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for its internal needs.
Carey came to consider “free trade” and the “gold standard” to
be twin financial weapons forged by England for its own economic
conquest. His solution to the gold drain was for the government to
create an independent national currency that was non-exportable,
one that would remain at home to do the country™s own work. He
advocated a currency founded on “national credit,” something he
defined as “a national system based entirely on the credit of the gov-
ernment with the people, not liable to interference from abroad.” Like
the wooden tally, this paper money would simply be a unit of account
that tallied work performed and goods delivered. Carey also sup-
ported expanding the monetary base with silver.5
Carey™s theories were an elaboration of the “American system”
propounded by Henry Clay and the National Republican Party. Their
platform was to nurture local growth and development using local
raw materials and local money, freeing the country from dependence
on foreign financing. Where Jackson™s Democratic Party endorsed
“free trade,” the National Republican Party sought another sort of
freedom, the right to be free from exploitation by powerful foreign
financiers and industrialists. Free traders wanted freedom from gov-
ernment. Protectionists looked to the government to keep them free
from foreign marauders. Clay™s protectionist platform included:
• Government regulation of banking and credit to deter speculation
and encourage economic development;


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Web of Debt

• Government support for the development of science, public
education, and national infrastructure;i
• Regulation of privately-held infrastructure to ensure it met the
nation™s needs;
• A program of government-sponsored railroads, and scientific and
other aid to small farmers;
• Taxation and tariffs to protect and promote productive domestic
activity; and
• Rejection of class wars, exploitation and slavery, physical or eco-
nomic, in favor of a “Harmony of Interests” between capital and
labor.6
Lincoln also endorsed these goals. He eliminated slavery, estab-
lished a national bank, and implemented and funded national educa-
tion, national transportation, and federal development of business and
farming. He also set very high tariffs. He made this common-sense
observation:
I don™t know much about the tariff, but I know this much: When
we buy manufactured goods abroad we get the goods and the
foreigner gets the money. When we buy the manufactured goods
at home, we get both the goods and the money.

The Legal Tender Acts and the Legal Tender Cases

The Greenback system undergirded Lincoln™s program of domes-
tic development by providing a much-needed national paper money
supply. After Jackson had closed the central bank, the only paper
money in circulation were the banknotes issued privately by individual
state banks; and they were basically just private promises to pay later
in hard currency (gold or silver). The Greenbacks, on the other hand,
were currency. They were “legal tender” in themselves, money that
did not have to be repaid later but was “as good as gold” in trade.
Like metal coins, the Greenbacks were permanent money that could
continue to circulate in their own right. The Legal Tender Acts of

i
Infrastructure is defined as “the set of interconnected structural elements that
provide the framework for supporting the entire structure.” In a country, it con-
sists of the basic facilities needed for the country™s functioning, providing a
public framework under which private enterprise can operate safely and effi-
ciently.

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Chapter 8 - Scarecrow with a Brain

1862 and 1863 made all the “coins and currency” issued by the U.S.
Government “legal tender for all debts, public and private.” Govern-
ment-issued paper notes were made a legal substitute for gold and
silver, even for the payment of pre-existing debts.
In the twentieth century, the Legal Tender Statute (31 U.S.C.
Section 5103) applied this definition of “legal tender” to Federal Reserve
Notes; but it was an evident distortion of the intent of the original
Acts, which made only currency issued by the United States Government
legal tender. Federal Reserve Notes are issued by the Federal Reserve,
a private banking corporation; but that rather obvious discrepancy
was slipped past the American people with the smoke-and-mirrors
illusion that the Federal Reserve was actually federal.

Did the Greenbacks Cause Price Inflation?

Lincoln™s Greenback program has been blamed for the price infla-
tion occurring during the Civil War, but according to Irwin Unger in
The Greenback Era (1964): “It is now clear that inflation would have
occurred even without the Greenback issue.”7 War is always an infla-
tionary venture. What forced prices up during the Civil War was
actually a severe shortage of goods. Zarlenga quotes historian J. G.
Randall, who observed in 1937:
The threat of inflation was more effectively curbed during the Civil
War than during the First World War. Indeed as John K. Galbraith
has observed, “it is remarkable that without rationing, price
controls, or central banking, [Treasury Secretary] Chase could
have managed the federal economy so well during the Civil
War.” 8
Greenbacks were not the only source of funding for the Civil War.
Bonds (government I.O.U.s) were also issued, and these too increased
the money supply, since the banks that bought the bonds were also
short of gold and had no other way of paying for the bonds than with
their own newly-issued banknotes. The difference between the gov-
ernment-issued Greenbacks and the bank-issued banknotes was that
the Greenbacks were debt-free legal tender that did not have to be
paid back. As Thomas Edison reasonably observed in an interview
reported in The New York Times in 1921:
If the Nation can issue a dollar bond it can issue a dollar bill.
The element that makes the bond good makes the bill good also.

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Web of Debt

The difference between the bond and the bill is that the bond
lets the money broker collect twice the amount of the bond and
an additional 20%. Whereas the currency, the honest sort
provided by the Constitution pays nobody but those who
contribute in some useful way. It is absurd to say our Country
can issue bonds and cannot issue currency. Both are promises to
pay, but one fattens the usurer and the other helps the People.
The Greenbacks did lose value as against gold during the war, but
this was to be expected, since gold was a more established currency
that people naturally preferred. Again the problem for the Greenback
was that it had to compete with other forms of currency. People re-
mained suspicious of paper money, and the Greenback was not ac-
cepted for everything. Particularly, it could not be used for the
government™s interest payments on its outstanding bonds. Zarlenga
notes that by December 1865, the Greenback was still worth 68 cents
to one gold dollar, not bad under the circumstances. Meanwhile, the
Confederates™ paper notes had become devalued so much that they
were worthless. The Confederacy had made the mistake of issuing
fiat money that was not legal tender but was only a bond or promise
to pay after the War. As the defeat of the Confederacy became more
and more certain, its currency™s value plummeted.9
In 1972, the United States Treasury Department was asked to
compute the amount of interest that would have been paid if the $400
million in Greenbacks had been borrowed from the banks instead.
According to the Treasury Department™s calculations, in his short ten-
ure Lincoln saved the government a total of $4 billion in interest, just
by avoiding this $400 million loan.10




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Web of Debt



Chapter 9
LINCOLN LOSES THE BATTLE
WITH THE MASTERS
OF EUROPEAN FINANCE

“When she knows you are in the country of the Winkies she will find
you, and make you all her slaves.”
“Perhaps not,” said the Scarecrow, “for we mean to destroy her.”
“Oh, that is different,” said the Guardian of the Gates. “No one
has ever destroyed her before, so I naturally thought she would make
slaves of you, as she has of the rest. But take care. She is wicked and
fierce, and may not allow you to destroy her.”
“ The Wonderful Wizard of Oz,
“The Search for the Wicked Witch”




T he Confederacy was not the only power that was bent on
destroying Lincoln™s Union government. Lurking behind the
curtain pulling the strings of war were powerful foreign financiers.
Otto von Bismarck, Chancellor of Germany in the second half of the
nineteenth century, called these puppeteers “the masters of European
finance.” He wrote:
I know of absolute certainty, that the division of the United States
into federations of equal force was decided long before the Civil
War by the high financial powers of Europe. These bankers
were afraid that the United States, if they remained in one block
and as one nation, would attain economic and financial
independence, which would upset their financial domination
over Europe and the world. Of course, in the “inner circle” of
Finance, the voice of the Rothschilds prevailed. They saw an
opportunity for prodigious booty if they could substitute two
feeble democracies, burdened with debt to the financiers, . . . in
place of a vigorous Republic sufficient unto herself. Therefore,
they sent their emissaries into the field to exploit the question of

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Chapter 9 - Lincoln Loses the Battle

slavery and to drive a wedge between the two parts of the Union.
. . . The rupture between the North and the South became inevitable;
the masters of European finance employed all their forces to bring it
about and to turn it to their advantage.1
The European bankers wanted a war that would return the United
States to its colonial status, but they were not necessarily interested in
preserving slavery. Slavery just meant that the owners had to feed
and care for their workers. The bankers preferred “the European plan”
“ capital could exploit labor by controlling the money supply, while letting
the laborers feed themselves. In July 1862, this ploy was revealed in a
notorious document called the Hazard Circular, which was circulated
by British banking interests among their American banking counter-
parts. It said:
Slavery is likely to be abolished by the war power and chattel
slavery destroyed. This, I and my European friends are glad of,
for slavery is but the owning of labor and carries with it the care of
the laborers, while the European plan, led by England, is that capital
shall control labor by controlling wages. This can be done by
controlling the money. The great debt that capitalists will see to it
is made out of the war, must be used as a means to control the
volume of money. To accomplish this, the bonds must be used as
a banking basis. . . . It will not do to allow the greenback, as it is
called, to circulate as money any length of time, as we cannot control
that. 2
The system the bankers wanted to preserve was what Henry Clay
and Henry Carey had called the “British system,” with its twin
weapons of “free trade” and the “gold standard” keeping the less
industrialized countries in a colonial state, supplying raw materials
to Britain™s factories. The American South had already been subjugated
in this way, and the bankers had now set their sights on the North, to
be reeled in with usurious war loans; but Lincoln had refused to take
the bait. The threat the new Greenback system posed to the bankers™
game was reflected in an editorial that is of uncertain origin but was
reportedly published in the The London Times in 1865. It warned:
[I]f that mischievous financial policy, which had its origin in the
North American Republic, should become indurated down to a
fixture, then that Government will furnish its own money without
cost. It will pay off debts and be without a debt. It will have all
the money necessary to carry on its commerce. It will become
prosperous beyond precedent in the history of the civilized
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Web of Debt

governments of the world. The brains and the wealth of all
countries will go to North America. That government must be
destroyed, or it will destroy every monarchy on the globe.3
Bismarck wrote in 1876, “The Government and the nation escaped
the plots of the foreign financiers. They understood at once, that the
United States would escape their grip. The death of Lincoln was
resolved upon.”4 Lincoln was assassinated in 1865.

The Worm in the Apple:
The National Banking Act of 1863-64

The European financiers had failed to trap Lincoln™s government
with usurious war loans, but they achieved their ends by other means.
While one faction in Congress was busy getting the Greenbacks issued
to fund the war, another faction was preparing a National Banking
Act that would deliver a monopoly over the power to create the nation™s
money supply to the Wall Street bankers and their European affiliates.
The National Banking Act was promoted as establishing safeguards
for the new national banking system; but while it was an important
first step toward a truly national bank, it was only a compromise with
the bankers, and buried in the fine print, it gave them exactly what
they wanted. A private communication from a Rothschild investment
house in London to an associate banking firm in New York dated June
25, 1863, confided:
The few who understand the system will either be so interested
in its profits or so dependent upon its favors that there will be
no opposition from that class while, on the other hand, the great
body of people, mentally incapable of comprehending . . . will
bear its burdens without complaint.5
The Act looked good on its face. It established a Comptroller of
the Currency, whose authority was required before a National Banking
Association could start business. It laid down regulations covering
minimum capitalization, reserve requirements, bad debts, and
reporting. The Comptroller could at any time appoint investigators
to look into the affairs of any national bank. Every bank director had

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