Written by Derryl Hermanutz

Editor’s note: Over 8 years ago Derryl Hermanutz wrote this piece comparing the control of bankers over life and the economy in the modern world with feudalism as practiced by the lords who controlled the land in the pre-industrial age. This is a metaphor that has been used by others (such as Michael Hudson as a notable example, see below).

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Wikipedia has defined feudalism thusly:

Feudalism was a combination of legal and military customs in medieval Europe that flourished between the 9th and 15th centuries. Broadly defined, it was a way of structuring society around relationships derived from the holding of land in exchange for service or labour. Although derived from the Latin word feodum or feudum (fief),[1] then in use, the term feudalism and the system it describes were not conceived of as a formal political system by the people living in the Middle Ages.[2] In its classic definition, by François-Louis Ganshof (1944),[3] feudalism describes a set of reciprocal legal and military obligations among the warrior nobility revolving around the three key concepts of lords, vassals and fiefs.[3]

A broader definition of feudalism, as described by Marc Bloch (1939), includes not only the obligations of the warrior nobility but also those of all three estates of the realm: the nobility, the clergy, and the peasantry bound by manorialism; this is sometimes referred to as a “feudal society”. Since the publication of Elizabeth A. R. Brown‘s “The Tyranny of a Construct” (1974) and Susan Reynolds‘s Fiefs and Vassals (1994), there has been ongoing inconclusive discussion among medieval historians as to whether feudalism is a useful construct for understanding medieval society.[4][5][6][7][8][9]

Michael Hudson drew this analogy in the brief 2018 video below:

Now let’s go the the December 2010 essay by Derryl:

The New Feudalism

Written by Derryl Hermanutz

The author is a student of economic philosophy and frequent commentator on the subject. This essay was originally written as a discussion comment on Dirk J. Bezemer’s recent article “This is Not a Credit Crisis.”

Dr. Bezemer is certainly on the right track by beginning his discussion with an objective observation of the core of the problem, which is unpayable debt. It is astonishing to see the extent to which so many academics, economists, financiers, pundits, financial journalists, bloggers, advocates, government and monetary officials, and ideologues of the various persuasions, apply their versions of “magic arithmetic” to the numbers of money, believing that somehow the economy can pay the banking system MORE money than exists.

The Babylonians recognized that for every credit there is a liability. In our system, where money is created and issued by the commercial banking system as loans at interest, for every credit of a $1000 loan at 5% interest, there is a corresponding debt charged to the borrower of $1050. The banks create ALL of our money. $1000 was created but $1050 is owed. The banks do not want your economic production in payment, they want money. But the banks have a monopoly on the production of money so the only money that exists is the money they create as loans which they credit to the borrower’s deposit account. The money to pay the interest is never created, so unpayable debt increases each time more new money enters the closed system.

Playing with Marbles

The fantasists believe that by some magic arithmetic the money to pay interest will somehow manifest itself. They believe that normal arithmetic does not apply to money numbers. If banks have an absolute monopoly on the production of marbles, and for each 1000 marbles they issue they demand 1050 marbles in return, any child would tell you it is impossible to pay more marbles than the number that was issued. The child would ask if he is allowed to produce his own marbles to pay the interest and the banker says no, that is called counterfeiting and we enforce prohibition against that. The number issued by banks is all that exists. “More” marbles can only come into existence as more “loans” that demand payment of more marbles than were created. Adding more marbles in this way makes the arithmetic problem worse, not better.

Fantasists believe that “government” somehow creates the additional money that is required to make the money arithmetic “work”. But in nations like the US and Europe where money issuing is a private monopoly of the banking system, governments can only get money by issuing their own debt. Banks can create money to buy the government debt, but then the government owes the banking system principal plus interest just like a private sector borrower.

Monetizing Debt

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Editor’s note: Derryl has had two new books published in 2018:

The Money Problem and How to Fix It

The Road to Debt Bondage: How Banks Create Unpayable Debt

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