10. THE CONSTITUTIONAL CONVENTION
In 1787, colonial leaders assembled in Philadelphia to replace the ailing Articles of Confederation. As we saw earlier, both Thomas Jefferson and James Madison were unalterably opposed to a privately-owned central bank. They had seen the problems caused by the Bank of England. They wanted nothing of it. As Jefferson later put it:
"If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations which grow up around them will deprive the people of all property until their children wake up homeless on the continent their fathers conquered."
During the debate over the future monetary system, another one of the founding fathers, Governor Morris, headed the committee that wrote the final draft of the Constitution. Morris knew the motivations of the bankers well.
Along with his old boss, Robert Morris, Governor Morris and Alexander Harnilton were the ones who had presented the original plan for the Bank of North America to the Continental Congress in the last year of th Revolution.
In a letter he wrote to James Madison on July 2, 1787, Governor Morris revealed what was really going on:
"The rich will strive to establish their dominion and enslave the rest. They always did. They always will. … They will have the same effect here as elsewhere, if we do not, by [the power of] government, keep them in their proper spheres."
Despite the defection of Gouvenor Morris from the ranks of the Bank, Hamilton, Robert Morris, Thomas Willing, and their European backers were not about to give up.
They convinced the bulk of the delegates to the Constitution Convention not to give Congress the power to issue paper money. Most of the delegates were still reeling from the wild inflation of the paper currency during the Revolution. They had forgotten how well Colonial Scrip had worked before the War. But the Bank of England had not. The Money Changers could not stand to have America printing her own money again.
Many believed the Tenth Amendment, which reserved powers to the States which were not delegated to the federal government by the Constitution, made the issuance of paper money by the federal government unconstituonal, since the power to issue paper money ws not specifically delegated to the federal government in the Constitution. The Constitution is silent on this point. However, the Constitution specifically forbade the individual States to "emit bills of credit" (paper money).
Most of the framers intended the Constitution's silence to keep the new federal government from having the power to authorize money creation. Indeed, the journal of Convention for August 16 reads as follows:
"It was moved and seconded to strike out words 'and emit bills of credit,' and the motion…passed in the affirmative."
But Hamilton and his banker friends saw this silence as an opportunity of keeping the government out of paper money creation which they hoped to monopolize privately. So both bankers and anti-banking delegates, for opposing motives, supported leaving any federal government authority for paper money creation out of the Constitution, by a four to one margin. This ambiguity left the door open for the Money Changers, just as they had planned.
Of course, paper money was not itself the main problem, fractional reserve lending was the greater problem since it multiplied any inflation caused by excessive paper currency issuance by several times. But this was not understood by many, whereas the evils of excessive paper currency issuance were.
In their belief that prohibiting paper currency was a good end the framers were well advised. Prohibiting all paper currency would have severely limited the fractional reserve banking then practiced, since the use of checks was minimal and would, arguably, have been prohibited as well. But bank loans, created as book entries, were not addressed, and so were not prohibited.
As it happened, the federal and state governments were widely regarded as prohibited from paper money creation, whereas private banks were not - it being argued that this power, by not being specifically prohibited, was reserved to the people (including legal persons, such as incorporated banks).
The contrary argument was that bank corporations were instruments or agencies of the states which incorporated them and so were prohibited from "emitting bills of credit" as were the states themselves. This argument was ignored by the bankers, who proceeded to issue paper bank notes based on fractional reserves, and it lost all force once the U.S. Supreme Court ruled that even the federal government could charter a bank (the 1st BUS) which could issue paper money.
In the end, only the states were prohibited from issuing paper money, not the federal government, and neither private banks nor even municipalities were prohibited from issuing paper money (as happened in c. 400 cities during the Great Depression).
Another error not often understood concerns the authority given the federal government "to coin money" and "to regulate the value thereof." Regulating the value of money (that is to say its purchasing power, or value relative to other things) has nothing to do with quality or content (e.g. so many grains of gold or copper, etc,), but has to do with its quantity - the supply of money. It is quantity that determines its value, and never has Congress legislated any total quantity of money in the U.S.
Legislating a total money supply (including currency, checks and all bank deposits) would, in fact, regulate the value (purchasing power) of each dollar. Legislating the rate of growth of the money supply would then determine its future value. Congress has never done either, though it clearly has the constitutional authority to do so. It has left this function to the Fed and the 10,000+ banks which create our money supply.
Acknowledgement and credits
The Money Masters: How International Bankers Gained Control of America
Produced by Patrick S. J. Carmack
Directed by Bill Still
Royalty Production Company 1998