Many people do not realise that the United States had its first central bank established in 1782 which preceded the United States Constitution on September 17, 1787 in Philadelphia, Pennsylvania.
The Bank of North America was closely modelled after the Bank of England and followed the fractional reserve model of allowing the issue of promissory notes in excess of actual deposits with some requirements that some gold and silver to be held in the vault.
The notes themselves were not “forced” on to the people as legal tender for all debts, but the government agreed to accept their face value in payment of taxes and duties.
The Bank of America was not issued with the power, at this stage, to directly issue the nations money.
The Federal government at that stage did not have a functional form of money on its own.
The Bank of North America was also made the official depository of all federal funds, it then it turned around lent the government $1.2 Million dollars.
The bank had used gold that had been lent to the United States by France, as a fractional reserve base in order to be “legally” allowed to lend money to the government.
After a few years the markets started to lack confidence in the increasingly inflated value of the notes and it failed to have its charter renewed by Congress in 1783.
Alexander Hamilton, Secretary of the treasury in 1790, submitted to Congress the idea of the First bank of the United States.
His idea was a neutral bank which had the power to create money, to then lend most of its money to the government and to then make sure the IOU`s were accepted as money by the public.
Congress essentially would not be producing bills of credit.
It would be up to the bank to do this.
Hamilton said “..no society could succeed which did not unite the interest and credit of rich individuals with those of the state..a national debt, if it is not excessive, will be to us a national blessing…”
Thomas Jefferson, then secretary of State was strongly opposed to this.
“A private central bank issuing the public currency is a greater menace to the liberties of the people than a standing army…we must not let our rulers load us with perpetual debt…”
This whole central debate in Congress eventually led to the differences in core issues and the first political parties eventually emerged from this.
Hamilton views prevailed and in 1791 Congress granted a twenty year Charter to the Bank of The United States.
The Charter at that stage specified that the Bank was required at all times to redeem all its notes if required in gold or silver ’specie’(coins) but this was a physical impossibility due to space considerations.
Eighty percent of its capital was supposed to be provided by private investors with the federal government providing the last twenty percent.
The bank somehow was allowed to open its doors with less than nine percent of the capital required with the rest being made up of capital provided by the government.
Foreigners were allowed to own shares in the Bank as well.
The primary purpose of the Bank was the create money for the Federal government.
The private sector was of secondary importance since it was limited to charging a maximum rate of interest at six percent which made it impractical at those high rates for most people except the government or a few large primate rate borrowers.
The government had initially “invested” approx $2 million dollars into the bank to start it, and then turned around and borrowed $8.2 million over the next five years.
By using different spending programs the government ended up creating an imbalance between the supply of money and the supply of goods and services.
Prices appeared to go up as the relative value of the dollar went down.
Over a five year period wholesale prices rose by 72%.
Jefferson lamented that “… I wish it were possible to obtain a single amendment to our constitution I would be willing to depend on that alone for the reduction of administration of our government….and an additional article, taking from the federal government their power of borrowing..”
The bill for Charter renewal failed and on January 24, 1811, the Bank of The United States closed its doors.
It was during the War of 1812 that the United states had allowed the expansion of the number of smaller banks.
These banks then printed enormous amounts of new notes and then used these new notes to purchase government bonds.
The federal government used the notes to purchase arms and manufactured goods.
It is widely perceived that panics, boom bust cycles etc are caused by competition between banks thus the need for government regulation.
These ‘disruptions` in the free market are actually an indirect result of the government preventing competition by their granting a monopolistic power to a central bank.
And regarding taxes, most people do not realise that one of the greatest booms in American history occurred when there was no federal government income tax.
This was between 1865 and 1913.
The government at the time used different forms of exercise and tariffs to raise funds for its projects.
National debt has increased by over five thousand times since the federal income tax and federal reserve were created by Congress in 1913.
Most people do not realise that the idea of a progressive income tax system is actually a plank of Marx.
In 1848 Karl Marx and Frederick Engels wrote a book outlining a political ideology, titled “The Communist Manifesto”.“
2. A heavy progressive or graduated income tax. source
In Australia the Reserve Bank of Australia (RBA) is Australia’s central bank and derives its functions and powers from the Reserve Bank Act 1959.
We realise that Australia`s history of banks and taxes is not as colourful as America.
The first taxes in Australia were raised to help pay for the completion of Sydney’s first gaol and provide for the orphans of the colony.
In 1895 income tax was introduced in New South Wales at the rate of 2.5%.
Federal income tax was first introduced in 1915, in order to help fund Australia’s war effort in the First World War.
Ample Property is proud of the fact that we live in one of the most economically stable countries in the world which has lead to large amount of foreign investment.
Ample property believe`s that by using other peoples skills,time and money(The banks) and investing in real state for long term wealth creation, is the safest viable way forward.
Why not contact us for a free consultation today.
Tomorrow never comes…