Why the Government [Never] Defaults: A Plain Explanation of the Federal Reserve Monopoly

All Citizens are Equal…But some are more equal than others

With the government threatening to default for the first time in American history (again), the criminally profligate Congress slithers through the escape hatch of raising the debt limit once again – and instantaneously devalues every American taxpayer’s dollars.  Here’s one reason your elected representatives (besides their innate greed) can continue to ruin our monetary system without going to prison.

Senator Thomas Hart Benton (Missouri),  The Mischiefs of a National Bank, February 2, 1831; Annals of America: Volume 5, pg. 430

“President Jackson’s request in 1829 that Congress begin considering renewal of the charter of the Second Bank of the United States opened the way for the “Bank War.”  The Ways and Means Committee of the House of Representatives reported favorably on renewing the charter in April, 1830.  Senator Thomas Hart Benton of Missouri, a spokesman for Western interests, attacked the Bank in the following speech of February 2, 1831.  Benton voiced all the objections repeated again and again during the Bank War; his speech typified the Jacksonian attitude, which ascribed to the Bank’s influence, a growing disregard for the Constitution, and the pernicious increase of national power, of class privilege, and of financial control.

“First, Mr. President, I object to the renewal of the charter of the Bank of the United States because I look upon the bank as an institution too great and powerful to be tolerated in a government of free and equal laws.  Its power is that of a purse, a power more potent than that of the sword, and this power it possesses to a degree and extent that will enable this bank to draw to itself too much of the political power of this Union and too much of the individual property of the citizens of these states.  The money power of the bank is both direct and indirect. 

The direct power of this bank is now prodigious and, in the event of a renewal of the charter, must speedily become boundless and uncontrollable.  The bank is now authorized to own effects, lands inclusive, to the amount of $55 million, and to issue notes to the amount of $35 million more;  this makes $90 million.  And, in addition to this vast sum, there is an opening for an unlimited increase; for there is a dispensation in the charter to issue as many more notes as Congress, by law, may permit.  This opens the door to boundless emissions; for what can be more unbounded than the will and pleasure of successive Congresses? 

The indirect power of the bank cannot be stated in figures; but it can be shown to be immense.  In the first place, it has the keeping of the public moneys, now amounting to $26 million per annum (the Post Office Department included), and the gratuitous use of the undrawn balances, large enough to constitute, in themselves, the capital of a great state bank.  In the next place, its promissory notes are receivable, by law, in purchase of all property owned by the United States  and in payment of all debts due them; and this may increase its power to the amount of the annual revenue by creating a demand  for its notes to that amount.  In the third place, it wears the name of the United States and has the federal government for a partner; and this name and this partnership identifies the credit of the bank with the credit of the Union.  In the fourth place, it is armed with authority to disparage and discredit the notes of other [state, private] banks by excluding them from all payments to the United States; and this, added to all the other powers, direct and indirect, makes this institution the uncontrollable monarch of the moneyed system of the Union.

To whom is all this power granted? To a company of private individuals, many of them foreigners, and the mass of them residing in a remote and narrow corner of the Union, unconnected by any sympathy with the fertile regions of the Great Valley in which the natural power of this Union – the power of numbers – will be found to reside long before the renewed term of a second charter would expire. 

By whom is all this power to be exercised?  By a directory of seven (it may be), governed by a majority of four (it may be), and none of these elected by the people or responsible to them.  Where is it to be exercised? At a single city, distant a thousand miles from some of the states, receiving the produce of none of them (except one); no interest in the welfare of any of them (except one); no commerce with the people; with branches in every state; and every branch subject to the secret and absolute orders of the supreme central head: thus constituting a system of centralism hostile to the federative principle of our Union, encroaching upon the wealth and power of the states, and organized upon a principle to give the highest effect to the greatest power.  This mass of power, thus concentrated must necessarily become, under a prolonged existence, the absolute monopolist of American money, the sole manufacturer of paper currency, and the sole authority to which the federal government, the state governments, the great cities, corporate bodies, merchants, traders, and every private citizen must, of necessity, apply for every loan which their exigencies may demand.

Second, I object to the continuance of this bank because its tendencies are dangerous and pernicious to the government and the people.

What are the tendencies of a great moneyed power connected with the government and controlling its fiscal operation?  Are they not dangerous to every interest, public and private, political as well as pecuniary?  I say they are and briefly enumerate the heads of each mischief: 

1. Such a bank tends to subjugate the government.
2. It tends to collusions between the government and the bank in terms of the loans.
3. It tends to increase the public debt by facilitating public loans and substituting unlimited supplies of paper for limited supplies of coin.
4. It tends to beget and prolong unnecessary wars by furnishing the means of carrying them on without recurrence to the people.
5. It tends to aggravate the inequality of fortunes; to make the rich richer and the poor poorer; to multiply nabobs and paupers; and to deepen and widen the gulf which separates the Dives from Lazarus.
6. It tends to make and to break fortunes by the flux and reflux of paper.  Profuse issues and sudden contractions perform this operation, which can not be repeated, like planetary and pestilential visitations, in every cycle of so many years; at every periodical return transferring millions from the actual possessors of property to the Neptunes who preside over the flux  and reflux of paper.

Third, I object to the renewal of the charter on account of the exclusive privileges and antirepublican monopoly which it gives to the stockholders.  

1. The name, the credit, and the revenues of the United States are given up to the use of this company and constitute in themselves an immense capital to bank upon.  The name of the United States, like that of the the king, is a tower of strength, and this strong tower is now an outwork to defend the citadel of a moneyed corporation.  The credit of the Union is incalculable; and, of this credit, as going with the name and being in partnership with the United States, the same corporation now has possession.  The revenues of the Union are $26 million, and all this is so much capital in the hands of the bank, because the revenue is received by it and is payable in its promissory notes.
2. Other banks depend upon their credit for the receivability of their notes; but this favored institution has law on its side, and a chartered right to compel the reception of its paper by the federal government.  The immediate consequence of this extraordinary privilege is that the United States becomes virtually bound to stand security for the bank, as much so as if she had signed a bond to that effect, and must stand forward to sustain the institution in all emergencies in order to save her own revenue.  This is what already happened, some ten years ago, in the early progress of the bank and when the immense aid given it by the federal government enabled it to survive the crisis of its own overwhelming mismanagement.  
3. To hold the moneys of the United States in deposit without making compensation for the use of the undrawn balance. 
4. To discredit and disparage the notes of all other banks by excluding them from the collection of the federal revenue.  This results from the collection – no, not the collection but the receipt of the revenue having been committed to the bank, and, along with it, the virtual execution of the joint resolution of 1814 to regulate the collection of the federal revenue.  The execution of that resolution was intended to be vested in the secretary of the treasury – a disinterested arbiter between rival banks [competition]; but it virtually devolved upon the Bank of the United States, and powerfully increases the capacity of that institution to destroy or subjugate all other banks.                                       The notes of the state banks excluded from revenue payments are discredited and disparaged and fall into the hands of brokers at all places where they are not issued and payable.  They cease to insulate at all points to which the exclusion extends.  I am informed that the notes of the banks south of the Potomac and Ohio, even those of the Lower Mississippi, are generally refused at the United States Branch Bank in St. Louis, and, in consequence, are expelled from circulation in Missouri and Illinois.  This power to disparage the notes of all other banks is a power to injure them, and, added to all the other privileges of the Bank of the United States is a power to destroy them!                            Policy may restrain the destroying faculties for the present; but they exist and will come forth when interest prompts and policy permits.  They have been exercised; and the general prostration of the Southern and Western banks attests the fact.  They will be exercised and the remaining banks will be swept with the besom of destruction.                The state banks, spared by the sword, will be put under the yoke.  The will become subordinate parts in the great machine.  Their place in the scale of subordination will be one degree below the rank of the legitimate branches; their business, to perform the work which it would be too disreputable for the legitimate branches to perform.  This will be the fate of state banks which are allowed to keep up their signs and to open their doors; and thus the entire moneyed power of the Union would fall into the hands of one single institution, whose inexcusable and invisible mandates emanating from a center, would pervade the Union, giving or withholding money according to its own sovereign will and absolute pleasure.                                                                                                 To a favored state, to an individual, or a class of individuals, favored by the central power, the golden stream of Pactolus would flow direct.  To all such the munificent mandates of the high directory would come, as the fabled god made his terrestrial visit of love and desire, enveloped in a shower of gold.  But to others – to those not favored and to those hated – the mandates of this same directory would be as “the planetary plague which hangs its poison in the sick air.”  Death to them! Death to all who minister to their wants! What a state of things! What a condition for a confederacy of states!  What grounds for alarm and terrible apprehension, when, in a confederacy of such vast extent, so many independent states, so many rival commercial cities, so much sectional jealousy, such violent political parties, such fierce contests for power, there should be but one moneyed tribunal before which all the rival and contending elements must appear!  But one single dispenser of money to which every citizen, every trader, every merchant, every manufacturer, every planter, every  corporation, every city, every state, and the federal government itself must apply, in every emergency, for the most indispensable loan!  And this in the face of the fact that in every contest for human rights the great moneyed institutions of the world have uniformly been found on the side of kings and nobles; against the lives and liberties of the people. 
5. To hold real estate, receive rents, and retain a body of tenantry.  This privilege is hostile to the nature of our republican government and inconsistent with the nature and design of a banking institution.  Republics want freeholders, not landlords and tenants. No one, when this charter was granted, presumed to speak in favor of incorporating a society of landlords, especially foreign landlords, to buy lands, build houses, rent tenements, and retain tenentry.  Loans of money was the object in view, and the purchase of real estate is incompatible with that object.  Instead of retaining bankers, the corporations may turn land speculators, instead of having money to lend, they may turn you out tenants to vote.  To an application for a loan, they may answer, and answer truly, that they have no money on hand, and the reason may be that they have laid it out in land.                                                                                                                           The bank is now the greatest moneyed power in the Union.  It will soon be the sole one.  Sole dispenser of money, it will soon be the chief owner of property.  To unlimited means of acquisition would be united perpetuity of tenure, for a corporation never dies and is free from the operation of the laws which govern the descent and distribution of real estate in the hands of individuals.                                                                                                Monopolies and perpetual succession are the bane of republics.  Our ancestors took care to provide against them by abolishing entails and primogeniture.  Even the glebes of the church, lean and few as they were in most of the states, fell under the republican principle of limited tenures.  All the states abolished the antirepublican tenures; but Congress reestablishes them, and in a manner more dangerous and offensive than before the Revolution.  They are now given, not generally but to a few; not to natives only but to foreigners also; for foreigners are large owners of this bank.  And thus the principles of the Revolution sink before the privileges of an incorporated company.        
6. To deal in pawn, merchandise, and bills of exchange. . . .  Thus the bank is an incorporated company of pawnbrokers and merchants, as well as an incorporation of landlords and land speculators; and this derogatory privilege, like the others, is copied from the old Bank of England charter of 1694.                                                    Bills of exchange are also subjected to the traffic of this bank.  It is a traffic unconnected with the trade of banking, dangerous for a great bank to hold, and now operating most injuriously in the South and West.  It is the process which drains three quarters of the Union of its gold and silver and stifles the growth of a fair commerce in the products of the country.  The merchants, to make remittances buy bills of exchange from the branch banks instead of buying produce from the farmers.  The bills are paid for in gold and silver; and, eventually the gold and silver are sent to the mother bank, or to other branches in the Eastern cities, either to meet these bills or to replenish their coffers and to furnish vast loans to favorite states or individuals.  The bills sell cheap, say a fraction of 1 percent; they are, therefore, a good remittance to the merchant.  To the bank the operation is doubly good; for even half of 1 percent on bills of exchange is a great profit to the institution which monopolizes that business, while the collection and delivery to the branches of all the hard money in the country is a still more considerable advantage.                                                                                                                           Under this system, the best of the Western banks – I do not speak of those which had no foundation and sank under the weight of neighborhood opinion, but those which deserved favor and confidence – sank ten years ago.  Under this system, the entire West is now undergoing a silent, general, and invisible drain of its hard money; and, if not quickly arrested, these states will soon be, so far as the precious metals are concerned, no more than the empty skin of an immolated victim.
7. To establish branches in the different states without their consent and in defiance of their resistance.  No one can deny the degrading and injurious tendency of this privilege.  It derogates from the sovereignty of a state, tramples upon her laws, injures her revenue and commerce, lays open her government to the attacks of centralism impairs the property of her citizens, and fastens a vampire on her bosom to suck out her gold and silver.                                                                                                                     a. It derogates from her sovereignty, because the central institution may impose its intrusive branches upon the state without her consent and in defiance of her resistance.  The state of Alabama, but four years ago, by a resolve of her legislature, remonstrated against the intrusion of a branch upon her.  She protested against the favor.  Was the will of the state respected?  On the contrary, was not a branch instantaneously forced upon her, as if, by the suddenness of the action, to make a striking and conspicuous display of the omnipotence of the bank and the nullity of the state?                                                                                                                                                         b. It tramples upon her laws because, according to the decision of the Supreme Court, the bank and all its branches are wholly independent of state legislation; and it tramples on them again because it authorized foreigners to hold lands and tenements in every state, contrary to the laws of many of them; and because it admits of the mortmain tenure, which is condemned by all the republican states of the Union.                   c. It injures her revenue because the bank stock, under the decision of the Supreme Court, is not liable to taxation.  And thus, foreigners and nonresident Americans, who monopolize the money of the state, who hold its best lands and town lots, who meddle in its elections, and suck out its gold and silver, and perform no military duty, are exempted from paying taxes in proportion to their wealth for the support of the state whose las they trample upon and whose benefits they usurp.                                                       d. It subjects the state to the dangerous maneuvers and intrigues of centralism by means of tenants, debtors, bank officers, and bank money which the central directory retain in the state and may embody and direct against it is its elections and in its legislative and judicial proceedings.                                                                                                   e. It tends to impair the property of the citizens and, in some instances, that of the states by destroying the state banks in which they have invested their money.                          f. It is injurious to the commerce of the states (I speak of the Western states) by substituting a trade in bills of exchange for a trade in the products of the country.                 g. It fastens a vampire on the bosom of the state, to suck away its gold and silver and to cooperate with the course of trade, of federal legislation, and of exchange, in draining the South and West of all their hard money.  The Southern states, with their $10 million of annual exports in cotton, rice, and tobacco, and the Western states, with their $12 million of provisions and tobacco exported from New Orleans, and $5 million consumed in the South and on the Lower Mississippi – are not able to sustain 30 specie paying banks; while the Potomac, without any of the great staples for export, have above 400 of such banks.  These states, without rice, without cotton, without tobacco, without sugar, and with less flour and provisions to export are saturated with gold and silver; while the Southern and Western states, with all the real sources of wealth, are in a state of the utmost destitution.  
8. Exemption of the stockholders from individual liability on the failure of the bank.
9. To have the United States for a partner…disadvantageous as this partnership must be to the United States in a moneyed point of view, there is a far more grave and serious aspect under which to view it.  It is the political aspect resulting from the union between the bank and the government.  The union has been tried in England and has been found there to be just as disastrous a conjunction as the union between church and state.  It is the conjunction of the lender and the borrower, and Holy Writ has told us which of these categories will be the master of the other.  But suppose they agree to drop rivalry and unite their resources, suppose they combine and make a push for political power; how great is the mischief which they may not accomplish!
10. To have foreigners for partners.  This Mr. President  will be a strange story to be told in the West.  The downright and upright people of that unsophisticated region believe that words mean what they signify, and “the Bank of the United States” is the Bank of the United States.  How great then must be their astonishment to learn that this belief is a false conception, and that this bank (its whole name to the contrary notwithstanding) is just as much the bank of foreigners as it is of the federal government. …                                                                                                                                          It is no purpose to say that the foreign stockholders cannot be voters or directors.  The answer to suggestion is this: The foreigners have the money; they pay down the cash, and want no accommodations; they are lenders, not borrowers; and, in a great moneyed institution, such stockholders must have the greatest influence.  The name of this bank is a deception to the public.  It is not the bank of the federal government, as its name would import, nor of the states which compose this Union; but chiefly of private individuals, foreigners as well as natives, denizens and naturalized subjects.                                                                                                                                They own $28 million of the stock, the federal government but $7 million; and these $7 million are precisely balanced by the stock of the aliens.  The federal government and the aliens are equal, owning one-fifth each; and there would be as much truth in calling it the Bank of England as the Bank of the United States.  Now mark a few of the privileges  which this charter gives to these foreigners.  To be landholders, in defiance of the state laws which forbid aliens to hold land; to be landlords by incorporation and to hold American citizens for tenants; to hold lands in mortmain; to be pawnbrokers and merchants by incorporation; to pay the revenue of the United States in their own notes; in short, to do everything which I have endeavored to point out in the long and hideous list of exclusive privileges granted to this bank.                                                                                                                                                    If I have shown it to be dangerous for the United States to be in partnership with its own citizens how much stronger is not the argument against a partnership with foreigners?  What a prospect for loans when at war with a foreign power, and the subjects of that power large owners of the bank here, from which alone, or from banks liable to be destroyed by it, we can obtain money to carry on the war!  What a state of things if, in the division of political parties, one of these parties and the foreigners, coalescing, should have the exclusive control of all the money, should have bodies of debtors, tenants, and bank officers stationed in all the states, with the supreme and irresponsible system of centralism to the direct the whole!  Dangers from such contingencies are too great and obvious to be insisted upon.  
11. Exemptions from due course of law for violations of its charter.  This is a privilege which affects the administration of justice and stands without example in the annals of republican legislation.
12. To have all these unjust privileges secured to the corporators as a monopoly, by a pledge of the public faith to charter no other bank.  This is the most hideous feature of the whole mass of deformity.  If these banks are beneficial institutions, why not several?  One, at least, and each independent of the other, to each great section of the Union?  If malignant, why create one?  The restriction constitutes the monopoly and renders more invidious what was sufficiently hateful in itself.  

See: The Great Deformation: The Corruption of Capitalism in America by David Stockman