Modern Monetary Madness and King George III

Are we doomed to the whims of central banks and oblivion spending governments? Another look at history may shed some insights.

Economics, Philosophy

Early American colonists fought a war of independence against the British economic tyranny espoused by King George III, his Parliament, and the Bank of England (BoE).

The BoE, a “private” institution established in 1694, was set up to supply money to rebuild the British Navy after the battle of Beachy Head, as the Crown and its Parliament had run dry of public funds. Incorporated into the BoE Royal Charter from the start, the bank assumed special privileges for converting a portion of the sovereign debt into shares of “The Governor and Company of the BoE,” including the issuance of £1.2M in BoE banknotes with only a fraction backed by gold. Such fractional reserve banking had become all the rage in Amsterdam and Stockholm, financing brisk economic activity on the European continent and beyond – and the British figured that they too could help drive their own revolution in financing public credit and tradable government debt: facilitating the swap of short-term debt (unfunded deficits) with long-term debt (funded or tax revenue-secured loans) [1], and inventing a central bank with monopoly powers to dominate and propel that market. The leap of faith was to believe that such long-term debt would retain stable value, given the ever-growing deficits and national debts that exceeded tax revenues and gold reserves. Within two years, as bank gold reserves shrunk to less than 5% of outstanding banknotes, there was a run on the BoE, with investors demanding gold specie payments for their banknotes. The BoE had sustained its first insolvency, but with sovereign backing, had power to suspend redemption of banknotes until the bank was recapitalized by an injection of gold from shareholders [2,3]. A resumption of specie payments and fractional reserve banknote issuance continued with the BoE’s charter extension in 1697.

Charter renewals for the BoE over the next century were motivated by the need for increased fiscal and wartime financing following spikes in sovereign deficits, and with each renewal, the value of the BoE’s monopoly franchise as a banking enterprise increased [1-4]. In 1697, the BoE garnered partial monopoly central banking and government-backed note-issuance status, and its shares were declared personal property not subject to profit taxation. In 1708 the BoE provided new funding to the sovereign, in part to bankroll the War of Spanish Succession, in exchange for monopoly of joint-stock banking and joint-stock note issuance. In 1742 the BoE provided an interest-free loan to the sovereign in the wake of the War of the Austrian Succession, in exchange for its monopoly on paper currency, or the issuance of circulating non-interest bearing promissory notes. Such cheap loans continued in exchange for reaffirmation of monopoly banking charter extensions in 1764 and 1781, to cover deficits from the Seven Years’ War and the American Revolutionary War.

Notably, two other government-sponsored corporate entities, the South Sea Company and the East India Company, provided substantial national debt financing to the British sovereign during the same periods as the BoE, in exchange for monopoly regional business and trade privileges. The South Sea Company in particular was incorporated on the basis of a national debt-for-equity swap in the wake of the War of the Spanish Succession (1711), whereby holders of £10M in short-term government debt would swap with equity in the new company, which would receive a steady revenue stream from interest payments on a perpetual £10M loan back to the government. The sovereign would then place a tariff on imports from South America, where the South Sea Company conducted its trade business, in part to pay such interest obligations. Over the next nine years, the South Sea Company took on a number of similar sovereign debt-for-equity swaps that sought to convert high interest debt into lower interest long-term debt, in 1720 amassing over 75% of the total national debts on record, £38M/£50M [5]. The combined trade monopoly and swap revenue boost from the sovereign made the South Sea Company the momentum growth stock of its day, and as soon as the last and largest sovereign debt-for-equity swap deal (£30M) was announced, shares were bid up in hyperbolic fashion [6,10], fueled by an incentive for an inflated stock price to induce government annuity holders to convert their debt-to-equity, plus a credit expansion that was promoted by the sovereign, the markets, and the Sword Blade Bank, the in-house private bank of the South Sea Company.

Ironically, the BoE made a counterbid for the South Sea swap deal to Parliament, but the sitting Chancellor to the Exchequer Aislabie (and many in Parliament) stood to profit from the South Sea deal, which was ultimately approved. The rapid rise of the stock benefitted from speculative mania and a credit expansion – many shares were traded on margin or leveraged. Ultimately the stock soared 900% and then crashed 90%, a casualty of a liquidity squeeze when sellers run for the exits. The Sword Blade Bank was rendered insolvent. Many famous investors lost money, including King George I, Sir Isaac Newton (£20M) and the next-in-line Chancellor of the Exchequer, Robert Walpole [7]. The BoE, essentially a competitor of the Sword Blade Bank/South Sea Company, sustained a simultaneous bank run, but with the help of the sovereign, was once again empowered to suspend specie payments [2,3].

The South Sea Company went into a government receivership managed by Walpole, with the stock holdings and assets split between the BoE, the Treasury, a sinking fund, and the East India Company. The sovereign that could have easily allowed shares to float to zero in effect bailed out government debt holders, who were now South Sea stockholders. Walpole gained notoriety for restoring confidence in the capital markets for tradable government debt (public credit), and in elevating the power and reputation of the BoE in the process, but there remained no long-term will to control the national debt or credit expansions that would lead to other speculative bubbles and panics that threatened economic stability. Walpole’s influence as effectively the Treasury Secy and central bank chairman wrapped in one would span the next two decades, and earn him the historical reputation as “the true ruler of England, despicable as he was in many respects” [2]. Walpole would seemingly forever cement the advantages to a growing long-term national debt and a monopoly central bank to manage it. Almost half a century later, Alexander Hamilton, America’s first Treasury Secy, would study and admire [8] Walpole for his “legendary turnaround” role in managing the South Sea financial crisis and promoting the status of the BoE, and especially his reputation as “the true ruler of England.”

Over the course of 1694-1764, British sovereign national debt to the BoE and other privileged corporate entities and investors exceeded £130M, and the sovereign was thusly so strapped that interest on the debt could not be paid. It was in 1763-65 that King George III, Parliament’s George Grenville and the BoE turned their sights toward the American colonists, searching for tax revenue to control the exploding national debt and seeking to ban Colonial Script, American colonial paper money that staged a competitive threat to the BoE’s monopoly on paper currency. The Currency Act of 1764 (in conjunction with the BoE charter extension of 1764) made it illegal for colonies to print their own money as legal tender for public and private debts, and the infamous Stamp Act of 1765 sought direct tax revenue in the form of valid British currency only, not Colonial Script. From 1763-1773, though the Stamp Act was repealed and the Currency Act amended to allow colonial money issuance for public (but not private) debt, failure to resolve the issues of “taxation without representation” and “subversion of American rights” led to a Declaration of Rights and Grievances of the First Continental Congress and the Revolutionary War.

In 1797 the BoE’s gold reserves had been so depleted from the War and from international traders increasingly demanding gold specie payments in exchange that the British sovereign yet again sanctioned the BoE from paying out gold until 1821, requiring it to issue banknotes (IOUs, essentially) instead. Banknote holders protested at the steps of the “Old Lady of Threadneedle Street,” and price inflation spiked, vacillating wildly between 1797 and 1821 [Fig 1]. Though the concurrent industrial revolution fueled real growth in the British economy, the national debt would continue to increase (to £844M in 1821) from several prolonged wars (including the Napoleonic) and continued international expansion.

Fig. 1: U.K. National Debt vs. Price Inflation

Fig. 1: U.K. National Debt vs. Price Inflation

Britain’s leverage of public and private credit helped propel it to superpower status, but contributed to significant inflationary and deflationary economic cycles in the early nineteenth century [Fig 1]. Several financial crises and prolonged recessions led to an erosion of confidence in the BoE, subsidiary banks and finance. The Bank Charter Act of 1844 reaffirmed again the monopoly status of BoE banknote issuance, but only if they were 100% backed by gold – marking the influence of the British Currency School [9,10] to officially establish a gold standard to combat price inflation. The British Treasury retained the power to suspend the gold standard in the case of a financial crisis, which it did at various points in the mid-1800s and again at the outbreak of WWI. In the 1844 Act, demand deposits were exempted from the 100% reserve requirements – the Currency School argued that unlike banknotes, demand deposits were not money [9] – thusly, fractional reserve banking remained a fixture of the British banking system. It didn’t take long before a significant credit expansion by the BoE and subsidiary banks fueled a speculative bubble that caused a yet another drain on gold specie reserves, triggering a suspension of the gold standard (1847) and a flight to recapitalization. Britain would continue to struggle into the twentieth century with such leverage cycles, exacerbating its ability to sustain its economic expansionist growth model built on public and private credit.

If this brief history of the BoE rings a bit with the history of America’s Federal Reserve Bank (The Fed), it is no coincidence. Though many colonists and founders were intent to escape the British economic leviathan, complete with ever-growing sovereign debts, a hungry taxation bureaucracy, and a monopoly central banking system to reinforce and propel the machine, there existed very influential landed aristocrats that “had been staunch Patriots, but Patriotism did not mean the same thing to manor lords as it did to the population at large…they resented and resisted George III for meddling in their affairs and joined in revolution against him in much the spirit of the feudal barons who had exacted Magna Carta from King John at Runnymede” [8]. Robert Morris, ‘financier of the Revolution,’ was certainly one of them, and Alexander Hamilton his protégé. Morris would move to establish a monopoly national bank similar to the BoE in 1781, before a peace treaty with Britain was finalized. The “Bank of North America” was in fact the first fractional reserve commercial bank in the U.S., and quickly adopted a pyramid of expanding money and credit on top of a reserve of specie [11]. The inflation of its banknotes on the market was a major contributing factor to its demise as a national central bank in 1783, but it would retain private regional commercial banking status in Philadelphia for many years.

Though Morris fell from political favor, Hamilton would carry on his “nationalist vision of a strong central government, the power of the central government to tax, a massive public debt fastened permanently upon taxpayers” [11] and finally, a central bank to reinforce and propel the machine. Hamilton spent many years building the case for strengthening the taxing power of Congress, which the 1781 Articles of Confederation refused to allow the federal government [8,11,12]. It is no surprise that Hamilton’s first public position was as Receiver of Continental Taxes for New York, appointed by Morris in 1781 [8]. As a major contributor to the Constitutional Convention in 1787, and the ratification process via his writings in the Federalist Papers, Hamilton was able to secure remarkably few restrictions on the new federal government’s power to tax, borrow and spend in the Constitution. In particular, Article I, Section 8, Clause 2 states that “Congress shall have the Power…to borrow Money on the credit of the United States” – with no conditions specified. Hamilton would use such clause, along with his “necessary and proper” clause rider, to later promote his Constitutional argument for a national central bank.

Morris endorsed Hamilton as Treasury Secy to George Washington, when a newly elected President Washington asked Morris what should be done about financing public debts [8]. The “First Bank of the United States,” proposed to Congress by Secy Hamilton in 1790, was chartered to provide central government financing, a centralized currency, and fractional reserve lending, national and foreign. This First Bank of the U.S. was a “private” company with shareholders and a limited charter as the sole federal bank, similar to that of the BoE. Government debt financing and a resolution to the issue of a fiat paper currency were central motivators, given the devalued status of Continental currency, Revolutionary War bonds, and post-Continental note certificates. Continentals were fiat money from the start, and when colonial governments issued too many notes or bills, and failed to retire them out of circulation through taxation or bond issuance, inflation surfaced (“not worth a Continental”) [11-13].

The net federal and state debts from the War and the post-Continental period were estimated by Hamilton at almost $80M and held by domestic and foreign creditors (foreign debt ~ $11M; Continental and post-Continental debts ~ $40M; state debts ~ $25M; annual interest ~ $4M) [8,12,13]. Hamilton urged Congress to assume and consolidate the debts into a single national debt in 1790, to be redeemed and refinanced into new bond issuances with a lower average interest rate and six ways to subscribe [14]. Much of the existing debt was trading at far below par (some for as little as 10% face value), acquired on the secondary market by wealthy investors, and such speculators stood to profit handsomely from the proposed redemption package. Hamilton’s debt redemption scheme had been recycled from an earlier scheme proposed by Robert Morris, as a basis for establishing the Bank of N.A. Of the scheme, Morris was quoted as saying that the windfall to the public debt speculators at the expense of taxpayers would cause wealth to flow “into the hands which could render it most productive” [11].

Alert readers may be asking themselves why Hamilton chose to make debt holders of such depreciated paper “whole” by offering to redeem at values closer to par, as the new government could have either redeemed at current market value, or even allowed such paper to depreciate out of existence on the secondary market, especially the domestic state and post-Continental note certificates that made up the majority of the legacy debt. Some in Congress supported only the servicing and repayment of the foreign debt and the honor of Continental fiat currency, as three of the thirteen states had largely retired their state debts [8].

In essence, Hamilton pulled a Walpole, seeking opportunity and power in leveraging public credit to raise even more funds, to be administered and further leveraged by a federal central bank with monopoly powers to issue public debt securities and fiat currency. Hamilton knew that such a system was unsustainable without an adequate stream of federal tax revenue to secure the debt, in keeping with the British taxation model. Spain in the 17th-18th century, and France in the 18th-19th century, lost any imperial advantage that they may have had against Britain, in part due to their inability to adopt a financial system of public credit with proper funding and servicing. Historians acknowledge Britain’s relatively “efficient” tax system (in terms of tax collected and not pocketed or evaded) as no small contributor.

Hamilton was not only motivated toward funding the existing and growing national debt, but equally if not more in increasing the money supply and liquid capital for investment. Gold and silver specie were in relatively scarce quantity in circulation compared to the size of the public debt (one estimate is 20x in 1783 [8]), and the track record for banknote issuance pyramided on top of specie reserve had serially resulted in inflationary tendencies. Yet Hamilton’s answer to establishing public credit through a national central bank was to transform public debt into a form of money itself, by casting the debt into public securities and paper fiat currency: “To this provision…will procure to every class of the community some important advantages…It is a well-known fact that in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money. Transfers of stock or public debt are there equivalent to payments in specie; or in other words, stock, in the principal transactions of business, passes current as specie.” [14]. British economic historians would recognize securitized funding for public debt as common practice in eighteenth century England, part of its “financial revolution” [1], and a powerful source for its expansionist foreign policy. Modern monetary theorists would relate Hamilton’s public credit system to the “monetization of the debt,” a process regularly practiced by our Federal Reserve through open market operations (asset swap programs). Under Hamilton’s securitized system, principal payments on the debt would be unpaid in favor of regular interest payments, under the “full faith and credit of the United States.”

In reading Hamilton’s First Report on Public Credit [14], it is evident that he struggled with two problems surrounding his proposed public credit system, which remain unresolved to this day. The first is the issue of the unfunded state: “…by being well funded, [the public debt] has acquired an adequate and stable value. Till then, it has a rather contrary tendency. The fluctuation and insecurity incident to it in an unfunded state, render it a mere commodity, and a precarious one…one serious inconvenience of an unfunded debt is that it contributes to the scarcity of money” [14]. Hamilton undoubtedly viewed liquefying the national debt as a way to “build the national wealth” – a funded debt allowed Britain to borrow large sums of money to finance wars and growth via the issuance of long-term bonds and annuities, and such a system maintained relative stability as long as Britain could push off repayment of principal, employ tax smoothing, or enforce tax collection by any means possible, including war. When the latter didn’t work, the flight of gold specie would lead to financial crises and economic recessions or depressions.

Hamilton’s second problem was with speculation and speculators, and the potential undue they might have toward a public credit model of “adequate and stable value” as well as their contribution to “a pernicious drain of our cash from the channels of productive industry” and “the present depreciated state of…property” [14]. His text indicates that he really had limited grasp of the economic instabilities from an over-extension of credit, the dynamics of inflation and deflation following such credit-money expansions, and likely even the laws of supply and demand. He discusses asset price deflation (a modern term, not his) in rather circular terms, blaming speculators and insisting that a cure for such evils was a monetization of the public debt: “The decrease in the value of lands ought, in a great measure, to be attributed to the scarcity of money; consequently whatever produces an augmentation of the moneyed capital of the country must have a proportional effect in raising that value. The beneficial tendency of a funded debt in this respect has been manifested by the most decisive experience in Great Britain.” Moreover, Hamilton endorsed the concept of “easy money,” the same easy money that leads to credit expansions and speculative bubbles [10]: “The interest of money will be lowered…for this is always in a ratio to the quantity of money, and to the quickness of circulation. This circumstance will enable both the public and individuals to borrow on easier and cheaper terms” [14].

Few Americans (and others, no doubt) are probably aware that debt monetization (quantitative easing, essentially) and cheap money were prominently endorsed in Hamilton’s early Report and not as devices invented later by the Federal Reserve. Hamilton’s proposal for a sinking fund in the Report was expressly to be used to purchase government issued securities on the market to drive their value closer to par [8], in effect, to give the appearance of retiring the debt cheaply, but in actuality being an asset swap program (fiat dollars for securities) that manipulates the market to fix and stabilize the price of such securities. The more securities trading below par (due to the bearish speculations that Hamilton expressed such dislike toward) the greater need for such a device, which we today call the Fed’s “open market operations.” Like the Constitution, Hamilton’s reports put no limits on the government’s ability to borrow and to print money, and ultimately, to spend. Though price inflation had been a persistent problem prior to, and during, the period in which Hamilton wrote his Report (see [Fig. 2] below), he made no serious mention of such dynamic in connection with his proposed monetization scheme. Price inflation measures at that time included food and commodities and inflation existed precisely because of too much depreciated paper currency and too little specie (especially gold) to back it up [11].

Hamilton’s national central bank bill proposal accompanied the establishment of a currency mint, and import duty and excise taxes to secure long-term national debt financing [14]. All of the proposals met with significant opposition, yet they all passed First Congressional muster in 1791. At issue was the centralized federal nature of the bank, currency mint, and excise taxes, power shifted away from private banks and mints and state excise taxes. Jefferson and Madison argued that the bank violated traditional property rights and monopoly laws and that Congress did not have the Constitutional authority to incorporate a bank or any other government-sponsored entity [15]. The excise taxes proposed on domestic whiskey were to service the restructured $80M debt held by note and bondholders and in Hamilton’s words, “to discourage the excessive use of those Spirits, and promote Agriculture, as to provide for the support of the Public Credit.” After passage, the Whiskey Act led to a rather prolonged Whiskey Rebellion, a first test of the federal government’s power to enforce domestic tax collection. The debate between Hamilton, Jefferson and Madison over the establishment of a central national bank was extensive [15], and the deadlock only eventually broken by a reluctant referee, Washington. Congress approved the bank charter shortly after the Whiskey Act, and set a precedent for the central federal bank model that would ultimately become the Federal Reserve.

The First Bank’s charter was not renewed in 1811, facing strong continued opposition from Jefferson and members of Congress. Hamilton’s political influence had ended with his loss of life in a duel in 1804. The will to pay down the national debt completely began to build and was finally consummated by Andrew Jackson, a hard money entrepreneur and a common sense speculator with a penchant for limited government.

Unfortunately, free banking [16] and hard money would not ever completely take hold in America. The U.S. started with a fragile bimetallic (gold and silver) standard with the 1792 Coinage Act, but that standard would suffer from Gresham’s Law, driving gold out of the country and inflating silver stock [11]. The lack of stability of a hard money standard would aggravate the success of free banking, and numerous episodes of mass credit expansions would lead to various manias, panics and crashes throughout the nineteenth century and early twentieth. (The late nineteenth century would be graced by one William Jennings Bryan, who would repeatedly call for mass printing of greenbacks, fiat currency issued during and after the Civil War.) Any chance free banking would ever have ended in 1913 with the establishment of the Federal Reserve Act and the Federal Reserve banking system. John Morgan and Andrew Mellon would come to replace Robert Morris and Alexander Hamilton as the champions for America’s version of the Banking School and national monopoly cartel banking.

Epilogue – The Debt, The Fiat Money and The Bank

The life of the national debt would grow with the monopoly powers of the central bank. Figures 2 & 3 represent that signature life for America, but the trends have been similar for many other sovereign nations. Figure 2 shows similar trends to [Fig. 1] (for the U.K.), that a rise in national spending (and debt) correlate with inflationary spikes, and inflationary spikes and upward inflationary trends can happen during periods when the money supply growth explodes, as succinctly depicted in [Fig. 3]. Though the national debt shown in [Fig. 3] is in nominal terms (not adjusted for inflation), the corresponding price index indicates that the real growth is high; the current nominal national debt at some $15T doesn’t even take into account unfunded liabilities, such as social entitlements (estimated at over $100T) and the cost of state defaults, should they occur and should there be a political will (and there likely will) for the Fed to step in with another asset buying program.

Fig. 2: U.S. National Debt vs. Price Inflation

Fig. 2: U.S. National Debt vs. Price Inflation

Fig. 3: U.S. National Debt & Money Supply vs. CPI

Fig. 3: U.S. National Debt & Money Supply vs. CPI

National sovereign debt, the oblivion spending by the national central government, and the monetary debasement of fiat currency via central bank debt monetization (asset swaps or any other monetary liquidity injection tool) have “grown the national wealth” as measured by GDP, but they have all come to represent a form of economic tyranny as well. At issue is the same issue that drove many of the original thinkers and founders – Locke, Smith, Paine, Jefferson and others – who were concerned about property rights and the role of government to protect those rights. State-sponsored monetary debasement is an old crime, one practiced in ancient Rome and in medieval China with limited success. Today that practice goes on in sophisticated form, with precarious implications. At a minimum, the property rights of creditors (and savers) are continually debased, at the expense of debtors, who gain under inflationary conditions.

Though the colonists and founders escaped George III and Parliament, they did not secure the escape of the pecuniary system that has morphed into a realm of modern monetary madness.

Dear Readers: Stay tuned for the next essay “Federal Reserve Capital Management,” which explores whether the Fed is just a giant hedge fund.


[1] “The Financial Revolution in England: A Study of the Development of Public Credit 1688-1756,” P.G.M. Dickson, Macmillan Press, 1967.

[2] “History of the Bank of England,” A.M. Andreadés and H.S. Foxwell, 1909.

[3] “The Mystery of Banking,” 2nd Ed, M.N. Rothbard, Mises Institute, 2008.

[4] “Paying for Privilege: The Political Economy of the Bank of England Charters, 1694-1844,” J.L. Broz and R. S. Grossman, August 2003.

[5] “The South Sea Bubble: Memoirs of Extraordinary Popular Delusions and the Madness of Crowds,” C. MacKay, 1841.

[6] “Devil Take the Hindmost: A History of Financial Speculation,” E. Chancellor, FSG Press, 1999, p.58-95.

[7] Walpole was a staunch supporter of the BoE in Parliament, representing the BoE’s bid against the South Sea Company for the debt swap deal. Dickson [1] is ambiguous about whether Walpole lost money on the South Sea Bubble – he makes it clear that he held £2K stock from the April 1720 issuance, so he obviously engaged in the mania along with others, but Dickson claims he held his stock for final clearing until 1723, which was well after Walpole’s/BoE’s receivership plan was enacted, in which many stock (debt) holders benefitted from the bailout/backstop/put terms implied; i.e., the stock wasn’t allowed to simply float to zero, or the original debt holders left with worthless claims after loaning the gov’t money in exchange for the original annuities and other issuances. Therefore to make the claim that he lost money is not a stretch. He gained notoriety for restoring faith in public credit, but let’s not forget the self-serving aspects: he bailed himself and others out in the process, and strengthened his BoE patronage.

[8] “Alexander Hamilton: A Biography,” F. McDonald, W.W. Norton, 1979. This is an exceptionally well-researched, even-handed biography of Hamilton.

[9] “Currency and Banking Reform in 19th-Century Britain,” M. McCaffrey, Ludwig von Mises Institute, September 2010.

[10] “Manias, Panics and Crashes,” 5th ed, C.P. Kindleberger and R.Z. Aliber, J. Wiley, 2005.

[11] “A History of Money and Banking in the United States” M.N. Rothbard, Mises Institute, 2002.

[12] “Hamilton’s Blessing: The Extraordinary Life and Times of Our National Debt,” J.S. Gordon, Walker & Co., 1997. This is an extended essay on the history of the U.S. national debt, taxation, and the economics and politics of both since the 1780s. Though Mr. Gordon is most unfortunately pro-central bank, anti-free bank and anti-Jeffersonian, his candid essay provides many insights into why the U.S. exists today bearing significant looming problems with sovereign debt and a failed system of taxation. Mr. Gordon is thankfully anti-Keynesian.

[13] “One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe,” R.E. Wright, McGraw-Hill, 2008.

[14] “First Report on Public Credit,” Alexander Hamilton, January 1790. The First Report contains several important quotes by Hamilton on a monetized system of public credit, an accounting of the foreign and domestic federal debts, the proposal to restructure existing debt, and a proposal to establish a distilled spirits excise tax, the first domestic federal tax. “Second Report on Public Credit,” Alexander Hamilton, December 1790. The Second Report contains a revised proposal for a domestic distilled spirits excise tax to fund the debts, which included an accounting of state debts; the Congress had voted down the first proposal. “Report on a National Bank,” Alexander Hamilton, December 1790. This report contains Hamilton’s proposal for the establishment of a national central bank. “Report on Establishment of a Mint,” Alexander Hamilton, January 1791. This report contains Hamilton’s proposal for a mint, which was later approved by Congress via the Coinage Act of 1792. Note to the reader: if the LOC links above to Hamilton’s reports do not work, his papers are collected HERE on Google books.

[15] Hamilton’s defense of the Constitutionality of a national bank can be found HERE ; his intent to model the bank and a centralized financial system after the BoE should come as no surprise, given that he was a student and admirer of Robert Walpole, the First Lord of the Treasury of Great Britain 1721-1742, and the Walpolean financial system [8]. Jefferson’s defense can be found HERE, with notable quotes out of the text: “…the existing banks will, without a doubt, enter into arrangements for lending their agency, and the more favorable, as there will be a competition among them for it; whereas the bill delivers us up bound to the national bank, who are free to refuse all arrangement, but on their own terms, and the public not free, on such refusal, to employ any other bank…It may be said that a bank whose bills would have a currency all over the States, would be more convenient than one whose currency is limited to a single State. So it would be still more convenient that there should be a bank, whose bills should have a currency all over the world. But it does not follow from this superior conveniency, that there exists anywhere a power to establish such a bank; or that the world may not go on very well without it…Can it be thought that the Constitution intended that for a shade or two of convenience, more or less, Congress should be authorized to break down the most ancient and fundamental laws of the several States; such as those against Mortmain, the laws of Alienage, the rules of descent, the acts of distribution, the laws of escheat and forfeiture, the laws of monopoly?

[16] See, for example, “Aurophobia: Or, Free Banking on What Standard?” in “Economic Controversies,” M.N. Rothbard, Mises Institute, 2011.

Notes to Figures:

[Fig. 1] Data sources: U.K. National debt/GDP ; Historical UK Consumer Price Inflation, 1750-2009 – “Consumer Price Inflation Since 1750,” J. O’Donoghue, L. Goulding, G. Allen, 2004; Note that price inflation is the YoY change in the U.K. Retail Price Index (RPI) with numbers reported after 1947 HERE.

[Fig. 2] Data sources: U.S. National Debt/GDP ; Price Inflation is the YoY change in the Consumer Price Index (CPI) reported by the BLS before 1983. (The CPI reported 1983 and after by the BLS was modified to minimize food and commodities. The pre-1983 CPI is still calculated by several sources, most notably John Williams’ Shadow Gov’t Statistics (SGS), which is the source of the data shown.)

[Fig. 3] Data sources: National debt and CPI (SGS) data from the same sources as Fig. 2; M3 money supply is taken from both Federal Reserve data up to 2006 (when the Fed discontinued providing it) and external sources ( ) which still calculate it based on the same formula.

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