Why Silver and Gold have been the Money of History

October 10th, 2012 → 3:31 pm @ // No Comments

Silver and Gold — Why Banks Hate Them

The need to trade has been core to our survival as a species.
As human civilization advanced, humans have been trading with
each other from the beginning. The first trades were in all probability
accomplished through bartering, which is nothing more than
exchanging one thing for another. Before there was money, as in,
before anything was agreed to be money, trades were calculated and
settled in units of the needed or wanted items being traded, ranging
from animal skins to stores of grain. Any item up for trade is called a
commodity.

If one thing was rarer or harder to get, it would bring multiple
numbers of other, easier to obtain or more plentiful items. Over time it
would be settled as to how many of each item could be traded for how
many of other traded items, or in other words, things would begin to
find their fair price, as calculated in units of each other.

Agreements would be struck between traders, and as cultures grew
more sophisticated, between collectives of traders, for the exchange of
goods and services. Places where traders brought their wares and
where trading occurred on an on-going basis, became known as
markets. From top to bottom within any society there has developed
different scales of economy, as there has been everything from small
interpersonal trading, all the way up to trades between entire groups of
humanity–be it tribes, peoples, nations, kingdoms or empires.
There are problems with direct trade or barter of one item for
another. The process comes to a grinding halt if traders don’t need or
don’t want what the other has at the time and the place they come
together. Mankind will always come to the point where there is need of
a way to store and transport wealth, derived from one source or
another.

Some items of value, like land for example, cannot move from one
place to another. Some types of wealth may be in the form of items
that can be moved, but not easily, usually being increasingly difficult the
more wealth of that item is to be moved. Some types of wealth cannot
be stored long, such as fresh produce, and lose all or most of their value
after a certain amount of time. Others are hard to put a price on, since
some items are worth more depending upon where they are. The very
same item may be plentiful and of little value in one place, while
simultaneously being hard to come by and highly valued elsewhere.
Barter is limited to here and now, which compels the need for what
we call money. It is arguably a “which came first, the chicken, or the
egg”-type question, as to which came first, complex society or money,
as lively, long distance trade is essential for complex civilization.
Whenever money has not been available, or convenient, barter returns
as the process of trade.
Money is portable wealth that can be used as a way to appraise the
value of specific amounts of other things, and can therefore be used as
a medium of exchange. Its worth must be the same everywhere, so that
when measured in defined amounts, it can be agreed upon to serve as a
representation of a known standard of value. It should remain a
constant volume and mass regardless of environmental conditions, so
that it can function as a standard of measurement for the mass and
volume of other things. It must be durable.

Money is a tradable commodity that is highly valuable in and of
itself. It must be desirable everywhere and therefore it must be rare, or
precious. When traded for other commodities, it must allow wealth to
be easily quantified, compared, moved and stored. Money must be a
non-perishable commodity. If it is not traded, but kept instead, it must
not lose its value. Money must be a lasting and secure store of
represented value.

In order to be money, it has to be able to retain its intrinsic value no
matter what happens to it. It must retain the same amount-to-value
ratio, regardless of how much of it is in question. Twice as much of it
must be worth twice as much…half as much of it must be worth half as
much and so on. It must be able to be apportioned into any fixed
amount, and the amount of it must remain fixed after it is apportioned.
It must be divisible, also known as frangible.

All of these requirements are the sum total of human experience in
what constitutes money. It was early in the history of man that it was
discovered that some things filled these requirements better than
others. Throughout history, items as diverse as cowry shells to bird eggs
and rare stones have been used as money. These have all fallen short of
the requirements as have been discovered by the tests of history that
are described above. None of the above is divisible. Even the rarest of
stones cannot be divided without seriously destroying its value. All of
them can be subject to destruction and the loss of all value. None of
them are consistent, in that they may come in all sizes and conditions,
and larger or better ones must bring a higher value than smaller or
lower quality ones. None of them can be apportioned into any other
amount than the size or quality that they were found to be in the first
place. There are places where the above items have not been desirable,
and have lost their portability and therefore their tradability and value.
It was found that the characteristics of the elements that are known
as metals made them potential candidates for the substance of money.
Ending the Stone Age, it was discovered how to smelt and refine metals
and the ages of metals began. It was discovered that certain metals are
more readily available than other more precious metals. It has been a
process of discovery, trial and error to determine the plentiful or base
metals from the precious and rare.

Copper and the mixture or “alloy” of it with tin, known as bronze
was the first readily available metal. Shortly after the beginning of the
Bronze Age it became obvious that while they were not all that rare,
early copper and bronze did represent great amounts of combined
human labor to mine, smelt and forge it into shapes. Copper and
bronze have been made into coins throughout the history of money.
Iron and the mixture of it with carbon known as steel have also been
tried as metals for money. Better contenders have been found.
The earliest known financial artifacts are actually 4100 year old
records of civil law which refer to the amount of compensation an
aggrieved plaintiff is to be awarded for various offenses. The Code of Ur
Nammu, written between 2100 and 2050B.C. and similar to the more
familiar Code of Hammurabi, which it predates by as much as three
centuries, announces the standardization of units of measurement, and
among other things, is followed by lists of fines to be paid in
standardized units of silver.

The fines are delineated in Mina, which like the British pound was a
measure of weight, as well as a standard of currency for measuring
assets as represented in silver. The Mina was about 1.25 pounds
(18.371 troy ounces), or looked at another way, the pound is about
8/10ths of a mina. The concept of the Mina, as more than just a
measure of weight is made obvious by the etymology of words like
Mine-where precious metal is extracted from the ground, and Mint- to
coin metal into money. The Mina is described in the earliest cuneiform
records to be equivalent to sixty Shekels, and to correspond to 1/60th of
a Talent.

In the 3600 year old book of Genesis it is recorded that Jacob’s
favorite son Joseph was sold into slavery by his envious brothers for
pieces of silver. Silver was known to have great value and was
considered money, and indeed everywhere in the original Hebrew text
that money is mentioned, it is referred to as kesef, or silver. The exact
location is uncertain, but it appears that the word kesef or cecef is the
primary identifier of the treasure city Casiphia, a place in North
Babylonia, near the river Ahava, on the road from Jerusalem. Having
been long ago raided, the stash of precious metal is nowhere to be
found, as only a record of it still exists. There are no surviving examples
of actual money from this era, but records indicate that standard
weights and amounts of metals were in use. The basic concept of a
“talent” of gold or silver permeated the cultures of the Egyptians,
Assyrians, Medes, and Persians even lasting through the Roman Empire.
The striking of the first coin money is often attributed to the Pre-
Phoenician inhabitants of Lydia. The treasure laden Lydian king of
greatest notoriety was Croesus. His wealth was so legendary that to
this day the very rich are said to be “as rich as Croesus.” The treasuries
of Lydian kings minted coins of gold and silver, as well as of bronze, and
as in the case of what are probably the oldest real coins to have been
found, of electrum, the naturally occurring alloy of silver and gold. The
electrum coins were probably not actually used as currency since
electrum is found in a wide range of relative amounts of silver and gold,
making it inconsistent in value. Electrum coins were probably
ceremonial or officially symbolic emblems given to important or
celebrated citizenry. The fact that they were unearthed at only one
location also reinforces the idea that they were not struck for circulation
as money.

The trade of the Sea-faring Phoenicians, Etruscans, Greeks and
finally Romans circulated regional currencies all over the civilized world.
This necessitated a commodity-specific type of trader, the money
changers, that kept up with relative trading values of different monies
and could therefore provide foreign traders with the service of
exchanging regional currencies for each other.

By the time of the Roman Empire the concept of the money changer
was everywhere. The money changers treated money purely as a
commodity that they could buy low, and sell high, raking in significant
and steady profits by advantageous trading of currencies. Our word
“bank” is derived from “banca” the Old Italian word for bench, which
was the esteemed seat of business held by money changers within the
markets throughout the Roman Empire. If a money changer (or in our
terms, a banker) went insolvent, their “bench,” or seat of exchange, was
destroyed, as in “ruptured” and they were thus declared “bankrupt.”
As recorded in the gospels of Matthew and Mark, the money
changers had their tables overturned (as in they had their benches
broken, putting them out of business) and were driven from the temple
of Jerusalem by Jesus of Nazareth. Jerusalem is in what was known as
Judea, which at the time of Christ was a tributary of the Roman Empire.
The money changers would have had a significant presence in that day
and time. The reason for this one and only recorded act of violence
attributed to Jesus was the fact that the money changers had identified
a vulnerable commodity market that local conditions had allowed them
to corner.

The residents of Judea and all Jews elsewhere were compelled by
Jewish law to pay a temple tax of a half shekel. Coins of pure silver
were minted with no image of any deity, idol, ruler, or emperor for the
specific purpose of payment of the temple tax. This tax was complied
with by those that lived outside of the area during the three annual
feast times, the attendance of which was required of all Jews, including
pilgrimage by non-resident Jews to the temple at Jerusalem.
Between these mandatory feasts of “ascension” (going up to
Jerusalem) the supply of temple half-shekels would be in surplus. The
value of the temple shekel would fall on a regular cycle which allowed
the money changers known opportunities to buy up all surpluses.
During the feasts, Jews would again come from all over wanting to trade
their regional monies for the only acceptable way to pay the temple tax.
The price would adjust to the frenzy of demand, and the money
changers would make a killing. Their activities were so intertwined with
the cycle of the temple that for convenience, they set up tables, or
exchange benches right in the temple. Jesus called them on their
captive (as in not free) market opportunism, when he drove them out
saying that they had turned a house of prayer into a den of thieves.
Following the decline of the Roman Empire, merchants from the
feudal monarchies of medieval Europe still traded with each other
between financing military campaigns to loot each other’s wealth. The
fall of Rome encouraged the northern invaders who had, over the
course of generations steadily destroyed it, to continue to fuel their
economies with what they could pillage. Always and especially valuable
were the caches of gold and silver that were occasionally found stashed
within the walls of various conquered city states or that could be highjacked
from itinerant merchants. Keeping and transporting actual
money could invite disaster. Again a new type of trader found
opportunity in someone else’s trouble.

The natural participants in this new financial industry were those
who were closest to the action. The smiths who worked gold, the
goldsmiths, were already maintaining vaults where they were storing
known weights of gold or gold bullion. Some of it belonged to the
goldsmiths and some belonged to others and was held in anticipation of
amounts needed for commissioned manufacture of gold items. By
keeping predetermined amounts of the left-over scrap gold or unused
bullion, the goldsmiths made more gold on every transaction. As some
of these houses merged into associations of merchant goldsmiths, they
became prominent in developing international trade guilds. They
developed more into vault-equipped gold exchange and counting
houses and less into artisan workshops. The need for safe storage
became the name of the game then and remains to this day as the drive
for development of the science of security devices.

It was a logical step for those among them which enjoyed the best
reputation for impregnable security, for a modest account fee, to begin
to safeguard the assets of others. Customers could leave for
safekeeping deposits of gold bullion or deposits of gold coin money
assets. These were not necessarily destined to be made into anything
for use, but merely needed a secure place of deposit. It became the
custom of the goldsmiths to issue warrants and notes of deposit for gold
deposits made with them. These could be made in “denominated”
notes that cumulatively represented the deposit, or they could be a
single certificate for the entire deposit. The notes would entitle the
bearer to exchange them for their recorded value. The merchant
goldsmiths had become de facto issuers of currency.

The next logical step for the goldsmiths was to extract more wealth
from their surroundings. As their wealth steadily grew, and it was well
known by all around that they held the gold, it naturally became their
business to make loans, either in gold, or in notes that were backed by
gold, and at their maturity to receive their funds back together with
interest payable in more gold. They began to enslave those around
them through debt.

The actual gold reserves that belonged to the goldsmiths and were
therefore rightfully theirs to risk through lending could be loaned out
only so many times. That amount could be multiplied across the
combined assets of associated money markets that could extend across
borders. International banking was a necessary extension of wealthsharing
in order to bypass the limits of reserve lending.

It became readily evident that for security purposes that more
customers would be willing to take letters of credit with which to do
business which would promise that the final settlement was guaranteed
in gold. The solution was to make loans in an abstract form, without
turning over any gold. That left the gold behind so it could still be
counted as reserves and further loaned against. It is here, in the vaults
of merchant goldsmiths and in the halls of medieval money changers
where the fraudulent world of fractional reserve lending was first
invented. As long as current transactions never exceeded the reserves
on hand and could be met, there was never a problem. Except that
there was one. They were limited to the amount of gold that they
owned.

The solution was to offer a portion of the interest earnings at stake
to secure depositor’s agreements to allow their gold to be loaned
against. The idea of debt based on debt came into being as the
goldsmiths would borrow from the depositors so that they could mix
those borrowed funds with their own fractional reserves. Subsequently
being provided with a much greater reserve to carve up into fractional
lending, they would earn a mountain of interest, even after paying a
fraction of that to the depositors whose assets made it possible. Still
there was a limit to these magnificent gains as they were restricted to
the combined reserves of depositors’ assets. That fact was patently
obvious when the reserves were in physical gold.

As watchers of the money market, it was noticed by the money
changers and goldsmith that the price of things was subject to the
actions of investors, or simply that the supply and demand of any
commodity could be affected by action in the market. As originators of
money lender policies, they were in control both of the supply of
money, in that they could make loans easy to obtain, and also of the
demand for money, in that they could contract the money supply while
calling in all outstanding debt. Any loans that could not be repaid would
trigger the moneylender’s foreclosure on the borrowers’ assets, often in
the form of deposits which were the borrowers’ equity which had been
pledged as collateral before receiving the loans. More profit could be
realized as the money merchants could gently rock the economy back
and forth and pick up new clients when they relaxed lending, and pick
up the assets that were shaken out of weak hands when they called the
money in and shut the gates on new loans. The art of market
manipulation has been perfected, and part of that process has been
learning how to do it so as to not be noticed.

Spanning from there in medieval times throughout the Middle Ages
and beyond there were potential business risks for the new caste of
merchant goldsmith bankers. The populations around them, growing
weary of being in perpetual indebtedness to the goldsmiths might rise
up against them. They could be undermined by loss of market
confidence due to scandal, or by the exposure of insolvency or if
evidence surfaced of truly predatory market manipulation. The
goldsmiths’ only hope of survival would be some form of official
sanction to deflect suspicions held by populations of the impropriety of
the money changers. They actively courted the favor and attention of
government. The medieval rulers of Europe were in a constant
competition with each other to harness the most wealth and use it to
expand and protect their interests. International trade could bring
wealth from afar and Europeans had learned to look to the east, when it
came to trade.

Eastern trade brought other things that were equally valuable to the
money merchants, including tools of cipher and recording, as well as
complex economic understandings and advanced financial product
ideas. The fall of the Roman Empire had left financial and mathematical
computations in the west no heir to the roman numeral of the deceased
empire. The adoption of the Arabic numerals system had a profound
effect on the ability of financial accounts to be quickly tallied. The
concepts of checking accounts, savings accounts, and subsidiary banking
institutions all came from medieval Muslim traders.

The dawning of the renaissance, first in Italy in the early 14th
century and spreading across Europe, was heralded with a
corresponding new age of enlightened attitudes towards lending. It was
accompanied by calls from the goldsmiths to advance forward from the
antiquated policies of the past and drop the profit-limiting or otherwise
offensive laws, in order to encourage the lending necessary to finance
the ideas and projects of the new era. This is the resounding call of
bankers offered to each subsequent generation. New times call for new
measures. The resultant success of the money merchants became
legendary. It was not always in a positive light.

The picture of the public opinion of the wealth and avarice of the
renaissance goldsmith moneychanger is illustrated in William
Shakespeare’s The Merchant Of Venice where the bard develops the
picture of the red-capped moneylender Shylock, often performed as a
notoriously greedy devourer of others’ wealth. Shylock feels so legally
entitled and protected by the law which permits and sanctions his
usurious business as to demand payment of his due security which had
been pledged against a defaulted loan. Shylock demands payment from
debt co-signer Antonio in an attempt to collect the ill-advised and
prideful pledge in the sum of “a pound of flesh” to settle the liabilities of
Antonio’s friend Bossanio, the frivolous and squandering debtor. The
scene depicted is one of a society that has had just about enough, as it
has found itself enslaved by debt to greedy money changers. Shylock
petitions to be made whole with a piece literally cut off of the guarantor
of the debt. He offers pleas to the court that it would adhere to the
letter of the law in agreement with his strict interpretation and enforce
the liable Antonio’s remittance of the bloody sum. His arguments are
rejected by demonstration of a “loop-hole” in Shylock’s contract. The
court finds against him, and exposure of Shylock’s un-ethical “cruelty”
proves to be his end.

Many laws were passed in attempts to limit the uncontrolled
transfer of wealth to the money merchants by placing limits or
prohibitions on usury, which is the charging of interest. In England,
where since the 13th century there had been laws against usury, the
banks were limited from getting a financial foothold, at least at first.
The power of the money changers and goldsmiths would grow in locales
that had lax or non-existent usury laws, and be limited where these laws
were in effect. Much of the history of Europe is the behind-the-scenes
actions of associations of money merchants, as they would support and
financially favor governing authority which was favorable to the
financial sector, and aid and abet the opposition to governing authority
that was not. Governments sought use of the money merchants’ gold,
for the things it could get them. Money merchants sought legal favor
with government for the gold it could get them.

In time, the international money guilds were powerful enough to
loan to kings and to nations. The answer to the depositor reserve limit
problem had presented itself and it was, of course, to seduce the
deposits of the entire treasuries of kingdoms and of nations. The
incentive for profit was the wellspring of the central bank. It would be
the coup de grâce if a bank could entice the deposits of an entire
nation’s treasury to be placed on deposit with them. They were then in
the position to act as the agent of the government, lending into the
treasury and keeping accounts of collected tax revenues. It was only
logical that such a bank should be renamed to reflect their national
partnership and make it appear more official. No other entity would be
in a better position to convince the populace and governing authority
that they, the central new national bank should be endowed with the
authority to develop and issue into circulation a representative currency
for the banked assets of the nation.

England became the proving ground in Europe in the development
of private central banks, and the model set up there has been followed
ever since. But it did not happen overnight. Following the “War of the
Roses”, the Tudor King Henry VII consolidated power over almost all of
Great Britain, and had maintained the English claim to France, such as
the English foothold on the European continent of the ill-fated Calais
(which would later be lost under the reign of the Tudor Queen Mary I).
Henry VII died and left the royal fortune to his son at the 1509
coronation of King Henry VIII.

Henry VIII did not have the fiscal responsibility of Henry VII, and
devastated the fortune his father had left him. His lavish court
expenses and ambitious and self-aggrandizing palace-building programs
had bankrupted the coffer. His waste, ambition, and pride would
ultimately shape the end of the rule of both his family, and nearly that
of all of the English monarchs. Having depleted the fortunes his father
had left him, the revenues of the crown could no longer finance his
unbridled lavish government and mounting war expenses. Humbled
into doing what his father had not, Henry VIII convened parliament in
order to petition for financing for the costs of war. He began a program
of new taxes and import duties but it was not enough, and it irked him
to have to go to parliament with hat in hand, and have his requests be
subjected to dissent. Henry began to seek alternatives.

Finding a ripe and low-hanging fruit, Henry VIII had seized church
property following the separation of the Church of England from Papal
rule. In what is known as the Dissolution of Monasteries, Henry VIII
replenished the treasury with proceeds from confiscated lands and in
complex financial arrangements where he used confiscated church
lands as guarantees for loans from international moneyed merchant
interests. Henry VIII conspicuously enriched bankers and economic
ministers who could skillfully land financing deals for the crown. Still,
that was not enough, as Henry VIII needed more for his wars and
ambitions to expand his realm into Europe.

Henry VIII began to take more from the economy in what amounts
to an invisible form of taxation, when in 1526 and 1539 he debased the
gold and silver currency by replacing more than 40 percent of the
precious metal with less valuable base metals. This had the unintended
consequence of causing the hoarding of the more valuable un-debased
currency, and the inevitable stampede of un-debased gold and silver
coin to other economies where it did not have to compete with Henry’s
debased currency.

King Henry VIII continued to build relationships with money changer
financiers and created a favorable climate for them in England. The
charging of interest was reintroduced to England in 1545 when Henry
signed into law a decree which was deceptively named “An Act Against
Usurie” (37 H.viii 9) The act re-defined the word “usurie” as to mean
the charging of a rate of interest above the level which was “fair”
compensation for the risk and loss of other opportunity associated with
extending a loan. Henry VIII‘s policy changes made it possible for the
crown to make use of international money changer financing with loans
that had been masterminded by the likes of Richard Cromwell, whose
offspring would be instrumental in the changes of the English
Reformation. The money changers took immediate advantage and set
up shop in England.

The Usurie act had the effect that it basically handed over the reins
of the economy of England, and laid the groundwork for the money
changers, through a system of inter-connected private banking, to
ensnare the nation in debt. It remained this way for decades until the
death of Henry VIII. Henry left the national debt and his personal debt
to Edward, his third eldest child and only male heir as his successor,
who became King Edward VI, but died before actually coming of age to
personally take control of the throne. The absence of an effective
monarch allowed for the manipulation of the affairs of state by
adolescent King Edward VI’s guiding “Council of Regency.” Led by an
inner “privy council” under the direction of the archbishop of
Canterbury, the Council of Regency, in the name of Edward, picked up
where Henry VIII had left off. They seized all remaining church
property, and utilizing the proceeds from this sizeable land grab,
substantially replenished the national treasury.

Through the creative financing performed by merchant banker
Thomas Gresham, the debt from Henry VIII’s reign was virtually erased
under Edward. Edward was perpetually sickly (rumors persisted that he
was being poisoned) and he died at age fifteen, when his elder halfsister
became Queen Mary I and assumed the throne. After
unsuccessful efforts by another finance minister to tighten up the laws
concerning the charging of interest, Mary returned to following the
currency policies that had been started by Edward’s council and
employed the services of notable “economist” Thomas Gresham again.
Gresham was actually an international merchant who was instrumental
in the entrenchment of central banking in England. He is a clear
example of generational influence held by merchant bankers over the
affairs of a nation. Thomas Gresham’s father, Sir Richard Gresham, had
been a financial agent for Henry VIII and had been knighted for his
expertise in negotiating loans with foreign merchants. Thomas
Gresham was continuously backstage during the reigns of the remaining
Tudor monarchs and his policy influence over the economic affairs of
England allowed him to become one of the wealthiest individuals of his
day.

Mary’s initial efforts at reform were not successful since in reaction
to her decrees, the money changers began to shut down the flow of
capital by hoarding the gold and silver coin that they had formerly made
plentiful. Mary’s economic model proved to have a weakness in that
the market was subject to artificial forces, such as collusion to withhold
or corner the money supply. The English economy deflated and the
money changers continued to consolidate wealth and power. Queen
Mary I had married the Habsburg Phillip of Spain which caused irritation
within England, making her time of rule more difficult. Together they
produced no heir.

Queen Mary’s sister became Queen Elizabeth I, who sought to
stimulate the depressed English economy. Summoned by Elizabeth on
the event of her coronation to give an answer for the poor state of the
economy, Gresham who was still the financial agent of the crown is
reported to have given Queen Elizabeth I a historic lesson in economics.
Gresham told the Queen that it was the debasements of the currency
that had caused the gold to be conveyed out of the realm. Gresham
observed “that good and bad coin cannot circulate together.”
In an attempt to follow Gresham’s advice to counteract the debased
currency, Elizabeth ordered the issuance of new gold and silver coins
from England’s national treasury, but did not remove the debased coins
still in circulation. For a time, the economy somewhat recovered until
the new coinage began to disappear from circulation. Elizabeth was not
able to reproduce the feat of her predecessor brother and pay off the
national debt.

The flood of trade goods from the Americas aboard European ships
was dominated by Spain which during the reign of Elizabeth I enjoyed
absolute primacy on the high seas. That ended with Sir Francis Drake’s
trouncing of the Spanish Armada which weakened the formerly
unchallenged Spanish and gave England more command of the trans-
Atlantic sea routes. The search for wealth in the new world was in many
ways synonymous with the search for gold and silver. The story of
untold fortunes to be had, and the promise of economic advantage to
be gained was the wind in the sails of the explorers of the new world.
The quest for gold, among other things, had launched the Spanish ships
of Columbus, Pizarro, Cortez, and the other conquistadores. Many
other countries sought the instantaneous wealth of gold or silver, but
no other nation came close to the amount of gold brought to Europe in
Spanish ships.

The Spanish were too successful. So much gold and silver was
confiscated from the Americas and taken to Spain that it expanded the
monetary base faster than the growth of the Spanish economy could
reflect it. Since commodity money behaves like any commodity, the
effect was to drive down the value of gold and silver. The plan had
backfired, and arguably for the ensuing century, Spanish Traders were
at a severe disadvantage as their Spanish currency was worth less and
less. This had the effect of propelling the devalued Spanish coins all
over the globe as they sought to chase down the value of other
commodities.

Elizabeth’s death was the end of the Tudor line and she, like her
father Henry VIII, died leaving a legacy of deep national debt. Charles,
as next in line of the Stuart Family was heir to the throne, and also to
the crushing national debt that had been run up in military spending
under Queen Elizabeth I. Believing in the divine right of succession and
the inerrancy of monarchs, Charles I paid little attention to the
economic and political voices of reason that soon came to be arrayed
against him. Charles began confiscatory taxation, particularly on
imported goods, to extract the funding he needed to finance his rule.
The pattern repeats today of ultimately making debt public by dumping
the repayment of it on the backs of the taxpayers.

Using a time-honored technique of divisive campaigning which
fomented English feelings of class envy, religious tribalism and ethnic
superiority, Oliver Cromwell masterfully recruited support among the
common English people. Most of the populace thought of the “Puritan
Moses” as he was called, as one of them, a pious “commoner,” even
though Cromwell was actually a landed member of the middle gentry.
Being previously of no great fame, Cromwell was inexplicably elevated
to parliament by a cadre of “financial sponsors,” believed by many to
have been of the closed circle of money lenders. Oliver Cromwell,
whose inherited wealth had come from his uncle’s being given seized
monastery holdings as a minister to King Henry VIII, and from commerce
with the money changers, had aspirations to seize the crown for
himself. Taking control of the military, and forming an alliance with
leading members of the London merchant community, he harvested the
spoils of the “English Civil Wars” which had begun in 1642 and 1648.
Charles I surrendered to his native Scots on 5 May 1646, effectively
ending the First English Civil War. Cromwell took the formal surrender
of the Royalists at Oxford in June but Charles escaped from Hampton
Court and attempted once more to regain the throne. Cromwell, in
1648, again defeated the proxy forces of the militarily and financially
weak King Charles I, putting an end to the Second English Civil War, and
in 1649 Cromwell signed the culture-shocking death warrant order to
behead King Charles, thus putting an end to the royalists.

This began the short duration of the period of English history were
there was no monarchy. Cromwell was king in every way but in name,
and in many ways his rule was characterized by severe social strictures
that were far more dominant over the daily lives of the population than
the preceding monarchies had been.

Seeing himself as the military hand of God, Cromwell began to
justify his political and military maneuvering as being the express will of
heaven. After military sweeps to contain Ireland and Scotland, he took
the position in 1653 as the first Lord Protector of the Commonwealth of
England, Wales, Scotland and Ireland. He set up the pattern for a
nominated Parliamentary system which remained in effect even after
Cromwell’s death and the subsequent return of monarchy to the British
Isles.

Under Cromwell the money changers grew in power in England
setting up the one square-mile financial district known as “The City of
London”, which remains one of the greatest financial centers in the
world today. In league with the militaristic Cromwell, the money
changers led England to war after war with the French and the Dutch.
War is a costly business. It is costly to those who must fight and die in
its battles, and it is costly to those they leave at home. It can be costly
to the treasury of a nation to finance military conflict year after year. In
contrast, those who stood to gain the most from an essentially
perpetual state of war between England and France or the Netherlands,
were the money changers.

War is not costly, but lucrative, for those that make the weapons
and machines of war, and it is not costly, but lucrative for those that
loan to military-spending bankrupted nations. There is profit to be
made by those that financially back war, in return for repayment with a
“fair” amount of interest on the funds they lend. Cromwell’s
Commonwealth did not last beyond his death, but many of the effects
of events during its short life-span are still discernible in the nature of
international finance.

After the “Cromwellian Interregnum,” the Stuart line was reinstated
in a regicidal guilt-driven act of Parliament, when Charles II was
enthroned. The Stuart kings like so many other crowned heads carried
within them the idea of the inerrancy of monarchs and were fond of
courting the financial interests when they needed them, and then
turning around and biting the very hands that were feeding them.
Taxation and the granting of unfair monopolies were the principal
offenses they would continuously commit against the merchant class.
Between heirless Charles II and his brother James II (& VII), a growing
dependence upon loans from the merchant goldsmiths, which they
regularly offended, began to inspire the behind the scenes seizing of
control of England by those who actually held the power of the purse.
The power of the money changers was not limited to national
borders. It was fully demonstrated that the money changers had the
potential power to shape the future of a nation when a conspiring
group of internationally-connected Nobles “invited” William of Orange
to make use of the combined backing of the English and Dutch financial
sectors and the Dutch military they had arranged to finance in an
invasion to depose the uncontrollable Stuart King James II & VII.
William was successful and became King William III through his wife
Queen Mary.

William had partnered with a secret cabal of seven nobles, and the
money changers in England and with those in the Netherlands (or more
accurately, the nobles and the money changers had conspired together,
forming an alliance to utilize William of Orange), to finance his military
take-over in 1688 , dethroning James II & VII and putting an end to the
Stuarts.

William and Mary were now beholden to the bankers and “allied”
with the Dutch, which included the delivery into English hands of former
Dutch holdings in the Americas. The formerly Dutch held port of New
Amsterdam was renamed New York. This freed England up for more
concentrated warfare with France which was more or less continuous.
The pressures of financing years of war had created the conditions that
ultimately forced the monarchial concession of economic control, and in
1694 allowed the take-over of the treasury of an entire nation, as a
privately-held company sold shares in its stock and was chartered as the
Bank of England (BoE).

Currency is nothing more than a tally of a holder’s wealth of other
commodities. Notched sticks, clay tablets, or medallions, as
abstractions of known amounts of a commodity, would be recognizable
as valuable, desirable, and therefore, as tradable. They were all used, at
one time or another as currency. Whatever the medium or element of
exchange, whatever is used as the symbol of value, the truth of what
makes anything functional as a currency is the level of confidence
placed in it by those who use it and receive it as payment.
One of the most interesting of these currency systems is that of the
British Tally Stick. It was no more than a stick carved with notches
representing specific amounts of gold. It was also one of the longest
lasting forms of currency, being in circulation for over 700 years
following its institution around 1100AD by King Henry the First. These
abstractions may have represented a piece of land, flocks or herds of
livestock, grain, textiles or other commodities. They may have
represented tallies of stored deposits of coins of monetary metals held
in accounts. They then become abstractions of abstractions as the
monetary metal which they represent was already an abstraction of
relative value. Currency is not necessarily like money. Currency is a
reproducible representation of money. Again, money is an abstraction
of the value of other items, but it is based upon the intrinsic value of the
money itself.

Clay tablets and carved sticks gave way to the easier to carry
parchment scroll, and eventually, to paper.
The invention of the printing press understandably changed
everything for the development of currency for the central bank which
quickly found it necessary to mass-produce official and expensive
looking notes of deposit to issue into circulation. This opened up a new
horizon of temptation for bankers, presenting the ability to simply print
“assets.” The need for pre-printed notes of various specific
denominations was fueled by the level of trade volume that the new
Bank of England experienced. Together with the Royal Exchange (built
by Thomas Gresham on his own account), the Bank of England became
the new hub of international financial trading activity that soon eclipsed
the volume of its predecessor in Antwerp.

British market investments rapidly became the new source of
wealth, and this fueled the spread of the burgeoning British Empire.
Because of its limited resources as an island, and its command of
the seas, England was destined to spread its dominion around the
globe. The wealth opportunity in the New World of the Americas was
available for any nation strong enough to appropriate it. The British
Colonies were easy pickings in the global goal of wealth accumulation.
The private, central Bank of England had certain pre-conditions for
England to fulfill that would qualify it to trade its national good faith for
loans from the central bank. The bank had to be given power over the
money supply. The Bank was to be allowed to follow fractional reserve
lending on a national and international scale. Loans from the central
bank would be repaid with interest. The nation had to pledge that the
tax base would be made directly available to guarantee repayment of
loans from the BoE. This basic Bank of England model of central
banking has been replicated in nation after nation. It was actions by the
Bank of England in exercise of its control of the currency that led to the
American Revolution.

The financial well-being of the early American colonies was not a
priority to England and the currency of the realm was not made
abundant to the North American continent. The greatest part of metal
money in circulation was Spanish and so long as that was available,
most transactions were settled in coins of the Spanish Dollar. When, as
was often the case, no metal money was available for general
circulation, necessity drove the colonies to develop home-grown
systems of fiat paper currency. It was known as Colonial Scrip. It was
legal tender for all debts public and private, including for the payment
of taxes, both throughout the colonies, and back in England. It was
maintained as a non-commercial utility for the benefit of trade and
commerce. Trial and error saw the rise and disappearance of
experimental regional and state paper currencies. It was learned that
care had to be taken not to produce more scrip than was necessary to
reflect growth in the economy, so as not to devalue it, and not to lag
behind in issuance of it so as to stifle economic development. It worked
very well and the colonies grew in prosperity. Guided by self-interest
which multiplies to the common benefit, small local economies
flourished. The prosperity that developed caught the attention of the
Bank of England and of the multi-national charted monopolies such as
the British East India Company that had inside connections with
Parliament and had insinuated themselves in between England and the
American Colonies.

During his tour of duty in Europe as the American delegate to
France, Benjamin Franklin was questioned by examiners from the Bank
of England as to what could the Colonies attribute their economic
success. Franklin revealed that the colonists had learned the secret to
money and the source of the banker’s lucre when he replied.

“That is simple. In the Colonies we issue our own
money. It is called Colonial Scrip. 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 no one.”

This revelation if it were widely publicized was potentially lethal to
the bankers. Since the charter of the BoE, the British Economy had
gone through wild fluctuations with periods of feverish growth when
the Bank would relax the money supply and periods of depression when
the money supply was restricted. The Bank of England was earning
millions of pounds in interest on funds it had loaned to the English
Treasury and it would not do for a non-central bank controlled model of
colonial economic success to point out that the bank was getting rich at
the nation’s expense.

The prosperity of the colonies also made them prey to opportunistic
taxation to help pay England’s national war debt that had been financed
by the private Bank of England. England also saw the colonies as a
captive market and as captive sources of cheap commodities, and
passed trade restriction laws that were very demoralizing to the colonial
populace. American colonists were permitted, for example to grow
cotton, but to no longer manufacture with it. The colonists were
industrious, and before long, the mills in the Americas were
economically clobbering the mills in Manchester. Perhaps it was that
their better efforts were motivated by the colonialist attitude of
personal freedom to be all that they could be. Whatever the reason,
their success had to be censured for the sake of the mills in England.
The colonies were made to sell all cotton to England for processing, and
then buy it back as English-made clothing.

It was his observation that the unfair trade restrictions and taxes,
such as were levied on the colonists by England were mismanagement
of the colonies as a resource that inspired political economist Adam
Smith. Adam Smith wrote in his seminal treatise The Wealth of Nations,
that prosperity lay in free-markets and what made them free was the
liberty of individuals to produce and to buy and sell that which is in their
natural best interest. In a critique of monopolistic mercantilism, Smith
compares the natural motivation of local individuals supporting local
economies versus the feigned concern for the public good
demonstrated by mercantile interests.

“By preferring the support of domestic to that of foreign
industry, he intends only his own security; and by
directing that industry in such a manner as its produce
may be of the greatest value, he intends only his own
gain, and he is in this, as in many other cases, led by an
invisible hand to promote an end which was no part of
his intention. Nor is it always the worse for the society
that it was not part of it. By pursuing his own interest
he frequently promotes that of the society more
effectually than when he really intends to promote it. I
have never known much good done by those who
affected to trade for the public good. It is an
affectation, indeed, not very common among
merchants, and very few words need be employed in
dissuading them from it.”
–Adam Smith The Wealth of Nations, Book IV, chapter II,
paragraph IX

Smith observed that by trying to maximize their own gains in a free
market, individual ambition benefits society, even if the ambitious have
no benevolent intentions. Adam Smith’s concept of the “invisible hand”
of markets was described centuries later by economist Milton Friedman
as “the possibility of cooperation without coercion.“
Smith also wrote against the co-parasitism of central bank and
national treasury stating that a nation obtaining loans for the purpose of
war is immoral and that the ability to do so is an irresistible enticement
leading inevitably to more war.

“…when war comes [politicians] are both unwilling and
unable to increase their [tax] revenue in proportion to
the increase of their expense. They are unwilling for
fear of offending the people, who, by so great and so
sudden an increase of taxes, would soon be disgusted
with the war[…] The facility of borrowing delivers them
from the embarrassment[…] By means of borrowing
they are enabled, with a very moderate increase of
taxes, to raise, from year to year, money sufficient for
carrying on the war, and by the practice of perpetually
funding they are enabled, with the smallest possible
increase of taxes [to pay the interest on the debt], to
raise annually the largest possible sum of money [to
fund the war]. …The return of peace, indeed, seldom
relieves them from the greater part of the taxes
imposed during the war. These are mortgaged for the
interest of the debt contracted in order to carry it on.”
–Adam Smith, An Inquiry into the Nature And Causes of the
Wealth of Nations (1776) Book V, Chapter III, Article III: Of
Public Debts

The colonial scrip was subject to the economic and political stresses
of each region it had come from and it was noticed by the BoE that
colonial scrip, which was denominated in pounds, shillings, and pence,
was not consistent with the British pound sterling. The French and
Indian wars in the northern and southern colonies led to the printing in
those areas of more scrip than was retired in the payment of taxes
which led to devaluations of the regional scrip against the British Pound.
Parliament was lobbied for relief as the bankers argued that the use of
colonial scrip constituted an unfair substitute for the pound sterling,
and decried the colonist’s use of it to repay English central bank loans as
incomplete restitution. Parliament granted relief in the form of the
multiple Currency Act laws. The first of these restricted the use of the
colonial currency to the payment of taxes, and ultimately the colonies
were forbidden to print their own currency at all. All debts public and
private could only be paid with “proper” English money, but the
issuance of it into circulation in the colonies was stringently controlled
by the BoE. Benjamin Franklin described the result that,
“In one year, the conditions were so reversed that the
era of prosperity ended, and a depression set in, to the
extent that the streets of the Colonies were filled with
unemployed.”

Franklin plainly stated some years later in his autobiography that
this was the primary reason for the American 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 and dissatisfaction. The inability of the
colonists to get power to issue their own money
permanently out of the hands of George III and the
international bankers was the prime reason for the
Revolutionary War.”
— Benjamin Franklin from his Autobiography

The French and Indian war, or the Seven Years War as it was known
in England, had left two very large things behind. One was the war debt
that had been racked up by England. That debt would have been more
had the British allied colonial combatants not funded their own
participation. The other was the 10,000 soldier troop strength of the
standing army that was to be permanently stationed in the American
colonies to (officially) prevent the vanquished French or the displaced
natives from renewing their threat. In greater detail, of the 1,500
British Officers that were collecting a nice fat “stipend” and would have
been denied that sum if the army were to be demobilized, there were
many that were of families that were financially well-connected with
parliament. Potentially lucrative military careers were made secure by
Parliament’s policy of maintaining an on-going military presence.
Funding for this “protection” of the colonies was to be paid for by the
colonists themselves. Financing this standing army was the rationale of
the colony-exclusive Stamp Act and other tax collection decrees passed
by the British parliament. It was these laws that were the reason for the
“No Taxation without Representation” rallying cry of the American
Revolution.

The war was funded with the printing of more inflatable paper
currency that depreciated so badly due to oversupply that they
eventually were the inspiration for the derogatory phrase “it’s not
worth a Continental”.

In the American rejection of English rule, the British pound sterling
represented an unwelcome form of debt slavery in the fresh collective
memory of the citizenry of the newly independent and “United” States
of America. The Spanish Dollar had been all but ubiquitous in the
colonies so the continental congress chose the currency term of “dollar”
as opposed to the “pound” for the monetary unit of the U.S.
The new American nation was quite far from united at first and
stumbled through a long process of the writing and ratification of the
Constitution. While the debate and discussion was still underway the
international bankers sought to set up the first central bank in the new
world. The arguments about it were intense with the free market
thinkers like James Madison, Thomas Jefferson, and Benjamin Franklin
on one side, and the central planner statists and captive monopoly
merchant bankers represented by former Bank of England employee
Alexander Hamilton and the “Congress of the Confederation” appointed
Superintendant of finance Robert Morris on the other. The desperate
need to borrow money and the continuous threat of war ultimately
strengthened the position of the bankers and the first private central
bank in the colonies, The First Bank of North America was chartered in
1781.

Writing under a thin veil of pseudonym obscuration, Alexander
Hamilton could not give the new superintendent Morris and the new
central bank a better benediction when he wrote,
“Congress have wisely appointed a superintendent of
their finances,—a man of acknowledged abilities and
integrity, as well as of great personal credit and
pecuniary influence.

It was impossible that the business of finance could be
ably conducted by a body of men however well
composed or well intentioned. Order in the future
management of our moneyed concerns, a strict regard
to the performance of public engagements, and of
course the restoration of public credit may be
reasonably and confidently expected from Mr. Morris’
administration if he is furnished with materials upon
which to operate—that is, if the federal government can
acquire funds as the basis of his arrangements. He has
very judiciously proposed a National Bank, which, by
uniting the influence and interest of the moneyed men
with the resources of government, can alone give it that
durable and extensive credit of which it stands in need.
This is the best expedient he could have devised for
relieving the public embarrassments, but to give success
to the plan it is essential that Congress should have it in
their power to support him with unexceptionable funds.
Had we begun the practice of funding four years ago,
we should have avoided that depreciation of the
currency which has been pernicious to the morals and to
the credit of the nation, and there is no other method
than this to prevent a continuance and multiplication of
the evils flowing from that prolific source.”
–Alexander Hamilton under the pseudonym ‘The Continentalist’
No. IV, August 30, 1781

In a speedy fulfillment of the dire predictions of Madison and
Jefferson, the First Bank of North America lost its chartered central bank
status in 1785 due to objections of alarming foreign influence, fictitious
credit, favoritism to foreigners and unfair competition against less
corrupt state banks issuing their own bills of credit.
Hamilton, who had been appointed as the first U.S. Secretary of the
Treasury and the bankers would not be dissuaded by anything as
insignificant as international scandal, and renewed their efforts towards
re-charter of an American central bank. Through the considerable
influence of Hamilton, his mentor the wealthy merchant and war
profiteer Robert Morris, (who had been appointed by the Continental
Congress as financial superintendent and had been instrumental in the
charter of the First Bank of North America), and Thomas Willing, who
had been President of the First Bank of North America, the second
private central bank in the new world was granted a 20 year charter in
1791 by the continental congress as the First Bank of the United States.
The re-chartered private central bank was to be funded by the sale of
shares. The meager sum held by the U.S. Treasury was deposited in
hard assets. Those privately owned shares however were bought with
loans from the bank made through the multiplication of fractional
reserve lending, so the “owners” never actually put up any money for
their shares. All of the same names that had been associated with the
First bank of North America were now running the First Bank of the
United States. The same Bank of England model had been followed
again and the same practices were reinstituted. The only thing that was
changed was the name of the bank.

In the aftermath of economic and social carnage from the literal
bloodbath of the French Revolution, Napoleon Bonaparte performed a
coup d’état installing himself as First Consul. He took control of a
weakened nation and ultimately was declared Napoleon I Emperor of
France. Under his reign central banking was brought to France with the
charter in 1800 of the private central Banque de France. That same
year, Napoleon had re-acquired by treaty the un-surveyed Louisiana
Territory from Spain to which France had ceded it following the French
defeat in the French and Indian or Seven Years War in 1762. Napoleon
needed cash for his campaign across Europe and as the “New France”
holdings in North America were not producing any revenue, they were
not seen by Napoleon as useful. After the Spanish had suspended
American trade through the Port Of New Orleans, the U.S. was eager to
acquire the Port and to secure use of the Mississippi river. Authorized
to offer $10 million dollars for New Orleans by itself, the U.S. Delegates
to Napoleon were stunned when he offered the entire territory for $15
million. The U.S. jumped at the deal. A down payment of $3 million in
gold was transferred to Napoleon. The balance was to be paid through
the issuance of U.S. Treasury bonds.

The fledgling U.S. government had begun to normalize economic
and particularly banking relations with England. The London–based
financial firm Francis Baring and Co. (Baring Bank) had been named as
the official banking agent for the U.S. Government. Part of what had
qualified the firm for preferred status by the U.S. was that Francis
Baring & Co. had strong ties to Hope and Company, the financial
powerhouse of Amsterdam. These two banks pooled their resources
and bought the interest bearing notes from Napoleon for a deep
discount of 87.5% of their face value as the cost to convert them to hard
money and laid out $10.5 million more in cash to Napoleon for the
balance of the U.S. payment for the Louisiana Purchase. Technically the
English bank bought the bonds from the Dutch bank, which had bought
them from Napoleon, who had been paid with them by the U.S. On
borrowed international banker money, the U.S. had doubled its size for
less than 3 cents an acre. In addition, an English bank had actually
colluded with a Dutch bank to earn interest by financing the French
enemy of both nations. Financing both sides in a war without being
noticed had become a practiced art in the borderless world of
international banking.

Tensions grew again between America and England over trade
restrictions during England’s ongoing war with Napoleon. These trade
sanctions, combined with the British funding of Native American tribes
to control the expansion and growth of the United States, and the
English forced conscription or impressments of British-born American
Merchant seamen into the Royal navy caused the U.S. Congress to
declare war on England in 1812. It is the fact that England was still
otherwise occupied with France that they did not significantly respond
to the U.S. declaration of war except in a limited defensive strategy.
Napoleon’s aspirations of world empire came to an end with his
1814 defeat at the hands of the English Duke of Wellington at the battle
of Waterloo. This freed the British Royal Navy to repel the increasing
American attacks on British ships and ports and the English army struck
with full force in three main invasion groups. The English won a decisive
victory at Bladensburg and burned the still-under-construction capital of
Washington, D.C. and destroyed the White House, the Capitol, the
Treasury, The Navy Yard and several other buildings. All three forces of
the British were ultimately repelled or sustained heavy losses, as in the
case of the British defeat at New Orleans by General Andrew Jackson.
Concerned about the centralization of power away from the States,
Jefferson, Madison, Findlay and others had attempted to limit the
power and monopoly of The First Bank of the United States and had
only given it a 20 year charter. It had not been renewed and had
expired in 1811. The war of 1812 had produced a huge war debt and
the dispossessed bankers gathered like a feeding frenzy of sharks that
smelled blood in the water. In an attempt to borrow the nation’s way
out of debt, The U. S. Congress approved the charter of the Second
Bank of the United States. The bank made lending plentiful and
following the war of 1812 the nation entered a period referred to as an
“Era of Good Feelings” characterized by a robust economy and
expansion. During what was in reality a cycle of extreme deficit
spending, the bank opened up the economic spigots and the country
“felt” prosperous. Easy lending created a land speculation scramble
with some properties tripling in price in a few years. The bank
constricted credit and called in all loans putting an effective end to the
land speculation boom and to new investment in manufacturing and
production in what was known as the “Panic of 1819” In a few short
years, the bank had deeply indebted the nation as it artificially
controlled the boom and bust cycle. The Second bank of the United
States was also chartered for twenty years, but by the time its charter
was nearly expired, war-hero Andrew Jackson had won a second term
as President and made it his primary focus to kill the bank.
“The bold effort the present bank has made to control
the Government, the distress it has wantonly
produced…are but premonitions of the fate that awaits
the American People should they be deluded into a
perpetuation of this institution (The Bank of the United
States), or the establishment of another like it.”
–Andrew Jackson (December 2, 1834)

The bank’s charter expired in 1836 and it was not renewed. This
was followed by a wild boom and bust cycle known as the “Free
Banking“ period. The central bank had folded and banking was
decentralized to the State-chartered banks each with their own reserve
requirements, and each issuing their own banknotes. Banks came and
went in the raw competition of free enterprise. This was the period of
possibility and of optimism which propelled the completion of the
“manifest destiny” of a United States that spanned from “sea to shining
sea.”

This period included the California Gold Rush which began in
earnest in 1849 after the discovery of gold at Sutter’s mill. The surge of
gold out of California and the fortune it brought to some, changed the
psyche of the entire nation. The promise of instant riches destroyed the
puritanical patience of the New England colonial era. The “Poor

Richard” concept of “a penny saved is a penny earned” was washed
away in the din and “devil may care” attitude of the bawdy, raucous
boomtowns of the gold rush. Gold, which at first was free for the
taking, could be carried as bullion to the mint in Philadelphia and struck
directly into coin. So many coins were struck that a second
denomination of a $20 “Double Eagle” was added and after 1850, coins
would be struck in ten and twenty dollar coins. Millions of US Dollars
went into circulation in the U.S. and all over the world, and millions
more in raw gold dust and gold bullion went into circulation as well. It
was common for gold dust to be the only form of currency in certain
locales for decades. In many mining camps, private local companies
such as jewelers made small gold coins for general circulation in
everyday transaction denominations of one dollar, half-dollar, quarterdollar
and eighth-dollar amounts. The eighth-dollar coins were tiny and
were known as “bits”. Following the 1850 admission of California as the
31st state of the United States, a second United States Mint was
constructed in San Francisco in 1853 to accommodate the flow from the
gold fields and to encourage the striking of it into U.S. currency before it
left California.

Much of the economic growth of this era was funded directly or
indirectly by this increase of the hard money supply. People wanted
and respected it as money and it tended to be kept in the possession of
its owners. This was a seriously difficult time for banks. No one wanted
their loans at interest when free gold could be had. The great silver
finds of the Nevada strikes such as the Comstock Lode were also during
the Free Banking Period and the Silver dollars that went freely into
circulation did not help the peddlers of fractional reserve lending. The
Coinage Act of 1857 made it illegal to use foreign coins as legal tender
and provided for the exchange and re-minting of foreign coins such as
the Spanish dollar which was still in wide circulation but was now
rendered as surplus money in circulation by the increased production of
American mining. The abundant metal money or “specie” of this period
fully demonstrated that it did not require the backing of any bank or
government and is never the liability of some other entity to “make it
good.” It can never be worth zero and it cannot be defaulted on. It will
forever be “good as gold” and “worth its weight in silver.”

This period of national growth saw the addition of new states and
the opening of new territories into which the institutions and economic
models of the east were brought. One of those institutions was the
scourge of human bondage, or slavery. Wealthy plantation owners
sought to increase their lands by buying up huge tracts of the best lands
and exploiting the use of slave labor in a westward expansion. The
financial power of slave-holders was considerable and it raised concerns
among northern abolitionists that “Slave Power” was threatening the
rights of citizens in the north and in the new western states. The Free
Soil Party, and other voices, maintained that the newly admitted states
and new lands in the western territories must be protected from large
plantation interests and that it be available to independent farmers.
Attempts at legislation of a homestead law to protect small yeoman
farmer interests were repeatedly defeated by immense political
pressure from southern pro-slavery forces. The southerners were
rightly concerned that policies that encouraged the free-market
economics of the west would ultimately drain the opulent wealth of
slave-owners as it provided an alternative economic model to
exploitation of vast tracts of land with slave labor. Opportunity was
loudly knocking, as it beckoned rugged individualists, immigrants,
prospectors, settlers and small farmers to continuously push the
frontiers.

Of the plethora of national tensions leading to the American Civil
War, the issue of States rights versus federal authority and the
centralization of government was the irresolvable issue that underlay all
others, and was the central topic that provided the fulcrum upon which,
in addition to many others, the issues of slavery, rights of secession,
economic dominance, and societal evolution were all weighed. The
1860 election was the moment that the long- constructed bonfire was
set ablaze. Abraham Lincoln had been opposed to the states rights
claims of southern democrats who claimed that each state was
absolutely sovereign over all aspects of its governance including
membership in the United States. Lincoln, who was personally opposed
to slavery, had made a point to speak to southern fears of the
destruction of their way of life in his Inaugural address when he stated,
“I have no purpose, directly or indirectly, to interfere
with the institution of slavery in the states where it now
1 Why Silver and Gold Are the Money Of History 53
exists. I believe I have no lawful right to do so, and I
have no inclination to do so.”
–Abraham Lincoln from his Inaugural Address

The amazing growth of the United States in absence of central bank
dominion was commanding notice overseas, and immigrants from
Europe, Asia, Latin America, and indeed all over the globe were arriving
to seek their fortunes. Lincoln knew that this was presenting a threat to
the Old World debt-economy enslavement of European central bank
interests.

This was obvious to the keen observer Otto Von Bismarck,
Chancellor of Germany who wrote,
“The division of the United States into federations of
equal forces 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 as
one block, and as one nation, would attain economic
and financial independence, which would upset their
financial dominion over the world.”
–Otto Von Bismarck

Poised to re–capture the divided remains of the United States as
colonial possessions, France and England positioned forces on the
Mexican and Canadian borders and began to aid each side against the
other. President Lincoln knew that what was at stake was not just
whether or not slavery ended immediately, as he believed that it was
naturally coming to an end as a normal consequence of the changing
economic climate. At the onset of war less than one month later,
following the secession of all the cotton states in the “Deep South,” Mr.
Lincoln declared that slavery was a side issue when compared to the
priority need to preserve the Union as illustrated by his statement,
“My paramount objective is to save the Union. And it is
not either to save or destroy slavery. If I could save the
Union without freeing any slave, I would do it.”
–Abraham Lincoln

Lincoln’s search for financing for the war again led to overtures
from the bankers. Lincoln asked Salmon P. Chase, the Secretary of the
Treasury, to research funding options and present them to the
President. Chase arranged a meeting with a coalition of New York
bankers who assumed they had Lincoln over a barrel and offered to
fund the Union war effort with loans to be repaid with massively
usurious interest of up to 36%. Lincoln side-stepped the bankers and
used the powers conferred by the Constitution to issue interest-free
U.S. Treasury notes. In order to distinguish these from the many types
of banknotes in circulation, Lincoln’s treasury notes were printed on the
reverse in green ink, which gave them the familiar moniker of “greenbacks.”
The frustrated bankers redoubled their efforts to insinuate
themselves with members of Congress and threatened to stop
payments of the sizeable campaign contributions that they regularly
paid, as was then legal for them to do, directly to key Senators and
Congressmen. Continuous bank lobby pressure was brought to bear
during the bloodiest days of America’s bloodiest war. The State bank
“Free Bank” system was disintegrating in the dissolution of North to
South interstate trade. The fear over war supply logistical
considerations as being sensitive to potential failure of State bank
financing, and forebodings of financial doom if the greenback fiat
currency policy continued were used as a ram to batter a new banking
bill through Congress.

During the distraction of war, the 1863 National Banking Act was
passed which provided for the creation of the Office of the Comptroller
of the Currency as part of the United States Department of the Treasury
which would standardize a national banknote currency and create the
National Bank System, a network of National Banks which would be
chartered to facilitate financing for war procurements. The Act vastly
increased the jurisdictional reach of the Federal Government through a
new office which was to be the agent of this monopolistic network of
privately owned banks. At each crisis in history, including the American
Civil War, the central bankers have offered to imbed their services with
government as the only possible remedy. The single standardized
currency mandated by the Act provided both Northern Union funding
for the war and a way to prevent Southern Confederate funding by
consolidation through exchange of all State bank issued paper
currencies, with the exclusion of Southern State banknotes.

In order to encourage the use of the National Banks (which were
privately owned, like the State banks) a hard-hitting policy was begun to
exact a 10% tax on all state bank issued currency transactions. This left
open the loophole that depositors could write orders for payment out
of their accounts if they were arranged as a demand deposit account
and the vast majority of State bank depositors’ funds went pouring into
checking accounts. With as much as 90 percent of their assets in
checking accounts, the State Banks stayed alive.
Lincoln had planned to dismantle the national bank system after the
war was over and they were no longer needed. His opinion of them was
clear,
“The money power preys upon the nation in times of
peace and conspires against it in times of adversity. It is
more despotic than monarchy, more insolent than
autocracy, more selfish than bureaucracy”
–Abraham Lincoln in a letter dated November 21, 1864

Five days after Lee’s surrender, just when he would have moved
against the banks, Lincoln was assassinated. In what has proved to be a
prophetic harbinger of future events, Chancellor Bismarck mourned the
loss.
“The death of Lincoln was a disaster for Christendom.
There was no man in the United States great enough to
wear his boots…I fear that foreign bankers with their
craftiness and torturous tricks will entirely control the
exuberant riches of America, and use it systematically to
corrupt modern civilization. They will not hesitate to
plunge the whole of Christendom into wars and chaos in
order that the earth should become their inheritance.”
–Otto Von Bismarck

Bismarck had his hands full of his own country’s troubles and
following the end of the Franco-Prussian war, tribute payments in gold
from France began to increase the German currency supply. Bismarck
was pressured by the international bankers to assist in the economic
exuberance following the defeat of France with changes to the
corporate liability laws which allowed, for example, the incorporation of
the Deutsche bank. Speculative investment during the period resulted
in a boom of intense economic activity leading to unsustainable overbuilding
in steamships, railroads, factories and cultural and social
edifices. The resultant inflation undercut spending power which drove
depositors to demand gold in preference to silver. The banks needed to
keep possession of their reserves of the more valuable gold in order to
maintain economic control. The runs on German gold lead to the
banker’s insistence that the answer was to remove the silver from
circulation so as to stabilize the price of gold. The end of the German
silver “thaler” marked the death of one of the oldest currencies around
which had been the model for many others. The Spanish “weight of
silver,” translated as “peso de plata” was meant to reproduce the
ancient German thaler. The cross-cultural transliteration of “thaler”
became ‘dollar” which became the common name for the peso de plata.
It was the Spanish dollar, based upon the German “thaler” that inspired
the United States silver dollar.

When Bismarck took the German Empire off the silver standard in
1871, the calculated effect cascaded around the world in an immediate
drop in silver demand and put downward pressure on the price of silver.
The U.S. National Bank System had been issuing banknotes that were
fractionally backed by the bi-metallic standard of gold and silver with
gold valued at approximately 16 times the price of silver. This drop in
silver prices was felt most acutely by creditors who had advanced loans
that could not bring more in repayment than agreed as denominated in
gold or gold-backed banknote dollars, but might be paid off in devalued
“free” silver dollars. By the time the price of silver had sunk to less than
half of the 16:1 ratio (set forth in the Coinage act of 1834), well
lubricated overtures were made to key members of Congress by Ernest
Seyd, a paid lobbyist for the Bank of England. Seyd had been sent from
England with £100,000 (about a half million dollars) in political
contribution cash money and an unlimited line of credit on top of that,
to arrange for passage of a bill that would do in the U.S. as Germany had
done, and with passage of the Coinage Act of 1873, the United States
dumped the silver standard. According to Senate sponsor of the bill
Samuel Hooper, Seyd was the actual author of the Act. With the ease of
conscious of a man who was merely doing what was asked of him, Seyd
said,

“I went to America in the winter of 1872-73, authorized
to secure, if I could, the passage of a bill demonetizing
the silver. It was in the interest of those I represented –
the governors of the bank of England – to have it done.
By 1873, gold coins were the only form of coin money.”
–Ernest Seyd Lobbyist for the Bank of England

In what came to be known as “The Crime of ‘73” the silver pricecrushing
effect was devastating to western mining states where silver
mining was an important part of the economy. The miners and farmers
who had found hope and economic prosperity under a silver standard
would fight for the next quarter century for a return to “free silver” and
became what were known as the “Silverites.”

In the years following the American Civil War, legions of veterans
went to work for the largest employers of the times which were the
railroads. The railroad building frenzy was fueled by the plentiful cheap
labor, and special favors granted to the railroads such as government
land grants, financial subsidies, and easy, low-interest credit. Over
33,000 miles of track were laid by 1873 with a great portion of it serving
no immediate economic interest. Many of the businesses and facilities
that grow up around railroads, such as depots, loading docks and
factories were correspondingly overbuilt as well.

This over building lead to a speculative crash when the national
bank system interest rates rose in reaction to the increased demand on
the money supply which had been diminished with the removal of
silver. Farmers and manufacturers who were dependent on loans to
offset market, or in the case of farmers, seasonal fluctuations were
devastated when they could not get the loans they needed. The
resultant recession was severe, and few seemed to realize that the
panic of 1873, as it came to be known, was the direct result of
international bank directed government policy. The formula was and is
repeated like breathing. Inflate the money supply and cause a boom,
deflate the money supply and cause a bust… inflate the money supply,
deflate the money supply…inflate, deflate. Explain it all away as being
the normal business cycle with the occasional naturally-occurring crisis
that requires special intervention.

This same boom and bust cycle would be used over and over to
force policy makers to shape political, economic, and social ends as
dictated by the “money power,” as Abraham Lincoln put it. If a boom
cycle is truly a normal market development due to some favorable
condition or innovation, it is actually to the detriment of the bankers.
Economic prosperity carries with it some amount of inherent
inflationary pressure. This creates an increase in money supply as idled
funds are lured out of hiding and find their way into investments and
purchases. This creates a pressure on lenders to lower interest rates so
as to encourage even more borrowing, investing and spending during an
already heated market. This is bad business for banks whose business is
the charging of interest. When an economic boom produces big enough
profits that loans can be retired, or worse, that further expansion can be
funded by profit, as opposed to more borrowing, this is very bad for
banks. If a boom period is allowed to continue for too long, it may be
noticed that the banks are not as all important as they have made
themselves out to be, so it must eventually be stopped.

The crashing of an economic boom can be as easy as to call in all
existing loans and to not make any new ones. The inevitable
percentage of defaults is always a bonus in the form of the assets that
may be seized, but the real advantage is the flood of higher interest rate
loans which may be made when the hunger for loans returns and
lending is resumed. A second and more invisible way to stop a boom
cycle is to keep pushing in cheap credit until it boils over. Assets are
priced upwards until they are inflated enough that a correction is
automatic when high prices become the cure for high prices. If the
crash can be made to be hard enough, then as an added bonus, historychanging
measures can be put forth to cope with the scope of the crisis.
A series of panics were instituted throughout the remainder of the
19th century. The internationally-connected, central National Bank was
frustrated by the competition of the surviving State-chartered banks
and began to hatch a plot to retake the economy. The first step was to
remove the interest-free Greenbacks from circulation. Less than a year
after Lincoln was murdered the bank lobby pushed a bill through
congress. Known as the “Contraction Act”, the Funding Act of April 12,
1866 was passed, authorizing the Treasury to retire $10 million of the
Greenbacks within six months and up to $4 million per month
thereafter. This was slightly relieved when it had led to the panic of
1873 and the implosion of the railroad building bubble. After a short
recovery, another bill was passed in January 1875, called the Specie
Payment Resumption Act, which authorized a further contraction in the
circulation of Greenbacks to a point that the paper in circulation was on
par with the gold reserves of the Treasury.

The Federal Government ran budget surpluses in several of the
years during this period, but as the greenbacks had been taken out of
circulation, the existing currency supply was composed of National bank
notes, which were debt instruments printed by the National Bank in
exchange for interest-bearing Treasury bonds. To pay off the Treasury
bonds to the National Bank System would have been to eliminate the
money supply, and the Bank was again entrenched into all aspects of
the economy. The restriction of the money supply was the direct cause
of deep recessions that swept across America. By 1877, starving rioters
were setting the country ablaze as they burned idled factories and
looted from warehouses and shops from New York to Chicago in
reaction to the perceived symbols of affluence. Yelling “give us our
greenbacks” and demanding the re-monetization of silver with angry
cries condemning the “Crime of ‘73” the rioters protested the
restriction of the money supply.

The Central bankers had nearly accomplished their goal, but full
control over the money supply still eluded them. In a letter to the 1877
meeting of the American Bankers Association (ABA), secretary James
Buel advised the continued and systematic subversion of the
government and of the Press when he wrote,
“It is advisable to do all in your power to sustain such
prominent daily and weekly newspapers, especially in
the Agricultural and religious Press, as will oppose the
greenback issue of paper money and that you will also
withhold patronage from all applicants who are not
willing to oppose the government issue of money.
…To repeal the Act creating bank notes, or to restore to
circulation the government issue of money, will be to
provide the people with money and will therefore
seriously affect our individual profits as bankers and
lenders. See your Congressman at once and engage him
to support our interest that we may control legislation.”
–James Buel, American Bankers Association

President James Garfield won the 1880 election after serving for 9
terms as a Representative during which he was Chairman of the Military
Affairs Committee and the Appropriations Committee and a member of
the Ways and Means Committee. As a ranking finance committee
member he was well immersed in the nuances of inner economic
workings. In his 1881 Inaugural address he revealed his formidable
understanding of the way things really work,
“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 be told
how periods of inflation and depression originate.”
–James A. Garfield

President Garfield who had a long record both of being staunchly
opposed to a fiat currency, and in stark opposition to the banking
interests around him in his stand for a return to bimetallism, died on
September 19, 1881, after being shot by an assassin on July 2, less than
200 days into his presidency.

By 1890 the calls for relief for the western mining states hardest hit
by the demonetization of the silver and by the farmers who continued
the fight for free silver had lead to the passage of the Sherman Silver
Purchase Act which required the U.S. Treasury to purchase millions of
ounces of silver using notes backed by either silver or gold. In a
predicable nod to Gresham’s law the holders of these certificates would
rather they be redeemed in gold and the gold began to disappear from
the Treasury reserves. Reserves fell below legal minimums and
President Grover Cleveland borrowed $65 million in gold from New York
Banker J P Morgan.

In 1891, it was then decided by the bankers to collectively pull the
plug on the economy using the tools already at their disposal. Orders
were sent in a memo to the directors of all the ABA banks that on a
particular day, three years in the future, the banks were going to work
in unison to crash the economy. That memo was revealed before
Congress a few years later and is recorded in the Congressional Record
of which an excerpt reads,
“On Sept.1st, 1894, we will not renew our loans under
any consideration. On Sept. 1st we will demand our
money. We will foreclose and become mortgagees in
possession. We can take two-thirds of the farms west of
the Mississippi and thousands of them east of the
Mississippi as well, at our own price. Then the farmers
will become tenants as in England…”
–1891 memo to members of the American Bankers Association
as printed in the Congressional Record of April 29, 1913

The banks made their move a year early and caused the Panic of
1893 with the raising of interest rates and the restriction of credit.
Millions of loans were called in and America went into receivership. So
hard hit was the middle class, that it was a common sight to see newlybuilt
houses simply walked away from by their owners, when they could
not obtain mortgage refinancing. The image of the abandoned
Victorian “haunted” house was so prevalent that it became part of the
American psyche. The runs on the bank through 1894 were so horrific
that it was still on the American mind and became the central topic of
the 1896 presidential election. During the Democratic Convention, free
silver advocate William Jennings Bryan gave his famous “Cross Of gold”
speech which is considered some of the most moving oratory ever
offered at a political convention. Jennings, who ran both times on the
free silver platform lost both the 1896 and 1900 presidential elections
to William McKinley who served until his assassination in 1901 and the
presidency passed to Theodore Roosevelt

In an attempt to increase liquidity during the Panic of 1907,
President Theodore Roosevelt again authorized the Treasury to issue
Greenbacks, but the issue was ceased with the passage of the Aldrich–
Vreeland Act which provided for the private National Bank system to
issue the National Bank Note. This was the test model for an “elastic”
currency that would eventually be replaced by the Federal Reserve
Note. All of these are the “products” of a central bank that are sold at
interest to the American people.

Centralized control is the anti-thesis of free-market capitalism, and
its inevitable trend is towards the enslavement of the masses by the
few. It is the threat of consolidation of power that is the ticking time
bomb of unrestricted capitalism. Anti-trust laws, such as the nowrepealed
Glass-Steagall act created barriers to unfair conflicts of interest
caused by the mixing of markets in attempts to spread risk and sweep
profits. Only local markets are free.

Money as a commodity can, and has at times been in short supply,
and may not be available to people everywhere and at all times.
Throughout history this has often required that trades be accomplished
in a return to barter, the items being traded without the use of other
forms of money, except as they are calculated in units of other
commodity items. The recurring cycle of natural market forces is for a
suitable commodity to rise to the top as the best store of value, and
therefore be treated as money.

Gold and silver have both survived the test of time, which is the
truest test of fitness as money, and have helped people preserve wealth
for 4,000 years or more.


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