The Mandrake Mechanism-(How the Fed Creates Money)

The Creature from Jekyll Island -Book Excerpt ^ | May 1998 | G. Edward Griffin

[justshutupandtakeit]

Chaos on an unimagineable scale would be the result of your pie-in-the-sky scheme. No society has ever adopted it and none ever will because the economic inefficiencies would be overwhelming. Government control of the money supply will never be changed nor should it be. There is no good reason to do so. Not one. Only by misreading and misunderstanding of monetary history amplified by ideology could one come to such a conclusion.

I don't expect any rational reason to do so from those who do not correctly understand the history of the Fed or how it works or the role of government in human society. Believing that governments arise from reasons other than mutual concerns and demands is just immaturity and foolishness. Big governments arise because the people demand more things from them. Not elites or "socialists" but ordinary voters.
They maybe wrong (the democRATs never seem to be hurt by their colossal blunders) or deluded but they control the levers of power.

Utopian schemes are the last refuge of those unable to look reality in the face and non-governmental money is as utopian as you can get. Your personal assets would plunge in value along with everyone else's should your scheme be implemented.

Private money would be like the scrip of company stores mentioned to me above. It is subject to massive abuse and fraud. Just ask Tennessee Ernie he'll tell you about 16 tons and owing his soul to the company store.

Funny but I don't see the contemporary scrip being highly sought after- coupons. Though gift certificates (another private money) are popular when there is a time limit on them they have an element of fraud within. Stamps were a private money that was popular when I was a kid. My first baseball glove was purchased with the stamps my mom got at Safeway. Of course, these were abusive too since many were never redeemed.

[bvw]

Look it's "scrip" not "script".

And I'm generalizng the company store model -- in our fiat money system what HAS happened is that the closer people and groups of people to the fiat money issueing authority have come out over time with a considerable advantage in fiat wealth due only to getting first whacks at the "scrip" and leveraging of it.

It's not a distributed system ... it's a centralized system. That centrality, by some measure, is just like the "owner" of the mine and the company store.

I can only help you so far in dealing with the conceptualization of abstractions -- if you could drop the chip on your shoulder it might help.

[justshutupandtakeit]

It is a false generalization. A universally accepted currency is not the same as company money. It just isn't. I have no problem with abstractions when they are reflective of the phenomenon they are intended to clarify. Comparing scrip to dollars is totally absurd.

A restricted currency is not the same as money except in very limited ways. Food stamps are not money, coupons are not money, gift certificates are not money.

You describe an inflationary issue of currency and make that the standard model. It is not. When the Continental currency was issued the effects were as you describe because the population's inflationary expectations eventually overwhelmed the money illusion as Keynes would describe it.

That is not the case now when there is little if any inflation.

It order to be taken seriously you must be accurate and lay off the hyperbole bordering on hysteria.

When I see ridiculous statements I may not be as gentle as you would like.

[Southack]

Having to get a permit doesn't ban or prohibit you from doing anything.

So you want to ride your bicycle without a helmet? Fine, just do so on your own private property instead of on public roads, and don't come crying to me about having my insurance pay for your folly, either.

You want to till your soil without a permit? Gardeners do that every day here in Alabama, but again, having to get a permit doesn't stop you from doing anything.

It's like having to get a license to fly passengers on airlines. Everyone is free to become a pilot and fly as much as they want, but they still have to follow established, civilized procedures.

Likewise, you can still drive on public roads, but you *will* do so by staying on the right side. Go anywhere you want, but don't claim that you aren't free simply because you aren't allowed to drive the wrong way down a one way street into oncoming traffic.

[bvw]

"A restricted currency is not the same as money except in very limited ways. Food stamps are not money, coupons are not money, gift certificates are not money."

In that harsh regard, that extremely limited definition, then these "Federal Reserve Notes" in my hand aren't money either -- for if I attempt to deposit $10,001 of such notes in the bank, all sorts of restrictions are thrown up. It's no longer a free exchange -- there is a higher transaction cost, and the regulatory visiiblity makes me unable to use the Notes universally -- so too with all the laws and regulations that damn me for carrying too much cash -- that only -- in my travels.

I can wear a more valuable belt buckle than carry the "Notes" in my wallet onto a plane traveling over the border.

The absurdity you claim of comparing scrip to dollars is unfounded beyond your own personal invented constraints and incredibly scrimped definitions. Scrip does compare to dollars, in generalized example, and even in actual reality to limited extents.

[GSWarrior]

Bump

[Deuce]

Currency- Any form of money in actual use as a medium of exchange.

Is a check currency by this definition? How about a credit card? In any event, we were discussing the issuance of currency. As I use that term, it applies to Continentals, Greenbacks, and post 1933 FRNs. The characteristic they all share is that they have the force of government behind them and can legally be issued without constraint. No banks prior to the Fed were granted such power.

A blanket prohibition on all governments like in the 2d amendment would have been established not one explicitly directed at the states.

Strict interpretation of the original intent of the constitution does not include an interpretation of what specific, individual framers probably preferred. Instead, one must look at the actual words used in the context of the language of the day. The 10th Amendment states, for example: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

Doesn’t this mean: if the power wasn’t granted it wasn’t intended to be granted? Where, then, do you believe the Constitution granted the government the right to issue money in any form?

If only coins were to be issued (how is another question for you since a Mint was not mentioned) why would the phraseology have been "coin Money" rather than "issue coins" or "mint coins?" Had there been a desire to prevent the issuance of paper money that would have been made explicit since the writers were very familiar with the experience of the Continentals.

You confuse the verbs “issue” and “coin.” The phrase “coin money” supports my interpretation not yours. Money (even to Morris and Hamilton as their writings make abundantly and unambiguously clear) was coin. What we know as paper money, today, they called bills of credit. The evidence you quote above does not support your interpretation, but, rather, refutes it. Since Article 1, Section 10, Clause 1 carefully distinguishes among the powers to “coin money”, “emit bills of credit” and “make anything but gold or silver….”, it is quite clear that these are different things and your interpretation which confuses them all lacks support.

BTW, within 3 years of the Constititution, Congress acted in the Coinage Act of 1792 to do all those things that were consistent with my interpretation and none of the things consistent with your interpretation. How do you explain that?

Non-metallic currency was clearly a means to use the power granted Congress to declare war and provide for the national defense.

This argument is specious. It says, in effect, anything that would improve a government’s ability to wage war is constitutional. Anything that can be demonstrated to help the war effort is, ipso facto, constitutional. So much for a strict interpretation of original intent.

[jd777]

What does the government need shares for when it controls the corporation and receives ALL the profit? LoL

Really? How much has it profited? Could you show me statistics please?

[justshutupandtakeit]

The definition was from the American Heritage Dictionary. My answer to your questions would be no and no. You can limit the meaning to those you wish to but the common definition is different.

The fact that the constitution specifically prohibited the states from doing those things but did not prohibit the federal government tells me that it was not intended to limit the feds.

From any reading of constitutional law history it is clear that the 10th amendment was essentially irrelevent, playing no role in American law. It was meant only to apply to local and state law and regulations. Police powers.

All the founders, including Madison and Jefferson, admitted there were implied powers. A mint is constitutional though no mention of a mint is in the constitution.

Once again the prohibition of State issuance of bills of credit without a similiar one for the federal government tells me that the founders did not intend to prevent the feds from issuing them. How easy to have just stated "no Bills of credit are allowed to be issued by any government." But that was not done and for good reason. All the founders were well aware there was virtually no specie within the country. Thus, they were not inclined to shoot the nation in the foot from the beginning.

BTW within 2 yrs. of the federation's founding the U.S. created the Bank of the United States which issued paper currency. Twenty per cent of the bank stock was owned by the federal government.

It should be noted that destruction of the Bank unleashed a wave of inflation (over 13% per year) until the 2d Bank was chartered.

Anything necessary to carry out the enumerated powers and which is not forbidden by the Constitution nor opposed to the spirit of it is constitutional. Hamilton's analysis in his essay on the Constitutionality of the Bank written for Washington explains this with great clarity. However, the Law creating the Bank or a paper currency falls under the ability of Congress "To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof."

[AdamSelene235]

Big governments arise because the people demand more things from them. Not elites or "socialists" but ordinary voters.

Agreed. This is why Constitutional Republics are superior to the de facto Socialist Democracy we now live in and you so vigorously defend.

The people demand the stock market not crash, and Big Government is there to prop it up with easy money.

People demand mortgages as a public entitlement and Big Government is there to remove the burden of prudent lending.

People find raising children to be inconvenient and Big Govermnent happily creates the socialist indoctrination camps that now masquerade as schools.

A state which dwarfs its men, in order that they may be more docile instruments in its hands, even for beneficial purposes, will find that with small men, no great thing can really be accomplished. - JSM

[Deuce]

We are clearly talking past each other.

Your belief that paper promises of currency were viewed BY ANYBODY as actual currency is simply wrong. The constitution intended to prohibit unbacked fiat currency, and except during temporary issuances during war that is how it was until 1933.

On a related issue, Morris, Hamilton, et al argued that we needed the Bank of the U.S. They understood the fraud of fractional reserve banking but they were the fraudsters and they couched their arguments to others in disingenuous terms, such as the lack of specie, etc.

The fact remains, however, that even they did not go so far as to promote un-backed paper currency. Their intellectual co-conspirators finally pulled that one off under FDR in April, 1933.

If you believe that unbacked paper currency (as distinct from paper promises of real money) was intended by the framers, why do you think they waited until 1933 to do issue it?

[justshutupandtakeit]

Well the Deposits of the earnings of the FR at Treasury were almost $30 Billion in 2001. I don't have time to look for more figures. But essentially this figure represents the gross interest paid to the Fed as interest on federal debt held by the Fed. There are some expenses to be deducted before a true net figure can be arrived at but I don't have those at the moment.

[justshutupandtakeit]

Improper language usage destroys your arguments time and time again. We do not live in a "socialist democracy." We live in a quasi-welfare/capitalism which is NOT the same thing as an SD.

Hysterical rhetoric is all you have to say following your lead off whopper. None of it is true no matter how appealing the language is to the ideologues. If we had a democracy Gore would have won but since we have a representative republic (which I WILL defend with my dying breath) Bush is president. Perhaps that escaped your notice.

Your quotation shows just how false your world view is since the people of this nation have accomplished gigantic achievements in every century including this one. The recent achievement in Iraq is a historic one which will shake the foundations of tyranny across the globe. More will follow.

[Always Right]

Well the Deposits of the earnings of the FR at Treasury were almost $30 Billion in 2001.

That is about right. But the problem is the Federal Reserve has no motivation to maximize 'earnings' for the Treasury. The Federal Reserve is a black hole of spending and has accumulated roughly 1/2 trillion dollars in buildings and real estate. The Federal Reserve is in essence a huge beuracratic institution that is wholey subsidized by the fact they create money and charge interest. The Fed performs a neccessary function, but lacks an effective method to keep it in check.

[justshutupandtakeit]

They didn't as you have already noted.

Currency is anything that circulates as money.

Hamilton is the greatest of the founders after Washington and in fact ran the government for the first two terms and most of Adam's. His is one of the greatest men in history and his genius is responsible for the great success of our nation.

Lack of specie was a FACT. As though Hamilton could talk people into believing that. Hysterical. He was an incredible genius but not that much of one.

I know you prefer to ignore real history but it won't fly with those who have studied the era after the REvolution.

[Leatherneck_MT]

I see you continue your arrogant condescending ways. Good job

[justshutupandtakeit]

Geez, the Fed does not CHARGE interest to the Treasury. It receives interest from the treasury like anyone else who buys Bonds.

It is not charged with maximizing profit for the Treasury.

I have no argument about its spending nor about the value of its holdings. Nor would I argue that it cannot be better managed but certainly not by those who know nothing about its operations. That includes most of its critics here.

[Deuce]

I asked:

If you believe that unbacked paper currency (as distinct from paper promises of real money) was intended by the framers, why do you think they waited until 1933 to do issue it?

You answered:

They didn't and have used wildcat banking and the First Bank of the U.S. as your examples.

Neither they nor any bank ever issue unbacked paper money until the Federal Reserve did from 1933 forward. The government did, temporarily, in the past to finance the Civil War. These are facts that can't be ignored.

I have to go out now, but when I come back I will establish that Hamilton/Morris were just some of the first elites who controlled money for themselves and the special interests they represented and used their smarts to hoodwink others. The disingenuity of Hamilton's published arguments can be easily seen if you are willing to be objective. Shortness of specie supply is a specious argument as I will also demonstrate on my return.

[jd777]

??? Excuse me. You don't know what you're talking about. The U.S taxpayer pays the interest on our federal debt. We pay it to the holders of U.S. treasuries. Last year (FY02) the U. S. Government spent $333 Billion of our money on interest payments. What's more those treasuries instruments aren't even sold by the government. They are sold by the registered dealers of the fed system on behalf of the treasury in exchange for the "creation" of Federal Reserve notes (aka U.S Dollars). It doesn't sound like you understand this system you are defending. .

[hedgetrimmer]

not getting a permit to plow cost one farmer $50,000. Thats a heck of a disincentive don't you think? He could also be ARRESTED if he plowed on an area of his land that had a kangaroo rat on it. On HIS land.

Free people shouldn't need "permits" to do anything. Their property is supposed to be protected by the Constitution and the governments defining purpose is to protect individual rights not tax people through permits on daily life activities.