A friend of mine pointed me to a great article about the history of banking in the United States, and how it has related to everything from our independence from England, all the way up through World War II. The article is very long, so here I will go over some main important points which I have fact checked. I usually think of the creation of the Federal Reserve in 1913 as the tipping point when everything started going wrong in America, but really it starts at the birth of our nation, with people who wanted to manipulate currency, and couldn’t do it without the government’s complicity.
Something they don’t teach in school is one of the main reasons colonists were so angry at England. The conventional story is the Stamp Tax, and the Tea Tax put the colonists over the edge, but in reality, the Currency Act took a much larger toll on Colonists’ way of life. Previously each colony printed its own paper money, since gold and silver were in short supply, which was used to pay back debts to British merchants and bankers at depreciated value. The act forced Colonists to use British money, and in order to borrow it from British banks, it would need to be paid back at interest. Already this created higher costs just for using money at all.
After the Revolution the Founding Fathers attached the value of a dollar to silver so that it would not inflate, and issued the public currency directly from the Treasury, as opposed to using a private central bank which charged interest for the use of its currency. But this system was working too well for many in the banking world, specifically from England who saw their power and profits diminishing as much from the financial independence of America as from the recent Revolution.
Where Britain’s military might failed, politics succeeded and spurred on by Alexander Hamilton, the first Bank of the United States was granted a 20 year charter in 1791. Almost immediately, the spiraling debt in the government budget, championed as necessary for international commerce by Hamilton, began to drain the livelihood of ordinary Americans. The furor over the debt was one of many issues that led to the famous duel between Hamilton and Aaron Burr which resulted in Hamilton’s death on July 11, 1804.
When twenty years were up, the bank charter was not renewed because of widespread public dissent against the system, due mostly to the debt accrued and interest owed, which had to be paid back by everyday citizens. The following quotation by Thomas Jefferson shows his distrust of centralized banks, which when coupled with government power, rob the people of their control over currency.
“The Bank of the United States is one of the most deadly hostilities existing, against the principles and form of our Constitution. An institution like this, penetrating by its branches every part of the Union, acting by command and in phalanx, may, in a critical moment, upset the government. I deem no government safe which is under the vassalage of any self-constituted authorities, or any other authority than that of the nation, or its regular functionaries. What an obstruction could not this bank of the United States, with all its branch banks, be in time of war! It might dictate to us the peace we should accept, or withdraw its aids. Ought we then to give further growth to an institution so powerful, so hostile?” –Thomas Jefferson
The War of 1812 may very well have been an attempt by the British banks to bring the United States back under their control. The war failed, but the debt caused by the war posed new problems for America, and a second Bank of the United States was chartered, again with a 20 year expiration. But twenty years later, the same thing had happened, with runaway debt hoisted on the American people in order to pay back the interest on a private currency. The charter was not renewed, a platform Andrew Jackson rode to victory. The second Bank of the United States tried to maintain on its own, but without government force on its side, went bankrupt in 1841. Richard Lawrence, who attempted to assassinate Jackson in 1835 said his reason was that with Jackson dead, money would be more plentiful.
[T]he main difference between the economic system created by the Founding Fathers and the current system is that the control of the printing presses has been given over to the private central bank. The government no longer prints up and spends the money it needs to operate, but BORROWS the money from the private central bank, at interest! Then the money is spent into circulation and winds its way through the population, and is then collected back in taxes. But here is the problem. Taxes now have to collect back MORE money than the government spent in order to pay the interest back to the private central bank. Over time, relentlessly, the private central bank is acquiring wealth from the population, in essence charging the people a fee for doing what the government itself originally did for free.
Banks were still constrained by the definition of a dollar, which was 371.25 grains of silver according to the Coinage Act of 1791. The actual value rested in the metal, and that metal was actually kept at the banks, even when paper notes were issued. These notes were not the currency, they stood as a marker and could literally be brought down to the bank and exchanged for the amount of silver they represented. This meant banks needed to have something of actual value on hand, silver. So banks could lend out as much silver as they had on hand. But in a system where the value of a dollar is attached to nothing, systems of loans and debt can be manipulated by the bankers.
Even when Lincoln issued a non silver backed currency during the Civil War, it caused inflation, but at least did not accrue debt to be paid back to the issuers. And it turned out Lincoln’s assassination was great benefit to banks who wanted to continue to make money on interest for providing currency.
Following Abraham Lincoln’s assassination, Congress voted to end the Greenbacks, but did not restore convertibility. Banks could issue notes without regard to actual bullion reserves and a period of intense post-war inflation and speculation resulted.
This was the worst of both worlds. Interest would be charged based on the currencies issued, and inflation occurred because the currency was not backed by silver or gold. In 1900 President McKinley restored convertibility in currency by signing the Gold Standard Act, and one year later was assassinated—a curious trend among Presidents who oppose centralized banking.
In 1910, a group of private bankers met at a private island named Jekyll Island to plan the imposition of yet another private central bank on the people of the United States. As part of the ruse, they abandoned the unpopular name “Bank of the United States” and chose the name Federal Reserve to grant themselves the illusion that this was a government agency, when in point of fact it is just another privately owned central bank… Three years later, in 1913, Congress voted the Federal Reserve act and President Wilson signed it, redeeming a campaign promise to his financial backers.
The charter for the Federal Reserve was originally 100 years, seeking to avoid the fates of the first two central banks of the United States. Congress later made the charter permanent, and we continue to be bound to the Federal Reserve today, owing interest on every dollar borrowed for circulation by the U.S. government. In addition, the lack of convertibility, or a gold standard, means that every dollar printed by the Federal Reserve increases inflation, robbing those with savings in favor of those with debts. The gold standard was destroyed by FDR in 1933 when the Federal Reserve complained that it had to have 40% of the gold on hand which the notes issued represented—using the 1929 crash as an excuse for why this needed to be changed.
But the struggle did not end there. Another Presidential assassination would occur when the U.S. itself issued a currency backed by silver. Stay tuned for more on the history of currency in the U.S. and how it can help us, or destroy us.