Friday, June 2, 2017

Yankee Finance Capitalism Made Simple


Part One: Definitions and Origins

Money is a great mystery.  In my years of teaching economics courses and economic history nothing so confuses students, and their elders, as the subject of money.  Or rather I should say the subject of money and currency.  Some of this confusion is a result of the failure of economists to agree on standard definitions of money and currency, and thus the two are often confused and conflated in standard works on the subjects as well as by the “talking heads” on financial shows. The failure to nail these definitions down leads everyone to talk past each other.  So without further ado, let us begin with definitions.

Money is an abstract concept whereby certain characteristics and functions are attached to an object, but these characteristics and functions may not be exclusive to a particular object.  So in defining money, we need to focus first upon these vital characteristics and functions.  Something is money if it has all of the following characteristics: a store of value, portability, divisibility, and acceptance as a medium of exchange.  Let us have a closer look at each of these.  Something becomes a store of value when we are convinced that the object will maintain its utility for future purchases.  Thus we “save” the object.

Some economists refer to this as the asset demand for money, or view money in this function as a type of energy that is stored for future use.   It is all the same, we collect and save money because we believe it will hold the value it has today into the future as well.   When it comes time to use money for investment or purchases, it is most convenient to be able to carry it around, and to be able to divide it, that is to make change.  Finally, we hope that sellers will accept our money as a medium of exchange in payment for goods and services; it makes for a much more pleasant evening if we can pay with money an owner of a café for a meal rather than do dishes all night.  In general, gold and silver have best performed the functions of money, but other things can and have been used as money in the past: tobacco, cigarettes, sea shells, etc.


  1. Quote: "The question that is raised by outlining these fraudulent practices is cui bono? We will attempt to answer that question in our next installment."

    That will be interesting. It's not so obvious who all benefits.

  2. I don't have to read part two before realizing that this is going to turn into an assault on Alexander Hamilton and the Bank of the United States. Although the long standing enmity between Hamilton and Jefferson is well documented history also shows that at almost every turn Jefferson was wrong in his assessment of Secretary Hamilton.

    No one today bothers to read either his "Report on Manufacturers" or his "Report on Banking". Their 17th century style of writing is indeed ponderous to the modern ear but their logic is irrefutable. Without their implementation under his steady hand the fledgling Republic would have succumbed to the predations of the still imperialist world long before Woodrow Wilson all but sealed it's fate.

    In fact if Hamilton had not turned Federalist votes in the House of Representatives away from Aaron Burr and to Jefferson, Jefferson would not have been elected.

    Still ungrateful for Hamilton's help he ordered his own Sec. of the Treasury to scour the books of the Treasury and the Bank of the United States for fraud through which he was sure Hamilton had enriched himself. Gallatin reported back that not only was there no fraud but that the accounting methods Hamilton had put in place we're so tightly constructed as to make fraud virtually impossible. Jefferson dismissed Gallatin's report stating that Hamilton must have been even more clever in his fraud than even he imagined. Jefferson's massive bungling of the trade embargo and the depression it brought about and Madison's refusal to renew the charter of the Bank of the United States leading up to the War of 1812 almost cost the new nation its existence.

    Given the perils of today's world and the corruption and economic instability brought about by Wilson's Federal Reserve Bank, going back and re-export Hamilton's reports would be a good place to start. If not that we should at the very least restore Glass-Stegal and hang a few bankers who are the absolute antithesis of Hamilton's vision for America's place in the world.

    1. a)
      Hamilton persuaded certain representatives to vote or Jefferson and not for Burr, solely because he seriously disliked Burr

      Before leaving office, the federalists set the Treasury building on fire to incinerate the evidence; however, 100 years after the fact Mr. Beard spent much time in State archives and found documents which revealed that 29 (out of 90) members of the first Congress of the United States were bankers first and representatives of the people never.

      "In two bitter pamphlets, John Taylor, of Virginia, lambasted the 'stock-jobbing interest in Congress,' even daring to print in thin disguise the names of Senators and Representatives who, according to rumor, held government securities and were interested in the Bank. To this indictment Federalist editors and politicians replied in terse language, denouncing Taylor's statements as slanderous and mendacious, they called for demonstrations and insisted that, until substantiated, the
      allegation 'must be regarded as an impotent piece of malice, contemptible alike for its falsehood and its cowardice.' "

  3. Sitting senators and standing representatives were on retainer to the bank of the united states; religiously and fervently supporting the Hamilton system of central governance, central banking, banknotes as currency, permanent national (and personal) debt, tariff for the protection of domestic monopolies, taxation and distribution. Senators Clay and Webster, and representative Sergeant were on-the-Record opponents of above-listed items before they were put on the pay-roll of the central bank concept (what changed their minds, what new wisdom did they acquire ?)

    In July 1841, Representative John Sergeant (at the time sizeable mover and shaker, one time running mate of Henry Clay), in the House of Representatives, told the opponents of above-listed items, stop being in the way of progress, or they will get a civil war. Representative RMT Hunter (1809-1887) of Virginia, heard and understood Sergeant, and addressed the attitude of the friends of the Hamilton system:---
    "If I oppose this, or any other system, on account of its unequal operation --nay, sir, if I were to go even to the daring and presumptuous length of complaining that it was unjust in a sectional point of view-- am I to receive the suggestions of the gentleman from Pennsylvania as a hint to submit without murmur, or else to prepare for the horrors of civil and of servile war"

    Mr. Hunter said a few other things, too, which give the impression that he saw the future --not just Lincoln's war against the South (& West & North), but Lyndon B.J.'s great society and beyond:---

    "It is not, sir, as has been said, a contest between capital and labor, or between property and numbers, but between the tax-consuming and the tax-paying parties. By the tax-consuming party, I mean those who receive more money from the Government than they contribute to it; and by the tax-paying, those who contribute more than they receive; the one looking to Government for the means of living; the other viewing it as a necessary but expensive instrument for the protection of persons and property; the one interested to have the revenues as large and the disbursements as unequal as possible; the other interested in equal disbursements, and in paying as little as may be consistent with the attainment of the great moral ends for which alone they value their Government. In proportion as the former prevail, the incentives to industry diminish, and the moral feeling of the people is depressed.

  4. "The few who administer the Government, and lay taxes for the mere purpose of consuming them, divide the great mass of those opposed to them, by leading one class or one section of the country to plunder another. These parties have existed, and will exist, in all Governments. The history of their contests is the political history of almost every country; and in their fierce collisions sunk all of the Republics which have heretofore existed, and which did not fall a prey to foreign invasion before their societies were corrupted and degraded by the false principles upon which wealth was distributed.

    'Who once with undisputed sway,
    Gave armies, empire, every thing away;
    For two poor claims had long resigned the whole,
    And only ask the Circus and the Dole.'

    "It may seem, at the first view, that the tax-payers outnumber them so far that there could be no possibility of their ascendency. They would, therefore, resort to art and management; they would look first for the means of bribing one class of the community, or one section of the Confederacy, by plundering some other. A fit measure for such a purpose would be a protective tariff; a scheme to tax the whole for the benefit of a part --the many for the few. They might thus secure the assistance of the privileged and protected class, not only in this, but it may be in other schemes, to plunder the less favored classes in the community.

    "They would seek a mode of dividing the different sections of the confederacy, and of calling some one of them to their assistance, by holding out to it the prospect of plundering the others. They would set on foot some grand plan for expending large sums of money upon works of internal improvement --upon the construction of artificial harbors --the removal of obstructions in rivers --the erection of piers, breakwaters, and seawalls; and so contrive it that the benefits of these works should be distributed as unequally as possible. And now, having secured new allies, by disbursing upon a part the taxes which were raised from the whole, they would have accomplished much.

    "They would desire some instrument which would enable them to depress the value of property to-day and elevate it to-morrow; to increase the profits of one class of producers, and diminish those of another; to transfer trade from one section of the community for the benefit of some other; to silence popular clamor, when they wished it, by raising prices; and to produce it, if it better suited their purposes, by depressing them; to distribute, in short, the profits of trade and labor as they pleased, and by means so secret, and machinery so invisible, that none but the initiated could know by whom and how it was done. Where could so admirable, so efficient an instrument be found ? The refinements of modern ingenuity have furnished it in a 'National Bank.' I care not for the name, sir. It is a matter of indifference to me, whether it comes in the flaunting scarlet of the Babylonian harlot, with 'Bank of the United States' written on its forehead; or whether, reformed in name, but not in spirit, it comes in magdalen attire, and calls itself a 'Fiscal Agent.' "

    why don't we read what keen observer 150 years ago wrote on the Hamilton system

    why don't we read choice words on the ideas of Larouche on the Hamilton system: