Colonial Scrip and Rebellion
It’s time we had a picture, and here we can illustrate this ramble in rock:
That’s Thomas Jefferson second from the left, and Abraham Lincoln is far right, and we’re going to mention these great and revered presidents a little. The mountain was supposed to be carved down to their waists but the money ran out, as, in regular rhythm, the money did keep running out in the developing USA, ebbing and flowing like the tide.
Early titans of American freedom are often invoked in modern times, yet what their struggles actually were about have become obscured to modern eyes, so educated are modern eyes to the orthodoxy of the age. Early American presidents and statesmen gave clear and dire warnings about the power of a central bank.
The buzzing misquotes bouncing among writers and theorists on the Web, copied from site to site, weaken and discredit the story there is here. And there’s plenty of clear things that really have been said and certain ideas expressed about episodes that ring true; as far as we can see. We’re going to try to tiptoe through the murky shark-infested waters of early American history and try to find some indisputable facts as stepping stones.
By the mid-1700s, Britain arrogantly bestrode the world stage, the Royal Navy supreme, but the wars since the Bank of England’s creation had left the country heavily in debt. To pay the national debt, the colonies were progressively squeezed with crushing taxes. But the First American, Benjamin Franklin, apparently said that the American Revolution really was stirred by the denial of the right to issue and control their own currency. As some have it, the rebellion was against Britain, but really it was a revolt against the Bank of England.
So, allegedly, right there at America’s birth, the money question was actually the central cause of America’s rebellion, as Benjamin Franklin is often reported to have explained in his memoirs:
The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction.
We had already seen another lengthy Franklin quote that turned out to be fiction. This one initially felt safe enough, as the source said that the quote is from his memoirs, that’s surely clear enough. But it turned out that he didn’t say that in his memoirs. That was a sharp lesson for us, that just because someone says so-and-so said this in their memoirs, doesn’t mean that they actually did.
What can be said is that during an examination by the British Parliament in 1766, published in The Parliamentary History of England from the Earliest Period to the Year 1803 (1813), when asked why Parliament had lost respect among the colonies, among the reasons Franklin listed was the prohibition of making paper money among themselves.
Respected American historian Alexander Del Mar – who comes recommended by John Stuart Mill - and obviously has the distinct advantage of being closer in time to events, wrote in The History of Money in America in 1881:
the creation and circulation of bills of credit by revolutionary assemblies…coming as they did upon the heels of the strenuous efforts made by the Crown to suppress paper money in America were acts of defiance so contemptuous and insulting to the Crown that forgiveness was thereafter impossible . . . there was but one course for the crown to pursue and that was to suppress and punish these acts of rebellion…Thus the Bills of Credit of this era, which ignorance and prejudice have attempted to belittle into the mere instruments of a reckless financial policy were really the standards of the Revolution. They were more than this. They were the Revolution itself!
There’s something in it. These Bills of Credit, and what Franklin was talking about with making paper money among themselves was an unbacked currency called Colonial Scrip. Colonial Scrip, debt-free, interest-free, like the cheap metallic money of the early Roman Republic. It’s a very simple idea, and it was working very well. Enough was printed to facilitate trade in the colony, no more, no less. No inflationary problems were encountered, no public debt was incurred.
It can be imagined that the idea that there was no interest to pay to no one, (from another dodgy Franklin quote) may well have sent shivers down bankers’ spines, and that there was pressure to do something about it. In 1764, the British Parliament passed the Currency Act, which demanded that all taxes to Britain must be paid in gold or silver, and forbade colonies printing their own currencies.
Benjamin Franklin either did or didn’t in actual quotation, describe what happened next:
In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed.
But either way, that’s what happened.
The fanatically exacting British Parliament followed this up the following year with the Stamp Act, 1765, demanding that every item bought or sold had to carry a stamp to show that tax had been paid and that it had been paid in gold. All the gold was flowing back to London, and now nothing could be bought or sold without it; it was slow strangulation. There was nowhere to go. What else could the Colonies do? They surely had no choice but to revolt.
By the time of the actual Rebellion in 1776, all the gold and silver had gone, and now the Americans really had to print their own money, which was called Continental Scrip. The war was won, but the Scrip was a disaster this time around and became almost worthless, and this is how Continental Scrip and, alas, Colonial Scrip, would be remembered, as a cautionary tale. What happened was that the British – and Thomas Paine complained bitterly about this underhand economic warfare – had massively counterfeited Continentals. The earlier Colonial Scrip had worked perfectly because it had been issued in proper proportion to the demands of trade and industry.
So, America was born screaming into a house of crisis, a huge financial mess, the money worth less than paper. With what seems to the shallow student to be startling amnesia, they turned to bankers. In 1781, the Continental Congress agreed to give a group of private bankers a monopoly on creating American money and loaning it to the government. America needed stability, it was felt to need something like . . . the Bank of England.
And so the baton changed hands for the first time, the Bank of North America was set up, privately chartered. The founders, using loans from France and elsewhere in Europe and then using the fractional reserve scam lent themselves the money to buy more shares in the business of creating money for America. Was the American Revolution already over in 1781?
Deep economic crisis followed, wild inflation, plunging currency value, many Americans becoming laden with debt. Four years later, the bank’s charter was not renewed by Congress. That was the end of the first attempt at a privately-owned central bank and the baton was snatched back.
In 1787, the Constitutional Convention met in Philadelphia to forge a new beginning for a new kind of country, the process that would lead to the adoption of the United States Constitution. There was a lot to discuss, about the composition of the executive power, to have a single president or to share the power among three people; many, many issues.
This was the time to get it right, make the gains of the revolution concrete and legal. Many months of discussion followed. Benjamin Franklin and others argued that money bills were to originate in the House, and there were those arguing that the government should not be allowed to issue money. This is one little snippet from the Records of the Federal Convention [1:233; Madison, 13 June]
Mr. Gerry. moved to restrain the Senatorial branch from originating money bills. The other branch was more immediately the representatives of the people, and it was a maxim that the people ought to hold the purse-strings.
Mr. Franklin was of this other branch. We’re persuaded that Franklin is clear about this, it’s nothing to do with gold and silver and their value and relative value to paper money, the important thing was the quantity of paper money relative to the trading activity in an economy. It’s clear that this was a popular idea, as well, promoted by those more immediately the representatives of the people.
The spectre of the Continental Scrip currency disaster was kept fresh in delegates’ minds, while Benjamin Franklin recalled how well Colonial Scrip had worked. Anyway, the question of money issuance was actually debated and argued about at these times, it was still an open question in the forging a new constitution for a new kind of nation.
In the modern world, the question hasn’t been debated anywhere for nearly a century now, hasn’t even been a question except for the odd person glimpsing the obvious and piping up. These days, with a banking crisis and a developing Web conversation, all manner of knowledge has become available and highlighted, all these questions are becoming visible again. All we can say is, there’s a lot of people thinking and writing about these things now in various ways, and there’s some actually doing new things with money.
Founding Father, James Wilson, in a quote often attributed to James Madison, commented in debate at the convention:
As to the privilege of originating money bills, it was not considered by any as of much moment, and by many as improper in itself.
The Constitution, in the end, gave government the power to borrow money on the credit of the United States; and to coin money. The coins in all our pockets, both sides of the Atlantic, are debt-free money issued direct from the government, the notes are not. Despite Franklin’s efforts, the Constitution was silent on the question of who should control the natural monopoly of issuing the currency.
We noted this attributed point in Wikipedia:
Benjamin Franklin was in agreement with Thomas Jefferson in downplaying protection of property as a goal of government. It is noted that Franklin found property to be a creature of society and thus, he believed that it should be taxed as a way to finance civil society.
We fancy that Franklin, Jefferson and George would be in complete agreement on matters in general. In fact, Franklin and Jefferson had both served spells as American Ambassador to France and had absorbed Physiocrat ideas there; Jefferson had even brought Pierre du Pont over to the United States to spread the proto-Georgist ideas of the French economists. Du Pont had been the protégé of Dr François Quesnay, head of the Physiocrats movement, of whom Henry George was later delighted to hear about from a stranger on a San Francisco street corner after he’d got his first pamphlet out about the state of affairs.
Thomas Jefferson was there at the writing the Declaration of Independence, of course, and penned some of the most famous words ever:
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.
We read an opinion about this from Money, Mirror Image of the Economy by JW Smith, speaking of the famous economist, John Locke:
Despite the egalitarian rhetoric of the American Revolution and an attempt to place a proclamation in the Declaration of Independence for a common right of the whole nation to the whole of the land, the powerful looked out for their own interests by changing the wording of Locke’s insightful phrase: “All men are entitled to life, liberty and land.” This powerful statement that all could understand coming from a highly respected philosopher was a threat to those who monopolized the land, so they restructured those words to “life, liberty and [the meaningless phrase] pursuit of happiness.”
Certainly John Locke did speak of all men being entitled to life, liberty, and estate. The stated aim of the drafters of the Declaration was to forge a statement of natural law. Of anyone, the words and ideas of John Locke were central to the high purpose of the constitutional draft, and these words about what all men were entitled to would have been well known and certainly have been in the air at the time. Once drafted, the words of the new constitution went through various committee stages to produce the final words.
Certainly, compared to a concrete recognition that all have a right to estate, that is, land, the pursuit of happiness is empty and meaningless. You might not get any but you’ve a right to pursue it.
Soon the bankers were back with a proposition to Congress, and in 1791, the First Bank of the United States came into being, and this time with a much more stable 20 year charter, and run by exactly the same people that were behind the Bank of North America. Once again, the traditional central bank inauguration is reported, initial money provided by the state for its 20% share, was used by the investors to raise the money to buy the other 80% of a risk-free investment, ownership of the magic.
The kind of stability this central bank brought along was also a familiar story, as over the next five years the government borrowed huge sums from the Bank and general prices rose a whopping 72%. Thomas Jefferson, by now Secretary of State, looked on helplessly at an ever increasing debt.
Thomas Jefferson, who became the third USA President in 1800 is quoted and misquoted a lot through history; even we saw straightaway that inflation and deflation were words before their time. But after getting frustrated with this kind of thing, we’re convinced now that, in a letter to Secretary of the Treasury Albert Gallatin in 1803, he actually did say this:
[The] Bank of the United States... is one of the most deadly hostility 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.
This was the source and the trustworthy place for Jefferson quotes.
We felt we were getting somewhere having established that. Soon after that we saw that Carl Herman had very helpfully sifted them all out and there are more genuine Jefferson quotes on the banksters of his day here, and Jefferson’s way with words is wonderful.
Jefferson served two terms as President, and just had to suffer the Bank, whose charter was not up for renewal until 1811. By this time, the press were openly hostile to the Bank and it was popularly seen as a great scam.
Many writers claim there were dark threats emanating from the direction of the Bank of England should the Bank’s charter not be renewed, that the United States would find itself in a disastrous war. Whether or not this was so, within months of the Bank’s renewal bill being defeated, war with Britain did indeed begin.
In fact, the United States declared war on Britain in 1812, for various reasons, including Britain’s continued business in North America and their project to create a large American Indian state encompassing most of Ohio, Michigan and Indiana, (a story which needs further investigation.)
In 1814 the British captured Washington and burned down the White House, but all British attacks were driven back the following year, 1815, when Britain, very busy at war, would have the Battle of Waterloo to fight.
With the war over in America, the banks came knocking on Congress’s door again, with a plan for another central bank. Late in 1815, Jefferson wrote in consternation to the Treasury Secretary.
The treasury, lacking confidence in the country, delivered itself bound hand and foot to bold and bankrupt adventurers and bankers pretending to have money, whom it could have crushed at any moment…These jugglers were at the feet of government. For it was not, any confidence in their frothy bubbles, but the lack of all other money, which induced…people to take their paper.
Thomas Jefferson, October 1815 letter to Treasury Secretary, Albert Gallatin. Selected letters of Thomas Jefferson
And in 1816 said:
I sincerely believe… that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale.
Thomas Jefferson to John Taylor, 1816.
Memorial Edition, Ford Edition from the University of Virginia archives
We’re forever blowing frothy bubbles. Jefferson’s protestations were to no avail, and in 1816, Congress gave away another 20 year charter to a new privately-owned central bank, this third one called The Second Bank of the United States. Immediately, our understanding is that the Second Bank took up familiar practises of speculation and outright fraud. In 1819 came a major financial crisis in the USA, allegedly brought about by the Second Bank’s dealings. By this time, Jefferson’s view about how things had developed in the years of the Second Bank was expressed so:
Certainly no nation ever before abandoned to the avarice and jugglings of private individuals to regulate according to their own interests, the quantum of circulating medium for the nation — to inflate, by deluges of paper, the nominal prices of property, and then to buy up that property at 1s. in the pound, having first withdrawn the floating medium which might endanger a competition in purchase. Yet this is what has been done, and will be done, unless stayed by the protecting hand of the legislature. The evil has been produced by the error of their sanction of this ruinous machinery of banks; and justice, wisdom, duty, all require that they should interpose and arrest it before the schemes of plunder and spoilation desolate the country.
Thomas Jefferson to William C. Rives, 1819
Memorial Edition, Ford Edition from the University of Virginia archives.
So, by the time we realised he actually was talking about the central bankers’ schemes of plunder, more and more we start to see credence in the account that we’re skimming through here, because what Jefferson is describing here is what can be seen happening over and over again in history, even to casual skimmers of history.
We kept looking into it further – and we definitely are not scholars but we can look things up – it became scarily evident that this account does hold water, and that there really are the most telling expert witnesses around that lend it a lot of weight.