Creature From Jekyll Island by G. Edward

The War for Independence brought all of this to a sudden halt.

Wars are seldom funded out of the existing treasury, nor are they even done so out of increased taxes. If governments were to levy 1. Galbraith, pp. 48-50.

2. Paul and Lehrman, pp. 22-23.

3. 'The Colonial Monetary Standard of Massachusetts/' by Roger W. Weiss, Economic History Review, No. 27, November, 1974, p. 589.

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taxes on their citizens fully adequate to finance the conflict, the amount would be so great that many of even its most ardent supporters would lose enthusiasm. By artificially increasing the money supply, however, the real cost is hidden from view. It is still paid, of course, but through inflation, a process that few people understand.

The American Revolution was no exception. In order to pay the bill for independence, both the Confederation and the individual states went heavily into the printing business. At the beginning of the war in 1775, the total money supply stood at $12 million. In June of that year, the Continental Congress issued another $2 million. Before the notes were even put into circulation, another $1 million was authorized. By the end of the year, another $3 million. In 1776, another $19 million. $13 million in 1777.

$64 million in 1778. $125 million in 1779. And still more: the Continental Army issued its own 'certificates' for the purchase of supplies totalling $200 million. A total of $425 million in five years on top of a base of $12 million is an increase of over 3500%. And, in addition to this massive expansion of the money supply on the part of the central government, it must be remembered that the states were doing exactly the same thing. It is estimated that, in just five years from 1775 to the end of 1779, the total money supply expanded by 5000%. By contrast, the amount raised in taxes over the five-year period was inconsequential, amounting to only a few million dollars.

AND A MASSIVE INFLATION

The first exhilarating effect of this flood of new money was the flush of apparent prosperity, but that was quickly followed by inflation as the self-destruct mechanism began to operate. In 1775, paper Continentals were traded for one dollar in gold. In 1777, they were exchanged for twenty-five cents. By 1779, just four years from their issue, they were worth less than a penny. The phrase 'Not worth a Continental' has its origin in this dismal period. Shoes sold for $5,000 a pair. A suit of clothes cost a million.

It was in that year that George Washington wrote, 'A wagon load of money will scarcely purchase a wagon load c#provisions.'

t- Quoted by Albert S. Bolles, The Financial History of the United States (New York: D. Appleton, 1896,4th ed.), Vol. I, p. 132.

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THE CREATURE FROM JEKYLL ISLAND

Even Benjamin Franklin began to see the light. In a mood of sarcasm, he wrote:

This Currency, as we manage it, is a wonderful machine. It performs its Office when we issue it; it pays and clothes Troops and provides Victuals and Ammunition; and when we are obliged to issue a Quantity excessive, it pays itself off by Depreciation.

When speaking of deficit spending, it is common to hear the complaint that we are saddling future generations with the bill for what we enjoy today. Why not let those in the future help pay for what will benefit them also? Don't be deceived. That is a misconception encouraged by politicians to calm the public. When money is fiat, as the colonists discovered, every government building, public work, and cannon of war is paid out of current labor and current wealth. These things must be built today with today's labor, and the man who performs that labor must also be paid today. It is true that interest payments fall partly to future generations, but the initial cost is paid by those in the present. It is paid by loss of value in the monetary unit and loss of purchasing power for one's wages.

INFLATION IS A HIDDEN TAX

Fiat money is the means by which governments obtain instant purchasing power without taxation. But where does that purchasing power come from? Since fiat money has nothing of tangible value to offset it, government's fiat purchasing power can be obtained only by subtracting it from somewhere else. It is, in fact,

'collected' from us all through a decline in our purchasing power.

It is, therefore, exactly the same as a tax, but one that is hidden from view, silent in operation, and little understood by the taxpayer.

In 1786, Thomas Jefferson provided a clear explanation of this process when he wrote:

Every one, through whose hands a bill passed, lost on that bill what it lost in value during the time it was in his hands. This was a real tax on him; and in this way the people of the United States actually contributed those... millions of dollars during the war, and by a mode of taxation the most oppressive of all because the most unequal of all-1. Letter to Samuel Cooper, April 22,1779, quoted by Albert Henry Smyth, ed., The Writings of Benjamin Franklin, (New York: Macmillan, 1906), Vol. VII, p. 294.

2. Thomas Jefferson, Observations on the Article Etats-Unis Prepared for the Encyclopedia, June 22, 1786, from Writings (New York: G.P. Putnam's Sons, 1894), Vol. IV, p. 165.

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ENTER PRICE CONTROLS AND LEGAL TENDER LAWS

As prices skyrocketed, the colonies enacted wage and price controls, which was like plugging up the whistle on a tea kettle in hopes of keeping the steam from escaping. When that failed, there followed a series of harsh legal tender laws. One law even invoked the specter of treason. It said: 'If any person shall hereafter be so lost to all virtue and regard for his Country as to refuse to receive said bills in payment-he shall be deemed, published, and