Origins of the Money Power in America
A fantastic book describing the growth of the banking elite in America is The Coming Battle by M. W. Walbert. The book was first published in 1899 and chronicles the rise of the money power in America in the 19th century. The author uses documents from Congressional records, newspaper reports and writings by the founding fathers and others to chronicle the events long forgotten that shaped the young nation from 1776 to 1899, "though 123 years of history and hypocrisy by men in banking, government and business." The first chapter is titled "Origins of the Money Power in America" and I would like to give the reader a taste of what this book contains and how important it can be to any student of monetary history.
On Thursday, April 30, 1789 President-elect George Washington delivered his first inaugural address. Later he appointed as his constitutional advisors (i.e. cabinet) Thomas Jefferson as Secretary of State; Alexander Hamilton as Secretary of Treasury; James Knox as Secretary of War; and Edmund Randolph as Attorney General.
Jefferson, who was the most accomplished scholar in America, the profoundest thinker upon the principles of Government of any age, the friend of humanity and a staunch believer in the capacity of the common people for self-government, was a representative of that industrial element which sustains society by its labors.
Hamilton, who was an aristocrat by birth and breeding, and who was connected by marriage with the wealthiest family of the landed aristocracy of New York, was a strong representative for the trading, banking, and commercial element of New York City and New England, which constituted the Tory element of the Revolution.
The presence of two statesmen of such wholly antagonistic views and temperaments in the cabinet of Washington, naturally originated divisions of political sentiment, from which sprang two great political parties.
One of the first measures which received the aid and sanction of Hamilton was the act of Congress, adopted February 25, 1791, chartering the Bank of the United States.
Jefferson, whose penetrating mind perceived the vast power for mischief lodged in an institution of that nature, in a powerful communication to the President, advised him to veto the bill.
Washington, however, accepted the views of Hamilton, his Secretary of Treasury, and signed the bill, and it became law.
By the terms of the act incorporating the bank, its capital was fixed at ten millions of dollars. The power to issue its circulating notes as money having full legal tender quality for the payment of taxes and demands due the Government was conferred upon it. It was made the depository of the revenues of the Government, and therefore it became the fiscal agent of the Treasury department. It was chartered for a period of twenty years.
In a letter to Madison in 1793, Jefferson stated that the bank party consisted of the fashionable circles of Philadelphia, New York, Boston and Charleston (natural aristocrats). 2. Merchants trading in British capital. 3. Paper men. Against the bank were - 1. Merchants trading on their own capital. 2. Irish merchants. 3. Tradesmen, mechanics, farmers and every other possible description of our citizens.
In 1811, Congress refused to re-charter the bank, and as it had during its brief career obtained the mastery over the entire business of the country by its loans of circulating notes and the public revenues, and had built up a system of credit in the commercial centers, to intimidate Congress and the people, it made a concerted contraction of the currency and brought on the great panic of 1811.
In 1812 occurred the second war with England, and the bank threw its whole influence against the United States during the great struggle.
Evidence is not wanting to sustain the charges made that the bank element of New England planned the separation of that section from the Union.
During the continuance of this war, the United States issued its treasury notes with full legal tender power, and they were gladly received by the people.
Albert Gallatin, for twelve years Secretary of the Treasury, and one of the ablest statesmen of the day, thus bears valuable testimony to the efficiency of government paper money in carrying the United States through that war. He says: -
"The paper money carried the United States through the most arduous and perilous states of the war, and through operating as a most unequal tax, it cannot be denied that it saved the country."
In a letter to John Tyler, May 28, 1816, Jefferson says: -
"The system of banking we have both equally and ever reprobated. I contemplate it as a blot left in all our constitutions which, if not covered; will end in their destruction, which is already hit by the gamblers in corruption, and is sweeping away in its progress the fortunes and morals of our citizens. Funding I consider as limited rightfully to a redemption of debt within the lives of the majority of the generation contracting it; every generation coming equally by the laws of the Creator of the world to the free possession of the earth He made for their subsistence unencumbered by their predecessors. And I sincerely believe with you that banking institutions are more dangerous than standing armies, and that the principle of spending money to be paid by prosperity under the name of funding is but swindling futurity on a large scale."
In a letter of March 2, 1815, written by Jefferson to the celebrated French author, Say, he said: -
"The government is now issuing treasury notes for circulation, bottomed by solid funds and bearing interest. The banking confederacy (and the merchants bound to them by their debts) will endeavor to crush the credit of these notes; but the country is eager for them as something they can trust to, and so soon as a convenient quantity of them can get into circulation the bank notes die."
Money could not be obtained by means of loans to organize, arm, and equip the American armies and to construct vessels of war to protect American commerce. In this emergency the counsel of Jefferson was requested, and he advised the issue of treasury notes by the government in lieu of borrowing.
In a letter dated September 11, 1813, he thus stated his position: -
"The question will be asked, and ought to be looked at. What is the course if loans cannot be obtained? There is but one - 'Carthago delenda est.' Bank paper must be suppressed, and the circulating medium must be restored to the nation to whom it belongs. It is the only fund on which they can rely for loans; it is the only resource which can never fail them, and it is an abundant one for every necessary purpose. Treasury bills, bottomed on taxes, bearing or not bearing interest, as may be found necessary, thrown into circulation will take the place of so much gold and silver, which last, when crowded, will find an efflux into other countries, and thus keep the quantum of medium at its salutary level. Let the banks continue, if they please, but let them discount for cash alone or for treasury notes."
The sound advice couched in this letter was heeded by the government, and the country was carried safely through the second war for independence.
Immediately after the close of the war, the bank put forth renewed efforts to secure a new charter.
At this juncture, William Cobbett, the celebrated English writer and economist, transmitted a letter to Mr. Dallas, Secretary of the Treasury under President Madison, in which he strenuously urged him to oppose the project.
As a warning against chartering a bank of issue, Cobbett, in a letter dated January 13, 1816, pointed out the immense power of the Bank of England to ruin the tradesmen of that country, and to dictate the political sentiments of that people. This did not deter the American statesmen of that day from their attempt to fasten a like institution on this country.
On April 10, 1816, Congress chartered the United States Bank with a capital stock of thirty-five million dollars; to it was delegated the sole power of issuing notes receivable by the United States for taxes and demands due it; and designed to serve as the Treasury Department of the government by receiving and disbursing the public revenues of the nation.
It will be ascertained from the enormous powers enjoyed by the bank, that it obtained a monopoly of the circulating medium of the country; that, in addition to its capital stock of thirty-five million dollars which constituted its primary loanable fund, it would earn interest upon the circulating notes issued by it, as well as usury upon the government revenues when used in discounts.
Therefore, by force of law, the interest earning capacity of its capital was more than doubled.
It was a colossal moneyed monopoly.
The bank rapidly obtained a practical control over the business of the nation, and would tolerate no opposition. By its methods of conferring substantial favors upon influential journals of the leading commercial cities, and by its loans to powerful members of both branches of Congress, it was enabled to rally to its support a coerced and manufactured public sentiment - far reaching and wide-spread as the limits of the Union.
The financial power of the bank, under its able and unscrupulous management, had become so dominant in its influence that it deemed itself master of the government and the people.
This monopoly believed in the Hamiltonian maxim that a "Public debt is a public blessing," and, during its career as the fiscal agent of the Government, threw every obstacle in the way of the payment of the national debt.
It may be inquired by some why the bank should oppose the payment of debt? The reason is obvious. The larger the debt, the more revenues necessary to pay the interest charge thereon, and, therefore, the more profit to the bank from the use of increased revenues in making loans and discounts.
From 1816 to 1828, it was the sole arbiter of the financial affairs of the nation, both public and private. Its power in politics was immense, and it swayed elections at will.
In the presidential election of 1828, Andrew Jackson, the hero of New Orleans, was elected chief magistrate by a great majority, and the bank, it defenders, and retainers, were fated to run counter to a patriot and statesman of invincible will and unflinching integrity.
At the time of his election, and prior thereto, the public debt was being reduced rapidly, and it would not be long before the United States would not owe a single dollar.
On the 8th day of December, 1929, President Jackson, in his first annual message to Congress, announced to that body that he was opposed to the bank, and that he would not favor a renewal of its charter.
On the 4th of July, 1832, a bill to re-charter the bank, after its passage by Congress, was sent to President Jackson for approval.
Many of the influential political friends of the President, aware of his intense hostility toward the bank and its methods, importuned him to sign the bill; large delegations of leading citizens from every trade center in the country implored him to allow the measure to become a law. Merchants and importers, who were heavy borrowers from the bank, trooped to Washington to add their appeals to the petitions already presented.
To add to the general clamor, the bank, through its officials, avowed its purpose to precipitate a panic, and to pull down in ruins the business of the country, should its demands not be concealed. It compelled its thousands of borrowers to sign distress petitions, which it caused to be sent to the President as the apparently free expression of public sentiment.
The magazine had long been prepared by the bank, the train was laid, and Nicholas Biddle, the president of this great financial institution, sat in his luxurious office, and declared himself ready and willing to apply the match that would start the most ruinous financial explosion that had yet shook the foundations of the republic. Mr. Biddle had most able lieutenants in both branches of Congress devoted to his interest.
Daniel Webster, the eloquent orator and great lawyer; Henry Clay, whose persuasive powers were unrivaled; and Calhoun, the great leader of the South, led the banking interest in congress.
In a speech delivered in the United States Senate, Missouri Senator Benton thus truly describes the immense power of the bank over the Government and the people: -
"The Government itself ceases to be independent, it ceases to be safe when the national currency is at the will of a company. The Government can undertake no great enterprise, neither war nor peace, without the consent and co-operation of that company; it cannot count its revenues six months ahead without referring to the action of that company - its friendship or its enmity, its concurrence or opposition - to see how far that company will permit money to be scarce or to be plentiful; how far it will let the money system go on regularly or throw it into disorder; how far it will suit the interest or policy of that company to create a tempest or suffer a calm in the money ocean. The people are not safe when such a company has such a power. The temptation is too great, the opportunity too easy, to put up and put down prices, to make and break fortunes; to bring the whole community upon its knees to the Neptunes who preside over the flux and reflux of paper. All property is at their mercy, the price of real estate, of every growing crop, of every staple article in the market, is at their command. Stocks are their playthings - their gambling theater, on which they gamble daily with as little secrecy and as little morality and far more mischief to fortunes than common gamblers carry on their operations."
History fails to record a nobler sublimity of purpose than that displayed by President Jackson during the war of the bank upon the people.
Notwithstanding the immense pressure brought to bear upon him, President Jackson, on the 10th day of July, 1832, returned the bill to the Senate, whence it originated, accompanied with his veto message, which was a masterly exposition of his views upon the true principles of free Government, and it ranks in importance with the Declaration of Independence.
The first reason assigned by the President in his objections against the renewal of the charter of the bank was, that it created a monopoly under the authority of the general Government, and, therefore, it increased the value of its stock far above its par value, which operated as a gift of many millions to its stock holders.
The President laid down the fundamental principle, that a monopoly should only be granted when it returned a fair equivalent to the people.
The next step taken by the President to curtail the power of the bank for mischief, was the removal of the government deposits amounting to many millions of dollars.
After the bank so signally failed to obtain a renewal of its exclusive banking privileges, it did not alleviate from its policy of inflicting distress and ruin upon the people.
From the 1st day of August, 1833, to the 30th of June, 1834, it continued its contraction of the currency by calling in its loans, giving as its reasons therefore, that the Government was harassing it on every hand. It had ample time in which to arrange its affairs without seriously crippling the business of the country and its excuse was not valid.
The bold stand taken by the President in the removal of the deposits, stirred up the wrath of the bank party in Congress, and Henry Clay offered a resolution in the United States Senate as follows: -
"Resolved, That the President in the late executive proceeding in relation to the public revenue, has assumed upon himself authority and power not conferred by the constitution and laws, but in derogation of both."
This resolution censuring President Jackson was adopted by the Senate on the 28th of March, 1834.
The bank pointed to this action of the Senate as proof of its great power.
On the 15th day of April, 1834, President Jackson transmitted a message to the Senate, respectfully protesting against this implied impeachment of his official acts. His communication to that body was a magnificent exposition of constitutional law, and he severely arraigned the Senate for passing judgment upon him without granting him an opportunity to be heard in his defense.
Three years afterward the resolution of Clay was expunged from the journals of the Senate.
The President was fated to emerge triumphant from every contest with the banking power. The rottenness of the bank then became known, and a complete investigation into its management from 1830 to 1836, instituted by the stockholders, developed an astonishing degree of villainy, corruption, and rascality that was appalling, and the results of which more than sustained the charges brought against it by President Jackson and his supporters.
It was discovered that hundreds of thousands of dollars were expended by President Biddle in influencing elections, subsidizing the press, and bribing members of Congress.
The career of the United States Bank and its president is an awful monument of warning on the highway of time to come, an object lesson to that colossal greed of power, which, to tighten its grip upon the people, scatters distress and ruin in its train, and which, from its ramparts of ill-gotten wealth obtained by monopoly and special privileges, defies the laws of man and the laws of God.
On the other hand, the fame of Jackson shines more and more with the lapse of time.
Thomas Jefferson, the founder of American Democracy, and the friend of the human race, is honored as the great constructive statesman of America; Andrew Jackson is revered as that great leader who regenerated the politics of his country, and rescued a people from financial slavery. During his administration, the public debt was wholly paid, a large surplus of public revenues accumulated to the credit of the United States, the money power was dethroned, the American nation was honored everywhere, and he retired from the presidency amid the plaudits of his countrymen.
In his farewell address to the people, March 3, 1837, he solemnly warned them against the money power, that special privileges must not be granted to any class of citizens, and that justice must be the basis of public and private conduct.
In this noble document, the President admonishes the people to be on their guard against the money power. He says: -
"But when the charter for the bank of the United States was obtained from Congress, it perfected the paper system, and gave to its advocates the position they have struggled to obtain from the commencement of the Federal Government down to the present hour. The immense capital and peculiar privileges bestowed upon it, enabled it to exercise despotic sway over the other banks in every part of the country. From its superior strength it could seriously injure, if not destroy, the business of any one of them that would incur its resentment; and it openly claimed for itself the power of regulating the currency throughout the United States. In other words, it asserted (and undoubtedly possessed) the power to make money plenty or scarce, at its pleasure, at any time, and in any quarter of the Union, by controlling the issues of other banks, and in permitting an expansion, or compelling a general contraction of the circulating medium according to its own will.
"The other banking institutions were sensible of its strength, and they soon became generally its obedient instruments, ready at all times to execute its mandates; and with the other banks necessarily went also that numerous class of persons in our commercial cities who depend altogether on bank credits for their solvency and means of business, and who are therefore obliged, for their safety, to propitiate the favor of the money power by distinguished zeal and devotion in its service. The result of the ill-advised legislation which established this great monopoly, was to concentrate the whole moneyed power of the Union, with its boundless means of corruption, and its numerous dependents, under the direction and command of one acknowledged head; thus organizing this particular interest as one body, and securing to it unity of action throughout the United States, and enabling it to bring forward, upon any occasion, its entire and undivided strength to support or defeat any measure of the government. In the hands of this formidable power, thus perfectly organized, was also placed unlimited dominion over the amount of circulating medium, giving it the power to regulate the value of property, and the fruits of labor in every quarter of the Union; and to bestow prosperity, or bring ruin upon any city or section of the country as might best comport with its own interests or policy.
"We are not left to conjecture how the moneyed power, thus organized, and with such a weapon in its hands, would be likely to use it. The distress and alarm which pervaded and agitated the whole country, when the Bank of the United States waged war upon the people in order to compel them to submit to their demands, cannot yet be forgotten. The ruthless and unsparing temper with which whole cities and communities were oppressed, individuals impoverished and ruined, a scene of cheerful prosperity suddenly changed into one of gloom and despondency, ought to be indelibly impressed on the memory of the people of the United States. If such was its power in a time of peace, what would it not have been in a season of war, with an enemy at your doors. No nation but the freeman of the United States could have come out victorious from such contest; yet, if you had not conquered, the Government would have passed from the hands of the many to the hands of the few; and this organized money power, from its secret conclave, would have dictated the choice of your highest officers, and compelled you to make peace or war, as best suited their own wishes. The form of your Government might for a time have remained, but its living spirit would have departed from it."
The wise counsel coached in these golden words of President Jackson are now more applicable than when uttered by him.
In the election of 1836, Martin Van Buren succeeded Jackson in the presidency. The panic engineered by the bank enveloped the people, and the whole system of credit built up by it fell with a crash. In fact the bank had so shrewdly manipulated the volume of money, and so absolute was its control over it, that society had resolved itself into two classes, a creditor class, small in numbers, but powerful in influence; a debtor class, constituting a great majority of the people, but helpless in the grasp of the creditor class.
One was the master, the other the servant.
During the administration of Van Buren, the Independent Treasury Bill became a law.
Thus the work begun by Jackson in crushing the bank, was consummated by the separation of the public moneys from those of the banks - a most salutary reform.
Thus concludes a shortened version of the first chapter, Origins of the Money Power In America, from the book The Coming Battle. I hope this has peaked your interest. The book itself can be found on the internet using any search engine and a PDF file can be found here
I conclude with the last words of the book itself;
It behooves every citizen of this great republic to verse himself in the principles of free government to watch diligently the trend of public opinion, to scan the proceedings of legislative bodies, to familiarize himself with the character of the public men who aspire to be the legislators of the people, that he may cast his vote in a manner becoming an American freeman.