 If I sound a little bit like Boris Karloff's because I had an allergy attack yesterday and my throat is all kind of raspy so But so don't be frightened And so I'm going to talk about central banking And there's nothing more fun than a lecture on economics on a Sunday morning especially a nice sunny Sunday morning and What I'm going to start off with saying is that How interesting it was when the US government first began bailing out big banks in New York City the Wall Street Journal Ran an article by a business historian named John Steel Gordon Blaming the whole mess the whole recession and everything on Thomas Jefferson The third American president he called it the baleful influence of Thomas Jefferson and his anti central bank Philosophy and Jefferson opposed the the first American central bank. It was called the Bank of the United States and And then Forbes magazine another sort of mouthpiece of the Wall Street elite Ran an article that said no it wasn't just Jefferson and his anti central bank ideas. That's the problem It's Ron Paul to Because Ron Paul is the contemporary Prevair of these ideas of these critiques and both of these articles argue that the real problem is The Fed the American central bank does not have enough power and the reason it does not have enough power is that these ideas These are these of opposing the Fed to live on that were created by Thomas Jefferson And we need to stamp out these critiques of central banking so that the central bank can be even more powerful than it is Then we will no longer have business cycles I'm not making this up John still Gordon recited, you know the business the boom and bust of 1819 and the 1929 and and they said and they pretty much said if only the Fed had more power this none of this would have happened and The reason I bring this up is is that you know There is this ideology of the Fed which is the Fed is the financier of the American Empire it's not the sole financier, but it always has been the financier of the American Empire and It has its defenders the defenders of the Empire have to defend the Fed without without this sorts of financing It would have been very difficult For for the American Empire to do many of the things it has done over the over the years One book that I read a while back on the history of the American income tax for example the author said Thank goodness. We've got the Fed and the income tax in the year 1913 Otherwise Americans could not have entered World War one and I thought well You know happy days are here again. We entered World War one wasn't that a wonderful thing? and so so I guess the point I want to make here is that you know there's this ideology of the Fed as a necessary institution for economic instability, but I think it's all a myth it's all it's all a myth and so my point of departure here is I'm going to invoke another Economist like me the late George Stigler and George Stigler won the Nobel Prize in economics sometime in the early 80s and I can recall when he was brought to the White House by President Reagan after winning the Nobel Prize He started criticizing Reagan's economic policies and they didn't actually have one of those canes But somebody rushed out and dragged him off the stage when he was doing that But one of the things Stigler was known for is he did many studies on the economics of government regulation the effects of government regulation and And one of the conclusions of a lot of these studies is that Stigler always used to say if you want to find out Who really benefits from government regulation of any sort? The place to start your investigation is to find out who lobbied for the regulation or the law If you're talking about a law who lobbied who wanted it and that doesn't prove conclusively the effects of this regulation or law But it's a pretty good place to start if you want to know and so I Think it's it's reasonable to assume that if you want to know who benefits who has always benefited from the Fed central banking Find out well who wanted it in the first place You know what was the argument for it and sometimes you have to sift through all the all the nonsense and the rhetoric To find this out But so I'm going to talk a little bit about the American case of the origins of central banking in America to explain well just who this institution really serves and it starts with a group of men in America At the early time of the country Who really wanted to bring the whole British mercantilist system to America the very system that they have just fought a revolution against? The attitude of people like Alexander Hamilton and his fellow Nationalists as they were called or federalists is what they were called Seems to me to be that it's a bad thing to be on the paying end of an empire where you're just you're just Cannon fodder and taxpayers, but it's a good thing to be the king So if you're the king if you're on the side of the tax collector That's good, and they wanted to bring this system to America. And so How are they going to do this? Murray Rothbard explained it in his little book called the mystery of banking And I think this is a perfect explanation of why these men wanted this institution This is what Rothbard said. He said they their aim was to reimpose in the new United States a system of Mercantilism and big government similar to that in Great Britain Against which the colonists had rebelled The object was to have a strong central government Particularly a strong president or king as chief executive Built up by high taxes and heavy public debt The strong government was to impose high tariffs to subsidize domestic manufacturers Develop a big Navy to open up and subsidize foreign markets for American exports and launch a massive system of Internal public works that roads and canals financed by government In short the United States was to have a British system without Great Britain the same thing That's why my my latest book Hamilton's Curse the subtitle is how Jefferson's arch enemy betrayed the American Revolution They had just fought a revolution against this and Hamilton's political enemies said this Are you crazy? We just fought a revolution against this system. Why would we want to impose it on ourselves and A big mover and shaker in this a political mover and shaker was the a man named Robert Morris Who was one of the financiers of the American Revolution? He pledged his own personal credit To borrow money to help finance a revolution and he was very revered by George Washington and other the American founders and But Rothbard calls but he was a schemer And Rothbard calls it the Morris scheme was quote to organize and had a central bank To provide cheap credit and expanded money for himself and his allies The first bank the very first government bank was called the Bank of North America And it was it was quote deliberately modeled after the Bank of England And this bank was given a monopoly in currency issue But it became so untrustworthy people didn't trust The currency the value of the currency and the currency became so devalued that it was privatized Eventually, but the nationalists never gave up on their dream of having a bank run by politicians out of the nation's capital That could finance subsidies to them and to open up foreign markets and finance a Navy and big government and so forth And so what did they do they they they worked in politics? They got Morris got his protege Alexander Hamilton the job of Treasury Secretary Now probably the most famous contemporary Biography of Hamilton is one by an author named Ron Cherno and and he explains how Hamilton got the job of Treasury Secretary And he explains how Hamilton really knew very little or nothing about finance And if the war was still going on at the end of the Revolutionary War Hamilton was thinking well, what am I going to do after the war? He was he was one of George Washington's aides as a very young man And so he figured he should contact Robert Morris for a job Robert Morris was the big money man in America. That's you know, why not start at the start of the top That's like, you know young college senior saying what should I do? I'll give Bill Gates a call See what should I do after I get out of school and so he didn't know anything about economics and finance But he knew of someone who did he knew that senator Timothy Pickering who would become later become a senator Who was also who was George Washington's adjutant general He he was known to know something about economics and finance So he asked Pickering Timothy Pickering from Massachusetts to give him some things to read so he could learn something about economics What she did so he wrote Robert Morris a 30 page letter Essentially saying mr. Morris. I agree with everything you say on the subject of economics I think we need a Central bank run by politicians. We need high tariffs and we need government subsidies for roads and canals and And and and he was George Washington's aid And so this must have been like a goldmine dropping in the lap of Robert Morris Here's a close personal aid to George Washington who was going to become president Contacting him pretty much saying I will be your puppet in the nation's capital Which he was and it was the the way he got the job was Morris wrote George Washington And recommended him for the job of treasury secretary and according to churno in his book George Washington turned to Hamilton and said I didn't know you knew anything about finance. We never talked about it But if Robert Morris once once you in the job, you got the job So so he did get the job and one of the first things Hamilton did Is to start lobbying to overthrow the constitution that americans had it was called the articles of confederation And so and the u.s constitution Replace that so the americans essentially seceded from their first constitution And but Hamilton at the constitutional convention where they worked out this constitution Hamilton laid out his plan, which was really Morris's plan. It was a permanent president You could call it a king who would appoint all the governors of all the states Who had who would have the power to veto all state legislation? So in other words, there'd be a monopoly power in the executive and in the president who would be more or less a king And this was always tied to this economic agenda. They wanted to have essentially a dictator Who would impose? Central bank to finance subsidies to businesses like morris's businesses High protective tariffs on to keep foreign competition out and a big public debt to fuel the growth of government So this it wasn't just power for the sake of power There's power for the sake of economic grandisement of the people in power Mercantilism it was the british system And so, uh, of course, he didn't succeed at that. They only got part of what they wanted in terms of more centralized government and again Murray Rothbard explains exactly what was going on here. I'll quote him again He said a critical part of this program Was put through in 1791 by their leader secretary of the treasury alexander hamilton a disciple of robert morris Hamilton put through congress the first bank of the united states Modeled after the old bank of north america whose longtime president and former partner of robert morris Thomas willing of philadelphia Was made president of the new bank So morris's business partner was made the president of this this new bank and there was a debate george washington asked Uh, jefferson thomas jefferson and hamilton to make the case for and against The bank and uh jefferson made his case against it And this is what still bugs to this day people like, uh, john steele gordon And uh, it came down to uh for the lawyers in the audience might like this I think it's boring as can be but it came down to the necessary and proper clause of the u.s. Constitution where, uh, You know the government has the right to all the all the delegated powers of the federal government in us Uh, the necessary and proper clause allows the government to do what's necessary and proper to carry these things out Hamilton said well, it's necessary for us to have a central bank Uh jefferson said no, it's just convenient. He said we have banks. We don't need a special bank to put the tax dollars in We have banks Uh, we don't want a government a bank run by politicians out of the nation's capital like like the bank of england and uh, hamilton didn't really win the argument what happened was George washington owned a lot of land in virginia Near where washington dc is mount vernan And uh, he had been wanting the nation's capital washington dc To extend right up adjacent to his property But the current plan was that it would be three miles away And so in return for extending the boundary of washington dc to to abut George washington's property George washington signed the legislation creating the bank of the united states So it was just old-fashioned pork barrel politics or you know log rolling whatever you want to call it They gave us the first despite all these long-winded Papers written by jefferson hamilton and others it all came down to politics of how we got this bank And so what did the bank do? Well, uh, i'll quote i'll quote rothbart again uh They of course began immediately issuing paper money Uh, he said it issued millions of dollars in paper money and demand deposits Pyramidding On top of two million dollars in species The bank invested heavily in u.s. Government debt The result of the outpouring of credit and paper money by this new bank of the united states Was an increase in prices of 72 percent from 1791 to 1796 so it immediately created huge inflation and this bank had a Had a 20-year charter so it was to end after 20 years And which it did it was uh eventually Snuffed out but uh and but to this day the american apologists for central banking when they study this history to talk about it Most historians that i know of will say things like jefferson Was an agrarian he didn't understand banks and he was actually opposed to banking And so they make him sound like a buffoon. He was you know, he was an ignorant economic buffoon You know, he's opposed to banks in general But once again rothbart sets it straight and he wasn't opposed to banks in period period He was he was suspicious of bankers, you know, who wouldn't be in this day and age He's suspicious of bankers, but uh, but he was what he was opposed to was a government run bank government controlled banking As far as that goes And so and there were other americans who were very uh suspicious of this john taylor was a senator from virginia He said what was it that drove our forefathers to this country? Was it not the ecclesiastical core and perpetual monopolies of england and scotland? Shall we suffer the same evils in this country? So they saw this as A threat to the very principles of the american revolution Now the bank was revived this the the bank of the united states became the second bank of the united states After the the war of 1812 it started up again in 1817 And murray rothbart's dissertation doctoral dissertation at columbia Many many years ago wasn't it was on the panic of 1819 What a coincidence the bank goes back into business in 1817 and two years later. There's a panic And and he makes the case that there was cause and a cause and effect here And there's a great little book by uh, james j. Kilpatrick an american journalist called the sovereign states that talks about this and he says That the effect of this was the bank of the united states ran into grave difficulties through mismanagement Speculation and fraud Consequently there was a wave of hostility toward the bank Of the united states that swept the country And this eventually led to the the demise of the second bank of the united states Not only did a lot of people think it was creating economic instability Uh and inflation but political corruption The money a lot of the monies were were literally used to finance the political campaigns of supporters of the bank And of the whole nationalist agenda and to criticize the opponents like, uh, president andrew jackson And uh some of the states hated this bank so much to the state of ohio for example When when two branches of this bank of the united states and the the precursor of the fed opened up in ohio They imposed a 50 50 thousand dollar a year tax on each branch and this was in the 1820s and so uh And the idea was to tax it out of existence And the bank of the united states refused to pay so the state of ohio sent armed marshals to the bank with a big chest And and they and they went they went into the vault collected a hundred thousand dollars and left And so they took it and other states did similar things. They were in my book I quote the state legislatures in connecticut and elsewhere in america as as condemning this bank And it ultimately came down to a big confrontation with president andrew jackson who Vetoed the legislation that would have rechartered the bank For another 20 years. So the bank sort of Faded away in the early 18 1840s And so uh, and so they're so the good guys won in my opinion Although they never give up the bad guys never give up Uh Another claim that uh john steele gordon made they're still out there john steele gordon. He said this Uh, it was resurrected during the american civil war the central banking was the bank of the united states was not but there were national currency acts That led to a much greater centralization of the monetary authority in the united states And uh john steele gordon the man i mentioned at the beginning he praises this he says the civil war ended monetary chaos And uh, I also quote some some pretty well known economic historians like jeff hummel and Richard timberlake is saying that this period from 1840 to 1862 or 63 was not perfect But they make they both make the case that this was probably the most stable monetary system america ever had in that period And i think they make a pretty pretty good case That it was pretty good, but what about this claim that the civil war ended monetary chaos That's that's what uh, gordon said in in the wall street journal several months ago Well, there's a book a scholarly book edited by claudia golden who's an economic historian in the united states. She's very well known Uh, she's a university of chicago graduate. The book is called strategic factors and 19th century american economic growth And they looked at this same the post civil war era central banking regime And they said it was uh, quote characterized by monetary and cyclical instability for banking panics Frequent stock market crashes and other financial disturbances In quote and that's what gordon says was an end to monetary chaos And so It's not exactly right. I don't think and so So this is this is sort of the struggle that these uh, these these mercantilists or neo mercantilists have always wanted a central bank to fund a mercantilist empire And time and time again, what did it do? It created economics instability political corruption Uh and so forth, but they never gave up. They never gave up and one of the things I like to do is I have a couple of quotes here To give you an idea of the the sort of flavor of this debate When when andrew jackson the american president Vito the rechartering of the bank he made a statement And uh, and roth part points out that jackson has gone down in history as sort of a he was from tennessee A southern state and he's in a lot of his story as portray him as a country bumpkin Today, we would call him a redneck Which maybe he was I don't know. Maybe if he were alive today, he would probably Chew chew lots of tobacco and go to nascar races or something like that But uh, but he wrote some things he did some good things and some bad things But there's one statement that he or whoever his assistants were who wrote was a very eloquent statement of why he opposed the bank So I'd like to take a minute to read it. So this is president andrew jackson And why we don't need a central bank It is to be regarded regretted that the rich and powerful too often bend the acts of government to their selfish purposes Distinctions in society will always exist under every just government Equality of talents of education or of wealth cannot be produced by human institutions But every man is equally entitled to protection by law But when the laws undertake to add to these natural and just advantages Artificial distinctions to grant titles gratuities and exclusive privileges To make the rich richer and the potent more powerful The humble members of society who have neither the time nor the means of securing Like favors to themselves that is by the from the government Have a right to complain of the injustice of their government If government would confine itself to equal protection of the laws It would be an unqualified blessing In the act before me that is the chartering of the bank of the united states There seems to be a wide and unnecessary departure from these just principles And so that was his statement of his veto statement And I dug up I did a little digging to find out well What are some of the historians the american historians saying about this statement that jackson made And one one of my favorite historical biographers isn't a man named robert remony And he says that Historians call this statement quote beneath contempt So that's beneath contents. It's an outrage that you should be condemned for saying such things out there And so this this was revived central banking become much more centralized in america during the american civil war in the 1860s And i'd like you to read to you a statement by the famous newspaper man of the time named horris greely Of what he saw as the meaning of this resuscitation of central banking When they passed the national currency acts in the 1860s he said the purpose of this major Is to institute such a connection between the public credit and the banking interest And shall on the one hand give the president Virtual control of all the banks in the country And on the other make every stockholder and banknote holder in the land an underwriter So to speak of the government bonds effectively harmonizing the interests of both government and the people and quote And a little background on this idea of harmonizing interests of bondholders and the people that was hamilton's idea The reason he gave for a large public debt He believes that The bondholders people who own government bonds will be mostly the more affluent or wealthy people of the country They would therefore have an incentive To lobby for and promote higher taxes and bigger government to make sure there was enough money in the treasury to pay off their bonds And so horris greely here many years later 70 some years later is saying we have achieved that with the national currency acts That that was his rationale A senator an influential senator of the time senator john sherman the brother of the famous general sherman He said as a result of this this the revival of central banking A powerful national government and an internationally dominant american nation would arise So that's the american empire In other words the new york times said Commented on the lincoln regime's nationalized banking and said it it quote crystallized a centralization of power Such as hamilton might have eulogized as magnificence And of course it did what central banking always does uh The greenbacks the currency at the time Depreciated to a value of only 35 cents worth of gold in about a year and a half During that during that time so it created there was a war going on and it created massive inflation During the war and so and of course the final centralization of the money the money supply came with the fed in 1913 And so and ever since then what have we gotten perpetual boom and bust cycles Created by the fed Most importantly it adds to what what it cost some economists call fiscal illusion Uh, a good example of this is when the vietnam war was financed largely by the printing of money which created inflation price inflation Later, uh, it reduces the perceived cost of war Because if you if if linden johnson were to say well, we're going to have to impose a tax of 10 000 per family to finance this war in vietnam there would have been a lot more protest against that war Than than there already was but if they can just simply print money which creates inflation two three four years later Uh, well, then that that sort of eliminates the perceived cost of government including the government's wars Debt does the same thing public debt financed by money creation And it's called fiscal illusion and then once once that occurs once the government creates all this inflation Since most citizens are economically ignorant It is very easy for the government to go out there and blame it all on capitalism After all who's charging all these high prices? It's the capitalists. It's the business people And that's exactly what's happening today in america and around the world the fed has created this disaster this depression that we're they were now in And every branch of the federal government seems is day in and day out Condemning capitalism and free markets as the cause and this is a very old story They've always done this they've a government has always created these problems and then blamed it on on the free market Uh, I wrote a short book about it called how capitalism saved america some years ago precisely for this reason that that americans have been taught mostly to to Endorse the destruction of the source of their own prosperity In this way and hopefully people around the rest of the world won't won't fall for this But but that's that's who stands to benefit as the beneficiaries of the american empire The business elites and certainly the banking elites And of course when we saw the u.s. Government give a trillion dollars to wall street investment bankers I would think that that should once and for all explain it to everyone Who the fed and who the u.s. Government really is really working for Despite all the rhetoric about the economic stability and and and so forth. That's the rationale for the fed That seems to me that's that's the real the real purpose of it and my time is about up. Thank you very much