Draft Legislation to Restore the Original Bank of the United States
to Restore the Original
Bank of the United States
Returning the United States
Economy to the Principles
of the U.S. Credit System
Copyright © 2013 LaRouche Political Action Committee. All Rights Reserved.
Written by Michael Kirsch
Written by Michael Kirsch & Paul Gallagher
contact: [email protected]
Only in brief periods of United States history has the government used its powers to create an economy operating according to the time constraints of growth, unifying the physical economy with the financial system, and thus allowing nation-building to be guided by the intent of future productivity. Only for brief periods—in 1789–1801, 1823–1830, 1861–1869, and 1933-1944—when the economy was operating under the guidance of a credit system policy, has the U.S. economy been properly conducted in accordance with the design of the Constitution.
In all other periods, nation-building was internally or externally attacked, and U.S. policy was subverted by monetarism. In each mentioned period, the credit system of the United States has been the means to break from that control, and to expand and develop the United States and other nations. It has been precisely the brilliant success and effectiveness of the U.S. credit system which has made it the object of attack and obfuscation.
Monetarism constantly looks backward to the past, with the aim of monetizing the results of past production, rather than the creation new wealth. The credit system operates on the confidence in the future. Rather than depending on past production, or stores of wealth, it creates wealth by tying the future completion of projects, and production of goods and manufactures, to the original promise. The currency of monetarism is formed by the liquidation of present goods into money. In the credit system, rather than the products of growth, growth itself is the currency.
Monetarism views debts as a burden to be immediately dissolved, and demands their payment in the present, at whatever expense to the future, and waste of the past. Within the credit system, debts are not self-evident objects; the action which generates value through the process of their extinguishment is included in their creation.
Monetarism measures all value by capital and labor, and gives to money a self evident value. In the credit system, the measure of value is not capital or money, but the mental powers which increase the productive powers of labor, which, in turn, increase productive output, thereby increasing the value of goods, labor, and capital. Productivity is therefore the measure of the value of capital. With increases of productivity, the cost of production decreases, and the value of currency increases.
Money can be converted into capital and goods, but credit, though itself not capital, increases the efficiency of capital. Credit makes the same quantity of capital or labor more efficient and productive, and is an accelerating cause of wealth, a potential which surrounds existing capital at all times and that which puts it into action. The value of national economies is thus defined by the organization of the relations of existing capital and the potential drawn forth by credit.
The credit system thus views the total economy as a productive system, and its essential aim is to promote increases in total efficiency and the productive powers of labor through investment in technological progress. It is expressed as a concordance between the laws of the representatives of the people, and the development of resources and industry of those people, defining a paradigm outside the imposed axioms and rules of monetarism.
In the following pages, the key principles of the U.S. credit system will be demonstrated historically, and the necessary understanding to correctly administer its revival, through the included draft legislation, obtained.
Alexander Hamilton, Treasury Secretary 1789-1796.
The U.S. credit system is not an optional feature, or an add-on to the Constitution. The necessity to organize a credit system was the chief driving cause for the creation of the Constitution.
The sovereignty gained with the Declaration of Independence gave the Congress the implied authority to control the interactions of trade with other nations to the benefit of domestic industry, to create a uniform currency between the states, to uphold the credit of the government by assuming all the powers requisite to the effectual administration of finances, and to make the states one unified economy. However, it was the bold and immortal act of Hamilton to use those implied powers.
During the war, the Bank of North America, formed by Robert Morris, Alexander Hamilton, and Benjamin Franklin, created an alternative currency to the depreciated continentals, and credit for the government to secure victory in the war from 1781–1783. But the lack of union of the states did not provide the bank proper funding as a means to unite the states and fund the public debt. The great period of bankruptcy during and after the Revolutionary War, led Robert Morris, Alexander Hamilton, James Wilson, Gouverneur Morris, Benjamin Franklin, George Washington, and other founders to a shared commitment: A new constitution founded in accord with the Declaration was required, one with sufficient powers agreed to by the people, rather than imposed by a confederation of state sovereignties.
The Union was successfully formed only by Hamilton’s conversion of monetary debts and a monetary currency into a credit currency, tying the nation’s future to the success of all the states, and translating the action of making good upon the debts into the currency itself. The intention to make good on the debts defined the currency, the economy became a drive to build the nation, and the interests of the nation were fused with the Bank and that currency. The currency was not abstracted. In addition, the creation of a new bank, in the same action as funding the debt through the powers to protect and encourage manufactures gained in the first act of Congress, created a financial system tied directly to the success of U.S. industry and internal improvement, as well as the value and funding of the public debt.
By these measures, Hamilton successfully transferred the United States from a money system, into a credit system, as the essential principle of credit is not government notes vs. a currency of gold and silver, but a unification of the powers of the economy behind the currency, such that the currency becomes a reflection of future growth.
The key feature of the Bank of the United States was a direct lending institution for economic growth, determining the guiding boundaries of the economy—not performing lending or discounts mediated by the concerns of commercial banks operating according to mathematical formulas about how quickly the economy should grow according to supply and demand. It was a legislated institution not separate from the rest of economy, but at its head. It linked private banking and the interests of industrial investors and men of trade directly to the economy.
By funding the national debt with import duties and domestic taxes and by other powers of Congress, the debt became the basis for a currency of bank credit and bank notes circulating upon the credit of those funded debts, which made up most of the Bank’s capital stock. Various debt certificates issued during the war were reissued as a representation of the new power of government in action, while the branches of the Bank accepted the new debt certificates as deposits and lent on the credit of expected manufacturing and industry. The provision for funding the debt of the United States threw into circulation an immense amount of capital, which gave life and activity to business. Hamilton wrote to Congress in his 1791 Report on the Subject of Manufactures of the effects of his system:
In a sound and settled state of the public funds, a man possessed of a sum in them, can embrace any scheme of business, which offers, with as much confidence as if he were possessed of an equal sum in coin. This operation of public funds as capital, is too obvious to be denied. . . Though a funded debt is not in the first instance, an absolute increase of Capital, or an augmentation of real wealth; yet by serving as a new power in the operation of industry, it has within certain bounds a tendency to increase the real wealth of a Community.
Under Hamilton, money became subservient to credit, and the currency in circulation was almost entirely that which was tied to the future value of funded debt. Gold and silver fell into the background, and people preferred to use credit— the national bank notes, and notes of other state banks that rose into place to facilitate the growth of internal regions. Money, as such, defined as gold and silver, was a mere fraction for settling accounts, and as the banking system developed, gold and silver became relegated to .01% of all payments made in commerce and industry, and 1% of the value of all transactions.
James Wilson and Gouverneur Morris were the most active members of the Constitutional Convention next to James Madison. Wilson wrote the first draft of the entire Constitution. G. Morris wrote the preamble, and rewrote the Constitution, with Hamilton, in its final form. Both worked with Robert Morris, Alexander Hamilton, and Benjamin Franklin in the formation and direction of the Bank of North America, upholding the credit of the Continental Congress through the Revolutionary War. Wikipedia photograph of sculptures created by Studio EIS at Constitution Hall in Philadelphia.
Hamilton’s credit-based currency put into motion the active capital of the country. Reflecting on the system he had constructed, he wrote in his final Report on Public Credit in 1795:
Public Credit . . . is among the principal engines of useful enterprise and internal improvement. As a substitute for capital, it is little less useful than gold or silver, in agriculture, in commerce, in the manufacturing and mechanic arts . . . One man wishes to take up and cultivate a piece of land; he purchases upon credit, and, in time, pays the purchase money out of the produce of the soil improved by his labor. Another sets up in trade; in the credit founded upon a fair character, he seeks, and often finds, the means of becoming, at length, a wealthy merchant. A third commences business as manufacturer or mechanic, with skill, but without money. It is by credit that he is enabled to procure the tools, the materials, and even the subsistence of which he stands in need, until his industry has supplied him with capital; and, even then, he derives, from an established and increased credit, the means of extending his undertakings.
The purpose of Hamilton’s policies properly understood was not monetary, but industrial and scientific. Hamilton viewed the currency not as wealth itself, but the constitutional responsibility of government to facilitate the scientific ingenuity and spirit of enterprise. In Hamilton’s Report on Manufactures, he laid down the essential principle of economy as a physical system of productivity. The primary measure of value is not capital, but the mental powers which increase the productive powers of labor, and thus increase the value of capital through increasing productivity and production. The determination of the value of goods, of labor, and of production is therefore those increases or decreases in the rates of productivity.
The credit system thus formed, augmented the means and ingenuity of the citizens to promote their own and the public welfare. The aim within the credit system was not to produce for the purpose of obtaining money, but to obtain credit as the means to increase the powers of labor. New innovations and inventions increase the profit of loans: They are not mechanical. Innovations further increase the productivity of the economy. Hamilton’s action of turning monetary debts into credit debts became more valuable to the growth of the economy, than if the full monetary debt had been forgiven.
Hamiltonian economist Robert Hare wrote in 1810:
Under a strict system of law. . . credit . . . is preferable to money. The man who enjoys the one, has nearly an equal facility with him who commands the other, in the purchase of materials for trade, or manufacture. But the stimulus to industry, or exertion, is very different in the two cases. The mechanic who has a hundred dollars, can live without work so long as it lasts. He may spend the whole, or part, in his pleasures, or for his sustenance, and may work proportionally less. But the mechanic who can command credit to the amount of a hundred dollars, has nearly the same capacity to earn money, as the other; but his privilege will not sustain him in idleness, or dissipation. It can only be of use to him, through the medium of industry.
Prone in common with all substantial and hereditary wealth, to subside into channels rather ample than numerous, the precious metals flow through a country in large streams, which carry out as much as they bring in, and contribute more to partial magnificence, than to general fertility: while credit, springing up in innumerable self-created rills, diffuses a fertilizing influence throughout every region.1
It is essential to comprehend that the U.S. credit system is not merely a well-regulated currency where credit is available through banks, but is the total organization of economy by the mind toward growth. This is seen in the distinct policy which makes up all of Hamilton’s reports on public credit, especially his final review in 1795.2 Hamilton’s management of the Treasury shows an unending devotion to the management of finances according to this guiding principle: that the outcome of any debt payments, new congressional laws, and expenditures, had to lead to an increase of productivity. The balance of payments of the debt coordinated through the Bank was continuously organized according to the principle of maintaining a diversion of surplus and revenues toward increasing economic growth. According to the first act of Congress following his first Report on Public Credit, no debt of the government was to be handled as a self-evident, monetary debt, but was tied together with a future income related to increases in productivity, through the economy regulated and facilitated by the Bank.
Under Thomas Jefferson and Treasury Secretary Albert Gallatin, from 1801 onward, the economy operated in explicit opposition to Hamilton’s system; as before the Constitution, the U.S. economy became a pawn of foreign interests.
Gallatin had been the chief domestic opponent of Hamilton’s management of the Federal budget toward productive increases, and the utilization of the debt as an instrument of public credit. He opposed, in general, his entire program, and had voted against the Constitution in 1789 and those powers of Article I, Section VIII, which provided economic sovereignty from the British Empire. Gallatin radically changed the policy of the Treasury Department and its relation to the Bank, directing the surpluses of economic growth toward the present and past, paying off the national debt as quickly as possible. The product of the banking system and increases of national income from productivity, which had only been possible through the deft arrangements of Hamilton, were now thrown toward immediate extinguishment of the debt, cutting the ties of the economy to the future.
Therefore, though the Bank of the United States still existed, it was no longer the U.S. credit system. Amidst the more systemic decline in productivity thus generated, an outstanding feature was the depletion of the Navy and its virtual non-existence in the lead-up to the War of 1812.3 The Jefferson Administration laid the foundation for the later, more radical “simple machine” of government of the Jackson Administration, which finally did away entirely with Hamilton’s system, a process facilitated by Aaron Burr, John Randolph, and others, reshackling the economy to the arbitrary axioms of monetarism and British East India Company interests.4
Under the leadership of one of our greatest men, Mathew Carey—the Benjamin Franklin protege who mastered the principles of economy in Hamilton’s Report on Manufactures—a team was organized to restore the Hamiltonian economy, of which the founding of a new Bank of the United States under James Madison was a part.5 However, the existence of a Bank of the United States alone does not equate to a national credit system, and the re-establishment of Hamilton’s system was only successful with the direction of the Bank by the Hamiltonian, Nicholas Biddle. Beginning in 1823, and working under the leadership of Mathew Carey, Biddle restored a functioning national currency from the effects of speculation, caused by the destruction of Hamilton’s system.6
As under Hamilton, from 1823 on, the system was managed to constantly make credit agreements, not liquidate wealth for the present. Biddle’s principle was to maintain the economy’s operations within the time scale of the credit system, rather than allowing an excess demand for immediate payment, in particular immediate payment in money. This allowed productive surpluses of all parties to be constantly absorbed into future growth and productive investment, expressed by greater facility of credit, not as idle wealth merely for increased consumption, i.e., the bane of money. The domestic economy was able to grow in relation to its productive power rather than by artificial controls.
The value of the currency was determined by increased rates of production, and the facility and security of investment of expanded production further consolidated credit. As more agricultural land was developed, as more manufacturing facilities became established, and as more transportation networks for produce and coal for manufacturing facilities were completed, the amount of bank credit that could safely be put into circulation through loans and discounts increased in proportion, doubling and tripling over that decade. The currency bore a proper relation to the real business and exchanges of the country, being issued only to those whose credit entitled them to it, increasing with the wants of the active operations of society, and diminishing, as these subside, into comparative inactivity. The Bank currency was firmly backed by the productive sector, and its value increased as the cost of production decreased.
This was the essential principle of paper credit, as opposed to paper currency, since no currency is substantial which does not unite the resources and growth of the real economy with its establishment and circulation. In contrast, central bank fiat currencies, as at present, become tools of subversion of national sovereignty, rather than national advancement.
With an established capability to direct and coordinate interactions of productive growth based on the credit of their completion, nearly any valid enterprise was facilitated through the credit of the Bank of the United States, in coordination with state and Federal governments, provided it was within the means of the regulated currency. Within a few years of Biddle’s reorganization of the Bank, the confidence of the people that the Bank of the United States would now be the dependable means for economic investment, gave the impetus to enterprise which led to the great expansion of canals and industries. Armies of industrious and capable men were encouraged to commence operations as merchants, manufacturers, and farmers, without sufficient capital at the outset to support their enterprise, leaning for aid upon the credit system. It was only because of this new confidence that new lands were settled with such speed, manufactures increased with such spirit, and canal projects built with such scope.
Mathew Carey, American System economist and organizer of the second Bank of the United States.
Nicholas Biddle, President of the Bank of the United States,
With the growth of the credit system, fewer and fewer payments were settled in cash transactions. As with Hamilton’s maxim for public credit, that the creation of a debt should always be accompanied with the means of extinguishment, so in all commercial banking under the Bank of the United States, the same principle was increasingly made to apply: that no self-evident debts be created, but credit agreements which ensure that circulation is returned by the debtors of the banks at a rate equal to that at which it is issued.
Under the proper functioning of the credit system, the meaning of debt was transformed. The debts of farmers were paid by next season’s produce; the debts of merchants were paid through subsequent sales; and on the larger scale, the debt of states for infrastructure were paid by the future development of industries. The debt created for internal improvements, and personal debts in farming and manufacturing, were simply part of the growing economy under the credit system. The states which had incurred large debts for canals and roads planned to develop iron and coal industries and new transportation routes for the products of the new lands. These newly developed lands and industries along the infrastructure routes increased income ten times over the initial investment.
After the successful demonstration of the Hamiltonian credit system under the second Bank of the United States, the only desire for radical laissez-faire banking and trade came from British agents, or those with allegiance to trade and commerce, rather than national industry. It was not an honest difference of view or opinion of the Constitution.
The controllers of Andrew Jackson intentionally destroyed the credit system, and the basic principles of physical productivity were replaced with party theories of a hard money currency in order to justify drastically reducing circulation.7 Gold and silver were designated the true riches for the population to seek after; productivity was no longer deemed a measure of value; and it was preached that the nation as a single economy was not a valid reference point. Individual property and the “liberty” of wealthy land and slave owners were declared sacred. The fallacy of the “laws of the market” was imposed, supplanting the common good. The Martin Van Buren Administration demanded debts be paid in the present, at whatever expense to the future, and waste of the past. Valid credit agreements were attacked as spendthrift and the cause of the crisis, which was in fact created intentionally by the controllers of the Jackson Administration, and thereafter replaced with austerity as a means to appease “the market.”
Under the imposed money system, debts are viewed in the present, with an abstract amount of debt and money deemed “proper” for the market, according to the false doctrine that the market will generate by itself the proper supply and demand for production, without a program of nation-building.
Legal tender issued by Abraham Lincoln was circulated on the same fundamental hypotheses as the notes of the Bank of the United States. Once again, under the Andrew Johnson Administration, Treasury Secretary Hugh McCulloch, working with Lincoln-deserter and British agent David Wells, artificially contracted Lincoln’s legal tender in opposition to the actual ability and needs of industry. Repeating exactly Jackson and Van Buren’s claims, McCulloch and his followers in the Ulysses S. Grant Administration mocked the people, saying the “over production” of “the market” had caused the crisis, and that the previous economy had been excessive. The economy was thus sacrificed on the altar of monetarism.8
Such, and later contractions and crises, as that in the 1870s, again after McKinley, again during 1929–1932, again, and again, and again, are caused by the intentional destruction of the industrial economy and associated credit system. Each time, sophistical methods, akin to the feigned innocence of Jackson and Van Buren, are used to claim other causes.
Contrary to the myth of Andrew Jackson, the credit system of the Bank of the United States broke up the aristocracy of wealth, as idle capital was made available in loans and discounts, profitable to all parties. The credit system of the Bank of the United States meant that any citizen could compete with a wealthy capitalist; that it was the right of anyone with a spirit of enterprise to receive the means to increase productivity.
The Declaration of Independence demanded Hamilton’s credit system, for it is the intention of inalienable rights that the man qualified for commercial pursuits should embark in them on capital obtained on interest; the man of skill in the manufacturing arts should have that scope given to his enterprise and usefulness which a confidence established between him and the money lender is so well calculated to carry out; the farmer should strive to become the owner of the soil he cultivates by a purchase upon credit, depending upon the products of his labors to discharge the debt.
Guaranteeing equal rights is not simply providing a safety net. It is not equally distributing money. Equal rights means the ability to contribute to the productivity of the nation, and thus the right to go into debt for that purpose.
Government cannot create wealth directly by printing and coining money, because wealth is properly measured as the productivity of the economy. But a government acting as sovereign can create a central institution which regulates the means of exchange of credit for the productivity of the economy. The responsibility, duty, and authority of elected representatives is to provide a vision for the country—not to control every operation, but to create the means to steer the ship of state towards national prosperity. Through the Hamiltonian credit system, the government thereby fulfills its responsibility by creating the means, in order to enable the right.
With the right, the spirit of enterprise becomes animated through credit agreements. An increasing number of all transactions become based on the modes of payment of the credit system, as the freedom and security of a person’s property becomes further established. Since the conduct of the worker ensures his ability to obtain the aid of capital, rendering his labor more productive and his condition improved, there are an increasingly large number of incentives for Americans to apply their property productively toward future aims. The moral character of citizens improves, improving in turn the efficiency of credit. In this way, the moral nature of society gives the credit system its power.
Without the credit system as intended and utilized by the founders of the Constitution, Americans have always suffered an irony: that with a banner of equal rights waving over their heads, the demand to pay on the basis of existing or past wealth imprisons enterprise, disables the ability, and removes the right, to increase the power of their labor.
As American System economist William Elder put it in 1871:
A society without a credit system is simply savage. A business economy, whose capital should be limited to material property, would be a despotism of property. . . as dead as the insensate earth, where all that is precious is in the fixity of crystals, and all that is common, is as incapable as the rocks in which the gold and silver are coffined.
There is one crucial lesson to be drawn from the Franklin Roosevelt Administration’s approximation of the Bank of the United States credit principle. It was necessary for the Roosevelt Administration to not merely reorganize the banks, but to establish a principle of credit, which did not otherwise exist. His administration reorganized the banks not for the banks per se, but to make them capable of operating within the new context of the operating credit principle for which he was aiming, with a plan for “Credit Banks for Industry,” which eventually became the expanded Reconstruction Finance Corporation (RFC). The 1934 Industrial Advances Act and subsequent RFC amendments and credit policies were a commitment to the success of the industrial recovery, from the decades of failed economic policies, which were brought about through the consolidation of Wall Street and London’s control over U.S. policy.
Understood correctly, Roosevelt’s direct lending for industry, beginning in 1934, was not intended as a special function added to the economy, but as the building of one, since the former economy had been destroyed by preceding decades which had replaced long-term credit agreements for industrial advancement with speculation. He achieved a functioning credit system with an increasing amount of the financial system linked to the economy, rather than linked to banks, which the Federal Reserve system had served.
The U.S. credit system is an economy bounded by increasing rates of productivity facilitated by credit lending, in which the rest of commerce takes second place. It is based on a currency in circulation representing future value, which ties the long-term intention of the government to the ability to carry out that intention. It provides for a sufficient medium of future payments, governed by the chief institution of credit.
The credit system currency allows the nation the leverage of capital based on how much physical trade it can support. The amount of currency and credit is regulated by this crucial principle, not by any mathematical formula.
Industrial credit policy may err, but it can never be excessive under the leadership of U.S. economists in the tradition of the American System, nor has it ever been.
This lesson must be learned now or the nation will surely perish through lack of attendance to simple laws of productivity, and by allegiance to axioms completely foreign to our great legacy.
We are a nation impossibly chopped into pieces. Under Barack Obama and largely since President John Kennedy, the bold action to put the nation before the interests of Wall Street, and foreign and supranational trade, has departed from the halls of government. Credit implies vigor, power, and authority. The failure to use the authority of government will mean the loss of the nation. What is at stake is not a question of “limited government” or “big government”, not a question of Democrat or Republican. The credit system is a matter of national prosperity.
Thankfully, the myths of monetarism have been thoroughly refuted countless times by such among our famed 18th and 19th century economists as Benjamin Franklin, Alexander Hamilton, Mathew Carey, Daniel Raymond, Henry Carey, William Elder, Robert Ellis Thompson, and Stephen Colwell. Provided false chimeras are not debated, the advocates of the credit system have taken the field and can once again claim victory. If real patriots would align with these great economists, as Lyndon LaRouche has done, their opponents would have no ground on which to stand.
Government must reclaim its power to legislate the creation of a financial system that provides all citizens a right to make use of their spirit of enterprise, a system of currency that gives every citizen a capability to increase his productivity, and the right to go into debt for such a purpose.
The Congress has repeatedly abdicated this power, maintaining the myth of Andrew Jackson. That myth has been destroyed, the government now freed to restore the original Bank of the United States and the Hamiltonian credit system.
The following draft legislation acts as a guide, which qualified directors and a Secretary of Treasury can utilize to carry out the preceding principles.
As with Hamilton’s original bank, a portion of valid public debt of the government will be consolidated as capital of the Bank of the United States, with the addition of a subscription by the United States. The capital of the Bank will tie the making-good of the debt to the future productivity of the economy. A portion of the capital will also be opened for subscription by state and municipal debt. Additional lending capital can be concentrated by selling obligations of the Bank, which are convertible into stock, the obligations being an investment backed by the United States with the guarantee of the increased productivity, for a total of one trillion dollars capital of the Bank.
The Bank will serve as a place to concentrate all idle money, and to make it available as credit in the most efficient way possible. The Bank will receive deposits of the National Transportation Fund, circulating the fund as credit until needed for appropriation. Revenues for import duties applied on goods which crucial domestic industries currently produce, or which will be needed to be produced for new infrastructure within the United States, will be similarly circulated as credit through the various branches of the Bank.
As an institution especially formed for the purposes of credit, and whose role it will be to interface with the various credit cycles existent in the United States, these and other federal revenues currently utilized by the Federal Reserve may be more wisely made use of by the discretion of the Treasury Secretary, by depositing them in the branches of the Bank of the United States. This amount will be substantial, both by what it achieves, and by the cancellation of the evil of speculation, which creates a society of bad morals.
The Bank will also accept deposits of funds that have been raised by states and municipalities for their own projects, making them available in the interim before they are expended in the states and municipalities, as an addition to the general credit fund of the Bank of the United States. Rather than under the failed model of speculative investment houses, states and municipalities will be able to make a valid profit while securing their funds. The Bank will use its capital to purchase state and municipal bonds related to their own projects. Idle revenues will no longer be used for speculative purposes which end in disaster for cities, states, and the Federal government.
The Bank will lend for industries and manufactures which build the components of a new infrastructural system around the country. Various spin-off industries and orders related to Section 5 of the draft legislation will be facilitated by those commercial banks working with the Bank of the United States, and commercial banks will profit from discounting commercial securities related to the debt of industries and companies which will produce and circulate needed commodities. Large companies and corporations will no longer need to sell bonds and raise money from the shadow banking system, but will obtain reasonable accommodation from the Bank and other commercial banks with which the Bank cooperates.
The Bank will take up responsibility for large agricultural cycles, making loans to producers to finance the carrying and orderly marketing of agricultural commodities. With increasing industrial and agricultural exports, creating new demand for raw materials and agricultural products, made possible by loans and discounts from the Bank, the board of directors of the Bank will track the cycles and circuits of domestic commerce, which will create profits for the Bank and other commercial banks. Debts will be balanced with the credits arriving in the Bank from the products of industry related to the initial debt; the time and terms of the original debt will be closely tied to the time of the commercial cycle. A vast circulating currency can be formed, as the securities of industry will circulate as a means of payment to extinguish the various debts among parties, since the credit due to one party can be transferred to another.
The commercial banking system will be aided by the Bank through its bankruptcy reorganization procedures, under a re-instatement of the Glass-Steagall Act and related 1933 Banking Act provisions, raising capital stock of banks as necessary.
Unlike the Federal Reserve and other central banks, the Bank of the United States, in accordance with its original design, will not be at liberty to continuously purchase debt of the United States, but only to sell an amount included in its original capital stock in due amounts and at appropriate times. It will therefore not be a machine of idle indebtedness, but in accordance with Hamilton’s original maxim of public credit related to the creation and extinguishment of debts.
The Effects of the Legislation
After an estimate of needed industry and labor for completion of new infrastructure, voted on by the representatives of the people, the first investment cycle and credit emission for new projects will be organized to accomplish those tasks which will increase the potential of the economy for the next investment, such as plant and labor capacity. The boost of the economy created by that investment will alter the appropriate loans for the next cycle.
Millions of productive jobs will increase tax revenue from new tax receipts of newly employed workers. A much greater increasing revenue will come from the taxes on earnings of industrial corporations within the United States. The income of the nation will shift from consumer income to business income and therefore the currency will be tied more closely to private industry. Similarly, consumer spending of the non-industrial sector of the population will account for a decreasing proportion of the financial system of the United States.
Numerous Treasury commitments which have been sunk to stave off attrition, or which are dispersed for infrastructure investment out of the annual budget, will be freed up, now serviced by loans from the Bank.
As a result of available credit, new infrastructure will increase national income from industry and agriculture. There will be gains reaped in foreign exchange by the yield of increased exports of agricultural, mineral and manufacturing products.
Within the context of the Bank of the United States providing credit, a proper system of commercial banking will make profit, not on mutual funds and other risky ventures, but on loans and discounts between new industries and industrial and agricultural consumers in the United States.
The interest paid to banks will correspond to a portion of the surplus earned by productive citizens from the employment of loans. Loans issued by banks will be strictly tied to the time of the production cycle for which loans and discounts are made. Banks will conduct loans that depend upon the profitable operation of the borrower, where employment will be provided and the security will reasonably assure ultimate liquidation of the loan.
Banks will become intermediaries to the agro-industrial economy and share in the profit made from converting raw materials into finished goods and increasing the output of the land. Commercial banks will profit from increased industrial orders within the national economy and for purposes of increasing productive output. Investment and pension funds will redirect valid savings into these new productive enterprises, rather than the formerly speculative, derivative-related funds.
Those who produce goods for industry, those who labor to construct infrastructure, and those who produce goods for consumption, will receive the benefit of laws at a premium to those who buy and sell the goods in commerce and trade. Speculation on foreign exchange and interest rates will be reduced as rapidly as regulations can be implemented. Tax-paying domestic manufacturers will receive those privileges currently granted to foreign nations and supranational cartels.
1. Robert Hare, “Proofs that Credit As Money In a Truly Free Country is to a Great Extent Preferable to Coin,” abstraction from a pamphlet written in 1810, published 1834.
2. Alexander Hamilton, “Report on a Plan for the Further Support of Public Credit,” January 16, 1795.
3. Gallatin decreased the debt between 1801-1812 by 80%, but then, in effect, increased it by 180%, due to the condition of the economy during the war, or a net 60% increase from where it had stood under Hamilton.
4. Michael Kirsch, “The Myth of Andrew Jackson Is Hereby Destroyed,” larouchepac.com/andrewjackson.
5. Mathew Carey, “Essays on Political Economy; or The Most Certain Means of Promoting the Wealth, Powers, Resources, and Happiness of Nations”, Philadelphia 1822.
6. Michael Kirsch, “The Credit System vs. Speculation: Nicholas Biddle and the 2nd Bank of the United States,” Executive Intelligence Review, July 20th, 2012.
7. Michael Kirsch, Ibid., note 4.
8. W. Allen Salisbury, The Civil War and the American System, America’s Battle with Britain, 1860-1876 (first edition, 1978; second edition, Washington, D.C.: EIR News Service, 1992).
to Restore the Original
Bank of the United States
To restore the original Bank of the United States.
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress assembled,
- The United States must return to a credit system, as under the original Bank of the United States as operating under the guidance of Alexander Hamilton, and successfully directed by Nicholas Biddle and used by President John Quincy Adams. Hamilton’s credit program became the key to the establishment of a sound United States, and the extraordinary development of continental infrastructure. The success of the Bank of the United States rested on its direct lending for future advancement of productivity and production.
- Due to the lack of a Hamiltonian national bank, and the mismanagement of the economy since the repeal of the Glass-Steagall elements of the 1933 Bank Act, the Federal Reserve is no longer a viable operation in and of itself, but is carrying out a policy of hyperinflation, which is actually suppressing lending by the banking system.
- After the re-implementation of Glass-Steagall banking regulations, the establishment of a Bank of the United States operating as a commercial bank will restore the valid profit to the commercial banking system which arises from manufacturing, industry, the increasing productivity of lands and soils, and most importantly, the building of infrastructure which expands and provides for such processes.
- Subscribers to the capital stock of the Bank will be assured the success of their investments by direct credit to national purposes which will create the greatest increase of economic productivity. Without the security given to the financial system by the adherence to these proposed mechanisms of national credit, nothing could assure the value of any valid assets currently remaining within the banking system.
- The Bank of the United States shall be authorized to: provide credit for major national projects of infrastructure including surface transportation and ports, water management and supply, drought, flood prevention and storm protection, electrical energy production and distribution; make loans to agencies of the United States created for such projects; enter joint ventures with agencies of other nations to provide credit for major international projects of new infrastructure; provide credit to state and municipal capital projects by purchase of municipal bonds as issued; provide loans to businesses and banks participating in such projects, and to cooperate with the United States Export-Import Bank to provide trade credits to businesses engaged in international infrastructure projects; and assist in the transition from a speculative to production based commercial banking system.
- The Bank will have a capital of four hundred billion dollars, of which 20% shall be subscribed by the United States Treasury in two equal new issues of Treasury securities in 2013 and 2014; the remaining capital to be subscribed by holders of United States Treasury Securities, and holders of municipal bonds of Federal states or cities, by exchanging those securities for preferred stock of the Bank of the United States, provided all securities have a maturity above three years.
- The guaranteed dividend on preferred stock named in (a) shall be above the equivalent of the prevailing interest rate of securities of equivalent maturities, for the first five years of issue.
- The Bank of the United States shall be authorized further to raise capital liabilities for its project investments from the public, from commercial banks and business corporations, and from investment funds, by issuing debenture bonds up to a total of two and a half times its capital stock, or $600 billion, bringing its total capital to $1 trillion; the bonded borrowing of the Bank of the United States shall have a guarantee from the United States Treasury and the bonds of the Bank shall be qualified for purchase by commercial banks operating under Glass-Steagall Act standards.
- The Secretary of the Treasury is authorized to purchase any obligations of the Bank, and for such purpose the Secretary of the Treasury is authorized to use as a public-debt transaction the proceeds from the sale of any U.S. securities. The Secretary of the Treasury, at the request of the Bank, is authorized to market for the Bank its notes, debentures, bonds, and other such obligations, using therefore all the facilities of the Treasury Department now authorized by law for the marketing of obligations of the United States.
- The rate of interest on the debenture bonds named in Sec. 3(c) shall be the rate of interest on 30-year U.S. Treasury securities for the first five years of issue. Their maturity shall be 30 years for the first five years of issue, unless a different maturity shall be determined by Congress.
- The United States Treasury shall create a sinking fund for guarantee of the capital stock of the Bank of the United States, allocating $10 billion annually for the purpose; and a sinking fund for guarantee of the bonded borrowing of the Bank of the United States, allocating $10 billion annually for the purpose.
- Be provided with an issue of interest-free U.S. Treasury notes for circulation, equal to the amount of its capital stock.
- Be authorized to receive U.S. government revenue deposits to its circulating capital:
- The National Transportation Trust Fund shall be authorized to deposit the revenues of the Federal gasoline tax into the Bank as they are received, and until such time as they are expended for surface transportation projects.
- In the event that Congress will protect manufacturers of articles related to Sec. 5 from foreign laws, using the appropriate powers of Article I, Section VIII, of the Constitution, revenues from duties shall be deposited in the Bank of the United States.
- All revenues from duties and other collected taxes deposited in the Bank shall be made available for lending purposes until drawn for appropriations by Congress; and other Federal fees, duties, and revenues may be deposited into the Bank as the Secretary of Treasury may determine.
- Require State and municipal agencies, which receive capital project support through purchase by the Bank of municipal capital bonds, to keep on deposit 5% of the proceeds of such bond purchases in the Bank of the United States, until the completion and final inspection and commissioning of the project involved.
- Be authorized to received deposits of municipal project funds raised until such time that their expenditure is required by the states or municipalities for the projects involved.
- Provide the necessary facilities for transferring public funds deposited in the Bank from place to place, within the United States, whenever required by the Secretary of the Treasury, and for distributing the same in payment of the public creditors, without charge.
- That industrial and agricultural production and construction related to the following shall take priority in the lending of the Bank: a) Construction and other such companies contracted by acts of Congress related to national drought and flood control infrastructure, including agreements made with Canada for this purpose, for the construction of plant capacity, construction of storage reservoirs, canals, aqueducts, pipelines, pumping stations, power stations, lock and barge transit corridors, and rail road construction. b) Manufacturers of excavators and large capacity trucks and other earth moving equipment, heavy capacity cranes, tunnel boring machines, and drilling machines; manufacturers of large motors, large capacity pumps, valves, fittings, intake and discharge headers; mining companies which mine limestone, copper, or maintain rock quarries; mills which produce cement, steel, aluminum, and copper; foundries and smelters engaged in heavy rolling, forming, and production of metallurgy components; manufacturers of machine tools; manufacturers of forebay, penstocks, head gates, turbine wheels, impellers, generating units, switchgear, transmission lines; manufacturers of double steel mitre gates and other components for waterways; manufacturers of pressure vessels and other components of nuclear power plants; and manufacturers of locomotives and rail lines. c) Agricultural producers of food for domestic consumption.
- The Bank shall have access to information on the progress of entities to which it loans for the purposes of this section, and be kept informed of the schedule of contracts according to acts of Congress associated with national water regulation, in order to alter its loans as appropriate for the schedule and progress of developed plant capacity, production, and construction.
- The Treasury Secretary may, with authorization of Congress, subscribe to the stock of companies related to the priorities of this section, or issue interest free treasury notes for the purchase of the Bank’s obligations, where such stock shall be paid for, and such notes retired, by the future dividends which may accrue upon United States bank stock in the Bank of the United States.
- Commercial banks shall not be eligible for loans or discounts or any other accommodation from the Bank of the United States and its branches, which are not operating under Glass-Steagall specifications.
- During the unwinding process which will be created by the Government’s reimplementation of the elements of the 1933 Bank Act, related to the separation of banks by function into commercial and investment banks, and the associated prohibitions of underwriting investment securities and interlocking with security companies, etc., the Bank of the United States will be authorized to purchase preferred stock of commercial banks, in order to rehabilitate the capital structure of bank associations whose assets will have shrunk to such a degree, that their capital will be impaired.
- The Bank shall be authorized to discount any commercial, agricultural or industrial notes, drafts, and domestic bills of exchange; shall make proper arrangements for all those who desire to adjust and set off debts without the use of cash; shall be authorized to correspond with institutions or individuals in foreign countries, in reference to the payment of balances, setting off debts, and to the export or import of dollars.
- If the Treasury Secretary determines it necessary to facilitate payments on credit between industries specified in Sec. 5., and to ensure that credits from discounted bills of exchange or promissory notes, or other commercial securities, as specified in this section are not diverted from their proper application to payments of debts of the trade for which they were created, the Bank may issue special notes, with the authorization of the Secretary of Treasury to be used for said discounts and not monetizable or payable in cash until the maturity of the note. Such notes may be deposited in a separate credit account and may be receivable by the Bank or other commercial banks for satisfaction of any other debt to be extinguished until they are paid, during the period before they mature. Such notes issued for domestic bills of exchange shall not be counted as notes in circulation against the capital reserves of the Bank of the United States or other commercial banks.
- Maturity of loans and discounts should coincide with time periods of anticipated profitability and projected useful life of the facilities financed with such loans and discounts.
- The Bank may make loans for companies involved in manufacturing related to Sec. 3, for additional needs of capital expansion.
- The Bank may extend the time of payment of a loan, through renewal, substitution of new obligations, or otherwise, with a maximum time for such renewal to be established by the Board. The Bank may make such further loans and contracts for the completion of projects or additions, improvements, and extensions necessary for proper functioning of the project and which will increase assurance of the borrower to repay the entire loan or loans.
- In addition to direct loans, the Bank may make loans in cooperation with other lending institutions. The Bank may participate in such loans up to 50%.
- The Bank may discount for, or purchase from, any bank, trust company, mortgage company, credit corporation for industry, or other financing institution operating in its district; it may make loans direct to any such financing institution on the security of such obligations; and make commitments with regard to such discount or purchase of obligations or with respect to such loans or advances on the security thereof.
- In exceptional circumstances, when it appears to the satisfaction of a branch office of the Bank that an established industrial or commercial business located in its district is unable to obtain requisite financial assistance on a reasonable basis from the usual sources, the branch office may make advances to, or purchase obligations of, such business, or may make commitments with respect thereto, for the purpose of providing it with working capital.
The directors of the said corporation shall establish an office of lending, discount, and deposit in each of the Federal Reserve Districts and in any other state where Congress may, by law, require the same.
There shall be twenty five directors, annually appointed by the President of the United States, by and with the advice and consent of the Senate, the majority of which shall be actively engaged in some industrial pursuit, or shall have had at least twenty-years experience in industry or infrastructure. And the board of directors, annually, at the first meeting after their election in each and every year, shall proceed to elect one of the directors to be president of the Bank, who shall hold the said office during the same period for which the directors are appointed and elected. The president shall be required to assemble a staff with experience in the commercial banking, engineering, heavy construction, and scientific fields, which he or she shall direct to assess the feasibility, productivity, and cost of investments; the Bank shall receive an annual authorization from Congress of $1 billion for such purposes.
- The total amount of the debts, which the Bank shall at any time owe, whether by bond, bill, note, or other contract, shall not exceed the sum of the capital stock of the bank, the funds obtained through the sale of its obligations, and its deposits, unless the contracting of any greater debt shall have been previously authorized by a law of the United States.
- The Bank may sell and transfer for U.S. dollars any part of the public debt subscribed to the capital of the Bank, after a period of three years from its incorporation, but shall not be at liberty to purchase any public debt whatsoever, nor make any loan upon the pledge thereof; provided, that they shall not sell more thereof than a sum equaling one-fifteenth of the capital stock in any one year; nor sell any part thereof, without previously giving notice of their intention to the Secretary of the Treasury, and offering the same to the United States for the period of fifteen days, at least, at the current price, not exceeding the normal rates.
- Interest on the public debt portion of the capital stock paid to the Bank, beyond the dividends for the stockholders, shall be made available on deposit for lending purposes of the Bank.
- None but resident citizen of the United States, shall be a director.
- Foreign stockholders shall have no influence over the decisions of the board of directors.
The Bank of the United States is chartered as the legislated means of carrying out the powers of Congress in relation to the ends specified in Art. I, Sec. VIII, of the Constitution, and nothing in this act is to be construed for other purposes.
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and Not Authorized by any Candidate or Candidate’s Committee