Managing America- What is the Reserve Banking System?

Reserve banking is the practice of making loans in multiples of the gold deposits on hand in the hope that depositors won't make a run on the bank, all claiming their deposits at the same time. The English goldsmiths accepted gold deposits, earning money on the difference between what they paid for the gold and what they could get by lending it to borrowers.

How the English Reserve Banking System Created Wealth

William of Orange came to England from the Netherlands in 1688 to claim the English throne on behalf of his wife Mary. Parliament restricted the King's taxing power, leaving William without funds he needed to defend his crown.  He couldn't raise money by taxation and the King's credit was nonexistent. William's only hope lay in persuading the English Parliament to adopt a national banking system similar to that of his native Netherlands, that had inherited the practice of reserve banking from Venice.

William Patterson, a Scot, studied reserve banking and worked up a proposal for an English reserve national bank system. The survival of the King’s sovereignty depended on the implementation of Patterson's proposed white paper. The English goldsmiths were opposed to financing William's wars with debt-created currency. The proposed national bank would compete with their operations and, if given the power to deal in gold on behalf of the King, eliminate their profession altogether.

Patterson noting that currency circulates as an integral part of commerce, he reasoned that the panic resulting from the loss of confidence that drove depositors to demand their gold would not infect currency holders. He proposed creating a national bank that would lend money to the King in exchange for a note.

The King's note would then be used to back paper currency that the bank would lend into existence. The King would receive the value of all movies the bank lent into existence, with the national bank receiving interest from both the King and the loans created by its currency issuance.

The currency holders could not run on the national bank because the currency would be in perpetual circulation.

Bank of England was created over the active opposition of Parliament and the existing banking establishment, Charles Montagu, a member of William's party, tackled the task. Charles Montagu had befriended Isaac Newton, eventually taking Newton's niece as his lover.

He was interested in Newton for his practice of alchemy. Alchemy was the physics of the time. The public held a belief of alchemical accomplishments. Alchemy involved mixing three substances, an impure metal such as iron ore, a pure metal such as lead or mercury, and an organic acid together in a mortar.

The mixing could take months. The finished compound was slowly heated in a crucible and then dissolved in an acid under polarized light, the source of Newton's interest in optics. The distillate was oxidized using potassium nitrate, producing a rough form of gunpowder.

The sealed container was heated, and when cooled reportedly produced a powder known as the White Stone.

The White Stone could be used to transmute base metals into silver, allowing alchemists to stock their pantry with silverware made from iron.

Applying their knowledge of the hidden secrets of the universe, alchemists could then distill the White Stone into the Philosopher's Stone, which could transmute base metals into pure gold.

 Charles Montagu was interested in the Philosopher's Stone because of its reputed power to turn base metals into gold. He knew that the success of a reserve bank depended on its ability to withstand a run on its assets. He was aware that the ability to withstand a run would depend on the confidence the national bank's depositors had that their deposits were safe.

Montague understood that confidence in the safety of a national bank's deposits depended solely on perception, that depositors would not run a bank if their deposits appeared safe. He set out to exploit the widespread public belief in alchemy and its claim that the Philosopher's Stone could turn base metals into gold to establish the Bank of England, whose paper currency-purportedly representing an equal amount of silver on deposit-would be backed by nothing.

Montague wanted Newton close in case his alchemical reputation was needed to give the bank the appearance of having unlimited supplies of silver to back its paper currency. He didn't care whether Newton could turn base metals into gold and silver as long as the public believed he could.

The first step in making the public believe that Newton was, in fact, capable of such a feat was to promote Newton's universal gravitation as the discovery of the heretofore hidden secrets of the universe, the secrets the alchemist needed to produce the Philosopher's Stone.

Charles Montagu became the president of the Royal Society and used its influence to promote the Principia, with Newton's ideas of universal gravitation becoming drawing room talk throughout London. Montagu also tackled Tory control of Parliament, successfully unseating the Tories in favor of William's Whigs in 1694.

He immediately tacked a provision onto the annual Ways and Means bill securing legislative authorization for the Bank of England. The national   bank was organized with a loan of £1,200,000 to William.  He returned a note to the bank, which then lent pound sterling notes into public circulation.

The Recoinage Act of England

The goldsmiths, however, countered with a provision in the Recoinage Act requiring that old coins be surrendered for their face value rather than for the value of the silver remaining after clip-ping. England had introduced the milled coins invented by Pierre Blondeau in 1662, but failed to make any provision for retiring clipped coins.

The legislation that created the Bank of England empowered it to handle bullion transactions for England. Because the bank was now responsible for Recoinage Act, it would be forced to pay for retiring all of England's debased coinage at face value.

The Bank of England Challenged

The Recoinage Act was ordered to take effect February 1, 1697

However; in the summer of 1695, Montagu discovered that the goldsmiths were collecting clipped coins and cashing them in for their full value in the pound sterling notes the national bank had been issuing.

He realized that when the goldsmiths controlled enough of the pound sterling notes, they would demand their full value in silver, causing a public panic and a general rush on the bank to redeem all of its paper notes for silver the bank didn't have.

Montagu immediately started rumors that Sir Isaac Newton would be made master of the national mint in charge of the Recoinage Act. With the master alchemist, the man who had demonstrated intimate knowledge of the secrets of the universe, serving as master of the mint, the national bank would give the appearance of holding unlimited amounts of silver bullion. The appearance of unlimited wealth would eliminate the public's fear of collapse and stop a run on the national bank's assets.

Charles Montagu gave up trying to install Newton as master, instead moving the warden of the mint to Customs and installing Newton as the new warden on March 19, 1696-not a moment too soon. The goldsmiths, having amassed £30,000 in paper notes, made their run on the bank the week of May 4, 1696.

At this time, Sir John Houblon was the Lord Mayor of London, a large stockholder in and governor of the Bank of England was the official who, on that morning in 1696, met the angry mobs demanding their paper pound notes be traded for silver.

He told the mob, we can assume it had something to do with Newton being at the mint and whose genius put the Philosopher's Stone at the beck and call of the bank.

Question: What else would have sent the angry crowds home, never again to question the liquidity of the Bank of England?

Answer: The Bank of England’s claim it had possession of the Philosopher's Stone became irrelevant as the world came to realize that reserve banking is the money machine that buys an empire and England's enemies would never again question her ability to finance wars on the world stage.

A few years later, Sir Isaac Newton took over as head of the Bank of England. His new job gave him the power of life and death over counterfeiters. It was known that he in prosecuting his duties, enjoyed disguising himself in rough garb to carouse London bars in search of counterfeiters.

 With the Bank of England’s armed men close by, rogues attempting to pass counterfeit coins were arrested, and with Sir Isaac as the sole judge and jury, these men were slowly drawn and quartered, a practice he indulged in for the rest of his life.

“I am afraid the ordinary citizen will not like to be told that the banks can and do create money. And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hand the destiny of the people.” Reginald McKenna:  Chairman of the Midland Bank, addressing stockholders in 1924.

Questions: How does the Federal Reserve Banking System work in America?

               and

Is the U S Dollar backed by anything of value?

Mr. Martin Chekel, a noted international businessman and author of the thought provoking “Managing America” six book series and the retrospective eight book series “The Diary of American Foreign Policy 1938 – 1945” that laid the foundation for US foreign policy the past seventy-four years.

Managing America -Charting Upwave Economic Trends

In London during the 70’s-80’s, Robert Beckman was a radio financial pundit, who regularly shared his views on the outlook for the stock market and British economy -don't remember any of his advice, but he was a topic at several dinners at Sir Anthony’s home.

Fast forward forty years and the number of financial pundits and prognosticators on the US TV have mushroomed.

But has the quality of forecasting improved in the meantime?

Hardly.

In fact, today’s economic disasters suggests that business decision makers might be better off asking undergraduates or the man on the street for their views on the likely outcome of  business trends.

All the recent uncertainty over stock markets, the sub-prime market, credit card debt, the dollar, oil and commodity price spikes has unleashed a flurry of forecasts and projections based on ignorance. I suggest they should have read the book “The Downwave-Surviving the Second Great Depression” by Robert Beckman. 

They could have used the “Big Picture” information on how to manage their business and economic trend cycles, thus heeded the warning not use debt paper to create wealth or business growth and need the federal government (I should say American people) to bail them out rather than producing products consumers want or capital markets who invest in good business practices such as return in investment.

Mr. Beckman, what’s wrong with the current economic ideas today?

Robert Beckman: “Modern economic theorists revel in the trivia of contemporary history. They treat any economic event before World War II as if it was prehistoric, thus “To understand and use the patterns in the long wave, you do not need an IBM 1264 with 2,000 megabytes and a daisy-wheel printer, or to understand alphas, betas, sigmas and differential calculus.”

“The principle is simple enough.”

“It is based on the idea that there is a strong interaction between political and social developments, wars and the long term price cycle, all of which come to a peak at 50-60 year intervals. The complete economic sequence involves four basic components: first an upwave, then a recession. Then there is secondary prosperity, and finally, secondary depression. The cycle then starts all over again.” 

Mr. Beckman, What’s your upwave economic ideas today?

Robert Beckman: “The historic 'star' of the upwave is inflation, but several other characters play extremely important supporting roles. Inflation is certainly not confined to raw material, wholesale and retail prices. It includes interest rates, wages, foreign trade, music, fashion, and the production of industrial bell-weather resources like coal, pig iron, steel and lead. All of these appear related to, or dominated by, overriding natural economic forces within the long waves of economic and social life in industrialized societies.”

Political Trends during the Upwave

Beckman writes; “There is a distinct interaction between political trends and the long wave pattern of economic behavior. At the beginning of the upwave there is usually a shift from right wing to left wing politics. At the end of the upwave, there is a shift back to the right, before a period of political disarray and uncertainty. This has led to the demolition of the democratic processes in some societies during the downwave.”

“During the upwave, the correlations between political preferences and prices appear unreliable. During the latter stages of the upwave, there is a distinct tendency toward left wing politics. At the end of the upwave, the left is ousted and a right wing government usually takes over. The first major socio-political shock during the early stages of the upwave is the outbreak of war. There is a rapid pick-up in economic activity and employment as the economy moves into wartime production. Expectations begin to rise as the economy becomes more prosperous, and then even more prosperous when there is a conversion to peacetime economic activity.”

Mr. Beckman, what about government’s role with the current economic ideas and the effect on people?

Robert Beckman: “The government we get is the government we deserve, because it is the government we ask for. That has become a hackneyed cliche. Nevertheless there is a distinct relationship between the change in personal values and our choice of leaders during the sequences of economic life in industrialized societies.”

“Economic hardship will produce an emotive response. When people experience pain or hardship they often become subdued, retrench, and seek some type of solace to avoid further discomfort. When people see their friends and relatives suffer a depression, and see the world as a risky place to live, they feel helpless. Individuals lose faith in their own powers. Most people believe they are in complete control of their own destinies, but during periods of severe economic dislocation, this belief is openly challenged.”

“People become cautious, introspective, and unwilling to accept risk. They attempt to shelter themselves from uncertainty wherever possible. Their feelings run counter to the principles of individualistic capitalism where the risk-taker reaps the greatest rewards.”

Mr. Beckman: What about historic social and cultural upwave trends and the effect on people?

Robert Beckman: “The central cultural characteristic of the final stages of the upwave is the consumer mentality. During the upwaves of the eighteenth and nineteenth centuries, the West rejected two kinds of authority: the authority of the king to tell us what to do, and the authority of the church to tell us how to think. Freedom came to be understood as the absence of external constraint. In the 1920s, the Freudian gospel appeared, interpreted to mean that repression was harmful to the individual. Not only external constraints, but also internal constraints with their inherent moral codes, were seen as illicit restrictions upon personal freedom.”

“The latter stages of the upwave, society becomes so preoccupied with consumption that even religion becomes a commodity to be ruled by the whims of shoppers in a religious marketplace. Alternative religions spring up like weeds, since the repressive status of the traditional religions, which can cope with the social mores of the early stages of the upwave, are incompatible with the freedoms required during the later stages of the upwave.”

“Fashion, music, literature, theatre and dance all fall under the influence of the upwave. The years of rising excitement can be heard clearly in the increasing excitability of the music. The 1950s and 1960s gave birth to rock music. “

“It grew, slowly at first, but ultimately captured the entire 'pop' idiom. Rock became progressively more frenetic, reaching the epitome of musical discord with 'punk rock' in the late 1970s. Rock symbolized the mood of the final stages of the upwave in the 1970s, just as jazz symbolized the period of increasing affluence prior to World War I, and continued into the 'secondary prosperity' of the 1920s. The pre-World War I jazz, and the 1950s rock were joyful, a unique release from the traditions of the early stages of the upwave. But they were totally inappropriate for the heightened excitability later in the upwave. Action music is a product of the final stages of prosperity, relieving the tensions generated at a time of mass excitability in many areas.” 

Mr. Beckman: What is your opinion of business and government in regards to current economic or non-economic ideas?

Robert Beckman: ‘In the beginning God made morons. He did that for practice. Then He got down to the serious task of making total imbeciles. And on the dawn of creation, He placed a group of people upon this planet who shared the profound belief that wealth could be created in a vacuum, and who went forth among the populace, entrusted with the task of such wealth creation.’

Peter Drucker believed that the trend in today’s society is suffering what he called "the sickness of government." Drucker made ostensibly non-ideological claims that government is unable or unwilling to provide new services that people need or want - though he seemed to believe that this condition is not inherent to democracy.  This trend has continued the past seventy years and unlike business, government has not addressed the issues of the growth in entitlements or cut government spending based on future demands or need of individuals.

In short, has business and government state, local, and federal adjusted to the changes or trends in serving the needs of all the people?

Mr. Martin Chekel, a noted international businessman and author of the thought provoking “Managing America” six book series and the retrospective eight book series “The Diary of American Foreign Policy 1938 – 1945” that laid the foundation for US foreign policy the past seventy-four years.

Managing America: 200 + Years of Economic Repetition; the Upwave and Downwave Economic Cycle

It is the early 1930s. A stooped emaciated figure trudges in chains through the dreary Siberian landscape and disappears into history - one of the hundreds of thousands who die in Stalin's prison camps. His name, Nikolai Dmitrievich Kondratieff. Occupation: Economist. Crime: Thinking for himself. 'Forbes', November 9, 1981

Kondratieff studied the work of several economists who were attempting to discern a pattern of rhythmic regularity in the ebb and flow of international and domestic trade.

While John Maynard Keynes was sipping champagne in well-appointed Edwardian drawing-rooms, formulating an economic policy for manipulating our way out of the depression of the 1930s when that depression was nearing an end, Kondratieff was thinking in much grander terms and pondering the long sweep of world economic history.

While most economists of that time were concerned with trade cycles of three, five and fifteen years, Kondratieff noticed a much longer term business cycle repetition.

He questioned the nature of the waves of prosperity and adversity ebbing and flowing in price sequences spanning hundreds of years.

These upswings and downswings seemed to persist throughout the period following the Industrial Revolution in all industrialized nations, regardless of political party or economic policy. Kondratieff concluded there was a supreme order in our economic affairs, an uncontrollable order involving great tides of economic activity capable of humbling economists and plundering politicians.

Kondratieff's theory was originally published in German under the title, 'Die langen Wellen der Konjunktur'.

His paper first appeared in 1926 in the 'Archiv fur Soziakuissenschaft and Sozialpolitik'.

Kondratieff said: “The upswing in the first long wave embraces the period from 1789 to 1874, i.e. 25 years; its decline begins in 1814 and ends in 1849, a period of 35 years. The cycle is therefore completed in 60 years. The rise in the second wave begins in 1849 and ends in 1873, lasting 24 years. The decline of the second wave begins in 1873 and ends in 1896, a period of 23 years. The length of the second wave is 47 years. The upward movement of the third wave begins in 1896 and ends in 1920, its duration 24 years. The decline of the wave, according to all data, begins in 1920.”

Kondratieff never lived to see the startling conclusion to this third wave. The price cycle actually peaked in 1920. It led to a downwave lasting 20 years, involving the Great Depression, and the completion of another long wave lasting 44 years.

America’s current position within the long wave cycle is just about where it is when Kondratieff's work would have projected the wave -about sixty year cycle.

How does this historic economic long wave cycle relate to America?

Politically and Economically Viewing American History

James Madison was President, at the peak of the first American upwave in 1814.  He was elected in 1808, re-elected in 1812, and voted out in 1816, two years after the peak of the first upwave. James Madison was a liberal or 'left wing' politician by today's definition. James Monroe, who succeeded him, would have been described as right wing.

At the peak of the second American upwave in 1864, Abraham Lincoln was President. He could have been called left of center. In 1868, Ulysses S. Grant took office, 4 years after the peak of the second upwave, President Grant was a right-wing politician.

The Third Wave in the late 1890s, prices inched up again. From 1896, right through to the late 1930s, what had happened twice during the preceding 150 years, happened again.

In the Fourth wave prices rose steadily until 1929, business was booming, prices peaked and the commodity market crashed. Hundreds of small investors in America and Britain went bankrupt speculating in Argentine companies and a host of new private companies of dubious merit. The financial crisis in a speculative market led to the recession of 1930, the third time since the 1780s, which caused the world to plunge into deep depression until 1939.  Herbert Hoover was president in the 1920’s- a conservative- and Franklin Roosevelt was president from 1933 to 1945, a liberal.

There was enough strength left in the system to improve the American economy until World War Two with the enactment of the Lend Lease Act in 1941.

The start of the fifth wave, President Ronald Reagan, a conservative, begins his term in 1981 at the end of a period of high prices and high interest rates under President James Carter, a liberal. William Clinton, could be called a right of center liberal, became president in 1994 at the pre-peak of the upwave which peaked in 2007. 

America’s now in year five of the twenty-five year economic downwave with President Obama a liberal politician.

United States foreign policy started after the American Revolution with the themes that were expressed in George Washington's farewell address to all nations. 

These policies became the British base policy of the Hamilton lead Federalist Party which favored a strong federal government in the 1780s that differ from his rival Thomas Jefferson lead Republican Party which favored States Rights and relations with France and lead to an alliance with France, which resulted in declaring the war on Britain in 1812.

George Washington's farewell address: “Harmony, liberal intercourse with all nations, are recommended by policy, humanity, and interest.”

“But even our commercial policy should hold an equal and impartial hand; neither seeking nor granting exclusive favors or preferences; consulting the natural course of things; diffusing and diversifying by gentle means the streams of commerce, but forcing nothing; establishing (with powers so disposed, in order to give trade a stable course, to define the rights of our merchants, and to enable the government to support them) conventional rules of intercourse, the best that present circumstances and mutual opinion will permit, but temporary, and liable to be from time to time abandoned or varied, as experience and circumstances shall dictate; constantly keeping in view that it is folly in one nation to look for disinterested favors from another; that it must pay with a portion of its independence for whatever it may accept under that character; that, by such acceptance, it may place itself in the condition of having given equivalents for nominal favors, and yet of being reproached with ingratitude for not giving more.”

“There can be no greater error than to expect or calculate upon real favors from nation to nation. It is an illusion, which experience must cure, which a just pride ought to discard.”

International trade became American economic foreign policy, we now import more goods that we

export and we now have to borrow funds to pay one-third of our Federal spending budget.

Is this an economic sound policy?

"It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world." Thomas Jefferson

Mr. Martin Chekel, a noted international businessman and author of the thought provoking “Managing America” six book series and the retrospective eight book series “The Diary of American Foreign Policy 1938 – 1945” that laid the foundation for US foreign policy the past seventy-four years.

Managing America: Peter Drucker Defines the Post Capitalist Society in America 

Peter Ferdinand Drucker was born in Vienna and educated there and in Germany. He received a doctorate in international law from Frankfurt University in the early 1930s and worked as a business reporter. When the Nazi Party began taking over Germany, Drucker immigrated to the United Kingdom and then to the United States.

Drucker gained fame for his insights into the business world and his many books on industry and corporate management. He assumed that his readers were intelligent, rational, hardworking people of good will.

Drucker is the author of thirty-nine books, which have been translated into more than twenty languages. Two of his books are novels, one an autobiography. He is the co-author of a book on Japanese painting, and made four series of educational films on management topics. His first book was written in 1939, and from 1975 to 1995 he was an editorial columnist for The Wall Street Journal. 

He was a frequent contributor to the Harvard Business Review, The Atlantic Monthly, and The Economist and he continued to act as a consultant to businesses and non-profit organizations when he was in his nineties.

Drucker’s first book was The End of Economic Man (1939), which examined the evils of fascism. With his second work, The Future of Industrial Man (1942), Drucker turned his focus to large industrial organizations. After conducting a long study of the General Motors Corporation, he wrote The Concept of the Corporation (1946), which would become an influential text on business management.

Mr. Drucker: Did anyone in America know what a Post Capitalist Society was by definition?

Peter Drucker: “Only a few short decades ago, everybody knew that a post capitalist society would surely be a Marxist one. Now we all know that a Marxist society is the one thing the next society is not going to be. But most of us also know or at least sense that developed countries are moving out of anything that could be called capitalism.”

“The market will surely remain the effective integrator of economic activity. But as a society, the developed countries have also already moved into post-capitalism. It is fast becoming a society of new classes, with a new central resource at its core.”

Drucker: “Capitalist society was dominated by two social classes: the capitalists, who owned and controlled the means of production, and the workers-Karl Marx's proletarians, alienated, exploited, and dependent. The proletarians first became the affluent middle class as a result of the Productivity Revolution-the revolution that began at the very time of Marx's death in 1883, and reached its climax in every developed country shortly after World War II."

“Around 1950, the industrial worker-no longer a proletarian but still labor-seemed to dominate politics and society in every developed country.”

“But then, with the onset of the Management Revolution, the blue-collar workers in manufacturing industry rapidly began to decline both in numbers and, even more noticeably, in power and status.”

Drucker added: “The capitalist probably reached his peak even earlier-by the turn of the century, and surely no later than World War I. Since then, no one has matched in power and visibility the likes of Morgan, Rockefeller, Carnegie, or Ford in the United States; Siemens, Thyssen, Rathenau, Krupp in Germany; Mond, Cunard, Lever, Vickers, Armstrong in Great Britain; de Wendel and Schneider in France; or of the families that owned the great zaibatsu of Japan: Mitsubishi, Mitsui, and Sumitomo.”

Drucker continued: “By World War II they had all been replaced by professional managers the first result of the Management Revolution. There are still a great many rich people around, of course, and they are still prominent in newspaper society pages, they have become celebrities economically, they have almost ceased to matter.”

“Even on the business page all the attention is being paid to hired hands, that is, to managers. And such talk of money as there is about the excessive salaries and bonuses of these hired hands, who themselves own little or nothing.”

“Instead of the old-line capitalist, in developed countries pension funds increasingly control the supply and allocation of money. In the United States, these funds in 1992 owned half of the share capital of the country's large businesses and held almost as much of these companies' fixed debts. The beneficiary owners of the pension funds are, of course, the country's employees. “

“If Socialism is defined, as Marx defined it, as ownership of the means of production by the employees, then the United States has become the most socialist country around-while still remain the most capitalist one as well.”

“Pension funds are run by a new breed of capitalists: the faceless, anonymous, salaried employees, the pension funds' investment analysts and portfolio managers.”

Drucker concluded: “But equally important: the real, controlling resource and the absolutely decisive factor of production is now neither capital nor land nor labor. It is knowledge. Instead of capitalists and proletarians, the classes of the post-capitalist society are knowledge workers and service workers.”

Mr. Drucker; in a Post-Capitalist economic society, what is the role of paper money?

Peter Drucker; "Money knows no fatherland" is a very old saying. But the nation state was invented in large part to disprove it. Control over money was at the very center of what came to be called "sovereignty." But money has slipped the leash; it has gone transnational. It cannot be controlled any longer by national states, not even by their acting together.”

“No central bank any longer controls money flows. It can try to influence them by raising or lowering interest rates. But in the flow of money, political factors are increasingly as important as interest rates. The amount of money beyond the control of any one central bank, that is, the amount of money traded every day on the transnational markets, the New York foreign exchange market or the London interbank market, so greatly exceeds anything needed to finance national and international transactions that the flows escape any attempt to control or limit them, let alone manage them.”

Two questions for America;

1    What is the true worth of the American dollar in the Post Capitalist Society?

2         What is the true role of the US Federal Reserve Banking System in the Post Capitalist Society?

Mr. Martin Chekel, a noted international businessman and author of the thought provoking “Managing America” six book series and the retrospective eight book series “The Diary of American Foreign Policy 1938 – 1945” that laid the foundation for US foreign policy the past seventy-four years.

Totalitarianism as a Social issue in America Today

The most fundamental feature of totalitarianism in America today is the attempt to substitute non-economic satisfactions of rewards as the basis for the rank, function, and position of the individual in industrial society as economic policies. These satisfactions have in themselves no economic value at all, but they are powerful symbols of social position.

The non-economic financial society constitutes a social miracle, which makes possible and sensible for the maintenance of the economic system, and therefore an economically unequal capitalist system of industrial production is being replaced.

Has it become impossible to continue the capitalist system of production as an economic society?

If it was equally impossible to replace it by something else?

Is the answer a capitalist recovery or socialist revolution?

IS TOTALITARIAISM AS A NON-ECONOMIC SOCIETY THE ANSWER?

As history has told us, Mussolini did not find himself confronted with this problem until 1934, although there had been a "totalitarian" faction in his party ever since 1925.

However in 1934, Italy, like Germany, had to find a social formula which maintains the forms and production methods of industrial society while eliminating the economic basis.

It becomes clear, in the first place, to ask the question; which social class put fascism into power in Italy and Germany?

No single class can have put fascism into power. But a few ruthless industrialists backed Hitler and Mussolini is as near to the truth as that the masses backed them.

Both were necessarily supported by a minority of all classes.

Mussolini had more capitalist support than Hitler; yet for many years he had to fight the most powerful combination of Italian capitalists, headed by Toeplitz of the dominant Banca Commerciale and comprising the large industrial corporations affiliated with that bank.

Hitler did have the great majority of industrialists and bankers against him until late in 1932, when his success as Chancellor seemed practically assured then onward it became a matter of prudence to contribute to his funds by individually powerful industrialists like Thyssen or Kirdorf, in the same way in which industry had contributed to Socialist funds in the early twenties without ever supporting the Socialists.

The majority of industrialists opposed Nazism, but the really decisive backing came from sections of the lower middle classes, the farmers, and the working class, who were hardest hit by the demonic economic nature of business and by the irrationality of society.

Secondly, is the question whether totalitarianism is a capitalist or socialist society.

It is, of course, neither.

Totalitarianism seeks a society beyond socialism and capitalism that is not based upon economic considerations.

Its only economic interest is to keep the machinery of industrial production in good working order. At whose expense and benefit comes from subsidies, new investments, and depreciation.

Totalitarianism may be beneficial even if the economic losses arising from the higher costs and the inferior quality of industrial products outweighs the savings in imports in terms of money.

But it might also be permanent, in which case the import problem becomes economically insoluble. Even if the failure of substitute industries to become economically beneficial is only temporary, the disturbance created thereby is a very serious matter.

This holds true of any managed consumption economy in a country that does not start practically self-sufficient, as Russia did.

It applies doubly to America that concentrates on armaments as capital goods investments. Armaments since World War II has always been a subsidiary question; for economic consequences are entirely incidental to the main social task.

Totalitarianism is a social revolution but not socialist; it maintains the industrial system but it not as capitalist.

Capitalism as an American society ended in the 1900’s, this was followed by the production society, followed by the management society and now America is in the knowledge society.

The comparison of the body politic to a human body always served to stress the equal economic function and equal economic importance of the various classes in order to justify an existing noneconomic social inequality.

The question is which one will survive in America?

Mr. Martin Chekel, a noted international businessman and author of the thought provoking “Managing America” six book series and the retrospective eight book series “The Diary of American Foreign Policy 1938 – 1945” that laid the foundation for US foreign policy the past seventy-four years.