[Editor: Read this in the context of President Trump’s disagreement with the Fed’s monetary policy; and in light of the historical perspective of presidents Jefferson, Jackson, Lincoln and Kennedy who believed that a central bank was an impediment to economic freedom, growth and prosperity.]
“Paper is poverty … it is only the ghost of money, and not money itself.”
–Thomas Jefferson–
The Colonies financed the Revolutionary War by printing Continental Currency. By 1775, millions of paper bills had been circulated (not including counterfeits which the British issued to destabilize the currency). In a very short time the money supply had been inflated by 60% which severely eroded the value of the Colonial dollars.
By 1779, $26.00 in paper currency was worth only $1.00 in gold. Two years later, $1.00 in gold would purchase 168 dollar bills. The paper money was so devalued that a common phrase emerged, “It’s not worth a Continental”. The fledgling Colonies had few choices — borrow from foreign governments or levy a tax.
Delegates to the Constitutional Convention, having learned a bitter lesson, inserted the gold and silver clause into the United States Constitution. Congress would be granted the right to coin money backed by the value of specie (precious metals) while fiat (paper money) would be prohibited.
To manage the finances of the Federal government, Alexander Hamilton (Secretary of the Treasury) proposed chartering the Bank of the United States. Similar to the Bank of England, the American bank would be privately owned and the repository of tax collections. It would lend money to the central government which would be obligated to make annual interest payments to cover the cost of the loan and the bank’s operations.
This made no sense to Jefferson who thought it unsound for the government to essentially pay for borrowing money from its own tax receipts. Interest payments would increase annually thereby burdening the American people with mounting debt.
Jefferson wrote:
I believe that banking institutions are more dangerous to our liberties than standing armies. Already, they have raised up a monied aristocracy that has set the government at defiance. The issuing power of money should be taken away from the banks and restored to the people to whom it properly belongs. The principle of spending money [national debt] to be paid by posterity under the name of funding is but swindling the future on a grand scale.
Jefferson advised George Washington in 1791:
The incorporation of a bank and the powers assumed have not, in my opinion, been delegated to the United States by the Constitution. They are not among the powers specially enumerated.
Needless to say, Jefferson opposed the re-charter of the Bank Bill in 1811. The Second Bank of the United States was chartered in 1816. Andrew Jackson, an ally of Thomas Jefferson, vetoed the bank’s re-charter in 1832 fearing that foreign interests sitting on the board could exert control over the United States government. (Incidentally, there were at least two attempts on Jackson’s life. Lincoln and Kennedy, both of whom were Jeffersonian, succumbed to more tragic fates.)
During the Civil War, President Lincoln needed money to finance the war effort. Foreign banks were glad to finance both the North and the South. They cared not who won the war.
Banker and lender Mayer Rothschild once said:
“Let me issue and control a nation’s money, and I care not who writes its laws.”
The bankers were going to charge the Union up to 36% interest. Lincoln, like Jefferson, did not believe in debt financing so he authorized Congress to print Treasury Notes that were backed by gold and silver. Printed in green ink, the greenbacks would incur no interest and no debt.
Lincoln wrote:
“… we gave the people of this Republic the greatest blessing they ever had … their own paper money to pay their own debts …”
The London Times printed a scathing commentary of Lincoln’s Treasury authorization:
If that mischievous financial policy should become permanent, then the American government will furnish its own money without cost. It will pay off debts and be without a debt. It will have all the money necessary to carry on its commerce. It will become prosperous beyond precedent in the history of the civilized governments of the world. The brains and the wealth of all countries will go to North America. That government must be destroyed, or it will destroy every monarchy on the globe.
This sentiment reflected the opinion of not only the British government, but their southern Confederate surrogates. By war’s end, Lincoln had printed over $400 million in debt-free paper money thereby saving the United States Treasury $4 billion in interest payments.
European bankers and the Confederacy feared the prospect of a wealthy and powerful Union. Less than a week after Robert E. Lee’s surrender, Lincoln was dead. Shortly after Lincoln’s assassination, Congress revoked his executive order to print greenbacks; and all outstanding bills were recalled.
The National Banking Act authorized circulation of interest bearing bank notes obligating the United States to debt financing. Fifty years later (in 1913), Congress replaced the National Banking Act with the Federal Reserve Act.
Journalist Melvin Sickler wrote:
Congress gave up its power to create its own money that it was given in the United States Constitution, and gave this power over to private bankers who call themselves the Federal Reserve. The bankers had achieved their ultimate goal, for now the United States operated under a central bank that was privately owned. They now had the power to run the country by controlling the creation of money, and were free to charge the interest they so desired.
Bankers financed the 1912 presidential campaign of Woodrow Wilson who supported a central bank. Republicans decried the establishment of the Fed as an instrument of inflation and economic ruin which, in fact, created the conditions that precipitated the Great Depression.
Wilson would later write:
A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the world — no longer a government of free opinion, no longer a government by conviction and vote of the majority, but a government by the opinion and duress of small groups of dominant men.
Every elected president since has been financed by the wealth of bankers including Franklin Delano Roosevelt. On April 5, 1933, just one month after his inauguration, Roosevelt ordered that all tangible gold assets (coins and certificates) be turned in to Federal Reserve banks. The President of the United States was essentially confiscating the wealth of the nation. Failure to comply would result in imprisonment and/or fines.
Congress enacted a law that declared paper currency to be legal tender thus voiding the gold and silver clause of the Constitution. Congress then passed the Gold Reserve Act (1934) which gave the Federal Reserve title to all of the confiscated gold.
The debasing of the dollar continued until the election of John F. Kennedy in 1960. He understood that the Constitution clearly established gold and silver as legal tender. Paper money, unless it was backed by a precious metal, was worthless. Kennedy followed the example of Abraham Lincoln to print his own money and circumvent the bankers.
Executive Order 11110 gave the president authorization to order the issuance of United States Notes. The money, recognizable by its red seal and print, was interest-free and completely independent of Federal Reserve Notes.
Kennedy ignored the Federal Reserve and ordered Congress to circulate over $4 billion of debt-free notes.
It has been suggested that President Kennedy was planning to abolish the Federal Reserve and repeal the Federal Reserve Act of 1913. He believed if the Federal government could adopt a monetary policy consistent with the Constitution it would virtually eliminate the national debt and usher in an era of unprecedented prosperity. That was the position of Thomas Jefferson, Andrew Jackson and Abraham Lincoln.
Kennedy signed the order on June 4, 1963. Five months later he was dead. The day after his assassination all United States Notes were withdrawn from circulation. The Federal Reserve began circulating notes backed not by gold and silver, but simply the faith of the United States government.
Lyndon Johnson ordered that the silver content of coins be reduced to 40%, and that Federal Reserve Silver Certificates — the blue notes — were fiat currency not redeemable in silver. Richard Nixon would later sign an Executive Order ending the gold standard and ordering that all silver certificates be withdrawn from circulation.
The “betrayal” of Woodrow Wilson was complete. He supposedly said on his deathbed, “I have betrayed my country.”
In 1792, at the insistence of Thomas Jefferson, Congress passed the U.S. Coinage Act which defined the value of a dollar based on a specific weight of gold or silver. That law invoked the death penalty for anyone who debased the value of the currency.
Essentially, the United States government borrows worthless money from the Federal Reserve, and pays interest on the loan profiting the bankers while hanging a burdensome debt on the American taxpayer.
The Federal budget is $4 trillion of which $389 billion are earmarked as interest payments. The national debt is $21.6 trillion, but unfunded liabilities — Social Security, for example — total $127 trillion. America is essentially bankrupt.
What if our creditors called in their markers? Would the Ponzi scheme collapse overnight? China and India are hoarding gold, and OPEC wants to decouple oil from the U.S. dollar. Muammar Gaddafi and Saddam Hussein were outspoken proponents of ending the dollar’s role as the world’s reserve currency. That’s why the U.S. spent trillions of dollars to topple them.
Russia, Venezuela and Iran have proposed that the dollar be replaced with a basket of international currencies. This action would plunge the U.S. into Third World status as central banks unload their dollar reserves thus causing an inflationary devaluation reminiscent of 1923 Germany when a wheelbarrow full of marks would not even buy a newspaper. (Note: One U.S. dollar was then worth one billion marks.)
This is a national security problem — one that sheds light on the geopolitical challenges facing America. The economy is a pyramid built upon invisible wealth and valueless currency. One U.S. dollar from 1860 has been so eroded by inflation that it is now worth only 4 cents.
The precipitous decline of the U.S. dollar has been in stark contrast with the meteoric rise in gold. Since 1971, when President Nixon decided to float the dollar’s value, the price of gold has increased 1750%. In a speech on the floor of the House of Representatives, former Republican congressman Ron Paul said:
“Gold is history’s oldest and most stable currency. Central bankers and politicians hate it because it restrains spending and denies them the power to create money and credit out of thin air. Those who promote big government, or welfare financing, cherish this power. History and economic law are on the side of gold. Paper money always fails. Unfortunately, though, this occurs only after many innocent people have suffered the consequences of the fraud that paper money represents.”
The total debt of the United States — government, corporate and personal — is over $50 trillion. No one really owns anything. Hard assets are leveraged and purchased with borrowed money.
Jefferson wrote:
“The maxim of buying nothing without the money in our pockets to pay for it would make of our country one of the happiest on earth.”
Cheng Siwei, former vice-chairman of the Communist Party Standing Committee, told the London Telegraph that an economic imbalance exists because the U.S spends and China saves:
“Most of our foreign reserves are in U.S. bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies. Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets … because this could fall down. The U.S. spends tomorrow’s money today. We Chinese spend today’s money tomorrow. (Paraphrasing Thomas Jefferson) He who goes borrowing, goes sorrowing.”
Quite an indictment that a Chinese communist has to teach America a lesson from a Founding Father with regards to debt financing.
It is only appropriate that we conclude this treatise with the deliberate thoughts of Thomas Jefferson who so clearly understood the Constitution, and sound monetary policy:
There is a measure which if not taken we are undone … to cease borrowing money and to pay off the national debt. There does not exist an engine so corruptive of the government and so demoralizing of the nation as a public debt. It will bring on us more ruin at home than all the enemies from abroad. To preserve independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty, or profusion and servitude. If we run into such debts that we must be taxed in our meat and drink, in our necessaries and our comforts, in our labors and amusements, and if we must labor 16 hours a day to pay for the debts of the government then we shall surely live with mere subsistence as fellow-sufferers.
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The blog author, a lifelong conservative, holds a Master’s Degree in Public Administration. He has written about politics for half a century. As a teenager his commentaries were published in the local newspaper, and he has posted on Blogger and WordPress since 2007.
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