WEBVTT NOTE The Founding Father of Central Banking 1 00:00:00.000 --> 00:00:04.800 I'm going to talk about how we got into this big mess of central banking in the first place, 2 00:00:04.800 --> 00:00:08.960 at least in the U.S., and then, of course, a lot of other governments around the world, 3 00:00:08.960 --> 00:00:14.240 including Canada, have had a penchant for well over a hundred years of imitating all 4 00:00:14.240 --> 00:00:17.520 our bad ideas with regard to economic policy. 5 00:00:17.520 --> 00:00:22.660 And so what I say is really, my title is the founding father of central banking, not only 6 00:00:22.660 --> 00:00:27.320 just the U.S., but Canada as well, and Japan, and quite a few other places that have just 7 00:00:27.320 --> 00:00:41.320 Imitated, you know, what we have done. And it's basically going to be a discussion of one of the chapters of a new book I have coming out in October, next month, called Hamilton's Curse, about Alexander Hamilton. 8 00:00:41.320 --> 00:00:51.320 And this is the page boost right here. There's a picture of Hamilton and there's a little red or scarlet skull and crossbones in the middle of it on the cover there. 9 00:00:51.320 --> 00:01:21.320 and there was a book written some years ago by a well-known historian named John Steele Gordon called Hamilton's Blessing and it was about the public debt, Alexander Hamilton who was the first U.S. Secretary of Treasury and he was a very influential person, he was quite a genius intellectually and he was a workaholic and Thomas Jefferson himself called Hamilton a political colossus 10 00:01:21.320 --> 00:01:51.320 because we thought he was so brilliant and so hardworking and there's a book about Hamilton's foreign policy called the American Machiavelli and he was also a Machiavellian type of person so he was really a formidable person and he had everything to do with why it is we ended up with central banking in America and so I'm going to try to tell that story in a half hour or so by the way my book is available for advanced purchase on amazon.com 11 00:01:51.320 --> 00:02:01.320 I can make a sales pitch on that. The subtitle is How Jefferson's Arch Enemy Betrayed the American Revolution and What It Means for Americans Today. 12 00:02:01.320 --> 00:02:10.320 But Hamilton, at the beginning of the American Republic, he proposed a number of big government interventions. 13 00:02:10.320 --> 00:02:17.320 He was an energetic statist of the worst kind, from my perspective. If you ever read much about him, 14 00:02:17.320 --> 00:02:45.320 George Washington must have thought he was a big pain. He was always telling George Washington we need a government of more energy. He kept using the words more energy, more energy, and I think Washington at that point just wanted to retire to his farm on the Potomac River. 15 00:02:45.320 --> 00:02:51.320 But anyway, one of his big proposals, he wrote a big report to Congress on the national debt. 16 00:02:51.320 --> 00:02:57.320 And he proposed a large and perpetual debt for the sake of having a debt, 17 00:02:57.320 --> 00:03:04.320 not to pay off the Revolutionary War necessarily, not to finance the building of roads or anything like that, 18 00:03:04.320 --> 00:03:13.320 but just to have a big debt because he thought a large national debt would tie the affluent people of the country to the government. 19 00:03:13.320 --> 00:03:43.320 They would be the bondholders and therefore they would go along with future proposals to raise taxes or to have a central bank that would print money because they wanted to make sure, they would want to make sure there's enough money in the treasury to pay off their bonds and so that was a very Machiavellian idea and he came right out and said that, that's why I want a big national debt. So it was all part of his scheme to have a government of more energy to have a large national debt for the sake of having a large national debt. 20 00:03:43.320 --> 00:03:48.280 Debt, not necessarily to build anything, and of course the central bank was part and parcel 21 00:03:48.280 --> 00:03:53.840 of that, because he understood a central bank of some kind, a bank run by politicians in 22 00:03:53.840 --> 00:04:02.280 the nation's capital, would be able to monetize that debt, and this is not a brand new recognition 23 00:04:02.280 --> 00:04:09.280 by me in this book, this has been recognized by people a long, long time ago, via the turn 24 00:04:09.280 --> 00:04:13.860 One of the 20th century social scientists, William Graham Sumner, who taught at Yale 25 00:04:13.860 --> 00:04:18.680 University for many years, wrote a biography of Hamilton, and he said this, 26 00:04:18.680 --> 00:04:22.440 A national bank was not essential to the work of the federal government. 27 00:04:22.440 --> 00:04:27.600 This was only a measure for carrying out the interweaving of the interests of wealthy men 28 00:04:27.600 --> 00:04:30.800 with those of the government." 29 00:04:30.800 --> 00:04:35.880 There's a book on this whole period of history called The Federalist Era. 30 00:04:35.880 --> 00:04:40.720 Hamilton's political party was called the Federalist Party, and he was sort of the spengali 31 00:04:40.720 --> 00:04:43.640 of the Federalist Party as far as I'm concerned. 32 00:04:43.640 --> 00:04:51.160 He was not only brilliant, but he had the undying devotion of some really smart men like 33 00:04:51.160 --> 00:04:56.840 John Marshall, who was the Chief Justice of the United States for 33 years, something 34 00:04:56.840 --> 00:05:01.880 like the first three decades of the 19th century, and they just worshiped Hamilton as their 35 00:05:01.880 --> 00:05:02.880 leader. 36 00:05:02.880 --> 00:05:08.880 But anyway, John C. Miller, the author of this book on the Federalist era, says this, 37 00:05:08.880 --> 00:05:15.880 The reports on public credit and the Bank of the United States laid the foundation for Hamilton's grand design, 38 00:05:15.880 --> 00:05:24.880 the centralization of governmental authority, and the industrialization of the United States by means of government aid to business. 39 00:05:24.880 --> 00:05:29.880 And one of the things I write about in this book is that, and why, in the subtitle of the book, 40 00:05:29.880 --> 00:05:53.880 The American Revolution was partly a revolt against British mercantilism, the system of protectionism and government favors, government-franchised monopolies paid for through a central bank, the Bank of England in part, that helped solidify the power of the king, of the monarch. 41 00:05:53.880 --> 00:05:58.280 and so they fought this revolution partly against the king of England who was 42 00:05:58.280 --> 00:06:02.640 imposing this system on the colonists but there was always a group of men in 43 00:06:02.640 --> 00:06:06.600 America in the United States who understood that if you're in the paying 44 00:06:06.600 --> 00:06:12.200 end of an empire it's not a good thing but if you're on the money collecting 45 00:06:12.200 --> 00:06:15.920 end of the empire that's not a bad gig if you're if you're in the collecting 46 00:06:15.920 --> 00:06:20.440 side and so they always wanted to be in charge of an empire like just like the 47 00:06:20.440 --> 00:06:36.440 and the British Empire. And so, of course, we needed our own Bank of England. We needed our own public debt. And all these institutions of Europe that they had fled, they wanted to adopt in this country as long as they could be in charge. 48 00:06:36.440 --> 00:06:47.440 Those of you who have seen the movie, History of the World, Part II, starring Mel Brooks, you might remember Mel Brooks plays the king of France in one scene, and he keeps saying, it's good to be the king. 49 00:06:47.440 --> 00:06:50.920 And that's how I think of Hamilton and his followers. 50 00:06:50.920 --> 00:06:53.920 They fought a revolution against the king, but then they said, 51 00:06:53.920 --> 00:06:56.160 you know, it is good to be the king, if you can be the king. 52 00:06:56.160 --> 00:06:57.880 It's not a bad idea. 53 00:06:57.880 --> 00:07:01.480 And these people were smoked out from the very beginning 54 00:07:01.480 --> 00:07:05.520 by Thomas Jefferson and his compatriots, 55 00:07:05.520 --> 00:07:08.080 his political compatriots. 56 00:07:08.080 --> 00:07:12.960 There's a politician from Georgia named James Jackson 57 00:07:12.960 --> 00:07:16.280 said this after observing what Hamilton was up to. 58 00:07:16.280 --> 00:07:21.880 He said, what was it that drove our forefathers to this country? 59 00:07:21.880 --> 00:07:27.480 Was it not the ecclesiastical core and perpetual monopolies of England and Scotland? 60 00:07:27.480 --> 00:07:30.680 Shall we suffer the same evils in this country? 61 00:07:30.680 --> 00:07:33.080 And so they understood this. 62 00:07:33.080 --> 00:07:38.080 In fact, the American Constitutional Convention considered giving the U.S. Congress 63 00:07:38.080 --> 00:07:41.880 the right to create a national bank and they rejected it. 64 00:07:41.880 --> 00:07:47.480 So it was explicitly rejected, you know, by the Constitutional Convention. 65 00:07:47.480 --> 00:07:53.780 But Hamilton began making the case for a bank run by politicians in the nation's capital. 66 00:07:53.780 --> 00:07:58.680 And Thomas Jefferson and John Randolph vigorously opposed him. 67 00:07:58.680 --> 00:08:03.480 Randolph was another Virginia politician, pretty well known. 68 00:08:03.480 --> 00:08:10.780 And so George Washington asked Hamilton to respond, to make the case for a central bank, a national bank. 69 00:08:10.780 --> 00:08:20.480 And he did, and he wrote a 15,000-word essay. That's what I meant when I said he was sort of a frenetic energy, and he was an impulsive statist. 70 00:08:20.480 --> 00:08:25.780 George Washington says, make the case for a bank. He sits down and writes 15,000 words. 71 00:08:25.780 --> 00:08:35.780 And there was a debate between him and Jefferson, and what the debate came down to was Jefferson argued that there's nothing in the Constitution that allows for a bank. 72 00:08:35.780 --> 00:08:40.180 In fact, the bank was considered during the Constitutional Convention and then rejected. 73 00:08:40.180 --> 00:08:45.980 So, of course, there's no case that this is a constitutional function of the U.S. government. 74 00:08:45.980 --> 00:08:54.780 And Hamilton, who was a lawyer, hold your booze, please, the crux of his opinion was that, 75 00:08:54.780 --> 00:09:00.880 well, Jefferson needs to read the necessary and proper clause of the U.S. Constitution more carefully. 76 00:09:00.880 --> 00:09:08.720 and gives the government the power to do whatever is necessary and proper to carry out the delegated functions of the government. 77 00:09:08.720 --> 00:09:19.480 There are there are 18 delegated functions that the states, the citizens of the states, delegated certain powers to the central government, primarily for foreign policy. 78 00:09:19.480 --> 00:09:28.720 And so this necessary and proper clause, excuse me, says, well, the government can do what's necessary to carry these out. 79 00:09:28.720 --> 00:09:37.900 And what Webster's dictionary defines the word necessary is meaning essential, indispensable, inevitable, and required. 80 00:09:37.900 --> 00:09:47.880 And Jefferson pointed this out, these kinds of definitions out, and Hamilton responded by saying, well, that's a matter of opinion. 81 00:09:47.880 --> 00:09:56.360 And it's kind of reminiscent of Bill Clinton saying, it depends on what the meaning of is is, if you remember that, during his deposition, it was on television. 82 00:09:56.360 --> 00:10:09.360 Hamilton was one of the first to use this sort of lawyerly language, and he went on to say that the powers enumerated in the Constitution ought to be construed, quote, on principles of liberal construction. 83 00:10:09.360 --> 00:10:19.360 He invented the notion of implied powers of the Constitution. So here was Jefferson and James Madison and John Randolph saying, well, here's the Constitution. 84 00:10:19.360 --> 00:10:22.360 There's nothing in here that gives the government the power for a central bank. 85 00:10:22.360 --> 00:10:27.360 and Hamilton responded by saying, well, you need to read between the lines. 86 00:10:27.360 --> 00:10:30.360 Jefferson would come back and said, I have read between the lines. 87 00:10:30.360 --> 00:10:32.360 There's nothing but blank space there. 88 00:10:32.360 --> 00:10:37.360 There's no authority to do that. 89 00:10:37.360 --> 00:10:43.360 Hamilton, he didn't really win the argument, but he won the day politically. 90 00:10:43.360 --> 00:10:45.360 We did get the bank. 91 00:10:45.360 --> 00:10:48.360 We did get the first bank of the United States. 92 00:10:48.360 --> 00:10:56.120 The way in which George Washington went along with it was he owned Mount Vernon as his property. 93 00:10:56.120 --> 00:11:00.960 You can visit Mount Vernon today near Alexandria, Virginia. 94 00:11:00.960 --> 00:11:09.600 There was a deal with regard to moving the nation's capital from New York City to Virginia. 95 00:11:09.600 --> 00:11:14.080 Washington wanted to make sure that the District of Columbia would run up right adjacent to 96 00:11:14.080 --> 00:11:18.320 his property because, of course, that would make it much more valuable. 97 00:11:18.320 --> 00:11:23.800 In return for the Federalists going along with, who wanted to keep, most of whom wanted 98 00:11:23.800 --> 00:11:28.720 to keep the nation's capital in New York City, which is where they were primarily from, New 99 00:11:28.720 --> 00:11:35.640 York City and New England, they moved the capital to Virginia and in return for promising 100 00:11:35.640 --> 00:11:42.540 it to make the border right next, you know, butt up to George Washington's property, George 101 00:11:42.540 --> 00:11:47.300 Washington signed off on the Bank of the United States, he didn't oppose it, he favored it. 102 00:11:47.300 --> 00:11:53.680 So they ended up with the Bank of the United States, and Murray Rothbard, in his history 103 00:11:53.680 --> 00:11:59.460 of money and banking in the United States, talks about, well, what happened next? 104 00:11:59.460 --> 00:12:00.460 We got the bank. 105 00:12:00.460 --> 00:12:02.180 We got our first central bank. 106 00:12:02.180 --> 00:12:06.600 He said, the Bank of the United States promptly fulfilled its inflationary potential by issuing 107 00:12:06.600 --> 00:12:11.940 millions of dollars in paper money and demand deposits, pyramiding on top of two million 108 00:12:11.940 --> 00:12:14.460 in specie, gold and silver. 109 00:12:14.460 --> 00:12:20.740 The bank invested heavily in loans to the United States government, monetizing the debt. 110 00:12:20.740 --> 00:12:25.620 In addition, the $2 million invested in the assumption of pre-existing long-term debt 111 00:12:25.620 --> 00:12:30.580 assumed by the new federal government, the bank engaged in massive temporary lending 112 00:12:30.580 --> 00:12:38.140 to the government, which reached $6.2 million by 1796-1791 was the year the bank was created. 113 00:12:38.140 --> 00:12:42.520 The result of the outpouring of credit and paper money by the new bank of the United 114 00:12:42.520 --> 00:12:52.080 of States was an increase in prices of 72% from 1791 to 1796 and so it immediately created 115 00:12:52.080 --> 00:13:00.380 inflation right off the back and so it was ended, it had a 20 year charter and it was 116 00:13:00.380 --> 00:13:07.000 ended but then the War of 1812 came under which, where the Canadians in the room probably 117 00:13:07.000 --> 00:13:37.000 I understand this, that we tried to conquer Canada and it ended up with the war of 1812 and there was a big war debt and so they resurrected the bank in 1816 to help pay for the war debt from the war of 1812 and so the bank and then, so the second bank of the United States, people got a taste of it during the first go around, the first 20 years and the concern was always not just economic instability, it was also 118 00:13:37.000 --> 00:13:55.000 Corruption, because it was a source of patronage, it was a source of printing money to patronize various businesses, agricultural interests and so forth around the region that were supportive of the government and not necessarily based on any sort of economic reasoning. 119 00:13:55.000 --> 00:14:16.000 And so, during the second bank, second wave of this Bank of the United States, James J. Kilpatrick, who wrote a book on the history of state government in America, he writes about what he calls a wave of hostility toward the Bank of the United States, which swept through the country. 120 00:14:16.000 --> 00:14:24.000 Several states in the United States amended their constitutions to prohibit the Bank of the United States from coming into their states. 121 00:14:24.000 --> 00:14:28.000 There was such hostility toward this institution. 122 00:14:28.000 --> 00:14:35.000 And the state of Ohio sort of took the lead in opposition to this bank. 123 00:14:35.000 --> 00:14:39.000 The bank had opened up two branches of Hamilton's bank. 124 00:14:39.000 --> 00:14:44.000 He was dead by now. He died in 1804, so this is his legacy I'm talking about. 125 00:14:44.000 --> 00:14:50.100 They opened up two branches in the state of Ohio and the state of Ohio did not want these 126 00:14:50.100 --> 00:14:58.320 branches of this federal government bank destabilizing its regional economy and being used as a political 127 00:14:58.320 --> 00:15:06.720 patronage tool in Ohio and so they imposed a $50,000 a year tax on each branch and this 128 00:15:06.720 --> 00:15:13.440 is in the 1820s and so $50,000 is a good piece of change in the 1820s. 129 00:15:13.440 --> 00:15:19.040 The Bank of the United States refused to pay the tax, and so the state of Ohio sent armed 130 00:15:19.040 --> 00:15:25.640 marshals into the Bank of the United States with a big chest, an empty chest, and they 131 00:15:25.640 --> 00:15:30.680 helped themselves to the vault. They hopped over the counter, and they took a hundred 132 00:15:30.680 --> 00:15:35.120 thousand dollars out of the vault of the Bank of the United States, and this led to some 133 00:15:35.120 --> 00:15:41.600 sort of a constitutional crisis over whether or not this bank was constitutional or not. 134 00:15:41.600 --> 00:15:46.600 Can they do this? Can they tax the bank of the United States? 135 00:15:46.600 --> 00:15:54.600 Another chapter of my book is entitled Hamilton's Disciple, How John Marshall Subverted the American Constitution. 136 00:15:54.600 --> 00:16:01.600 Marshall was a disciple, really a disciple of Hamilton's political theories, and he stepped in. 137 00:16:01.600 --> 00:16:04.600 He was the Chief Justice of the United States at this point. 138 00:16:04.600 --> 00:16:09.600 There was a US Supreme Court case called McCulloch v. Maryland. 139 00:16:09.600 --> 00:16:12.600 and the Federal Reserve Bank of the United States of America. 140 00:16:12.600 --> 00:16:15.600 And I think that's a great example of how the bank was formed. 141 00:16:15.600 --> 00:16:19.600 Maryland had done something similar to what Ohio did. 142 00:16:19.600 --> 00:16:22.600 And one of the things that comes out of Marshall's opinion, 143 00:16:22.600 --> 00:16:25.600 he had the opinion that the bank was constitutional here. 144 00:16:25.600 --> 00:16:27.600 One of his statements that's kind of famous, 145 00:16:27.600 --> 00:16:30.600 at least among students of American history, 146 00:16:30.600 --> 00:16:34.600 he said the power to tax involves the power to destroy. 147 00:16:34.600 --> 00:16:36.600 And he was saying, well, this is a bad thing. 148 00:16:36.600 --> 00:16:38.600 But this was right. 149 00:16:38.600 --> 00:16:43.600 And of course the people of Ohio would have said, well, yes, exactly, that's our intent. 150 00:16:43.600 --> 00:16:48.600 But he would say, no, that's a bad thing to destroy this bank. 151 00:16:48.600 --> 00:16:55.600 But President Andrew Jackson at the time, this is an interesting thing that most people don't know about American politics, 152 00:16:55.600 --> 00:17:00.600 he pretty much thumbed his nose at John Marshall. He pretty much said, thank you for your opinion, 153 00:17:00.600 --> 00:17:04.600 but that's just your opinion, and my opinion is different, and I'm the President of the United States. 154 00:17:04.600 --> 00:17:17.100 So there. In another case where Marshall pontificated, and Marshall tried to set him up, by the way, as the sole arbiter of constitutionality in America. 155 00:17:17.100 --> 00:17:27.500 In another case, Marbury versus Madison, he claimed that the U.S. Supreme Court alone should decide issues of constitutionality, meaning himself, the Chief Justice. 156 00:17:27.500 --> 00:17:35.600 And on another case, Andrew Jackson said, well, Mr. Marshall has made his opinion, now let him try to enforce it. 157 00:17:35.600 --> 00:17:42.500 And so we did not, Americans did not look at the Supreme Court as black robe deities like they do now, 158 00:17:42.500 --> 00:17:47.100 where we're all supposed to genuflect every time they come out with one of their statements. 159 00:17:47.100 --> 00:17:51.900 And so what happened was this bank was destroyed. 160 00:17:51.900 --> 00:18:01.100 This bank was destroyed by Andrew Jackson, who vetoed the bill that would have returned the bank for another 20 years. 161 00:18:01.100 --> 00:18:08.700 And so that worked. It was a big success. 162 00:18:08.700 --> 00:18:20.020 And Jackson himself, he's been, some American historians sort of belittle Jackson as so he was from Tennessee. 163 00:18:20.020 --> 00:18:26.020 And there's this culture in America that everything in the South is sort of backwards, you know. 164 00:18:26.020 --> 00:18:29.220 What do these people from Alabama know about anything? 165 00:18:29.220 --> 00:18:34.620 And there's no culture there and there's no intelligent life in the South. 166 00:18:34.620 --> 00:18:40.620 And of course, Andrew Jackson, being a southern president from the 19th century, would fit into that. 167 00:18:40.620 --> 00:18:49.920 But here's a quote I'd like to read of what Andrew Jackson said about why it is he vetoed the rechartering of America's first central bank. 168 00:18:49.920 --> 00:18:57.920 It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes. 169 00:18:57.920 --> 00:19:01.920 Distinctions in society will always exist under every just government. 170 00:19:01.920 --> 00:19:11.920 Equality of talents, of education, or of wealth cannot be produced by human institutions, but every man is equally entitled to protection by law. 171 00:19:11.920 --> 00:19:16.920 But when the laws undertake to add to these natural and just advantages, 172 00:19:16.920 --> 00:19:24.720 Advantages, Artificial Distinctions to grant titles, gratuities, and exclusive privileges 173 00:19:24.720 --> 00:19:28.200 to make the rich richer and the potent more powerful. 174 00:19:28.200 --> 00:19:33.360 The humble members of society who have neither the time nor the means of securing like favors 175 00:19:33.360 --> 00:19:39.480 from the government to themselves have a right to complain of the injustice of their government. 176 00:19:39.480 --> 00:19:46.520 If government would confine itself to equal protection, it would be an unqualified blessing. 177 00:19:46.520 --> 00:19:51.320 In the act before me, that is, recharging the bank, there seems to be a wide and unnecessary 178 00:19:51.320 --> 00:19:54.500 departure from these just principles, end quote. 179 00:19:54.500 --> 00:19:59.280 So he recognized this as a tool of mercantilism, essentially, of the government dispensing 180 00:19:59.280 --> 00:20:06.880 favors to the people on Wall Street, primarily, and he thought this was unjust, and no uneducated 181 00:20:06.880 --> 00:20:10.480 hayseed could write anything like that, I don't think. 182 00:20:10.480 --> 00:20:17.280 And so the legacy of this first central bank in America was inflation, debasement of the 183 00:20:17.280 --> 00:20:24.560 currency and a perpetual boom and bust problem. 184 00:20:24.560 --> 00:20:28.440 Another one of Murray Rothbard's books, it was his doctoral dissertation actually, The 185 00:20:28.440 --> 00:20:30.660 Panic of 1819. 186 00:20:30.660 --> 00:20:34.760 It's all about how the Bank of the United States created the Panic of 1819, which was 187 00:20:34.760 --> 00:20:38.740 the very first real depression created in America. 188 00:20:38.740 --> 00:20:44.420 So this monster started creating boom and bust cycles and debasing the currency from the 189 00:20:44.420 --> 00:20:48.660 very first, from the very beginning of its creation. 190 00:20:48.660 --> 00:20:52.820 And it also tried to manipulate politics. 191 00:20:52.820 --> 00:21:00.980 Part of the reason why Jackson, Andrew Jackson, got rid of it was that it was so blatant that 192 00:21:00.980 --> 00:21:06.020 this Bank of the United States was literally financing the political campaign propaganda 193 00:21:06.020 --> 00:21:09.020 Andrew Jackson's Opponents in Politics 194 00:21:09.020 --> 00:21:12.020 It was as though, you know, two people running for president 195 00:21:12.020 --> 00:21:16.020 and you have a big special taxpayer capitalized bank 196 00:21:16.020 --> 00:21:20.020 that finances the campaign of one candidate 197 00:21:20.020 --> 00:21:22.020 but not the campaign of the other candidate 198 00:21:22.020 --> 00:21:24.020 That's pretty corrupt 199 00:21:24.020 --> 00:21:26.020 That's exactly what they were doing 200 00:21:26.020 --> 00:21:29.020 And so not only did it cause this boom and bust cycle in the economy 201 00:21:29.020 --> 00:21:31.020 and debase the currency 202 00:21:31.020 --> 00:21:35.020 but it was thoroughly corrupting politics as well 203 00:21:35.020 --> 00:21:40.100 as it does today modern-day economists talk about the political business cycle 204 00:21:40.100 --> 00:21:44.980 that is that is caused by by the central bank now if I could fast forward a 205 00:21:44.980 --> 00:21:51.460 little bit Jackson destroyed this bank and then for about 20 years there was in 206 00:21:51.460 --> 00:21:56.140 the US there was a period it was called free banking it was a much less heavily 207 00:21:56.140 --> 00:22:00.180 regulated by the central government I don't have time to get into it but it 208 00:22:00.180 --> 00:22:03.900 was resurrected the central banking was resurrected during the American I call 209 00:22:03.900 --> 00:22:24.900 The National Currency Act and the main sponsors of the National Currency Act in the 1860s thanked Hamilton as being their inspiration for this. 210 00:22:24.900 --> 00:22:31.900 One of the promoters of these acts was a congressman from New York City who just happened by sheer accident to be a banker. 211 00:22:31.900 --> 00:22:40.820 Professor, his name was Elbridge G. Spalding, and what he did, he invoked Hamilton as, quote, 212 00:22:40.820 --> 00:22:46.260 his authority for constitutional interpretation with regard to making the constitutional case 213 00:22:46.260 --> 00:22:53.060 for the bank. So they're very explicit about that. Another proponent of this was Senator 214 00:22:53.060 --> 00:22:57.740 John Sherman. He was the chairman of the Senate Finance Committee. He was the brother of the 215 00:22:57.740 --> 00:23:01.740 by the famous General Sherman of Civil War fame in the U.S. 216 00:23:01.740 --> 00:23:02.740 And he said this, 217 00:23:02.740 --> 00:23:06.740 History teaches us that the public faith of a nation alone 218 00:23:06.740 --> 00:23:10.740 is not sufficient to maintain a paper currency. 219 00:23:10.740 --> 00:23:12.740 He said there must be a combination 220 00:23:12.740 --> 00:23:16.740 between the interests of private individuals and the government, 221 00:23:16.740 --> 00:23:19.740 a community of interest between the stockholders of banks, 222 00:23:19.740 --> 00:23:21.740 the people and the government, he said. 223 00:23:21.740 --> 00:23:23.740 So he was repeating Hamilton's theory 224 00:23:23.740 --> 00:23:26.740 of tying the affluent people of the country to the government 225 00:23:26.740 --> 00:23:30.740 through the combination of public debt and the central bank. 226 00:23:30.740 --> 00:23:35.740 And so these were the political descendants of Alexander Hamilton. 227 00:23:35.740 --> 00:23:41.740 When the New York Times celebrated the resurrection of central banking, 228 00:23:41.740 --> 00:23:45.740 this is what they wrote on March 9th, 1863. 229 00:23:45.740 --> 00:23:49.740 They said, this policy crystallized the centralization of power, 230 00:23:49.740 --> 00:23:54.740 such as Hamilton might have eulogized as magnificent. 231 00:23:54.740 --> 00:24:10.740 That was always the purpose, this centralization of political power in the nation's capital was always the purpose of the whole thing and modern, you know, you don't have to only restrict yourself to studying the Austrian School of Economics to understand these issues. 232 00:24:10.740 --> 00:24:23.740 There was a book published in the 1990s that had an essay in it by three very distinguished monetary economists, including Anna Schwartz, who was sort of a co-author with Milton Friedman for many years. 233 00:24:23.740 --> 00:24:31.740 Walter Block will discount what I'm going to say now since it was sort of related to Milton Friedman. He's the anti-Friedman. 234 00:24:31.740 --> 00:24:38.740 Although Walter and I knew Milton. He's a charming guy. We liked him and rose with wonderful people. 235 00:24:38.740 --> 00:24:41.740 We just have disagreements over certain things. 236 00:24:41.740 --> 00:24:51.740 But anyway, this book published by a prestigious university press, one of the essays in it evaluated essentially Hamilton's bank 237 00:24:51.740 --> 00:25:02.740 and its operation and its legacy, including these national currency acts that brought up the greenbacks in the 1860s. 238 00:25:02.740 --> 00:25:10.740 This was all Hamilton's central bank. What is the legacy, the economic legacy of this bank that existed before we got the Fed? 239 00:25:10.740 --> 00:25:15.740 We got the Fed in the U.S. in 1913. And here's what they said. 240 00:25:15.740 --> 00:25:23.900 They said that the whole system, quote, was characterized by monetary and cyclical instability, 241 00:25:23.900 --> 00:25:31.100 poor banking panics, frequent stock market crashes, and other financial disturbances, 242 00:25:31.100 --> 00:25:32.100 end quote. 243 00:25:32.100 --> 00:25:41.460 And so that was the history of it from the time, from the 18th century, 1791 until 1913. 244 00:25:41.460 --> 00:25:45.660 And so therefore, that was the history, the legacy of central banking. 245 00:25:45.660 --> 00:25:52.020 So what did we do in 1913? We said, well, the obvious solution to monetary and cyclical 246 00:25:52.020 --> 00:25:58.360 instability for banking panics, frequent stock market crashes and other financial disturbances 247 00:25:58.360 --> 00:26:03.340 is even more of that. You know, let's give them even more power. And that's what we did 248 00:26:03.340 --> 00:26:09.380 with the creation of the Federal Reserve Board in 1913 where the Mises Institute once had 249 00:26:09.380 --> 00:26:15.340 a conference there on the Fed at Jekyll Island, Georgia, which is where the conspirators got 250 00:26:15.340 --> 00:26:21.380 together to plot the Fed and there are actually pictures of all these people in the room where 251 00:26:21.380 --> 00:26:27.180 we sat at one point of all the men from the banking industry and elsewhere who were there 252 00:26:27.180 --> 00:26:32.440 who were sort of the founding fathers of the Central Bank of America, the Fed and to this 253 00:26:32.440 --> 00:26:37.200 day I swear that when we were in that room in some of these big portraits the eyeballs 254 00:26:37.200 --> 00:26:42.220 were moving back and forth as we as some of them are going around in circles as Walter 255 00:26:42.220 --> 00:26:49.220 Walter Block was giving a talk about it, but that's about all, my time is about up, thank you very much.