Two Varieties of Monetarism: the Roots of Robert Mundell's Phony

The chapter below is excerpted with permission of the authors from “Financial Oligarchy against the Nation-State: The Case of the Long-Term Investors Club” (chapter 5), an unpublished dossier written by Rachel and Allen Douglas, April 2013.

Two Varieties of Monetarism: the Roots of Robert Mundell’s Phony “Reinventing Bretton Woods” Keynesianism and the Vienna School are the two main modern branches of monetarism. The latter gave rise to late 20th-century neoliberalism. Although representatives of the LTIC project and its sponsors often identify themselves as non- monetarist — as being oriented toward the real economy, better than the “Anglo- Saxon” model of financial speculation, and so forth — it is important to be able to recognize when a given economic policy is based on monetarism, the identification of value with money, no matter which of these two schools’ doctrines it may emphasize. In reality, there is a genuine continental European economic policy tradition that is non-monetarist: it is the National Economy school of Friedrich List, which was an extension of the American System of Political Economy of Hamilton, the Careys, and President Abraham Lincoln. But the LTIC and its sponsors from the financial world, with the hordes of Austrian- and British-school mathematical economists they employ, do not represent that tradition. A cursory look at the Austrian School will show whence the likes of Giuliano Amato, former Italian prime minister and European Union architect, and Robert Mundell, the inventor of the euro currency who is tied to the ancient, Venice-allied Monte dei Paschi Bank, derive their “back to the Middle Ages” ideology.1

1 From Chapter 1a,“The LTIC, a Post-2007 ‘Delphic’ Global Project: Profile”: The LTIC’s identity as a movement for a postindustrial, imperial “new Middle Ages” is openly expressed by another major EU architect who is now lobbying for the LTIC and co-chaired its second conference (Rome, June 2010): former Italian Prime Minister Giuliano Amato, head of the 2006-07 Amato Group, officially the Action Committee for European Democracy, which rewrote what became the EU Treaty of Lisbon, after French and Dutch voters had rejected a European Constitution. In a 13 July 2000 interview in La Stampa newspaper, Amato proclaimed the end of the sovereign nation-state: “I prefer to go slowly, to crumble little by little pieces of sovereignty, avoiding sudden shifts from national to federal powers. … And why not go back to the period before Hobbes? The Middle Ages had a much richer humanity, and a diversity of identity which today can be a model. The Middle Ages is beautiful; it can have its policy-making centers, without relying entirely on anyone. It is beyond the bounds of the nation-state. Today, as then, nomads are re- appearing in our societies. Today also, we have powers without territories. Without sovereign- ties, we will not have totalitarianism. Democracy does not need a sovereign.” Amato was lying. There will be a “sovereign”, of course, but it will be that of an empire, as Mundell’s disciple Alberto Giovannini explained to the Italian daily Il Sole 24 Ore on 10 February 2010: “History teaches us that empires always achieve greater efficiency and prosperity; with its ex- tensive geography, the imperial model is more successful.”

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Two Immiscible Varieties of Money “[I]t is important to emphasize that ‘monetarism’ and ‘money’ are not necessarily the same matter. The difference between the use of money by what is called a ‘monetarist system,’ and the use of what may appear, superficially, to be the same notion of money under a credit system, lies in the specifically ontological distinction of a credit system from a monetarist system. The difference is nearly the same as that between a U.S. dollar in a commercial banking system under the U.S. Constitution’s provisions, such as the provisions for a U.S. dollar circulating within a credit system, and a con- trary practice expressed by the morally corrupt misuse of a U.S. dollar when circulating through the intrinsically speculative channels of Wall Street or the London financial markets. Only the kind of fixed-exchange-rate system prescribed by President Franklin Roosevelt, could solve the relevant difficulties. “In the one case, the U.S. dollar serving as an integral feature of a physical economy, the value of the dollar is attributed to its physical value as a factor of net physical growth of the physical economy, measured both per capita and per square kilometer of territory. This means the increase of both the effective capital-intensity and the per capita output of the national economy. In the other case, that of the monetarist disor- der, the value of the currency is located in the increase of the holding of the currency used as a charge against the actual wealth of the society. The massive fraud of the 2008-2011 ‘bail out’ of the U.S. economy, is to be considered as merely the natural outcome of a monetarist system which has passed over from a practice of ordinary outright robbery of the nation by monetarist hoaxes, into a form of essentially malig- nantly cancerous (e.g., hyper-inflationary) growth of intrinsically worthless (physi- cally) monetarist debt, as under Presidents George W. Bush and Barack Obama since that interval to date.” – Lyndon H. LaRouche, Jr., “A New Peace of Westphalia: Up From the Ruins Which the Roman Empires Have Made of this World” EIR, April 2, 2011

What we’re looking at in the case of the LTIC and its sponsors is the question of banking, of banks controlling massive flows of money. This brings us, also, to the question of the doctrine of money. We need to consider who systematically took down the post-war Bretton Woods system, and how they did it, beginning the day after Roosevelt died. This came directly out of the old Venetian tradition, via the “Aus- trian School” of economists of the Austro-Hungarian Hapsburg Empire, in later col- laboration with the British, particularly at the London School of Economics (LSE), from the late 1920s on. By way of background, LaRouche has often said of this monetarist tradition, “Venice is still a factor,” for there is a “financial oligarchy typified by Venice, still, to the present day.”2 This is true with regard to the age-old practice of “switching the money systems,” as the Venetians did to run things from about 1000 A.D. onward.

2 Lyndon H. LaRouche, Jr., “The Issue Is Globalization,” EIR, Feb. 16, 2007; “The Folly of Chronic Wars,” EIR, July 30, 2010. – 3 –

They caused the New Dark Age by switching the money systems — between gold and silver, starting in about 1000 A.D., with the Crusades.3 Jump centuries ahead, to President Abraham Lincoln’s revolution during the U.S. Civil War. LaRouche recently noted that this was more sweeping than even what Roosevelt did: what it unleashed in the United States and worldwide — including of course, in Germany, in particular, as the foremost direct exponent of the American System, under Bismarck. By issuing greenbacks to enable the Union to win the Civil War, Lincoln broke with the policies of British agents President Andrew Jackson (in office, 1829- 37) and his controller and successor, President Martin van Buren (1837-41). Those two had taken down the Second National Bank of the United States, thus wrecking the U.S. economy and causing the Panic of 1837 and the rise of the British-backed slave plantation system in the South. That slave system only flourished because the previous process of national bank-financed industrialization of the nation as a whole had been choked off, preventing it from becoming what it could and should have been, as Lincoln’s economic adviser Henry Carey demonstrated.4 Subsequently, Wall Street had refused to lend to Lincoln so that he could prosecute the war against the Confederacy, which was receiving massive aid from the British. Lincoln’s top advisers — Henry Carey, Stephen Colwell, and others — who developed and gave him the greenback policy, were the central figures in the “Phila- delphia group,” the direct inheritors of Hamiltonian credit-expansion ideas. Masters of credit-expansion, they organized the greenbacks, and later organized the 1876 Philadelphia Centennial Exhibition. People came to Philadelphia from all over the world and were amazed to see things like stamping presses that were two stories high. There were miles and miles of exhibits of heavy machinery, machinery much more advanced than anything the British had at the time. Thoughtful foreign leaders who attended this event naturally met with the Philadelphia group that had organized the exhibition. And this group had a name: the Union League. During the early phase of the Civil War, high society in Philadelphia had been mostly pro-Confederacy, and pro-British. This was the Barings combine, tied to the British East India Company, and the Drexel family, and so forth. A group of patriots around Carey and Colwell got together as a counterweight to high society. And they founded the Union League.5

3 See chapter 4a of this report. 4 Despite the Jackson/Van Buren destruction of the Second National Bank, Europeans visiting the young United States expecting to find a largely agricultural nation, were stunned “to find a land where ‘manufactories simply spring out of the ground, and where ‘steam was the national element’ by which men ‘annihilated space and time’. … The period between the War of 1812 and the Civil War was one of rapid expansion, economically as well as geographically. During these years the population more than trebled, reaching 31 million people by 1860. But in this same period the value of manufactured products increased eightfold and their volume twelve-fold.” Marvin Fisher, Workshops in the Wilder- ness. The European Response to American Industrialization, 1830-1860 (New York: Oxford Universi- ty Press, 1967), p. 4-5. 5 The Union League of Philadelphia Celebrates 125 Years. 1862-1987. Devon, Pa.: William T. Cooke Publishing Inc., 1987). – 4 –

Stephen Colwell, staunch advocate of a credit system, was the first to sign up, out of some 100 of these leading industrialists. He became the first president of the Union League. Lincoln’s main adviser, Henry Carey, was a member. So was Jay Cooke, who was headquartered in Philadelphia and, between January and July of 1865, had sold $853 million in U.S. bonds to finance the Union in the Civil War. Cooke had sometimes moved $10 million in bonds in a day, an astounding figure for that era. It was with these men that the discussions on credit expansion took place at the Centennial. That exhibition and all of the discussions in and around it set off shock waves worldwide, including in Germany. Otto von Bismarck, in his stunning mid-1879 address to the Parliament, said that Germany was going to change its policies radically and go with protectionism, massive industrialization, and the American System. His advisor was Wilhelm von Kardorff.6 This policy of credit expansion, such as was happening in Germany, in the United States, and in other places, came under attack from two places.

Alfred Marshall: the Anti-American System Origins of Keynesianism One was London, or Cambridge in particular. Alfred Marshall is known as the founder of the Cambridge school of political economy, and was the mentor of both John Maynard Keynes and Keynes’s father before him. Marshall had visited the Unit- ed States already in 1875, spending much of his time in Philadelphia. He boasted that after his Philadelphia discussions, no one knew as much about the American System of Economy as he did.7 Nobody knew better, that the source of American power was the policies of protectionism and American System credit expansion. Marshall set out to design a system to deal with the strategic threat posed by greenbacks. Marshall started the modern British doctrine of “money.” He asked: how do you measure “utility” — a notion originally cooked up by Venetian economists, and then copied by British East India Company official Jeremy Bentham (also the founder of the modern British Secret Intelligence Service, in the early 1780s). Following the Venetians, Bentham taught that man was merely an animal, motivated by the pursuit of pleasure and the avoidance of pain. His disciple John Stuart Mill, the head of the

6 “The American Roots of Germany’s Industrial Revolution”, Helga Zepp-LaRouche, EIR, September 12, 2008. 7 John Maynard Keynes, Essays in Biography (New York: W.W. Norton & Company, Inc., 1951), p. 143-44. In a chapter titled “Alfred Marshall. 1842-1924,” Keynes reports: “In 1875, Marshall visited the United States for four months. He toured the whole of the East, and traveled as far away as San Francisco. At Harvard and Yale he had long talks with the academic economists, and he had many introductions everywhere to leading citizens. But his chief purpose was the ‘study of the Problem of Protection in a New Country.’ About this he inquired on all hands, and towards the end of his trip was able to write a letter home: ‘In Phil- adelphia I spent many hours in conversation with the leading protectionists. And now I think, as soon as I have read some books they have recommended me to read, I shall really know the whole of their case; and I do not believe there is or ever has been another Englishman who could say the same.’” – 5 –

BEIC’s private, world-spanning intelligence service, elaborated this “utilitarianism” doctrine of Bentham.8 Then Marshall, in 1891, wrote the book Principles of Econo- my, which was entirely about “money.” It is the Bible of British economics, to this day. Marshall’s treatise was an update of Mill’s doctrine of utility. Marshall said that he approved of “utility” as a concept, but that one had to be able to measure it. And it was to be measured by money.9 Marshall’s refrain is “Money … money … money”! His was a doctrine of money and currency, explicitly opposed to Lincoln’s greenback approach. He proclaimed that “the reckless inflation of credit” was the source of all troubles. Instead of the greenback system, Marshall proposed that America adopt what he called “symmetalism,” a combined use of gold and silver as the sole basis for money.10 Marshall financed Keynes, and launched his career. He personally paid for Keynes to get a teaching post. Keynes’s father had been Marshall’s protégé, and then John Maynard Keynes was, as well. These were the top economics wizards at Cam- bridge, the elite brain trust of the British Empire. Keynes, like his father, started academic life in formal logic, as a student of Bertrand Russell. Russell called the younger Keynes’s 1920 book, A Treatise on Probability, one of the most important books ever written. That took place in Britain. Speaking in terms of the famous Venetian political factions of 1582, this British school represents the Nuovi side (see next section): Cambridge University, its Trinity College, and the Cambridge Apostles.11

The Austrian School Now, switch to the European continent. In Austria, at around the same time as Marshall was just beginning his career in Britain, Carl Menger (1840-1921) was founding the so-called Austrian School of economics. In reality, it is not so much

8 These notions of Bentham and Mill should be compared with Pope Francis’s observation on utilitarianism in his encyclical Lumen Fidei (The Light of Faith), section 51: “Without a love which is trust- worthy, nothing could truly keep men and women united. Human unity would be conceivable only on the basis of utility, on a calculus of conflicting interests or on fear, but not on the goodness of living together, not on the joy which the mere presence of others can give.” 9 Wesley C. Mitchell, The Backward Art of Spending Money and Other Essays (New York: McGraw- Hill, 1937), quotes Marshall: “Money is the center around which economic science clusters … it is the one convenient means of measuring human motive on a large scale. … If we then wish to compare even physical gratifications, we must do it not directly, but indirectly by the incentives which they af- ford to action. … This force of a person’s motives — not the motives themselves — can be approxi- mately measured by the sum of money which he will give up in order to secure a desired satisfac- tion…” 10 By this time, Lincoln’s economic development revolution, and the greenback policy that had pow- ered it, had been seriously undermined by the passage (1875) and implementation (1879) of the Specie Resumption Act, which tied U.S. monetary policy back to a British-style, anti-credit gold standard. Marshall’s “symmetalism” intersected ongoing battles within the United States itself over various monetarist schemes (“bimetallism,” the “free silver” movement) vs. the credit policies of the American System. Robert Ingraham, “The Specie Resumption Fight: Henry Carey’s Battle to Save Lincoln’s Economic Revolution,” EIR, Dec. 6, 2002, provides an overview of these political disputes. 11 Craig Isherwood, “Universal Principles vs. Sense Certainty,” The New Citizen, Oct./Nov. 2011, p. 12, sections “The Oligarchical Roots of Cambridge” and “Elites for the Empire.” – 6 –

“Austrian,” as it is Venetian. After all, the Venetians had sponsored the Hapsburgs as early as in the 11th century. Following the rise of nation-states as a result of the 15th- century Golden Renaissance and the discovery of the New World by Christopher Co- lumbus in 1492, Venice experienced a grave challenge to its control over world trade and finance. Indeed, Venice was so hated for its usurious looting, that it came within a whisker of being wiped out militarily in the early 16th century by the League of Cambrai, an alliance of most of the major powers of Europe plus the Papacy. Over the following decades, a debate emerged within the Venetian oligarchy over how to respond to these strategic challenges. This resulted, in 1582, in the most dramatic faction fight in Venice’s long history, the split between what became known as the Nuovi, and the Vecchi, meaning the new houses and the old houses of Venice, respectively. The Nuovi moved to colonize Amsterdam and London — the Protestant maritime powers; indeed, they built them up in the first place, and founded their re- spective central banks and East India Companies. The Nuovi were the wave of the future, so to speak, but the Vecchi did not disappear. They continued to exist, espe- cially within the Habsburg Empire, and they kept their hooks into the Vatican as well, through the so-called “black nobility” of Italy and the Austro-Hungarian Empire. For centuries, the main financiers of the Habsburg Empire were the Rothschild family, who moved to Britain only after the 1812-1815 Congress of Vienna, which was over- seen by the Venetian nobleman Giovanni Capodistria. The Congress of Vienna em- bodied a deal between the rising maritime power of the British Empire (the Nuovi) and the declining, land-based Austro-Hungarian Empire, the Vecchi. The Austrian Carl Menger wrote a book in 1871 called Principles of Econom- ics. It was aimed against the American experience of using of government-issued currency to finance industry, agriculture and infrastructure, Menger was so beloved by the Habsburg Emperor, that he was appointed tutor to the Crown Prince for three years, during which time he traveled around Europe as the Prince’s guide. In 1883 he wrote a book that was even more clearly a response to the Philadelphia Hamiltonian circle, and to Bismarck. It is a book on economics, but is titled Investigations on Method. In it, Menger directly or indirectly attacked List, Carey, Bismarck, von Kardorff, and so forth. One citation from that book gives the essence of his argument: “The world consists only of our sensations,” of sense-certainty. That is, man is just another animal. The Habsburgs created a special chair of political economy for Menger at the University of Vienna. He wrote other books in the same vein, endorsing the “utility” approach, since that’s the Venetian school of “pleasure/pain.” But, just as Marshall was to do in England, he wanted to turn the utility concept into money. These Austri- an economists, although one might tend to think of them as crankish minor noblemen, are of Venetian provenance, and are sophisticated, in their own evil way. Menger wrote his 1888 Theory of Capital, and in 1892 a book called Money, which was cred- ited with revolutionizing the theory of money. He came up with the “subjective theory of value,” according to which money is the expression of subjective values from a utilitarian standpoint. – 7 –

Menger’s 1883 book founded the Austrian School. Who are the members of the Austrian School? Menger himself, Ludwig von Mises, and later Friedrich von Hayek were. Also influential were Joseph Schumpeter (he was trained under von Mises at the University of Vienna), with his theory of “creative destruction,” and Fritz Machlup, who became crucial in the United States. These people all surfaced later, during the post-World War II Marshall Plan. The key figures of this Austrian School of economics, or their immediate dis- ciples, led the fight to take down the Bretton Woods system, a process that culminat- ed in the 1971 U.S. decision to end fixed exchange rates.12 The senior Austrian School figures were mentors to, among others, two key post-war economic policy- makers: Arthur Burns, chairman of the U.S. Federal Reserve System in 1970-78, and top U.S. Establishment figure George Shultz, who as Director of the Office of Man- agement and Budget and Secretary of the Treasury in the early 1970s Nixon Admin- istrations, played a key role in the decision to end Bretton Woods. Following Menger, two of the principal figures of this school were Eugen von Böhm-Bawerk (1851-1914) and, as noted, Ludwig von Mises (1881-1973). Von Böhm-Bawerk, as Austrian minister of finance in the 1890s, was famous for his ha- tred of infrastructure. He wrote a 1200-page, multi-volume work called Capital and Interest: again, the theme was money, money, and, again, money. His student von Mises taught at the University of Vienna for 20 years, 1913-1934. In the 1920s von Mises set up the Austrian Institute for Business Cycles Research. Out of this Vene-

12 Two graphs illustrate the aftermath of the 1971 decisions. Whereas prior to 1971 over 70 percent of all foreign exchange transactions (exchange of one currency for another) were associated with move- ments of physical goods, after 1971 the exchange of currency and financial instruments for purely speculative purposes came to dominate worldwide (EIR, January 1, 1996).

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tian-Austrian school, not out of Britain, came the notion of business cycles as a peri- odic, long-wave process. In various formulations, their argument is basically this: credit-extension — they use the term, “the extension of credit” — when it’s over- done, leads to a certain point in the economy where there’s too much capital invested, and if credit is extended any further, then that causes business cycles and crises. From the outset, their argument was against credit expansion. They said that credit expansion causes overinvestment, and that causes a slowing down of the economy, and hence business cycles. They claimed that what had to be done, when an “evaluation” was made that the full investment potential of existing capital had been reached, was to raise the interest rates and rein in credit expansion; otherwise, there would be a business-cycle downturn. It is somewhat analogous to Marx’s “overpro- duction.” Von Mises taught at New York University in 1945-1969. He wrote a book in 1927 called Liberalism, in which he said that fascism had saved civilization and de- served eternal honor for doing so, but that it could be only a temporary solution. The reason for this was that fascism makes use of the state, and nationalism leads to industry, if only for a war buildup, whereas these financier spokesmen had a typical Venetian perspective of going back to the Middle Ages. After all, even national fascism leads to industry! (Italy’s post-war industrial structure had largely been developed by the fascists during the 1920s and 1930s.) But when you scratch the Austrian School people, most of them say, like von Hayek, that the Middle Ages, with small, peasant-type artels and such, is the ideal kind of society. These are the Vecchi, the hard-core black nobility, the Central European Habsburg fascists. Membership in the Pan-European Union of Count Richard Coudenhove-Kalergi in the mid-20th Century overlapped that of the Vienna Schools’ Mont Pelerin Society. Max von Thurn, the secretary of the MPS from its founding in 1947 on, claimed descent from an old Ve- netian-tied family in northern Italy, which had moved to Bavaria centuries earlier and had become the postmasters-cum-intelligence service of the Austro-Hungarian Em- pire.13 Von Mises had several direct students. Friedrich von Hayek, who founded the Mont Pelerin Society with him, was one. Joseph Schumpeter, the proponent of “creative destruction”, who studied under von Mises in a private, bi-weekly seminar for his prize students, was another, as were Oskar Morgenstern, of Morgenstern and von

13 Reflecting its Satanic “free market” ideology, the Mont Pelerin Society has long called for the legal- ization of drugs, prostitution and other criminal behavior. Max von Turn, in a paper titled “The Under- ground Economy,” prepared for a September 6-12, 1980 meeting of the Mont Pelerin Society in Stan- ford, California, promoted such activity as an excellent driver for an economy. The principle has been formally adopted as a requirement for EU member countries, effective in September 2014: members will be required to include the proceeds of drug sales — whether legal in a given country or not — in GDP. The European System of Accounts regulations, adopted in 2010 and going into effect in 2014, state that “illegal economic actions shall be considered as transactions when all units involved enter the actions by mutual agreement. Thus, purchases, sales, or barters of illegal drugs or stolen property are transactions [for purposes of GDP reporting], while theft is not.” – 9 –

Neumann fame,14 and Fritz Machlup, who became crucial in taking down Bretton Woods and getting rid of fixed exchange rates. These professors trained some Americans. One of the most important of them was Wesley Clare Mitchell, who twice went to Vienna to study: in 1897, and again in 1912, when he was in von Mises’s class with the Bolshevik Nikolai Bukharin, future leader of the Right Opposition. Bukharin was there to study business cycles. As La- Rouche has said, Bukharin was nothing but a Habsburg agent in the Bolshevik Par- ty.15 The Americans involved in taking down Bretton Woods — Paul Volcker, Shultz, Robert Roosa, Robert Triffin (he was Belgian, but was in the USA for a long time) — all come out of this Viennese school. Wesley Clare Mitchell, after studying in Vienna, wrote his doctoral dissertation on greenbacks. His PhD dissertation at the University of Chicago, which is an outpost of this group, came out as a book titled A History of the Greenbacks. His second book was Gold Prices and Wages under the Greenback Standard. In these and other writings, Mitchell attacked the greenbacks.16 Then his 1913 magnum opus was called Business Cycles. That same year, under the supervision of Paul Warburg, Mitchell helped to draft the act to establish the U.S. Federal Reserve System.17 In 1923, the titans of Wall Street, led by Kuhn Loeb, War-

14 Von Neumann and Morgenstern published their famous Theory of Games and Economic Behavior in 1944, with Morgenstern providing the “economics” that von Neumann recast in mathematical form. This work laid the foundation for the postwar hoax of “mathematical economics,” which is still domi- nant today, and which leaves the creative processes of the human soul out the picture in favor of a mere series of simultaneous linear equations. It has been demolished by Lyndon LaRouche’s founding of the science of physical economy upon the principles of increase in relative potential population density and the continual rising energy flux density of healthy economic processes. Among LaRouche’s works refuting the von Neumann/Morgenstern insanity, see “Information Society: A Doomed Empire of Evil,” EIR, April 28, 2000; “Science is Not Statistics,” 1997; and “The Pagan Worship of Isaac Newton,” EIR, Nov. 21, 2003. 15 While its doctrines became increasingly influential in the “capitalist” world after World War II, the Austrian School also built a following, besides Bukharin, among dissident economists in the Soviet Union. The so-called “young reformers” who orchestrated Russia’s disastrous privatization and dereg- ulation policies in the 1990s were von Hayek enthusiasts. Earlier, the Austrian school claimed the Rus- sian economist and statistician Nikolai Kondratyev (Nicholas Kondratieff) (1892-1938) as their own, equating his theories to those of Schumpeter. The Institute for Business Cycle Research, a Vienna School institution, published the first English translation of Kondratyev’s 1924 work on economic “long waves,” in a 1936 volume titled Problems of Economic Fluctuations. 16 Wesley Clare Mitchell, “Greenbacks and the Cost of the Civil War,” Journal of Political Economy, Vol. 5, No. 2 (March 1897), p. 119, is exemplary. Here Mitchell decried “the effects of the issue of inconvertible paper money in disarranging the industrial organization of the country, in stimulating a spirit of reckless speculation, in breeding habits of extravagance in the people, in lowering the tone of business morality, in lessening the real wages of labor…” 17 Mitchell was also a eugenicist and a follower of Bentham. He wrote a favorable of review of British eugenics leader A. M. Carr Saunders’s 1922 book, The Population Problem, A Study in Human Evolu- tion (Birth Control Review, February 1923, p. 48). In his essay “Bentham’s Felicific Calculus” (Politi- cal Science Quarterly, Vol. 33, No. 2, June 1918, pp. 161-183), Mitchell wrote: “What did distinguish Bentham from other utilitarians, what made him the leader of a school, what keeps his work instructive to this day, was his effort to introduce exact method into all discussions of utility. He sought to make legislation, economics, ethics into genuine sciences. His contemporaries were content to talk about utility at large; Bentham insisted upon measuring particular utilities — or – 10 –

burg and Lazard, financed Mitchell to set up the National Bureau of Economic Re- search, as basically an American arm of the Austrian Institute for the Study of Busi- ness Cycles. To date, the NBER is the biggest, most authoritative economic research institution in the United States. One of Wesley Clare Mitchell’s first recruits, one who would remain associated with him for decades, was Arthur Burns. Burns was the head of economic research at this outpost of the Vienna School, for that’s all the NBER ever was, in 1943-1953. After that he became head of the U.S. President’s Council of Economic Advisors. Then, in the 1970s, he chaired the Federal Reserve, just before Volcker. As chairman of the Council of Economic Advisers, Burns argued that the purpose of the American economy was mainly to produce consumer goods. That argument was an attack on FDR’s plans to use the industrial might of the United States to unleash industrialization worldwide, and so to end British colonialism forever.18 The Marshall Plan contributed greatly to the destruction of Bretton Woods, which was one of the intentions behind it. In 1947, the United States had been exporting about $6.7 billion largely in capital goods, machinery, to Europe. The Marshall Plan, put together in 1948-49, called for reducing that to $2.3 billion by 1952-53. That is why there was the massive cutback, the “winter of turnips” in Germany, and so forth. What did that do? The entire, massive industrial machinery that Roosevelt had constructed, to change the world, was constricted. It was directed into the mili- tary, of course, but it was also reoriented into consumer goods production, with the intention of cutting back the “machine-tool principle” that drives any healthy econo-

rather, the net pleasures on which utilities rest. … Bentham’s way of becoming the Newton of the moral world was to develop the ‘felicific calculus.’ There are several expositions of this calculus in his Works; but the first and most famous version remains the best to quote. “‘Nature has placed mankind under the governance of two sovereign masters, pain and pleasure. It is for them alone to point out what we ought to do, as well as to determine what we shall do. On the one hand the standard of right and wrong, on the other the chain of causes and effects, are fastened to their throne.’” 18 Even as World War II raged, Roosevelt clashed repeatedly with the British arch-imperialist Winston Churchill over the shape of the postwar world. FDR’s son and aide Elliot, in his book As He Saw It (New York: Duell, Sloan and Pearce, 1946), recorded one such clash already during negotiations at the naval base of Argentia in Newfoundland in March 1941, over the principles of FDR’s proposed post- war Atlantic Charter. “‘You see,’ said Father slowly, ‘it is along in here somewhere that there is likely to be some disagreement between you, Winston, and me. I am firmly of the belief that if we are to arrive at a stable peace it must involve the development of backward countries. Backward peoples. How can this be done? It can’t be done, obviously, by eighteenth-century methods. Now—’” Churchill interjected, “Who’s talking eighteenth-century methods?” Roosevelt replied: “‘Whichever of your ministers recommends a policy which takes wealth in raw materials out of a colonial country, but which returns nothing to the people of that country in consideration. Twentieth-century methods involve bringing industry to these colonies. Twentieth-century methods include increasing the wealth of a people by increasing their standard of living, by educating them, by bringing them sanitation—by making sure that they get a return for the raw wealth of their community.’” – 11 –

my.19 This was done by Arthur Burns, the prize pupil of Wesley Clare Mitchell at the NBER. Volcker was trained by them. As soon as FDR died, the perspective of this group was to reorder the world economy, bring the United States down, and consolidate Europe under British imperial control as the seed crystal of a new world order, for purposes including confronta- tion with Russia, the Soviet Union. How? That’s where the Marshall Plan was crucial. Whereas the United States had been exporting to Europe, as noted above, a stated purpose of the Marshall Plan was to cut those exports back — in marked contrast to FDR’s vision of rebuilding the post-war world and to the Plan’s own later reputation as a vehicle for reconstruction.20 The Soviet Union’s recovery from the war was re- tarded, because the USSR was almost forcibly ejected from the Marshall Plan’s founding conferences and struck from the list of recipients of even the relatively lim- ited U.S. aid flowing to Europe under the Plan. At the same time, the United States itself was weakened, compared with how it could have developed. Burns announced that the main purpose of the U.S. economy was to produce consumer goods. This is where LaRouche came on the scene, with his first forecasts in the 1950s: he analyzed the huge amount of consumer credit being issued for white goods and automobiles. The USA should have been producing capital goods for Eu- rope, the Soviet Union, and the rest of the world, as FDR had planned. Thus, the Marshall Plan strictures started the process of ruining the dollar, because, as Germany and Japan got back on their feet, using directed credit, they started pouring cheap consumer goods into the USA. Throughout the 1950s, there was a rising dollar deficit. By about 1960, the amount of dollars abroad — and Sir Sigmund Warburg, of the old del Banco family of Venice, founded the eurodollar market — was about one for one, or a little bit less, with the volume of U.S. dollars circulating domestically. In the 1950s, this Vienna School crowd began to argue that it was nec- essary to institute floating exchange rates because maintaining the value of the dollar was becoming untenable. One other key economist who studied under von Mises, and wrote his thesis on the gold bullion standard, was Fritz Machlup. His role was crucial. He founded the Bellagio Conference in 1963.21 He, Robert Triffin, and other Marshall Plan figures began to argue for unpeg- ging the dollar from gold. “Triffin’s Dilemma” said that the rest of the world needed dollars for liquidity, or else their economies wouldn’t function, but if the USA kept pouring out dollars, then the dollar would be seen as overvalued, and would have to be unpegged from gold. (The LTIC people, once again today, are bringing up “Trif- fin’s Dilemma.”) Triffin was co-convener of the Bellagio Conference, with Machlup.

19 Paul Gallagher, “The Machine-Tool Principle: Revive LaRouche’s Economic Recovery Act,” EIR, September 12, 2008. An economy that downgrades its machine-tool sector becomes incapable of providing sustained improvements in household consumption and the standard of living, as well. 20 Allen Douglas, “The British Empire’s European Union”, 2008. 21 Carol M. Connell, “Fritz Machlup and the Bellagio Group: Strategy and Organization of an Early NGO,” PSL Quarterly Review, Vol. 64, No. 257 (2011), pp. 143-66. Though written from a monetarist standpoint this article provides a basic account of Machlup’s role in ending the Bretton Woods system. – 12 –

In 1963, Machlup, this Austrian immigrant, pulled together 32 top central bankers, advisers to governments, around an agenda of ending fixed exchange rates. Even among central bankers, there was a lot of opposition to such a change. Machlup organized a series of meetings in Bellagio, Italy. The attendees were indoctrinated with Austrian School economics, which, in addition to “marginal utility”, is based on mechanistic equilibrium theory. It was the Second Law of Thermodynamics,22 ap- plied to economics. Machlup even said there should be a “value-free” equilibrium theory, rather than a “politically charged” equilibrium theory that included talk about such things as social welfare. Robert Mundell was a crucial figure in this project, which Triffin co- sponsored. A pupil of von Mises and von Hayek, Triffin was a top figure in the OEEC/OECD.23 They argued for eliminating the dollar’s peg to gold.24 Already by 1960, Mundell invented the hoax of “optimum currency areas” based upon nothing besides mathematical algorithms, as an attack on sovereign nation-states and their powers of credit expansion. Alberto Giovannini’s book on currencies exemplifies how these circles view financial and currency matters.25 The idea of optimum currency areas is that, depending on circumstances, a number of smaller currencies could combine in one OCA, or, in the case of the USA, a country could be cut up into three or four parts to create separate OCAs. It’s all mathematical formulas, and obviously anti-nation state. A key collaborator of Machlup, et al. was Robert Roosa, who was at the Fed in the 1940s and 1950s, and then a partner in Brown Brothers Harriman for 26 years. He was in the middle of the campaign for floating exchange rates. His protégé was Paul Volcker, who, as Undersecretary of the Treasury for international monetary af- fairs, prepared the way for ending the dollar’s peg to gold. These people set out to change the whole system. Their goal was to end fixed exchange rates, in favor of floating exchange rates. They wrecked the U.S. economy, on purpose, with the included idea of establishing a world central bank and a world

22 “The Second Law of Thermodynamics is a Fraud!”, The New Citizen, Oct./Nov. 2011, p. 36-7 (p. 2- 3 of pdf). 23 The Organization for European Economic Cooperation (OEEC) was established in 1948 as the Eu- ropean coordinating body for the Marshall Plan. Staffed by representatives of Anglo-American banking interests, it became a important institution pushing for European economic integration — the future end of sovereignty in the European Union. In 1961, the OEEC was reorganized as the Organization for Economic Co-operation and Development (OECD). 24 The “peg” of the U.S. dollar, as the main reserve currency, to gold under the Bretton Woods agree- ments should not be confused with the traditional British imperial gold standard, with which U.S. Pres- ident Franklin Roosevelt broke in 1933. The latter is intrinsically hostile to the sovereign creation of credit by nations for physical economic development. A gold-reserve standard such as that of the Bret- ton Woods fixed-exchange-rate system (1944–1971), where gold and currency reserves are employed to settle payments imbalances and maintain stability, is efficacious as long as the participating nations remain committed to policies of producing valuable physical assets — useful goods. The gold-reserve system is contrasted to the anti-development British gold standard by Lyndon H. LaRouche, Jr. in So, You Wish to Learn All about Economics?, Chapter 7 “A Chapter Dispensing with Monetary Theory, p. 123-46 (New York: The New Benjamin Franklin House, 1984). 25 Alberto Giovannini, The Debate On Money In Europe (Cambridge, Mass.: The MIT Press, 1995). – 13 –

central government. Such an aim was consistent with discussions since the late-19th- century British Round Table club, and its domination of the 1919 Treaty of Versailles and the League of Nations, in which leading British strategists such as H.G. Wells and Bertrand Russell advocated the need for “one-world government.” In looking at the mechanics and plumbing of how the change away from Bret- ton Woods was made, the question arises: who gave Fritz Machlup, this nonentity of a Viennese academic, the power to found the Bellagio Group? Who gave Von Hayek such extraordinary power? Their power was derived, in a centuries-long process, from Venice via its two wings: the Vecchi of the Austro-Hungarian Empire and the Nuovi of the British Empire. One should not underestimate the power of the Vecchi, even in terms of money alone. Consider the economy of Europe as a whole, compared to Britain with its 60 million people. The EU countries have a total population of over 500 million, or over 440 million without the UK. The EU is the biggest economy in the world, bigger than the USA or Russia. Think about what the continental European oligarchy has accumulated since 1000 A.D., compared even to what the British have built up since 1763, or since 1812-1815. This provides some insight into how a seemingly modest Jewish man from the European continent, Sigmund G. Warburg, could walk into the City of London not long after World War II, and beat the aristocratic titans of The City in the famous takeover of British Aluminium. As his obituary in the Financial Times26 noted, S.G. Warburg/del Banco was a master at pulling together consortia of private fondi,27 which cumulatively wielded enormous power, a process documented in some detail in the famous book Dope, Inc.28 Why was the Rothschilds’ Inter-Alpha Group founded in 1972?29 The purpose was to continue the eurocurrency, eurodollar practices that Sigmund Warburg had set up, which in essence were a return to the old Venetian money system of floating exchange rates! Playing gold and silver against each other. In this case it’s paper currencies, but it’s the same thing. And they are conscious that the continuity is direct! From 1000 to 1700, Venice, in its own name, was the center of the world bullion trade. Then the Venetians moved it to the Bank of Amsterdam, and then, following the Congress of Vienna, to the Bank of England. And the Rothschilds, who moved from being the financiers of the Holy Roman Em- pire (the Habsburgs), to England during the Napoleonic wars, ran the world gold standard. The price of gold was set each morning in their offices. It was the same Ve- netian system. No credit-expansion, because all was based on gold. This history, and the role of people like Mundell in it, is important in connec- tion with the LTIC, because what gave birth to the LTIC was the unified process of the European Commission, the European Union, the OECD. The Marshall Plan had

26 “A post-war giant in the City,” Financial Times, Oct. 20, 1982. 27 Lyndon H. LaRouche, Jr., “On the Subject of God,” Fidelio, Spring 1993, discusses the principle of the centuries-old Venetian oligarchical fondi, meaning “funds” or “foundations.” 28 Dope, Inc. Britain’s Opium War Against the World (4th ed., revised, updated and expanded, Execu- tive Intelligence Review, 2010). First published by LaRouche’s associates in 1978, Dope, Inc. remains the most comprehensive account of the British Empire’s coordination of the world’s drug trade since its establishment by the British East India Company at the end of the 18th century. 29 John Hoefle, “The Inter-Alpha Group. Nation-Killers for Imperial Genocide,” EIR, Sept. 17, 2010. – 14 –

given birth to those institutions; and the point of the Marshall Plan was to cripple the United States and to cartelize Europe, while having a credible logistical base for con- frontation with the Soviets, and to cripple the Soviet economy (which was excluded from Marshall Plan aid). Thus, the LTIC is not a narrow operation. It represents a major, if not the major, perspective of the Venetian and related continental oligarchy for the post-Bretton Woods era. These circles did not merely think, “We’re going to end Bretton Woods and then have a massive Casino Mondiale, and the greatest inflated bubble in the history of the Universe, and everything will blow up.” They had another scheme, too. The people who are organizing for a “New Bretton Woods,” whether at Mo- dena in 200830 or after the old Bretton Woods ended in 1971 — people like Robert Mundell — and who are deeply involved in Russia (portraying themselves as oppo- nents of the United States, enemies of the Fed), are the same ones who took down the original Bretton Woods. Mundell has his Reinventing Bretton Woods Committee: that has been his campaign for the past several decades. He was a chief organizer within the Bellagio Group, for eliminating fixed exchange rates. As soon as that was achieved, within three weeks, in early September 1971, Mundell convened the Siena Group, pivoted on the old Venetian-allied bank, Monte dei Paschi di Siena. The Ital- ian central banker Rinaldo Ossola (also head of the Italian-Soviet Chamber of Com- merce in his day) was a member of the Siena Group; he invented Special Drawing Rights. On the British side, Mundell had the ties to do that, because he was trained under Sir Lionel Robbins at the London School of Economics. In 1931, Robbins had brought von Hayek to the LSE, which became a training ground for the Austrian School, while Cambridge through the Marshall/Keynes clique dominated “neoclassi- cal” economic theory. Von Hayek was made a Companion of Honour by the Queen in 1984, with tears in his eyes proclaiming the occasion to be “the happiest day of my whole life.” This is where Thatcher’s “Our Men” came from — the people who took over Russian economic policy after 1991.31 This was another project of the Vienna School, against credit expansion. Lionel Robbins was a co-founder of the Mont Peler- in Society. The Long-Term Investors Club functions as a countergang. It’s not identical to the neoliberal, British line. One does not hear most British economists talking about “the real economy,” “long-term investment.” This is a continental European, historically Venetian line.

30 Following the Global Financial Crash of 2007-2008, LaRouche’s reputation soared, as did interest in his longstanding proposal for a “New Bretton Woods” reorganization of the bankrupt international monetary system. Among other Delphic “countergang” proposals to derail that influence was the July 7-8 conference in Modena, Italy financed by the Unicredit bank of Italy, a pillar of the financial oligarchy. The better to sell the plan, several of LaRouche’s ex-associates were involved. The conference’s call for a phony New Bretton Woods was published in the Financial Times in August 2008 as the “Modena Declaration”. 31 “London’s ‘Our Men’ in Moscow Keep Poisoning Russian Policy,” Rachel Douglas, EIR, March 26, 2010.