“The revenue of the state is the state.” Edmund Burke
The rise of the modern nation state in the 1600s was founded upon monarchies securing independent sources of revenue to pay for the royal armies that secured their dynasties. Jacques Colbert, Louis XIV’s minister of finance, designed a system of state monopolies, internal free trade districts, tariffs and internal taxes to support the wars of his sovereign. Later in the eighteenth century, the French and Indian War resulted in a British victory in large part due to the rise of deficit spending (and the national debt which makes it possible) which funded the British war machine in this first of global wars. Crucial to any scheme of deficit spending is the development of a symbiotic relationship between the financiers who purchase government debt and the state which comes to depend upon the funds of these financiers. In Great Britain, the lender of last resort to the government was the Bank of England, so if British bonds could not catch a bid in the loanable funds market, the Bank of England could come to the rescue.
More @ The Abbeville Institute
Currency finance is certainly better.
ReplyDeleteThe federal government could just run a surplus though, from which to draw upon in times of war. No need for bankers then.
What I dislike is how it's often assumed in the US that if one likes one policy, he must then like a set of other policies as if it's a group deal.
Even the socialists in the US should like currency finance. Just explain to them how bankers make a profit. Socialists hate profit as if it were a sin.
No need for bankers then.
DeleteSomething we all could go for
in spite of his pretty huge diploma, this Devanny guy does not understand what he is writing about.
ReplyDeleteHe uses the term "currency finance" to let us know that he does not understand either of those words.
The Jeffersonian concept did not triumph, it merely threw in a monkey wrench. Devanny also do not understand Jefferson's concept regarding treasury notes. Jefferson recommended the use of non-legal-tender treasury notes, as evidences of debt, for war financing purposes; "bottomed on taxes" redeemed within the generation the incured that debt. Jefferson did not suggest the everyday use of, small denomination, treasury notes, he wanted coin use for that.
When President Jackson "killed" the Bank of U.S. the government did not resort to, introduce, Treasury notes. The veto happened in 1832, the charter expired in 1836 (but a few weaks before the expiry, the Bank was re-chartered as a Pennsylvania State bank), Treasury notes were issued at the end of 1837, to alliviate the pressure brought on by bank paper.
The Independent Treasury was enacted in 1840, it declared that gold and silver coins alone be paid out and received by the Federal government. The Independent Treasury was enacted, again, in 1846, it declared that gold, silver and Treasury notes may be received by the Federal government.
In 1841 John Tyler prevented a whig congress to charter a 3rd Bank.
The members States (some of them) went on a borrowing rampage and between 1835 and 1841 took out $170million. Some of them did default, and even Rothschild had to take some loss.
Even during the 14 years of the Indepenent Treasury, the Jeffersonian concept was not enacted, not even considered. The other part of Jefferson's suggestion was that banks must discount for coin alone, no note-issue allowed.
What even Jefferson did not consider that banks must not be allowed to issue credit through bankbook entries (which are currency, and act as currency upon the money supply, as much as printed notes).
But banknote issue was curtailed during those years: 300million coins existed in the U.S. and 300million notes were issued.
Federal debt was zero in 1836, $70million at the end of 1861.
Fractional reserve banking exists just as much after the establishment of the federal reserve system as before; it is the essence of banking, the only difference is the nature of the reserve
And, by the way, the federal reserve act was merely the re-organization and adjustment of the national currency bank system, which was modelled after the New York free banking system (unleashed in 1838 while anti-mason-whig-republican William Seward was governor)
Very good and thanks.
Deletename789,
DeleteDo you see full reserve banking as overly expensive or otherwise implausible?
It seems to me
>>> full reserve banking
DeleteThe majority of the people who talk/propose/advocate "full reserve banking" are sorely lacking knowledge of the subject; a small portion are merely impressing the ignorant audience
There is no such thing as full reserve banking
a) if we have full reserve, why issue notes ?
b) if we can issue only one note for each coin, who would go into the banking business (printing-press money corporation) ?
As I predicted, an assault on Hamilton. What the detractors or Secretary Hamilton always fail to mention is that during his tenure of office (he left before the end of Washington's second term) American debt paper went from trading at 10¢ on the $1.00 of face value to trading at a premium of almost 7¢ over each $1.00 of face value! A most remarkable achievement. It goes a long way in explaining why Washington begged him to stay on and why he never had anything but the deepest regard for his most faithful aid and secretary. Hamilton repeatedly said that "A well managed debt is a national blessing."
ReplyDeleteHamilton laid the foundation that created what in many ways bound the nation together with a national monetary system. His charter for the Bank of the United States contained provisions for both regular and on demand audits by the Treasury Department AND the Congress.
It was subsequent administration's, particularly those of Jefferson and Madison that dismantled both the Bank of the United States and the strict accounting methods he put in place. The private bankers took over and American finance became, of the bankers, by the bankers and for the bankers. The concept of a well managed debt went out the window and the bankers enriched themselves the fees they were paid to (mis)manage American debt paper. Surprise, surprise, after Jefferson bungled the trade embargo and Madison refused to renew the charter American paper was once again trading for less than face value and almost nobody wanted to loan Madison the monies needed to fight the War of 1812.
None of this can be laid at Hamilton's feet as he was long since dead, all but assassinated by Jefferson's Vice President who had his own grudges against him for having denied him the White House as explained previously.
Thanks.
DeleteCharter and ordinance of the 1st Bank U.S.
Deletehttp://www.yamaguchy.com/library/uregina/1791bus.html
Henry Clay ---apostle of Bank of U.S.; permanent debt; banknote as national currency; prudent banking of three notes for each coin in vault--- explains how and why non-legal-tender Treasury notes would the best currency (when there is not enough coin and [large denomination] paper supplement is needed), and wy there is no need for bank and its notes:
http://www.yamaguchy.com/library/uregina/clay1838.html
{
Whatever a Government agrees to receive in payment of the public dues, is a medium of circulation, is money, current money, no matter what its form may be, Treasury notes, drafts drawn at Washington, by the Treasurer, on the receiver general at New York, or, to use the language employed in various parts of this bill, "such notes, bills, or paper, issued under the authority of the United States."
Nowhere in the United States will it be under par. Do you suppose that the holder of these drafts would be fool enough to convert them into specie, to be carried and transported at his risk ? Do you think that he would not prefer that this money should be in the responsible custody of the Government, rather than his own insecure keeping ? Do you think he will deny to himself the opportunity of realizing the premium of which he may be perfectly sure ? The greatest want of the country is a medium of general circulation, and of uniform value every where. That, especially, is our want in the Western and interior States. Now, here is exactly such a medium; and, supposing the Government bank to be honestly and faithfully administered, it will, during such an administration, be the best convertible paper money in the world
}
So why should anyone resort to Hamilton's solution ? (of permanent debt, permanent interest)
*////
Following the Nevada silver discovery there was enough silver to produce sufficient number of coins for 100% specie circulation
Following the California gold discovery there was enough gold to produce sufficient number of large denomination coins
People like paper notes ---especially ladies, because silver made their finger look dirty--- so there was room for 5-10-25-50 cent paper notes and $1 notes, issued by the government
DeleteFrom day one of the General government, Baring & brothers were bankers to the United States (in Europe which at that time meant the world). In 1803 U.S. purchased Louisiana Territory, 500 million acres for $15,000,000, Baring, Brothers &co. facilitated the transaction, for which they received commission. In 1803 Baring purchased from the government its remainig 2,220 shares of the Bank of the United States for $1,287,600 ($580/share). The other owners we don't really know, but it was commonly accepted at the time that 7-tenths of the shares were held by british citizens. When Hamilton's bank was dissolved what did those upstanding individuals do with their coins ?
To show their character and to show how upstanding they were:---
{
January 4, 1812.
The trusties of the late Bank of the United States have made an application to the legislature of Pennsylvania for a charter, with a capital of 7,500,000 dollars --- and Theodorus Baily and others have given notice of their intention to apply to the legislature of New York for an act to incorporate a bank with a capital of six millions of dollars. The title, in Pennsylvania, is proposed to be the American Bank, in New York, the Bank of America. Though it is not avowed that the application to be made to the legislature of New York, is to be made on behalf of the late directors, or present trustees of the late Bank of the United States, there seems no reason to doubt, though two incorporation are desired, these banks will, in fact, be "one and indivisible."
On March 27, 1812, N.Y. Governor Daniel Tompkins (1774-1825) prorogued the Legislature until the 21st of May; on account of corruption of members of the Legislature who applied for the charter of Bank of America. When the legislature reconvened, the bill passed and the incorporation was granted. In 1813 the legislature voted to relieve the bank from paying the promised $600,000 bonus to the State.
On March 19, 1813, the Pennsylvania legislature passed a law (an act to establish a general system of banking) to charter 25 new banks. Governor Snyder vetoed it. In March, 1814, the legislature passed another bill, authorizing the charter of 41 banks. On March 19 Governor Snyder vetoed it, too, but the legislature overrode the veto.
}
How could we exist without the blessings bestowed upon us by the Hamiltonites ?