Blogs: Ralph J. Benko
Adam Smith, in Wealth of Nations, Volume II Book II, paragraphs 100 - 103, makes a pointed critique of American colonial paper money, and praise for the Currency Act prohibiting such.
Image courtesy of adamsmith.org
The paper currencies of North America consisted, not in bank notes payable to the bearer on demand, but in government paper, of which the payment was not exigible till several years after it was issued; and though the colony governments paid no interest to the holders of this paper, they declared it to be, and in fact rendered it, a legal tender of payment for the full value for which it was issued. But allowing the colony security to be perfectly good, a hundred pounds payable fifteen years hence, for example, in a country where interest at six per cent, is worth little more than forty pounds ready money. To oblige a creditor, therefore, to accept of this as full payment for a debt of a hundred pounds actually paid down in ready money was an act of such violent injustice as has scarce, perhaps, been attempted by the government of any other country which pretended to be free. It bears the evident marks of having originally been, what the honest and downright Doctor Douglas assures us it was, a scheme of fraudulent debtors to cheat their creditors. The government of Pennsylvania, indeed, pretended, upon their first emission of paper money, in 1722, to render their paper of equal value with gold and silver by enacting penalties against all those who made any difference in the price of their goods when they sold them for a colony paper, and when they sold them for gold and silver; a regulation equally tyrannical, but much less effectual than that which it was meant to support. A positive law may render a shilling a legal tender for guinea, because it may direct the courts of justice to discharge the debtor who has made that tender. But no positive law can oblige a person who sells goods, and who is at liberty to sell or not to sell as he pleases, to accept of a shilling as equivalent to a guinea in the price of them. Notwithstanding any regulation of this kind, it appeared by the course of exchange with Great Britain, that a hundred pounds sterling was occasionally considered as equivalent, in some of the colonies, to a hundred and thirty pounds, and in others to so great a sum as eleven hundred pounds currency; this difference in the value arising from the difference in the quantity of paper emitted in the different colonies, and in the distance and probability of the term of its final discharge and redemption.
No law, therefore, could be more equitable than the Act of Parliament, so unjustly complained of in the colonies, which declared that no paper currency to be emitted there in time coming should be a legal tender of payment.
Pennsylvania was always more moderate in its emissions of paper money than any other of our colonies. Its paper currency, accordingly, is said never to have sunk below the value of the gold and silver which was current in the colony before the first emission of its paper money. Before that emission, the colony had raised the denomination of its coin, and had, by act of assembly, ordered five shillings sterling to pass in the colony for six and threepence, and afterwards for six and eightpence. A pound colony currency, therefore, even when that currency was gold and silver, was more than thirty per cent. below the value of a pound sterling, and when that currency was turned into paper it was seldom much more than thirty per cent. below that value. The pretence for raising the denomination of the coin, was to prevent the exportation of gold and silver, by making equal quantities of those metals pass for greater sums in the colony than they did in the mother country. It was found, however, that the price of all goods from the mother country rose exactly in proportion as they raised the denomination of their coin, so that their gold and silver were exported as fast as ever.
Death of Dido from Vergilius Vaticanus (Vatican Library, Cod. Vat. lat. 3225).
The erudite Ryan Sellars, publishing at AncientCarthage.com, recounts two variants of the once-famous legend of Dido ... and her treasure.
[B]y the first century CE, the legend of Dido’s treasure had been circulating around the Mediterranean for close to a thousand years, and many Romans would have been familiar with the version of the story told in Vergil’s Aeneid. An earlier version of the myth, however, comes from Pompeius Trogus, a contemporary of Vergil who was probably following in the tradition of the Greek author Timaeus, and whose works were later documented by Justin. In this account, the Phoenician Dido (Elissa) is married to her uncle Acerbas, a wealthy priest who hides his substantial treasure (magnae opes, 18.4.6) in the earth to keep it concealed from Dido’s brother Pygmalion, the greedy king of Tyre. A rumor of this treasure quickly spreads throughout the city, and Pygmalion, inflamed with avarice, murders Acerbas without any proper regard for piety (sine respectu pietatis occidit, 18.4.8). Dido hates her brother for this terrible crime, but she conceals her feelings, telling Pygmalion that she plans to move back to the family residence so that she can get over the memory of Acerbas. Pygmalion expects Dido to bring the gold with her (existimans cum ea et aurum Acherbae ad se venturum, 18.4.11), but she has a more subversive plan in mind. She pretends to throw the precious treasure into the sea – the bags were actually filled with sand rather than money (onera harenae pro pecunia, 18.4.12) – and then sails away with members of the Tyrian aristocracy, first to Cyprus and then eventually on to the shores of Carthage.
In this era, mostly thanks to playwright (and gold standard sympathizer) George Bernard Shaw and its progeny, Pygmalion, may be more familiar to most people than his once far-more-famous sister, founder and Queen of Carthage. The more compelling story regarding Pygmalion is not that of a statue come to life but that of treacherous murder of a sister's husband in a frenzy of "fell lust for gold," perfectly antithetical to the true nature of the true gold standard itself.
Tacitus, in Book 16 of The Annals, describes an incident occurring in A.D. 65-66, of the Emperor Nero being "duped by the report of a vision of a cave of immense depth, which contained a vast quantity of gold, not in the form of coin, but in the shapeless and ponderous masses of ancient days.... Dido...after fleeing from Tyre and founding Carthage, had concealed these riches...."
Plaster bust of Nero, from the Pushkin Museum
[16.1] FORTUNE soon afterwards made a dupe of Nero through his own credulity and the promises of Caesellius Bassus, a Carthaginian by birth and a man of a crazed imagination, who wrested a vision seen in the slumber of night into a confident expectation. He sailed to Rome, and having purchased admission to the emperor, he explained how he had discovered on his land a cave of immense depth, which contained a vast quantity of gold, not in the form of coin, but in the shapeless and ponderous masses of ancient days. In fact, he said, ingots of great weight lay there, with bars standing near them in another part of the cave, a treasure hidden for so many ages to increase the wealth of the present. Phoenician Dido, as he sought to show by inference, after fleeing from Tyre and founding Carthage, had concealed these riches in the fear that a new people might be demoralised by a superabundance of money, or that the Numidian kings, already for other reasons hostile, might by lust of gold be provoked to war.
[16.2] Nero upon this, without sufficiently examining the credibility of the author of the story, or of the matter itself, or sending persons through whom he might ascertain whether the intelligence was true, himself actually encouraged the report and despatched men to bring the spoil, as if it were already acquired. They had triremes assigned them and crews specially selected to promote speed. Nothing else at the time was the subject of the credulous gossip of the people, and of the very different conversation of thinking persons. It happened, too, that the quinquennial games were being celebrated for the second time, and the orators took from this same incident their chief materials for eulogies on the emperor. "Not only," they said, "were there the usual harvests, and the gold of the mine with its alloy, but the earth now teemed with a new abundance, and wealth was thrust on them by the bounty of the gods." These and other servile flatteries they invented, with consummate eloquence and equal sycophancy, confidently counting on the facility of his belief.
[16.3] Extravagance meanwhile increased, on the strength of a chimerical hope, and ancient wealth was wasted, as apparently the emperor had lighted on treasures he might squander for many a year. He even gave away profusely from this source, and the expectation of riches was one of the causes of the poverty of the State. Bassus indeed dug up his land and extensive plains in the neighbourhood, while he persisted that this or that was the place of the promised cave, and was followed not only by our soldiers but by the rustic population who were engaged to execute the work, till at last he threw off his infatuation, and expressing wonder that his dreams had never before been false, and that now for the first time he had been deluded, he escaped disgrace and danger by a voluntary death. Some have said that he was imprisoned and soon released, his property having been taken from him as a substitute for the royal treasure.
Tacitus's view that "Extravagance meanwhile increased, on the strength of a chimerical hope" is disputed by at least one sophisticated and scholarly reading of the evidence. According to Ryan Sellars, publishing at AncientCarthage.com:
The conduct of American federal authorities, both fiscal and monetary, in both spending and in inept monetary stewardship which helps to fosters such spending, however, gives a whole new level of poignancy to Tacitus's indictment that "Extravagance meanwhile increased, on the strength of a chimerical hope...." A gold standard is the very antithesis to "crazed imagination" of "a cave of immense depth, which contained a vast quantity of gold...."
The Federal Reserve Bank of New York's always informative and frequently delightful blogger, Amy Farber, at Liberty Street Economics, provides us with a dip into monetary history... including refreshing her readers' memory as to the origin of the phrases "pieces of eight" and "two bits." Farber:
Historical Echoes: Aye, That Piece of Eight You Be Thinkin’ of Were a Precursor to Today’s Dollar
The bar silver and the arms still lie, for all that I know, where Flint buried them; and certainly they shall lie there for me. Oxen and wain-ropes would not bring me back again to that accursed island; and the worst dreams that ever I have are when I hear the surf booming about its coasts or start upright in bed with the sharp voice of Captain Flint still ringing in my ears: “Pieces of eight! Pieces of eight!”
During much of the 17th and 18th centuries, the Spanish Dollar coin served as the unofficial national currency of the American colonies. To make change the dollar was actually cut into eight pieces or “bits.” Thus came the terms “pieces of eight” from these early times and “two bits” from our time.
"Two bits" used to be used as a practical synonym for a quarter. The phrase mostly, now, is remembered for its inclusion in the comic couplet, "shave and a haircut, two bits." (Or as slang, reports the Urban Dictionary, for cheap or of bad quality.)
Recently at a Kemp Forum/American Principles In Action event held, at the Capitol, to observe the 30th anniversary of Jack Kemp's introduction of the Gold Standard Act of 1984, John Mueller, who was Kemp's staff economist, recalled how his father had been a coin collector.
In inventorying the collection it was discovered that the base metal coins in it had lost real value from their original purchase price.
But the old silver quarters had appreciated, in nominal value ... at least by a factor ten ... or more just based on the value of the silver.
Precious metals retain value over time.
Paper and base metal money depreciates.
It's a historical fact.
The story of the original design session of the Federal Reserve System has been recounted many times, notably in G. Edward Griffin's highly acclaimed 1998 The Creature From Jekyll Island. It was praised by no less than Ron Paul as: "A superb analysis deserving serious attention by all Americans. Be prepared for one heck of a journey through time and mind."
But where did the story of the gathering of bankers on Jekyll Island come from? All evidence points to B.C. Forbes, grandfather of noted gold standard advocate (and media titan) Steve Forbes.
Jekyll Island Clubhouse and Annex courtesy of JekyllIslandHistory.com
Jekyll Island's history website retells the telling of the story:
Soon after the 1907 panic, Congress formed the National Monetary Commission to review banking policies in the United States. The committee, chaired by Senator Nelson W. Aldrich of Rhode Island, toured Europe and collected data on the various banking methods being incorporated. Using this information as a base, in November of 1910 Senator Aldrich invited several bankers and economic scholars to attend a conference on Jekyll Island. While meeting under the ruse of a duck-shooting excursion, the financial experts were in reality hunting for a way to restructure America's banking system and eliminate the possibility of future economic panics.
The 1910 "duck hunt" on Jekyll Island included Senator Nelson Aldrich, his personal secretary Arthur Shelton, former Harvard University professor of economics Dr. A. Piatt Andrew, J.P. Morgan & Co. partner Henry P. Davison, National City Bank president Frank A. Vanderlip and Kuhn, Loeb, and Co. partner Paul M. Warburg. From the start the group proceeded covertly. ... In 1916, B. C. Forbes discussed the Jekyll conference in his book Men Who Are Making America.... This book as well as a magazine article by Forbes is the only public mention to the conference until around 1930, when Paul Warburg's book The Federal Reserve System: Its Origin and Growth and Nathaniel Wright Stephenson's book Nelson W. Aldrich: A Leader in American Politics were published.
Nathaniel Stephenson, in the Notes section of his biography on Senator Aldrich, suggests that B.C. Forbes learned of the Jekyll conference from an incident taking place at the Brunswick train depot. Stephenson writes, "In the station at Brunswick, Ga., where they ostentatiously talked of sport, the station master gave them a start. 'Gentleman,' said he, 'this is all very pretty, but I must tell you we know who you are and the reporters are waiting outside.' But Mr. Davison was not flustered. 'Come out, old man,' said he, 'I will tell you a story.' They went out together. When Mr. Davison returned he was smiling. 'That's all right,' said he, 'they won't give us away.' The rest is silence. The reporters disappeared and the secret of the strange journey was not divulged. No one asked him how he managed it and he did not volunteer the information." From the Brunswick train station the men boarded a boat and traveled on to Jekyll Island.
The Jekyll Island conference offered a secluded location to discuss banking ideas and enabled the development of a plan that eventually became the Federal Reserve Banking System. ... Paul Warburg in his book The Federal Reserve System: Its Origin and Growth explains the reason for secrecy behind the meeting. He states, "It is well to remember that the period during which these discussions took place was the time of the struggle of the financial Titans- the period of big combinations [of businesses], with bitter fights for control. All over the country there was a deep feeling of fear and suspicion with regard to Wall Street's power and ambitions."
Obtaining permission from J. Pierpont Morgan to use the facilities of the Jekyll Island Club, the conference attendees most likely resided in the clubhouse for about ten days. The meeting required long days and late nights of contemplation and reflection. European banking practices were assessed and numerous conversations held regarding the best way to craft a non-partisan banking reform bill. Paul Warburg in the book Henry P. Davison: The Record of a Useful Life recalls, "After we had completed the sketch of the bill, and before setting down to its definitive formulation, it was decided that we had earned 'a day off' which was to be devoted to duck shooting." The Jekyll Island Club was originally formed in 1886 as a hunting preserve and in the 1910s was well stocked with animals such as pheasants and wild hogs. Several ponds on the island attracted numerous game birds and wild ducks.
William Barton McCash and June Hall McCash in the book The Jekyll Island Club: Southern Haven for America's Millionaires offers this narrative of the Jekyll conference. They mention, "How long the surreptitious meeting lasted is uncertain, although the group spent Thanksgiving on the island, where they dined on 'wild turkey with oyster stuffing.' They worked throughout the day and night, taking only sporadic time out to explore Jekyl and enjoy its delights
A "struggle of the financial Titans ... bitter fights for control. ...deep feeling of fear and suspicion with regard to Wall Street's power and ambitions." A century later, financial titans continue bitter fights for control and the people again are suffused with a deep feeling of fear and suspicion toward Wall Street. All this under the fiduciary Federal Reserve Note standard, which our political and economic elites exalt while deriding, and even defaming, the classical gold standard.
Out of the frying pan and into the fire. The Fed was designed to operate under a classical gold standard and would do well to return to its relatively safe harbor.
BY RALPH J. BENKO: