Creature From Jekyll Island by G. Edward

the defined silver content of a dollar. Furthermore, both the silver and gold coins were of intrinsic value and totally honest in their measure. No nation could do more for the prosperity of its citizens than that.

SUMMARY

The Constitution prohibits both the states and the federal government from issuing fiat money. This was the deliberate intent of the Founding Fathers who had bitter experience with fiat money before and especially during the Revolutionary War. In response to the need to have a precisely defined national monetary unit, Congress adopted the Spanish dollar then currently in use and defined the content of that dollar to be 371.25 grains of pure silver.

With the establishment of a federal mint, American silver dollars were issued in accordance with that standard, and gold Eagles also were produced which were then equal in value to ten silver dollars.

Most importantly, free coinage was established wherein Americans were able to convert their raw silver and gold into national coins officially certified by the government as to their intrinsic value. The product of these measures was a period of sound money and great economic prosperity, a period that would come to an end only when the next generation of Americans forgot to read their history and returned to the use of paper money and 'bills of credit.'

The monetary plan laid down by the Founding Fathers was the product of collective genius. Nowhere in history can one find so many men in one legislative body who understood the fraud inherent in fiat money and the hidden- taxation nature of inflation.

There was never such an assembly of scholars and statesmen determined to set a safe course for the nation of their own creation.

Literally, they handed us a treasure map. All we had to do was follow it to economic security and national prosperity. But, as we shall see in the following sections, that map was discarded when the lessons of history died out with those who had lived it.

Chapter Sixteen

THE CREATURE

COMES TO AMERICA

The story of the Bank of North America, the

nation's first central bank, which was formed even

before the Constitution was drafted; the story of

the First Bank of the United States, the nation's

second central bank, which was formed in 1791;

the massive inflation caused by both banks; the

causes of their demise.

It is a surprising fact that the United States had its first central batik even before the Constitution was drafted. It was chartered by the Continental Congress in the Spring of 1781 and opened its doors the following year. There were great expectations at that time that the province of Canada would soon join the rebel colonies to form a union extending across the entire North American continent. In anticipation of that, the new financial institution was called the Bank of North America.

The Bank was organized by Robert Morris, a member of

Congress, who was a leader of a group of politicians and merchants who wanted the new nation to imitate the mercantilism of England.

They wanted high taxes to support a powerful, centralized government, high tariffs to subsidize domestic industry, a large army and navy, and the acquisition of colonial outposts to expand into foreign lands and markets. He was a wealthy Philadelphia merchant who had profited greatly from war contracts during the Revolution. He had carefully studied the secret science of money and, by 1781, was widely considered to be the financial wizard of Congress.

The Bank of North America was modeled closely after the Bank of England. Following the practice of fractional reserve, it was allowed to issue paper promissory notes in excess of actual deposits, but, since some gold and silver had to be held in the vault, 326 THE CREATURE FROM JEKYLL ISLAND

there were definite limits to how far that process could go. Bank notes were not forced on the people as legal tender for all debts, public and private, but the government did agree to accept them at their face value in payment of all taxes and duties, which made them as good as gold for that specific purpose. Furthermore, unlike the central banks of today, the Bank of North America was not given the power to directly issue the nation's money.

FUNCTIONED AS A CENTRAL BANK

On the other hand, the Bank was given the right of monopoly in its field, which means there were no other bank notes allowed to circulate in competition. This, plus the fact that they were accepted at face value in payment of all federal and state taxes, plus the further fact that the federal government did not at that time have a functioning money of its own, made these bank notes attractive for use as a circulating medium of exchange. The intended result was that the Bank's paper would be accepted as money, which for a while, it was. Furthermore, the Bank was made the official depository for all federal funds and it almost immediately loaned $1.2 million to the government, much of which was created out of nothing for that purpose. So, in spite of the limitations placed upon the Bank, and in spite of the fact that it was essentially a private institution, it was intended to be and, in fact, did function as a central bank.

The Bank of North America was fraudulent from the very start.

The charter required that private investors provide $400,000 for the initial subscription. When Morris was unable to raise that money, he used his political influence to make up the shortfall out of government funds. In a maneuver that was nothing less than legalized embezzlement, he took the gold that had been loaned to the United States from France and had it deposited in the Bank.