Chapter 5: Economists and the Banking System, part 2: Adam Smith, some early Americans, and Friedrich List.

This chapter is about economics in transition. Economics means literally ‘housekeeping’ and most early writers on economics (roughly speaking before Adam Smith, 1723-90) treated it that way. They worried about a nation’s solvency, whether fairness generally prevailed in economic dealings, and whether the vulnerable were sufficiently protected against the powerful. By the end of this chapter, however, nationalist economics is promoting a ‘war of extermination’ between nations; and ‘institutions of credit’ – i.e. banks – have become economic weapons in the hands of national elites, for use both at home and abroad.


Economists before Adam Smith noticed that huge quantities of credit, based on very few assets, were passing as money, enabling real property to be purchased by people who had done nothing to gain it besides speculate or fund the speculations of others.[i] The ‘financial revolution’ was inevitably accompanied by a social revolution: the old landed gentry were being bought out and displaced by speculators in finance.[ii] Some economists were concerned about the effects on society generally, of such people gaining political and financial power.[iii] ‘Every little scoundrel gets a new estate’ commented Charles Davenant in 1701.


In 1707, there occurred one of those momentous turning-points in history which no one much remarks on. The nature of the event probably explains why it is so obscure: debt became a legally-recognised commodity. Not exactly a bit of history to thrill the imagination, and yet it changed the world, transforming how money could be made and leading by slow process to the situation today, when financial operators own most of the world’s wealth.


Buying and selling debt had, in fact, been going on for centuries before 1707, but in a kind of legal shadow-land. The law generally didn’t support creditors unless they were part of the initial loan agreement, so transactions mostly took place between trusted partners: even so, enormous fortunes were built on it.[iv]


Pieces of paper acknowledging debt are basically ‘promises-to-pay’. The Promissory Notes Act of 1707 meant that these bits of paper could freely and openly be bought and sold. It opened up possibilities for everyone with money to speculate in debt – and to create valuable debt themselves. ‘Promises to pay’[v] came in three varieties. There was government debt – bonds – that is, a government’s promises to repay money it had borrowed. There was commercial debt – originally a trader’s promise to pay at a later date, but subsequently also stocks and shares, which are not just certificates of ownership but also promises to pay the profits of a ‘joint-stock company’ i.e. a business corporation. Last but far from least, there was banking debt: notes promising to pay money to customers when and as they want it. Always and everywhere, the possibility lurked that debt was being created where no assets existed (or ever would exist) to redeem it. In the case of banking, this was an essential part of the deal. The activity of banking is issuing more promises than can ever be kept. Bankers’ ‘promises-to-pay’ circulate as money, and for as long as they circulate, the banking system (taken as a whole) never has to pay out on them. Bankers’ ‘promises-to-pay’ are claims on assets that, for the most part, don’t exist and never will exist.


The law of 1707 made lending a much more attractive proposition. Normally, when someone lends money, they say goodbye for a time to the money they have lent. But if lenders get a piece of paper acknowledging the debt, and if that piece of paper can be freely bought and sold, then lenders may sacrifice little or nothing by lending: they may even make an immediate gain, as Adam Smith notes below.


So – people were happier to lend. The government began to borrow spectacular amounts of money, to make war in Europe. This began the age of the national debt: nations borrowing off their rich, at no expense to the rich, who are paid interest (and eventually capital) out of taxes on the productive part of the nation.


As for joint-stock companies, they grew like mushrooms, and many of them disappeared just as fast. Stocks and shares could be talked up and down in value, which opened the door to manipulation and wild speculation. Suddenly everyone and their dog were gripped by speculative mania. ‘It was as if all the lunatics had escaped from the madhouse at once’ commented a Dutch observer.[vi] English poets, novelists, and playwrights wrote and argued about the virtues and vices of ‘Lady Credit’ – and speculated themselves. A whole century of literature – Defoe, Swift Pope, and many less famous writers – was devoted to satirising the new society of speculators and credit-worshippers. Hogarth did the same in art. The profits of speculation left ‘honesty with no defence against superior cunning’ wrote Jonathan Swift in Gulliver’s Travels.[vii] Speculations in credit ‘ruin silently… like poison that works at a distance… by the strange and unheard-of engines of interest, discounts, tallies, transfers, debentures, shares, projects, and the devil-and-all of figures and hard names,’[viii] wrote Defoe, author of Robinson Crusoe.


New opportunities for corruption entered politics, via the magic of money based on nothing. A series of plays satirising corruption so enraged the Prime Minister, Robert Walpole that London’s theatres were shut down: only three were allowed to reopen, subject to heavy censorship.[ix] When Walpole covered up the buying and selling of fake share certificates involving the King’s mistress, a new level of corruption had been reached. The system, corrupt in itself, was being topped up by illegality unpunished in the highest places. Obviously, this was the beginning of the modern age. The poet Alexander Pope’s satirical comment was: (to ‘imp’ means to ‘maliciously impersonate’);


Blest paper credit! Last and best supply!

That lends Corruption lighter wings to fly!

Gold imp’d by thee can compass hardest things,

Can pocket States, can fetch or carry Kings! …

Pregnant with thousands flits the Scrap unseen,

And silent sells a King, or buys a Queen.


Adam Smith, the founder of modern economics, was born in 1723, some fifty years later than the writers mentioned above. He was Scottish and spent most of his life in Scotland, at some remove from London society. In his magnum opus, An Inquiry Into The Wealth of Nations, the question of justice in money-creation simply disappears, buried in a general attack on the economists who came before him. The goal to be aimed at in The Wealth of Nations is not justice, but maximized production.


What did Adam Smith make of the three categories of tradeable debt noted above? He noticed that investors lose nothing when they lend to government:


By lending money to government, they [the great merchants and manufacturers] do not even for a moment diminish their ability to carry on their trade and manufactures. On the contrary, they commonly augment it. The necessities of the state render government upon most occasions willing to borrow upon terms extremely advantageous to the lender. The security which it grants to the original creditor is made transferable to any other creditor, and, from the universal confidence in the justice of the state, generally sells in the market for more than was originally paid for it. The merchant or monied man makes money by lending money to government, and instead of diminishing, increases his trading capital. He generally considers it as a favour, therefore, when the administration admits him to a share in the first subscription for a new loan. Hence the inclination or willingness in the subjects of a commercial state to lend.[x]


Smith’s objection to this is not because it is unjust, but because it hurts productivity. Interest is ‘paid by industrious people and given to support idle people’ and industry is hurt as a result. He has similar objections to joint-stock companies. The fact that ownership is remote, and always changing as the shares change hands, means that owners of companies are not directly involved in running them, and they are less carefully managed as a result. ‘Negligence and profusion, then, must always prevail, more or less, in the management of the affairs of such a company.[xi]


Smith’s assumption is that increased productivity is a good thing, full stop. So it hardly comes as a surprise when his principal concern about banking is: does it aid or hamper productivity? In Book Two, Chapter Two, he concludes, after long and confusing argument, that banking (when judiciously conducted) is on balance a plus because ‘the operations of banking turn dead stock into productive capital.’[xii] The idea is that a manufacturer borrows paper money on the collateral of money kept for ‘answering occasional demands’ and the borrowed money is put to good use. Banking assists productivity, and is therefore a good thing.

Nowhere does Smith address the theme that bank-money transfers assets from one class to another. He was, however, concerned by the tendency of banks to collapse, and of their notes to become worthless. To protect the vulnerable poor, he recommended that banks not be allowed to issue notes of low value. He also praised the Bank of Amsterdam, which created no more in credit than it had in money and so was not vulnerable to ‘runs on the bank’; but he stopped short of recommending this for all banks. On the contrary, Smith praised paper money for the normal reasons: paper is convenient and it replaces something expensive (gold) with something cheap.


Within its limits, The Wealth of Nations is a ‘great’ book: it set the stage for two and a half centuries of empire-building. It became the Bible of the new commercial ruling class, a place it still keeps today. But its neglect of the effects of created credit on ‘who owns what’ and on the progressive destitution of the poor set a precedent for mainstream economics which it was quick to follow. Neglect of this aspect of money-creation has permeated and distorted every area of economics, to such an extent that ‘since Adam Smith, the development of economics has been one long chain of making rules, refuting them, qualifying them, forgetting them.’[xiii] It has also meant that economics, since Smith, has been less of a scientific endeavour to understand, more a series of efforts at shoring up the various great and overweening powers which have appeared on the stage, each hoping to use the power of created credit for its own ends: predatory capitalism, socialism, communism, fascism and the enterprise state.[xiv]


It was left largely to outsiders to make true economic insights into money-creation.[xv] The tragedy of this has been that their insights have not been put through a proper scientific process of being scrutinised, tested, then accepted or rejected, to constitute a body of knowledge which could be taught with honour across the generations.


The idea that economics should, like other human disciplines, serve justice did, however, resurface every now and then: most significantly with the early American economists John Taylor (1753-1824), Daniel Raymond (1786-1849), William M. Gouge (1796-1863) and Amasa Walker (1799-1875). The story of this resurfacing is intimately bound up with the hopes and expectations of the founding fathers, and their disappointments that the United States, from promising republican beginnings, swiftly became a corrupt plutocracy.[xvi]


Adams and Jefferson, second and third Presidents of the United States, blamed this decline partly on the development of party politics, and partly on the adoption of English banking. John Taylor (‘of Caroline, Virginia’) was a critic and friend of both Adams and Jefferson. The two ex-Presidents overcame Taylor’s criticisms of themselves as politicians and wrote admiringly to him concerning his observations on banking. Taylor called banking a ‘machine for transferring property from the people to capitalists’. He called the combination of government and created capital a ‘tyranny of fraud’.

A currency of credit, Taylor wrote,


possesses an unlimited power of enslaving nations, if slavery consists in binding a great number to labour for a few. Employed, not for the useful purpose of exchanging, but for the fraudulent one of transferring property, currency is converted into a thief and a traitor, and begets, like an abuse of many other good things, misery instead of happiness.


Looking at England, then the most successful commercial nation in the world, Taylor saw poverty and destitution plaguing the masses, and immense wealth for a very few. Commerce – ‘the markets’ in modern parlance – had become a means not of producing wealth for all, but of thieving from the people: ‘rich tributes from the four quarters of the globe cannot prevent a frightful degree of pauperism’ he wrote and wealth is diverted way from working people and ‘into the pockets of the government, and of the exclusively privileged allies it has created.’


Taylor wrote that freedom, and the prosperity that goes with it, are vulnerable creatures. Banking and government debt are the instruments of a new ‘paper feudal system’.[xvii] Taylor’s observations on banking are now long-forgotten, along with Adams’ and Jefferson’s ruminations on the descent of the U.S. from a republic into a ‘tyranny of fraud’.


Daniel Raymond is often referred to with pride as ‘America’s first important political economist’ but his actual insights are also forgotten. There is no modern edition of his major work, Elements of Political Economy (1823).


Raymond is unequivocally critical of banks. They are ‘artificial engines of power, contrived by the rich for the purpose of increasing their already too great ascendency, and calculated to destroy that natural equality among men, which no government ought to lend its power to destroying. The tendency of such institutions is to cause a more unequal division of property, and a greater inequality among men, than would otherwise take place; which necessarily bring in their train, as has already been shown, poverty, pauperism and misery on some portion of the community.’[xviii]


In Raymond’s day, banks had to supply gold in exchange for notes when asked. He points out that if the public did not occasionally ask for gold, banks could manufacture unlimited amounts of credit-money: in which case ‘they would long before now have become possessed of every foot of property in the country, which would have been paid to them in the shape of interest for their money.’[xix]


Many of Raymond’s insights and observations – including his debunking of Adam Smith on banking – deserve enshrinement in some (imaginary) Economics Hall of Fame. Instead, they have been consigned along with all his other wisdom to that general oubliette of history, dusty old books in reserve collections. But a facsimile of Elements of Political Economy (appended to Raymond’s book on constitutional law) can (for the moment) be downloaded here:


Our third economist, William M. Gouge, is revered today as a historian of banking, but forgotten for the work he really cared about: his critique of the banking system, and his proposals for its reform. He, too, saw the promise of America dissolving into a new kind of plutocracy fuelled by banks. Should banking be reformed so that it no longer created money, he argued, the political promise of America would return again to be fulfilled. Here is how he ends his book. In his day, bank-credit mostly took the form of paper money; today it is mostly numbers in bank accounts:


A system which has been in operation in different forms for more than one hundred and forty years, must, by this time, have affected the very structure of society, and, in a greater or less degree, the character of every member of the community […]We have heretofore been too disregardful of the fact, that social order is quite as dependent on the laws which regulate the distribution of wealth, as on political organization. Let us remove these excrescences by which our excellent form of Government is prevented from answering its intended end, and our country will become, “THE PRAISE OF ALL THE EARTH.”


Gouge follows Taylor and asserts that money as ‘false and super-extended credit’ gives ‘to corporations a power which enables them to exercise an influence on society nearly as great as that which was exercised by feudal lords in the Middle Ages.’ As a knowledgeable expert on banking and banking history, Gouge had extremely interesting suggestions for practical reform (as did the other early Americans), which will be examined in a later chapter.


Our fourth economist, Amasa Walker, was if anything even more outspoken about the effects of bank-money on society. He wished to re-instate political economy as a moral science, not as a technique for structuring society towards maximum production.


‘That Political Economy is a science having nothing to do with morals or religion, nor in any way appertaining to human welfare, except so far as relates to the production and accumulation of wealth, is a common opinion… (but) I have felt desirous, throughout the following work, to show how perfectly the laws of wealth accord with all those moral and social laws which appertain to the higher nature and aspirations of man.’


Walker’s The Science of Wealth (1866) was published a hundred years after Adam Smith’s The Wealth of Nations. Walker saw the United States dominated by an integrated system of banking, taxes and national debt, designed to take wealth from productive workers and relocate it with an equally integrated power of government, corporations and plutocrats. Building on the last chapter of Adam Smith’s Wealth of Nations, Walker points out that the National Debt is a great gift to the wealthy: they lose nothing by lending, because they get government bonds in return. Meanwhile the interest on the debt – on money that the government spends – is met by those who produce. It is a tax on the productive.[xx]


His analysis of various types of currency is perhaps the most fascinating part of the book. The subject is vital to understanding how money-creation may either be impartial, or fuel inequality. Walker was writing at a time when at least one component to the money-supply was hard to manipulate and impossible to create: gold. His analysis of the types of currency then in use contains vital insights into how money may be manipulated by those in power.[xxi] As far as I know, there is no substitute for reading these chapters (and trying to understand them in a modern context) if one wants to understand the essential simplicity of money, and how complexity has masked the manipulation of money, transforming from a form of abstract property into a weapons-system in the interminable war of rich against poor.[xxii]


The subject of how money-as-credit, and money-as-property interact with each other was subsequently almost completely ignored in mainstream economics. Knut Wicksell, many years later, caused a stir in economics circles by noticing that there were two kinds of economy, a ‘credit economy’ and a ‘cash economy’; but as far as I know he never followed up his observation with thorough analysis.[xxiii] Keynes made the same observation in his Treatise on Money (1930) but he, too, pursued the matter no further.[xxiv]


Walker saw the United States going down the same route that Britain had taken – towards impoverished masses and a hugely rich ruling class. In contra-distinction to today’s plutocrats, who regard tax as theft from themselves, Walker sees government debt and banking as forms of ‘taxation’ that steal from the independent working poor and give to the rich, reverse-Robin-Hood style:


This is especially apparent in England. What has become of that yeomanry, once the pride of the country? Their little estates have disappeared, have been swallowed up by the terrible system of taxation to which they have been subjected. The pleasant hedges which still surround the small enclosures, once constituting the freeholds of her yeomanry, may yet be seen in all parts of the country. They are the monuments of an industrious, brave, and independent class of men, now extinct. These lands are indeed tilled by the hands of their descendants, no longer yeomanry, but peasants, almost the paupers of the nation.[xxv]


Fast-forwarding to today, once the independent poor have been robbed into penury they must depend upon a ‘welfare state’ to stay alive. This gives the super-rich plenty of reason to complain at the prospect of some of their money being diverted to supply those they have previously robbed with the bare ‘necessities of life’. In reality, the super-rich mostly avoid paying taxes and the burden falls on the working and middle classes.


So much more could be written about these early American economists. Their works could (and should) be studied, admired, discussed. But by the end of the nineteenth century they had been consigned to more or less total obscurity.


What happened?


The economics of nationalism took over and once again the notion of ‘justice’ in economics went into cold-storage. Nationalist economics is often called ‘Romantic’ – as if that makes it less bad. In reality, nationalist economics involves the development of a strong state which, in collusion with industry and banking, uses created-credit, first to subordinate workers at home so that production is cheap; and then to dominate peoples, territory and resources abroad. Created-credit is the ideal imperialist instrument: as the poet Alexander Pope said, it ‘flits unseen,’ buying not just ‘Kings and Queens’ but all kinds of powerful people. With money created out of nothing, its value maintained by a largely fictional convertibility to base-money, it purchases labour and natural resources from countries less sophisticated in the art of ‘robber banking’.


As luck or fate would have it, the same economist who heralded nationalist economics in the United States also fathered the nationalist (and racialist) economics of Germany: Friedrich List (1789-1846). Reading List after reading Amasa Walker is to jump from the warm and heady waters of imagined justice into an acid bath of realpolitik.


Friedrich List was born in Wurttemberg, Germany. As a young man, he was first imprisoned and then exiled from Wurttemberg for promoting constitutional reform. He arrived in the United States in the company of General Lafayette, a hero of both the American and French Revolutions. In Lafayette’s company, List met many influential people, and in 1827 he published two pamphlets: Outlines of American Political Economy and A Speech given at the Philadelphia Manufacturers’ Dinner.


List’s biographer Henderson writes: ‘With the publication of his two pamphlets, List suddenly found that he had become a public figure… List was now recognised in the United States as an authority on fiscal policy and a leading champion of the policy of protection,’[xxvi] List’s American promoter wrote that his letters were ‘favorably received by the most eminent men of the country, such as James Madison, Henry Clay, Edward Livingston, etc.’[xxvii]


The competition of states, List said, means that a nation must seek international power. List claimed that his ‘American political economy’ was descended in part from the vision of founding father Alexander Hamilton. American industrialists and bankers greeted him with rapture, not because his work was a revelation: it was applause for what they were doing anyway.


A nation, List explains in his Outlines of American Political Economy, is a ‘separate society of individuals who… constitute one body, free and independent, following only the dictates of its own interest as regards other independent bodies, and possessing power to regulate the interests of the individuals constituting that body.’[xxviii] Who will exercise the ‘power to regulate the interests of individuals’? The answer would seem to be ‘a National Convention, composed of men of all parties, for the sole purpose of elevating the welfare of the country’ which in context sounds very like a committee of plutocrats, assisted by compliant politicians and economists.[xxix] Recognising the inevitability (and under certain circumstances desirability) of war, the nation must pursue power and self-sufficiency as well as prosperity.[xxx]


In a series of outrageously sycophantic passages List seduced his American audience of manufacturers and plutocrats with the promise that the United States (‘where heroes are sages and sages rulers’[xxxi]) would be the power to dominate internationally – and after, to impose a global order of peace and plenty.


‘in after ages this country will proclaim true cosmopolitical principles. When it shall count a hundred millions of inhabitants in a hundred states; when our industry will have attained the greatest perfection, and all the seas will be covered with our ships; when New York will be the greatest commercial emporium and Philadelphia the greatest manufacturing city in the world; when Albion [England] in industry and wealth will be nearly equal to Pennsylvania, and no earthly power can longer resist the American Stars; then our children’s children will proclaim freedom of trade throughout the world, by land and sea.’[xxxii]


Do we see here the future? It is undeniable that, for the most part, the United States followed the path set out for it by Friedrich List, not the path set out by Taylor, Raymond, Gouge and Walker. Individual freedom is the loser. In nationalist economics, freedom belongs to the nation, not to individuals.


In place of ‘justice today’ List promises a future Utopia after all the struggle is done. Like all systems that promote the interests of a faction, other citizens must be promised heaven at some time in the future to keep them trudging on through loss of freedom, security and prosperity.[xxxiii] List looks towards ‘a closer union of nations… the establishment of perpetual peace; and of the general freedom of trade, objects at which all nations should aim, and to which they must continually approximate.’


List’s overarching idea was that when the nations of the world have all become equal, ‘free trade’ will be a good thing: until then, it means that those with power, accumulated capital and ‘great institutions of credit’ will ‘carry on against the manufacturers of all other nations a war of extermination’:


‘a nation which has obtained advantages by a century of continuous or uninterrupted labor, by the accumulation of an immense capital, by a vast commerce, by financial domination through the agency of great institutions of credit, which operate to reduce the price of manufactured goods, and to stimulate manufacturers to exportation (is enabled) to carry on against the manufacturers of all other nations a war of extermination.[xxxiv]


List recognises predatory credit as a weapon to be guarded against, but he never mentions it as a weapon to be used; let alone to be outlawed! His approach appears to be a variant on ‘don’t show the weapons you intend to use; only the ones you want to cause fear with.’ It would be wrong to say that List makes no analysis of bank-credit: in his American pamphlet Outlines he accepts that banks issue at least three times the amount in credit as they carry in cash, and then makes the following extraordinary statement:


If only a third part of these circulating notes represent cash, what do the other two parts represent? For, being nothing more by themselves than stamped rags, nobody would take them if they would not represent anything of value. They represent a nominated quantity of money consisting in the value of property and land.[xxxv]


List can hardly have been suggesting that claims against banks were backed by property and land: the early nineteenth century was a great age of bank crashes, each crash leaving a trail of dispossessed depositors and note-holders behind it.[xxxvi] Land-banks had been tried, but always failed because the land was never available to back them up. The meaning of this paragraph is fantastic and obscure. Elsewhere, List sets up the modern myth of international capitalism: that pre-existing capital ‘overflows’ from where it is plentiful (along with political power and productive skill) to where it can find better returns.[xxxvii]


Nationalist economics had no time for moralising about ‘fictitious’ or ‘imaginary’ credit: it was left to outsiders like Henry Carey Baird, a publisher of scientific and technical books, to analyze created credit as the engine of international commercial power.[xxxviii] In 1876, Baird wrote and published Inflated Bank Credit as a Substitute for Current Money of the Realm, a pamphlet explaining how created credit works to enable and support the immense power of Britain’s commercial and military empire.


In Europe, other Utopian messages were brewing to rival ‘nationalist’ economics. Marx would soon be noticing the power of fictitious credit and advocating that the State, not private banks, should have the privilege of creating it (the fifth plank of his Communist Manifesto). Other economists were adding racism to nationalism, envisaging a new Utopia for the benefit of a ‘master race’. Ideas of justice, of good and bad, of responsible moral freedom, that the weak should be protected against the strong, even that prosperity thrives in conditions of justice and freedom, were everywhere giving way to Utopian fantasies of dominion and exploitation, and expectations of plenty to be supplied by overwhelming power.


World domination by America as foretold by List: was it racist? Generally, List likes to imply that peoples can be ‘led, by a desire of enjoyment, to laborious habits and to improvements of their intellectual and social conditions’.[xxxix] But occasionally, racist judgements jump out of the page: for America, he recommends the ‘exportation of black people’ which ‘though diminishing our numbers, may be considered as beneficial; it is an exportation of weakness and not of power.’[xl] A page later, he characterises Mexicans as indolent. Twenty years later, he is advocating German dominance in Europe, beginning with the absorption of Denmark and Holland: ‘These two nations belong, besides, by their origin and by their whole history, to the German nationality.’[xli] Taken as a whole, List’s work is like a racist glove waiting for a hand to fill it. What America refused to do in this regard, Germany went on to fulfil.


In 1833 List was back in Germany, where he wrote his magnum opus, The National System of Political Economy. After a series of business and political failures, he killed himself.


Since the eclipse of the early American economists, considerations of justice in economics have surfaced only sporadically. For many years now, the professional mainstream has been denying that banks create money at all: an extraordinary stance, since the simple fact has been established over and over again, at least since 1584 when Venetian senator and banker Tommaso Contarini explained it to Venetian politicians. The resistance of economists to this first-base truth means they can avoid even discussing the destructive outcomes of creating money this way. Those destructive outcomes must be a subject for later chapters.

[i] For instance, Bolingbroke: ‘A new interest has been created out of their fortunes and a sort of property, which was not known twenty years ago, is now increased to be almost equal to the terra firma of our island.’ See Chapter Three of the present book.

[ii] For the old aristocracy’s impoverishment and desperate need for money, see R.H. Tawney, Historical Introduction to Thomas Wilson’s Discourse Upon Usury and his essay ‘The Rise of the Gentry’.

[iii] Malynes’ Saint George (1601) contains a detailed list of the social effects of fictitious credit a full hundred years before it was legitimised.

[iv] For instance the beautiful cities of Florence, Siena and Lucca were built on the banking fortunes of the Medici, Bardi and other Italian banking families.

[v] All of today’s tricks of finance are based on ‘negotiable debt’, powered by the fundamental ‘magic trick’ of creating multiple ‘promises to pay’ on the same assets.

[vi] From Charles Wilson, England’s Apprenticeship p. 316, via Patrick Brantlinger Fictions of State p. 57.

[vii] I,vi,39: the actual quote is ‘honesty hath no fence against superior cunning.’

[viii] Defoe had previously been in favour of credit; in his eyes she was a lady bountiful whose virtue was easily compromised. Quotes in this paragraph are taken from Fictions of State by Patrick Brantlinger and Writing and the Rise of Finance by Colin Nicholson.

[ix] After which, ‘there began for the English stage a melancholy epoch of over a hundred years of sterility, which was broken only by the comedies of Sheridan and Goldsmith.’ (Noel Annan, Hansard, 1966.) The censorship body set up by Walpole was modified in 1843 but only abolished in 1966.

[x] Wealth of Nations Bk V, Ch. 3.

[xi] Wealth of Nations Bk V, Ch. 1, Part III, Art.1.

[xii] For ‘confusing’ see ‘The Evolution of Adam Smith’s Theory of Banking’ by James A. Gherity, in History of Political Economy 26(3) 1994.

[xiii] Written by Freeman Tilden in 1935, but just as relevant eighty years on.

[xiv] For the ‘enterprise state’ in relation to freedom and civil society, see Michael Oakeshott, On Human Conduct; also, with specific reference to economics, his essay The Political Economy of Freedom.

[xv] For instance, the poet and essayist Samuel Taylor Coleridge: see Patrick Brantlinger, Fictions of State pp 124-133.

[xvi] See The Adams-Jefferson Letters ed. Capon; also Chapter Two of my book, In The Name of the People.

[xvii] Pp 290ff. of his Inquiry into the Principles and Policy of the Government of the United States, 1814. Section the Fifth, ‘Banking’.

[xviii] Elements of Political Economy (1823) p. 121.

[xix] Id., p. 179.

[xx] The Science of Wealth (1866) pp. 365-6.

[xxi] An example would be the surreptitious and gradual replacement of gold by government-produced ‘cash’ as the ‘reserve’ in fractional reserve banking.

[xxii] A variation on this theme was noticed by J. K. Galbraith: ‘The study of money, above all other fields in economics, is the one in which complexity is used to disguise truth or to evade truth, not to reveal it.’ Money, p. 5

[xxiii] I wrote, “as far as I know”, because I do not read Swedish or German, and not much of Wicksell’s work has been translated into English.

[xxiv] Treatise on Money Volume 2, p. 70.

[xxv] The Science of Wealth (1866) p. 369.

[xxvi] Henderson, Friedrich List: The Making of an Economist.

[xxvii] Matile, from Preface to U.S. edition of List’s National System.

[xxviii] Id. pp 9, 10.

[xxix] A Speech given at the Philadelphia Manufacturers’ Dinner, p. 7.

[xxx] The National System of Political Economy, tr. S.S. Lloyd, p. 148.

[xxxi] A Speech given at the Philadelphia Manufacturers’ Dinner, p. 3.

[xxxii] A Speech given at the Philadelphia Manufacturers’ Dinner, p. 5.

[xxxiii] Michael Oakeshott’s The Tower of Babel (the second of two essays with the same title) is a mythological elaboration of this idea; it was published in On History (1983).

[xxxiv] The National System of Political Economy, tr. Matile p. 378.

[xxxv] Outlines of American Political Economy, Appendix page 8.

[xxxvi] Perhaps List was implying that in a world without limited liability, land and property of owners of banks could be sold to pay off creditors (if there was enough of it); but in practice, limited liability was already pretty effectively enshrined in contract, and owners and directors of banks enjoyed many other types of protection against the claims of depositors. Ruined depositors were, repeatedly, the actual consequence of bank failure.

[xxxvii] Outlines of American Political Economy, p. 20.

[xxxviii] Among them are books by the man he was (presumably) named after, the economist Henry Carey.

[xxxix] Outlines of American Political Economy, Letter V.

[xl] The National System of Political Economy tr. Matile, p. 24.

[xli] Id. p. 265.

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