Creature From Jekyll Island by G. Edward

It is a wise rule never to borrow a dollar without laying a tax at the same instant for paying the interest annually and the principal within a given term.2... We shall consider ourselves unauthorized to saddle posterity with our debts, and morally bound to pay them ourselves.3

... The earth belongs to the living, not the dead.... We may consider each generation as a distinct nation^ with a right to ... bind themselves, but not the succeeding generation. ...

The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating.5

And still, Congress did not listen.

SUMMARY

America had its first central bank even before the Constitution was drafted. It was called the Bank of North America and was chartered by the Continental Congress in 1781. Modeled after the Bank of England, it was authorized to issue more paper promissory notes than it held in deposits. In the beginning, these notes were widely circulated and served as a national currency. Although the bank was essentially a private institution, it was designed for the purpose of creating money to lend to the federal government, which it did from the start.

The Bank of North America was riddled with fraud, and it

quickly fell into political disfavor. Its inflated bank notes eventually were rejected by ordinary citizens and ceased to circulate outside of the Bank's home city of Philadelphia. Its charter was allowed to expire and, in 1783, it was converted into a purely commercial bank chartered by the state of Pennsylvania.

The advocates of fiat money did not give up. In 1791, the First Bank of the United States (America's second central bank) was created by Congress. The new bank was a replica of the first, including fraud. Private investors in the Bank were among the nation's most wealthy and influential citizens, including some Congressmen and Senators. But the largest investment and the 1- Letter to Dr. Thomas Cooper, Sept. 10,1814, Writings, Library Edition, Vol. XIV, pp. 187-89.

2. Writings, Library Edition, Vol. XIII, p. 269.

3. Ibid, p. 358.

4- Ibid., p. 270.

5. Ibid., p. 272.

340 THE CREATURE FROM JEKYLL ISLAND

most powerful influence in the new Bank came from the

Rothschilds in Europe.

The Bank set about immediately to serve its function of creating money for the government. This led to a massive inflation of the money supply and rising prices. In the first five years, 42% of everything people had saved in the form of money was confiscated through the hidden tax called inflation. This was the same phenomenon that had plagued the colonies less than two decades earlier, but instead of being caused by printing-press money, it was now fueled by fractional-reserve bank notes created by a central bank.

As the time for renewal of the Bank's charter approached, two groups with opposite intentions became strange political allies against it: the Jeffersonians who wanted sound money; and the frontier banks, called wildcatters, who wanted unlimited license to steal. On January 24, 1811, the charter was defeated by one vote in the Senate and one in the House. The central bank was gone, but the wildcatters were everywhere.

The War of 1812 was not popular among the American public, and funding would have been impossible through taxes alone. The government chose to fund the war by encouraging wildcat banks to purchase its war-debt bonds and convert them into bank notes which the government then used to purchase war material. Within two years, the nation's money supply had tripled, and so had prices. 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.

C h a p t e r Seventeen

A DEN OF VIPERS

The story of the Second Bank of the United States,

the nation's third central bank; the election of

Andrew Jackson on an anti-bank platform; the

battle between President Jackson and the head of

the bank, Nicholas Biddle; the deliberate creation

of a depression to frighten the public into keeping

the bank; Jackson's ultimate victory.

The monetary chaos that existed at the end of the War of 1812, outlined in the previous chapter, was caused by an almost universal fraud within the banking industry. Depositors in good faith placed their gold and silver into banks for safekeeping and for the convenience of using paper money in their everyday transactions.

The banks, in turn, promised them they could exchange the paper for their coins whenever they wished. At the same time, however, through the mechanism of fractional-reserve banking, paper money was created far in excess of the value of the coins held in reserve. Since the new money had just as much claim to the coins as the old, the bankers knew that, if a sizable percentage of their customers were to request a withdrawal of their coins, that solemn promise simply could not be kept. This, in fact, is precisely what happened over and over again during that period.

By 1814, Thomas Jefferson had retired to Monticello and had bitterly resigned himself to defeat on the issue of money. In a letter to John Adams he said:

I have ever been the enemy of banks; not of those discounting for cash [that is, charging interest on loans of real money], but of those foisting their own paper into circulation, and thus banishing our