The Founding Fathers of Monetary Destruction

0:00Regarding what Doug just said, the business of Americans urging us all to spend more and save less, it reminded me of a couple of weeks ago, I went to play golf, of course, in Florida, and my golfing partner and I were paying cash for the greens fees, and there were two members of the greatest generation standing there, and they chastised us for not using credit cards. They were telling us it was our patriotic duty to put the golf fee on a credit card. And needless to say, for those of you who know me, we didn't depart as friends. These two old guys and older guys. Doug also mentioned Lawrence White.

0:47There are two prominent Larry Whites in the economics profession who are both monetary economists. There's the bad Larry White, who he quoted, and the good Larry White, who was an Austrian School economist. I thought I'd straighten that out. For a while, actually, they both taught at New York University. There were two Lawrence Whites, and so you'd see an article in the economics journal, and the Austrian economist would look at it and say, well, this is horrible. What happened to Larry? He's lost his mind, but it was the other Larry White, so it's not the bureaucrat Larry The Founding Fathers of Monetary Destruction Bob Murphy, who is going to talk to us later, gave a talk at my university last week and one of the comments I made to him during the day and a half he was there was that how politicians are so clever at lying to us and manipulating us and never taking responsibility for their actions ever.

1:49But when it comes to policy, they seem to just do the same thing over and over and over again, decade after decade after decade. Bob's talk was about his book on the Great Depression, and of course we're doing almost exactly the same bad things now that they did in the 1930s that made the Great Depression worse. But even worse than that, it all started at the very beginning of the American Republic. It really is amazing. In my book, Hamilton's Curse, the subtitle, which Doug just read, is how Jefferson's arch-enemy betrayed the American Revolution and what it means for Americans today. Well, Hamilton did betray the American Revolution, and so monetary destruction had a lot to do with what he did.

2:35He was the Fed itself. If you were to go online and Google Alexander Hamilton and the Fed, You'll find a Fed publication that calls him the founding father of central banking in America, which is true. The idea for the Bank of the United States, which was a precursor to the Fed, was Hamilton's idea. And so after the revolution was over, Hamilton and his political cronies, the Federalists, mostly the New England, New York, Philadelphia commercial class, decided that, Well, you know, this British system that had a central bank, the Bank of England, that subsidized businesses and funded corporate welfare is a pretty good gig, it's a pretty good system if you're on the receiving end of that system.

3:27Economists called it mercantilism, and the American Revolution was fought to separate ourselves or to secede from that system, the British system, which had become increasingly exploitative of the colonists. But Hamilton and his cronies fought kind of like Mel Brooks in the movie, History of the World Part II, where Mel Brooks plays the king of France, and he keeps saying over and over in the movie, it's good to be the king. And so if you're on the receiving end, it's a good deal. If you're on the paying end, it might be worth fighting a revolution over, as they had just done. But as soon as the revolution was over, not even as soon as, before the revolution was over, Hamilton, Alexander Hamilton, was harder to work making his connections with Robert Morris, the prominent Philadelphia businessman who benefited greatly from the revolution.

4:23and he sold a lot of stuff to the government as a defense contractor and Hamilton admittedly knew nothing about finance and economics and he asked in the last days of the revolution, he asked Timothy Pickering who was George Washington's adjutant general who was known to know something about finance, do you have any books I could read to learn something about Economics and Finance, so Pickering gave him a few books, enough to allow Hamilton, who was a brilliant mind, he had a brilliant mind, he was a workaholic and a genius in the eyes of a lot of people, he read these books and that enabled him to write a 30 page letter to Robert Morris, who was one of the wealthiest men in America, saying essentially dear Mr. Morris, I agree completely with all of your political proposals for a central Federal Bank, protectionist tariffs, corporate subsidies to corporations, and so forth.

5:27By the way, I'm George Washington's aide-de-camp. George is sitting right here. I don't think he actually said that in the letter. Wouldn't you know it, after the revolution, George Washington gets a letter from Robert Morris recommending, guess who, to be Secretary of of the Treasury, Alexander Hamilton, who just, you know, six months earlier admitted he knew next to nothing about finances. He was a clerk in a molasses trading business as a teenager in St. Croix, but other than that, he didn't really know much about it. And so Hamilton was really sort of the political puppet of Robert Morris and his business associates and the Federalist Party, who wanted to bring the British system to America.

6:16That's why the subtitle of my book is How Hamilton Betrayed the American Revolution. And they worked diligently to it. And Murray Rothbard, in The Mystery of Banking, he put it this way, Central banking has been a corrupt mercantilist scheme and an engine of corporate welfare from its very beginning in the late 18th century. The first bank, the Bank of North America, who's ever heard of this, was driven through the Continental Congress by Robert Morris in the spring of 1781. And so from the very beginning, even before the Constitution, and Murray goes on to say that the main objective of the Nationalists, they were known as the Nationalists, who were also known as Federalists, was to establish an American version of the British mercantilist system, system, the very system that the revolution was fought to separate us from.

7:11And one more quote from Murray Rothbard about their aim. What were these men up to? Their aim was, quote, to re-impose in the new United States a system of mercantilism and big government similar to that in Great Britain against which the colonists had rebelled. The object was to have a strong central government, particularly a strong president or king as as Chief Executive, built up by high taxes and heavy public debt. The strong government was to impose high tariffs to subsidize domestic manufacturers, develop a big navy to open up and subsidize foreign markets for American exports, and launch a massive system of internal public works. In short, the United States was to have a British system without Great Britain." And that was Murray Rothbard writing that. And he called this the Morris Scheme, Robert Morris, the Morris Scheme, and so they did start up this Bank of North America, and the Bank of North America was given a monopoly privilege in the issuance of notes receivable

8:16in all tax payments from state and local governments and the federal government, and it was a monopoly. It was illegal for anyone to compete, but even so, it only lasted barely more than a in a year because there was so little confidence in the value of these notes that the whole thing imploded. And so, who Murray Rothbard called Robert Morris's youthful disciple, Alexander Hamilton, began his crusade for the Bank of the United States. He weaseled his way into becoming Secretary of Treasury, of the Treasury. And at the Constitutional Convention, which by the way was Hamilton's baby, He lobbied for seven years to overthrow the original constitution, the Articles of Confederation.

9:04He worked as much as anyone to get a constitutional convention to do that. And when he showed up, he laid out his plan, which was really the plan of Robert Morris and the Federalists, and it was for a permanent president who would appoint all governors who would have veto power over all state legislation. So essentially a king, Jefferson and the Jeffersonians said that. They didn't say this exactly, but they must have said, what are you crazy? We just fought a revolution against the king. Why would we want a king? But this king was always tied to the mercantilist agenda. You see, they wanted high tariffs to protect them from competition. And you couldn't allow, say, South Carolina to have low tariffs, but New York and Massachusetts to have high tariffs. It just wouldn't work.

9:49The shipping would all go to South Carolina. And so you had to have a monopoly government that would impose one central plan, sort of Soviet-style central plan on the whole economy. That's why they were nationalists and not Federalists. They needed a national government to do that. And so Hamilton went to work. Of course, we didn't adopt his system of government of a king who would appoint all the governors. That took Abe Lincoln to essentially achieve that system that we all slave under today. And here's another thing that Rothbard wrote about, you know, what came of this. A critical part of their program, the Hamilton program, was put through in 1791 by their leader, Secretary of the Treasury, Alexander Hamilton, a disciple of Robert Morris.

10:39Hamilton put through Congress the first bank of the United States, modeled after the old bank of North America, whose longtime president and former partner of Robert Morris, Thomas Willing of Philadelphia, was made president of the new bank. So literally the president of the first fed was Robert Morris's business partner. And so that's what happened. And of course the story of how we got the first central bank, George Washington asked Thomas Jefferson and Hamilton to write their opinions on the efficacy and constitutionality of a bank. And Jefferson very quickly dismissed by pointing out that it was discussed, he knew from talking to people who were at the Constitutional Convention, that it was discussed and proposed at the Constitutional Convention but rejected.

11:31So you would think on the issue of constitutionality, if the Constitutional Convention said, let's propose a central bank, and they voted it down and said, no, we don't want a bank run by politicians out of the nation's capital, that that would be pretty good evidence that It was unconstitutional, but this is when Hamilton, in his report, invented the idea of implied powers of the Constitution. This whole business of a living Constitution or implied powers of the Constitution, not explicit powers of government, that was Hamilton's idea. He invented that, and he essentially said, well, if you read between the lines of the Constitution, there are implied powers. Jefferson's position was, yes, I've read between the lines, and it's just blank space in between the lines, no implied powers.

12:20But from then on, you know, John Marshall, who was Hamilton's protege in legal circles, became Chief Justice, and he used this idea of implied powers in a broadest possible definition of the general welfare clause for 38 years as Chief Justice. And so we got the first bank of the United States, but it wasn't because of the strength of Hamilton's Arguments. The way we got it, George Washington signed off on it because at the time they were in the process of moving the nation's capital, of creating Washington, D.C. from New York to Virginia. And George Washington owned a lot of land in Virginia, Mount Vernon, his estate, Mount Vernon. And he wanted the nation's capital to abut Mount Vernon. He wanted it to be right adjacent to Mount Vernon. And so the deal that they They cut, as George Washington said, if you extend the boundary of the nation's capital to be right next to my backyard, I will vote for the Bank of the United States. And he

13:19did. The Federalists said, okay, no problem. And so the deal was cut. And that's how we got the first Bank of the United States. It wasn't necessarily the wisdom of Alexander Hamilton who won over George Washington. It was just another political deal. And so here's Here's what Murray Rothbard says about this, our first Fed. The first bank of the United States promptly fulfilled its inflationary potential. It issued millions of dollars in paper money and demand deposits, pyramid-ing on top of two million dollars in specie, the bank gold. The bank invested heavily in the U.S. government and the result of the outpouring of credit and paper money by the new bank of the United States was an increase in prices of 72 percent from 1791 to 1796. So in the first five years, it created 72 percent inflation and it also began corrupting politics by extending cheap loans to politically favored individuals.

14:20And it died off. It was given a 20-year charter and it created such havoc that the charter was not renewed. But then because of the War of 1812 and the debt that was incurred by by the War of 1812, it was brought back into existence. And it promptly created the Panic of 1819, which is the topic of Murray Rothbard's doctoral dissertation, the Panic of 1819. And so the bank was resurrected in 1817. And what did it do? Well, it created the Panic of 1819 almost immediately. And Rothbard wrote that there was for the first time in America, large scale unemployment in American cities with manufacturing employment in Philadelphia falling from 9,700 employed persons in 1815 to only 2,100 in 1819.

15:10And so it created, you know, the first depression. And back in those days, they were called panics, and then it was, as Bob Murphy reminded me the other day, it was Herbert Hoover who coined the phrase depression. He thought panic was too extreme. Let's not call it a panic. It'll cause people to panic, if you call it a panic, call it a depression, I guess he thought that was better, and then now we call it a recession, so the government watered it down a little more, recession, and I don't know, they'll probably call it a cantaloupe next or something, who knows what they'll call it, but they'll water it down some more eventually, I'm sure, and so we got the bank again, and it did the same thing, the same thing. It created boom and bust cycles immediately and it corrupted politics as well.

15:57And that led to the great Andrew Jackson ending the Bank of the United States by vetoing the rechartering of the bank. And I put on your tables, I'm not going to read this because I put a couple of really great quotes by Andrew Jackson. You don't read stuff like this from politicians anymore apart from Ron Paul. Lew Rockwell was interviewed on the Baltimore I was at a radio station two weeks ago and I listened to it and they were talking about Ron Paul and Lew's take on Ron was that, well, one good guy in 220 years is not a very good record, is it? About politics. And Andrew Jackson did a lot of evil things as well. He was a politician. But the one good thing he did was to veto the rechartering of Hamilton's bank, the Bank of the United States.

16:45and, you know, this top, the quote at the top there, the Bank of the United States is a monster, a hydro-headed monster. If I didn't know who wrote that, I would say it was Murray Rothbard that wrote that. If someone showed me and said, guess who wrote this, it was good. And, but the second one, I included this second quote because I've read this before at a conference like this and people seem to really like it and so in order to kiss up to the audience, I thought I'd bring it Down. But Andrew Jackson, the historians, the historians talk about him as some sort of uneducated country bumpkin. But if you read this, no uneducated country bumpkin could write something like this and express these views over and over again in political circles.

17:36In the essence of that second quote, I'm not going to read the whole thing, is that he He recognized, as Jefferson did, that the purpose of this bank was to subsidize special interests, primarily the commercial interests on the Eastern Seaboard in New England and New York and Philadelphia, at the expense of the masses, at the expense of the people. It was legalized plunder. It was the financial vehicle through which legalized plunder would become institutionalized in America, and he thought that this would be a horrible thing. So, Andrew Jackson vetoed it. And in part of my research, I did a little digging around to see what American historians have said about this. And of course, they condemn Jackson in the harshest terms for saying this, because this is really the heart of the regime, the central bank.

18:29So, we got rid of the bank. We got rid of Hamilton's bank for a while, and we had something called the Independent Treasury System, where money was mostly backed by gold and silver. And a couple of pretty well-known economic historians, Richard Timberlake, who's retired from the University of Georgia, and Jeffrey Hummel, have written extensively on this independent treasury system that existed roughly from the late 1830s to 1862. They both argue that It was arguably the most stable monetary system we've ever had. It wasn't perfect. Nothing on this earth is perfect. But in terms of economic stability, it was pretty good. But that was all ended by the evil Abe Lincoln in 1862 with the National Currency Acts.

19:19So what you have in American history is you have, at the very beginning, And you had these men, Hamilton and the Federalists, who wanted to bring the British system here. And they fought mightily and they achieved success. And then the Jeffersonians fought back, and Jackson was a Jeffersonian, they destroyed that system, they got rid of the central bank. But the Whig Party picked up that mantle, and Lincoln was a Whig a lot longer than he was a Republican. He was a Whig from 1832 to 1852, when the Whig Party disappeared, essentially. And there's a big book on the history of the Whig Party by Michael Holt, a University of Virginia historian, and it's even thicker than that book on the presidents that Doug held up. And he says in that book that of all the Whig politicians in America, no one was a more vociferous proponent of a central bank than Abraham Lincoln was. He traveled the country giving stump speeches for political candidates for the Whig Party in favor of

20:24of bringing back the Bank of the United States or some version of the Bank of the United States, because that was their system. What were the Whigs for? The Whigs were for protectionist tariffs, a central bank, and corporate welfare. Hamilton himself called this the American system, which was really the British system, but he called it the American system. And Henry Clay picked up that mantle, called it the American system. And then Lincoln, who said in one of his speeches that Henry Clay was his political idol, All of his ideas, Lincoln said, regarding policy come from Henry Clay, he picked up the mantle. The Republican Party picked up the mantle of this so-called American system when they replaced essentially the Whig Party in the 1850s.

21:10And so Lincoln was a crusader for a central bank, his whole political career. In my book, The Real Lincoln, one of the quotes that I put in there at the top of one of the The chapter is what Lincoln said the very first time he made a speech announcing he was a candidate for political office in Illinois. And he said something to the effect that my political views are short and sweet like the old woman's dance, is the way he put it. High protectionist tariffs, a central bank, and internal improvement subsidies. Hamilton's American system. That's the reason Abe Lincoln gave for getting into politics in the first and he wasn't very educated on economics as was Hamilton. Hamilton, one of the things that aggravates me in the academic arena here is people like John Steele Gordon is a business historian, John Steele Gordon, he wrote an article in the Wall Street Journal shortly after the big bailouts began, blaming the whole mess today that we're in today on Thomas Jefferson. It's his

22:18is Fault. It was called A Short Banking History of the United States in the Wall Street Journal. And the basic argument was that, well, Jefferson is a famous critic of the Fed, and this evil philosophy exists to this day in the persona of people like Ron Paul, John Silverman said in the Wall Street Journal. And the problem, the reason we're in a dilemma today, is that the Fed doesn't have enough power. And it's because of people like Ron Paul that the Fed doesn't have enough power. And I responded to this on lewrockwell.com with an article entitled A Fake Banking History of the United States. And apparently aggravated Gordon because I was on a radio show and the radio host was quoting me John Steele Gordon's snide remarks about me on the show. But these people deserve it. They deserve all the slapping down they they can get, they're liars for the regime is what they are and there was Forbes magazine chimed in too at the same time blaming the current economic dilemma on Ron Paul I'm not making this up anyone who wants the references email me and I will send you the links to the articles making the same article these fed critics central banking critics as though we are all powerful you know we sit here and speak in a

23:40and the Fed listens, or something, but anyway, but Lincoln was like this, he was an imbecile in economics like Alexander Hamilton was. Jefferson read Adam Smith, David Ricardo, Turgot, if you go to Monticello tomorrow, you walk in the front door, there's a bust of Turgot, the French finance minister, right there by the front door. He was very well What did Hamilton know? He read the superstitions of British mercantilists, like Sir James Stewart, who today would just be called a PR hack for the steel industry. He would write all sorts of superstitions like transportation costs are an unnecessary cost. We should not allow transportation costs to hold down our economy.

24:31And of course, it costs something to transport something from England to America. Therefore, we shouldn't allow imports because Lincoln actually made the argument at one point that anything that is grown or made here in America should not be allowed to be imported into the country. He said, for example, we don't grow coffee here, so we can let coffee in, but we do make shoes here, so we shouldn't let anybody compete with us in making shoes or anything else. And so, but this was sort of the Hamiltonian way of thinking. Hamilton made the exact same argument about transportation costs in his report on manufacturers. And Lincoln, one of his speeches on the bank, he said, he warned this about the independent treasury system, the one that replaced the bank in the United States.

25:16He said, because of this system, this quote would lead to a situation where all people will suffer more or less and very many will lose everything that renders life desirable." So if you allow money to be backed by gold or silver, you will lose everything that makes life worth living, in the sage words of Abe Lincoln. And there's one famous story about Lincoln that illustrates his devotion to central banking that's told by David Donald, the Pulitzer Prize winning biographer of Lincoln, and it's It's about how, in the Illinois legislature, there was a law that was about to go out of existence on December 31st, January 1st of one year in the 1830s, and then once this law went out of existence, currency in the state of Illinois would have to be backed by gold and silver.

26:07Lincoln was the leader of the Whigs in the Illinois legislature, and so he instructed his fellow Whigs to leave the room so that they couldn't have a quorum and vote to adjourn to leave. But a marshal had locked the door and they couldn't get out the door. And so according to David Donald, Abe Lincoln, who was 6'5", jumped out the second story window and all the other wigs followed him and jumped out the window to leave the room to try to delay the dark day where sound money would reappear once again in Illinois. Because Lincoln and also had been a champion of a $10 million spending bill for roads and canals in Illinois, none of which was ever finished, and much of the money was stolen, it just disappeared, but it was a boom to whoever got all that money, that is the backers of the Whig Party in Illinois and the backers of Abe Lincoln's political career, and so of course they needed to print money within the state of Illinois.

27:10And so the Democrats in Illinois called Lincoln, Leaping Lincoln after this, and so this was in the 1830s. And so it's not just a coincidence that once Lincoln became president, one of the first orders of business was the National Currency Acts, which greatly centralized the money supply in America. They imposed a tax on competing currencies and so forth. The The Greenbacks were created and so he spent his whole career fighting against sound money and I'll end with what happened was the result of this was that the Republicans who are really there's a line from the Federalists to the Whigs to the Republicans on these issues and here's what there's a Murray Rothbard said about it the Republican Party which inherited the Whig admiration for paper money and governmental control and Sponsorship of Inflationary Banking was to implant the soft money tradition permanently in America. So, you know, for good. It wasn't the Fed, but it was much more centralized than even the Bank of the United States was. And it's interesting to see what some of Lincoln's

28:24fellow Republicans said about this when we had the National Currency Acts and the revived central banking. Senator John Sherman, who was the brother of General Sherman, you can And for both of them, Senator John Sherman, also the author of the Sherman Antitrust Act, so you know that's going to be a bad thing. He said this, you know, what is the Republicans Party objective in bringing back this centralized banking? It was, in John Sherman's words, To nationalize as much as possible, even the currency, so as to make men love their country before their states, all private interests, all local interests, all banking interests, the interests of individuals, everything, should be subordinate now to the interests of the government.

29:23You know, could Stalin have said it any better?

29:30Democrat, there was a Democrat named Lazarus Powell at the time, and he said this, The result of this legislation is to utterly destroy the rights of the states. It is asserting a power which, if carried out to its logical result, would enable the National Congress to destroy every institution of the states of the States, and cause all power to be concentrated here in Washington, D.C. Of course, that was always the idea, as I said. That was always Hamilton's plan. And Hamilton's plan was finally achieved by Abe Lincoln. And we've lived under this ever since. And my next book that I'm working on is called A Treasury of Virtue, with a great big question mark. A famous poet said after the Civil War, the American government had a Treasury of of Virtue. And the one chapter I just finished is on how we massacred the Plains Indians after the war and then eventually got into the imperialism business with all this money printed up with greenbacks. And so the American government fundamentally changed from a constitutional

30:39republic to an empire very quickly. And one of the first orders of business was massive subsidies to the railroads, the genocide of the Plains Indians to make way for the railroads, we eventually got into the Spanish-American War, and later on in the century, which had nothing to do with us, with Americans, pure imperialism, and that wouldn't have happened, I don't think, had this bank not been created and the states been essentially destroyed as political entities, and the central bank had a lot to do with that, and my time is about up. Thank you very much.