of wealth in gold and silver that everybody recognized as valuable and that’s the beginning of money. At that point, there was a leap of faith here. There was a little bit of an element of insecurity because you couldn’t tell whether that was really gold or a mixture of alloy, and you couldn’t tell whether you had to weight it and essay it. So what happened is that you had a coin replacing a simple lump of gold because the coin said basically the state has certified that this is gold of a certain weight and fineness and you can trust it and therefore, it facilitates exchange.
Question: So is that the gold standard?
Dr. Jones: That was the basis of the gold standard. So, why should I give you something if I’m not sure what you’re giving me has any value? If I see that you’ve got gold there, I’m reassured and you can have it, because I understand then that gold has value. Now, this is going to strangle the economy at a certain point because there’s not enough gold around to grow with the economy and that became clear during the 15th century. The term is the Great Bullion Dearth of the 15th Century. So how do you get beyond that? Well, banks started to take in your gold and what they would do is they would give you a receipt for your gold. If we had trust in the bank, if it proved itself, which is what happened in 1607 with the Wisselbank in Amsterdam, everybody believed in the probity and trust and had confidence in the bank, so therefore this paper took on the same value quality that the gold had. That’s the beginning of the gold standard. Now you can issue money, much more money than you had in gold because not everybody is going to use all the gold at the same time. The Italians discovered this during the Crusades when the Knights would leave their gold with them and they would start lending it out. They lent out more than they had and it was fine, as long as nobody found out about it because everybody lost confidence, and you had a run on your bank and the whole thing went bust. So basically, you could improve the economy to the extent that you had trust. Now, trust is based on prudence, and prudence is a moral virtue. So, you could expand the economy to the extent that you were moral. But at the very point they’re doing this, which is to say the 17th century, the 18th century, the Bank of England in 1694, you’ve got a philosophy that is being articulated by people like Adam Smith where you don’t need morals. He’s a professor of moral philosophy who doesn’t believe in moral reasoning. He believes in instincts and if everyone follows their self interests, and that’s governed by competition, you have a Newtonian system which gives you perfect motion and you don’t need morals. So, you see the problem which is going to arise because you have this sophisticated possibility but it’s all based on prudence, which is now in short supply. So that leads to the whole downfall of all these paper systems.