CENTRAL BANKS AND THE HISTORY OF BANKING IN AMERICA

by Dr. Lawrence Wilson

© December 2017, L.D. Wilson Consultants, Inc.

Modern banking in Europe and America, and indeed most nations, depends upon several concepts. These include central banking, debt currency, the fractional reserve system and often government bailout of banks that get into financial trouble. Unknown to most people, these ideas combine to impoverish nations and often cause wars and social decay.

This article begins with basic concepts of banking, followed by a history of banking in America, from before the American Revolution to the present. It is very condensed and most of it taken from an unusual and fascinating book, the Creature From Jekyll Island, by Edward Griffin.

This book, more than any other, shows why capitalism is the best system and why bankers hate this system of economics and do all they can to ruin it. This is happening in America and the entire world today.

CENTRAL BANKING BASICS

Why money? Money is like the blood in your body. It is the medium of exchange that permits people to buy and sell all goods and services easily and safely. Just as with blood, any blockage or imbalance in the flow of money, especially in a modern society, is a very serious problem.

Intrinsic value. Some forms of money also have intrinsic value of their own, such as gold and silver. This means that this kind of money is a commodity or item that has value whether or not it is used as money. Other forms of money such as paper dollars and electronic currencies such as credit cards have no intrinsic value and are only worth what the government says they are worth. These are called fiat currencies.

Money with intrinsic value such as precious metals adds a great deal of stability to a currency. The United States Constitution clearly states that only gold and silver may be used as money in the United States. This provision of the Constitution was violated about 50 years ago in America.

Why banking? Banks are places people can safely deposit their money and earn interest on their money. The way this is supposed to work is the bank lends a certain percentage of their deposits to people who want to borrow money to buy a house, finance a business, or for other needs.

Borrowers pay a fee to have their loans from the bank. The bank keeps some of this money as profit, and pays the rest to the depositors as interest.

Banks may also offer other services for their customers such as investments, financial advice and more.

Why central banking? There is no need for one central bank in a nation or in the world. Many people can own banks, just as they own all other types of businesses.

However, banking is so vital that powerful people have wanted to control this industry more than most others. When they gain control of the people or the government of a nation, they put into place something called a central bank.

Most developed nations of the world have one of these today, although America stood alone among developed nations in not having a central bank for over 50 years at one point.

The world bankers, for lack of a better term, hated this situation because the nation was prospering too much. They used their influence and cash to make sure this independence did not last.

As a result, America has had central banks just on and off, and the most recent one has been in place since 1913. It is called the Federal Reserve System. This is a totally false name because the bank is not federal and there is no reserve. The bank is privately owned.

Let us compare how a free banking system works and then how a central bank works. The main features of a privatized banking system are:

1. Many independent banks serve the people in a diversified way, offering various services. They compete based on their record of service, safety and efficiency for the customer.

2. If one or two banks fail, it is not a big loss. A few people are out their money, but most are just fine.

With a central bank, the opposite occurs:

1. All banks must follow the orders of the central banking authority even if the orders are silly or unethical. This is the case today.

2, If the system fails, as is happening now, the catastrophe is so massive that the government is practically forced to step in and bail out the banks. This is also happening this week in Washington, D.C.

What is not said is that bailouts are part of the package with centralized banking, In other words, they depend on the fact that with a centralized system, if anything goes wrong the problem is so bad that they can force the government to intervene and save them, no matter what it costs the taxpayers. This is inherent in the centralized or cartel concept of banking.

FEATURES OF A CENTRALIZED BANKING SYSTEM

1. It has a monopoly on issuing money. This means that the government of the nation gives this bank the only privilege or right to issue money, either coins or paper money.

2. Usually, other bank currencies or methods of payment are outlawed. The central bankers do not like competition, in other words. Such laws are called legal tender laws.

In the US Constitution, only gold and silver or IOUs for these metals are legal money. However, this requirement was supposedly bypassed by the Federal Reserve Act of 1913.

In fact, this act never changed the earlier passages in the constitution, so it is not totally legal to use paper money backed by nothing at all in America, as we have today.

3. This legal tender issued by the central bank is always issued as a debt currency. This means the government must pay interest on their own money, as it were. If this sounds bizarre, it is. But we owe the Federal Reserve, in America, for example, trillions of dollars on paper, at least, because they issue our money as a debt with interest.

James Bond Movies contain more truth than the evening news. This brings up another point about the world bankers. They want everyone in debt to them, and paying them compound interest. The real owners of all this wealth are unbelievably wealthy individuals, by the way.

They stay totally out of the public view, however, so you don’t hear about them at all, except maybe in James Bond movies. In fact, the crooks in these movies are far more real than one might imagine and that is why such movies do well.

4. The central bank is privately owned in most cases. It is rarely truly a government entity, though it may be called “The Bank of England” or in America “The Federal Reserve”.

This name, by the way, is a complete deception. The central bank in America is not owned by the federal government at all, there is no reserve and it is not strictly a system.

It is privately run and controlled for the benefit of the bankers, not the American people, no matter what they claim. They do not want America to fail because their revenue would go down. Their “national” interest is for this selfish reason and not because they love America, as they often claim.

In other words, the people are deceived to believe that they or the nation owns the central bank. However, it is not true in America, Great Britain or most other nations. World bankers like to own nations, and not the other way around. This is the history of banks, bankers and banking.

5. The central bank does not print up the currency in most nations. This is left to the Treasury Departments of the USA and other nations. However, the central bank regulates how much currency is printed or issued in other ways. So it is, in fact, in control of the money supply and not the Treasury Departments of the nations.

One might ask, then, why we tolerate such as system of banking in our world. The answer is that since about the 1700s the present system was put in place by very powerful and sneaky individuals who convinced kings, rulers and others that their services were needed or there would be wars and worse things in their nations.

However, it is time for the whole show to be exposed, and hence we share this information. By the way, much more details about the central bankers is found in many books in the libraries, especially one called The Creature From Jekyll Island by Edward Griffin.

Now let us look at the history of banking in America.

THE HISTORY OF BANKING IN AMERICA

The main purpose of a colony at the time of the founding of America was to increase the wealth of the mother nation, particularly the banking class and the royalty. If others did well, that was acceptable, too.

England exported the wealth of the colonies such as cotton and tobacco, supposedly in return for protection against pirates and other enemies. America has a similar arrangement with many nations that justifies military intervention whenever the mother country desires. The system is called mercantilism. It is not “free trade”, which is trade between sovereign nations.

EARLY COLONIAL BANKING

The first American experiment with paper money was from 1690 to 1764. Starting with Massachusetts, most colonies began printing up “bills of credit”. The process was simple and direct. There was no central bank. Benjamin Franklin remarked concerning this system:

"This is simple. In the colonies, we issue our own money. It is called Colonial Script. We issue it in proper proportion to the demands of trade and industry to make the products 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 anyone.”

The system worked well at first. However, the British money masters did not like the idea, of course. They live by collecting interest. They made sure too much was printed and so it lost value.

The results were predictable. As more and more money was printed, the value of the money decreased. Prices started rising. People began to distrust the local currency and demanded gold or British money. As a result, laws were passed to force people to accept the worthless paper. These are called “legal tender laws” (which we have today). This just made people angrier.

Inflation became intense. In Connecticut, prices rose by 800%, the Carolinas it was 900%, in Massachusetts prices rose 1000% and Rhode Island 2300%. There was much hardship and great personal loss.

In 1751, the situation was so bad the British parliament stepped in and outlawed the printing of all money in the American colonies. This, of course, was the hidden objective all along for the British bankers. Henceforth, only the Bank of England would supply money in the colonies.

While the effects were positive in some ways due to stable money, the colonists were angered by this heavy-handed approach. Benjamin Franklin believed this was an important factor in causing the American Revolution. He wrote in 1755:

"The colonies would gladly have born the little tax on tea and other matters had it not been that England took away from the Colonies their money, which created unemployment and dissatisfaction.”

THE REVOLUTION WAS IN PART ABOUT MONEY

Thus the creation and control of money had something to do with the American Revolution. It was not simply high taxes, because the taxes were not high. It was control of the currency.

In addition, according to many sources, the British bankers were the ones who finally allowed the American Revolution to be successful. According to the story, when things looked very grim for the ragtag American army, the bankers saw their opportunity. General George Washington lacked money to pay his soldiers, not mention funds for supplies of every kind.

A message was sent that if America agreed to a central bank under foreign control (British), that funds would be lent to the Americans. Washington quickly accepted the offer, due to a very desperate situation. Soon the British “tired of the war” and the Americans emerged victorious. Here is a quote by Revolutionary War historian Bill Still:

“American (colonists) had learned the secret of money and that genie had to be returned to its bottle. The owners of the Bank of England inspired (or at least allowed a successful) Revolutionary War to put the American people's money system out of business and to establish a national bank owned by them. They succeeded temporarily”.

THE FIRST CENTRAL BANK IN AMERICA

The first central bank was chartered in 1781, while the Revolution was still going on. It began operations the following year. Its name was grandiose, The Bank of North America, because many banking families felt that the colony to the north, Canada, would soon join the rebels in America to form a North American nation.

Robert Morris, the main force behind the bank, was a politician and wealthy merchant who had profited greatly from trade with England. He had studied the secret science of money and knew about interest-bearing money, the benefits of inflation of paper money for bankers, and he knew about fractional reserve banking. These are among the most important aspects of central banking. He wanted America to be just like England in this regard.

The Bank, as we will call it, was essentially privately owned. However, it received a monopoly on issuing money in the new nation. (This was a pattern to note, as it has been repeated many times in history). Also, the government accepted their paper money as payment for all taxes and other government debts. Also, the bank was made the official depository for all federal funds. No law was passed demanding that people accept the bank’s paper, but the facts above made their banknotes very attractive as the circulating money in the new nation.

THE DEMISE OF THE FIRST CENTRAL BANK

This first central bank had a short life. Its founder, Morris, was greedy and printed too much paper money. Also, the people hated the bank, as they knew it was a carbon copy of the Bank of England. They preferred using gold coins and other locally-printed paper money.

Murray Rothbard, another financial historian, wrote in Mystery, pp.194-195:

“Despite the monopoly privileges conferred on the Bank of North America, and its nominal redeemability in specie (gold), the market’s lack of confidence in the inflated notes led to their depreciation outside the Bank’s home base in Philadelphia. The Bank even tried to bolster the value of its notes by hiring people to urge redeemers of its notes not to insist on (gold) – a move scarcely calculated to improve the long-run confidence in the Bank.

After a year of operation, Morris’s political power slipped, and he moved quickly to shift the Bank of North America from a central bank to a purely commercial bank chartered by the state of Pennsylvania. By the end of 1783 … the first experiment with as central bank in the United States had ended.”

THE SECOND CENTRAL BANK IN AMERICA

The idea of a central bank was far from dead, however. The new Constitution of the United States, which replaced the failed Articles of Confederation, forbade the government from printing money. To avoid inflation, the founders of the nation tried to insist that gold and silver coins minted by the government would be the only “legal tender” in America.

However, a flaw was left in the Constitution. The federal government could borrow paper money. This fact is what the bankers, many of whom were elected in the Congress, exploited. Alexander Hamilton, firmly in the banking class, became the first Secretary of the Treasury. In 1790, he introduced legislation to establish a new Bank of the United States. Hamilton, by the way, was a former aide to Robert Morris, founder of the first Bank of North America.

On the other side of the debate was Thomas Jefferson, who was then Secretary of State. He was extremely outspoken about it. He wrote:

"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks... will deprive the people of all property until their children wake up homeless on the continent their fathers conquered...”

“A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army. We must not let our rulers load us with perpetual debt.”

Alexander Hamilton answered back:

“No society could succeed which did not unite the interest and credit of rich individuals with those of the state” “A national debt, if it is not excessive, will be to us a national blessing.”

What he meant here in veiled language is that the national debt is a great blessing to the bankers, because they collect the interest on the debt. This is still the case today.

Another outspoken critic of the central bank was president James Madison. He wrote:

"History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance."

After a year of intense debate, Hamilton won out. In 1791, the Bank of the United States was granted a 20-year charter, just as the bankers had been promised during the Revolutionary War.

THE DEMISE OF THE SECOND CENTRAL BANK

It was no surprise that the Bank of the United States was modeled closely after the Bank of England. It was also essentially a continuation of the failed Bank of North America. It even had the same president, Thomas Willing.

It was given a monopoly on the issuance of paper money, there were no legal tender laws, but its banknotes were deemed the official legal tender for payment of government obligations. Also, once again it was made the official repository of government funds.

Officially, it had to redeem its paper in gold upon demand. However, it was not forced to keep enough gold on hand, so that was only a theoretical requirement.

Eighty percent of the bank’s investors were to be private individuals, including foreigners, while the federal government was to put up only 20 percent of its funds. In other words, the bank could be easily controlled by private foreign individuals. This, too, was identical to the old Bank of North America.

In actual fact, private individuals put up only a meager $675,000 out of a supposed $10 million. The rest was “borrowed” from the government and by a sleight of hand trick, given right back to the government in the form of paper money that was created out of thin air. So the bankers controlled the money policies of the nation without having to invest event a pittance of their own money.

Here is a quote from Gustavus Myers, from his History of the Great American Fortunes:

“Under the surface, the Rothschilds (the dominant European banking family even today) had a powerful influence in dictating American financial laws. The law records show that they were the power in the old Bank of the United States.”

INFLATION COMES AGAIN TO AMERICA

The government borrowed and borrowed more and more paper money from the Bank of the United States. Within five years, wholesale prices rose 72%. This is another way to say that 42% of everything people had saved in paper money was quietly confiscated by the government through the hidden tax called inflation.

Thomas Jefferson was appalled. He wrote:

“I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the general principle of the Constitution; I mean an additional article, taking from the federal government their power of borrowing.”

The people again became angry and public opinion turned against against the bank. It was not just Thomas Jefferson, James Madison an others who opposed it on Constitutional and moral grounds. It was a coalition of freedom-minded people who did not necessarily understand banking but knew something was dreadfully wrong with giving a monopoly to one private central bank. In spite of the bankers in Congress, and all those whom they paid off, this coalition was able to repeal the Banks’ charter by one vote on January 24,1811 when it came due for renewal.

THE THIRD CENTRAL BANK IN AMERICA

The central bankers were furious with this decision and began laying plans for their return to power. Without a central bank, many state banks flourished to serve the people’s needs. This is called “free banking” because almost anyone could set up a bank, and indeed they did. These local banks competed for business. They performed several vital functions of banks:

1) Safety Of The People’s Gold and Silver. Gold and silver are real money according to the US Constitution. The people could store their gold and silver coins at the bank. This was generally much safer than keeping them at home, unless the bank was robbed or went bust, which occasionally happened.

2) Issuing Simpler Mediums of Exchange. For buying and selling, in return for storing gold and silver with them, the bank issued paper money. Swapping small pieces of paper was much easier than carrying and swapping heavy gold coins every time one wanted to buy something. The buyer would give the seller paper money and the seller would take the paper to your bank and exchange it for gold or silver, which is the real money. If the seller used the same bank as the buyer, it was even easier. The seller would simply keep the paper money and use it to buy something else from another person. This is the proper use of paper money.

Checks were soon invented. A check is better than paper money, as one does not have to carry a wad of paper everywhere. Also, one can write a check for any amount, while the paper money is only for specified amounts such as one dollar or ten dollars. Checks were a wonderful invention, although they carried much more risk for a bank. This would lead to many bank failures.

Checking had problems we do not have today. The account could be easily overdrawn. This is checked instantly today, but recall that even the telephone or telegraph had not been invented 180 years ago. So check-writing was limited.

3) Lending. Banks also found they had on hand a lot of gold and silver that they could lend to other people who wanted to build a house or start a business. This was risky, however, because the depositor might arrive at any time and want his gold coins back. The bank had to be careful that they kept on hand enough specie, as gold and silver are called, in case a depositor want to withdraw his funds.

Too much lending led to many bank failures and still does today. Rules to control lending were instituted in many states to prevent it. However, unscrupulous banks, due to greed, sometimes violated the rules and caused loss of funds for their depositors.

4) Investments. This was mainly a later offering from banks. Banks, however, can do this today.

Under this system of free banking, many banks issued checks and paper currency. This presented the problem of whether to trust the banknotes of a bank with which one is not familiar. Out of state banks were the worst problem to evaluate.

This was solved to a great degree through the free market. People began offering services to check the solvency of banks. They were like today’s Consumer Reports on banks.

A discount system developed. This means that, based on a bank’s safety rating, lists were published suggesting that if one accepts banknotes or checks from a particular bank, one should only accept 70% of the value, for example, because of the risk involved in that particular bank.

This function had been performed by the central banks in the past. However, in many cases the central bank had been in cahoots with some of the state banks and so their ratings were not always to be trusted. Independent rating companies were generally safer in this regard.

NO INFLATION TO SPEAK OF

Inflation was still somewhat of a problem because the federal government borrowed money from the state banks to pay its bills. The US Congress, as today, did not have the discipline to always stay within its budget. However, inflation at least was not institutionalized as it was in the days of the central banking.

Currency in circulation was controlled by the amount of gold available in the banks. Banks that inflated their paper or check money too much were soon out of business. In these cases, a small number of people would lose their money. Meanwhile, the rest of the nation prospered and this helped build the nation.

If the free market had been allowed to flourish, the bad banking operations would have been continually weeded out as must occur in all new industries. However, this was not to happen due to the War of 1812, a war that was likely created or at least encouraged by the bankers to create debts and the need for another central bank.

THE WAR OF 1812 WAS A BANKERS WAR

The War of 1812 was very odd. It was fought with the British over the issue of British ships stopping American merchant ships on the high seas. The American sailors were then forced to serve on British ships, supposedly to fight the French navy. European nations were almost continually fighting with each other for control of the sea and land.

However, the order to impound American ships had already been cancelled before the war was underway. Also it is notable that the Northern states, where most of the American sailors lived, was against the war. The Western and inland Southern states, where many so-called “wildcat banks” were, wanted the war.

It turns out, these Western and Southern banks were mainly controlled by the same central banking interests that had set up the earlier central banks. The banks wanted war because to fight a war the federal government of the United States had to borrow lots of money. Bankers make lots of money charging interest on loans. Without a central bank, the federal government had no choice but to go to these banks for loans to pay for the war. The Constitution forbade the Congress from printing its own money.

These state banks created enough paper money out of thin air to increase the national debt from $45 million to $127 million, a large sum for a fledgling nation. Tripling the amount of dollars in circulation, the value of the dollar dropped to about 1/3 of its former value. So even though there was no central bank, the banking interests made money by creating a war.

By 1814, it was clear to the government that many of the state banks could not back up their paper money with enough gold. They were insolvent because they had practiced fractional reserve banking. This means that they issued paper money far in excess of their reserves of gold and silver.

THE FIRST BIG BAILOUT OF BANKS

Yet the government allowed them to continue to operate. This meant a bank that they knew was operating fraudulently was allowed to stay open. These banks were technically insolvent. That is, they most likely could not pay their depositors back when they asked for their gold and silver coins they had deposited in good faith, because all the gold was all lent out to the government.

In other words, the state and federal governments, charged with enforcing basic laws, just ignored this flagrant violation of the law. When depositors would demand more gold than the bank had to give them, the bank would just close its doors and go out of business. The depositors would lose their money in most cases, and many lost their businesses as well. The bankers might or might not go on trial depending on how well they could evade the sheriff.

This was the early way the federal government bailed out banks. Later, another type of bailout was instituted. It is similar but worse because more people are hurt and the bankers often go free. It is the kind of bailouts we have today.

In this bailout, the government simply asks the central bank to print more cash and then gives it to insolvent bank or banks. The depositors are saved, at least in part, but the general public loses greatly: 1) Printing loads of paper money inflates the money, causing its value to decline. 2) The dishonest bankers still stay in business, and 3) bailing out bad banks sends a message that no bank needs to be careful with the loans it makes. In other words, the word gets out that banks can flaunt the law. This is the case today in many circles.

Bailout is a game that bankers love, and it leads them to take enormous risks with other people’s money because they know they will be protected. It is pattern that would be repeated many times in the nation’s history.

THE THIRD CENTRAL BANK

There was monetary chaos in the United States at the end of the War of 1812. Congress could have stopped it by bringing those to trial who had acted fraudulently, and allowed the losses to be taken. Sadly, however, the American Congress, filled with many of the banking group, had neither the wisdom nor the courage to do this. Instead, in 1816 they approved a charter for another central bank to be called The Second Bank of the United States.

In most every respect, this bank was a carbon copy of the previous Bank of the United States. The only difference was Congress basically extracted a bribe from the private investors of $1.5 million “in consideration of the exclusive privileges and benefits conferred by this act.”

The bankers were glad to pay the fee, not only because it was a modest price for such a profitable business, but also because the government agreed to deposit one-fifth the total capitalization, which would then be used to manufacture most of the remaining startup capital out of thin air.

The charter required the bank to raise $7 million in gold and silver, but even after its second year, the amount never reached more than 2.5 million. Once again, the central bankers had carved out a profitable niche while the gullible taxpayers paid for it in the name of “banking reform”.

Another similarity to the previous banks was the concentration of foreign investment. The third central bank was as rooted in Great Britain as the first.

Immediately, problems began. The central bank was not supposed to accept banknotes of state banks that were not solvent. However, when the state banks retaliated by demanding gold of the central bank for their depositors, the central bank often caved in and relaxed their policy. The banks major historian, Ralph Catterall, in The Second Bank of the United States, wrote:

“So many influential people were interested (in the state banks) as stockholders that it was not advisable to give offense by demanding payment in specie, and borrowers were anxious to keep the banks in the humor to lend.”

INFLATION AGAIN

So the old problem of inflation began to occur almost immediately again as soon as the new central bank got started. A free market would have weeded out the bad banks. The central bank kept them alive. Galbraith writes:

“In 1816, the postwar boom was full on; there was especially active speculation in Western lands. The new (central) Bank joyously participated.”

Also, they did not stop the state banks from participating as well. In 1817, Pennsylvania charted 37 new banks. Kentucky chartered 40 new banks. The number of new banks increased 46% in just the first two years following the charter of the third central bank.

Any spot along a road that had “a church, a tavern or a blacksmith shop was deemed a suitable place for setting up a bank”. (from Angell, N., The Story of Money, 1929, p. 279.) In that time period the money supply expanded by an additional $27.4 million, which amounted to an inflation rate and loss of value of money of about 40%.

THE FIRST “BOOM-BUST CYCLE” AND THE DEPRESSION OF 1819

I will quote Murray Rothbard as to what happened next:

“Starting in July 1818, the government and the …(third central bank) began to see what dire straits they were in; the enormous inflation of money and credit, aggravated by the massive (banking) fraud, had put the (central bank) in danger of going under and illegally failing to maintain (gold) payments. Over the next year, the (central bank) began a series of enormous contractions, forced curtailment of loans, contraction of credit in the South and West…

The contraction of money and credit swiftly brought to the United States its first widespread depression. The first nationwide “boom-bust” cycle had arrived in the United States… The result of this contraction was a rash of defaults, bankruptcies of business and manufacturers, and a liquidation of unsound investments (made) during the boom.”

In The Documentary History of Banking and Currency, Herman Krooss writes:

“The (central) Bank, as the largest creditor (to the state banks) had two alternatives: it could write off its debts, which of course would have wiped out the stockholders’ equity and resulted in (its) bankruptcy, or it could force the state banks to meet their obligations, which would mean wholesale bankruptcy among the state banks. There was no doubt about the choice… The pressure placed upon the state banks deflated the economy drastically, and as the money supply wilted, the country sank into severe depression.”

Historian William Gouge observed: “The (central) bank was saved, and the people were ruined.”

THE SUPREME COURT UPHOLDS THE BANK

In a landmark decision that determined the fate of the new nation, the Supreme Court in McCulloch v. Maryland upheld the right of the central bank to destroy the state banks.

The question before the court was the constitutionality of a central bank. Although the Constitution forbade the government from printing money, the judges ruled that the central bank was necessary “to carry out the functions of the government”. This was nothing more than an end run around the Constitution that has never yet been reversed. We hope one day it will be.

Meanwhile, it laid the foundation for all future central banking and effectively rendered null and void the provision of the Constitution prohibiting the government from issuing inflated paper money.

THE PUBLIC HAD ENOUGH OF THE BANK

America recovered from the depression of 1819. However, the American people were angry at the central banking concept that the high court had upheld. Completely unlike today, most high schoolers knew that only gold and silver are legal money.

Most adults understood that paper money is subject to massive fraud by manipulating its supply. Inflation, most knew, is due to bankers and government officials, and is not due to chance. They also understood that inflation destroys the value of their paper money. Finally, they understood that recessions and depressions that can destroy their homes and their businesses, are directly due to bankers and government policies, not chance. To restore this basic knowledge is the purpose of this article.

The state banks sided with people on this issue. They hated the fact that the central bank was bailed out by the government during the Depression of 1819, while they were not.

ANDREW JACKSON AND THE END OF THE THIRD BANK

A breath of fresh air arrived when Andrew Jackson was elected president in 1828. His new Democratic Party was founded in part with the goal of ending the central bank.

Once in office, Andrew Jackson wasted no time building support in the Congress to abolish the central bank. He was opposed by one of the most powerful men in American history, Nicholas Biddle. He was president of the central Bank. He was brilliant and arrogant, and had loads of support of the British banking community.

Mr. Biddle understood the secret science of banking very well. He had no intention of losing his bank to the people of America. However, he would not win this fight.

At first, Andrew Jackson was thwarted at every turn. For practical purposes, Mr. Biddle owned the Congress. Following an old bankers formula, Mr. Biddle had been careful to reward politicians who voted his wishes. Galbraith also writes:

“…He (Biddle) had regularly advanced funds to members of Congress when delay on appropriation bills held up their pay… Numerous men of distinction had been accommodated, including members of the press.”

In 1832, the bank had another four years to go on its charter. Mr. Biddle, however, decided not to wait until the charter ran out before introducing a bill for its continuation. It was an election year and he reasoned that Andrew Jackson would not veto such a bill as it would cost him votes and money.

President Jackson decided to place his entire career on this issue and vetoed the bill. He also delivered several speeches on the subject that are among the most compelling Constitutional arguments against a central bank. He basically flaunted the McCulloch vs. Maryland Supreme Court decision, pointing out 1) the injustice of a government-granted monopoly to the Bank, 2) the unconstitutionality of the Bank, even if it were just, and 3) the danger to the country in having the bank heavily dominated by foreigners. The following quote of Jackson’s is from a book by Krooss, pp. 22-23:

“It is not our own citizens only who are to receive the bounty of our Government. More than eight millions of the stock of this bank are held by foreigners. By this act the American Republic proposes virtually to make them a present of some millions of dollars…

It appears that more than a fourth part of the stock is held by foreigners and the residue is held by a few hundred of our own citizens, chiefly of the richest class. For their benefit does this act exclude the whole American people from competition in the purchase of this monopoly and dispose of it for many millions less than it is worth.”

President Jackson also noted that the president and the Congress may override a Supreme Court decision, according to the Constitution. This is most important to consider in this day and age as well. Jackson also mentioned in his speeches that the balance of power concept is designed to make the government run inefficiently - that is, to consider many viewpoints, and not to bow to one branch or the other branch of government. Andrew Jackson took his case to the people and overwhelmingly won re-election. He received 55% of the popular vote, with only 35% going to Henry Clay and 8% for Mr. Wirt.

However, Mr. Biddle was just beginning to fight. He worked tirelessly with every manipulative method possible to overcome Jackson’s position and popular appeal. John Randolph, a fiery old Congressman, noted jokingly:

“Every man you meet in this House or out of it, with some rare exceptions…is either a stockholder, president, cashier, clerk or doorkeeper, runner, engraver, paper-maker, or mechanic in some other way to a bank”

Jackson’s biographer describes the Jackson’s method of fighting back as follows:

“On his homeward journey, he reportedly paid all his expenses in gold. “No more paper money, you see, fellow citizens”, he remarked with each gold payment, “if I can only put down Mr. Biddle and his monster bank”. Gold, hardly the popular medium of exchange, was held up to the people as the safe and sound currency which Jackson and his administration hoped to restore to regular use. Unlike paper money, gold represented real value and true worth. It was the coin of honest men. Rag money, on the other hand, was the instrument of banks and swindler to corrupt and cheat an innocent and virtuous public”. (Our paper money, even today, is made out of old rags.) Here is another quote from a speech by Andrew Jackson:

"If Congress has the right under the Constitution to issue paper money, it was given them to be used by themselves, not to be delegated to individuals or corporations."

The Bank still had four years to go on it s charter, which Mr. Biddle would use to strengthen his position. Jackson countered by ordering the Secretary of the Treasury to place all new deposits in state banks and pay bills out of funds in the central bank until the government’s balance in the central bank was down to zero. When the Secretary did not comply, Jackson quickly fired him, going against a gentler tradition.

Mr. Biddle counterattacked by canceling loans and contracting the money supply to cause monetary chaos. This, he hoped, would be blamed on Jackson’s withdrawal of funds from the bank and would turn public opinion against him. Mr. Remni wrote:

“It marked the beginning of a bone-crushing struggle…He (Biddle) knew that if he brought enough pressure and agony to the money market, only then could he force the President to restore the deposits.”

Biddle declared:

“Nothing but widespread suffering will produce any effect on Congress… All other banks and all the merchants may break, but the Second Bank of the United States shall not break.”

For a while it looked like this plan would work. Jackson was ridiculed daily in the Congress for 100 days. A resolution of Censure was introduced into the Senate, and passed on March 28, 1834. The president, however, also had plenty of supporters in Congress. Once he was reported to have said to a group of Bank supporters: “You are a den of vipers. I intend to rout you out and by the Eternal God I will rout you out.”

An investigation of the bank was launched by the House of Representatives, which largely supported the President. Mr. Biddle refused to comply with subpoenas to examine the books of the bank and correspondence with Congressman he had paid off. He also refused to testify in Congress.

For any other mortal, this would have meant a stiff fine or imprisonment, but Biddle was so powerful that Congressional Democrats, many of whom were on the take, refused to grant a citation of contempt of Congress. However, the action further condemned Biddle in the eyes of the public.

Mr. Biddle went even further, sad to say. On January 30, 1835 an assassination attempt was made on the President, the first in American history. Miraculously, both pistols misfired. The would-be assassin, Richard Lawrence, was caught but was found not guilty due to insanity. According to Robert Donovan, in his book, The Assassins, Lawrence boasted to friends that he had been in touch with powerful people in Europe who had promised to protect him from punishment should he be caught.

Andrew Jackson, meanwhile, was wise in other ways. By this time he had completely paid off the national debt from the War of 1812 and ran a budget surplus. He ordered the Treasury to give back to the states more than $35 million, which was used for a variety of public works projects.

Finally, in 1836, the charter of the Second Bank of the United States expired and was not renewed. Biddle was soon arrested, charged with fraud and died soon after. It was to be just a temporary defeat for the bankers, however.

THE CIVIL WAR

Most people believe the American Civil War was fought over the issue of slavery. This is true to some extent. However, much more was at stake. The war was about individual property rights, states rights and the right to secede from the Union of the states, and it was about fractional reserve banking as well.

The European bankers had just suffered what they felt was a grave defeat in America. They were not about to stand by and allow the new nation of America, with its democratically elected government, to take over the world, which they feared.

The London Times printed the following quote by Otto von Bismark, the emperor of Germany, around the time of 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 the government will furnish its own money without cost. It will pay off its debts and 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. They will not hesitate to plunge the whole of Christendom into wars and chaos in order that the earth should become their inheritance."

The monarchs and their controllers, the bankers, decided that America would have to be broken up into two small nations that would fight with each other, keeping both weak and, of course, in debt to them. This was a general plan of events. If this sounds preposterous, it is not. Here is another quote attributed to Otto von Bismark, the ruling monarch of Germany and Austria at the time:

“The division of the United States into federations of equal force was decided long before the civil War by the high financial powers of Europe. These bankers were afraid that the United States, if they remained in one block and as one nation, would attain economic and financial independence, which would upset their financial domination over Europe and the world. Of course, in the “inner circle” of finance, the voice of the Rothschilds prevailed. They saw an opportunity for prodigious booty if they could substitute two feeble democracies, burdened with debt to the financiers,… in place of a vigorous Republic sufficient unto herself. Therefore, they sent their emissaries into the field to exploit the question of slavery and to drive a wedge between the two parts of the Union… The rupture between the North and the South became inevitable; the masters of European finance employed all their forces to bring it about and to turn it to their advantage.”

This quote sounds like conspiracy theory. However, this is exactly how the banking interests operate, even today. They know what they want and they make it happen as best they can.

The European financiers set to work to divide the new American nation and destroy it in this way. Their main ally in this was the fact tthat the North was industrial while the South was more rural and agricultural, though by no means was this an exclusive difference, as there was plenty of agriculture in the North and some industry in the South. However, the South grew cotton, which was heavily labor intensive and thus the slavery system had been brought in to help the farmers.

In fact, however, slavery was on its way out as a way of life in the Southern United States. The invention of the cotton milling equipment had rendered slaves more trouble than they were worth in many instances. Many Southern plantation owners also were disgusted with the practice themselves. Many were decent people who inherited the system from their parents and forefathers.

However, converting over to the new manufactured equipment would take some years, and even Lincoln knew this. He wrote his famous words:

“My paramount object in this struggle is to save the Union, and it is not either to save or destroy slavery.”

However, Lincoln was a Republican and was elected on a platform in part that he would abolish slavery. This made the South very nervous, so his words rang hollow to many people in the South and even in the North.

Lincoln, however, was well aware of the designs of the European banking class. He took steps a best he could to oppose them, which is why he violated the Constitution. Lincoln did two things, primarily, that trampled the provisions of the Constitution, but kept the Union in one piece.

The two steps he took that were unconstitutional were 1) the forced drafting of men into the army, done in both the North and South because neither side really wanted a war, and 2) the forced funding of the war with paper money. This was needed to bribe men to sign up for military service and to pay the enormous expenses of a war.

THE RUSSIAN CONNECTION

Another fact that rarely makes it into the history books is that the Union was saved, perhaps, not by guns and bullets on one side or the other, as much as by the intervention of the Czarist empire of Russia. The motive for the intervention was that Britain, France and Germany were ganging up on Russia in an attempt to destabilize that empire. And why, because they did not have a central bank run by the British and French banking establishment. This made them sworn enemies.

The Russian Czar, meanwhile, understood that the American Civil War was about banking. In September, 1863, the Czar sent his Baltic fleet of ships to Alexandria, Virginia and his Asiatic fleet to San Francisco. Russian-born historian Carl Wrangell-Rakassowsky wrote:

“No treaty was signed between Russian and the United States, but their mutual interest, and the threat of war to both, unifed these two nations at this critical moment. Paragraph 3 of the instructions given to Admiral Lessovsky by Admiral Krabbe, at that time Russian Secretary of the Navy, dated July 14, 1863, ordered the Russian fleet, in case of war, to attack the enemy’s commercial shipping and their colonies as to cause them the greatest possible damage. The same instructions were given to Admiral Popov, Commander of the Russian Asiatic Fleet (then off the coast of San Francisco).”

The Russian Czar sided with the North, while the British, French and Germans tended to side with the South. The presence of the Russian fleet made possible a devastating naval blockade of the South by the North. The war might have turned out very differently had it not been for the Russian intervention on the side of the North.

THE BANKERS FOILED

Lincoln’s bravery and contempt for the Constitution, and the Russian intervention, foiled the grand scheme of the European bankers in America - for a while. The Union was saved, although at a tremendous cost in lives and funds.

It also left the United States government with huge debts that needed to be paid somehow. Lincoln did this by printing United States banknotes, another technical violation of the Constitution, which states that the government shall coin the money and fix its value. However, it does not authorize the printing of paper money.

In fact, many methods, not all perfectly legal, were used to finance the Civil War. Most important, however, Lincoln did not use debt money to do it. He understood that this would enslave the nation to the European banking class. They had to wait in the wings, as it were, because Americans were too wary of foreign intervention in their financial system. Instead, Lincoln decided the government should issue money. He said of this:

"The Government should create, issue, and circulate all the currency and credits needed to satisfy the spending power of the Government and the buying power of consumers. By the adoption of these principles, the taxpayers will be saved sums of interest. "

"The people can and will be furnished with a currency as safe as their own Government. Money will cease to be master and become the servant of humanity. Democracy will rise superior to the money power."

Lincoln’s “greenbacks”, as they were called due to their color, were not to succeed. Too many were printed, in part out of dire necessity, in part due to greed and in part influenced by the bankers, who of course wanted them to fail. As the greenbacks multiplied, their value decreased until they were worth very little. This delighted the European bankers, of course.

After several years, Lincoln was forced to turn to American bankers, or so he thought, to pay the Civil War debts of the nation. In return for their loan, the bankers insisted upon the creation of another Bank of The United States, which issued a debt currency of the type used throughout Europe.

THE BANKING ACT OF 1863

In 1863, Congress, now only the Northern states, passed the Banking Act of 1863. It was a landmark piece of compromise legislation in that it allowed the federal government to set up a central banking system, supposedly without the European bankers. It essentially set up not one central bank, but a system of national banks that were equally funded by the federal government with government bonds. These were then exchanged by the banks for US government currency. The banks had to keep a certain amount of reserves, but it was low, about 12%.

The result of this system was somewhat predictable. Inflation, booms and busts and what were called panics, in which money contractions forced many bankruptcies of businesses in debt. In fact, however, it was an attempt at central banking that worked fairly well, although plagued by inflation and panics at times. It did allow great prosperity in the United States in the later half of the 19^th century.

However, many people knew this was not true ‘free banking’, as it was sometimes called. Horace Greeley, a famous orator of the day, wrote:

"We have stricken the (slave) shackles from four million human beings and brought all laborers to a common level, not so much by the elevation of former slaves as by practically reducing the whole working population, white and black, to a condition of serfdom. While boasting of our noble deeds, we are careful to conceal the ugly fact that by our iniquitous money system we have nationalized a system of oppression which though more refined, is no less cruel than the old system of chattel slavery."

THE FEDERAL RESERVE ACT OF 1913

The story of the passage of the Federal Reserve Act of 1913 is too long to tell in detail in this article. It was passed in the middle of the night, after numerous Representative and Senators had been paid to take vacations or otherwise not be present at the vote. It involved significant intrigue that amounts to sabotage of major proportions.

It was signed by President Woodrow Wilson, who was falsely informed that it would stop the boom-bust cycle that plagued America and most other nations.

The Federal Reserve Act gave complete control of America's money to a private corporation called the Federal Reserve. The name is a complete fraud, as it is not federal and there is no reserve. A few years later President Wilson reflected:

"I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is now concentrated (in the hands of a few men). The growth of the nation, therefore, and all our activities are in the hands of a few men.

We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by free opinion, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men."

Senator Louis McFadden, for 22 years Chairman of the U.S. Banking & Currency Commission, wrote:

“The Federal Reserve (a privately owned corporation) is one of most corrupt institutions the world has ever seen."

THE CARTEL SYSTEM AND ITS CORRECTION

The central bankers worked together, although they were technically competitors, to set up what is basically a banking cartel in America. This was always their aim. It is very similar in theory to the AMA, which set up a medical cartel in America. Other nations, of course, have their own cartel system, often even more deeply entrenched than those in America.

In the case of medicine, the cartel group shuts out the competition mainly through licensing laws. Other laws help as well, such as laboratory licensing, hospital licensing, drug prescription laws, and more. In the case of banking, the cartel makers shut out the competition by setting up the federal Reserve System with a monopoly on the issuance of currency in America.

It is important to see that the goal was essentially the same. It was to set up a government-enforced monopoly that gives power only to a small group and shuts out the rest of the competition, regardless of whether the competition offers a better service to the public.

The methodology was different in these two cases, although what is and was the same was the widespread use of deceit and cruel methods including assassination, character defamation and all its cousins, when needed to achieve their goals. They used the old communist principle that the ends justified the means. In other words, any means were used to achieve their goal.

This state of affairs needs to be remedied, not by more government monopoly, whether it be in the healing field or finances. It can only be removed by undoing the government principle of giving monopoly privileges to one group over the others. This is what must change for the United States to be free and prosperous and healthy once again. Thus it is with dismay that we watch the nation slipping into socialized medicine, for example. For this is a total government monopoly in the healing field. This “fight” is led by the Democrats, unfortunately, as they have a large power base, which includes, oddly enough, the big corporations who now cannot afford private health care insurance for their workers. We would contend that they never should have been forced to provide insurance, but that is the law, thanks again to the insurance industry, which is part of the medical cartel.

INFLATION IS THE RESULT

These two aspects of modern banking: 1) creating paper money out of nothing and 2) the fractional reserve system, lead inevitably to inflation. Inflation is just an increase in the supply of money. In the case of the central bank, they create money out of thin air. In the case of the local bank, they also essentially create money out of thin air because they can lend up to 5 or 6 times the amount that they take in in the form of deposits.

As a result of their wealth and ability to issue money, the bankers effectively controlled and continue to control the British and often the American government. One of the most famous banking families in Europe is the Rothschild family. (They are not Jewish but took a Jewish name, according to my guides.) In 1796, Mayer Anselm Rothschild wrote:

"Permit me to issue and control the money of a nation, and I care not who makes the laws..."

A PICTURE OF NON-CARTEL HEALING AND BANKING

Banking. Banks should be places people can safely store their valuables and cash. Computers have changed the way banks to business, and can make banking much more transparent. Here are the basic tenets of the new banking system:

1) Banks must not be permitted to engage in fractional reserve banking. This means that all money placed in the bank remains there, unless the depositor agrees to take a risk by allowing the bank to lend out their cash.

Also, the depositor could keep other valuables such as diamond rings or a gold coin or bracelets and could instruct the bank, if the depositor wishes it, that the bank may use these as collateral for a loan to another person. The depositor would receive interest on the loan, in return for the risk involved in allowing the bank to either lend out some of the depositor’s cash or use the depositor’s valuables as collateral, say for a real estate or auto loan.

By this means, banks would be prohibited from coining money, as it were, through the fractional reserve system. There would need to be very stiff penalties and complete recording of deposits in order to enforce this system, as it is very easy for banks to succumb to the temptation to lend out cash on hand when it should remain in the bank.

2.) Banks may make loans only to the extent that the depositor’s agree to take the risk. For example, one may be given a choice as a depositor as follows:

a) Your funds can all stay in the bank. There will be no interest on this money.

b) You may place some of your funds in a low-risk money market type of interest-bearing account.

c) You may make your money available for loans to others. Different loan categories might offer different interest rates depending on the risk level. For instance, home mortgages might pay one rate and auto loans might pay a different rate.

d) The same would be true of your valuables. They can stay put in the safety deposit box and earn no interest. Or one could earn interest on them by allowing the bank to use them as collateral for loans or other business activities. This would also involve some risk to the depositor or owner of the valuables.

3) Banks would charge fees as needed to cover the cost of their services. Today these fees are often hidden because the bank uses your money for loans and other purposes, so it does not need to charge fees on all accounts.

4) Bank loans would fall into different categories depending on the risk involved. That risk would be passed on to the depositor. This has been stated differently above, and is repeated just for emphasis. The risk level, therefore, would be up to the depositor, not up to the bank or government regulators who tend to bail out bad loads by banks.

ABOLITION OF THE FEDERAL RESERVE SYSTEM

In addition to these ideas, the Federal Reserve would be abolished in favor of the above system. Also, government would get their funding by issuing its own currency in amounts needed for trade. However, the key to this is that each citizen would receive this money equally. In other words, the government would not have this money to spend. The people would be given the money to spend. This would be very hard on politicians, who love to spend other people’s money. It is, however, the only fair way to distribute credit money. There would be no interest to pay on the money, as there would be no central banks.

GOVERNMENT SOURCES OF REVENUE

Government revenues are best obtained through taxes that are transparent and clear to everyone. These would include but not be limited to taxes or duties on imports, a savings tax, a savings tax on all bank deposits of say 1% annually, and possibly even a sales tax, as has been suggested and which is used by states and localities now. These taxes are obvious and transparent and easy to calculate, unlike the income tax and the VAT tax used in Europe and elsewhere. These are best avoided as they are too subject to political manipulation and control by special interest groups.

The rich would still pay the lion’s share of the taxes through the savings tax. This is not ideal, since we would like to reward savings. However, it is fairer than an income tax and much easier to calculate without having accounts and tax lawyers swarming over everything one owns and earns.

BANK EVALUATIONS

Banks would be private companies and would be rated just like automobile companies or dishwasher manufacturers. In other words, consumer groups would be allowed to rate banks for safety, customer service, interest rates and so forth. Private ratings would be far better than a centralized bank regulatory commission as we have today. This is too easily infiltrated by the large banking cartels.

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