. 13
( 85 .)


tional government. It lends the central bank™s own notes (printed
paper money), which the government swaps for bonds (its promises
to pay) and circulates as a national currency. The government™s debt
is never paid off but is just rolled over from year to year, becoming the
basis of the national money supply.
Until the twentieth century, banks followed the model of the gold-
smiths and literally printed their own supply of notes against their
own gold reserves. These were then multiplied many times over on
the “fractional reserve” system. The bank™s own name was printed
on the notes, which were lent to the public and the government. To-
day, federal governments have taken over the printing; but in most
countries the notes are still drawn on private central banks. In the
Web of Debt

United States, they are printed by the U.S. Bureau of Engraving and
Printing at the request of the Federal Reserve, which “buys” them for
the cost of printing them and calls them “Federal Reserve Notes.”14
Today, however, there is no gold on “reserve” for which the notes can
be redeemed. Like the illusory ghosts in the Haunted House at
Disneyland, the dollar is the fractal of a hologram, the reflection of a
debt for something that does not exist.

The Tallies Leave Their Mark

Although the tallies were wiped off the books and fell down the
memory hole, they left their mark on the modern financial system.
The word “stock,” meaning a financial certificate, comes from the
Middle English for the tally stick. Much of the stock in the Bank of
England was originally purchased with tally sticks. The holder of the
stock was said to be the “stockholder,” who owned “bank stock.”
One of the original stockholders purchased his shares with a stick
representing £25,000, an enormous sum at the time. A substantial
share of what would become the world™s richest and most powerful
corporation was thus bought with a stick of wood! According to
legend, the location of Wall Street, the New York financial district,
was chosen because of the presence of a chestnut tree enormous enough
to supply tally sticks for the emerging American stock market.
Stock issuance was developed during the Middle Ages, as a way
of financing businesses when usury and interest-bearing loans were
forbidden. In medieval Europe, banks run by municipal or local
governments helped finance ventures by issuing shares of stock in them.
These municipal banks were large, powerful, efficient operations that
fought the moneylenders™ private usury banks tooth and nail. The
usury banks prevailed in Europe only when the revolutionary
government of France was forced to borrow from the international
bankers to finance the French Revolution (1789-1799), putting the
government heavily in their debt.
In the United States, the usury banks fought for control for two
centuries before the Federal Reserve Act established the banks™ private
monopoly in 1913. Today, the U.S. banking system is not a topic of
much debate; but in the nineteenth century, the fight for and against
the Bank of the United States defined American politics. And that
brings us back to Jefferson and his suspicions of foreign meddling . . .

Web of Debt

Chapter 7

The Scarecrow and the Tin Woodman, not being made of flesh, were
not troubled by the scent of the flowers. “Run fast,” said the Scarecrow
to the Lion. “Get out of this deadly flower bed as soon as you can. We
will bring the little girl with us, but if you should fall asleep you are too
big to be carried.”
“ The Wonderful Wizard of Oz,
“The Deadly Poppy Field”

T he foreign moneylenders who had conquered Britain set
the same debt traps in America, and they did it by the same
means: they provoked a series of wars. British financiers funded the
opposition to the American War for Independence, the War of 1812,
and both sides of the American Civil War. In each case, war led to
inflation, heavy government debt, and the chartering of a private
“Bank of the United States” to fund the debt, delivering the power to
create money to private interests. In each case, opposition to the bank
was opposed by a few alert leaders. Opposition to the First U.S. Bank
was led by Thomas Jefferson, the country™s third President; while op-
position to the Second U.S. Bank was led by Andrew Jackson, the
country™s seventh President. The two leaders did not have much else
in common -- Jefferson was of the landed gentry, while Jackson was
called the “roughshod President” -- but they shared a deep suspicion
of any private arrangement for issuing the national currency. Both
were particularly concerned that the nation™s banking system had
Chapter 7 - While Congress Dozes in the Poppy Fields

fallen into foreign hands. Jefferson is quoted as saying:
If the American people ever allow the banks to control the
issuance of their currency, first by inflation and then by deflation,
the banks and corporations that will grow up around them will
deprive the people of all property, until their children will wake
up homeless on the continent their fathers occupied.
A similar wakeup call is attributed to Jackson, who told Congress
in 1829:
If the American people only understood the rank injustice of
our money and banking system, there would be a revolution
before morning.
Jefferson was instrumental in Congress™s refusal to renew the
charter of the first U.S. Bank in 1811. When the Bank was liquidated,
Jefferson™s suspicions were confirmed: 18,000 of the Bank™s 25,000
shares were owned by foreigners, mostly English and Dutch. The
foreign domination the Revolution had been fought to eliminate had
crept back in through the country™s private banking system.
Congressman Desha of Kentucky, speaking in the House of
Representatives, declared that “this accumulation of foreign capital
was one of the engines for overturning civil liberty,” and that he had
“no doubt King George III was a principal stockholder.”1
When Congress later renewed the Bank™s charter, Andrew Jackson
vetoed it. He too expressed concern that a major portion of the Bank™s
shareholders were foreigners. He said in his veto bill:
Is there no danger to our liberty and independence in a bank
that in its nature has so little to bind it to our country? . . . Of the
course which would be pursued by a bank almost wholly owned
by the subjects of a foreign power, . . . there can be no doubt. . .
Controlling our currency, receiving our public monies, and
holding thousands of our citizens in dependence, it would be more
formidable and dangerous than a naval and military power of the
Who were these “subjects of a foreign power” who owned the
bank? In The History of the Great American Fortunes, published in
1936, Gustavus Myers pointed to the formidable British banking dy-
nasty the House of Rothschild. Myers wrote:
Under the surface, the Rothschilds long had a powerful influence
in dictating American financial laws. The law records show
that they were the power in the old Bank of the United States.2

Web of Debt

Return of the King™s Bankers

Like the German Hanoverian kings, the Rothschild banking em-
pire was British only in the sense that it had been in England for a
long time. Its roots were actually in Germany. The House of Rothschild
was founded in Frankfurt in the mid-eighteenth century, when a
moneylender named Mayer Amschel Bauer changed his name to
Amschel Rothschild and fathered ten children. His five sons were
sent to the major capitals of Europe to open branches of the family
banking business. Nathan, the most astute of these sons, went to Lon-
don, where he opened the family branch called N. M. Rothschild &
Sons. Nathan™s brothers managed N. M. Rothschild™s branches in Paris,
Vienna, Berlin and Naples.
The family fortunes got a major boost in 1815, when Nathan pulled
off the mother of all insider trades. He led British investors to believe
that the Duke of Wellington had lost to Napoleon at the Battle of
Waterloo. In a matter of hours, British government bond prices plum-
meted. Nathan, who had advance information, then swiftly bought
up the entire market in government bonds, acquiring a dominant hold-
ing in England™s debt for pennies on the pound. Over the course of
the nineteenth century, N. M. Rothschild would become the biggest
bank in the world, and the five brothers would come to control most
of the foreign-loan business of Europe. “Let me issue and control a
nation™s money,” Nathan Rothschild boasted in 1838, “and I care not
who writes its laws.”3
In 1811, when the U.S. Congress declined to renew the charter of
the first U.S. Bank, Nathan Rothschild already possessed substantial
political clout in England and was lending money to the U.S.
government and certain States. “Either the application for renewal of
the Charter is granted,” he is reported to have threatened, “or the
United States will find itself in a most disastrous war.”4 When the
charter was not granted, the United States did find itself in another
war with England, the War of 1812.
War again led to inflation and heavy government debt. This and
an inability to collect taxes were the reasons given for chartering the
Second Bank of the United States as a private national bank. The
twenty-year charter was signed by President James Madison in 1816.
It authorized the Bank and its branches to issue the nation™s money in
the form of bank notes, again shifting the power to create the national
money supply into private hands.

Chapter 7 - While Congress Dozes in the Poppy Fields

Jefferson Realizes Too Late the Need for a
National Paper Currency Issued by the Government

Jefferson was out of town when the Constitution was drafted, serv-
ing as America™s minister to France during the dramatic period lead-
ing up to the French Revolution. But even if he had been there, he
would probably have gone along with the majority and voted to omit
paper money from the Constitution. After watching the national debt
mushroom, he wrote to John Taylor in 1798, “I wish it were possible
to obtain a single amendment to our constitution . . . taking from the
federal government the power to borrow money. I now deny their
power of making paper money or anything else a legal tender.”5
It would be several decades before Jefferson realized that the vil-
lain was not paper money itself. It was private debt masquerading as
paper money, a private debt owed to bankers who were merely “pre-
tending to have money.” Jefferson wrote to Treasury Secretary Gallatin
in 1815:
The treasury, lacking confidence in the country, delivered itself
bound hand and foot to bold and bankrupt adventurers and bankers
pretending to have money, whom it could have crushed at any moment.
Jefferson wrote to John Eppes in 1813, “Although we have so fool-
ishly allowed the field of circulating medium to be filched from us by private
individuals, I think we may recover it . . . . The states should be asked to
transfer the right of issuing paper money to Congress, in perpetuity.” He
told Eppes, “the nation may continue to issue its bills [paper notes] as
far as its needs require and the limits of circulation allow. Those limits
are understood at present to be 200 millions of dollars.”6
Writing to Gallatin in 1803, Jefferson said of the private national
bank, “This institution is one of the most deadly hostility against the
principles of our Constitution . . . . [S]uppose a series of emergencies
should occur . . . . [A]n institution like this . . . in a critical moment
might overthrow the government.” He asked, “Could we start toward
independently using our own money to form our own bank?”
The Constitution gave Congress the power only to “coin money,”
but Jefferson argued that Constitutions could be amended. He wrote
to Samuel Kercheval in 1816:
Some men look at constitutions with sanctimonious reverence,
and deem them like the ark of the Covenant, too sacred to be
touched. They ascribe to the men of the preceding age a wisdom

Web of Debt

more than human, and suppose what they did to be beyond
amendment . . . [L]aws and institutions must go hand in hand
with the progress of the human mind. . . . [A]s that becomes
more developed, more enlightened, as new discoveries are made,
institutions must advance also, to keep pace with the times. . . .
We might as well require a man to wear still the coat which
fitted him when a boy as civilized society to remain forever under
the regimen of their barbarous ancestors.7
During the congressional debates over a Second U.S. Bank, Sena-
tor John Calhoun proposed a plan for a truly “national” bank along
the lines suggested by Jefferson. A wholly government-owned na-
tional bank could issue the nation™s own credit directly, without hav-
ing to borrow from a private bank that issued it. This plan was later
endorsed by Senator Henry Clay, but it would be several more de-
cades before the Civil War would provide the pretext for Abraham
Lincoln to authorize Congress to issue its own money. The Second
U.S. Bank chartered in 1816 was 80 percent privately owned.8

Jackson Battles the Hydra-headed Monster

Andrew Jackson was a hero of the War of 1812 and a leader with
enormous popular appeal. He was the first of the “unlettered Scare-
crows” to reach the White House, to be followed by the even mightier
Abraham Lincoln (who actually looked like a Scarecrow). Jackson
received an honorary degree from Harvard College in 1833, but it was
over the objection of Harvard alumnus John Quincy Adams, who called
him “a barbarian who could not write a sentence of grammar and
hardly could spell his own name.” Perhaps; but “Old Hickory” truly
believed in the will of the democratic majority, and he spoke to the
common people in a way they could understand.
After the Federalists ceased to be a major national party, the Demo-
cratic-Republicans dominated the political scene alone for a time. In
1824, four candidates ran for President as Democratic-Republicans
from different States: Andrew Jackson, John Quincy Adams, William
Crawford, and Henry Clay. Jackson easily won the popular vote, but
he did not have enough electoral votes to win the Presidency, so the
matter went to the House of Representatives, where Clay threw his
support to Adams, who won. But popular sentiment remained with
Jackson, who won by a wide margin against Adams in the election of



. 13
( 85 .)