Chapter 6: America, Won and Lost.


After the United States gained its independence from Britain, it became powerful in the world in two very different ways: as an idea, and as a reality.

‘America the idea’ is a land of freedom and democracy, equality and opportunity, promoting these aspirations and values across the world.

‘America the reality’ is an international power. It was built on genocide and slavery. Today, a carefully managed monetary system allots wealth to those who do no productive work. In the wider world, America destabilizes popular governments, promotes tyrannies, creates dollars to purchase foreign resources for corporate exploitation and sponsors foreign wars to establish new bases of military and financial power.

For a long time ‘American the idea’ successfully camouflaged the activities of ‘America the reality’. Today the camouflage is wearing very thin indeed.

‘America the reality’ became stronger than ‘America the idea’ as the powers of money and corporate industry won out over the idealism and the good intentions of many of its ‘founding fathers’[1] and of countless others. Central to this development was the adoption of British banking as a way of creating money.

The adoption of British banking by America has an interesting history. After Independence, the American elite opted for the method favoured by their old colonial masters and rejected homegrown approaches to money-creation, some of which had been both just and efficient (see below).

The new elite liked British banking for the same reason it was loved by the British parliament – because it favoured government power and private wealth. The collusion of finance and government power, via circulating credit, is a very resilient form of concentrated power, because although everyone can see the bad effects, few people understand how it works. Governments across the world have since adopted the method for the same reasons: to augment their own power, and to make it easy for their supporters to increase their own wealth.

Money Creation in Colonial Times.

During colonial times there were no private banks in America, and no mines for gold or silver.[2] As a result, there was a chronic shortage of metal money, both for domestic use and for buying imports from abroad. Out of need, some colonial governments began to create their own paper money.

When they created money responsibly – that is, to help their citizens, rather than to increase the powers of government – the result was prosperity. In some cases, prosperity arrived almost overnight. ‘When Maryland first issued paper money in 1733, most of it was given away—a certain sum to each inhabitant over 15 years of age.’ The result: ‘Hitherto, nearly all the people in the province had been engaged in the raising of tobacco… But now, wheat was raised, roads were cleared, bridges were built, towns sprang up, and facilities of social and commercial intercourse were thereby greatly increased.’[3] Benjamin Franklin made similar observations about the effects of paper money in Pennsylvania.

These and other successful experiments in the American colonies proved, in the words of William Hixson, that ‘private banks, as creators of banknotes or bank credit, are totally unnecessary for economic growth and prosperity.’[4]

In 1751 and 1764, the British Parliament put restraints on colonial governments engaged in printing ‘legal tender’ paper money.[5] Supposedly, this was for the good of the colonies, but Benjamin Franklin objected (1767): ‘Paper money does not have the ruinous nature ascribed to it. Far from being ruined by it, the colonies that have made use of paper money have been and are all in a thriving condition.’[6]

The Constitutional Convention.

Soon after the rebels won their independence, delegates from the newly United States assembled to decide on a new Constitution (1787). Right from the start, the question ‘Who should create the money supply?’ was a subject of contention.

During the war of Independence, the rebels had printed paper money called ‘Continentals’. In the heat and needs of war, they had printed too much, and the notes had become almost worthless.[7] This added a chaotic element to the difficulties of state governments and individuals when settling payments and debts.[8] And it undermined the idea that paper money was a good thing.

But another factor was at play. British-style private banking had arrived in 1781, six years before the Constitutional Convention. It was already making some people very rich. Some delegates were invested in banks and were in favour of private banks creating money.[9] Bray Hammond, our most authoritative historian of banking during that period, writes: ‘Within the convention, banks had more friends than enemies, but outside, it was the other way around.’[10] Surely, an early sign of representatives representing their own interests above those of the people!

Passions were strong on both sides – or rather on all sides, for there were several areas of disagreement. As well as ‘Should private banks be allowed to create money?’ there were questions such as: ‘Should the federal government create and manage money?’ and ‘Should each State be allowed to work out its own monetary arrangements?’ and ‘Should no one be allowed to create money out of (almost) nothing, or should money consist only of precious metals, whose value as coin stays as close as possible to the market value of its metals?’. Delegates left most of these money-questions open for the future to decide. The only definite pronouncement was that individual State governments should not be allowed to print paper money.[11]

With that pronouncement, the ability of individual State governments to issue paper money, responsibly or otherwise, was ended. ‘State paper money had formed an integral part of the money supply of the colonies through the 1700s; the Constitution prohibited not merely additions to the money supply, but an entire category of money.’[12]

There was even stronger feeling against the federal government creating the money supply: it would be giving too much power to central government.[13] The division of power between state and federal government was the most burning issue at the Convention.[14] Delegates recognised, however, that in emergencies such as war, federal creation of money might be a necessity. As a result, nothing definite was stated: again, it was left for the future to decide.

And on private banking, the Constitution was silent. ‘There is nothing in the Constitution about banks and banking,’ writes Bray Hammond, ‘though there might well have been, for the subject was already of both economic and political importance when the Constitution was being written.’[15] Bray Hammond suggests the reason: ‘in all likelihood, it was because the subject was too touchy’.[16] As a result, banks were left to create the money supply. The number of banks grew steadily: ‘The records indicate that in 1801 there were 31 banks, in 1829 there were 329, and in 1837 there were 788.’[17]

Once government-issued paper money was out of the way, the field was laid open for banks to get to work, printing and lending notes, writing in deposits, and generally creating money as two-way debt (on which banks collect interest). Governments both Federal and State were immediately able to borrow large amounts, charging the debt to citizens, and to use the money for their own purposes, good or bad, without consulting their citizens.[18]

Many fundamental questions about money which had been discussed in colonial days were not discussed at all at the Convention, questions such as:

  • Should new money be distributed equitably, or should it profit just a few?
  • If money is to be created as debt from an institution, is it right that interest should be charged?
  • Should paper money be ‘backed’ by some obviously valuable commodity such as gold or land?
  • Should money be permanent or short-lived?
  • Who should decide how much money should be created at any one time?
  • What aims and objectives should govern decision-making about money?[19]

These questions never surfaced; the overriding concern at the Convention was the conflict between state and federal rights and powers.

As well as conflicting interests and emotions, ignorance affected the debate over banks and bank-money. Although it was obvious that when banks printed notes they were creating a form of wealth, other basic facts were understood only by a few. Alexander Hamilton seems to have been one of the few to understand, for instance), that payments made between bank deposits are also a form of money. He also understood that banks create money when they lend – and extinguish money when a loan is repaid. He wrote in 1790:

‘Every loan which a bank makes is, in its first shape, a credit given to the borrower in its books, the amount of which it stands ready to pay, either in its own notes or in gold or silver, at his option. But, in a great number of cases, no actual payment is made in either. The borrower frequently, by a check or order, transfers his credit to some other person, to whom he has a payment to make; who, in his turn, is as often content with a similar credit, because he is satisfied that he can, whenever he pleases, either convert it into cash or pass it to some other hand, as an equivalent for it. And in this manner the credit keeps circulating, performing, in every stage, the office of money, till it is extinguished by a discount with some person who has a payment to make to the bank to an equal or greater amount.’[20]

Hamilton, however, was in favour of banking and most things British – including monarchy. He advocated strong power for federal government. He was contemptuous of democracy: in his very last letter he wrote, ‘our real Disease… is Democracy, the poison of which by a subdivision will only be the more concentrated in each part, and consequently the more virulent.’[21]

For George Washington, strong central power was desirable to prevent the new nation from tearing itself apart. He trusted his Secretary of the Treasury – none other than Alexander Hamilton – with economic policy. Hamilton designed a charter for a federal bank, the first Bank of the United States, to finance government expenditure. Washington signed the bill. Again, in the words of Bray Hammond: ‘Alexander Hamilton prepared America for an imperial future of wealth and power, mechanized beyond the handicraft stage of his day and amply provided with credit to that end.’[22]

Washington, however, deplored the empire-building potential in centralised power. The prospect of America competing for empire on the international stage was a vision that disturbed him greatly: he warned against it in his Farewell Address (1796).[23]

By creating money out of nothing, banks were able to lend money cheaply, and to provide their clients with free payment services. For those who were already wealthy, it was a win-on-win situation. Wealthy elites of both political parties – at the time, ‘Republican’ and ‘Federalist’ – competed shamelessly to found banks that would support partisan business.[24]

During the next hundred years, arguments pro- and anti-banking focused on paper vs metal money. The subject of payments between bank deposits was largely ignored. Paper money is obviously created out of very little – and worth a lot.[25] Deposits, on the other hand, are confusing: they can be created either by a genuine deposit, or by the bank writing in numbers to represent a loan.[26]

This focus on paper-money, among public and politicians alike, misled efforts at reforming money-creation. Even the most concerted and popular attempts to reform banking foundered – and often they contributed to their own failure, as will be seen later in this chapter.

Jefferson, Adams, Taylor.

The strongest opponents of ‘English’ banking practices among the Founding Fathers – John Adams and Thomas Jefferson, second and third Presidents of the United States – were abroad in France and England while the Constitution was being discussed.[27] Although rivals in politics, they agreed on the subject of banking. Having spent many years in Europe, they were familiar with its results. A mutual friend, John Taylor of Caroline, Virginia, also objected to private money-creation.

Thomas Jefferson wrote, in a letter to John Taylor:

‘The system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our constitutions, which, if not covered, will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens… I sincerely believe, with you, 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.’[28]

Jefferson complained in 1825 that government in the United States was becoming “an aristocracy, founded on banking institutions and moneyed incorporations under the guise and cloak of their favored branches of manufactures, commerce and navigation, riding and ruling over the plundered ploughman and beggared yeomanry.”[29]

John Adams wrote, again to John Taylor:

‘I have never had but one opinion concerning banking… and that opinion has uniformly been that the banks have done more injury to the religion, morality, tranquillity, prosperity, and even wealth of the nation, than they can have done or ever will do good.’[30]

Their friend John Taylor wrote a great deal on the subject of money. Unlike Adams and Jefferson, he never became President and his name is largely lost in obscurity. Nevertheless, his writings expressed the ideas and ideals of many at the time.[31]

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.’[32]

Banking, he wrote, was ‘a machine for transferring property from the people to capitalists’.[33] The machine ‘is worked by fictitious capital, but the machine itself is no fiction.’[34] He noted the following points about banking and bank-created money:

  • Bank-money ‘robs all useful occupations of a great portion of their labour’.[35] It is fictitious debt, ‘for which the community pays something for nothing.’[36]
  • Banking is not a product of nature or law, but of ‘legal abuse’.[37]
  • Banking puts working people in servitude to people who contribute nothing.[38]
  • Banking makes a mockery of democracy, for it concentrates wealth, and wealth is power.[39]
  • The banking system takes money out of circulation and puts it where it sits doing nothing. Prosperity suffers.[40]
  • Ordinary people are deluded into thinking that banking is the source of prosperity, when in fact it profits only a few and impoverishes everyone else.[41]
  • Banking allocates money in a way that corrupts capitalism: ‘capital is only useful and reproductive, when it is obtained by fair and honest industry… Whenever it is created by legal coercions, the productiveness of the common stock of capital is diminished.’[42]

Taylor called the collusion of government and created-capital a ‘tyranny of fraud’. Looking at England, the most successful commercial nation in the world, he saw poverty and destitution plaguing the masses, and immense wealth gained by just a few. Wealth was being diverted way from working people ‘into the pockets of the government, and of the exclusively privileged allies it has created.’ Banking and government debt, he wrote, are the basis of a new ‘paper feudal system’.[43]

Throughout the 19th century, arguments over the powers of banks shifted from ‘Should they exist at all?’ to ‘Who should control them?’. Banks were now established, and only a few voices in the wilderness could remember another and very different kind of money – the kind that had been created by State governments to enable a healthy economy. Banks were well entrenched, not because bankers were pulling the strings, but because everyone with power and wealth, including government, appreciated the banks’ ability to supply them with money cheaply and in large amounts.[44]

Furthermore, a new spirit had taken hold of the nation. Bray Hammond quotes a wise and distinguished old man (Albert Gallatin, 1761-1849) who had seen it all:

“The energy of this nation is not to be controlled; it is at present exclusively applied to the acquisition of wealth and to improvements of stupendous magnitude. Whatever has that tendency, and of course an immoderate expansion of credit, receives favor…. But it seems to me as if general demoralization was the consequence; I doubt whether general happiness is increased; and I would have preferred a gradual, slower, and more secure progress.’

Hammond describes a pervasive and distressing pattern: initial hard-working pioneers developing the land were bankrupted by loans, their properties taken over by speculators.[45] No doubt these pioneers were aware they were being robbed; but they were helpless in a system of power that had taken over the nation.

The spirit of ‘enterprise’ – getting rich on borrowed money – became the functioning god of America. ‘Democratisation’ meant making credit available to everyone who wanted it, giving an advantage to individuals with a lust for pure money as against those who want to give back to society as much as they get.

The most public and dramatic episode in U.S. history over banking was Andrew Jackson’s attempt to destroy banking altogether. Jackson had two bugbears: central government (too strong) and the evils of banking.

Banking in America, to a greater extent than in Europe, consisted mostly of creating (and lending) paper money. It was plainly obvious that some people were benefiting from this created value at the expense of others.[46] The process is so obviously unfair, a moral had to be invented to justify it. This moral amounted to: credit-creation is a golden highway to wealth and it should be ‘democratically’ open to all. Whether someone gets rich depends upon the strength of their enterprising spirit.

To opponents of banking, of course, this seemed like making burglary legal and then applauding the skill of the best burglar. Along with many others, Jackson felt that those doing the work of contribution should be the ones getting rich.

Jackson was elected to a first term as President as the people’s champion against a decadent and corrupt elite. During the run-up to his second term (1832) ‘the Bank was the leading issue.’[47] ‘The Bank’ was the Bank of the United States, a Federal Bank which had come to act as a Central Bank, restraining State banks from creating too much credit. And here a mighty conflict of interest arose. Jackson, it seems, was even more pro-State than he was anti-Bank. His obsession was to destroy the Federal Bank; but by destroying the Federal Bank without changing the system, he unleashed money-creation by State banks on a grand scale.

Jackson was something of an innocent in politics. He was supported and surrounded by a bunch of able political manipulators keen to destroy the Federal Bank for entirely different reasons: they wanted to get their hands on as much created credit as possible (from local banks) and ‘the Bank’ was holding them back.

It seems his powerful supporters ran rings round Jackson. His destruction of ‘the Bank’ allowed credit-creation full rein. In Bray Hammond’s words, he ‘fomented the very evils he deplored and made the Jacksonian inflation one of the worst in American history.’ Hammond’s verdict: Jackson ‘professed to be the deliverer of his people from the oppressions of the mammoth, but instead he delivered the private banks from federal control and his people to speculation. No more striking example could be found of a leader fostering the very evil he was angrily wishing out of the way. But this was the inevitable result of the agrarian effort to ride two horses bound in opposite directions: one being monetary policy and the other states’ rights.’[48]

The victory of banking was, in Bray Hammond’s eyes, inevitable. ‘In an austere land or among a contemplative and self-denying people they [anti-banking principles] might have survived but not in one so amply endowed as the United States and so much dominated by an energetic and acquisitive European stock.’ Banking ‘made ‘capital accessible in abundance to millions of go-getting Americans who otherwise could not have exploited their natural resources with such whirlwind energy.’[49]

Anti-banking writers who are still heard-of today tend to be famous for things other than their opposition to banks. After John Taylor (1753-1824), there was Daniel Raymond (1786-1849), often referred to with pride as ‘America’s first important political economist’. But he was hostile to the collusion between banks and government and most of his insights are forgotten. There is no modern edition of his major work, Elements of Political Economy (1823).

Raymond was unequivocally critical of banks. They are, he wrote:

‘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.’[50]

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.’[51]

Many of Raymond’s insights and observations (such as his debunking of Adam Smith on banking) deserve enshrinement in some imaginary Economics Hall of Fame. Instead, they have been consigned, along with much other wisdom, to dusty old books in reserve collections.[52]

The next theorist still talked of is William M. Gouge. Gouge is revered today as a historian of banking but is 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 plutocracy fuelled by banks. He argued that if banking was reformed, the political promise of America could return once again to be fulfilled. Here is how he ends his book.

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.”[53]

Gouge recognised that the money created by banks is what we would now call ‘fake debt’: ‘the natural order of things is reversed, and interest is paid to the Banks on evidences of debt due by them, instead of interest being paid to those who part with commodities in exchange for bank notes.’ He also pinpointed the part played by bank-money in the development of corporations. Bank-created money 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 interesting suggestions for reform (as did other early Americans) some of which are remarkably similar to those being put forward by reformists today.[54]

However: in the meantime, an economist had arrived from Germany who would inspire the entrepreneurial community to an orgy of excitement and self-admiration. As fate would have it, he was the same economist who would later father nationalist and racialist economics in Germany: Friedrich List (1789-1846). Reading List after reading Taylor, Raymond or Gouge 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,’[55] 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.’[56]

Competition between nations, List wrote, means that a nation must seek international power. List claimed that his version of ‘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, but because 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.’[57] Who, in List’s scheme of things, would 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.[58] Recognising the inevitability (and under certain circumstances desirability) of war, the nation must pursue power and self-sufficiency as well as prosperity.[59]

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’[60]) would eventually dominate the world – and afterwards, 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.’[61]

Monopoly and created credit would both be helpful for this task. List recognises that bank-credit is created money: 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.[62]

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 behind it a trail of dispossessed depositors and note-holders.[63] ‘Land-banks’ had been tried but they always failed, because at the key moment the land was never available to back them up.



World domination by America, as foretold by List, was bound up with fantasies of racial superiority. Generally, List likes to imply that people can be ‘led, by a desire of enjoyment, to laborious habits and to improvements of their intellectual and social conditions’ – but only, it would seem, white people.[64] For America, he recommended 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.’[65] A page later, List characterises Mexicans as indolent. Taken as a whole, List’s work is like a racist glove waiting for an iron fist to be put inside. What America held back from doing in this regard, Germany went on to fulfil.

Twenty years later List was back in Germany, 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.’[66]

In 1841 List wrote his magnum opus, The National System of Political Economy and six years later, after a series of business and political failures, he killed himself.

In nationalist economics, freedom belongs to the powerful and justice is a lost and wandering soul. It was left to outsiders like Henry Carey Baird, a publisher of scientific and technical books, to meditate on the injustice of ‘fictitious’ or ‘imaginary’ credit as an engine of international power.[67] In 1876, Baird wrote and self-published Inflated Bank Credit as a Substitute for Current Money of the Realm, a pamphlet explaining how created credit enabled and supported the immense power of Britain’s commercial and military empire.

Our fourth major economist, Amasa Walker, was very 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 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.[68]

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.[69] 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 the complexity of the system hides how it has changed money from a form of neutral property into a weapon-system for use in the interminable war of rich against poor.[70]

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 a thorough analysis.[71] Keynes made the same observation in his Treatise on Money (1930) but he, too, pursued the matter no further.[72]

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.[73]

The same arguments surfaced again in the twentieth century during the Great Depression. Again, simple pleas for justice and humanity were defeated. Today, ignorance about money, its creation and the possibilities for reform have never been greater. The negative effects of money-creation by banks have also never been greater. 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’.

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 when some of their money is diverted to supply those they have robbed with the ‘bare necessities’ of life. In reality, the super-rich mostly avoid paying taxes, and the burden of keeping alive those they have robbed falls on the working and middle classes.

It was left to outsiders, like the industrialist William Berkey, to notice things which had once been common knowledge. ‘If the money power is able to accomplish its designs in free, republican America, where else can the people hope to escape its bondage?’[74] In other words: if America adopts banking, what hope is there for the rest of the world? His premonition was perhaps even more spot-on than he realised. America would eventually outdo Britain in rapacity across the world, and finance would be its principal weapon of war.[75] Socialism would provide no respite, no protection: it adopted created credit as the main weapon in its system of state control, as did communism and fascism.

By the end of the nineteenth century, hostile observations on money created by banking had been consigned to more or less total obscurity, even those that had been made by national heroes like Jefferson and Adams. What had happened?

The economics of nationalism had taken over and the notion of ‘justice’ in economics was in cold-storage. Nationalist economics is often called ‘Romantic’ – as if that makes it less bad. In reality, nationalist economics means a strong state, in collusion with industry and banking, using created-credit first to subordinate workers at home and dominate peoples, territory and resources abroad.

Created-credit is the ideal imperialist instrument. With money created out of nothing, it purchases labour and natural resources from countries less sophisticated in the art of ‘robber banking’ and exploits them for the benefit of a few in the home country.

Since the eclipse of the early American economists, considerations of justice in economics have surfaced only sporadically. For many years now, mainstream economists have been denying or ignoring the fact that banks create money at all. This is an extraordinary pose: the fact has been established again and again at least since 1584, when Venetian senator and banker Tommaso Contarini explained it to Venetian politicians. Resistance by economists to this first-base truth makes it easy for them to avoid even discussing the destructive outcomes of creating money this way. Recently, economist Richard Werner has been waging almost a one-man war against this tendency, meticulously proving that banks do in fact create money via statistical, mathematical and legal analysis.[76]

The destructive outcomes of allowing banks to create, rent out and destroy money are the subject of our next chapter.

[1] The words of John Adams: “I always consider the settlement of America as the opening of a grand scheme and design in Providence for the emancipation and illumination of the slavish part of mankind all over the Earth.”

[2] The first private commercial bank was chartered in 1781: the Bank of North America.

[3] Richard A. Lester, Monetary Experiments (1939), pp 142-151. Princeton University Press (Reprinted David & Charles 1979) pp 142-151: with quotes from Gould, Money and Transportation in Maryland 1720-1765 (1915) and Mereness, Maryland as a Proprietary Province (1901). See also

[4] Triumph of the Bankers (1993) pp. 91-2.

[5] Franklin addresses the subject thoroughly in ‘The Legal Tender of Paper Money in America’ (1767).

[6] ‘Remarks and Facts concerning American Paper Money,’ March 11th, 1767. This essay, available online at Internet Archive, addresses arguments used by the British why the restraints were for the colonies’ own good.

[7] George Washington wrote in 1779 “a wagon load of money will scarcely purchase a wagon load of provisions.” (Foundation for Economic Education).

[8] ‘It was the damage of legal tender laws to interstate relations, rather than the possibility of bank notes or the memory of Continentals, that resulted in the Constitutional prohibition of state paper money.’ Mary M. Schweitzer,’ State-Issued Currency and the Ratification of the U.S. Constitution’ in The Journal of Economic History, Vol. 49, No. 2, Jun. 1989.

[9] ‘Seven delegates at least were stockholders in the Bank of North America.’ Bray Hammond, Banks and Politics in America (1957) p. 104.

[10] Bray Hammond, Banks and Politics in America (1957) p. 105.

[11] ‘With respect to paper money it (the Constitution) forbade the states to issue it but omitted to say what the federal government might do.’ Bray Hammond, Banks and Politics in America (1957) p. 92.

[12] Mary M. Schweitzer,’ State-Issued Currency and the Ratification of the U.S. Constitution’ in The Journal of Economic History, Vol. 49, No. 2, Jun. 1989.

[13] Commercial banks were using government debt, as well as gold and silver, to back their notes, so private banks were a source of borrowing and power for governments.

[14] ‘In the Anas, Jefferson says he was told in 1798 that Robert Morris had wished to propose that the Constitution authorize the chartering of a bank and that Gouverneur Morris had urged him not to do so, because the idea was so controversial that its mention would kill the chances of getting the Constitution ratified.’ Bray Hammond, Banks and Politics in America (1957) p.105.

[15] Bray Hammond, Banks and Politics in America (1957) p. 103.

[16] Bray Hammond, Banks and Politics in America (1957) p. 105.

[17] Bray Hammond, The Journal of Economic History Vol. Vii May 9 1947 No. I p.7.

[18] The usual enabling act for a state bank involved lending the state money in return for state debt.

[19] Benjamin Franklin’s various writings on paper money are a good example of concern with these questions: ‘A Modest Inquiry into the Nature and Necessity of a Paper Currency,’ 1729; ‘The Legal Tender of Paper Money in America’ Feby. 13, 1767; and ‘Causes of the American Discontents before 1768’ printed in The London Chronicle, January 5–7, 1768. See also ‘Benjamin Franklin and the Birth of a Paper Money Economy’ by Farley Grubb, widely available online.

[20] From “Report on a National Bank” (1790), iii. 128, of Hamilton’s Works (Lodge’s edition). Quoted by Charles Dunbar in Economic Essays (1904) p. 173.

[21] To T. Sedgwick Esqr. New York July 10, 1804.

[22] Bray Hammond, Banks and Politics in America (1957) p. 121.


[24] Bray Hammond, Banks and Politics in America (1957) Chapter 6.

[25] Bray Hammond writes that in the 18th century it was common knowledge that banks create deposits; this knowledge was lost in the 19th. Banks and Politics in America (1957) p. 139.

[26] Occasionally, an academic would write to remind everyone of this fact, as for instance Charles Franklin Dunbar in 1887: ‘Deposits as Currency’ in Quarterly Journal of Economics, July 1887.

[27] Benjamin Franklin died in 1790, having given little indication of what he thought of private commercial banks creating money, beyond buying a few shares in the Bank of North America (his grandson was printing their notes).

[28] Letter to John Taylor, May 28, 1816.

[29] Letter to William B. Giles, Dec. 1825.

[30] Letter to John Taylor, 12 Mar 1819. Despite these opinions, the number of banks tripled during Adams’ and Jefferson’s presidencies.

[31] From Wikipedia: ‘Sheldon and Hill (The Liberal Republicanism of John Taylor of Caroline, 2008) locate Taylor at the intersection of republicanism and classical liberalism. They see his position as a “combination of a concern with Lockean natural rights, freedom, and limited government along with a classical interest in strong citizen participation in rule to prevent concentrated power and wealth, political corruption, and financial manipulation” (p. 224).’

[32] An Inquiry into the Principles and Policy of the Government of the United States” (1814) p. 292.

[33] Tyranny Unmasked (1822) Liberty Fund ed. P.37.

[34] Tyranny Unmasked (1822) Liberty Fund ed. P.76.

[35] See for instance Construction Construed (1820) p. 209.

[36] An Enquiry into Principles and Tendency of Certain Public Measures, 1814, pp. 16-8.

[37] Tyranny Unmasked (1822) Liberty Fund edition p. 236.

[38] ‘Our supposed fifty millions of bank stock, being a sum beyond the deposited and existing coin, fixes the capacity of our stock like the English; to multiply itself without specie. It circulates, we will suppose, eighty millions of paper, costing the country above six per centum; adding these eighty millions to as much debt stock supposed to exist, and the grapples of stock to about thirty-two dollars a head, appear already to be thrown over us. Shall we disentangle ourselves from them whilst we have it in our power, or defer the effort, until we are irretrievably entangled in the intricacies of indirect slavery? A slavery, in which the sufferer is ignorant of his tyrant, and the tyrant is remorseless, because he is unconscious of his crime.’ An Enquiry, 1814, P. 354

[39] ‘Wealth, like suffrage, must be considerably distributed to sustain a democratick republic; and hence, whatever draws a considerable proportion of either into a few hands, will destroy it. As power follows wealth, the majority must have wealth or lose power.’ An Enquiry Into The Principles And Tendency Of Certain Public Measures, 1814, pp. 274-5.

[40] ‘The diffusion of currency will dispense more national prosperity than its monopoly.’ Tyranny Unmasked (1822) pp 39-40.

[41] ‘Are my misfortunes palliated, because I cannot unravel the fraud by which they were brought upon me?’ Taylor asks. An Enquiry into Principles and Tendency of Certain Public Measures, 1794, p. 19.

[42] Construction Construed (1820) p. 234.

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

[44] Bray Hammond again: ‘What was wanted was “money,” and the way to get it was to have “banks.”’ Journal of Political Economy, Vol. 44, No. 2 Apr. 1936.

[45] Bray Hammond, Banks and Politics in America (1957) pp 279-85.

[46] ‘It was evident to the anti-bank people that banking was a means by which a relatively small number of persons enjoyed the privilege of creating money to be lent, for the money obtained by borrower sat banks was in the form of the banks’ own notes. The fruits of the abuse were obvious: notes were overissued, their redemption was evaded, they lost their value, and the innocent husbandman and mechanic who were paid in them were cheated and pauperized.’ Hammond, Bray, ‘Jackson, Biddle, and the Bank of the United States’. The Journal of Economic History May, 1947, No. I.

[47] Bray Hammond, ‘Jackson, Biddle, and the Bank of the United States’ in The Journal of Economic History, Vol. 7, No. 1 (May, 1947).

[48] Id., pp 8, 9.

[49] ‘Jackson, Biddle, and the Bank of the United States’, The Journal of Economic History, May 9 1947. P.9.

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

[51] Id., p. 179.

[52] However, a facsimile of Elements of Political Economy (appended to Raymond’s book on constitutional law) can be downloaded here:

[53] A Short History Of Paper Money And Banking In The United States, To Which Is Prefixed An Inquiry Into The Principles Of The System (1833).

[54] In his later writings, Gouge seems to have tried to accommodate banking to Adam Smith’s doctrine of ‘real bills’ so that bank notes would represent already-existing value. If this were the case, he argued, ‘we should enjoy all the real advantages of the present system, and be delivered from all of its evils.’ See ‘Banking as it Ought to Be’ in The United States Magazine and Democratic Review, and ‘Commercial Banking’ in Hunt’s Merchants’ Magazine, both 1843.

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

[56] George A. Matile, from the Preface to the U.S. edition of List’s National System.

[57] Outlines of American Political Economy pp 9,10.

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

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

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

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

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

[63] 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.

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

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

[66] Id. p. 265.

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

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

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

[70] A variation on this theme was noticed by 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: Whence it came, Where it Went (1976) p. 5.

[71] I do not read Swedish or German, and not much of Wicksell’s work has been translated into English.

[72] Treatise on Money Volume 2, p. 70. Keynes did, however, in a later essay, rather cryptically envisage a better future, when ‘All kinds of social customs and economic practices, affecting the distribution of wealth and of economic rewards and penalties, which we now maintain at all costs, however distasteful and unjust they may be in themselves, because they are tremendously useful in promoting the accumulation of capital, we shall then be free, at last, to discard.’ Economic Possibilities for our Grandchildren (1930).

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

[74] William Berkey, The Money Question (1876) pp 361-2.

[75] Michael Hudson, Killing the Host, (2015).

[76] See for instance his ‘A lost century in economics: Three theories of banking and the conclusive evidence’ International Review of Financial Analysis Vol 46 (2016), pp 361-379; and ‘How do banks create money, and why can other firms not do the same?’ International Review of Financial Analysis 36 (2014) 71–77.

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