From "Our Country, Then and Now" Chapter 2, "Money and Banking" Part 1 of 5

Introduction

This begins a 5-part series that reproduces, with the cooperation of Clarity Press, Chapter 2, “Money and Banking” of the author’s recent book, Our Country, Then and Now. This chapter explains how government debt and usury, two of the most evil and destructive elements of today’s economic life, became built into the very fabric of governance in the United States, and by extension, all other nations of the Western world. The system actually originated in its modern form with the Bank of England that destroyed the indigenous monetary system of the British Isles. Of course usury goes far back in history to the days of the ancient empires, including Rome, which it destroyed. Our Country, Then and Now may be ordered directly from the publisher here. This chapter of the book is being reproduced and distributed because of the urgent need to replace today’s usury-based system that benefits only the monetary elite with a new form of money-creation and distribution. End the Fed!

Note: Editorial comments are bracketed […]

Part 1: From Our Country, Then and Now

Chapter 2: Money and Banking

“Hard Money” and Paper Notes

For a meaningful discussion of US history, we must consider money. The problem of the US money supply was of increasing concern, if not an obsession, during the formative years of the nation, and has not been resolved to this day. In fact, with the current assault on the US dollar internationally, dubbed “de-dollarization,” we are seeing yet another financial crisis.

In the earliest years of the nation, coinage of foreign nations was the most reliable currency, especially the Spanish gold dollar, which was used both before and after US independence. Barter was also widespread, mainly in land and agricultural commodities.

“Real” money was always viewed as authenticated by gold and silver, which was why English privateers preyed on the early Spanish galleons returning with plunder from the New World. Enough made it to Spain to fuel a vast European monetary expansion in Western Europe. But whatever limited amount arrived in British North America through trade quickly disappeared back to London under the prevailing mercantilist policies of the day.

In the days of Indian trading, beaver skins served as money. This continued into the 19^th century. In dealing with the Indians, both sides dealt in wampum, which was the reason colored beads became an important part of Indian trade goods—especially the highly-prized blue beads.

But as the “best” money remained gold and silver coins which were known as “hard money,” or “specie,” that could readily be weighed, measured, transported—or stolen, one of the main purposes of early “counting houses” and later banks, was to keep coinage or bullion safely under lock and key. Trade was also carried on in gold dust kept in leather pouches attached to one’s belt, requiring a buyer and seller to have a reliable set of scales.

Then there was paper money. But the paper money expedients adopted by colonial governments could be attacked, as happened with the Currency Act of 1767. This prohibition of colonial paper money by the British Parliament plunged the colonies into a deflation that became a leading cause of the American Revolution.

Before, during, and after the Revolution, a multitude of methods were used to create, print, and circulate paper notes. This included issuance of bond certificates by land banks in Massachusetts and Pennsylvania, where borrowers mortgaged their real estate; the printing of Continental Currency during the Revolution by the Continental Congress; the occasional issuance of bills of credit by individual colonies to pay their bills; and a couple of primitive banks with lending prerogatives.

The use of paper money led to price inflation, depending on the degree of confidence individuals receiving payment had in the issuing entity. Often confidence was close to zero. But without a solid and widely acknowledged medium of exchange, a society becomes desperate. Even if money is counterfeited, as the British did in their attack on the US’s Continental Currency, the bogus notes themselves may still have trade value.

Constitutional Confusion

The US Constitution ratified in 1788 was ambiguous on the subject of money in terms of creating a consistent, dependable supply of a “medium of exchange” or “store of value,” which are the dual purposes money is supposed to achieve.

Article I, Section 8, Clause 5 of the US Constitution states that “Congress shall have the power to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” There is no mention of how this “coined” money is to be entered into commerce.

Paper money is not mentioned at all, except that the states are prohibited from issuing “bills of credit.” This meant that the states could not “print money” and spend it into circulation.

But neither was the federal government itself specifically authorized to issue bills of credit, even though the original draft of the Constitution did in fact allow it. But the clause was removed. Alexander Hamilton had argued:

“To emit an unfunded paper as the sign of value ought not to constitute a formal part of the Constitution, nor even hereafter to be employed; being, in its nature, pregnant with abuses, and liable to be made the engine of imposition and fraud; holding out temptations equally pernicious to the integrity of government and to the morals of the people.”

Nevertheless, the US government has asserted the prerogative of issuing bills of credit, particularly during the Civil War with the issuance of Greenbacks. Such practice was found constitutional by the Supreme Court, which ruled that bills of credit were inherent in the government’s right to borrow, as bills of credit are fundamentally a debt instrument.

Government bills of credit receive their force by being acceptable in payment of taxes. They can then become legal tender in the economy at large. [It is not generally known that the government has issued small amounts of Greenbacks at various times since the Civil War. Such issuance was authorized through the printing of Silver Certificates by President John F. Kennedy but was cancelled following his assassination.]

The Constitution also gave Congress the power to regulate interstate commerce, which has been interpreted to provide for oversight with respect to national banks and creation of a national banking system, but not to state banks. What has been called “the Commerce Clause” refers to Article I, Section 8, Clause 3, which gives Congress the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.”

Note that Indian tribes, as a distinct category of social and economic organization, here receive a Constitutional recognition that has never been rescinded.

Congress is also authorized to collect money through taxes and other means. Article I, Section 8, Clause 1 states that:

“The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence [sic] and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States.”

This clause implies that the only two allowable sources of government revenue are 1) taxes and 2) borrowing, a restriction that has been a perpetual source of controversy and conflict, causing the federal government, as well as state and local governments, to be constantly on the cusp of default through potential inability to pay their legally mandated obligations.

The Constitution does not specify the nature of the medium of exchange that can lawfully be used by taxpayers or lenders. So what is “legal tender”? If Congress wanted to, it could designate the lids of Mason jars to be legal tender, as in a recent novel on what life in the US would be like under a currency collapse.

The provision for incurring debt also implies some kind of market or mechanism for the buying and selling of government bonds, particularly because bonds themselves are assets that may be marketed commercially and that may circulate at varying rates of return. Today, the market for government debt is run by the Federal Reserve as “fiscal agent” to the U.S. Department of the Treasury.

The other major provision in the Constitution that has strongly influenced the circulation of money is Article IV, Section 3, Clause 2, the “Property Clause,” that states, “the Congress shall have power to dispose of and make all needful rules and regulations respecting the territory or other property belonging to the US.” Obviously, this applies to land that is bought and sold by the government in the marketplace or where the government is obligated to pay full market value for land confiscated for public purposes.

The Property Clause also applies to land acquired from the Indians under the Treaty Clause of the Constitution. Article II, Section 2, states that “the President shall have Power, by and with the Advice and Consent of the Senate to make Treaties, provided two-thirds of the Senators present concur.”

No one knows how much land the Indians have ceded to the US through treaty or how much has simply been seized through confiscation or occupation. No one even knows for sure how many Indian treaties there have been. Estimates range from 374 to 500.

The right of Indians to make treaties with the government was cancelled by Congress in the 1870s, meaning that since then, Congress has tried to rule over the tribes by decree. The federal court system has held, however, that past treaty obligations are enforceable, and the tribes have been granted limited rights to self-government by Congress since 1935.

This does not mean that the treaties were fair. In the 1809 Treaty of Fort Wayne, for instance, the Indians ceded to the US 2.5 million acres of land in the Old Northwest for a reimbursement of two cents per acre. From 1814-1824, the southeastern tribes gave up fifty million acres of land, with then-commissioner Andrew Jackson writing seventy Indian removal treaties. Later, as president, Jackson negotiated treaties that opened another twenty-five million acres of land. This allowed the lands to be sold by the federal government to whites, often involving sale on credit, at a time when government at all levels had few other sources of income.

The vagueness of these Constitutional provisions, the lack of a coherent system of government financial management, the absence of any provision or definition for commercial banking, and the reliance on inference as a guide to action—“implied powers”—has resulted in the fact that throughout history, the creation and utilization of money in the US has been chaotic.

This chaos left the door wide open for the entrance of financial predators and eventually allowed the complete takeover of the nation’s financial system by the financier class through the Federal Reserve Act of 1913. Today, a majority of the US population live from paycheck to paycheck; i.e., most people are “broke” and, moreover, helpless against an “inflation” that it seems no one can ever explain or do anything about.

The US has been in an inflationary crisis since the 1970s—for a half-century. This translates to an ongoing devaluation of the US dollar and progressive impoverishment of the working population. The government feeds this inflation by compounding annual cost-of-living allowances—COLAs—for entitlements, government salaries, etc.

Maybe all this chaos was why the Constitution left so many loopholes in the first place. The Constitution was drawn up by the top politically connected figures of the Revolution. They in turn had close ties to the merchants, investors, and speculators, including wealthy Europeans, who cashed in on the bonds that had kept Washington’s army in the field.

In fact, a scandal erupted when speculators bought up the promissory notes being held by former soldiers who had been paid with Continental Currency or bonds. The new US Treasury, under the first Secretary of the Treasury, Alexander Hamilton, allowed the redemption of these notes at face value, leading to charges of favoritism and corruption. [Hamilton in fact is on record as favoring “corruption” as a necessary means of binding the monied classes in support of the national government. O course, it wasn’t long before the monied classes, including foreigners, gained complete control of the national government.]