How Benjamin Franklin's American Banking System caused the Revolutionary War
"Men don't change. The only thing new in the world is the history you don't know." - Harry S. Truman.
Our American story begins calmly enough, by the mid 1700s, the Colonies were well established and fairly prosperous, there was full employment, no income tax, and prices were generally stable. Benjamin Franklin wrote, "There was abundance in the Colonies, and peace was reigning on every border. It was difficult, and even impossible, to find a happier and more prosperous nation on all the surface of the globe. Comfort was prevailing in every home. The people, in general, kept the highest moral standards, and education was widely spread."
When Franklin traveled to London in 1763, he saw a completely different situation. "The streets are covered with beggars and tramps," he wrote. He asked his friends how England, with all its wealth, could have so much poverty among its working classes. They replied that England had too many workers! The well-to-do were overburdened with taxes, and could not pay more to relieve the poverty of the unemployed workers. In a meeting with merchants and bankers at the British Board of Trade, members asked Franklin how the American Colonies managed to collect enough money to support their poor. Franklin replied, "That is simple. In the Colonies, we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one." Both quotes from Charles Binderup, Ibid. "It passed through no banker's hands, but was loaned to the people direct, thus saving banking toll and banking restriction of volume; nor are there any panics or fluctuations recorded. Thomas Powell, M.P., of England, who had acted as governor and commander-in-chief of all provinces, in a book written by him in 1768, says in regard to this colonial system of money: 'I will venture to say that there never was a wiser or better measure, never one better calculated to serve the uses of an increasing country, and never was a measure more steadily pursued or more faithfully executed for forty years together than the loan office in Pennsylvania, formed and administered by the assembly of the province.'" Samuel Leavitt, Our Money Wars, 1894.
"Gold and silver are not intrinsically equal value with iron. Their value rests chiefly on the estimation they happen to be in among the generality of nations. Any other well-founded credit is as much an equivalent as gold and silver. Paper money, well-founded, has great advantages over gold and silver; being light and convenient for handling large sums, and not likely to have its volume reduced by demands for exportation." Benjamin Franklin.
"A legitimate government can both spend and lend money into circulation, while banks can only lend significant amounts of their promissory bank notes, for they can neither give away nor spend but a tiny fraction of the money the people need. When your bankers here in England place money in circulation, there is always a debt principal to be returned and usury to be paid. The result is that you have always too little credit in circulation to give the workers full employment. You do not have too many workers, you have too little money in circulation, and that which circulates, all bares the endless burden of unpayable debt and usury." Attributed to Benjamin Franklin - Ellen Brown and Reed Simpson, Web of Debt, 2008. The "endless burden" of debt-based money issued by banks hits the economic nail on the head. The difference is that a government can "spend" money into existence without debt. It enters the economy and circulates endlessly, facilitating trade. Banks, however, by their very nature, can only "lend" money and then they demand it back, with interest, actually decreasing the circulating money supply. In England, ALL the money in circulation was "lent" into existence by the privately-owned Bank of England, which collected interest on every pound and penny in circulation. However, unlike a real loan, the Bank of England didn't demand the return of its bank note money, it was content just to sit back and collect interest on it - year after year after year forever. The Bank lent the government the money it needed, in the form of paper bank notes and the government gave the bank an equal amount of interest-bearing government bonds as "collateral." The interest payments were made by taxing the citizens of England and her colonies, and the money continually flowed from the producers and workers, into the hands of the owners of England's bonds, the privately-held, Bank of England. This debt money system continually siphons the earnings of all of the producing classes and transfers it through the government - to the wealthy bankers in a manner few would recognize.
Realizing Colonial Scrip was cutting into their profits, the Bank of England demanded an end to the practice and pressed Parliament for the passage of the Currency Act of 1764. Franklin "...went before a committee of Parliament to answer a report of the Board of Trade, dated February 9, 1764, containing reasons for restricting the issue of paper bills of credit in America 'as a legal tender,' and, in his unanswerable argument against the restriction, he said: 'If carrying out all the gold and silver ruins the country, every colony was ruined before it made paper money. But far from being ruined by it, the colonies that have made use of paper money have been and are all in a thriving condition. ... Pennsylvania, before it made and paper money, was totally stripped of its gold and silver ... The difficulties for want of cash were accordingly very great, the chief part of trade being carried on by the extremely inconvenient method of barter; when, in 1723, paper money was first made there, which gave new life to business, promoted greatly the settlement of new lands (by lending small sums to beginners on easy interest, to be paid in installments), whereby the province has so greatly increased in inhabitants that the export from hence thither is now more than tenfold what it then was, and by their trade with foreign colonies they have been able to obtain great quantities of gold and silver to remit hither in return for the manufactures of this country." Freeman Otis Willey, Whither are We Drifting as a Nation, 1882.
"In 1763 the British Parliament declared all Colonial acts for the issue of paper currency to be void. 'Every medium of exchange,' said the British Board of Trade, 'should have an intrinsic value, which paper has not.' Dr. Franklin there and then exploded this bosh more than a century and a quarter ago though many parrots are still repeating it. 'However fit, (said Franklin) a particular thing may be for a particular purpose, whenever that thing is not to be had, or not to be had in sufficient quantity, it becomes necessary to use something else, the fittest thing that can be got in lieu of it. Bank bills and banker's notes are in daily use here (in London), as a medium of trade, yet they have no intrinsic value, but rest on the credit of those that issued them, as paper bills in the Colonies do on the credit of the respective settlements there." ... "Being payable in cash upon sight by the drawers is indeed a circumstance that cannot attend the Colony bills, their cash being drawn from them by the British trade; but the legal tender being instituted, is rather a greater advantage to the possessor, since he need not be at the trouble of going to a particular bank or banker to demand the money." Gordon Clark, Shylock: As Baker, Bondholder, Corruptionist, Conspirator, 1894.
The British Parliament apparently cared more for the Bank of England's argument than Ben Franklin's. The passage of Parliament's 1764 Currency Act forced the Colonies to use only British money Bank of England notes, and put the colonists squarely under the thumb of the British central bank, just like the citizens of England. The American colonists were forced to borrow all their money from the Bank of England and pay them interest, in order to conduct their business without resorting to barter.
With the loss of Colonial Scrip, there was a sharp decrease in the American money supply, resulting in an economic depression. Whenever the money supply of a nation is reduced, you invariably have a recession or, if severe enough, depression. You will see this principle in action again and again throughout our history. "I know of no severe depression, in any country or any time, that was not accompanied by a sharp decline in the stock of money, and equally of no sharp decline in the stock of money that was not accompanied by a severe depression." Milton Friedman, economist. Friedman's statement is as close to a hard truth as you can get in the (intentionally) mushy field of economics. He didn't discover it, it's not anything new, he's just repeating the obvious - It is axiomatic. It's the economics version of: "The sky is blue." We all know that if the money supply of a nation is INCREASED, we have inflation and prices rise. If you are an American, over the age of four, congratulations! - You have lived in inflationary times and have seen first-hand how this works. But, when you DECREASE the amount of money available, (and, as you'll see, there are several ways to do that), there are fewer dollars to go around and prices drop. If the economy of our nation consisted of ten bushels of wheat and our money supply was ten dollars, each bushel would be worth a dollar. If our money supply suddenly inflated to $20, each bushel would be worth $2 That's inflation. But if the money supply dropped to $5, each bushel would be worth 50 cents. That may sound good, it's cheaper, but everyone's debts and monthly bills remain the same. In this economy, you are most likely a wheat farmer and you are getting half as much money for your crop every year. However, you still owe the bank the same amount every month for your mortgage, you owe the same amount to the utility company for your electricity, you have to pay the same on your car loan, clothing, insurance, groceries, gas, ... Debts don't decrease just because the money supply falls. (They should.) You suddenly find that you cannot pay your bills and neither can your neighbors. Sure, you can cut down on some little things, and you will, but by doing that, everybody else relying on your spending for their livelihood, suffers too. Businesses fail, people become unemployed, foreclosures rise, and farmers and manufacturers get less money for their crops and products. A contracting money supply creates a downward, deflationary tailspin with its probable end - a nationwide Depression (with a capital "D.") Only the wealthy prosper. How? Because, by definition, they have money and can now buy your crops, products, farms, businesses, homes, land, and labor cheaper. - A whole lot cheaper. Sound like today?
"After Franklin gave explanations on the true cause of the prosperity of the Colonies, the Parliament exacted laws forbidding the use of this money in the payment of taxes. This decision brought so many drawbacks and so much poverty to the people that it was the main cause of the Revolution. The suppression of the Colonial money was a much more important reason for the general uprising than the Tea and Stamp Act." Peter Cooper, industrialist, inventor, philanthropist, and Presidential candidate.
"In an evil hour, the British Government took away from America its representative money, commanded that paper bills of credit should be issued no more and cease to be legal tender, and collected the taxes in hard silver. This was in 1763. Mark the consequences. The contraction of the circulating medium paralysed all the industrial energies of the people. Ruin seized upon those once flourishing colonies; the most severe distress was brought home to every interest and every family; discontent became desperation. In 1775 the first Congress was held in Philadelphia. In 1776 America became an independent state." John Twells, London Banker, Parliamentary Debates, Volume 80, 1895.
Franklin reported that one year after the implementation of the Currency Act that the streets of the Colonies were filled with unemployed beggars, just like in England. The amount of circulating money had been cut in half. Franklin stated that the British Currency Act was the true cause of the American Revolution - and not the tax on tea or the Stamp Act. Franklin wrote, "The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the prime reason for the Revolutionary War." Robert Lantham Owen, National Economy and the Banking System of the United States, 1939. The "Tea Party" of today unintentionally perpetuates the myth that American Colonists revolted because of a $1 per year tax on tea. We would all be better served following the true lead of our Founding Fathers and revolt against the curse of debt money, the evil monster currently running amok, destroying our nation and goring us taxpayers. As you will soon see, restoring the issuance of our nation's currency to the U.S. Treasury, as demanded by our Constitution, would be a simple cure and would quickly revive our ailing economy.
"The Bank of England has played a prominent role in American history Without it, the United States would not exist. The American colonists considered themselves loyal Englishmen to a man, but when they began to enjoy unequaled prosperity by printing and circulating their own Colonial scrip, the stockholders of the Bank of England went to George III and informed him that their monopoly of interest-bearing notes in the colonies was at stake. He banned the scrip, with the result that there was an immediate depression in the commercial life of the Americas. This was the cause of the Rebellion; as Benjamin Franklin pointed out, the little tax on tea, amounting to about a dollar a year per American family, could have been borne, but the colonists could not survive the banning of their own money." Eustace Mullins, The World Order, 1985.
"Our early history books strangely omit the facts that for some years prior to 1773 the British Parliament had busied itself annulling the laws under which the American Colonies had exercised their fundamental right to create and issue their own money. Much is said of Taxation without Representation, but what underlies that phrase is omitted. The fact that the Bank of England manipulators, having gained control over British industry through frequent depressions, cast their greedy eyes on the commerce and industry of America, and set to work to lay hold of the money of the Colonies and, hence, the industry of the Colonists." Gertrude M. Coogan, Money Creators, 1935.
"Sir, there are two passions which have a powerful influence in the affairs of men. These are ambition and avarice; the love of power and love of money. Separately, each of these has great force in prompting men to action; but when unified in view of the same object, they have in many minds the most violent effects." Benjamin Franklin, Memoirs, Volume 1, 1834. "The refusal of King George III to allow the colonies to operate an honest money system, which freed the ordinary man from the clutches of the money manipulators, was probably the prime cause of the Revolution." Attributed to Benjamin Franklin.
As the American economy progressed from bad to worse, many colonists ignored the British ban on their scrip. Various colonies, seeing the depression and destruction caused by a lack of money, reinstituted their scrip At great peril. "Says Jefferson: 'Before the 19th of April, 1775' the day succeeding the Battle of Lexington, 'I never had heard a whisper of a disposition to separate from Great Britain. The Colonies had not yet cut asunder the ties of allegiance to the Crown. The Continental Congress had sent a petition to the King denying any intention of separation from England.' But, although the Colonies were as yet uncertain of their course with respect to separation, there was no uncertainty with regard to their monetary system. This they had determined should be independent of the Crown and this determination they had expressed in overt acts that had long marked them as disaffected rebels and were now to mark them as outlaws. Lexington and Concord were trivial acts of resistance which chiefly concerned those who took part in them and which might have been forgiven; but the creation and circulation of bills by revolutionary assemblies in Massachusetts and Philadelphia, were the acts of a whole people and coming as they did upon the heels of the strenuous efforts made by the Crown to suppress paper money in America, they constituted acts of defiance so contemptuous and insulting to the Crown that forgiveness was thereafter impossible. After these acts there was but one course for the Colonies; to stand by their monetary system. Thus the bills of credit of this era, which ignorance and prejudice have attempted to belittle into the mere instruments of a reckless financial policy, were really the standards of the Revolution. They were more than this: they were the Revolution itself!" Alexander del Mar, The History of Money in America,1899. Noted historian Alexander del Mar tells us that, in spite of the taxes, and beyond the skirmishes with British troops at Lexington and Concord, it was the Colonists' legal tender monetary system that was the primary cause of the Revolutionary War. "Thus the bills of credit of this era ... were really the standards of the Revolution. They were more than this: they were the Revolution itself!" The Colonists, seeing first-hand how the English debt-money had so quickly destroyed their growing economy, resumed printing their legal-tender scrip. Printing their own colonial money, thereby defying the laws of the most powerful nation on earth, was indeed a revolutionary act.
"When Great Britain commenced the present war upon the colonies they had neither arms nor ammunition, nor money to purchase them, or pay soldiers. The new government had not immediately the consistence necessary for collecting heavy taxes; nor would taxes that could be raised within the year during peace have been sufficient for a year's expense in time of war; they therefore printed a quantity of paper bills each expressing to be the value of a certain number of Spanish dollars, from one to thirty. With these they paid, clothed, and fed their troops; fitted out ships and supported the war during five years against one of the most powerful nations of Europe."Benjamin Franklin. Some Colonists accepted this paper money without problem, some, more loyal to the King, were coerced by law: "... any person who shall hereafter be so lost to all virtue and regard for his country as to refuse to receive said bills in payment, or obstruct and discourage the currency or circulation thereof, and shall be duly convicted ... shall be deemed, published and treated as an enemy of his country, and precluded from all trade or intercourse with the inhabitants of those colonies." Continental Congress Journal. Talk about being cut-off! No trade or intercourse with the other Colonists. Now that's what I would call a stiff sentence.
"By the time the first shots were fired in Lexington and Concord, Massachusetts on 19 April, 1775, the colonies had been drained of gold and silver coin by British taxation. Consequently, the Continental government had no choice but to print its own paper money to finance the war. At the start of the Revolution, the American colonial money supply stood at $12 million. By the end of the war, it was $500 million. This was partly a result of massive British counterfeiting. Consequently, the currency was virtually worthless. Shoes sold for $55,000 a pair." Alexander del Mar, historian and first Director of the U.S. Bureau of Statistics, 1866-69. "It is a fact too well authenticated to admit of dispute that (British) Gen. Howe aided the making and uttering of counterfeit Continental bills. In the same newspaper, in New York, in which the British official documents were printed, there were also printed advertisements proposing to supply counterfeit money to persons going into other colonies, so nearly and exactly executed that no risk attended their circulation." Alexander del Mar, The History of Money in America, 1899.
In 1776, the British brought a printing press out the H.M.S. Phoenix, moored in the New York harbor, and started printing up "Continentals" the illegal, legal-tender money of the Colonies. They distributed these to Colonists loyal to the Crown who dutifully spent them - For the times, a very innovative strategy. These New York newspaper ads, in addition to being blatantly ballsy and letting the American rebels know they were but gnats in the eyes of England, had the added effect of planting seeds of doubt in the minds of the colonists as to the validity of all their money. Soon, Washington had a hard time purchasing supplies for his troops and the phrase, "Not worth a Continental," entered the American lexicon. "A wagon load of money will scarcely buy a wagon load of provisions." General George Washington.
The paper Continentals issued by the colonists promised to pay a few years after the war their face value plus interest in "Spanish milled (silver) dollars." "The fulfillment of these promises was impossible. They were made in good faith and with the hope of speedy success for the American army. For a year, the bills circulated at par with silver, and in their third year the premium on the coin was only seventy-five percent. But, as the struggle continued, the people came to realize the huge joke of attempting to redeem, in 'Spanish milled dollars,' an amount of paper, genuine and counterfeit, calling for more than fifty times the whole sum of coin in the country, and counting interest, three or four hundred times the sum of coin specified in the promises. Still, the paper circulated; and the determined, patriotic people kept passing it from hand to hand, as it went down, buying and selling with it receiving it for something until 1781. It then sank out of sight at a depreciation of five hundred per cent, but 'with indulgence for its memory,' said Jefferson, 'as a thing which had vindicated the liberties of the country' and 'fallen in the moment of victory.'
"In other words, the American people came to regard the loss on Continental money a loss borne by the whole of them as a general tax on their property, to secure American independence. Thus the losers were not cheated. It was they, in fact, who insisted on letting their losses go, and would sanction no attempt to recover them. Congress did its best to fulfill its pledges, but the people laughed away every effort to fund or redeem the currency, and 'barbers papered their shops with it.' For once we got the better of the British bullionists and counterfeiters." Gordon Clark, Shylock: As Banker, Bondholder, Corruptionist, Conspirator, 1894. "Continental money expired without a single groan. Not a murmur was heard among the people. On the contrary, universal congratulations took place on their seeing the gigantic mass, - whose dissolution had threatened convulsions which should shake their infant confederacy to its centre, - quietly interred in its grave." - Thomas Jefferson.
"In 1764 the prohibition against issuing their money was extended to all the colonies. It then became mandatory for all the colonies to borrow their money into circulation at huge interest rates. It is probable that these acts were more responsible for the Revolution than any other factors. Many of our founding fathers were keenly aware of the problem this debt money created and this is one of the principle reasons why our Constitution so clearly provided for an honest money system. Article 1, Section 8, Par. 5 of the Constitution provides that 'Only Congress shall have the power to coin money and regulate the value thereof.'"June Grem, The Money Manipulators, 1971. "Fortunately, for Americans and for the entire world, the founders of this country, the authors of the Constitution of the United States, knew well the supreme importance of a scientific and honest money system. Farsighted and intelligent, they took the enormous precaution of placing the power to coin money and regulate its value, with Congress alone. That power is the greatest power inherent in any people who constitute a civilized nation, because with money we make our exchanges of goods and services. The founders of this nation, being learned men, knew well the effects of allowing money creation to be made a privilege and function of private individuals. The phrase 'to regulate the value thereof' gives power to control the purchasing power of all money in the nation. Wide and sudden gyrations in the purchasing power of money have been the direct cause of more human misfortune and suffering than any other single force in the experience of civilized peoples. To entrust that power to private individuals gives them controls which can actually jeopardize the welfare of every individual in a nation." Gertrude M. Coogan, Money Creators, 1935.
Unfortunately, what we continually learn from history is that we fail to learn from history. Today, we Americans borrow every single dollar into circulation from private bankers - just like pre-Revolutionary War colonists had to do with the Bank of England. This "borrowed money" is termed, "debt money" and as you can imagine, the interest costs that are generated by borrowing every single dollar in the U.S. economy are staggering. Go get your wallet, I'll wait... Now, pull out some Federal Reserve Notes and look at them. Every dollar you have there is money that is owed, with interest, to the Federal Reserve Bank. I know, you think you own that dollar free and clear You don't. If you pay income tax, you pay an annual interest, not only on the dollars in your hand, but on every dollar in circulation, whether physically printed on paper, or floating in the ether as an electronic computer digit. Remember, the Bank of England lent every pound and penny into circulation in England and, unlike a real "loan," didn't demand it back The Bank was content to sit back and collect the interest year after year after year - forever. Same here. This debt money interest is the principle reason why we have to pay Federal Income Tax. Imagine, for a minute, what your personal economic situation would be like if you didn't have to pay most of your income tax. If you are a worker, take a look at your pay stub or refer back to last year's federal income tax filing. Imagine keeping those hundreds, thousands, or tens of thousands of dollars for your own use. Most of what you pay approximates the annual price for your "privilege" of using debt money. If you want to cut your taxes, look here. As Franklin pointed out and as we saw, there is an alternative and the economic life of the American Colonies before and after the advent of debt money illustrates just how dramatically these two systems can influence our nation's welfare. Recall his story as you contemplate today's economy. Our forefathers saw first-hand how the bankers' giant debt money leech sucked the life out of their struggling economy and they wanted no part of it. They were willing to FIGHT and they were willing DIE so that their children and their children's children would not have to suffer under its continual, intolerable burden - Such was the magnitude of their disgust. How do you think they would feel, knowing that we chose to ignore their sacrifice and shackled ourselves - slaves to debt money? Was debt money the only reason for our Revolutionary War? Of course not. Was it an extremely important factor? Yes. Did you learn about it in school? No. Why not?
Our Founding Fathers stipulated in Article 1 of our Constitution that, "Only Congress shall have the power to coin money and regulate the value thereof." Also, and equal in importance: "No money shall be drawn from the Treasury but in consequence of appropriations made by law." This put the creation of money exclusively in the hands of the U.S. Treasury and its issuance, strictly controlled by Congress. Period. These concepts were so important that they were in Article 1 of our Constitution! Top billing! Page one! Unbelievably, the Founding Fathers even used highlighter pens to let future generations know how important this section was. Unfortunately, now, no one can tell because the whole thing turned yellow with age. Apparently, God feels that the entire document is important. Anyway, nobody seemed to notice Article 1, and now we have that private banking corporation, the Federal Reserve System, lending us our own money debt money - and even telling us how much of it we can have and how much interest we have to pay them. Where is Congress in all this? Where's the Treasury? Is our Constitution so old, brittle, yellow, and feeble that it no longer matters? Does it still form the living bone and sinew of the body of our great nation or is it now functioning simply a tourist attraction and as the basis for meaningless questions on your child's history test?
Our Forefathers fought a bloody, bitter war to stop the injustice of debt money, money that carried the burden of interest payments, and with instructions clearly noted in Article 1 of the foundational legal document of our nation the Constitution of the United States - I'm sure they thought that this issue was well taken care of that there was nothing to worry about nobody would ever be stupid enough to try that again. Let me ask you again: You've just read the words of Benjamin Franklin, Thomas Jefferson, and later historians and now understand how important a debt-free money system was to our Founding Fathers in fighting the Revolutionary War and in the framing of our Constitution. Had you ever at any time in your life heard this story? I'm sure, as a child, you were told about the $1 per year tax on tea over and over again as a deflection from the truth of the matter, but had you ever learned that our nation's currency was debt money? Or that you have to pay interest on the money in your wallet? Or that a good portion of your personal income tax goes to pay the interest on this debt money? Here's the follow-up question again, for extra points: Why? Unbelievably and unfortunately, the Bank of England's debt money system is exactly what we have in America today and, just like in the past, the interest payments are sucking the vitality right out of our economy. What happened? How did we get back to the same stinking situation our Founding Fathers fought so valiantly to end? So ends Chapter 1 of Vile Acts of Evil - Banking in America. Watch for more.