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climbing on competitors and driving them down. In the American
vision of the “Common Wealth,” all men would rise together by
leavening the whole heap at once. A Republic of sovereign States
would work together for their mutual benefit, improving their collective
lot by promoting production, science, industry and trade, raising the
standard of living and the technological practice of all by cooperative
effort.8 It was an idealistic reflection of the American dream, which
assumed the best in people and in human potential. You did not need
to exploit foreign lands and people in pursuit of “free trade.” Like
Dorothy in The Wizard of Oz, you could find your heart™s desire in
your own backyard.
That was the vision, but in the sort of negotiated compromise that
has long characterized politics, it got lost somewhere in the details.

The term “free trade” is used to mean trade between nations unrestricted by
such things as import duties and trade quotas. Critics say that in more devel-
oped nations, it results in jobs being “exported” abroad, while in less developed
nations, workers and the environment are exploited by foreign financiers.

Chapter 4 - How the Government Was Persuaded

Hamilton Charters a Bank

Hamilton argued that to promote the General Welfare, the coun-
try needed a monetary system that was independent of foreign mas-
ters; and for that, it needed its own federal central bank. The bank
would handle the government™s enormous war debt and create a stan-
dard form of currency. Jefferson remained suspicious of Hamilton
and his schemes, but Jefferson also felt strongly that the new country™s
capital city should be in the South, in his home state of Virginia.
Hamilton (who did not care where the capital was) agreed on the
location of the national capital in exchange for Jefferson™s agreement
on the bank.
When Hamilton called for a tax on whiskey to pay the interest on
the government™s securities, however, he went too far. Jefferson™s sup-
porters were furious. In the type of political compromise still popular
today, President Washington proposed moving the capital even closer
to Mt. Vernon. In 1789, Congress passed Hamilton™s bill; but the Presi-
dent still had to sign it. Washington was concerned about the contin-
ued opposition of Jefferson and the Virginians, who thought the bill
was unconstitutional. The public would have to use the bank, but the
bank would not have to serve the public. Hamilton assured the Presi-
dent that to protect the public, the bank would be required to retain a
percentage of gold in “reserve” so that it could redeem its paper notes
in gold or silver on demand. Hamilton was eloquent; and in 1791,
Washington signed the bill into law.
The new banking scheme was hailed as a brilliant solution to the
nation™s economic straits, one that disposed of an oppressive national
debt, stabilized the economy, funded the government™s budget, and
created confidence in the new paper dollars. If the new Congress had
simply printed its own paper money, speculators would have
challenged the currency™s worth and driven down its value, just as
they had during the Revolution. To maintain public confidence in the
national currency and establish its stability, the new Republic needed
the illusion that its dollars were backed by the bankers™ gold, and
Hamilton™s bank successfully met that challenge. It got the country
up and running, but it left the bank largely in private hands, where it
could still be manipulated for private greed. Worse, the government
ended up in debt for money it could have generated itself, indeed should
have generated itself under the Constitution.

Web of Debt

How the Government Wound Up
Borrowing Its Own Bonds

The charter for the new bank fixed its total initial capitalization at
ten million dollars. Eight million were to come from private stock-
holders and two million from the government. But the government
did not actually have two million dollars, so the bank (now a char-
tered lending institution) lent the government the money at interest.
The bank, of course, did not have the money either. The whole thing
was sleight of hand.
The rest of the bank™s shares were sold to the public, who bought
some in hard cash and some in government securities (the I.O.U.s that
had been issued by the revolutionary government and the States). The
government had to pay six percent interest annually on all the securities
now held by the bank “ those exchanged for the “loan” of the
government™s own money, plus the bonds accepted by the bank from
the public. The bank™s shareholders were supposed to pay one-fourth
the cost of their shares in gold; but only the first installment was actually
paid in hard money, totaling $675,000. The rest was paid in paper
banknotes. Some came from the Bank of Boston and the Bank of New
York; but most of this paper money was issued by the new U.S. Bank
itself and lent back to its new shareholders, through the magic of
“fractional reserve” lending.
Within five years, the government had borrowed $8.2 million from
the bank. The additional money was obviously created out of thin air,
just as it would have been if the government had printed the money
itself; but the government now owed principal and interest back to
the bank. To reduce its debt to the bank, the government was eventu-
ally forced to sell its shares, largely to British financiers. Zarlenga
reports that Hamilton, to his credit, Hamilton opposed these sales.
But the sales went through, and the first Bank of the United States
wound up largely under foreign ownership and control.9

Chapter 4 - How the Government Was Persuaded

When Political Duels Were Deadly

Hamilton was widely acclaimed as a brilliant writer, orator and
thinker; but to Jefferson he remained a diabolical schemer, a British
stooge pursuing a political agenda for his own ends. The first Bank of
the United States was modeled on the Bank of England, the same
private bank against which the colonists had just rebelled. Years later,
Jefferson would say that Hamilton had tricked him into approving
the bank™s charter. Jefferson had always suspected Hamilton of mo-
narchical sympathies, and his schemes all seemed tainted with cor-
ruption. Jefferson would go so far as to tell Washington he thought
Hamilton was a dangerous traitor.10 He complained to Madison about
Hamilton™s bookkeeping:
I do not at all wonder at the condition in which the finances of
the United States are found. Hamilton™s object from the beginning
was to throw them into forms which should be utterly
Hamilton, for his part, thought little better of Jefferson. The feud
between the two Founding Fathers resulted in the two-party system.
Hamilton™s party, the Federalists, favored a strong central government
funded by a centralized federal banking system. Jefferson™s party, the
Democratic Republicans or simply Republicans, favored State and in-
dividual rights. Jefferson™s party was responsible for passing the Bill
of Rights.12
Hamilton had worked with Aaron Burr in New York City to es-
tablish the Manhattan Company, which would eventually become
the Chase Manhattan Bank. But Hamilton broke with Burr and the
Boston Federalists when he learned that they were plotting to split the
northern States from the Union. Hamilton™s first loyalty was to the
Republic. Burr and his faction were working closely with British al-
lies, who would later try to break up the Union by backing the Con-
federacy in the Civil War. Hamilton swung his support to Jefferson
against Burr in the presidential election of 1800, and other patriotic
Federalists did the same. The Federalist Party ceased to be a major
national party after the War of 1812, when the Boston Federalists sided
with England, which lost.13
In 1801, Jefferson became President with Hamilton™s support, while
Burr became Vice President. In 1804, when Burr sought the gover-
norship of New York, he was again defeated largely through
Hamilton™s opposition. In the course of the campaign, Hamilton ac-
Web of Debt

cused Burr in a newspaper article of being “a dangerous man” who
“ought not to be trusted with the reins of government.” When
Hamilton refused to apologize, Burr challenged him to a duel; and at
the age of 49, Hamilton was dead.
He remains a controversial figure, but Hamilton earned his place
in history. He succeeded in stabilizing the shaky new economy and
getting the country on its feet, and his notions of “monetizing” debt
and “federalizing” the banking system were major innovations. He
restored the country™s credit, gave it a national currency, made it
economically independent, and incorporated strong federal provisions
into the Constitution that would protect and nurture the young country
according to a uniquely American system founded on “promoting the
General Welfare.”
Those were his positive contributions, but Hamilton also left a
darker legacy. Lurking behind the curtain in his new national bank, a
privileged class of financial middlemen were now legally entitled to
siphon off a perpetual tribute in the form of interest; and because they
controlled the money spigots, they could fund their own affiliated
businesses with easy credit, squeezing out competitors and perpetuating
the same class divisions that the “American system” was supposed to
have circumvented. The money power had been delivered into private
hands; and they were largely foreign hands, the same interests that
had sought to keep America in a colonial state, subservient to an elite
class of oligarchical financiers.
Who were these foreign financiers, and how had they acquired so
much leverage? The Yellow Brick Road takes us farther back in history,
back to when the concept of “usury” was first devised . . . .

Web of Debt

Chapter 5

“I™m melting! My world! My world! Who would have thought
a little girl like you could destroy my beautiful wickedness!”

“ The Wicked Witch of the West to Dorothy

W hen Frank Baum made his witch-vanquishing hero a
defenseless young girl, he probably wasn™t thinking about
the gender ramifications of economic systems; but Bernard Lietaer has
given the subject serious thought. In The Mystery of Money, he traces
the development of two competing monetary schemes, one based on
shared abundance, the other based on scarcity, greed and debt. The
former characterized the matriarchal societies of antiquity. The latter
characterized the warlike patriarchal societies that forcibly displaced
The issue wasn™t really one of gender, of course, since every society
is composed half of each. The struggle was between two archetypal
world views. What Lietaer called the matriarchal and patriarchal
systems, Henry Clay called the American and British systems “
cooperative abundance versus competitive greed. But that classification
isn™t really accurate either, or fair to the British people, since their own
economic conquerors also came from somewhere else, and the British
succeeded in withstanding the moneylenders™ advances for hundreds
of years. The “American system” devised in the American colonies
was actually foreshadowed in the tally system of medieval England.
Lietaer traces this archetypal struggle back much farther than

Chapter 5 - From Matriarchies of Abundance

seventeenth century England. He traces it to the cradle of Western
civilization in ancient Sumer.

When Money Could Grow

Located where Iraq is today, Sumer was a matriarchal agrarian
economy with a financial system based on abundance and shared
wealth. One of the oldest known bronze coins was the Sumerian
shekel, dating from 3,200 B.C. It was inscribed with the likeness of
the Goddess Inanna-Ishtar, who bestowed kingship in Sumer and was
the goddess of fertility, life and death. Inanna wore the horns of a
cow, the sacred animal that personified the Great Mother everywhere
in ancient myth. Hathor, the Egyptian equivalent, had cow ears and
a human face and was the goddess of love, fertility and abundance.
Her horn was the “cornucopeia” from which poured the earth™s plenty.
Isis, an even more powerful Egyptian mother figure, was portrayed
wearing the horns of a cow with the sun disc between them. In India,
the cow goddess was Kali, for whom cows are sacred to this day.
Cows were also associated with money, since they were an early me-
dium of exchange. The Sumerian word for “interest” was the same as
the word for “calf.” It was natural to repay advances of cattle with
an extra calf, because the unit of exchange itself multiplied over the
loan period. This was also true for grain, for which the temples served
as storehouses. Grain advanced over the growing period was repaid
with extra grain after the harvest, in gratitude to God for multiplying
the community™s abundance.
The temples were public institutions that also served welfare
functions, including the support of widows, orphans, the elderly and
infirm. Temples were endowed with land to provide food for their
dependent labor, and resources such as herds of sheep to provide wool
for their workshops. They operated autonomously, supporting
themselves not through taxation but by renting lands and workshops
and charging interest on loans. Goods were advanced to traders, who
returned the value of the goods plus interest. The temples also acted
as central banks. Sacrificial coins inscribed “debt to the Gods” were
paid to farmers in acknowledgment that wheat had been contributed
to the temple. These coins were also lent to borrowers. When interest
was paid on the loans, it went back to the temple to fund the
community™s economic and social programs and to cover losses from
bad loans.2

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It was only after the Indo-European invasions of the second mil-
lennium B.C. that moneylending became the private enterprise of the
infamous moneychangers. The Goddess Inanna was superseded as


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