Legacy of 1864

By: Ed Bugos | Thu, Dec 13, 2001
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"If the American People ever allow the banks to control the issuance of their currency, first by inflation and then by deflation, the banks, and corporations that grow up around them, will deprive the people of all property until the children wake up homeless on the continent their fathers conquered. I sincerely believe the banking institutions, having the issuance power of money, are more dangerous to liberty than standing armies! Already they have set up a money aristocracy that has the government at defiance. The issuing power [of currency] should be taken from the banks and restored to Congress and to the People, to whom it belongs! If our Nation can issue a dollar bond, it can issue a dollar bill." - Thomas Jefferson

Less than a few years went by and the United States Congress chartered its second national (central) bank by 1816, after the end of the War of 1812. Its charter was not renewed in 1836. Both banks had a twenty-year life, designated by Congress.

Since the US constitution was ratified central banking has been a controversial issue. In 1841, five years after the second bank expired, if you will, Congress attempted to renew its charter for a third time, but President Tyler vetoed the bill. But little more than 50 years after Jefferson's Presidency, in 1864, then Treasury Secretary Salmon Chase offered a compromise, which turned out to be the National Banking Act.

Through our studies of monetary history it has gradually become my contention that this Act marked an important point in monetary history, and not 13 years later John Thompson, founder of the Chase Manhattan Bank named his bank after the man that opened the gates to the city. In our view it symbolized the beginning of a sequence of events that led to the creation of the Owen-Glass Federal Reserve Act in 1913.

That Act finally permitted the "free banking system" to issue Federal Reserve notes, through a "vehicle" banking system called the Federal Reserve Board. By 1933, the issue of these notes was allowed without gold backing. Today, we are still living out Secretary Chase's, President Wilson's, and President Roosevelt's legacy. Wilson gave us the Fed and Roosevelt gave us the Full Employment doctrine, and credit money. Today, Greenspan has given us vehicle currencies and conceptual GDP. Remarkable.

Vehicle Bank Sows the Seeds of Socialism
It's not difficult to get caught up in theories of money and credit as well as monetary history, and not realize how distant those truths are from the average person. The layman still views money today as cold, hard cash.

Surely, he is capable of understanding that (today) money can come in many forms, even if he isn't sure how to explain them. He knows that banks have money, and he probably realizes that most of it is not stacked up in physical coin, or even notes, that much of it is perhaps in some digital form. But he is unlikely to grasp the kind of quasi-assets that constitute a bank's capital today, much less how a bank creates and manipulates the system of money and credit to create "dos kapital."

Of course, to the layman, "manipulate" is too strong a word for what the banks do. After all they are only capitalists doing their job within a free market economy. What would that have to do with government, and why would they need to "manipulate?"

I realized just how distant some of our ideas about liberty, freedom, and money are from the average person this week. It was around 9pm. I'd decided to go out for a drive, and return the video my wife and I saw the previous night.

The video store was quiet, and only the manager was there. As I dropped the video into the drop box, he asked me how the movie was. It was "American Outlaws," the remake of the Jesse James story. The setting is after the civil war where the North won over the South. The James brothers were southern (confederation) boys whose property was sought after by the Robber Barons of the 19th century, seeking to build a railroad on it.

These were the businessmen who built the Railroad System across the country, and conquered the west through tyrannical means, and with the help of the government and national banking system. The reason this story is a classic, I think, is that it pits man against State in a dramatic conflict that history has marked as a critical turning point in the struggle for the individual to maintain sovereignty over his own liberty in America.

Without endorsing Jesse James' killing rampage, it is noteworthy that they occurred around the time of the "Crime of the Century," when the US government outlawed silver coinage in 1873, and not long after it created the national banking act of 1864, which was a federal charter that would allow all US banks to issue standardized bank notes based on US government issued bonds held by the banks. There was no central bank at the time though proponents were always lobbying for one. This act could be seen as a compromise.

Nevertheless since such a currency required the banks to support the government's bonds, the Act marked the beginning of a long-term relationship between banks, the government, and business in America. Naturally the Civil War was the rationalization and no doubt Congress was influenced by what happened to government finances as a consequence of the War of 1812.

The point being that during this period of time in our history there was a marriage in between the "free banking system," government, as well as business, and it certainly would have manifested in some form of federal encroachment on individual liberty.

Is it possible that the James gang was a byproduct of the political crimes of the era, or would we just be blaming the system? Did Jesse James start out as a political war hero turned bad by events? I don't know, but since America's current prosperity was built upon the foundation the establishment created back then, clearly, James was a criminal against this new order. However, in the end, he was also proved a criminal to society.

Anyhow, the James brothers started robbing banks in order to get back at the tycoon who had wronged their family and property. In this movie, the Robber Barons killed their mother. The story ended as all vigilante stories tend to: in corruption, deceit, and murder. Except in this movie, Jesse ran off to Tennessee with the girl, and they lived happily ever after... so it was a stupid ending, perhaps indicative of the times.

It became apparent (getting back to the video store fellow) to me, after complaining how the movie failed to address these political issues, that the manager had some idea about history, and I just couldn't resist testing out how difficult it would be to explain to this man standing in front of me how a central banking organization can undermine the system of private property, "his" economic freedom in the process, and plant the seeds of socialism all at the same time. And why he should care.

"What? You must be kidding me," he said, "I come from Russia and you will have a hard time persuading me that bankers are communists." That's what he said when I challenged him that I could prove to him that central banking doctrine is the seed of socialist dogma. And this despite Canada's top marginal tax bracket approaching 60%. But I suppose that tax rate remains invisible to the vast low-income producing masses.

Of course, the experiment proved nearly futile because money is seen as the symbol of capitalism, and the more of it that there is, the richer and freer society must be, right? Forget it. It's more like this: the more that money can buy, the richer and freer society is.

Sound money may be a symbol of capitalism, but no one knows what either is today. At any rate, since he was Russian he appeared to catch on when I brought Lenin into the fray. When I told him that Lenin had a particular fancy for the tyranny of money he nodded in tentative agreement. And before we all had the chance to discover the old "look up in the sky, and everyone else will look, trick" was perpetrated on him, I made my getaway on the old adage that states, "Quit while you're ahead."

But now I'm inspired. There has got to be a simple way to reach the layperson, and inform the citizen of his plight if you will. After this experience I purged the idea that Kennedy was assassinated because of his desire to "inform the citizen of his plight," for I'm certain that had he tried, the citizen wouldn't have understood him anyhow, or he would have fallen asleep.

Defenseless Liberty
Consider the idea of freedom, for instance. No doubt that the average person on this continent (North America) is free in every sense that is important to him. He is free to go to the video store (though he might be followed today, if his skin is darker), he is free to take his or her partner out for dinner, or cross over the border, or just about anything that doesn't cross the letter of the law.

In communist Russia, Europe, or even China, many of these freedoms exist also, at least to the extent that a video store exists. In all nations, citizens are generally free to do what the law does not forbid them to. Is that how we define freedom today?

In all dictatorships, autocratically governed nations, and Monarchs, freedom is an illusion for sale to whoever conforms to the rules.

Control too is an illusion. How does one, armed man, control a crowd of 20 people, or more, who could all not only make a run for him, but also could unquestionably overcome him (unless he's got a machine gun)?

Because no one probably wants to be the one who gets shot. And once it is realized that he doesn't want to kill anyone, but just get his way, everyone is free to do as they please within the confines of his rules. They may be free to light a cigarette while they sit still, for instance, particularly after the gunman is sure they have no weapons. Certainly, "he" feels "relatively" free. Even in prison, I suppose that prisoners are generally free to do as they wish so long as they live by the rules the Warden sets.

Everybody seems to have a different definition of freedom, but in all cases define it as something they are allowed, or able, to do.

If you ask a layperson who has come to North America from Eastern Europe they will probably define freedom in terms of what they were or were not allowed to do. They might say that there was no freedom of speech, or they might say that they weren't allowed to even think they were buying private property. But then you'd be talking to someone who didn't want to live with those rules.

What if, instead, you asked someone who lives well in those countries whether they felt free? Someone who for instance might have been a member of the old guard during Soviet rule? What if he really believed certain rules were necessary to make the transformation to a Utopian style society where everyone was happier than they are today? Such a person could have anything they wanted within the confines of his own rules, so long as the citizens were generally happy. Perhaps citizens aspiring to such positions are equally motivated by some notion that it would empower them with a larger degree of at least relative freedom.

So how then do we define, or measure, freedom? Is it relative, absolute, or is there something else more important than its definition altogether?

In Canada for instance, there is no valid system of property rights, yet we're all free. The government can come and take our land away from us any time they want, and we have no legal recourse except to demand payment. We have learned to be free within the confines of a quasi-socialist system that invisibly inhibits our economic freedom. Of course, they won't do anything extreme, for fear of retribution, but they can. And should a crisis emerge that provides the opportunity, they probably will, if history is any guide.

In a totalitarian democracy, the individual has freedom only to the extent that he or she does not oppose the majority (who probably feel free) will. In a dictatorship, he has freedom only to the extent that he does not oppose the law, which can change overnight. People tend to perceive freedom by what they can or cannot do, but they fail to grasp the powers, which enable them to defend it...


Ed Bugos

Author: Ed Bugos

Edmond J. Bugos

Ed Bugos is a former stockbroker, founder of GoldenBar.com, one of the original contributing editors to SafeHaven.com and former editor of the Gold & Options Trader. He continues to publish commentary on market and economic trends; and provides gold, economic and mining research to private clients worldwide.

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