American Minute with Bill Federer
Money supply has a mixed history.
Originally, wealth was measured in precious metals of gold, silver, or copper.
Exodus 25:3 “And this is the offering which ye shall take of them; gold, and silver, and copper.”
Items of gold, silver, or copper had to be weighed.
A “shekel” was a fixed unit of weight.
Shekels were placed on one side of a scale and on the other side were placed the items of gold, silver, or copper to be weighed.
The Bible admonished not cheat, Deuteronomy 25:13 “Do not have two differing weights in your bag — one heavy, one light.” (NIV)
In the 6th century BC, King Croesus of Lydia is credited with being the first to mint coins, a mix of gold and silver called “electrum,” which had a specific weight and image stampedon it.
Croesus, who was associated with the legend of King Midas’ gold, asked Greek leader Solon who was the happiest man.
Solon, because of the fickleness of fortune, responded, “Count no man happy till he be dead.”
Croesus later lost his wealth and his life when Lydia was conquered by King Cyrus of Persia in 546 BC.
Other kingdoms began minting coins, such as the Assyrians, Egyptians, Persians, and Romans, whose coin was called denarius.
“’Is it lawful for us to pay taxes to Caesar, or not?’ … Jesus said to them ‘Show Me a denarius. Whose likeness and inscription does it have?’ They said, ‘Caesar’s.’ And He said to them, ‘Then render to Caesar the things that are Caesar’s, and to God the things that are God’s.’” (NASB Luke 20:22-25)
Methods of cheating developed.
One was clipping off the edges of coins.
Another, used by Egyptian and Roman governments, was to mix in less expensive base metals with the gold, silver, or copper, thus debasing the coins.
Eventually, coins lost their “intrinsic” value and simply took on a “token” value.
Decades of irresponsible policies weakened Rome’s economy:
- out-of-control government spending;
- enormous government debt;
- continual expensive wars; and
- government projects and welfare programs.
Hyper-inflation was followed by Diocletian’s infamous wage and price controls, which caused people to abandon their debts and leave.
To prevent people from running away from their debts, Diocletian commanded that men, women, and children, be tied to their debts and mortgaged lands.
Rome collapsed, but this policy continued for centuries as the Medieval feudal system.
Another development was paper currency.
Rather than carrying around heavy bags of coins, individuals would store their gold and silver in secure “banking houses.”
The first major world power to use paper currency was Kublai Khan’s Yuan Dynasty in China.
Unfortunately he printed too much of it and it became devalued, contributing to the Empire’s collapse.
Paper currency was convenient.
When conducting a transaction, a customer could simply write a note with their signature, which the merchant would later take to the banking house and exchange for coins.
Banking houses realized that not all the money was used everyday, so they would keep a reserve amount for day-to-day transactions and lend the rest out at interest, thus making a profit.
Banks began printing their own currency notes, and as there were little means of regulating them, unscrupulous over-printing could occur.
When a currency is no longer backed by precious metals it is called a “fiat” currency.
“Fiat” is Italian for “let it be done,” or, in other words, it is worth something just because the government declares it to be worth something.
The Continental Congress printed a fiat currency, called a “Continental,” which was not backed by gold or silver.
It lost nearly all its value, giving rise to the phrase: “not worth a Continental.”
Learning this lesson, the U.S. Constitution did not give the Federal government permission to print currency, only authority to mint coins, with a value tied to the stable Spanish silver dollar (Article 1, Sec. 8):
“Congress shall have power … to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.”
Roger Sherman, a signer of the Constitution, authored Article 1, Section 10:
“No State shall … make anything but gold and silver coin a tender in payment of debts.”
Sherman wrote in A Caveat Against Injustice or, An Inquiry into the Evils of a Fluctuating Medium of Exchange, 1752:
“(Currency) bills of credit are of no intrinsic value, and their … value is fluctuating and very uncertain, and therefore it would be unjust that any person should be obliged to receive them in payment as money … Money ought to be something of certain value, it being that whereby other things are to be valued.”
James Madison wrote:
“Paper money is unjust …
It is unconstitutional, for it affects the rights of property as much as taking away equal value in land.”
George Washington wrote Thomas Jefferson, August 1, 1786:
“Paper money has had the effect in your state … to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”
Jefferson wrote to Colonel Edward Carrington, May 27, 1788:
“Paper is poverty … it is only the ghost of money, and not money itself.”
In 1817, Jefferson predicted paper money will bring:
“… abuses also are inevitable and, by breaking up the measure of value, make a lottery of all private property.”
U.S. Superintendent of Finance Robert Morris had raised money to finance the Continental Army.
After the War, he and Alexander Hamilton, with the support of Franklin, founded the Bank of North America in 1781.
It was the nation’s first de facto central bank with the goal of providing a stable currency necessary for international trade.
On February 25, 1791, Hamilton arranged for the Bank of North America to be replaced by the Bank of the United States.
Thomas Jefferson, James Madison, and U.S. Attorney General Edmund Randolph were critical of the nation’s first “centralized” bank as it concentrated too much power into the hands of too few.
The Bank of the United States was a private institution which had foreign investors as stockholders, though they were not allowed to vote.
William Pitt, Prime Minister of Great Britain, who saw his country’s nation’s debt doubled to £243 million during the American Revolutionary War, stated:
“Let the American people go into their debt-funding schemes and banking systems, and from that hour their boasted independence will be a mere phantom.”
Hamilton also founded the Bank of New York in 1784, (later merged with Mellon), which loaned money to pay the salaries of Congress.
In 1789, Hamilton became the first U.S. Secretary of the Treasury.
In 1799, Aaron Burr founded Manhattan Water Company under the auspices of bringing fresh water into New York City, but used the majority of the money to start a bank to compete with Hamilton, The Manhattan Bank (later merged with Chase).
In 1800, Burr used his Bank’s resources to influence elections.
Jefferson accused the Bank of the United States of doing the same thing, having become:
“a machine for the corruption of the legislature.”
In 1811, James Madison refused to recharter the Bank of the United States.
As British financiers reportedly owned two-thirds of the stock of the Bank of the United States, this may have been a factor precipitating the War of 1812.
France also incurred enormous debt from helping America win independence from Britain.
This destabilized the France, leading to King Louis XVI being forced from the throne and then beheaded on January 21, 1793.
The French Republic was formed, but by 1799 it was bankrupt, setting the stage for Napoleon to take power.
R. McNair Wilson’s book, Monarchy or Money Power (1933), stated:
“It was ordained by Napoleon that money should not be exported from France on any pretext whatever except with the consent of the Government,
and that in no circumstances should loans be employed to meet current expenditure whether civil or military.
The object was to withhold from finance the power to embarrass the Government as it had embarrassed the Government of Louis XVI.
… When a Government, Bonaparte declared, is dependent for money upon bankers, they and not the leaders of that Government control the situation, since ‘the hand that gives is above the hand that takes’ …
‘Money,’ he declared, ‘has no motherland; financiers are without patriotism and without decency: their sole object is gain.’”
An important banking family in Frankfurt, Germany, was that of Mayer Amschel Rothschild (1743–1812). His five sons led branches which significantly shaped Europe in the next century:
- Amschel Mayer Rothschild, Frankfurt;
- Salomon Rothschild, Vienna;
- Karl Rothschild, Naples;
- James Rothschild, Paris;
- Nathan Meyer Rothschild, London.
Nathan Rothschild helped finance the Duke of Wellington’s British armies against Napoleon in Spain and France.
A legend persists that Nathan Rothschild obtained early information of the British victory over Napoleon at the Battle of Waterloo, June 18, 1815.
He began to sell his shares on the London Stock Exchange, leading investors to suspect he had inside information that the British lost the battle, resulting in a panic-selling off of stocks.
The story continued that Rothschild bought up devalued shares at low prices, and when news arrived the next day that the British had actually won the Battle of Waterloo, the stock market enthusiastically exploded, resulting in Rothschild making a million pounds sterling in a day.
A maxim attributed to the House of Rothschild was:
“Let us control the money of a nation, and we care not who makes its laws.”
On April 10, 1816, the Second Bank of the United States received its charter.
By 1822, the rechartered Second Bank of the United States was run by Nicholas Biddle who boasted of having more personal power than the President.
He set interest rates and reserve requirements, which allowed him to amass an enormous personal wealth.
Biddle bought political influence by financing the election campaigns of politicians.
He owned newspapers and would have them editorialize and sway voters during elections.
Ambitious politicians sought his money and his ability to provide favorable media coverage.
On JULY 10, 1832, President Andrew Jackson vetoed the charter renewal of Nicholas Biddle’s Second Bank of the United States, stating:
“Some of powers and privileges possessed by the existing Bank are unauthorized by the Constitution, subversive to the rights of the States, and dangerous to the liberties of the people …
It is easy to conceive that great evils to our country and its institutions might flow from such a concentration of power in the hands of a few men irresponsible to the people …
… Their power would be great whenever they might choose to exert it … to influence elections or control the affairs of the nation.
But if any private citizen or public functionary should interpose to curtail its powers or prevent a renewal of its privileges, it cannot be doubted that he would be made to feel its influence …”
“Controlling our currency, receiving our public moneys, and holding thousands of our citizens in dependence, it would be more formidable and dangerous than the naval and military power of the enemy.”
Economist John Maynard Keynes held a similar view, as he wrote in his book The Economic Consequences of the Peace (1920, reprinted 1971, p. 235):
“Lenin is said to have declared ‘The best way to destroy the capitalist system is to debauch the currency.'”
On September 18, 1833, President Andrew Jackson decided to remove all Federal money out of Nicholas Biddle’s Second Bank of the United States:
“The Bank is thus converted into a vast electioneering engine, with means to embroil the country in deadly feuds, and … extend its corruption through all the ramifications of society …
… The President would feel that he was … an accomplice in a conspiracy against that Government … if he did not take every step within his constitutional and legal power … to … putting an end to these enormities …
Was it expected when the moneys of the United States were directed to be placed in that Bank that they would be put under the control of one man? …
… This corporation now holds in its hands the happiness and prosperity of the American people, it is high time to take the alarm.
If the despotism be already upon us and our only safety is in the mercy of the despot … how necessary it is to shake it off …
One of the most serious objections to the Bank of the United States is the power which it concentrates.”
On December 3, 1833, in his 5th Annual Message, President Andrew Jackson condemned Nicholas Biddle’s Second Bank of the United States:
“This great and powerful institution had been actively engaged in attempting to influence the elections of the public officers by means of its money …
It being thus established by unquestionable proof that the Bank of the United States was converted into a permanent electioneering engine …
The efforts of the Bank to control public opinion, through the distresses of some and the fears of others …
Through presses known to have been sustained by its money it attempts by unfounded alarms to create a panic in all.”
President Andrew Jackson, whose wife died right before he took office, stated in a Protest Message to the Senate, April 15, 1834:
“The Bank of the United States, a great moneyed monopoly, had attempted to obtain a renewal of its charter by controlling the elections of the people … to control public opinion and force the Government to yield to its demands …
The only ambition I can feel is to acquit myself to Him to whom I must soon render an account of my stewardship …
to persuade my countrymen, so far as I may, that it is not in a … government supported by powerful monopolies … that they will find happiness … but in a plain system, void of pomp, protecting all and granting favors to none, dispensing its blessings, like the dews of Heaven.”
On December 1, 1834, in his 6th Annual Message, President Jackson stated:
“Events have satisfied my mind, and I think the minds of the American people, that the mischief and dangers which flow from a national Bank far overbalance all its advantages.
The bold effort the present Bank has made to control the Government, the distresses it has wantonly produced, the violence of which it has been the occasion in one of our cities famed for its observance of law and order, are but premonitions of the fate which awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it.”
On January 30, 1835, in the midst of the “Bank War,” Jackson survived an assassination attempt when Richard Lawrence fired two pistols at him at point blank range.
Perhaps due to the humid, foggy weather in Washington, D.C., the guns misfired.
Davy Crockett, who was with the President, ran up and wrestled the assailant, disarming him.
Senator Thomas Hart Benton of Missouri wrote January 30, 1835 of how the incident:
“… irresistibly carried many minds to the belief in a superintending Providence, manifested in the extraordinary case of two pistols in succession — so well loaded, so coolly handled, and which afterwards fired with such readiness, force,and precision — missing fire each in his turn, when leveled eight feet at the President’s heart.”
When King William IV of England heard of the incident, he wrote expressing his concern. President Jackson wrote back:
“A kind of Providence had been pleased to shield me against the recent attempt upon my life, and irresistibly carried many minds to the belief in a superintending Providence.”
On December 7, 1835, in his 7th Annual Message, Jackson stated:
“We have felt but one class of these dangers exhibited in the contest waged by the Bank of the United States …
The Bank is, in fact, but one of the fruits of a system at war with the genius of all our institutions … whose great ultimate object and inevitable result … is the consolidation of all power in our system in one central government.
Lavish public disbursements and corporations with exclusive privileges would be its substitutes for the original … checks and balances of the Constitution …
Wherever this spirit has effected an alliance with political power, tyranny and despotism have been the fruit … It has to be incessantly watched, or it corrupts …
All history tells us that a free people should be watchful of delegated power, and should never acquiesce in a practice which will diminish their control over it.”
On December 5, 1836, in his 8th Annual Message, President Andrew Jackson stated:
“It was in view of these evils, together with the dangerous power wielded by the Bank of the United States and its repugnance to our Constitution, that I was induced to exert the power conferred upon me by the American people to prevent the continuance of that institution …
The lessons taught by the Bank of the United States cannot well be lost upon the American people. They will take care never again to place so tremendous a power in irresponsible hands.”
Jackson, who was the only President to pay off the national debt, stated in his Farewell Address, March 4, 1837:
“The distress and alarm which pervaded and agitated the whole country when the Bank of the United States waged war upon the people in order to compel them to submit to its demands cannot yet be forgotten …
The Government would have passed from the hands of the many to the hands of the few, and this organized money power from its secret conclave would have dictated the choice of your highest officers and compelled you to make peace or war, as best suited their own wishes.
The forms of your Government might for a time have remained, but its living spirit would have departed from it …”
“The distress … inflicted on the people by the Bank are some of the fruits of that system of policy which is continually striving to enlarge the authority of the Federal Government beyond the limits fixed by the Constitution …
The power which moneyed interest can exercise, when concentrated under a single head and with our present system of currency, was sufficiently demonstrated in the struggle made by the Bank of the United States …”
Economist Milton Friedman stated:
“Concentrated power is not rendered harmless by the good intentions of those who create it.”
“The paper-money system and its natural associations — monopoly and exclusive privileges — have already struck their root too deep in the soil, and it will require all your efforts to check its further growth and to eradicate the evil …
The men who profit by the abuses and desire to perpetuate them will continue to besiege the halls of legislation in the General Government … and will seek by every artifice to mislead and deceive the public servants …
You have no longer any cause to fear danger from abroad; your strength and power are well known throughout the civilized world …
It is from within, among yourselves — from cupidity, from corruption … and inordinate thirst for power — that factions will be formed and liberty endangered.
It is against such designs, whatever disguise the actors may assume, that you have especially to guard yourselves …
… Providence has showered on this favored land blessings without number, and has chosen you as the guardians of freedom, to preserve it for the benefit of the human race.
May He who holds in His hands the destinies of nations, make you worthy of the favors He has bestowed, and enable you, with pure hearts and hands and sleepless vigilance, to guard and defend to the end of time, the great charge He has committed to your keeping.”
Self-Educated American Contributing Editor, William J. Federer, is the bestselling author of “Backfired: A Nation Born for Religious Tolerance no Longer Tolerates Religion,” and numerous other books. A frequent radio and television guest, his daily American Minute is broadcast nationally via radio, television, and Internet. Check out all of Bill’s books here.