Part 3 of a Review of a book by Stephen Zarlenga, American Monetary Institute, NY

7:   The Lost Science of Money — The Mythology of Money — The Story of Power

The Bank of Amsterdam

"Some of the Jews emigrating from Antwerp had set up an exchange banking operation, a ‘wissell bank,’ changing money and discounting bills of exchange, taking deposits and making loans. The city fathers created the Bank of Amsterdam in 1609, and forbade the Jews and all others from engaging in banking. The Bank of Amsterdam’s most vital feature was that it was a civic and not a privately owned institution. In theory it was not a bank of issue, and not supposed to make loans, and was considered a precious metals system.

"The City required that all bills of exchange above 600 Florins (later 300) had to be changed at the Bank. Accounts could be debited by withdrawing coinage or mainly by transferring it to another account at the Bank." The monopoly of banking showed an early appreciation of the profitability of a banking monopoly or nigh-monopoly. These increased the proportion of transactions that would become mere bookkeeping entries – an entirely internal matter.

"No interest was paid and no overdrafts or loans were made. The Bank did not discount bills – that is accept bills on other institutions or merchants at a discount, and then send them for collection. Deposits at the bank could not be attached. The City itself was responsible for the deposits. The Bank made profits on money-changing and gold and silver purchases, charging up to 2.5%.

"All profits of the Bank belonged to the City of Amsterdam. The message to merchants was clear: make profits in commerce and industry, not in money-changing games or clipping or culling the coinages. [Our italics.] And the Bank helped them earn money, removing one of the uncertainties in trade – the quality of payment. The very vaults of the Bank were in the basement of the old City Hall."

Many of the key features of central banking were incorporated. But the basic feature of banking itself was oddly omitted. The multiplier whereby modern banks lend out multiples of the money they keep in their vaults to meet the claims of depositors did not exist. It made its profits as money-changers, guaranteeing the quality of the currency. But for every amount of money it gave out it received an equivalent amount of money. The money in question was commodity money, and the Bank’s contribution was to provide a dependable equivalent in Amsterdam coins as the coins in exchange for the foreign coins it received.

"The Bank made three exceptions in granting overdrafts: to the City of Amsterdam, to the Dutch East India Company, and to fund a city loan bank, the Bank Van Leening in 1614.

"The overdrafts to the City began in 1624. At first Amsterdam paid interest of 3 to 4% on its debt to the Bank, then reduced it to 0% when they realized they were paying interest to themselves."

In doing so they proved more alert than our federal government that has still not awakened to the fact or forgot what it had already learned.

"The Bank of Amsterdam’s great success was that it was a public institution run by the City for the benefit of the country and its merchants, and not for private interests. This enabled it to raise the credit to make good on all of its deposits when it got into trouble. As such, its operation and policies were generally fair, but only to the Dutch."

The Dark Side of the Bank

"The Bank engaged in nefarious activities similar to Venice’s vicious 14th and 15th century exportation of Europe’s silver money to India. ‘Already in the 1620s we see the Amsterdam Bank carry on the prohibited trade in precious metals,’ wrote J.G. Can Sillen (History of Banking and Credit, 1034, reprinted by A.M. Kelley, New York, 1967, p. 73). ‘The Netherlands attracted the silver coinage of her neighbours by frequent changes in her gold/silver ratio, just enough to make it profitable for the silver coins to be sent to her. Above-average weight English and French coins, as well as the clippings from them, also found a market in the Netherlands, where they were minted in underweight coins and sent back abroad. Officials of the French mint and the English Privy Council complained about this.

"Assisting these coining operations was Holland’s enactment of the first ‘free coinage’ law in Europe just after 1575. This allowed metal to be passed easily between bullion and coinage.

"The Amsterdam stock exchange was built in 1611, modeled on that of Antwerp from 1531. Commodities as well as stocks were traded, with specific areas (‘pits’) designated for trading in different items. Amsterdam from 1600 onwards was the direct origin of our present exchange mechanisms and procedures. She got them from Antwerp, which is said to have gotten them from the Levant."

Anticipating Our Derivatives

"In the 1980s and 1990s attention was focused on the ‘innovations’ known as derivative products: stock market indexes and futures and options contracts based on them. Nearly all of these ‘innovations’ were in use on the great Amsterdam Stock Exchange in the 1600s and 1700s. We find the same types of contracts, the same general rules of trading, the same methods of cheating the public and manipulating markets: stock sold on margin up to 80%; monthly settlement dates; put and call options with premiums payable immediately at the Bank of Amsterdam; the ‘ducatoon’ – an imaginary share representing 1/10 of a Dutch East India Company share, with a monthly settlement price.

"The primary security traded in Holland was [of] the Dutch East India Company (DEIC). In its first six years it paid a dividend of 25-30% a year. Then in 1612 it paid 57% and in 1613 another 42%.

"The company had been formed in 1602. By 1607 its shares had risen to 100% over their original par value. However by 1609 its shares fell to only 30% over par value. The blame for the drop was placed on short selling, and in 1610 laws were passed against short selling. By 1688 the DEIC shares rose to 580% over their par value, not counting the tremendous dividends paid on the stock, totalling 1,482% of the par value.

"There were two types of brokers on the Amsterdam exchange: officially appointed ‘sworn brokers,’ of which there were 375 Christians and 20 Jews; and more than 700 unsworn brokers, or ‘free’ brokers who were mainly Jewish. The free brokers were sometimes wild and not proscribed to engage in ‘dual trading.’ This means they were free to execute orders for their own accounts as well as for their clients, and could ‘front run’ their clients as well as orders they could see entering the pit through the ‘sworn brokers.’" In a many ways such practices are still in the repertories of brokerages – not excluding those of our mightiest banks.

"In 1688 Joseph De La Vega, a Jewish stockbroker in Amsterdam wrote a book called Confusione de Confusiones describing exchange activity. [The title was a play on the celebrated theological work of the 12th century Spanish Jewish philosopher of Cordoba, Maimonides.] He gave a detailed description of how manipulators would launch a bear campaign to lower prices. At the beginning of the campaign the syndicate borrows all the money available at the exchange and makes it ‘apparent’ it wishes to buy (!) shares with the money. They actually start their campaign to drive prices down with purchases to raise prices. Then they start selling. They strike their first blow selling futures, reserving the cash sales for the moment of greater distress."

Their 5th stratagem of a total of 12 listed is to sell the largest possible quantity of call options.

The 6th is to buy the largest possible quantity of put options.

7th loan the bulls money, taking their shares as collateral. Then sell their shares.

8th Spread false news by dropping a letter "at the right spot."

10th Whisper loud enough to be heard.

12th Sell government bonds to shock the general situation.

"The manipulation of news was also important. The small boats which were supposed to meet the English ships and speed back to harbour with news, in reality merely took a turn outside the harbour and having invented their own plausible gossip, came back and sold it to the feverish crowds of speculators." [This is the equivalent of false reports on promoted stocks by e-mail in our enlightened age.]

"The ducatoons – one tenth of a share of Dutch East Indian Company which served as a sort of index for the entire market – allowed structurally unsound trading, because any shorting of ducatoons would be paid for once a month, with cash rather than by returning ducatoons. That made it equivalent to index futures because debt in ducatoons was cancelled with a cash payment rather than with ducatoons or DEIC shares. That constituted a structural flaw because wiping out ducatoon shorts would not increase the purchase of Dutch East India Company shares." [One cannot meditate on the fact of Albert Einstein being hired at $35 a week when he managed to get out of Germany and arrive in America and the hundreds of millions of dollars available to executives and their accountants on Wall St. from practising such scams – particularly in unregulated derivatives.]

Concentration on such financial activities and speculation to the neglect of actual production led to the decline of the Dutch economy as early as 1660-1690, presaging what is overtaking the developed lands in our day. Dutch financiers of Christian and Portuguese Jewish stock helped establish the British banking system and stock exchange. One third of English debt came to be held in Holland. That led to the decline of Holland’s influence in Europe.

"England had two advantages over continental Europe: as an island it profited from a degree of isolation and oneness. And as the westernmost outpost of the Empire, distance made her less subject to the whims of the Imperial, and later the Papal will. When the Western Roman Empire had degenerated, England’s money system totally collapsed back into barter with no coinage circulating for about two hundred years from about 430 to 630 AD.

"As silver reappeared in Europe, coinage also revived in England. Many mints were established from 800-900 AD. Consistent with the sacred control of money, Anglo-Saxon mints seem to have been run mainly under ecclesiastical dominion. In 930 Athelstan’s Law decreed that only one coinage should circulate in England. Mining thrived in the 10th century and the abundance of silver is indicated by the large tribute payments of Danegeld to Denmark: 10,000 pounds in 991 AD and 82,900 pounds in 1018.

"‘Anglo-Saxon pennies were of token rather than intrinsic value. They fluctuated in weight and finesse from one issue to the next and yet their [monetary] value was constant since it derived from the word of the King,’ wrote the monetary historian Peter Spufford. The Anglo-Saxon kings recoined the money about every six years, calling in all the coins and issuing three pennies for every one taken in. This represented a 25% tax or about 4% a year. Spufford maintains that this revenue provided the strength of the late Anglo Saxon and early Norman kings, who adopted their money system."

England Draws Strength from New Token Pennies

"Some religious officeholders attempted to continue exercising the money powers. We hear of them mainly through the record of their arrests. The first English gold coinage was in 1257 at a gold/silver ratio of 10/1. Silver, however, remained the mainstay of the coinage."

The issue of commodity vs. token money was further confused when it was preempted by the merchant class to deprive the monarch of his privileges.

"The landmark Mixt Moneys of Ireland case during the reign of Elizabeth I is still cited in 20th century court decisions. Elizabeth issued base metal coinage as legal tender in Ireland in May 1600, annulling all other coins there and requiring they be returned to the mints. An Irishman then paid a 100 pound debt to a London merchant in the new coinage. The merchant sued for the 100 pound in gold and silver coin.

"The nature of money was identified as a societal institution rather than merely metal. According to Del Mar the decision was so detested by the merchant classes, the goldsmiths, and later the British East India Company, that they worked incessantly to destroy it.

"This occurred in two stages: The first stage was to destroy the British Crown’s monetary prerogative, throwing the control of money open to the merchants and financiers. This was done by undermining the Crown and then passing the free coinage act of 1666, opening the way for the foreign element to establish a new Monarch, and to reconstitute the money prerogative in the hands of a specific group of financiers – not elected, not representing society, and in large part not even English."

[This parallels the bailout of Canadian banks from their heavy speculative losses by shifting money creation from the central bank to the commercial banks by doing away with the statutory reserves (or in other countries such as the UK and the US reducing them to near insignificance).]

Sanitized Monetary History

"The sanitized Whig histories of this period misrepresenting Charles II as a spendthrift, and London’s goldsmiths as good businessmen, are still swallowed by economists. Christopher Hollis presents a very different picture in his book, The Two Nations (London, 1935, reprinted Gordon, 1975).

"When Charles II returned to England, he needed a standing army to ward off continental threats, but Parliament refused to vote the funds and delivered only £800,000 of the £1,200,000 money that was voted, forcing Charles to use his wife Catherine’s dowry for expenses of the state. Dutch financiers appeared willing to finance him but when he allowed legislation to pass contrary to Dutch merchant desires, they concluded that ‘the King could not be made serviceable to his creditors.’ Charles was forced to borrow from the English goldsmiths at 8%, giving as security the first taxes later to be voted by Parliament. As this ‘security’ became postponed, they demanded 20% to 30% per year.

"Charles considered issuing debased coinage to pay the army, but the merchants immediately raised prices 10% ‘in anticipation’ of a debasement! He offered to drop all talk of debasement if they would loan him £200,000. They refused.

"The merchants kept some of their money stored at the Tower of London. Charles finally blocked the funds – £130,000 – refusing to release them until they agreed to lend him a pitiful £40,000. This led to a flight of coinage to the goldsmiths, who had secure premises and accepted deposits from people who no longer trusted Royal safekeeping at the Tower.

"According to Hollis, the London goldsmiths who play such a large part in the story of Restoration England were to a great extent mere agents operating with Dutch money. Finally in 1667 Charles II began to issue a kind of paper money to pay state expenses. It was almost true money, and took the form of Royal Exchequer Orders to Pay, good for coinage after one year. Taking one more step would have made them true money –that is, not having them payable in ‘money’ but be the money themselves."

The Nonsense Printing on Bank of England Bills

The UK has still not taken that decisive step. I have before me a "Canada Ten – Dix Dollars" or whatever the denomination. On the other hand £10 note of the Bank of England, the sole shareholder of which is the Government of the UK. On it, the Chief Cashier of the Bank of England commits the Bank "to pay on Demand the sum of Ten Pounds."

Canada on its currency, like most developed countries today, dispenses with such nonsense, and merely entitles the bills that their government (via the Bank of Canada) issues. Our election campaigns are, unfortunately, less sophisticated. Our Prime Minister and the heads of the major opposition parties make a major promise of paying down and even "paying off" the national debt. Looking after the deepening potholes in our health care, transport systems, education and much else must apparently wait until that is achieved. But even the government no longer implies that it is possible on our banknotes. Carefully these omit to reveal what currency they propose using to pay off the debt, other than the very identical debt of the federal government. For that is the only legal tender that has existed for at least thirty years. There is not the slightest attempt of the government to explain or of our parliamentarians to demand an explanation of what they would use to pay it off with. Presumably bills of a different colour. Meanwhile they are cheating the nation by ruling out elections that would address the country’s crucial issues to talk of imaginary ones.

The destruction of a key taxation arm of the monarchy by the "revolutionary" speculative proto-banking interests has two vital implications both of which have been ignored by economists.

The first of these resembles Karl Polanyi’s treatment of the role of the local Speelhamland laws in early industrializing England as a social brake to prevent too rapid a transition to a labour market before some even temporary social system had been set up to take care of the peasants thrown off their lands by the enclosures. Though the Stuart monarchy may have represented a "reactionary" force by both Liberal and Marxian logic, it was entrusted with the provision of key functions necessary for society’s survival. These could not be discontinued overnight until some successor government had made provisions to take them over. At its most promising revolutionary junctures the Dutch monetary speculative band could hardly be relied upon to provide the brake to slow down the necessary transition. Charles II’s monetary improvisations addressed this need.

There is a nexus with another suppressed aspect of monetary evolution that concerns working the cost of government services into the monetary equation. Under centralized monarchical governments this was largely achieved by the monarch’s recoining the token monetary medium.

The Other Suppressed Monetary Secret — The Growing Layer of Taxation in Price

Under our modern pluralistic society – in a strange mirror relationship to the recoining operation of yore – it takes the form of an ever deepening layer of taxation in price which has nothing to do with an excess of aggregate demand over supply and everything to do with the essential growth of public infrastructures and services within the total social product. This latter phenomenon I have called "Structural price rise" to contrast it with "market inflation" which can be related to an excess of aggregate market demand over aggregate supply. This I first described in the then leading French economic publication La Revue Économique (05/1970, "La stabilité des Prix et le Secteur Public").

This tracks not the monarchical clipping of the monetary token coins as a necessary substitute for unavailable taxation due to the exemptions enjoyed by the church and/or the feudal landowners, but the erosion of market price structure to reflect the growing layer of taxation that finds its way into prices reflecting the cost increases of unmarketed public services. There is another aspect to this mirror symmetry of these two monetary relationships. To both of them official economists of every school have been willfully deaf, blind, and dumb. To fight "inflation" which covers both highly dissimilar components of our price rise, they have chosen higher interest rates as "one blunt tool." That has surrendered the conduct and profits of our hypertrophied monetary system to speculative finance. Economic historians like Fernand Braudel have been more sensitive to these relationships. See William Krehm, Price in a Mixed Economy: Our Record of Disaster, Toronto, 1975, ISBN 0-88963-000-3.

The Free Coinage Act of 1666

"According to Del Mar, the British East India Company, carrying on the metals trade with India used heavy bribery to help pass the Free Coinage Act of 1666. The Act provided that anyone could bring gold or silver bullion to the mint and have it refined and stamped into coins for free. In practice this placed the power to increase or decrease the money supply into the hands of the merchant financial classes rather than the Crown [acting for the nation]. Thus if the merchants were in debt they could reduce the value of their debt by having more bullion turned into coins. If they were creditors they could increase the value of what was owed to them by hoarding coinage or melting it into bullion and having it turned into coins again later, free of charge. Del Mar considered this act a watershed event in monetary history.

"The Free Coinage Act specifically destroyed the royal prerogative of coinage, nullified the mixt moneys case and inaugurated a future series of commercial panics and disaster which to that time were unknown. The conception of money which has grown up since the English Mint Act of 1666 and the French Mint Act of 1679 is that of two different things designed to measure one relation called value: (1) A commodity whose value conforms to an unknowable cost of production; and (2) A series of coins, notes, etc. the value of each of which is in inverse ratio to their aggregate number and which can therefore have no relation to the cost of production" (Del Mar, The Science of Money, NY: Cambridge Encyclopedia, 1904, p. 79).

We might add that the Crown itself had a very parallel duality of social significance. On the one hand it was by its very origins the apex piece of the land-owning nobility. On the other hand in other respects as well as in its monetary function it was the symbol of the national interest and as such had an important function in creating and backing token money.

Del Mar sums up that chapter of English monetary history: "The appropriation [by] the goldsmith class of the Royal prerogative has been accomplished in so stealthy a manner that scarcely a trace of it appears in historical works; and none at all in works devoted to political economy – a glaring proof of the prejudice and one-sidedness which have hitherto animated the teachers of that science" Zarlenga adds: "Del Mar is right. The only other source this author has found, which discusses it meaningfully is W.A. Shaw’s History of Currency, 1252-1896.

"The operators on Amsterdam’s Stock Exchange grew more powerful based on a metallic monetary system, obtained in large part by two centuries of genocide against the American Indians. Still, the inadequacy of this abundant gold and silver was indicated by the Bank of Amsterdam’s secret credits to the Dutch East Indian Company for over a century.

"While the Bank of Sweden was the first western bank of issue, in 1661, it was the formation of the Bank of England that signaled a recovery of the lost science of money. However, since it was organized for the private power and profit of a small group, it was an illicit misuse of the science for private gain, instead of for societal use, as its true nature requires. While creating abstract money, they put forward a backward commodity concept of money as gold and silver, pretending the necessity of converting the abstract money into metal.

"Coin clipping was almost unknown in Venice but appears to have been a primary activity of merchants in Northern Europe. In the mid-1690s the English coinage was again in dreadful condition, being clipped and about 50% underweight. There was a £40 reward for denouncing a clipper, and the clipper could go free if he denounced two more clippers. Hangings were held regularly. On just one day, seven men were hanged and one woman burned at the stake for coin clipping.

"The goldsmiths were charging 30% to 80% yearly on small loans. The public therefore wanted a bank to regulate currency and to lower interest rates. From about 1650 to 1710, J. Keith Horsefield’s study, British Monetary Experiments, counts at least 60 monetary proposals of various types including nominal money, land banks, glorified pawnshops, and tax anticipation notes. There were even two proposals for a negative rate of interest, anticipating theories of Silvio Gesell. William Paterson had made at least four proposals.

Paterson’s Proposal, Montagu’s Bank

"However, it was not until the takeover of William III that the plans for a bank by the Scotsman William Paterson, a relative of John Law, were adopted in 1694. Though brilliant, he received little education. In 1685, in Amsterdam, he became involved in William III’s 1688 revolution. Returning to London with William’s army, he became rich and influential organizing the North London Water Company, with the help of Charles Montagu. That Paterson’s plan was even adopted can be explained only by his being sponsored by Charles Montagu, whose family had held positions of importance in England for five centuries. Montague should be considered the true founder of the Bank of England.

"Paterson was more than a front man, though. His biographer Saxe Bannister says he enjoyed ‘intimate relations with the rich Hebrews of London and probably Amsterdam and Germany.’ He was an interesting man and not the ‘evil genius’ some have made him out to be. He was trying to aid society and make a fortune while doing it. Montagu was a friend of Isaac Newton, and of Edmund Halley (of comet fame)."

Hatching the Bank of England

"The ostensible reason for chartering the Bank was to obtain a loan of £1.2 million of gold for William III’s government. The shares for this were to be subscribed by the public in gold coin or bullion. The entire proceeds were to be loaned to the Crown at 8% interest. Once operating, the Bank would accept deposits, paying 4% on them and should issue its own bank notes which would circulate as money and which the Bank would keep redeemable in gold. At first these notes were to have no legal tender power but were to be acceptable and payable by the crown for all things.

"The Bank was to be allowed to create bank notes in an amount equal to the money it lent the government. This is another way of saying that it could use government debt as its reserves or collateral. What the promoters argued was that the Bank would be ‘founded upon a reserve that cannot fail but with the Nation.’

"What they did not point out was that although the Bank would be paid interest on this created loan, the Bank was completely unnecessary in this money creation process. The Government could have created its own paper notes on the same security and not paid interest on it to anyone! And unlike the Bank of Amsterdam which was owned by the Government, the Bank of England was owned and controlled by private individuals.

"Substantial opposition to the Bank arose immediately. Some came from coin clippers such as the goldsmiths, who wanted no competition from the Bank; The Tories, England’s landowners, opposed it as they saw the power it would give to their commercial political opponents. Others opposed it for sound, moral reasons.

"One of the monetary thinkers of the time, William Lowndes, said, ‘who can think that posterity will be willing to pay a tax of £110,000 per annum (on the original loan), to go into the pockets of private men, when it will be in their power to acquit the public of such a burden?’

"Lowndes didn’t realize that through constant warfare vast amounts of new debt would be piled onto the original, making it impossible to pay in gold and silver."

The Bank’s Charter

"The Bank was given a charter for 12 years. Of the £1.2 million share subscription, no one person was to own over £10,000 (later 20,000) though nominee ownership through another person couldn’t be stopped. The whole capital was subscribed in gold within three days. The shares had a provision whereby an additional 40% of par value could be called from the shareholders in gold, by the Bank’s Directors. At first it would only lend its paper notes to the Government at 8% interest plus £4,000 annually for expenses.

"The Bank also took deposits, paying 4% on them, and discounted bills for merchants. The Bank of England was not even given the monopoly of note issue until 1844. Other banks could issue their own paper notes until then. The Bank’s notes had the one supreme advantage of being accepted by the Government for all payments due, and of being paid out by the Government for all state expenses. Thus they came to be identified with the Government.

"The Tories formed a competing bank in 1696 – Chamberlain’s Land Bank. It would use land as a reserve asset. It would liquefy the Tories’ main holding by issuing an equal amount of paper notes for the value of the pledged land. This was based on the flawed concept of liquefying property. The flaw: as new money is created to liquefy property, the value of property keeps rising with the additional liquidity, so even more money is created, etc. Eventually the bubble must burst, as interest costs grow.

"Bank of England shares plunged from £108 to £83 in two weeks on this development. But the landowners were hopelessly out of their element. Within a few months the Chamberlain Bank, attracting only a few thousand pounds, was abandoned.

"Also affected by the recoinage, in 1696 the Bank failed for the first time, just two years after its founding, when it could no longer redeem its notes in coinage. Paterson insisted that the Directors use their power to call for more gold from the shareholders. [When the Directors refused] Paterson scolded them and resigned over such disagreements within a year.

"The Bank of England succeeded where others failed because it took on each new situation as it came, without ideological commitment. Its main protection was that its complexity kept people from understanding the true source of its power – the money creation process."

That has passed down as a banking tradition. People are kept in the dark about banking – even when the banks are not in stress – because that public ignorance is in itself a principal asset of the bankers. It is particularly so when the banks have been deregulated as today to allow them to engage in just about every non-banking sphere of finance.

Ricardo Speaks Up

"One man who exposed the Bank’s essence was an English Jew named David Ricardo (1772-1823). His clear thinking (on the Bank, not economics), simplicity of statement and courage stands out as an important contribution. In 1815 Ricardo wrote to Malthus, ‘I always enjoy an attack on the Bank and if I had the courage I would be a party to it. They have the power, without any control whatever of increasing or reducing the circulation in any degree they may think proper: a power that should neither be entrusted to the State itself, nor to anybody in it. When I consider the evil consequences which might ensue from a sudden and great contraction of the circulation as well as from a great addition to it, I cannot but deprecate the facility with which the state has armed the Bank with so formidable a prerogative.’

"By 1823, Ricardo had worked up the courage to propose establishing an English National Bank. He explained why the government should issue its own money: ‘Suppose that a million of money should be required to fit out an expedition. If the state issued a million of paper, the expedition would be fitted out without any charge to the people; but if a bank issued a million of paper, and lent it to the government at 7%, the country would be charged with a continual tax of 70,000 per annum…. The only difference would be with respect to interest. The Bank would no longer receive interest and the government would no longer pay it. It is said that the Government could not with safety be entrusted with the power of issuing paper money – that it would certainly abuse it. I propose to place this trust in the hands of Three Commissioners.

"As a member of Parliament and successful stock trader, Ricardo’s observations were hard to ignore. In 1844 several factors forced the note-issuing function to be placed under a separate department of the Bank under some safeguards, and England was no longer required to pay interest on her debt to the Bank.

"William Paterson himself saw the inequity of the National debt. In 1715 he had been living in poverty when Parliament voted him a huge £18,000 payment in appreciation for his contribution in founding the Bank. Nevertheless he remained opposed to the Bank’s building up debt and in 1717, no doubt using some of the money Parliament gave him, he published a proposal for paying off the national debt.

"It gave so much offense to the stock jobbers that some of the meaner sort caused the book to be burnt before the Royal Exchange. The Bankers did not want the debt paid; just the opposite. They wanted to build up a real interest charge into perpetuity on the money they had created out of thin air and loaned to the government."

William Krehm

Passages in square brackets are the views of the reviewer and must not be attributed to the author reviewed. We should alert the reader that the current review, which concludes with the present installment, is a mere appetizer to the feast of fact and analysis in the remarkable 700-page work. The book is available from American Monetary Institute, Box 601, Valatie, NY 12164, [email protected],

--from Economic Reform, March 2005