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338 THE CREATURE FROM JEKYLL ISLAND
the U.S. had a central bank or not, the banks were assured that if they
inflated together and then got in trouble, government would bail them
out 1
The state banks had created enough instant money for the
federal government to raise the debt from $45 million to $127
million, a staggering sum for the fledgling nation. Tripling the
money supply, with no appreciable increase in goods, means the
value of the dollar shrank to about one-third its former purchasing
power. By 1814, when the depositors began to awake to the scam
and demanded their gold instead of paper, the banks closed their
doors and had to hire extra guards to protect officials and employees
from the angry crowds. Once again, the monetary and political
scientists had succeeded in fleecing the American public of
approximately 66% of all the money they held during that period,
and that was on top of the 42% fleecing they got a few years earlier
by the Bank of the United States.
JUGGLING TRICKS AND BANKING DREAMS
Leaning against the storm of paper money all
this time was
Thomas Jefferson, by now, past-President of the United States.
Trying to bring the nation to its senses, he never ceased speaking
out against the evil of dishonest money and debt:
Although all the nations of Europe have tried and trodden every
path of force and folly in a fruitless quest of the same object, yet we still
expect to find in juggling tricks and banking dreams, that money can
be made out of nothing, and in sufficient quantity to meet the expense
of heavy war. ...
The toleration of banks of paper discount costs the United States
one-half of their war taxes; or, in other words, doubles the expenses of
every war. ...
The crisis, then, of the abuses of banking is arrived. The banks
have pronounced their own sentence of death. Between two and three
hundred millions of dollars of their promissory notes are in the hands
of the people, for solid produce and property sold, and they [the
banks] formally declare that they will not pay them.... Paper was
received on a belief that it was cash [gold], and such scenes are now to
take place as will open the eyes of credulity and of insanity itself to the
1. Rothbard, Mystery, pp. 198-99.
2. Writings, Library Edition, Vol. XIV, p. 227.
3. Writings, Library Edition, Vol. XIII, p. 364.
THE CREATURE COMES TO AMERICA 339
dangers of a paper medium abandoned to the discretion of avarice and
of swindlers. ...
It is a wise rule never to borrow a dollar without laying a tax at the
same instant for paying the interest annually and the principal within
a given term. 2 ... We shall consider ourselves unauthorized to saddle
posterity with our debts, and morally bound to pay them ourselves.
... The earth belongs to the living, not the dead.... We may consider
each generation as a distinct nation with a right to . . .
bind themselves,
but not the succeeding generation. ...
The modern theory of the perpetuation of debt has drenched the
earth with blood, and crushed its inhabitants under burdens ever
accumulating.
And still, Congress did not listen.
SUMMARY
America had its first central bank even before the Constitution
was drafted. It was called the Bank of North America and was
chartered by the Continental Congress in 1781. Modeled after the
Bank of England, it was authorized to issue more paper promissory
notes than it held in deposits. In the beginning, these notes were
widely circulated and served as a national currency. Although the
bank was essentially a private institution, it was designed for the
purpose of creating money to lend to the federal government,
which it did from the start.
The Bank of North America was riddled with fraud, and it
quickly fell into political disfavor. Its inflated bank notes eventually
were rejected by ordinary citizens and ceased to circulate outside of
the Bank's home city of Philadelphia. Its charter was allowed to
expire and, in 1783, it was converted into a purely commercial bank
chartered by the state of Pennsylvania.
The advocates of fiat money did not give up. In 1791, the First
Bank of the United States (America's second central bank) was
created by Congress. The new bank was a replica of the first,
including fraud. Private investors in the Bank were among the
nation's most wealthy and influential citizens, including some
Congressmen and Senators. But the largest investment and the
I
Letter to Dr. Thomas Cooper, Sept. 10, 1814, Writings, Library Edition, Vol. XIV,
pp. 187-89.
2. Writings, Library Edition, Vol. XIII, p. 269.
3. Ibid, p. 358.
4. Ibid., p. 270.
5. Ibid., p. 272.