The NEED Act (HR2990): REAL Monetary Reform
(as envisioned by the majority of founders)
The subject of how our nation's money should be created has been a major, if heavily resisted and highly propagandized, subject of discussion ever since the colonies discovered that they could issue their own money to the benefit of everyone. Each colony, and even private business entities, issued their own notes, or bills of credit, which served as money. The value of these various notes (like that of gold and silver coins) could fluctuate from one year to the next and from one colony to the next, depending on how well the currency in question was managed. As a result Britain intervened and for a time banned the colonies from issuing scrip as money.
Despite the currency havoc that existed within and between certain colonies, it must of course be noted that many colonies issued their own currencies with great success, and little or no inflation. Gold, and more predominantly silver was used mostly in international exchange and the values of each could and did fluctuate. Profiting from the old "east/west" gold/silver ratio, noted by Stephen Zarlenga in his book , was an important underlying factor in fluctuations in coin and currency valuations. In the colonies, the value of silver coin was controlled directly by Britain and indirectly by the international trade merchants. The relatively common practice of coin clipping also altered the exchange value of circulating metallic coins. In addition, coins could be melted down to bullion when stamped valuations of coins went below that of bullion.
At the time of the Revolutionary War, the Articles of Confederation gave the Continental Congress power to issue U.S. money, but not the power to regulate it as the individual colonies were able to do (when they so chose). While the Continental Congress issued Continentals, the colonies also issued their own disparate currencies, the sum total of which was commensurate with that of the Continentals. The problem with these individual currencies, unlike the Continentals, is that they were not always accepted by neighboring colonies, and if they were, their stamped valuations were not uniformly honored. Britain added to this monetary chaos by pumping out about one billion dollars worth of counterfeit Continentals, and advertising their availability on broadsides.
All these factors contributed to a growing lack of faith in all colonial money, which James Madison addressed in his 1779 "Report on Money" in which he correctly asserts that the value of a state (or nation's) money is dependent upon “the credit of the state issuing it,” which is to say the willingness of the state to pay its bills in a timely and honorable fashion. Moreover, his discussion of the much maligned Continentals accurately asserts that one key reason for their decline in value had to do with growing distrust of the public credit, caused by “a combination of enemies employing every artifice to disparage [the currency].”
It was the massive problems created by the "competing currencies" that then existed within the colonies that pointed the way to the need for a sovereign money power that included the ability to "regulate the value" of said currency as was eventually expressed in the Constitution.
The monetary chaos at the outset of the Revolutionary period was of course known to the Continental Congress, and in 1776 Thomas Jefferson was asked to submit a revised report on the monetary situation of the colonies, then in considerable disarray. That report was tabled until 1782 when Congress asked Robert Morris to submit his own report. Uninvited, Jefferson made his own contributions anyway - and many of his ideas were adopted and remain with us today, including the concept that Money is an abstraction and not a "thing".
In the years prior to and at the time of the Constitutional Convention, Jefferson was serving as Ambassador to France between the years of 1784 and 1789. It was in 1786, while still in France, that he helped author Jean Nicholas D'meunier write a section on the United States for D'meunier's portion of the . Jefferson echoes Madison's statement that a state's (or a nation's) money is dependent on the credit of the state (or nation) issuing it when he replies to D'meunier's questions concerning bills of credit. Jefferson writes that wherever state legislatures "laid taxes to bring in money enough for that purpose, and paid the bills punctually . . . paper money was in as high estimation as gold and silver." And then, in response to another question he writes: “Those who talk of the bankruptcy of the U. S. are of two descriptions. 1. Strangers who do not understand the nature & history of our paper money. 2. Holders of that paper-money who do not wish that the world should understand it.”
It is widely known that Jefferson, Madison, Randolph, John Taylor of Caroline and the yeoman farmers - then in the clear majority - argued strongly against the creation of the First National Bank, especially as the means by which the nation's currency would be provided. On December 24th, 1789, Pennsylvania Senator William McClay, for example, wrote in his journal: "Yesterday the Secretary of Treasury's Report (Hamilton) on the subject of a national bank was handed to us, and I can readily see that a bank will be the consequence. Considered as an aristocratic engine, I have no great predilection for banks. They may be considered, in some measure, as operating like a tax in favor of the rich, against the poor, tending to the accumulation (of money) in a few hands; and under this view may be regarded as opposed to Republicanism."
Despite majority opposition, the First National Bank was chartered for a period of twenty years, with one of its primary functions being that of creating the nation's currency at interest. In 1794, John Taylor of Caroline remarked on this problem, in words strikingly similar to McClay's years before: "banking [as originator of the national currency] in its best view is only a fraud whereby labour suffers the imposition of paying interest on the circulating medium."
During his presidency, Jefferson was forced to watch as dozens of states banks entered the "money" creation business by issuing bank notes with interest attached, which had the effect of unduly expanding the nation's "money" supply. His hope was that the states would put the cabash on allowing these banks to issue their notes as currency and begin petitioning Congress to issue Treasury notes. But it never happened.
Meanwhile, Jefferson focused his attention on paying down the Federal debt and formulating a national internal improvements program. At the same time he continued to find ways to speak out against the systemic problems associated with allowing the banking system to create the nation's currency - which included the fractional reserve deposit expansion system, about which he succinctly declares in an 1813 letter to his son-in-law John Eppes: No one has a natural right to the trade of a money-lender, but he who has the money to lend.
Even after his presidency, Jefferson - like many others - was hardly silent on the subject of "bank paper" which he and others knew full well "would undo us". He also wrote numerous letters to his former Treasury Secretary Albert Gallatin, and his son-in-law John Eppes, then a leader in Congress, on the subject of Constitutional money, which he held to be Treasury Notes, bottomed on a tax which would redeem them. These notes he said should provide the circulating medium of the country.
In one letter to his son-in-law John Eppes, then head of the powerful House Democrat-Republicans, dated November 6, 1813, Jefferson discusses the reasons for his opposition to the proposed Second National Bank. In his conclusion, Jefferson writes:
It was for political reasons extant in 1813 that Jefferson recommended issuing interest-bearing Notes first as a means of getting the public accustomed to such currency, after which non-interest bearing Treasury Bills (or Notes) would be issued as the national currency. The reasoning behind this approach was described in an earlier letter to Eppes, dated July 24, 1813 as follows:
Unfortunately, Congress did issue these interest-bearing notes in small amounts many times over the next several decades, which as Jefferson clearly understood from experience, would be hoarded or used for various profiteering schemes whenever opportunities or circumstances presented themselves. However, it was not until the Civil War - and then only for a very brief period of time - that the Congress finally did issue significant amounts of non-interest bearing legal tender Treasury Bills (or Notes), which Jefferson had correctly declared should be the circulating medium of the country.
As a result of the massive efforts of the Jeffersonians, the charter for the First National Bank was allowed to expire. Unfortunately, several factors, including Congress's own failure to sufficiently heed President Madison's call for Treasury Notes together with some machinations of what John Hancock and John Adams had many years earlier called the Essex Junto, combined to cause the Second National Bank to be signed into law during Madison's administration and with Jefferson's grudging approval.
This Bank, after an inauspicious beginning, managed to provide a functioning and stable national currency even as it served the financial needs of the government, and it did so at a modest profit to the government (although the borrowers - and through them, the citizenry as a whole - were forced to in effect pay a hidden tax in the form of interest charges on their newly created "debt-money."). This Bank hit a major roadblock when Jackson and his advisers began to erroneously claim that gold was money, and demanded an end to the Second National Bank.
In 1831 Albert Gallatin wrote a paper called Banking and Currency, in defense of the Second National Bank as being a reasonable method by which to regulate the nation's currency. In the following passage he provides some insight into the deleterious effect of the "competing currencies" (in the form of bank notes) of the State Banks:
A few years later, in 1836, Albert Gallatin, now become a New York banker, again commented on the results arising out of Jacksonian policies:
The Second Bank as we all know met its demise under Andrew Jackson, and the resulting panic of 1837 caused a self-made merchant by the name of Edward Kellogg to devote himself to a study of international finance after his business had been ruined by Jacksonian monetary policies. Kellogg understood that currency was not a commodity but a creature of law and he began to write extensively on the subject. His writings influenced others - including Henry Carey, who was Lincoln's economic adviser, under whose administration and for the first time in the nation's history, non-interest bearing legal tender Treasury notes were issued in quantities sufficient enough to carry the Union through the Civil War.
Meanwhile the South installed the same kind of money system that had been practiced in the colonies, with each state and many local municipalities and even merchants issuing their own particular brand of currency along with that issued by the Confederate government. Not surprisingly, this experiment also proved to be a monumental failure. The monetary system collapsed and the War left the South in economic ruins, paving the way for the unspeakably brutal crop lien system. Out of this deplorable system eventually sprang the Populist or People's party, which had as one of its planks government issued non-interest bearing Treasury Notes - or U.S. money, similar to that of the short-lived Green Back Party formed shortly after the Civil War.
The Bull Moose party in 1912 had a currency plank similar to that of the Greenback Party and the Greenback Party's successor, the Populist/People's Party, as part of its platform. And in the 1930's another prestigious monetary reform group was formed. This group included many top economists such as Henry Simon and Irving Fisher among its ranks. Also on board was none other than Robert Owen, who had been co-sponsor of the Federal Reserve Act, which he later revealed had been tweaked at the last moment to remove the debt-paying power of the U.S. dollar.
Since that time, many Congressman, economists, researchers and even clergymen have toiled to bring both the issue of proper Constitutional monetary reform as well as the monumental problems associated with allowing the banking industry to create the nation's currency to the public's attention.
Today, for the first time in the nation's history, we have before us a beautifully designed bill that includes the necessary elements for long term success of a stable and truly "democratic" currency - elements which have been missing from previous attempts and demands for monetary reform. This bill, known as the NEED Act or HR 2990, was introduced in 2011 by former Congressman Dennis Kucinich and co-signed by John Conyers.
The struggle to get proper Constitutional money into circulation has been long and difficult, to be sure, but the road map put before us through the NEED Act means that such reform is now truly within our grasp if we choose to make it happen.
You may read more at the American Monetary Institute.