The Mandrake Mechanism-(How the Fed Creates Money)

Free people shouldn't need a license to fly airline passengers, even if they are blind, right kid?

Free people should be allowed to drive the wrong way on one way streets, right?

Free people shouldn't need a permit to put a toxic dump in a residential neighborhood, right?!

< /KIDDING >

Look, most permits amount to little more than tax stamps. You pay your tax and you engage in your preferred activity.

Having to first go get a permit doesn't *forbid* you from doing most anything.

Thus, you are still free to do what you want, although the *manner* in which you do something might be regulated.

But that's a far cry from not being free.

You can drive to any location that you want, for instance, but you will do so by driving in the left lane and you won't go the wrong way down 1 way streets.

Ergo, yes you are free to drive to where ever you desire, but the *manner* in which you drive there is regulated.

Nonetheless, your freedom to go somewhere hasn't been forbidden, banned, or regulated away.

In his report in support of a National Bank, Hamilton says:

The emitting of paper money by the authority of government is wisely prohibited to the individual states by the national constitution, and the spirit of that prohibition ought not to be disregarded by the Government of the United States. Though paper emissions, under a general authority, might have some advantage not applicable to the states, and be free of some disadvantages to the like emissions of the States, separately, they are of a nature so liable to abuse---and it may even be affirmed, so certain of being abused, that the wisdom of the Government will be shown in never trusting itself with the use of so seducing and dangerous an expedient. In times of tranquility, it might have no ill consequence; it might even be productive of good; but, in great and trying emergencies, there is almost a moral certainty of its becoming mischievous. The stamping of paper is an operation so much easier that the laying of taxes, that a Government, in the practice of paper emissions, would rarely fail, in any such emergency, to indulge itself too far in the employment of that resource, to avoid, as much as possible, one less auspicious to present popularity. If it should not even be carried so far as to be rendered an absolute bubble, it would at leasat be likely to be extended to a degree which would occasion an inflated and artificial state of things, incompatible with the regular and prosperous course of political economy.

AH goes on to distinguish between paper emissions by government and those, payable in coin, by a bank. He argues, disingenuously, that fractional reserve banks can, if necessary, liquidate assets in order to honor its promise of redemption in coin. He disingenuously disguises that banking enterprises, particularly those bestowed with government monopoly, will act to benefit the bankers and their clients at the expense of general interest and will respond to whatever sums its most important client, the government, wishes to borrow. He disingenuously invents the implied power of Congress to incorporate. He, then, disingenuously argues that such corporation would not be a monopoly when it quite clearly would be. He then argues, disingenuously that if there were not a national bank the government could, itself, emit bills redeemable on demand in specie when he was well aware that the power to “emit bills” was stricken from an early draft of Article I, Section 8, Clause 2. He, then, disingenuously argues that the bank would facilitate borrowing by the government and could, therefore, be incorporated under the power “To borrow money on the credit of the United States.” He, then, disingenuously argues interstate commerce, Congress’ power to make rules and regulations concerning the personal as well as real property of the United States. He, then, disingenuously argues that all of the expressed financial powers taxation, borrowing, coining, all combined to create an implied power to create the bank.

Snake oil, anyone? Totalitarianism, anyone?

How would you get the idea that I am unaware that taxpayers pay the interest on the debt? As to the other facts you posted where have I disputed them?

Sounds to me like you are grasping at straws to dispute my comments since I never claimed anything to the contrary.

I am not "defending" the Fed. There hasn't been anything to defend against since misconceptions, misinformation and outright falsehoods about National Banks are inefficient attacks to begin with. Correcting such caricatures as the enemies of the Fed post here is merely the debt I owe to the truth. Requiring an accurate description of an institution is not a defense of it.

I do defend the concept of a National Bank but not all of its actions or policies.

B.S. anyone? Your interpretations are totally bogus in virually every respect. In addition, you should have not tried to hide the fact that not only was the ability of the fedgov to issue paper voted down but so was the prohibition against the fedgov being allowed to issue paper. Isn't hiding such a fact a little dishonest?

Hamilton's ingenuity with regard to the Bank was so massive that even those who opposed it most vociferously could not dispute the great success it achieved in spurring the development of the country. Nor did they hesitate to avail themselves of the services it provided. Without the Bank Jefferson could not have purchased Louisiana.

Far from being a monopoly banks sprang up all over the nation following its incorporation. Except in the South and this proved to be a huge weakness leaving the Planters at the mercy of the NY and Boston banks for the next century. Fortunately, this helped lead to the defeat of the Slaverocratic traitors in 1861 and, like most of Hamilton's achievements, was a great benefit to mankind.

There were state chartered banks in NY, Penn, Mass, RI, and Maryland in 1791. They continued to exist. By the end of Washington's admininstration there were 24 within the US. The number tripled during Adams' and Jefferson's administrations. So monopoly clearly does not describe the Bank of the United States. What a surprise.

There is no doubt of a right to form a corporation in order to carry out the powers granted the federal government. It is disingeneous to claim the means to an end are prohibited to the fedgov. Corporations are mere means to an end. Just institutions and implements.

Righteous reasoning for the benefit and protection of freedom was Hamilton's stock in trade and his influence was as great as any American in creating the greatest nation known to man. Too bad certain people believe it to be no better than Nazi Germany or Stalinist Soviet Union. It is also unfortunate that no man has ever given more to the cause of Liberty than Hamilton and suffered such malignant and odious attacks for those gifts.

You should have not tried to hide the fact that not only was the ability of the fedgov to issue paper voted down but so was the prohibition against the fedgov being allowed to issue paper. Isn't hiding such a fact a little dishonest?

I was not aware of it. Was the prohibition in an early draft and removed? Was it actively considered and rejected? If so, I stand corrected (please provide whatever info you have on this). Were you aware of both? Using your own criteria, doesn’t that make you a little dishonest in prior posts?

Those who opposed [the Bank] most vociferously could not dispute the great success it achieved in spurring the development of the country.

Check your premises. The First Bank was defeated for renewal; Years later, the Second finally passed and was not renewed.

Far from being a monopoly….

How many of those had national charters? How many of those had the power of government as partner? How many of those had exclusive claim to the federal government's banking needs? How many of those had charters that forbade the federal government from incorporating other similar institutions?

Righteous reasoning for the benefit and protection of freedom was Hamilton's stock in trade …. It is also unfortunate that no man has ever given more to the cause of Liberty than Hamilton and suffered such malignant and odious attacks for those gifts

In the light of those attacks, shouldn't you check your premises? Many Republicans and Democrats proudly claim their Jeffersonian roots while ZERO politicians proudly proclaim their Hamiltonian roots? This gives you no pause?

You said the government profits from the fed. You said that the profit from the fed was DEPOSITED in the U.S. treasury. That was your argument. You mentioned a 30 billion dollar profit, specifically.

This is wrong. First: "30 billion"? where'd you get that number from? The budget for treasury (our 2nd largets expenditure) is 350 billion dollars. It's mostly for interest payments. So you're point is that of the 350 of our money allocated to treasury, 30 of it is paid to the fed as interest and then they returned that amount back to our treasury? . Explain this transaction. We give them 30 and they give it back and that's their profit? I think you also said something about them taking out some expense first? Why don't they just do us a favor and return the bonds back to treasury? Now the FED does profit. But not in this fashion, and when they do... they don't "deposit" those profits in the U.S. TReasury. Now, what other facts do you have?

I do defend the concept of a National Bank but not all of its actions or policies

Wow. We have a CENTRAL BANK. Not a national bank. A central bank is owned by the banking system. A national bank is owned by the government. I'm the one asking for government ownership. I AM DEFENDING the concept of a national bank. You are defending the concept our central bank.

What are we even talking about here?

Both sides of that question were voted down. That is all I know of it. It seems clear that the CC didn't quite know how to handle the issue. No dishonesty on my part I merely said the founders could have prohibited issuance of paper and didn't.

My premises are sound the only reason the Congress refused Madison's request to renew the charter was because of bone-headed fanatics from the West not any misdeeds or lack of success of the Bank. Their financial ignorance was collosal and they used Class WArfare just like their RAT descendents. Even a republican fireeater like Albert Gallatine admitted the Bank had been a great success and was well run. After financial chaos ensued upon the Bank's closure even the knuckle-headed lamebrains voted for it. It also was a great success until another financial idiot killed it also leading the nation in financial chaos and the worst depression the nation ever experienced until 1929. Jackson was a great leader but a financial nincompoop.

That was not your argument. It sounded as though you were arguing that this Bank was a monopoly and it wasn't.

Those who laud Jefferson and disdain Hamilton know little or nothing about either. As I have carefully studied the period there is no question which is the greater man in every area except political conniving, deceit, Architecture and possibly science. Hamilton's reputation was destroyed by the hired lackies of the democratic-republican press and has only been resurrected by those who care about the truth. Modern politicians are historically ignorant and believe the LIE that Hamilton was for the rich and against the little guy. Such leftist crap always has a big sale in this nation. Meanwhile the TRUE aristocrat, Jefferson, gets a pass because of his rhetoric and little else. Interestingly two of our most powerful Senators wrote biographies of Hamilton: Arthur Vandenburg (The Greatest American) and Henry Cabot Lodge. But that was from a day before left wing propaganda had swept Truth from the field.

Another reason is that Jefferson had an entire region willing to spread the lies about Hamilton and the States' Righters hate for him was unrivaled. Hamilton thought states were mostly impediments to national/rational development thus had none of them ready to stand up for Truth. Not even his own state, NY. Hamilton was in many ways the First American. Most of his contemporaries thought of themselves as citizens of a state first the nation second, if at all. Not Washington but many of the lesser founders.

Most of the greatness of Hamilton is outside the mental grasp of the majority of the population while the buzzwords of Jefferson are easy to grasp. Just don't look for any action from the man. Talk, pie-in-the-sky schemes was about all you would get from him and deception.

Jefferson is our most over-rated president by a long shot.

Stating the FACT that the profits from the Fed are turned over to the Treasury is not an argument. It is the statement of a fact. I said almost 30 billion in interest was turned over in 2001. That may not be all the profit, I don't know. It is no secret that the Fed profit goes to Treasury. One would think that anyone interested in the Fed would know this.

I found that number on the web yesterday but forget where. You can find it if you are interested as I did.

How can I explain that transaction? It is a fact that the FEd does indeed deposit those profits with the Treasury. I have lots of facts.

The National Bank performed the functions of the Central Bank just as the Bank of England (very similiar to the National Bank of the US) performs those functions for Great Britain. I see little difference but the names. Though the National Bank kept the profit for its shareholders.

I have no idea what you are talking about I am merely explaining certain relevent facts about the operations of the Fed or trying to.

The National Bank performed the functions of the Central Bank just as the Bank of England (very similiar to the National Bank of the US) performs those functions for Great Britain. I see little difference but the names. Though the National Bank kept the profit for its shareholders.

We don't have a national bank. We have a central bank. The federal reserve is a central bank, not a national bank. Those are two different things. Not just different names. A central bank is a private corporation owned by memebers of the banking syustem. A national bank is owned by the governent. They are two different things. They can perform the same function (i.e. ISSUE CURRENCY), but they are different types of entities. "the bank of England" was a private central bank founded in 1688. It was nationalized in 1946. It is now a National Bank.

Your pov is damaged more than advanced by such vitriol as:

1. Madison and Jefferson were complete numbskulls when it came to economics and finance. That is why Hamilton could make mincemeat out of them.

2. Jackson was a great leader but a financial nincompoop.

3. Those who laud Jefferson and disdain Hamilton know little or nothing about either.

4. Hamilton's reputation was destroyed by the hired lackies….

5. Modern politicians are historically ignorant and believe the LIE that Hamilton was for the rich and against the little guy.

Since neither of us were there, we must rely on the writings of these men for an insight into their beliefs and we must rely on what others wrote about them for a glimpse at their character. With regard to the latter issue, it is virtually impossible to have a strong objective view (unless there is virtual unanimity among credible sources). Failing such unanimity, a strong pov such as yours can only be based on subjectively and selectively embracing that which confirms your predisposed bias and subjectively and selectively rejecting that which refutes your predisposed bias.

With regard to the former, there is, at least, an objective basis for a strong pov. As a populist librertarian, I find nothing attractive in the policies of Hamilton, no matter how nice a guy he may have been when you got to know him. The policies of Jefferson and Jackson are much more to my liking, no matter how much of a stinker each may have been.

Historians do not dispute that:
1) Republican newspapers of the day made their principle concern the destruction of Hamiltonianism and Hamilton. No lie was too great to use against him. Jefferson hired Freaneau at State ostensibly as a translator but no one denies it was to set up a newspaper specifically to attack Hamiltonianism;
2) J. and M. specifically formed the democratic-republican party to attack Hamilton. This in spite of M's warning of the dangers of factions in the Federalist;
3) J.'s economic views were reactionary and two schools of economic theory behind Hamilton's capitalist policies nor did J and M deny that no one could successfully debate his policies;
4) J. desire for an agricultural republic without a navy was a prescription for disaster as was his military policies which led to the burning of D.C. with a British force of 5,000 men when M was president;
5) J.'s policy was to protect slavery did you support that? or intervention on the side of the French against the Haitian rebels do you support that?
6) If you believe either J or M was Libertarian you don't know their beliefs or policies which were in no way Libertarian. Could a Libertarian be a slave owner?
7) Hamiltonianism represented the rationalization of capitalism and was pointed to the future. Jeffersonianism was pointed to the past and incapable of surviving in a modern world it had as many contradictions as its creator and would have produced a nation as financially insolvent as he. Jefferson's personal world was pre-feudal in nature and it limited his view.
8) It is not bias to point to irrationality and that is the only description of J. and M.'s financial views that would be accurate. This says nothing about the characters of the men only that their understanding of this aspect of the world was not great.

In addition, bias should not be equated with inability to perceive the truth. Nor should it be believed that having a bias makes one incapable of accepting the truth. My previous bias in favor of Jefferson which arose from biased protrayals of him by the University professors who have loved him for centuries has not prevented me from uncovering the truth about him and his beliefs. Nor will my great admiration of Hamilton prevent me from admitting negative things about him when presented.

The terms have changed over the years and they now mean:

National bank- An incorporated commercial bank chartered by the government of the United States.

Bank of the United States- A quasi-public bank, operating under a congressional charter, which through a central office and various branches did a general banking business throughout the United States, issued bank notes and served as a depository for federal funds and as a fiduciary agent for the U.S. government.
Central bank- A bank which exists primarily for public fiscal purposes, which is controlled or in part by the government, and which turns over a large proportion of its profit to the government either directly of in the form of a tax. A central bank is usually charged with the responsibility of maintaining an adequate liquid reserve against the nation's bank credit, controlling the importation and exportation of money or precious metals, and providing a sound note issue. It also acts as a fiduciary agent for the government and as a banker's bank.

Dictionary of Economics- third edition Barnes and Noble.

These definitions have differences with your definitions. And the National banks now have nothing to do with Central banking or government banking.

It is important to use the correct terminology so I applaud your attempt to be more precise.

But it seems clear to me that there are areas of overlap between Central banks and the National Bank (Bank of the United States) which blurs the distinction. Central banks have more tasks today but those are added to the tasks performed by the National Bank of the past.

With those definitions in mind what are the main differences in the two concepts to you?

My previous bias in favor of Jefferson which arose from biased protrayals of him by the University professors who have loved him for centuries has not prevented me from uncovering the truth about him and his beliefs.

This explains it. Your fervor is like that of the reformed smoker/drinker/ etc. I would not characterize your initial acceptance of conventional wisdom as a bias, however. You had no emotional commitment to it (as you do to your current position) you just accepted it as true. Similarly, I used to buy into the conventional view about money and banking until I read Murray Rothbard. What he said made so much more sense to me than the conventional wisdom that I had previously accepted that I became fervent in my support for my new pov. I base my position on analysis, however, not ad hominem (e.g. saying that Rothbard is smart and Keynses is a nincompoop does not advance my argument one iota).

I, too, originally had a favorable impression of Jefferson and negative one of Hamilton. I am also aware of the current revisionist position that you now adopt. Being pro-democracy, anti elite, pro live and let live, anti banking interests, and anti special privileges for special interests, I view Jackson favorably and Hamilton unfavorably based on the mosaics we have of each from their own comments on issues.

BTW, I have been reading the relevant portions of Pieces of Eight, and while it is hard to summarize, the evidence appears overwhelming that the original intent was clearly to deny the national government the ability to emit bills of credit. AH, in his argument in favor of the Bank of the US, appears to acknowledge this, also. The entire argument is hard to summarize, briefly, but if I get motivated I will try to do so (It requires close comparisons, for example, between language in the Articles of Confederation and the Constitution).

No, I had no major boner for J prior to the last few years just accepted the conventional wisdom of him. Only after beginning extensive research into the era and its people did I come to the conclusion he was a conniving snake without a clue as to how to build a country. His reputation as a rhetoricist remains intact but he was utterly impractical as is illustrated by his activities at Monticello.

My prior opinion of H was also based on conventional knowledge which I am distressed to see repeated here. Most of it is just sheer lies spread by his enemies. This is the source of any emotion I may have. I have no problem with statements of true facts which are not to his credit: i.e. H had an extra-martial affair, he was uncompromising, he destroyed the Federalist Party, etc. It is the outright ridiculous lies which get me going: i.e. H was a monarchist, dishonest, or anti-republican.

I admire Jackson in some respects: his determination to protect the Union, his integrity but not his financial understanding which appears to be based on sheer fanaticism without regard to reality.

Since I appreciate the Best in all things I am an elitist and regard democracy as something which must be carefully watched (like the majority of the founders.) It is precisely to control the excesses of democracy that the constitution was created. Those excesses have led to the nation we have today. Welfarism is the natural result of democracy.

If you want the clearest explanation of Hamilton's financial and legal work read Forrest MacDonald's biography of him. Your link to the work you referenced did not work.

I don't know what the "conventional" wisdom on money and banking is. Is it Keynes, Marshall, Ricardo, Friedman? There is no unanimity among Economic theorists about much of those concerns.

At least Rothbard is an economist of some repute as opposed to most of the anti-banking critics who don't appear to have a clue. Presumably he is a student of Von Mises and the Austrian school much of whose writings I have read and appreciated. Those writings must be placed in their historical context and owe much to the fact they originated in a tightly controlled political framework, the Austro-Hungarian Empire.

I do not share Von Mises' desire to return to the gold standard since I believe it to be a deflationary standard (except when new gold is discovered) incapable of growing at a suitable rate to keep the economy expanding. Since the gold stock diminishes at a rate of 1.5% per yr and the economy must grow at a rate of 3-4% a year or hardship is encountered this means the gold stocks must increase by about 5% a year. The growth rate from 1500 to 1900 was about 1.15% a year. This is the fatal flaw in the gold standard.

Thank you for the thoughtful response. This is from the Cleveland Federal Reserve Bank's website:

Federal Reserve System

Many people are surprised to learn the Federal Reserve System is not the country's first central bank. Congress made two unsuccessful attempts at central banking before the Fed was established. The System's earliest precursor, the First Bank of the United States, was established by Congress in 1791 on a 20-year charter, with the mandate to "manage the government's money and to regulate the nation's credit." The Bank acted as the government's fiscal agent, marketing its securities, holding its revenues, and paying its debts.

The federal government maintained partial control of the Bank, but it was led primarily by private investors. . The Bank's main office was located in Philadelphia and its branches were concentrated in large northeastern cities

Here in their words we have my thesis. The fed is the third central bank in our history. The Bank of the United States being the first central bank. The government may maintain "partial control", but the central banks are led mainly by "Private investors". this is a very politic language for the fact that they are private corporations. A central bank is a private corporation, with shareholders who are not our government. We've had three of those. We have never had a national bank owned by the government.

I am an elitist and regard democracy as something which must be carefully watched. It is precisely to control the excesses of democracy that the constitution was created….Welfarism is the natural result of democracy.

Let’s agree to disagree on this. We could not be further apart. I abhor elitism and regard democracy as the only safeguard of liberty. I believe elitist tyranny was the rationale for the Constitution and consider totalitarianism as the necessary result of elitism.

I don't know what the "conventional" wisdom on money and banking is.

The conventional wisdom, no matter what school you went to, conservative or liberal, is that an elitist banking establishment controlling the creation and distribution of money is good.

Since the gold stock diminishes at a rate of 1.5% per yr and the economy must grow at a rate of 3-4% a year or hardship is encountered this means the gold stocks must increase by about 5% a year.

The fatal flaw of the above argument is your assumption that a growing economy requires a growing money supply.

Here's a link to Pieces of Eight

If I still didn't get it right it is www.piecesofeight.us/PofE.html

Every time the treasury has needed money, it asks the federal reserve to print more notes. The federal reserve asks the bureau of engraving to print up federal reserve notes and the fed picks up the tab( about $10,000 for evey million dollars). The fed then delivers those notes to the treaury, but before they give that money they ask for some collateral. The treaury then offers the fed $1,000,000.00 in Treasury bonds. The fed takes those bonds in exchange for the bills and the treaury gets million bucks to spend on whatever. But then the fed sells those bonds on the open market. The fed profits $990,000 on every million dollars printed and they don't share it with anybody. So far they have run this operation to the tune of 6.4 trillion dollars. They have completed the greatest heist every known to mankind. And when you've got that kind of money and power you can afford to make sure everyone has a hazy understanding of what is going on.

This is not a joke. This is what has actually occured. Get the picture...

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