Creature From Jekyll Island by G. Edward

7. Government I.O.U.s would also be considered as 'reserves' for creating additional loan money for private commerce. These loans also would earn interest. Thus, the monetary scientists would collect double interest on the same nothing.1

The circular which was distributed to attract subscribers to the Bank's initial stock offering explained: 'The Bank hath benefit of interest on all the moneys which it, the Bank, creates out of nothing.'2 The charter was issued in 1694, and a strange creature took its initial breath of life. It was the world's first central bank.

Rothbard writes:

1. For an overview of these agreements, see Murray Rothbard, The Mystery of Banking (New York: Richardson & Snyder, 1983), p. 180. Also Martin Mayer, The Bankers (New York: Weybright & Talley, 1974), pp. 24-25.

2. Quoted by Caroll Quigley, Tragedy and Hope: A History of the World in Our Time (New York: Macmillan, 1966), p. 49. Paterson did not benefit from his own creation-He withdrew from the Bank over a policy disagreement within a few months after its formation and then returned to Scotland where he succeeded in selling his Darien scheme. Frugal Scots thronged to buy stock and to book passage to the fever-ridden land. The stock became worthless and almost all the 1200 colonists lost their lives.

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In short, since there were not enough private savers willing to finance the deficit, Paterson and his group were graciously willing to buy g o v e r n m e n t b o n d s , p r o v i d e d they could do so with newly-created out-of-thin-air bank notes carrying a raft of special privileges with them. This was a splendid deal for Paterson and company, and the government benefited from the flimflam of a seemingly legitimate bank's financing their debts.... As soon as the Bank of England was chartered in 1694, King William himself and various members of Parliament rushed to become shareholders of the new money factory they had just created.1

THE SECRET SCIENCE OF MONEY

Both groups within the Cabal were handsomely rewarded for their efforts. The political scientists had been seeking about

?500,000 to finance the current war. The Bank promptly gave them more than twice what they originally sought. The monetary scientists started with a pledged capital investment of ?1,200,000.

Textbooks tell us that this was lent to the government at 8%

interest, but what is usually omitted is the fact that, at the time the loan was made, only ?720,000 had been invested, which means the Bank 'loaned' 66% more than it had on hand.2 Furthermore, the Bank was given the privilege of creating at least an equal amount of money in the form of loans to the public. So, after lending their capital to the government, they still had it available to loan out a second time.

An honest loan of their ?720,000 at 8% would have yielded

?57,600 interest. But, with the new secret science, they were able to earn 8% on ?1,200,000 given to the government plus an estimated 9% on ?720,000 loaned to the public. That adds up to ?160,800, more than 22% on their investment. The real point, however, is that, under these circumstances, it is meaningless to talk about a rate of interest. When money is created out of nothing, the true interest rate is not 8% or 9% or even 22%. It is infinity.

In this first official act of the world's first central bank can be seen the grand pretense that has characterized all those which have followed. The Bank pretended to make a loan but what it really did Was to manufacture the money for government's use. If the government had done this directly, the fiat nature of the currency would Rothbard, Mystery, p. 180.

2- See R.D. Richards, Ph.D., The Early History of Banking in England (New York- Augustus M. Kelley, original edition 1929, reprinted 1965), pp. 148-50.

r K EATUR E FROM JEKYLL ISLAND

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been immediately recognized, and it probably would not

h a v e been accepted at full face value in payment for the expenses of war. By creating money through the banking system, however, the process became mystifying to the general public. The newly created bills and notes were indistinguishable from those previously backed by coin, and the public was none the wiser.

The reality of central banks, therefore—and we must not forget that the Federal Reserve System is such a creature—is that, under the guise of purchasing government bonds, they act as hidden money machines which can be activated any time the politicians want. This is a godsend to the political scientists who no longer must depend on taxes or the good credit of their treasury to raise money. It is even easier than printing and, because the process is not understood by the public, it is politically safe.

The monetary scientists, of course, are amply paid for this service. To preserve the pretense of banking, it is said they collect interest, but this is a misnomer. They didn't lend money, they created it. Their compensation, therefore, should be called what it is: a professional fee, or commission, or royalty, or kickback, depending on your perspective, but not interest.

FROM INFLATION TO BANK RUNS

The new money created by the Bank of England splashed

through the economy like rain in April. The country banks outside of the London area were authorized to create money on their own, but they had to hold a certain percentage of either coin or Bank of England certificates in reserve. Consequently, when these plentiful banknotes landed in their hands, they quickly put them into the vaults and then issued their own certificates in even greater amounts. As a result of this pyramiding effect, prices rose 100% in just two years. Then, the inevitable happened: There was a run on the bank, and the Bank of England could not produce the coin.