Creature From Jekyll Island by G. Edward

The battle may have been decided, but the war was far from over. The losers, bitter with defeat, merely regrouped their forces and began to prepare for the next encounter. Unfortunately, the events that followed were ideally suited for their plans.

With the moderating effect of the Bank now removed from the scene, the nation's banking system passed wholly into the hands of the state-chartered corporations, many of which were imbued with the wildcat mentality. Their numbers grew rapidly, and so did the money supply which they created. Inflation followed in their footsteps. Public dissatisfaction began to rise.

If the free market had been allowed to operate, it is likely that competition soon would have weeded out the wildcatters and restored balance to the system, but it was never given a chance. The War of 1812 saw to that.

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THE WAR OF 1812

The War of 1812 was one of the most senseless wars in history.

The primary cause, we are told, was the British impressment into their navy of American sailors on the high seas to assist in the war against Napoleonic France. But the French had done exactly the same thing to assist in the war against England, yet their acts were ignored. Furthermore, the British had already rescinded their policy regarding American seamen before the war was underway, which means that the cause of the war had been removed, and peace could have been restored in honor if Congress had so wanted. One must conclude that the pro-banking interests in the United States actually wanted the conflict because of the profits that could be realized from it. As evidence of this is the fact that the New England states, which were home to the seamen who had been impressed into service, were firmly against the war, while the Western and inland Southern states, which were home to the myriad of wildcat banks, howled loudly for a clash of arms.

In any event, the war was unpopular with the average citizen, and it was out of the question for Congress to obtain funding for armaments through an increase in taxes. So the government needed the state banks to create that money outside the tax structure and came to their rescue to protect them from the discipline of the free market. It was a classic case of the unholy alliance, the cabal, that always develops between political and monetary scientists. Professor Rothbard gives the details:

The U.S. government encouraged an enormous expansion in the number of banks and in bank notes and deposits to purchase the growing war debt. These new and recklessly inflationary banks in the Middle Atlantic, Southern, and Western states, printed enormous quantities of new notes to purchase government bonds. The federal g o v e r n m e n t then u s e d these n o t e s t o p u r c h a s e a r m s a n d manufactured goods in New England....

By August 1814, it became clear that the banks of the nation apart from New England could not pay [in specie], that they were insolvent.

Rather than allow the banks of the nation to fail, the governments, state and federal, decided in August 1814 to allow the banks to continue in business while refusing to redeem their obligations in specie. In other words, the banks were allowed to refuse to pay their solemn contractual obligations....

This general suspension was not only highly inflationary at the time; it set a precedent for all financial crises from then on. Whether 338

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the U.S. had a central bank or not, the banks were assured that if they inflated together and then got in trouble, government would bail them out.

The state banks had created enough instant money for the

federal government to raise the debt from $45 million to $127

million, a staggering sum for the fledgling nation. Tripling the money supply, with no appreciable increase in goods, means the value of the dollar shrank to about one-third its former purchasing power. By 1814, when the depositors began to awake to the scam and demanded their gold instead of paper, the banks closed their doors and had to hire extra guards to protect officials and employees from the angry crowds. Once again, the monetary and political scientists had succeeded in fleecing the American public of approximately 66% of all the money they held during that period, and that was on top of the 42% fleecing they got a few years earlier by the Bank of the United States.

JUGGLING TRICKS AND BANKING DREAMS

Leaning against the storm of paper money all this time was Thomas Jefferson, by now, past-President of the United States.

Trying to bring the nation to its senses, he never ceased speaking out against the evil of dishonest money and debt:

Although all the nations of Europe have tried and trodden every path of force and folly in a fruitless quest of the same object, yet we still expect to find in juggling tricks and banking dreams, that money can be made out of nothing, and in sufficient quantity to meet the expense of heavy war. ...

The toleration of banks of paper discount costs the United States one-half of their war taxes; or, in other words, doubles the expenses of every war. ...

The crisis, then, of the abuses of banking is arrived. The banks have pronounced their own sentence of death. Between two and three hundred millions of dollars of their promissory notes are in the hands of the people, for solid produce and property sold, and they [the banks] formally declare that they will not pay them.... Paper was received on a belief that it was cash [gold], and such scenes are now to take place as will open the eyes of credulity and of insanity itself to the 1. Rothbard, Mystery, pp. 198-99.

2. Writings, Library Edition, Vol. XIV, p. 227.

3. Writings, Library Edition, Vol. XIII, p. 364.

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dangers of a jDaper medium abandoned to the discretion of avarice and of swindlers. ...