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 sometimes 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. Under this pretext Britain (at the behest of the British East India Company) intervened and for a time banned the colonies from issuing scrip as money.
Despite this, it must of course be noted that many colonies issued their own currencies with great success, and little or no inflation. Not only that but these bills of credit helped create general prosperity at levels within the Colonies that were then unknown in Europe. 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 by Britain through the international trade merchants of the British East India Company who were given the right to coin Britain's money. 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.
As related by America's greatest monetary historian Alexander Del Mar, the reason that Britain surrendered its State prerogative to coin money to the British East India Company had to do with the then world-famous Mixt Moneys case of 1604 which held that "Money was a Public Measure, a measure of value, and that, like other measures, it was necessary in the public welfare that its dimensions or volume should be limited, defined and regulated by the State. As related by Del Mar, the whole body of learning left us by the ancient and renascent world was invoked in this celebrated dictum: Aristotle, Paulus, Bodin and Budelius were summoned up to its support: the Roman law, the common law and the statutes all upheld it: 'the state alone had the right to issue money and to decide of what substances its symbols should be made, whether of gold, silver, brass or paper. Whatever the state declared was money, was money.'”
The Mixed Moneys Case of 1604 alarmed the merchants of London – many of whom were shareholders in the East India Company - so much that they occupied themselves for more than half a century to defeat its operation. Resorting to bribery and other forms of subterfuge, they succeeded with the passage of the Mint Act of 1666. One of the main arguments for passage of this act was supplied by merchants of the British East India Company who were anxious to ship silver to India in exchange for gold, affording a profit of cent per cent.
Del Mar states that this “free coinage” law of 1666 effectively “altered the monetary systems of the world and laid the foundations for the metallic theory of money. The specific effect of this law was to destroy the Royal prerogative of coinage, nullify the decision in the Mixt Moneys case and inaugurate a future series of commercial panics and disasters which down to that time were totally unknown."
Del Mar continues by saying that when England enacted the law of 1666 it not only surrendered the State prerogative of money into private hands thereby nullifying the decision of 1604 in the Mixt Moneys case, but it thus enabled the merchants of London – many of who were shareholders in the East India Company - to increase or lower the stock of money in the kingdom and so to raise or lower prices, at pleasure. Whenever they desired to raise prices, they had only to deposit their bullion at the mint for coinage and, when coined, to loan it out freely, which they took care to do only upon ample security. For this purpose they shortly afterwards organized the Bank of England. Whenever they desired lower prices, they had only to call in their loans and sell their coins as bullion, either for plate or for export.
So it was that in the decades leading up to the Revolution, the narrow-minded and selfish London merchants and bankers, who influenced the government at this period, would not permit the colonies to have their own monetary system; instead the colonists were required to accept such “national” coins as the London merchants chose to lend them - as though there was anything “national” about coins which were manufactured at their own private behest and which could be withdrawn, melted or exported at their own pleasure. Accordingly, orders were sent to America to put down colonial money and enforce the falsely-named “national” but really private money.
As it might be imagined the Colonists were in point of fact very familiar not only with the monopolist practices of the East India Company but also with the principles laid out in the Mixt Moneys case of 1604. In fact says Del Mar: "We find that the monetary principles laid out in the Mixt Moneys case had more to do with the relations between England and her Colonies than any other ideas which influenced them. The whole story of the rebellious colonies is a story which relates to monetary contentions than to any other subject."
The principles laid down in the Mixt Moneys case is also why the failure of the various private banks which preceded the Bank of North America, created in 1781, was due as much or more to the hostility of the Colonial governments, than to any other cause. The American people were never favorable to private banks of issue, and they have only tolerated them upon such occasions as when – owing to a contraction of the coinage or of the government notes – they were obliged to accept a dangerous relief rather than none at all.
So it came to pass that at the time of the Revolutionary War, the Articles of Confederation gave the Continental Congress power to issue its own bills of credit, but unfortunately not the power to regulate them as the individual colonies were able to do with their money (when they so chose). So 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, was 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 (a condition that was presaged by the historical basis laid out by the Mixt Moneys case decision).
The monetary chaos caused by the disparate currencies of the colonies 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". This abstract quality resided in the ancient principle that money, once officially fabricated, maintained its value not so much from its substance as from its quantity, and is the reason that Congress was given the authority to create the nation's money and regulate the value thereof.
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 Bank of the United States, 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 Bank of the United States 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."
In a 1792 letter to then President George Washington, Jefferson describes how Hamilton's financial system was adopted:
When the Charter for renewal of the BUS was about to expire a huge battle a huge battle was mounted by the Jeffersonians to refuse renewal. Senator Thomas Benton of Missouri expressed the sentiments of the majority:
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. As Zarlenga tells us in Lost Science of Money, Congress also issued non-interest bearing notes once during the War of 1812 but those notes were not given legal tender status. There even was a bill introduced in Congress by a Representative Hall of Georgia in 1814 requiring that treasury notes which may be issued be given legal tender status among citizens of the United States or between a citizen of the United States and a citizen of any foreign country. This bill was defeated 94 to 45, due to the House still being under the sway of the financial interests. 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 Bank of the United States 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 Bank of the United States 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. It was never very popular however, since 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". The second Bank met its demise when Jackson and his advisers began to erroneously claim that gold was money, and demanded an end to the Second National Bank. A financial depression followed together with the proliferation of "wild cat banks" who issued their own currencies, just as had been done in the years leading up to the creation of 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 and an ardent supporter of the Greenback dollar. As we all know it was under Lincoln's administration and for the first time in the nation's history that non-interest bearing legal tender Treasury notes were issued in quantities sufficient enough to carry the Union through the Civil War.
Meanwhile the South committed some of the very same mistakes that had been made 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.