2.
3.
4-
5.
340 THE CREATURE FROM JEKYLL ISLAND
most powerful influence in the new Bank came from the
Rothschilds in Europe.
The Bank set about immediately to serve its function of creating money for the government. This led to a massive inflation of the money supply and rising prices. In the first five years, 42% of everything people had saved in the form of money was confiscated through the hidden tax called inflation. This was the same phenomenon that had plagued the colonies less than two decades earlier, but instead of being caused by printing-press money, it was now fueled by fractional-reserve bank notes created by a central bank.
As the time for renewal of the Bank's charter approached, two groups with opposite intentions became strange political allies against it: the Jeffersonians who wanted sound money; and the frontier banks, called wildcatters, who wanted unlimited license to steal. On January 24, 1811, the charter was defeated by one vote in the Senate and one in the House. The central bank was gone, but the wildcatters were everywhere.
The War of 1812 was not popular among the American public, and funding would have been impossible through taxes alone. The government chose to fund the war by encouraging wildcat banks to purchase its war-debt bonds and convert them into bank notes which the government then used to purchase war material. Within two years, the nation's money supply had tripled, and so had prices. Once again, the monetary and political scientists had succeeded in fleecing the American public of approximately 66% of all the money they held during that period. And that was on
C h a p t e r Seventeen
A DEN OF VIPERS
The monetary chaos that existed at the end of the War of 1812, outlined in the previous chapter, was caused by an almost universal fraud within the banking industry. Depositors in good faith placed their gold and silver into banks for safekeeping and for the convenience of using paper money in their everyday transactions.
The banks, in turn, promised them they could exchange the paper for their coins whenever they wished. At the same time, however, through the mechanism of fractional-reserve banking, paper money was created far in excess of the value of the coins held in reserve. Since the new money had just as much claim to the coins as the old, the bankers knew that, if a sizable percentage of their customers were to request a withdrawal of their coins, that solemn promise simply could not be kept. This, in fact, is precisely what happened over and over again during that period.
By 1814, Thomas Jefferson had retired to Monticello and had bitterly resigned himself to defeat on the issue of money. In a letter to John Adams he said:
I have ever been the enemy of banks; not of those discounting for cash [that is, charging interest on loans of
My zeal against those institutions was so warm and open at the establishment of the bank of the U.S. that I was derided as a Maniac by the tribe of bank-mongers, who were seeking to filch from the public their swindling and barren gains.... Shall we build an altar to the old paper money of the revolution, which ruined individuals but saved the republic, and burn on that all the bank charters present and future, 342
THE CREATURE FROM JEKYLL ISLAND
and their notes with them? For these are to ruin both republic and individuals. This cannot be done. The Mania is too strong. It has seized by its delusions and corruptions all the members of our governments general, special, and individual.1
