From Gold to Federal Reserve Notes
excerpted from the book
Web of Debt
The Shocking Truth About Our Money
System And How We Can Break Free
by Ellen Hodgson Brown
Third Millennium Press, 2007,
The chief source of bank robbery is not
masked men looting tellers' cash tills but the blatant abuse of
the extension of credit by white collar criminals. A common practice
is for loan officers to ignore the long-term risk of loans and
approve those loan transactions with the highest fees and interest
paid immediately - income which can be distributed to the principal
executives of the bank. Such distribution is buried within the
bank's owner/manager compensation and is distributed to the principal
owners as dividends and stock options.
President Franklin Delano Roosevelt, November 23, 1933, in a letter
to colonel Edward Mandell House
The real truth of the matter is that a
financial element in the large centers has owned the Government
ever since the days of Andrew Jackson.
Congressman Louis McFadden, chairman, House Banking and currency
Committee, June 10, 1932
Some people think the Federal Reserve
Banks are U.S. government institutions. They are not ... they
are private credit monopolies which prey upon the people of the
U.S. for the benefit of themselves and their foreign and domestic
swindlers, and rich and predatory money lenders. The sack of the
United States by the Fed is the greatest crime in history. Every
effort has been made by the Fed to conceal its powers, but the
truth is the Fed has usurped the government. It controls everything
here and it controls all our foreign relations. It makes and breaks
governments at will.
an editorial in the The Union Times during the Civil War - against
President Abraham Lincoln's debt-free Greenbacks
If that mischievous financial policy which
had its origin in the North American Republic during the late
war [Civil War], should become indurated down to a fixture, then
that Government will furnish its own money without cost. It will
pay off its debts and be without debt. It will become prosperous
beyond precedent in the history of the civilized governments of
the world. The brains and wealth of all countries will go to North
America. That government must destroyed or it will destroy every
monarchy on the globe.
Hans Schicht, "The Death of Banking", February 2005
Through a network of anonymous financial
spider webbing only a handful of global King Bankers own and control
it all .... Everybody, people, enterprise, State and foreign countries,
all have become slaves chained to the Banker's credit ropes.
Dr. Carroll Quigley a professor of history at Georgetown University,
and author of the book 'Tragedy and Hope'
[The aim of an elite clique of global
financiers (international bankers) bent on controlling the world
was] nothing less than to create a world system of financial control
in private hands able to dominate the political system of each
country and the economy of the world as a whole. [This system
was] to be controlled in a feudalist fashion by the central banks
of the world acting in concert, by secret agreements.
Sir Josiah Stamp, director of the Bank of England speaking at
the University of Texas in 1927
The modern banking system manufactures
money out of nothing. The process is perhaps the most astounding
piece of sleight of hand that was ever invented. Banking was conceived
in inequity and born in sin .... Bankers own the earth. Take it
away from them but leave them the power to create money, and,
with a flick of a pen, they will create enough money to buy it
back again .... Take this great power away from them and all great
fortunes like mine will disappear, for then this would be a better
and happier world to live in .... But, if you want to continue
to he the slaves of bankers and pay the cost of your own slavery,
then let bankers continue to create money and control credit.
Professor Henry C.K. Liu, economist, chair of Department of Economics
at UCLA, and countries' investment consultant
Except for coins, which are issued by
the government and make up only about one one-thousandth of the
money supply, the entire U.S. money supply now consists of debt
to private banks, for money they created with accounting entries
on their books.
* The "Federal" Reserve is not
actually federal. It is a private corporation owned by a consortium
of very large multinational banks.
* Except for coins, the government does
not create money. Dollar bills (Federal Reserve Notes) are created
by the private Federal Reserve, which lends them to the government.
* Tangible currency (coins and dollar
bills) together make up less than 3 percent of the U.S. money
supply. The other 97 percent exists only as data entries on computer
screens, and all of this money was created by banks in the form
* The money that banks lend is not recycled
from pre-existing deposits. It is new money, which did not exist
until it was lent.
* Thirty percent of the money created
by banks with accounting entries is invested for their own accounts.
* The American banking system, which at
one time extended productive loans to agriculture and industry,
has today become a giant betting machine. By December 2007, an
estimated $681 trillion were riding on complex high-risk bets
known as derivatives - 10 times the annual output of the entire
world economy. These bets are funded by big U.S. banks and are
made largely with borrowed money created on a computer screen.
Derivatives can be and have been used to manipulate markets, loot
businesses, and destroy competitor economies.
* The U.S. federal debt has not been paid
off since the days of Andrew Jackson. Only the interest gets paid,
while the principal portion continues to grow.
* The federal income tax was instituted
specifically to coerce taxpayers to pay the interest due to the
banks on the federal debt. If the money supply had been created
by the government rather than borrowed from banks that created
it, the income tax would have been unnecessary
* Most of the runaway inflation seen in
"banana republics" has been caused, not by national
governments over-printing money, but by global institutional speculators
attacking local currencies and devaluing them on international
* The government can take back the money-issuing
power from the banks.
Robert H. Hemphill, Credit Manager of the Federal Reserve Bank
of Atlanta, 1934
We are completely dependent on the commercial
Banks. Someone has to borrow every dollar we have in circulation,
cash or credit. If the Banks create ample synthetic money we are
prosperous; if not, we starve. We are absolutely without a permanent
money System. When one gets a complete grasp of the picture, the
tragic absurdity of our hopeless position is almost incredible,
but there it is. It is the most important subject intelligent
persons can investigate and reflect upon.
Graham Towers, Governor of the Bank of Canada from 1935 to 1955
Banks create money. That is what they
are for .... The manufacturing process to make money consists
of making an entry in a book. That is all.... Each and every time
a Bank makes a loan... new Bank credit is created -- brand new
Robert B. Anderson, Secretary of the Treasury under Dwight Eisenhower,
in an interview in U.S. News and World Report, August 31, 1959
When a bank makes a loan, it simply adds
to the borrower's deposit account in the bank by the amount of
the loan. The money is not taken front anyone else's deposit;
it was not previously paid in to the bank by anyone. It's new
money, created by the bank for the use of the borrower.
Michel Chossudovsky, Professor of Economics at the University
of Ottawa, during the Asian currency crisis of 1998
Privately held money reserves in the hands
of "institutional speculators" far exceed the limited
capabilities of the World's central banks. The latter acting individually
or collectively are no longer able to fight the tide of speculative
activity. Monetary policy is in the hands of private creditors
who have the ability to freeze State budgets, paralyze the payments
process, thwart the regular disbursement of wages to millions
of workers and precipitate the collapse of production and social
The United States is legally bankrupt, defined in the dictionary
as being unable to pay one's debts, being insolvent, or having
liabilities in excess of a reasonable market value of assets held.
2005 report by the American Society of Civil Engineers
We need to establish a comprehensive,
long-term infrastructure plan. We need to but we can't, because
government at every level is broke. If governments everywhere
are in debt, who are they in debt to? The answer is that they
are in debt to private banks. The "cruel hoax" is that
governments are in debt for money created on a computer screen,
money they could have created themselves.
Before World War I, two opposing systems of political economy
competed for dominance in the United States. One operated out
of Wall Street, the New York financial district that came to be
the symbol of American finance. Its most important address was
23 Wall Street, known as the "House of Morgan." J. P.
Morgan was an agent of powerful British banking interests. The
Wizards of Wall Street and the Old World bankers pulling their
strings sought to establish a national currency that was based
on the "gold standard," one created privately by the
financial elite who controlled the gold. The other system dated
back to Benjamin Franklin and operated out of Philadelphia, the
country's first capital, where the Constitutional Convention was
held and Franklin's "Society for Political Inquiries"
planned the industrialization and public works that would free
the new republic from economic slavery to England. The Philadelphia
faction favored a bank on the model established in provincial
Pennsylvania, where a state loan office issued and lent money,
collected the interest, and returned it to the provincial government
to he used in place of taxes. President Abraham Lincoln returned
to the colonial system of government-issued money during the Civil
War; but he was assassinated, and the bankers reclaimed control
of the money machine. The silent coup of the Wall Street faction
culminated with the passage of the Federal Reserve Act in 1913.
From Gold to Federal Reserve Notes
In every presidential election between 1872 and 1896, there was
a third national party running on a platform of financial reform.
Typically organized under the auspices of labor or farmer organizations,
these were parties of the people rather than the banks. They included
the Populist Party, the Greenback and Greenback Labor Parties,
the Labor Reform Party, the Antimonopolist Party, and the Union
Labor Party. They advocated expanding the national currency to
meet the needs of trade, reform of the banking system, and democratic
control of the financial system.
Money reform advocates today tend to argue
that the solution to the country's financial woes is to return
to the "gold standard," which required that paper money
be backed by a certain weight of gold bullion. But to the farmers
and laborers who were suffering under its yoke in the 1890s, the
gold standard was the problem. They had been there and knew it
didn't work. William Jennings Bryan called the bankers' private
gold-based money a "cross of gold." There was simply
not enough gold available to finance the needs of an expanding
economy. The bankers made loans in notes backed by gold and required
repayment in notes backed by gold; but the bankers controlled
the gold, and its price was subject to manipulation by speculators.
Gold's price had increased over the course of the century, while
the prices laborers got for their wares had dropped. People short
of gold had to borrow from the bankers, who periodically contracted
the money supply by calling in loans and raising interest rates.
The result was "tight" money - insufficient money to
go around. Like in a game of musical chairs, the people who came
up short wound up losing their homes to the banks.
The solution of Jacob Coxey and his Industrial
Army of destitute unemployed men was to augment the money supply
with government-issued United States Notes. Popularly called "Greenbacks,"
these federal dollars were first issued by President Lincoln when
he was faced with usurious interest rates in the 1860s. Lincoln
had foiled the bankers by making up the budget shortfall with
U.S. Notes that did not accrue interest and did not have to be
paid back to the banks. The same sort of debt-free paper money
had financed a long period of colonial abundance in the eighteenth
century, until King George forbade the colonies from issuing their
own currency. The money supply had then shrunk, precipitating
a depression that led to the American Revolution.
To remedy the tight-money problem that
resulted when the Greenbacks were halted after Lincoln's assassination,
Coxey proposed that Congress should increase the money supply
with a further $500 million in Greenbacks. This new money would
he used to redeem the federal debt and to stimulate the economy
by putting the unemployed to work on public projects. The bankers
countered that allowing the government to issue money would be
dangerously inflationary. What they failed to reveal was that
their own paper banknotes were themselves highly inflationary,
since the same gold was "lent" many times over, effectively
counterfeiting it; and when the bankers lent their paper money
to the government, the government wound up heavily in debt for
something it could have created itself. But those facts were buried
in confusing rhetoric, and the bankers' "gold standard"
won the day.
The Greenback Party was later absorbed into the Populist Party,
which took up the cause against tight money in the 1890s Like
the Greenbackers, the Populists argued that money should be issued
by the government rather than by private banks. William Jennings
Bryan, the Populists' loquacious leader, gave such a stirring
speech at the Democratic convention that he won the Democratic
nomination for President
Outgoing President Grover Cleveland was
also a Democrat, but he was an agent of J. P. Morgan and the Wall
Street banking interests. Cleveland favored money that was issued
by the banks, and he backed the bankers' gold standard. Bryan
opposed to both. He argued in his winning nomination speech:
We say in our platform that we believe
that the right to coin money and issue money is a function of
government .... Those who are opposed to this proposition tell
us that the issue of paper money is a function of the bank and
that the government ought to go out of the banking business. I
stand with Jefferson... and tell them, as he did, that the issue
of money is a function of the government and that the banks should
go out of the governing business .... [W]hen we have restored
the money of the Constitution, all other necessary reforms will
be possible, and... until that is done there is no reform that
can be accomplished.
The Federal Reserve is commonly called the "Fed," confusing
it with the U.S. government; but it is actually a private corporation.'
It is so private that its stock is not even traded on the stock
exchange. The government doesn't own it. You and I can't own it.
It is owned by a consortium of private banks, the biggest of which
are Citibank and J. P. Morgan Chase Company. These two mega-banks
are the financial cornerstones of the empires built by J. P. Morgan
and John D. Rockefeller, the "Robber Barons" who orchestrated
the Federal Reserve Act in 1913.
Wright Patman, Chairman of the House Banking and Currency Committee,
When the Federal Reserve writes a check
for a government bond it does exactly what any bank does, it creates
money, it created money purely and simply by writing a check...
The Federal Reserve, in short, is a total money-making machine.
Most money today is created neither by the government nor by the
Federal Reserve. Rather, it is created by private commercial banks.
The "money supply" is defined as the entire quantity
of bills, coins, loans, credit, and other liquid instruments in
a country's economy. "Liquid" instruments are those
that are easily convertible into cash. The American money supply
is officially divided into M1, M2, and M3. Only M1 is what we
usually think of as money - coins, dollar bills, and the money
in our checking accounts. M2 is M1 plus savings accounts, money
market funds, and other individual or "small" time deposits.
(The "money market" is the trade in short-term, low-risk
securities, such as certificates of deposit and U.S. Treasury
notes.) M3 is M1 and M2 plus institutional and other larger time
deposits (including institutional money market funds) and eurodollars
(American dollars circulating abroad).
a booklet published by the Chicago Federal Reserve in 1961 and
revised in 1992 titled "Modern Money Mechanics: A Workbook
on Bank Reserves and Deposit Expansion"
Banks can build up deposits by increasing
loans and investments so long as they keep enough currency on
hand to redeem whatever amounts the holders of deposits want to
convert into currency. This unique attribute of the banking business
was discovered many centuries ago.
Trade in seventeenth century Europe was conducted primarily with
gold and silver coins. Coins were durable and had value in themselves,
but they were hard to transport in bulk and could be stolen if
not kept under lock and key. Many people therefore deposited their
coins with the goldsmiths who had the strongest safes in town.
The goldsmiths issued convenient paper receipts that could be
traded in place of the bulkier coins they represented. These receipts
were also used when people who needed coins came to the goldsmiths
The mischief began when the goldsmiths
noticed that only about 10 to 20 percent of their receipts came
back to be redeemed in gold at any one time. They could safely
"lend" the gold in their strongboxes at interest several
times over, as long as they kept 10 to 20 percent of the value
of their outstanding loans in gold to meet the demand. They thus
created "paper money" (receipts for loans of gold) worth
several times the gold they actually held. They typically issued
notes and made loans in amounts that were four to five times their
actual supply of gold. At an interest rate of 20 percent, the
same gold lent five times over produced a 100 percent return every
year - this on gold the goldsmiths did not actually own and could
not legally lend at all! If they were careful not to overextend
this "credit," the goldsmiths could thus become quite
wealthy without producing anything of value themselves.
... The system was called "fractional
reserve" banking because the gold held in reserve was a mere
fraction of the banknotes it supported.
All money except coins now comes from banker-created loans, so
the only way to get the interest owed on old loans is to take
out new loans, continually inflating the money supply; either
that, or some borrowers have to default.
Bernard Lietaer helped design the Euro and has written several
books on monetary reform
Greed and competition are not a result
of immutable human temperament .... Greed and fear of scarcity
are in fact being continuously created and amplified as a direct
result of the kind of money we are using .... We can produce more
than enough food to feed everybody, and there is definitely enough
work for everybody in the world, but there is clearly not enough
money to pay for it all. The scarcity is in our national currencies.
In fact, the job of central banks is to create and maintain that
currency scarcity. The direct consequence is that we have to fight
with each other in order to survive.
Marriner Eccles, Governor of the Federal Reserve Board, in hearings
before the House Committee on Banking and Currency in 1941
If there were no debts in our money system,
there wouldn't he any money.
economist John Kenneth Gaibraith wrote in 1975
In numerous years following the [civil]
war, the Federal Government ran a heavy surplus. [But] it could
not pay off its debt, retire its securities, because to do so
meant there would be no bonds to back the national bank notes.
To pay off the debt was to destroy the money supply.
The federal debt has been the basis of the U.S. money supply ever
since the Civil War, when the National Banking Act authorized
private banks to issue their own banknotes backed by government
bonds deposited with the U.S. Treasury. When President Clinton
announced "the largest budget surplus in history" in
2000, and President Bush predicted a $5.6 trillion surplus by
the end of the decade, many people got the impression that the
federal debt had been paid off; but this was another illusion.
Not only did the $5.6 trillion budget "surplus" never
materialize (it was just an optimistic estimate projected over
a ten-year period based on an anticipated surplus for the year
2001 that never materialized), but it entirely ignored the principal
owing on the federal debt. Like the deluded consumer who makes
the minimum monthly interest payment on his credit card bill and
calls his credit limit "cash on hand," politicians who
speak of "balancing the budget" include in their calculations
only the interest on the national debt. By 2000, when President
Clinton announced the largest-ever budget surplus, the federal
debt had actually topped $5 trillion; and by October 2005, when
the largest-ever projected surplus had turned into the largest-ever
budget deficit, the federal debt had mushroomed to $8 trillion.
M3 was $9.7 trillion the same year, not much more. It is hardly
an exaggeration to say that the money supply is the federal debt
and cannot exist without it. Commercial loans alone cannot sustain
the money supply because they zero out when they get paid back.
In order to keep money in the system, some major player has to
incur substantial debt that never gets paid back; and this role
is played by the federal government.
Nobody even expects the [national] debt to be paid off, because
it can't be paid off - at least, it can't while money is created
as a debt to private banks. The government doesn't have to pay
the principal so long as it keeps "servicing" the debt
by paying the interest...
The Massachusetts Assembly [in the 1700s] proposed a new kind
of paper money, a "bill of credit" representing the
government's "bond" or I.O.U. - its promise to pay tomorrow
on a debt incurred today. The paper money of Massachusetts was
backed only by the "full faith and credit" of the government.'
Other colonies then followed suit with
their own issues of paper money. Some were considered government
I.O.U.s, redeemable later in "hard" currency (silver
or gold). Other issues were "legal tender" in themselves.
Legal tender is money that must legally be accepted in the payment
of debts. It is "as good as gold" in trade, without
bearing debt or an obligation to redeem the notes in some other
form of money later.
The riches of a country are to be valued
by the quantity of labor its inhabitants are able to purchase
and not by the quantity of gold and silver they possess."
Benjamin Franklin in 1764, to the directors of the Bank of England
who asked him what was responsible for the booming economy of
the American colonies
In the colonies we issue our own money.
It is called Colonial Scrip. We issue it to pay the government's
approved expenses and charities. We make sure it is issued in
proper proportions to make the goods pass easily from the producers
to the consumers .... In this manner, creating for ourselves our
own paper money, we control its purchasing power, and we have
no interest to pay to no one. You see, a legitimate government
can both spend and lend money into circulation, while banks can
only lend significant amounts of their promissory bank notes,
for they can neither give away nor spend but a tiny fraction of
the money the people need. Thus, when your bankers here in England
place money in circulation, there is always a debt principal to
he returned and usury to be paid. The result is that you have
always too little credit in circulation to give the workers full
You do not have too many workers, you
have too little money in circulation, and that which circulates,
all bears the endless burden of unpayable debt and usury.
Benjamin Franklin, 1765 - after the Bank of England pushed through
the British Parliament the Currency Act of 1764, that made it
illegal for the American colonies to print their own money
The poverty [in the American colonies]
is caused by the bad influence of the English bankers on the Parliament
which has caused in the colonies hatred of the English and...
the Revolutionary War. [This, he said, was the real reason for
the Revolution] The colonies would gladly have borne the little
tax on tea and other matters had it not been that England took
away from the colonies their money, which created unemployment
The first act of the new Continental Congress [during the Revolutionary
War] was to issue its own paper scrip, popularly called the Continental.
Most of the Continentals were issued as i.O.U.s or debts of the
revolutionary governments to be redeemed in coinage later."
Eventually, 200 million dollars in Continental scrip were issued.
By the end of the war, the scrip had been devalued so much that
it was essentially worthless; but it still evoked the wonder and
admiration of foreign observers, because it allowed the colonists
to do something that had never been done before. They succeeded
in financing a war against a major power, with virtually no "hard"
currency of their own, without taxing the people.
President John Adams
There are two ways to conquer and enslave
a nation. One is by the sword. The other is by debt.
Nathan Rothschild, who controlled the Bank of England after 1820
I care not what puppet is placed upon
the throne of England to rule the Empire on which the sun never
sets. The man who controls Britain's money supply controls the
British Empire, and I control the British money supply.
[English King William III was soon at war with Louis XIV of France
[late 17th century]. To finance his war, he borrowed 1.2 million
pounds in gold from a group of moneylenders, whose names were
to be kept secret. The money was raised by a novel device that
is still used by governments today: the lenders would issue a
permanent loan on which interest would be paid but the principal
portion of the loan would not he repaid. The loan also came with
other strings attached. They included:
(1) The lenders were to be granted a charter
to establish a Bank of England, which would issue banknotes that
would circulate as the national paper currency.
(2) The Bank would create banknotes out
of nothing, with only a fraction of them backed by coin. Banknotes
created and lent to the government would be backed mainly by government
I.O.U.s, which would serve as the "reserves" for creating
additional loans to private parties.
(3) Interest of 8 percent would be paid
by the government on its loans, marking the birth of the national
(4) The lenders would be allowed to secure
payment on the national debt by direct taxation of the people.
Taxes were immediately imposed on a whole range of goods to pay
the interest owed to the Bank.
The Bank of England has been called "the
Mother of Central Banks." It was chartered in 1694 to William
Paterson, a Scotsman who had previously lived in Amsterdam"
A circular distributed to attract subscribers to the Bank's initial
stock offering said, "The Bank bath benefit of interest on
all moneys which it, the Bank, creates out of nothing." The
negotiation of additional loans caused England's national debt
to go from 1.2 million pounds in 1694 to 16 million pounds in
1698. By 1815, the debt was up to 885 million pounds, largely
due to the compounding of interest. The lenders not only reaped
huge profits, but the indebtedness gave them substantial political
The Bank's charter gave the force of law
to the "fractional reserve" banking scheme that put
control of the country's money in a privately owned company. The
Bank of England had the legal right to create paper money out
of nothing and lend it to the government at interest. It did this
by trading its own paper notes for paper bonds representing the
government's promise to pay principal and interest back to the
Bank - same device used by the U.S. Federal Reserve and other
central banks today.
In 1705, [John] Law published a series of pamphlets on trade,
money and banking, in which he claimed to have found the true
"Philosopher's Stone," referring to a mythical device
used by medieval alchemists to turn base material into gold. Paper
could be converted into gold, Law said, through the alchemy of
paper money. He proposed the creation of a national paper money
supply consisting of banknotes redeemable in "specie"
(hard currency in the form of gold or silver coins), which would
be officially recognized as money. Paper money could be expanded
indefinitely and was much cheaper to make than coins. To get public
confidence, Law suggested that a certain fraction of gold should
be kept on hand for the few people who actually wanted to redeem
their notes. The goldsmiths had already established through trial
and error that specie could support about ten times its value
in paper notes. Thus a bank holding $10 in gold could safely print
and lend about $100 in paper money.
Until the twentieth century, banks followed the model of the goldsmiths
and literally printed their own supply of notes against their
own gold reserves. These were then multiplied many times over
on the "fractional reserve" system. The bank's own name
was printed on the notes, which were lent to the public and the
government. Today, federal governments have taken over the printing;
but in most countries the notes are still drawn on private central
banks. In the United States, they are printed by the U.S. Bureau
of Engraving and Printing at the request of the Federal Reserve,
which "buys" them for the cost of printing them and
calls them "Federal Reserve Notes. Today, however, there
is no goId on "reserve" for which the notes can be redeemed.
In the United States, the usury banks fought for control for two
centuries before the Federal Reserve Act established the banks'
private monopoly in 1913. Today, the U.S. banking system is not
a topic of much debate; but in the nineteenth century, the fight
for and against the Bank of the United States defined American
With a Treasury that was completely broke ... [President Abraham
Lincoln during the Civil War] authorized the government to issue
its own paper fiat money... popularly called "Greenbacks"
because they were printed on the back with green ink (a feature
the dollar retains today). They were basically just receipts acknowledging
work done or goods delivered, which could be traded in the community
for an equivalent value of goods or services. The Greenbacks represented
man-hours rather than borrowed gold... Over 400 million Greenback
dollars were printed and used to pay soldiers and government employees,
and to buy supplies for the war.
... Like metal coins, the Greenbacks were
permanent money that could continue to circulate in their own
right. The Legal Tender Acts of 1862 and 1863 made all the "coins
and currency" issued by the U.S. Government "legal tender
for all debts, public and private." Government-issued paper
notes were made a legal substitute for gold and silver, even for
the payment of pre-existing debts.
In the twentieth century, the Legal Tender
Statute (31 U.S.C. Section 5103) applied this definition of "legal
tender" to Federal Reserve Notes; but it was an evident distortion
of the intent of the original Acts, which made only currency issued
by the United States Government legal tender. Federal Reserve
Notes are issued by the Federal Reserve, a private banking corporation...
New York Times, 1921
If the Nation can issue a dollar bond
it can issue a dollar bill. The element that makes the bond good
makes the bill good also. The difference between the bond and
the bill is that the bond lets the money broker collect twice
the amount of the bond and an additional 20%. Whereas the currency,
the honest sort provided by the Constitution pays nobody but those
who contribute in some useful way. It is absurd to say our Country
can issue bonds and cannot issue currency. Both are promises to
pay, but one fattens the usurer and the other helps the People.
In 1972, the United States Treasury Department was asked to compute
the amount of interest that would have been paid if the $400 million
in Greenbacks had been borrowed from the banks [instead of being
printed by the U.S. government during the Civil War]. According
to the Treasury Department's calculations, in his short tenure
Lincoln saved the government a total of $4 billion in interest,
just by avoiding this $400 million loan.
The London Times editorial, 1865, about the threat to foreign
bankers of the new Greenback system established by Abraham Lincoln
during the Civil War
If that mischievous financial policy,
which had its origin in the North American Republic, should become
indurated down to a fixture, then that Government [the U.S. government]
will furnish its own money without cost. It will pay off debts
and be without a debt. It will have all the money necessary to
carry on its commerce. It will become prosperous beyond precedent
in the history of the civilized governments of the world. The
brains and the wealth of all countries will go to North America.
That government must be destroyed, or it will destroy every monarchy
on the globe.'
German Chancellor Otto von Bismarck wrote in 1876
The [U.S.] Government and the nation escaped
the plots of the foreign financiers. They [the foreign financiers]
understood at once, that the United States would escape their
grip. The death of Lincoln was resolved upon. [Lincoln was assassinated
President James Garfield, 1881
Whosoever controls the volume of money
in any country is absolute master of all industry and commerce...
And when you realize that the entire system is very easily controlled,
one way or another, by a few powerful men at the top, you will
not have to he told how periods of inflation and depression originate.
[President Garfield was murdered not long after releasing this
The classical "quantity theory of money" - the foundation
of classical monetary theory, it held that inflation is caused
by "too much money chasing too few goods." When "demand"
(the money available to buy goods) increases faster than "supply"
(goods and services), prices are forced up. If the government
were allowed to simply issue all the Greenback dollars it needed,
the money supply would increase faster than goods and services,
and price inflation would result. If paper money were tied to
gold, a commodity in limited and fixed supply, the money supply
would remain stable and price inflation would be avoided.
A corollary to that theory was the classical
maxim that the government should balance its budget at all costs.
If it ran short of money, it was supposed to borrow from the bankers
rather than print the money it needed, in order to keep from inflating
the money supply. The argument was a "straw man" argument
- one easily knocked down because it contained a logical fallacy
- but the fallacy was not immediately obvious, because the bankers
were concealing their hand. The fallacy lay in the assumption
that the money the government borrowed from the banks already
existed and was merely being recycled. If the bankers themselves
were creating the money they lent, the argument collapsed in a
heap of straw. The money supply would obviously increase just
as much from bank-created money as from government-created money.
In either case, it was money pulled out of an empty hat. Money
created by the government had the advantage that it would not
plunge the taxpayers into debt; and it provided a permanent money
supply, one not dependent on higher and higher levels of borrowing
to stay afloat.
The quantity theory of money contained
another logical fallacy, which was pointed out later by British
economist john Maynard Keynes. Adding money ("demand")
to the economy would drive up prices only if the "supply"
side of the equation remained fixed. If new Greenbacks were used
to create new goods and services, supply would increase along
with demand, and prices would remain stable... Adding more money
to the economy would inflate prices only when the producers ran
out of the labor and materials needed to make more goods. Before
that, supply and demand would increase together, leaving prices
as they were before.
In 1886, corporations were given the rights and privileges of
"individuals" although they lacked the morality and
the conscience of live human beings. Their sole motive was profit,
the sort of single-minded devotion to self-interest that in a
live human being would be considered pathological.
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