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ECONOMIC LIBERTY

By Attorney Lowell (Larry) Becraft, Jr.

October 14, 2008

NewsWithViews.com

Sir Josiah Stamp, a former president of the Bank of England, is

reputed to have said:

"Banking was conceived in iniquity and was born in sin. The

bankers own the earth. Take it away from them, but leave them the power to

create money, and with the flick of the pen they will create enough deposits

to buy it back again. However, take it away from them, and all the great

fortunes like mine will disappear and they ought to disappear, for this

would be a happier and better world to live in. But, if you wish to remain

the slaves of bankers and pay the cost of your own slavery, let them

continue to create money."

Is this statement true? Do we confront this problem today? I say

“yes,” and let me explain.

In times like these in the Fall of 2008 with abundant evidence of an

economic crash coming down on our heads, the lessons of history regarding

monetary debacles of the past are educational, and indeed very important.

One history lesson comes from France. John Law’s paper money experiment

there in the 18th century spanned but a few years during its rise and fall,

yet those events offer an abject lesson about the social destruction

resulting from the use of paper money: France was economically and morally

destroyed.

But, we need not focus on European tragedies because there are several

historical American examples of paper money experiments, some little known,

that were equally as destructive. For example, the Revolutionary War was

financed by a flood of Continental currency that rapidly depreciated in

value until it became worthless. The prostrated economy of young America was

a catalyst for assembling in Philadelphia the convention that drafted the

present U.S. Constitution. That Constitution as understood at the time

mandated a specie currency as a medium of exchange, and the result of this

monetary correction was a revived, vibrant economy.

Those who wanted to establish banking here in this country were hard

at work as the Constitution was being ratified. The reader is directed to

William Gouge’s excellent work, A Short History of Paper Money and Banking,

for a detailed explanation of some of the tragic, horrendous events that

happened in those early days of the banking business in our country,

including the following:

“The bankruptcy of some of the New York moneyed corporations

revealed secrets to the public which led to a legal investigation, and as it

is always the practice of the world to punish unsuccessful villainy, some of

the concerned were severely dealt with. Previous to passing sentence on

them, Judge Edwards made the following observations: ‘During the trials

which have taken place at the present term of this court, we have witnessed

displays of depravity on the part of the agents of moneyed institutions of

the most appalling nature. As common as crimes are in all great cities, yet

this community was not prepared to expect from the class of society to which

the perpetrators of the crimes belonged, a burst of such iniquity. Their

offences have been characterized by breaches of official and personal

confidence; by a course of misrepresentation and deception systematically

pursued, and by injurious and crafty devices which no ordinary prudence

could guard against. Nor was this all. Among the actors in those scenes were

some of the principal agents in the management of moneyed institutions, and

they have been found actually combining and conspiring together for the

accomplishment of their nefarious purposes. From combinations of men of so

much talent, availing themselves of their high standing, it is not

surprising that they should have swept society with the besom of

destruction. When crimes of such character, attended with such destructive

consequences abound, it behooves the tribunals of justice to gather

themselves up to meet the occasion, and to extend, as far as in them lies,

the protecting arm of the law."

On February 25, 1791, Congress chartered the first Bank of the United

States. See 1 Stat. 191, ch. 10. Incidentally, the War of 1812 happened

after the first Bank’s demise. The second Bank of the United States was

created on April 1, 1816, with a 20 year charter. See 3 Stat. 266, ch. 44.

These banks were no different from the others discussed in Gouge’s work and

earned the enmity of Andy Jackson, New Orleans’ hero. This great Tennessean

was elected President in 1828 and, as a mortal enemy of the second Bank, was

instrumental in having Gouge’s work published. Nicolas Biddle was then

president of the second Bank of the United States, the charter of which was

to expire in 1836. Four years before the charter was to lapse, Biddle chose

to ask Congress for a charter extension, which resulted in a political

battle with President Jackson. Congress approved and sent its bill to

re-charter the Bank to President Jackson on July 4, 1832, but he vetoed that

bill the following week. Congress lacked the votes to override that veto,

and the bank was doomed.

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In the time leading up to that important Congressional vote and for

several years thereafter, Biddle deliberately contracted the supply of the

Bank’s paper money notes to cause tragedy and ruin for American businesses

and families. In addressing other misdeeds of Biddle’s bank, the book Coming

Battle relates:

“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 stockholders, on the completion of this investigation,

instituted a suit against President Biddle in the United States circuit

court at Philadelphia, for the sum of $1,018,000 expended by him for which

no vouchers could be found.

“It was further demonstrated that, from 1830 to 1836, during the

struggle of the bank for a new lease of corporate life, loans, aggregating

more than $30,000,000, were made by its president to members of Congress,

editors of newspapers, politicians of all grades, jobbers and brokers,

mostly without security.

“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.”

The paper money experiment of John Law demonstrates the serious

deficiencies of using paper money as a medium of exchange and the harm that

results when it collapses. The pattern evident in that French event has been

followed by many others, such as the hyper-inflation of the Weimar Republic

after WWI, and the present hyper-inflation occurring today in Zimbabwe. The

battle between President Jackson and Biddle’s second Bank of the United

States demonstrates that the people can triumph against the banking beast.

If they don’t, Thomas Jefferson’s warning about banks can become a reality:

“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 properly

belongs.”

What we use today as money, our medium of exchange, is basically an

empty promise, created in the same fashion as the banknotes of the “wildcat

banks.” Before the Civil War, a small reserve of gold and silver coins could

support a multiple of that amount in outstanding bank notes. With a mere

reserve of $10,000 in coin, a banker could issue a circulation of $30,000,

$50,000, perhaps $100,000 in outstanding banknotes. But often, these banks

failed in a few years, to the harm of those who dealt with them, depositors,

borrowers and customers alike. To “remedy” the problem of the “wildcat

banks”, the National Banking Act of February 25, 1863, 12 Stat. 665, ch.

58, was enacted; it created national banks and permitted “legal tender

Treasury notes” to be used as reserves.

The Federal Reserve Act, 38 Stat. 251, ch. 6, was enacted on December

23, 1913, and it expanded the banking scheme first set by the National

Banking Act. With this system in place in time for WWI, the federal

government had a ready buyer for its bonds needed to finance that war.

Shortly after WWI, the Federal Reserve Board met and agreed upon a

deliberate contraction of the “credit supply,” consequently crushing

American agriculture and a great many rural banks. This was followed by a

currency expansion during the “roaring twenties”, which ended with a

currency contraction starting in October, 1929, the results of which are

known to most thinking Americans.

Today, the monetary unit we use as currency is the Federal Reserve

Note (“FRN”). Our present-day banks operate no differently from the banks of

the early or mid-19th century, and bank reserves are at best a pile of FRNs.

But most often, bank reserves are nothing but deposits (bookkeeping entries)

held by the banks at one of the Federal Reserve Banks. These reserves

support a multiple of outstanding “notes,” which today are nothing but

bookkeeping entries that we keep in our checking accounts. We assign or

transfer these monetary claims we have against banks to somebody else when

we write a check. Thus the basic monetary unit, the FRN, supports many

multiples of outstanding credit, represented by computer bookkeeping

entries. Most likely, FRNs constitute less than 3% of our money supply. But

furthermore, since all of this credit is “borrowed” into circulation, the

system is designed to transfer wealth to bankers since aggregate social debt

exceeds the amount of credit in circulation.

Credit, the vast bulk of our “money” supply, is defined by 12 C.F.R. §

226.2, as “the right to defer payment of debt, or to incur debt and defer

its payment”; essentially, credits are thus mere promises. When an American

borrows money from a local commercial bank, that bank merely credits the

borrower’s checking account with a bookkeeping entry. That borrower then via

checks drawn on that account transfers various amounts of that credit in his

account to somebody else. Whatever you have in your present checking account

was originally the proceeds of a loan from some American commercial bank, or

the proceeds of governmental borrowing.

In essence, more than 97% of our money supply is nothing more than the

credit promises of our private commercial banks. Simply put, this money

supply does not exist as anything more than empty numbers, ephemeral legal

claims or worse, just a concept. All of this credit is economically unified

so that just a few powerful men can make a decision to either expand or

contract the amount of outstanding bank credit. Carefully timed contractions

of the credit supply are the “harvest” for this monetary mechanism. Some of

our fellow Americans are credit wolves, preying upon other innocent

Americans.

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The American economy was vibrant and growing in the early 1830s and

there were no natural impediments to further growth. Yet in those years, the

American economy was harmed through no fault of its own, but instead by the

actions of Nicolas Biddle, who deliberately, willfully and maliciously,

intending grievous harm, contracted the supply of bank notes. Similarly, the

American economy after WWI was poised for natural and healthy growth. By

that time, the power of Biddle was possessed by a small group of men on the

Federal Reserve Board, and in May, 1920, they agreed to deliberately

contract the money supply, bringing ruin to many. The “business cycle” is

really a banking cycle, which expands and contracts business activity on its

own terms. The noted economist Milton Friedman has criticized this banking

cycle in this fashion:

"The power to determine the quantity of money...is too

important, too pervasive, to be exercised by a few people, however

public-spirited, if there is any feasible alternative. There is no need for

such arbitrary power ... Any system which gives so much power and so much

discretion to a few men, [so] that mistakes - excusable or not - can have

such far reaching effects, is a bad system. It is a bad system to believers

in freedom just because it gives a few men such power without any effective

check by the body politic - this is the key political argument against an

independent central bank."

Perhaps an excellent description of this monetary system appears in

the Supreme Court’s decision in Thorington v. Smith, 75 U.S. 1 (1869), a

case that concerned the validity of the Civil War Confederate currency.

There, the Court described that currency in the follow fashion:

"As contracts in themselves, except in the contingency of

successful revolution, these notes were nullities; for, except in that

event, there could be no payer. They bore, indeed, this character upon their

face, for they were made payable only 'after the ratification of a treaty of

peace between the Confederate States and the United States of America.'

While the war lasted, however, they had a certain contingent value, and were

used as money in nearly all the business transactions of many millions of

people. They must be regarded, therefore, as a currency imposed on the

community by irresistible force," Id., at 11.

"Considered in themselves, and in the light of subsequent

events, these notes had no real value, but they were made current as dollars

by irresistible force. They were the only measure of value which the people

had, and their use was a matter of almost absolute necessity. And this use

gave them a sort of value, insignificant and precarious enough it is true,

but always having a sufficiently definite relation to gold and silver, the

universal measure of value, so that it was always easy to ascertain how much

gold and silver was the real equivalent of a sum expressed in this

currency," Id., at 13.

How different is today’s FRN from Confederate currency?

The present American economy is thus completely dependent on a

monetary system created and operated by private commercial banks, whose

unified voice speaks through the Federal Reserve System, and whose “reserve

currency” is no different from Confederate currency. As of this moment, this

system is crumbling, either as the result of accident, or the malevolent

decisions of men controlling this system. Are Americans left without any

remedy and destined to have their lives ruined with no recourse?

The United States Constitution contains several express monetary

provisions. Via Art. 1, §8, Congress is granted the power to coin money and

regulate its value. The States, pursuant to Art. 1, § 10, cannot make

anything other than gold and silver coin a tender in payment of debts. Does

Congress have some constitutional duty to establish a monetary system that

works for the benefit of the American people rather than vested financial

interests?

In United States v. Marigold, 50 U.S. 560, 567-68 (1850), the Supreme

Court was confronted with the matter of whether certain federal laws making

penal the counterfeiting of coins was constitutional. Here, the Court

clearly explained the monetary duties of Congress:

"They appertain rather to the execution of an important trust

invested by the Constitution, and to the obligation to fulfill that trust on

the part of the government, namely, the trust and the duty of creating and

maintaining a uniform and pure metallic standard of value throughout the

Union. The power of coining money and of regulating its value was delegated

to Congress by the Constitution for the very purpose, as assigned by the

framers of that instrument, of creating and preserving the uniformity and

purity of such standard of value * * *.

"If the medium which the government was authorized to create and

establish could immediately be expelled, and substituted by one it had

neither created, estimated, nor authorized – one possessing no intrinsic

value – then the power conferred by the Constitution would be useless –

wholly fruitless of every end it was designed to accomplish. Whatever

functions Congress are, by the Constitution, authorized to perform, they

are, when the public good requires it, bound to perform; and on this

principle, having emitted a circulating medium, a standard of value

indispensable for the purposes of the community, and for the action of the

government itself, they are accordingly authorized and bound in duty to

prevent its debasement and expulsion, and the destruction of the general

confidence and convenience, by the influx and substitution of a spurious

coin in lieu of the constitutional currency."

Has not a powerful monetary consortium, by stealth, conniving and who

knows what else, replaced Constitutional currency with another currency no

better than Confederate “money”? Has not this consortium used its wiles to

persuade Congress to ignore its constitutional duties to the American

public? I say this has happened, to our great detriment.

On Friday, October 3, 2008, Congress and the President rescued our

banking and currency system by authorizing more than 700 billion bux in

public debt to be used to purchase non-performing assets from private

commercial banks for the purpose of “thawing” frozen credit. The real wealth

represented by this amount is astronomic: news reports declare that this

amount equals the value of all homes in several large States. This amount,

in conjunction with the amount of “bux” the Fed has created in recent weeks

and dumped into the “system,” conservatively approaches 10% of our annual

GDP. This problem arises not, however, from the defects in the real American

economy, but instead from the inherent instability of fractional reserve

banking. This new law fails to remedy this banking flaw and only makes it

more profound. What if this amount of real wealth had been used, instead, to

provide a real monetary system beneficial to the American people? In these

troubling times, wouldn’t it be better if Congress actually performed its

duties expressed in United States v. Marigold, supra, and provided the

American people with an existing, valuable currency, a real “dollar” instead

of a fake? When this was done back in the 1790s, prosperity returned to

America.

© 2008 Lowell Becraft - All Rights Reserved

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Lowell (Larry) Becraft, Jr., is a constitutional attorney based in

Huntsville, Alabama, who specializes in criminal defense cases, primarily

involving the federal income tax. His legal web site is:

http://home.hiwaay.net/~becraft/
 

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