U.S. economic history that Ron Paul wants every American to know: Pt. I

Before the decorated days when the thirteen colonies emerged into existence, America was but an idea. This idea was the brainchild of European investors: a few very, very rich families and bankers. These investors, who were always in search of new ways to expand their banking empires and family fortunes, banded together for the purpose of creating the grandest investment ever undertaken.

Residents of England and other countries were encouraged to go thrive on the newfound land for the purpose of bringing life to this new investment through their labor. The migrants agreed to this because of their hopes for new, better, American lives. In return for living and working on the land, they were required to pay taxes back to the Bank of England, which acted as the central bank for all of America’s investors. America’s economic situation was and still is no different than any other creditor/debtor relationship today. If a teenager spends too much on her credit card, she needs to pay the interest and the accumulated debt until the debt is cleared, because she created this obligation to pay when she cosigned the credit card company’s contract with her dad. The investors were the creditors and the colonists were the debtors.

In time, the people of the young country decided that they just didn’t want to pay their contractual obligation anymore and gave England and its other investors the proverbial finger – an action which was and still is illegal according to international law (commercial law.) One tactic to avoid paying taxes was the introduction of fiat money. There are 3 different types of money: commodity, receipt and fiat.[1] Commodity money is simply goods, like a cow or a chocolate bar. Before the other types existed, people bartered goods amongst each other and assigned their own values to these goods.

People, however, would’ve had a difficult time carrying cows around in their pockets; and this difficulty led to the use of receipt money. This type of money is a basically intrinsically worthless item that is used as an excepted representation of how much of a commodity will be transferred. This worthless item is made unique through a minting or painting process, among other modifications. The birth of representational money gave birth to the potential to exchange a fraction of a commodity, making this type of currency more effective. Receipt money is given value because each monetary denomination is used as a representation of a fraction of the value of real goods existing somewhere else – it is backed by things that have real value. Gold and silver are the preferred backings of receipt money because they have perceived value and are rare enough so there won’t be a huge addition of these substances into an economic system, which would significantly alter the value of the existing receipt money, destabilizing an economy.

Many people think that Federal Reserve Notes are a form of receipt money: this is utterly false. Federal Reserve Notes are a form of fiat money.[2] Fiat money, what early Americans used to spite the king of England, is money that isn’t backed by anything at all – it is simply worthless items that, for no good reason, have perceived value and can be created out of thin air by the controller of the currency for the benefit of this controller. The early Americans simply got tired of being taxed through the king of England’s gold-based economic system, so they created their own monetary system out of thin air. Fiat money is merely a promise to pay real goods or services later, a.k.a. an I.O.U.[3]

America’s fiat money was uncontrollable by the King; so, in his anger, he passed a law requiring his subjects to pay their taxes in gold only. Americans had very little gold in relation to the king, so this action instigated a returned anger of the colonies and a plea for legal reform. Being angry, the king didn’t hear their plea, which was a major cause for the start of the Revolutionary War.[4] [5]

During this time, America had two obligations. One was to their foreign creditors and one was to the legal stipulations of the king. Although America fended off the king, it didn’t and couldn’t fend off its creditors from hounding it. The best way to state what the result of the Revolutionary War was is that we made peace with England – words one will hear when one sees any accurate history documentary. America may have stopped fighting, but it didn’t get out unscathed. It still had its monetary obligations to the Bank of England; so it, according to commercial law, wasn’t truly a free nation. It was a debtor nation – a subservient nation to sovereign, truly free creditors.

The upside to winning the war was that America gained its ability to control its own government. Soon after its victory, the first guidelines for the first American government were formed, called the Articles of Confederation. Little known is that there were presidents before George Washington under the Articles of Confederation, the first of which was Thomas McKean.[6]

Gaining freedom was the primary goal of those who fought for independence, so America’s forefathers attempted to keep this dream alive when they ratified the Constitution in 1789. The relevance of the Constitution is a little different than is taught in schools, which also incorrectly teach that its relevance is fading out. The Constitution is a contract of limitations, created in attempt to both keep America’s new government from becoming oppressive and preserve the sovereign[7] rights of its people.

Being a debtor to foreign investors, America needed to either completely pay off or continually pay interest on its debt. This caused an almost immediate reintroduction of taxes.[8] These taxes deeply affected some Americans, especially farmers, and some decided to do everything they thought they could to save themselves from them. In 1786 Daniel Shays of Massachusetts led a rebellion, which one could call the second Revolutionary War in American history. He, however, did not win his war against the early American government; and taxes have since existed, just as they did before America gained legal independence.

America won the Revolutionary War but its investors were smart enough to know that its Revolutionary War caused its economy to become too unstable to survive in a productive manner. Knowing this, Congress was forced to pass the 1791 Assumption Act – which created America’s first national bank (a.k.a. the First Bank of America), chartered by the Bank of England for a term of twenty years – in attempt to stabilize it. On December 12, 1791, this bank, which controlled the American money supply, opened for business in Philadelphia. Regarding the creation of this bank, James Madison said, “History records that the money changers have used every form of abuse, intrigue, deceit, and violent means possible to maintain their control over governments by controlling money and its issuance.”

In order to create this bank, America was forced to charter it with the same European investors and bankers that were holding its debts before the war. At first, the bank’s capitalization was $10,000,000 – 80% of which was owned by foreign bankers. In other words, the American government agreed to its creation under the condition that America would only own 20% of it. The bank was authorized to lend up to $20,000,000, which was a profitable condition for both the government and the investors, since they could lend and collect interest on money that they didn’t actually have (a common banking trick.[9]) The bankers, however, led the government – which was more naïve when it came to banking practices and how to handle money – down a spiraling path that would quickly rob it of its share in the ownership. Just five years later, the government owed the bank $6,200,000 and was forced to sell most of its shares to its investors in order to resolve this debt in order to prevent an even worse situation. By 1802, the government was forced to sell all of its shares, leaving America with no stock whatsoever in its own national bank, giving it no control over its own currency and economic well being. The importance of this crisis was well illustrated by Thomas Jefferson:

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks…will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered…. The issuing power should be taken from the banks and restored to the people, to whom it property belongs.[10]

America’s first central bank was primarily created because its secured party creditors – its investors overseas – demanded a private bank for holding the securities (assets) of their investment, being America. This bank, holding America’s assets, acted as collateral for America’s debts and loans. During the creation of this bank, one of the largest private investors, Amshel Bauer Rothschild, made the famous statement, “Let me issue and control a Nation’s money and I care not who writes the laws.”[11]

About two decades later, Napoleon began conquering Europe. When he reached Frankfort, Germany, Prince William left 3 million dollars in the hands of Amshel Mayer Rothschild for the purpose of paying off his Hessian troops. After losing the battle of Jena, William fled to his relatives in the North. Instead of giving the money to the troops, Amshel Mayer put the money in the stock market, investing in an inside tip he received from his world revolutionary network. Amshel Mayer’s five sons then inflated their family’s power by creating five authoritative banks in five major European cities: Amschel, Frankfort; Jacob, Paris; Nathan, London; Karl, Naples; Solomon, Vienna.

The War of 1812
In 1811, the twenty year contract with the Bank of England expired. On February 20, the American government again decided to give England the finger and not renew the charter on the grounds that the Bank was unconstitutional. This led to the withdrawal of $7,000,000 by European investors, precipitating an economic recession and an English military response.[12] In 1812, England waged the war we now call the War of 1812. On August 24th and 25th, it invaded Washington D.C., burning down the first White House, the first Library of Congress,[13] the President’s house, etc. The Brits invaded because America dishonored its contract, and according to International Law, the only remedy left was to come into America on a letter of marque and seize its assets. More accumulated debt as a result of this war reaffirmed the need for a new bank charter: the Second Bank of the United States, founded in 1816 and chartered for another term of 20 years.

Four years before this charter was set to expire, England once again came knocking, this time proposing an early charter renewal. Andrew Jackson – a true patriot and very possibly the best American President ever[14] – in his presidency denied this charter renewal. Jackson had the bravery to assert that the Constitution doesn’t delegate the government’s authority to establish a national bank, but also had the brains to fix the problem. At the time, the States were having trouble deciding if they wanted to collect taxes. For the greater good of America, Jackson sent federal troops into these states and forced them to collect taxes. He then used these taxes to completely pay off the National Debt, eliminating the creditor’s rights over its debtor. Jackson stated, “If Congress has the right under the Constitution to issue paper money, it was given to them to use themselves, not to be delegated to individuals or corporations.”[15] America went without another national bank for seventy-seven years, until the institution of the Federal Reserve.[16]

What happened to Jackson after doing this? On January 30, 1835, Richard Lawrence, an unemployed house painter, attempted to assassinate Jackson via pistol. The gun, however, malfunctioned, and the bullet didn’t discharge. Jackson defended himself with his cane, while a second weapon was used, which also misfired. Jackson believed the attacker was sent by his political enemies, the Whigs, because of his plan to do away with the Second Bank of the United States. This began a sad trend for American presidents: if they try to truly stand up for their country, soon after they tend to get shot at, with varying degrees of success. The ones who don’t fight for their people just get shoes thrown at them.

--------------------------------------------------------------------------------
[1] Fractional money is an arguable fourth type. It is the loaning of money that doesn’t really exist at all, using existing capital to back it. I believe it is more of a banking trick than a type of money.
[2] In chapter three we will discuss what Federal Reserve notes are in much greater detail.
[3] The downside to using intrinsically worthless fiat money is that its potential to deflate in value is very high, so it isn’t the wisest choice of money for a government to use. This deflation occurs by printing additional money, which removes some of the value of the existing money. In theory, if a money supply consists of 100 notes, and 10 more are printed, the total value of all of the money remains the same, but each note in the supply decreases in value by .091% of the total value of the system (1/100 – 1/110.)
[4] America once again used fiat money in 1775 during the War, called Continental Currency. The deflation of this fiat money gave rise to the saying “not worth a Continental.”
[5] King George III hired rented Hessian soldiers from investors Amshel Mayer Rothschild and Prince William (who used his royal connections in Denmark and England to provoke the war) to fight the American colonists.
[6] Also little known is that Barack Obama was not the first black American president. A black man named John Hanson was once the active President by default (everybody got up and left Congress for a while except him, giving him his short seat as President.)
[7] Sovereignty means the complete independence and self-government of an individual.
[8] A restricted power of the government outlined in the Constitution.
[9] This type of money is called fractional money: money that is lent but doesn’t really exist. The Federal Reserve System uses this principle today.
[10] An 1802 letter of the Secretary of the Treasury Albert Gallatin, later published in The Debate Over the Recharter of the Bank Bill, 1809.
[11] The Rothschild family has since become the wealthiest family on the planet.
[12] The problem with not renewing the charter wasn’t that the central bank wasn’t unconstitutional. The problem was that its creditors wished to decide how they will collect their debt and America, the debtor, wasn’t abiding by international law.
[13] We will discuss why this was burned in the next chapter.
[14] Interestingly, this former general of the Tennessee militia was the first President not to have been born into wealth.
[15] Veto message regarding the Bank of the United States, July 10, 1832.
[16] Which the government also didn’t have the power to establish, but we shall discuss this in great detail in chapter three.