A law can be anything from an attempt to establish justice on earth to a device for robbery and murder. Nazi race law was an example of the latter. Most people pay lip service to the idea that laws should be just; but in fact, laws are often made to favour the powerful. Laws supporting slavery and laws favouring men over women are two examples of that.
Today, thousands of lobbyists spend untold amounts of money each year influencing lawmakers on behalf of their (usually corporate) paymasters. Many of the new laws they promote would not be called ‘just’ by most of us – if we knew about them. But how many voters keep an eye on new laws, to check if they are just?
This chapter describes how banks became authorised in law to create money, as part of the age-old practice of ruling classes writing laws to suit themselves.
Laws allowing money (and other value) to be created as debt are surely the most unjust laws generally in force today. These laws are actually very simple, but very few people know about them, and their injustice is not often talked about. People who benefit from them prefer to ignore them – and prefer it if other people don’t talk about them either.
These laws simply establish that debt can be bought and sold as if it is a commodity, like beef or beans. The legal word for this is, they make debt ‘negotiable’.
‘Negotiable debt’ means that if someone owes me money, I can sell that person’s debt to a third party and the law will help that third party collect. We are all familiar with ‘negotiable debt’ in one shape or form. We might borrow money off someone we trust – say, student loans from the government – only to find our debt has been sold on to a bunch of unscrupulous bullies. We can read in newspapers about whole countries being taken to the cleaners by speculators who bought their ‘national debts’ on the cheap. Most people are repulsed by this kind of thing, so it may come as no surprise to hear that for many centuries buying and selling debt was strongly disapproved of by lawmakers and judges. Debt was regarded as a private agreement between two people, involving real money and/or real goods, not something to be created out of nothing, then bought and sold.
Until laws favour one side or the other – lenders or borrowers – debt is a simple affair. Someone with more lends to someone with less. It’s a relationship built on inequality, but the inequality goes both ways. Lenders are usually richer, but they must do without what they are lending until they are paid back. They also take the risk of losing the money they have lent.
This balanced inequality strengthens communal ties. Each party wants the other to prosper. The lender wants to be repaid; the borrower wants time and space to repay. Religions tend to reinforce these ties by forbidding the charging of interest (usury), at least within the community. For instance, the Bible: “Thou shalt not lend upon usury to thy brother … Unto a stranger thou mayest lend upon usury.” In addition, rulers often declared a ‘debt jubilee’ when all debts were cancelled.
As soon as laws began to favour lenders, this community-strengthening factor disappeared. The simplest law in favour of lenders commits state violence to forcing the borrower to repay. If a borrower can’t repay, the state takes some of their possessions and gives them to the lender. A lender may now want a borrower to fail – so he can get his hands on the borrower’s possessions (and in the case of debt slavery, possess the borrower too!).
This law obviously undermines the community bonds which were fostered by debt before the law intervened. It also empowers a new class of professional acquisitionists, using debt to enrich themselves at others’ expense.
A whole other level of exploitation is reached when debt becomes a tradeable commodity. Suddenly value is created out of nothing for the benefit of the lender, who now has an asset (the tradeable debt) in return for what he has lent. These tradeable debts are often called ‘bonds’. The money-value of these assets can itself go up and down, depending upon external factors such as interest rates and credit ratings, so debt itself becomes a commodity for speculation.
The most significant of all ‘valuable debts’ is money. As explained in Chapter One, once debt goes into circulation as money it becomes ‘fake debt’. But as money, it is very real: it can be used to acquire the possessions of others. Money is just one variety of created debt; its value is small compared to other created debts, like derivatives and bonds. The value of ‘negotiable debt instruments’ at any one time is many times greater than the value of total global production.
The right to create debt is supposed to be democratic and egalitarian, but in fact it favours the rich and powerful. A debt is only valuable to the amount that can be profitably recovered. Two equal-and-opposite debts can be created out of nothing: you and I, for instance, can agree to owe each other any amount we please – but our debts may be worth little or nothing in the marketplace. If, however, we are powerful and/or wealthy, the debts we create for each other may be valuable to the full amount.
A bit of history says a lot about ‘negotiable debt’; what it does and who it profits.
Establishing Negotiable Debt.
Legal disapproval of ‘negotiable debt’ was strong in the Middle Ages, when monarchs, military-minded nobles and the Church held the reins of power. Even charging interest (usury) was disapproved of. It took centuries for this resistance to yield.
Why did these feudal powers (and the lawyers who served them) resist the encroachment of negotiable debt? They could see the power of merchants and traders growing stronger and beginning to rival their own. In the words of an economic historian, ‘Each society in which commerce plays a role sooner or later has to face a strong demand to increase the circulation of credit.’
‘Circulating credit’ – another name for negotiable debt – was important for the new power of money and commerce for several reasons: some generally beneficial, others to feed the insatiable appetites that go with money and power.
When money consisted of heavy metal coin, transferring debt was a much more convenient way of making payments than counting out and transporting gold or silver. It was less vulnerable to robbers, too. And by using ‘Bills of Exchange’ which re-allocated debts internationally, traders could arrange payments through different bankers in different cities without moving around gold. They could also ‘buy now, pay later’. On the other hand, as mentioned above, once debt is negotiable, financial value can be created out of nowhere simply by acknowledging debt. Many writers over the centuries have tried to draw a line indicating where banking stops being a service to society and becomes a form of profiteering or ‘unjust enrichment.’
While banking flourished as a kind of semi-legal activity – between consenting adults, so to speak – certain things were obvious to onlookers that are not so obvious today, when bank-money is everywhere like the air we breathe.
For a start, it was obvious that when banks create credit, they create money. Whether the writer approved or disapproved was another matter; but the fact was generally recognised.
Gerard de Malynes wrote disapprovingly of circulating credit in 1601: ‘What is this credit, or what are the payments of the Banks, but almost or rather altogether, imaginary?’ And with this imaginary credit, he wrote, banks ‘do engross the commodities and merchandises of their own country, and of other countries many times also.’
Samuel Lamb, on the other hand, wrote to Oliver Cromwell approvingly of circulating credit, and in almost the same terms, recommending the foundation of a National Bank: ‘Banks increase the money of a country, allowing it to buy up the commodities of another country and re-sell them at a profit at home or abroad, thereby gaining other benefits of trade.’ And, ‘He that hath the greatest trade will have the most money, which is of such value that it doth command all worldly things, both in war and peace.’
Thomas Mun (1571-1641) wrote rather cynically that objections to banking were mostly ‘all one matter’ and ‘such froth also, that every Idiot knows them’.
It was the English Parliament, between the years of 1694 and 1704, which established the explicit and unrestricted negotiability of debt, giving the support of the law to credit circulating as money.
The story of how this happened says a lot about who profits from negotiable debt.
Domestic banking had come late to England. It took root during the build-up to the Civil War (1642-51), when people wanted somewhere safe to store their gold and other valuables. They left them in the strong-boxes of goldsmiths, who gave them credit-notes in return. These credit-notes began to be used as money. Soon these goldsmiths had become ‘new-fashioned’ bankers; they were writing notes for themselves to sell in large amounts and getting very rich off the proceeds. The old landed class felt threatened. ‘A new sort of property, which was not known twenty years ago, is now increased to be almost equal to the terra firma of our island,’ wrote Henry Bolingbroke some years later.
The notes of these bankers were passing around in payment; but when there was a dispute, no one could be certain that the law would help the current owner of a note to claim ‘real’ money (gold or silver) from the banker. Some judges were ruling in favour of negotiable ‘promissory notes’, and some against. This restricted the extent to which notes could become money.
The Lord Chief Justice of that time (Sir John Holt) was one of those against. Sir John Holt was a man in advance of his time: he made rulings against slavery and the persecution of witches. His surviving remarks on promissory notes indicate that he thought it undesirable to make a special exception in law on behalf of bankers, which would allow them to evade established rules and principles and make laws to suit themselves.
What were these established rules and principles? They were fairly elaborate, reflecting the efforts of lawmakers to avoid supporting unjust claims and contracts. Here are some examples:
- The ‘non-assignability of choses in action’. When the law recognises you have a right to something, but says you need a court order to take possession of it, you cannot transfer that right to someone else. An example would be: if you are owed money, you can’t sell the debt for someone else to collect. A bank-note represents a debt from a bank, so only the original owner would be entitled to collect on it.
- Obligations arising from a contract should only be enforced if the person obligated had derived some previous benefit from the contract (rules and doctrines of ‘consideration’: ‘nudum pactum non parit actionem’ or ‘ex nudo pacto non oritur actio’). For a bank, this means it would have to pay out on a credit-note if it had received some sort of payment or benefit from the bearer.
- You cannot give to someone else what you do not own yourself (‘nemo dat quod non habet’). For instance, you can’t sell Buckingham Palace – unless you already happen to own it. This spelled trouble for negotiability of debt: if a promissory note gives no definite rights to a previous owner, there is nothing to pass on to a subsequent owner.
- The rule now known as ‘privity’ stated that obligations and rights arising from a contract should only be enforced between the original parties – i.e. not for a third party arriving late on the scene. This would rule against bank-notes, which are agreements between a bank and the anonymous and ever-changing ‘bearers’ of its notes. They would be ‘non-transferable’ – like most travel tickets today.
- In ordinary contract law, if a property carries with it obligations and restrictions, they pass with the property to any new owner. Bank-created money is exempt from this rule. Instead, ‘holder in due course’ rules apply, so that ‘a bonafide purchaser for value takes the instrument free from the claims and free from most defences of the parties obligated on it.’ This exemption establishes a bank’s credit-money as pure property, universally tradeable.
- Somewhat similar is the ‘rule of derivative title’. According to a textbook on law, ‘The rule of derivative title, which is applicable in most areas of the law, does not allow an owner to transfer rights in a piece of property greater than his own. If an instrument is negotiable, this rule is suspended.’
- There is a principle in law that it should not enforce obligations arising from an illegal act. For instance, it should not enforce a claim on loot from a robbery, or a payment for a murder. This does not apply to bank-notes which themselves, as Thomas Jefferson, John Adams and many others have pointed out, are a ‘swindle’, a ‘cheat’ and a ‘fraud’.
The complexity of these rules, and the fact that their histories and meanings are still controversial today, reflects the difficulties that law faces when dealing with claims. A claim asserts the existence of a debt – that something is owed. A claim is an odd kind of property. Most pieces of property are definite and simple: a house, a piece of land or furniture, a vehicle. A claim is different: it often arises from a private contract and it must always involve risk – because a lot might happen between the claim’s creation and when it is exercised.
Furthermore, a claim can be on something that only partially exists, or does not exist at all (as with bank-credit); on something that might or might not exist (for instance, mineral rights); on something that might exist in the future (for instance, profit on an investment), or on something that exists today but which might not exist tomorrow (for instance, the assets of a debtor teetering on the edge of ruin). It can also be a claim on something that belongs to someone else – as when people invest in war in exchange for a claim on some of the spoils. On top of all that, there’s the question: Is the claim genuine?
The new ‘money-power’ needed a clear declaration in law exempting all claims, promissory notes and debt-promises from the rules and principles listed above so that bank-notes (and other forms of creditor-claims) could pass freely from hand to hand and be valid.
So how did the new ‘money power’ find itself in a position to call the tune?
As already mentioned, the English Parliament first passed laws to make debt fully negotiable during the years 1694-1704. Just a few years earlier, in 1688, Parliament had become the supreme power in the land. The new monarchs, William and Mary had become King and Queen on the understanding that ‘they would rule in accordance with laws made by Parliament.’ Parliament consisted then of rich men voted in by other rich men (‘20-shilling freeholders’). Among these wealthy men, there was an ongoing power struggle between the old landed gentry and the new ‘money power’ – merchants, speculators and bankers.
The two sides came to agreement when they realised that negotiable debt would fund a shared enthusiasm: war. War was looked on kindly by the older war-making (feudal) powers because it justified their supremacy and their existence: seizure by the sword was the origin and basis of their power. War was looked on with enthusiasm by the new ‘money power’ because it established new markets and protected existing markets. War is the foundation of empire. By financing war, the new money would benefit both factions of the ruling class.
The first significant law to support negotiable debt was The Bank of England Act (1694). By early 1694, the government’s coffers were empty: war with France had drained them. The King was having to send his ministers round the coffee-houses of the City of London to borrow money. The Treasury was listening to many different schemes, proposed by ambitious speculators, for creating and introducing new money. The proposal for a Bank of England, to provide paper money backed by gold-and-silver on demand, seemed to them the safest. When members were told that a loan from the new Bank would be ‘the only means of providing money for the navy to take the sea that summer’ both sides in Parliament consented to the Act.
The Bank lent the government £1,200,000 and King William forged off to war, defeating the French at the siege of Namur (1695).
The Bank of England Act (1694) broke new ground in two ways.
First, the government agreed to borrow paper rather than gold-and silver. It nervously hoped that the paper would be accepted by the public as currency. The paper was backed, meaning that holders of paper notes could go to the bank and ask for gold if they wanted to; but the amount of gold made available was very small compared to the number of notes: according to Thorold Rogers, a mere £36,000 in gold compared to £1,750,000 in notes.
Second, shares in the bank represented debt owed by the government to the Bank. Because shareholders could sell their shares, that debt was freely negotiable.
It was obvious to everyone that lending to the government in paper meant lenders could a) charge a lower rate of interest and b) get a much better return on their gold.
Alternatives were suggested which would have served the country better; but they would have given less opportunity for private gain. Parliament at that time was not a gathering of do-gooders: ‘Men… no more dreamt of a seat in the House (of Commons) in order to benefit humanity, than a child dreams of a birthday cake that others may eat it,’ wrote the historian Sir Lewis Namier.
Circulating credit was attractive in different ways for different categories of people. If ‘live now, pay later’ was the government’s motto, ‘get rich by creating credit’ was the bankers’ motto, and ‘use new money to make more money’ was the motto of speculators.
The Bank of England Act was a beginning and a precedent, but debt was still not generally negotiable. The Act which established all promissory notes as negotiable came ten years later: The Promissory Notes Act (1704). The chaotic outbreak of created money and value which resulted from this will be looked at in the next chapter.
For those who like their law hard-core here is a sample of the Promissory Notes Act, in lovely legalese:
‘An act for giving like remedy upon promissory notes, as is now used upon bills of exchange, and for the better payment of inland bills of exchange. Whereas it hath been held, that notes in writing, signed by the party who makes the same, whereby such party promises to pay unto any other person, or his order, any sum of money therein mentioned, are not assignable or indorsible over, within the custom of merchants, to any other person; and that such person to whom the sum of money mentioned in such note is payable, cannot maintain an action, by the custom of merchants, against the person who first made and signed the same; and that any person to whom such note shall be assigned, indorsed, or made payable, could not, within the said custom of merchants, maintain any action upon such note against the person who first drew and signed the same: therefore to the intent to encourage trade and commerce, which will be much advanced, if such notes shall have the same effect as inland bills of exchange, and shall be negotiated in like manner; be it enacted by the Queen’s most excellent majesty, by and with the advice and consent of the lords spiritual and temporal, and commons, in this present parliament assembled, and by the authority of the same, that all notes in writing, that after the first day of May, in the year of our Lord, one thousand seven hundred and five, shall be made and signed by any person or persons, body politick, or corporate, or by the servant or agent of any corporation, banker, goldsmith, merchant, or trader, who is usually intrusted by him, her or them, to sign such promissory notes for him, her, or them, whereby such person or persons, body politick and corporate, his, her, or their servant or agent, as aforesaid, doth or shall promise to pay to any other person or persons, body politick and corporate, his, her or their order, or unto bearer, any sum of money mentioned in such note, shall be taken and construed to be, by virtue thereof, due and payable to any such person or persons, body politick and corporate, to whom the same is made payable; and also every such note payable to any person or persons, body politick and corporate, his, her, or their order, shall be assignable or indorsible over, in the same manner as inland bills of exchange are or may be, according to the custom of merchants.’
The new law transformed the whole ideology and practice of capitalism. Capitalism was, and still claims to be, a collecting-together of hard-earned ‘savings’ which are then put to use in a new productive enterprise. Once debt becomes ‘negotiable’, however, money and other valuable debt can be conjured out of nothing and used to acquire the property and labour of others. The devastating results of this transformation are looked at in Chapter Seven.
Over subsequent centuries, versions of this law were incorporated into legal systems across the world. Already in 1845, the American judge Joseph Story wrote: ‘Most, if not all, commercial nations have annexed certain privileges, benefits, and advantages to Promissory Notes, as they have to Bills of Exchange, in order to promote public confidence in them, and thus to insure their circulation as a medium of pecuniary commercial transactions.’
And so, the country, and then the world, slid from one form of oppression into another. This did not go unnoticed. Early protests against negotiable debt and banking were normally polite and respectful, in the hope that a more just system might be introduced (one example is John Broughton’s proposal outlined in the next chapter). But by 1832, hopes of reforming the system were gone. Social reformer John Wade noted sourly that the effect of the system was ‘to replace the feudal aristocracy, from which Europe has suffered so much, with a monied aristocracy more base in its origin, more revolting in its associations, and more inimical to general freedom and enjoyment.’
The new laws not only introduced a system of robbery disguised as money. They changed the human landscape even more fundamentally by allocating large and unaccountable powers to government. It was not just banks who found themselves able to create value out of nothing. The laws which made it legal for banks to create money also allowed governments to borrow more easily. Lenders no longer had to do without the money lent: they got a valuable piece of paper – a government bond – in return, which they could sell, and which might be more valuable than the money lent. The creation of these bonds was (and is) an addition of wealth to the class of those who own and trade in them. Again, this was obvious to contemporaries, Montesquieu (1689-1755), for instance: ‘(National) debt takes the wealth of the state from those who work, and gives it to those who are idle; in other words, it gives the wherewithal to work to people who do not work, and difficulties to people who do work.’
The government taxes citizens to provide interest on the bonds. Most taxpayers (then as now) were not literate in the dark arts of creating value out of nothing. By 1786, interest on the national debt was absorbing two thirds of all tax revenues. Inequality was rising dramatically, to the extent that whole classes of previously independent workers were driven into penury and debt. Again, the general tendency of these new laws and practices was obvious to contemporaries.
War could now be easily financed – on government debt. Disgruntled landowners, who had only reluctantly agreed to the passage of the Act in 1704, found themselves paying much of the tax on the new debts. One of them grumbled that they ‘bore the greatest share’ of the burden of war, being ‘loaded with many taxes’, while the ‘Men of the City of London’ were ‘enabled to deck their wives in velvet and rich brocades’. But – as the saying goes – ‘If you can’t beat them, join them’ and soon both parties were enjoying the bonanza of exercising the supreme power in the land – through Parliament.
Landowners passed private Enclosure Acts – eventually more than 3000 of them – depriving poor and independent country people of their rights of tenancy and rights in common land, in exchange for pittances. These landlord-encroachments were helped by the ease of borrowing newly-created money from banks.
Both main factions in Parliament were now engaged in dispossessing the poor. While England became the richest country in the world, its poor joined the desperate of the earth. A visiting slave-owner from Jamaica commented (to an investigating committee in 1832): ‘I have always thought myself disgraced by being the owner of slaves, but we never in the West Indies thought it possible for any human being to be so cruel as to require a child of nine years old to work twelve and a half hours a day; and that, you acknowledge, is your regular practice’. The yeomen of the countryside, ‘once the pride of the country’, an ‘industrious, brave and independent class of men’, were ‘extinct’, their descendants ‘almost the paupers of the nation’.
How did the ruling classes justify all this? Ruling classes and their philosophers develop convenient moral ideologies declaring them uniquely worthy to rule. An ideology may be political, racist, religious or economic: in this case it is socio-economic, and its development will be looked at in the next chapter.
Attempts have been made over the years to assert that the Act of 1704 was not necessary: that promissory notes emerged from the custom of merchants, and that the custom of merchants is, was, and ever must be an automatic part of law. However, it is a simple fact that the law of 1704, adopted in various guises across the world, put a stop to judges questioning the legality of circulating bank-credit and other forms of ‘commodified’ debt.
To fight ever-growing oppression from both sides of the political class there soon emerged a political movement among working people, starting with trades unions and developing into socialism and communism. Karl Marx armed his followers with a new ideology that would put all credit-creation in the hands of the State. Marx understood well how credit-creation works. He wanted a monopoly on it for his ideal state. The fifth plank of his Communist Manifesto (1848) reads: ‘Centralization of credit in the hands of the state, by means of a national bank with state capital and an exclusive monopoly.’
The result unfortunately was not justice, but a new form of ‘totalised’ oppression, also supported in law. Both sides were now cultivating ignorance among their citizens of any better option. Modern-day citizens are offered a choice: the frying pan or the fire. Generally, it has been best to alternate between them, denying one or other too long a monopoly on power.
Meanwhile in the ‘capitalist’ world, banking was removed from scrutiny by lawyers, judges, or even elected representatives and given over to ‘regulators’ charged with keeping the system going. This meant that extraordinary developments, such as the replacement of gold-and-silver with digits created by the State, occurred without much public debate.
Lawmakers grew unfamiliar with the process of banking. Attempts to rein in the creation of credit by banks, such as the Bank Act of 1844, were undermined by ignorance (in that instance, ignorance of the different guises which bank-credit can assume).
Judges, too, paid little attention to the realities. Lord Cottenham’s famous remark of 1848 displayed ignorance of what money actually is: ‘Money, when paid into a bank, ceases altogether to be the money of the customer; it is then the money of the banker …’ A more accurate description of what happens to ‘money, when paid into a bank’ would be that it changes from one type of money into another: from cash (which in 1848 was gold and silver) to bank-credit, which is debt from a bank.
For the law to support the system, this re-allocation of ownership from customer to bank is necessary. It is vital for the creation of credit. Deposits bring reserves to the bank. For the bank to create claims on those reserves – in other words, credit – it must own them. This is another instance of the law cooperating in the creation of a highly unjust system.
On the other hand, an insightful contribution from another judge, Lord Denning, says a lot about the relationship between banking, law and government (1966):
‘Communis error facit jus (common error makes law). … This applies with especial force to commercial practice. When it has grown up and become established, the courts will overlook suggested defects and support it rather than throw it down. Thus it will enforce commercial credits rather than hold them bad for want of consideration. It is a maxim of English law to give effect to everything which appears to have been established for a considerable course of time, and to presume that what has been done was done of right and not in wrong.’
When ‘real money’ was gold and silver, and credit was numbers on paper (on bank-notes or pages in account books) the difference between the two was obvious. Now all money is in the form of numbers in ledgers or on paper, supplemented by cheap-as-possible metal coin, and it is not so obvious that all of this represents fake debt.
We can, with hindsight, see a missed opportunity during the evolution of money. It could have been restored to its old character, not as debt but as property owned outright. There is no necessity for numbers to be issued as debt: that merely enriches one section of society at that expense of the other. Over the years, many suggestions for reform have been put forward; they have gone unheard.
Today, credit-creation is the fountainhead of power, operating in shadows of secrecy, far from public scrutiny, fuelling the powers of plutocracy and government. Public ignorance is a gift to those in power. When money-creation by banks was discussed in the UK Parliament in 2014, most speakers began by (rather smugly) admitting they had no idea of how money-creation actually works. The debate (at which I was a spectator) was a dismal, depressing fiasco.
For centuries now, these laws have served power well and humanity badly. Our money-system is the concentrated toxic residue of a primitive structure of exploitation, long past its reform-by date.
 ‘Without justice, what are states but great bands of robbers?’ asked St. Augustine of Hippo in The City of God (Book 4 Chapter 4).
 An analysis of how law may support justice not oppression is Michael Oakeshott’s essay The Rule of Law published in On History and Other Essays (1999).
 F.W. Maitland predicted this development would get worse with the widening franchise. See ‘The Law of Real Property’ in Collected Papers Vol. 1.
 This has often been noticed, for instance: ‘The general ignorance (of banking and finance) is not caused by any peculiar difficulty of this branch of political economy, but because those who are best informed are almost all interested in maintaining delusion and error, instead of dispersing both.’- Southern Magazine and Monthly Review, 1, p.81. 1841.
 To confuse things a bit, there are several other words for debt becoming something to be bought and sold: it becomes ‘transferable’ or ‘commodified’ or ‘assignable’. ‘Negotiable’ has a nice realistic ring to it, because it suggests that you can haggle over its price – which is true.
 Student debt is a good example. http://www.independent.co.uk/student/news/student-loans-sales-debt-private-companies-treasury-graduates-12bn-a7565716.html
 For instance, Argentina: see Michael Hudson, Killing the Host, Chapter 25.
 Deuteronomy 23:19-20.
 ‘Global debt hit an all-time high of $233 trillion (£169 trillion) in the third quarter of 2017, according to the Institute of International Finance (IIF). That’s more than three times the size of the global economy.’ https://www.independent.co.uk/news/business/analysis-and-features/global-debt-crisis-explained-all-time-high-world-economy-causes-solutions-definition-a8143516.html.
 Only the privileged or powerful may expect what they owe to be valuable: to be able to create it out of nothing is an addition to their power, and making it negotiable gives it force in law. Trust is also important. https://www.forbes.com/sites/dinamedland/2014/05/23/there-is-honour-among-thieves-but-what-about-among-bankers/#1eef1d0f1571
 ‘The development of explicit and unrestricted negotiability covers a period of nearly two centuries.’ Abbott Payson Usher, The Early History of Deposit Banking in Mediterranean Europe p. 98.  This book contains the classic account of this slow change (pp. 1-107).
 Reinhard Zimmermann, The Law of Obligations p.59, Clarendon Press Oxford, 1996.
 A good example is the centuries-long debate over different versions of the ‘real bills doctrine’.
 Malynes, Gerard de, 1586-1641: The Canker of England’s Commonwealth (1601) and Lex Mercatoria (1622).
 ‘Seasonable Observations Humbly Offered To His Highness The Lord Protector. By Samuel Lamb, of London, Merchant. Jan 27th 1659.’ Reprinted in Somers’ Tracts vi P.454 ff.
 England’s Treasure by Foreign Trade. 1895 edition, p. 67.
 ‘The Mystery Of The New-Fashioned Goldsmiths Or Bankers, Their Rise, Growth, State And Decay’, an anonymous pamphlet published in 1676, tells of additional, criminal reasons why goldsmiths began to take in gold coin: to sort the good coin, melt it and sell it for a profit.
 Bolingbroke was an English political writer and a major influence on the ‘founding fathers’ of the United States. Letter to the Earl of Orrery, c. 1710. Quoted in H.T. Dickinson Liberty and Property (1977), p 52.
 See, for instance, R.D. Richards, The Early History of Banking in England pp. 48-9.
 For those who like their law hard-core: “Buller v. Crips, 6 Mod. 29, was an action upon a note by the indorsee against the maker; and the plaintiff declared upon the custom of merchants as upon a bill of exchange. Upon a motion in arrest of judgment, Holt, C. J. said : “The notes in question are only an invention of the goldsmiths in Lombard Street, who had a mind to make a law to bind all those that did deal with them; and sure to allow such a note to carry any lien with it were to turn a piece of paper, which is in law but evidence of a parol contract, into a specialty; and besides, it would empower one to assign that to another which he could not have himself; for since he to whom this note was made could not have this action, how can his assignee have it? And these notes are not in the nature of bills of exchange; for the reason of the custom of bills of exchange is for the expedition of trade and its safety; and likewise it hinders the exportation of money out of the realm.” There are interesting accounts of the legal development of negotiability in W.S. Holdsworth, A History of English Law Vol 8 (1925) and Daniel Coquillette, The Civilian Writers of Doctor’s Commons, London: three centuries of juristic innovation in comparative, commercial, and international law (1988).
 Blackstone: ‘And this property, so vested, may be transferred and assigned from the payee to any other man; contrary to the general rule of the common law, that no chose in action is assignable: which assignment is the life of paper credit.’ Commentaries, 1st ed. Vol 2 p. 468.
 ‘The leading distinctions between simple contracts, and specialty contracts, should be briefly adverted to. The former require a consideration, (that is, some benefit to the promiser or a third person by the act of the promisee, or some charge upon the promisee at the instance of the promiser) to give them legal operation. But a specialty needs in general no consideration to render it effectual. It binds the party, though it be voluntary, and imparts a benefit without any return of advantage. – Joseph Chitty, A Practical Treatise on Bills… (1834). Holt objected to bankers’ attempts to ‘turn a piece of paper, which is in law but evidence of a parol contract, into a specialty.’
 ‘The History of Privity – The Formative Period (1500-1680)’ by Vernon V. Palmer in The American Journal of Legal History, Vol. 33, No. 1 (1989), pp. 3-52.
 For the opinions of Adams and Jefferson see Chapter Six.
 This was common practice in the age under discussion. Rulers frequently offered land and assets of prospective conquest in exchange for war finance. For instance, Oliver Cromwell invested in an invasion of Ireland in return for some of the spoils (1640, long before he became absolute ruler of England).
 1688 was the year of the ‘glorious’ or ‘bloodless’ revolution when English parliamentarians offered the crown to the Dutchman William of Orange and his wife Mary. The unpopular monarch James II left without putting up much of a fight. ‘With the accession of William III, Parliament obtained control of public revenue and expenditure and of the defence of the realm. The Exchequer was no longer subservient to the Sovereign; the navy and army were made dependent on the decisions of Parliament. Under such conditions of political stability, schemes for the establishment of a great central joint-stock bank soon came to the forefront of political discussion. …within six years of the initiation of the rule of Parliament, Montague had launched the Bank of England as a “Whig finance company.”’ R.D. Richards, The Early History of Banking in England (1929, 1965) p. 211
 John Cary, a popular writer of the time, wrote: ‘Credit I take to be that which makes a smaller sum of money pass as far as a greater, and serve all the ends of trade as well, and to give Satisfaction to everyone concerned that he is safe in what he does… It must be such a Credit, as will answer all the occasions both of the Government and also of the Trader.’ Essay on Coin and Credit (1696), p. 24.
 The Act was originally called the Tunnage Act, since the clauses authorising the Bank of England were buried in an Act of that name. Full text online at: http://www.british-history.ac.uk/statutes-realm/vol6/pp483-495#h3-0024
 The Nine Years’ War (1688–97).
 H.W.V. Temperley in Cambridge Modern History Vol 5 (1908), Pp 267ff:
 H.W.V. Temperley in Cambridge Modern History (1908) Vol 5 pp. 267-8.
 See Richard Kleer ‘“Fictitious Cash”: English Public Finance and Paper Money, 1689-97’. in Money, Power and Print (2008). This essay provides a good, short and up-to-date account.
 By December 1696, the Bank had put into circulation nearly £1,750,000 in notes on a basis of £36,000 in gold-and-silver. Thorold Rogers, The First Nine Years of the Bank of England (1887) pp. xviii.
 See, for instance, the suggestion made by John Broughton which is detailed in Chapter 4.
 Lewis Namier, The Structure of Politics at the Accession of George III (1957) p. 2.
 In the words of Ephraim Lipson it ‘set a precedent for proposals to accord special privileges to those who lent their money to the State for the prosecution of war’ The Economic History of England vol. ii, p. 309.
 Full negotiability of credit ‘requires the legal enforcement of transferability or assignment of debts to third parties.’ John H. Munro, ‘The International Law Merchant’ in Banchi pubblici, banchi privati e monti di pietà nell’Europa (1991) p.49.
 Text in The Law of Bills of Exchange, Promissory Notes, Checks, &c. by Cuthbert William Johnson, p.91. Available online at: https://archive.org/stream/lawbillsexchang00johngoog#page/n135/mode/2up
 Copied from Daniel Coquillette, Comparative Studies in Continental and Anglo-American Legal History (1988) pp 278-9.
 Commentaries on the Law of Promissory Notes (1845) p. 10.
 Historians have tried to estimate the differing proportions over time of cash to bank-credit in the money supply. They have had some difficulty, partly due to the secrecy of banking operations. For instance, historian Rondo Cameron estimated that in 1688, hard cash (‘specie’) was 83.3% and credit was 16.7%. In 1800, he estimated, the proportions were 40% ‘specie’ and 60% credit; in 1913, they were 11.5% specie and 88.5% credit. Today our money is all created as credit. Banking in the Early Stages of Industrialization (1976) p. 42.
 The Black Book, An Exposition of Abuses in Church and State .
 In the words of Adam Smith, government debt ‘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.’ Wealth of Nations Book 5, Chapter 3.
 Without bonds, a substantial portion of the world’s wealth would not exist. This added wealth now ‘now exceeds $100 trillion. By contrast, S&P Dow Jones Indices put the value of the global stock market at around $64 trillion.’ https://www.fool.com/knowledge-center/5-bond-market-facts-you-need-to-know.aspx
 De l’Esprit des Lois, Part 4, Book 22, Chapter 17.
 The Oxford Encyclopedia of Economic History (2003) p. 441.
 These dispossessed country folk formed the workforce for the Industrial Revolution. Historians are apt to see some virtue in this.
 Joseph Danvers, MP, quoted in P.G.M. Dickinson, The Financial Revolution in England (1993) p. 28.
 Some, at least, seem to have owned their own banks, much as Russian oligarchs have done in our day. See, for instance, In Defiance of Oligarchy by Linda Colley (1982) p.8.
 Quoted by John and Barbara Hammond in The Town Labourer (1917) p. 160.
 Amasa Walker, The Science of Wealth (1867) p. 370.
 For instance in 1801, an American court took a vacation so that eminent judges could consider whether an action on a promissory note ‘could have been supported in England before the statute of Anne (i.e. before the Promissory Notes Act)’. The results can be read in W. Cranch, Reports of Cases Argued and Adjudged in the Supreme Court of the United States: Volume 1 (1903): Appendix, pp 367 ff.
 Marx wrote: ‘With the development of interest-bearing capital and the credit system, all capital seems to double itself, and sometimes treble itself, by the various modes in which the same capital, or perhaps even the same claim on a debt, appears in different forms in different hands. The greater portion of this ‘money-capital’ is purely fictitious. All the deposits, with the exception of the reserve fund, are merely claims on the banker, which, however, never exist as deposits. To the extent that they serve in clearing-house transactions, they perform the function of capital for the bankers – after the latter have loaned them out. They pay one another their mutual drafts upon the non-existing deposits by balancing their mutual accounts.’ Karl Marx, Capital Vol III, Ch 29 p. 337 (Marxists.org).
 With this substitution, cash – aka ‘reserve’ or base money’ – became another form of debt. The Bank of England puts it clearly: “’base money’ or ‘central bank money’ comprises IOUs from the central bank: this includes currency (an IOU to consumers) but also central bank reserves, which are IOUs from the central bank to commercial banks.” From ‘Money in the modern economy: an introduction’, Quarterly Bulletin 2014 Q1.
 Keith Horsefield, ‘The Origins of the Bank Charter Act, 1844′, Economica, November 1944, 180-89.
 Foley v Hill, 1848.
 United Dominions Trust, Ltd. v. Kirkwood, 1966.
 Historian Bray Hammond puts it like this: ‘[Banks’] liabilities (debts) constitute the major part of the money supply. The funds they lend originate in the process of lending and disappear in the process of repayment. This creative faculty was far easier to observe a century and a half ago than it is now; for then, the monetary funds that banks provided were commonly in the form of their own circulation notes, handed over the counter to the borrower…. Everyone recognised that the more banks lent, the more money there was. That is why they were a political issue. […] Nowadays banks give the borrower deposit credit, not circulating notes, and the result is that their function is less obviously monetary than it used to be, but in magnitude more so.’ Banks and Politics in America (1957) pp viii-ix.
 In Britain, for instance, Westminster Review Vol XLIV October 1873 p 304: ‘The Power of Issue is, and ought to be, a sovereign right… The power of issue now exercised by the Bank of England, and by the English, Irish, and Scotch banks is a relic of feudalism… The [private] manufacture of coin has been suppressed long ago, but the manufacture of paper money still remains, and the profits of this manufacture are allowed to remain in private hands, the State taking upon itself the manufacture of the only part of the currency upon which there is or can be a loss. It is high time that this state of things ceased, that all rights of issue were gathered into the hands of the State.’ In the U.S.A., an example is the book The Money Question (1876) by the industrialist William A. Berkey.