by Thomas Allen

In 1938, Charles Rist  (1874-1955) wrote History of Monetary and Credit Theory from John Law to the Present Day (translated by Jane Degras, New York: Augustus M. Kelly Publishers, 1966) in which he reviews Count Mollien’s ideas about bank notes. Rist was a French economist, who was of the Banking School as opposed to the Currency School. [Under the gold standard, banking philosophies generally fell into either the banking school or the currency school. The banking school “holds that as long as a bank maintains the convertibility of its bank notes into specie (gold), for which it should keep ‘adequate’ reserves, it is impossible for it to over issue its bank notes against sound commercial paper with fixed short term (90 days or less) maturities.”[1] Its position is also called the “Banking Principle” or “Principle of Fullerton.” To the banking school, bank notes are merely circulating credit instruments. Although they can be exchanged for gold, they are not intended to be warehouse receipts for gold. The currency school “maintains that all . . . changes in the nation’s quantity of money should correspond precisely with changes in the nation’s holdings of monetary metal. . . .”[2] Its position is also called the “currency doctrine.” To the currency school, bank notes are merely warehouse receipts and, therefore, should be backed 100 percent by specie. To the banking school, bank notes are claims for new merchandise offered for sale in the markets. Under the currency school, bank notes are claims for gold. Under the currency school philosophy, an elastic currency does not exist; under the banking school, it does.] My comments are in brackets. Referenced page numbers enclosed in parentheses are to Rist’s book.

Nicolas François, Count Mollien (1758-1850) was a French financier. He worked in the Ministry of Finance from 1774 to 1791 and went to England in 1796 and studied the Bank of England. In 1799, he return to France and again entered the Ministry of Finance. Napoleon frequently consulted him and made him a councillor of state in 1804. In 1814, he retired from public service. Later, he was appointed to the Chamber of Peers. His major writing, which contains his views on money and banking, is Mémoires d’un Ministre du Trésor Public, published in four volumes between 1780 and 1815.

When Mollien returned to France, he was determined to revamp the French credit system using the English system as his model (p. 92). Mollien wanted to protect the Bank of France from the government, which “was always short of money and anxious to subordinate everything to its political ends” (p. 93). Also, he wanted to protect the bank from its managers, “who were too easily tempted to use it in their own interests” (p. 93).

Mollien argued that “[a] banking issue should only discount good commercial paper” (p. 93). With the strict enforcement of this restriction, the bank would “avoid the requests of a government always in search of treasury advances, and the cash facilities which the bank directors might ask for their personal affairs” (p. 93). Moreover, “the bank should avoid all speculative paper, all ‘friendly accommodation,’ all ‘fraudulent paper’ or ‘collusive securities’ which do not represent real commercial transactions, and the payment of which is not guaranteed by ‘the share in real money with which each consumer should directly or indirectly furnish it’” (p. 93). Furthermore, the bank should fervently avoid treasury advances of the government because they do not arise out of the ordinary requirements of trade and would return to the bank for repayment (p. 93). That is, bank notes issued to the government for treasury bills are in excess of that needed for commerce, and would, thus, return to the bank for gold. [Today’s governments and banks avoid this problem by making bank notes inconvertible.]

The essence of Mollien’s concept of the bank note was merely substituting one currency instrument for another already in existence. His concept is correct. When a bank note is issued against good short-term, self-liquidating paper, the bank note is merely substituted for another form of currency. Thus, he held that “[i]f notes are issued against sound bills of exchange, they only substitute a more convenient paper, with all the characteristics of money, for maturities created in the course of trade” (p. 94). His “idea that the note is merely a substitute for commercial money spontaneously created in the course of trade is correct” (p. 94). [Commercial money is short-term {less than 91 days} self-liquidating {the consumer pays the bill with his purchase} real bill of exchange {a bill that represents goods in the process of being sold to the final consumer}. Some economists reject the notion that bills of exchange are money; most of these economists accept bank notes as money like gold coin.]

However, Mollien believed in the quantity theory of money. If too many bank notes are issued, they declined in value (p. 94). [Presumably, he believed that this is true even if all bank notes are issued against real bills of exchange and gold coin.]

One significant difference between the Bank of England and the Bank of France as envisioned by Mollien was that the Bank of England held its gold reserves primarily for payments abroad. The Bank of France held its gold reserves primarily to redeem its bank notes (p. 95).

In addition to bills of exchange that the bank had converted to bank notes, the bank also needed to maintain a reserve of gold coins for the redemption of its notes when redemption is demanded. However, its notes need not and should not be 100 percent backed by gold. Mollien writes:

“But it would obviously be an exaggeration of caution to the point of absurdity to ask that the reserve of coin should be equal to the sum of the notes that a bank puts into circulation; if, in addition to the security for the bank-notes represented in the bills of exchange which the bank has discounted, it were to keep in its repositories a sum in coin equal to the notes, the bank’s existence would be both impossible and useless, for it could only form this reserve by keeping in a state of stagnation at the very least the capital of its shareholders” (p. 95).

He maintains, “The reserve of coin which a bank holds should therefore be measured against the number and the nature of the causes which can make repayments more frequent” (p. 95).

Rist notes, “It did not occur to Mollien that the note is only a means of making the coin deposited beforehand in the bank circulate” (p. 96). Also, Mollien failed to consider the primary purpose of the gold reserve. “Whereas the gold reserve is the foundation on which the entire activity of the bank is created, Mollien considered it as a way of guaranteeing the convertibility of its notes” (p. 96).

“Mollien considered notes useful because they economised the use of money” (p. 96). However, this idea conflicted with some of his other ideas. “He thought of the note as a substitute for bills held by the bank; but bills are an addition to metallic money; they are a commercial money spontaneously created to supplement the circulation of coin. In acting as a substitute for bills, notes play the same part as bills: they are an addition to, not a substitute for, the coin in circulation” (p. 96).

Moreover, Mollien had difficulty in distinguishing between credit used as money and money itself. To him, bank notes were money like gold coin or inconvertible government notes. However, their issue was limited by the quantity of bills of exchange that they replaced (p. 96). [When a debt is paid with credit used as money, that credit money discharges the debt by passing it to another, the person or entity responsible or obligated for the credit money. The debt is not extinguished until the credit money is converted to something that is no one else obligation, such as gold or silver. Therefore, a bank note is credit money that discharges debt by passing it to the issuing bank. That debt is not extinguished until the bank retires the note by converting it to a commodity money like gold or silver.]

Endnotes

[1]. Percy L. Greaves, Jr., Understanding the Dollar Crisis (Belmont, Massachusetts: Western Islands, 1973), p. 8.

[1]. Ibid., p. 28.

[1]. Percy L. Greaves, Jr., Understanding the Dollar Crisis (Belmont, Massachusetts: Western Islands, 1973), p. 8.

[2]. Ibid., p. 28.

[Editor’s note: The following is a letter written in 2004 responding to an article by Mr. Rittenouse in Countryside. This letter has been divided into two parts: Part 1 — Money and Part 2 — Conspiracy.] Thomas Allen

Mr. Rittenhouse pooh-poohs the thought that some cabal may be working to control governments and the world. Some high and mighty people disagree with him. Here is a sample of what some of these important people have said about this cabal. I dare say; these people had much more insider information than Mr. Rittenhouse.
Arthur Schlesinger, Jr.: “We are not going to achieve a new world order without paying for it in blood as well as words and money.”
Supreme Court Justice Felix Frankfurter, “the outstanding power behind the New Deal”: “The real rulers in Washington are invisible, and exercise power from behind the scenes.” At a dinner party, Frankfurter was asked who ran the United States; he replied, “The real rulers of a nation are undiscoverable.”
John F. Hylan, mayor of New York: “The real menace of our Republic is the invisible government which like a giant octopus sprawls its slimy length over our city, state and nation. . . . At the head of this octopus are the Rockefeller-Standard Oil interests and a small group of powerful banking houses generally referred to as the international bankers [who] virtually run the U.S. government for their own selfish purposes.”
After observing governmental leaders of the United States consistently making concessions to the Soviet Union, James Forrestal, the first Secretary of Defense, commented, “These men are not incompetent or stupid. They are crafty and brilliant. Consistency has never been a mark of stupidity. If they were merely stupid, they would occasionally make a mistake in our favor.”
President-elect Ronald Reagan: “I think there is an elite in this country and they are the very ones who run an elitist government. They want a government by a handful of people because they don’t believe the people themselves can run their lives. . . . Are we going to have an elitist government that makes decisions for people’s lives, or are we going to believe as we have for so many decades, that the people can make these decisions for themselves?”
A few years after resigning as President, Richard Nixon wrote, “The nation’s immediate problem is that while the common man fights America’s wars, the intellectual elite sets its agenda. Today, whether the West lives or dies is in the hands of its new power elite: those who set the terms of public debate, who manipulate the symbols, who decide whether nations or leaders will be depicted on 100 million television sets as ‘good’ or ‘bad.’ This power elite sets the limits of the possible for President and Congress. It molds the impressions that move the nation, or that mire it.”
Jim Kirk, who had been a member of the Students for a Democratic Society, Communist Party, and the Black Panthers, said about the control of radical left groups: “Young people have no conception of the conspiracy’s strategy of pressure from above and pressure from below. . . . They have no idea that they are playing into the hands of the Establishment they claim to hate. The radicals think they are fighting the forces of the super rich, like Rockefeller and Ford, and they don’t realize that it is precisely such forces which are behind their own revolution, financing it, and using it for their own purposes.”
Nicholas M. Butler, president of Columbia University, said to the Union League of Philadelphia: “The old world order died with the setting of the day’s sun and a New World Order is being born while I speak.” Butler was “J.P. Morgan’s chief spokesman for ivied halls.”
Edward Bernays, chief advisor to William Paley, founder of CBS: “Those who manipulate the organized habits and opinions of the masses constitute an invisible government which is the true ruling power of the country. . . . It remains a fact that in almost every act of our daily lives, whether in the sphere of politics or business, in our social conduct or our ethical thinking, we are dominated by the relatively small number of persons. . . . It is they who pull the wires which control the public mind, who harness old social forces and contrive new ways to bind and guide the world. . . . As civilization has become more complex, and as the need for invisible government has been increasingly demonstrated, the technical means have been invented and developed by opinion may be regimented.”
Manly P. Hall, 33rd degree Freemason and a member of its inner circle, and probably the greatest Freemason of the twentieth century: “There exists in the world today, and has existed for thousands of years, a body of enlightened humans united in what might be termed, an Order of the Quest. It is composed of those whose intellectual and spiritual perceptions have revealed to them that civilization has secret destiny. The outcome of this ‘secret destiny’ is a World Order ruled by a King with supernatural powers. This King was descended of a divine race; that is, he belonged to the Order of the Illumined for those who come to a state of wisdom then belong to a family of heroes-perfected human beings.” He also wrote, “. . . It is beyond question that the secret societies of all ages have exercised a considerable degree of political influence. . . .”
Winston Churchill admitted the existence of conspiracy when he wrote in 1920, “From the days of Spartacus-Weishaupt to those of Karl Marx, to those of Trotsky, Bela Kun, Rosa Luxemburg, and Emma Goldman, this worldwide conspiracy for the overthrow of civilization . . . has been steadily growing.”
According to Lenin, the Communist Party could not survive without conspiracy. He wrote, “Conspiracy is so essential a condition of an organization of this kind that all other conditions . . . must be made to conform with it.”
In a speech in 1931 before the Institute for the Study of International Affairs, the historian Arnold Toynbee said, “We are at the present working discreetly with all our might to wrest this mysterious force called sovereignty out of the clutches of the local nation states of the world. All the time we are denying with our lips what we are doing with our hands, because to impugn the sovereignty of the local national states of the world is still a heresy for which a statesman or publicists can perhaps not quite be burned at the stake but certainly be ostracized and discredited.”
ABC commentator Cokie Roberts remarked, “Global bankers are really running the world.”
James Warburg, son of Paul Warburg, the author of the Federal Reserve System: “We shall have world government whether or not you like it — by conquest or consent.”
Benjamin Disraeli, Prime Minister of Great Britain: “The world is governed by very different personage from what is imagined by those who are not behind the scenes.”
Benjamin Disraeli: “The governments of the present day have to deal not merely with other governments, with emperors, kings and ministers, but also with the secret societies which have everywhere their unscrupulous agents, and can at the last moment upset all the governments’ plans.”
Franklinton Delano Roosevelt: “Nothing just happens in politics. If something happens you can be sure it was planned that way.”
Franklin Delano Roosevelt: “The real truth of the matter is, as you and I know, that a financial element in the large centers has owned the Government ever since the days of Andrew Jackson.”
Elliot Roosevelt, son of Franklin Roosevelt: “There are within our world perhaps only a dozen organizations, which shape the course of our various destinies as rightly as the regularly constitutional government.”
William Colby, CIA Director: “Sometimes, there are forces too powerful for us to whip them individually, in the time frame that we would like. . . . The best we might be able to do sometimes, is to point out the truth and then step aside.”
Gary Allen, a historian of conspiracies: “. . . many of the major world events that are shaping destinies occur because somebody or somebodies have planned them that way. If we were merely dealing with the laws of average, half of the events affecting our nation’s well-being should be good for America. If we were dealing with mere incompetence, our leaders should occasionally make a mistake in our favor. . . . we are not really dealing with coincidence or stupidity, but with planning and brilliance.”
Andre Baron: “Remember that the constant rule of the secret society is that the real authors never show themselves.”
If these quotations do not suggest a conspiratorial cabal, then the origins of the Federal Reserve System should. The essence of what eventually became the act that established the Federal Reserve System was written by Paul Warburg of Kuhn, Loeb and Co. Assisting him were  Henry P. Davison, senior partner of J. P. Morgan and Co.; Charles D. Norton, president of (Morgan’s) First National Bank of New York; Frank A. Vanderlip, President of (William Rockefeller’s) National City Bank of New York; Benjamin Strong, vice-president of (Morgan’s) Bankers Trust Co.; A. Piatt Andrew, Assistant Secretary of the Treasury; and Senator Nelson Aldrich, Morgan’s leading representative in Washington. This group met in secret in 1910 on Jekyll Island and drafted what eventually became the Federal Reserve System.
The conspiratorial historians may be wrong, but the evidence strongly suggests that they are right.
Copyright © 2004, 2019 by Thomas Coley Allen.

A Letter: Money and Conspiracy: Part 1 — Money

A Letter: Money and Conspiracy

Part 1 — Money

Thomas Allen
[Editor’s note: The following is a letter written in 2004 responding to an article by Mr. Rittenouse in Countryside. This letter has been divided into two parts: Part 1 — Money and Part 2 — Conspiracy.]

The following are a few comments on Mr. Rittenhouse’s article “Commodities, Fiat, and Theories,” which appeared in the July/August issue.
In defining money, Mr. Rittenhouse gives three components that an item must meet to be used as money. It is used as a medium of exchange, a store of value, and a unit of account. Federal reserve notes, which are what passes for money today, meet only two of these three criteria. It is not a store of value. Since the beginning of the Federal Reserve System in 1914, which has a governmentally protected monopoly on issuing (creating) money, the dollar has lost 95 percent of its value. Over this period, an ounce of gold is still worth an ounce of gold. In dollar terms, an ounce of gold equaled about $20 in 1914; today, it equals about $400 [at the beginning of 2019, it buys about $1280 in federal reserve notes]. Thus, gold has retained its value. It is far superior to federal reserve notes as a store of value.
Furthermore, if federal reserve notes, which are instruments of debt, were the market’s first choice of money, the government would not have to make them legal tender. The legal tender law requires people to accept the governmentally declared money, federal reserve notes, in payment of debt or to forego payment of the debt.
What made gold and silver money, along with the other items that Mr. Rittenhouse lists that have been used as money, is that they had other uses. Gold and silver are commodities that can be used for something other than money. That they can be used for other things gives them intrinsic value. Before we became so sophisticated, people would never have thought of voluntarily using paper for money because paper has such low intrinsic value. (The paper that was used for exchange was redeemable in gold or silver.) The intrinsic value of a $10 bill is the same as that of a $100 bill. They both use the same amount of paper and ink and cost the same to make. The lack of intrinsic value necessitates legal tender laws.
Mr. Rittenhouse identifies problems with counterfeiting gold coins or stamping gold coins with a higher weight and purity than it actually has. Paper money has the same problems. There are licensed counterfeiters, which in the United States is the Federal Reserve System. There are unlicenced counterfeiters, who are the people that the Treasury Department goes after. In a society accustomed to a gold coin monetary system, detecting a counterfeit gold is easier for more people than detecting high-quality counterfeit money. (This is especially true when a situation like the one that occurred at the end of World War II. At the end of World War II, the United States gave the Soviet Union the plates and paper needed to print U.S. occupational currency.)
What Mr. Rittenhouse writes about the Federal Reserve controlling the money supply as a matter of law is true. His claim that federal reserve notes are fiat currency and that people are required to accept them under the penalty of law is also true. The Federal Reserve may be doing a good job of controlling, i.e., increasing the money supply, but any good counterfeiter could do that. However, it has been an extremely poor steward of the dollar having destroyed 95 percent of its value.
Mr. Rittenhouse goes on to describe the Kondratiev Wave. Like him, I am not sold on this theory. The stories that I read today arguing that we are in the trough the Kondratiev Wave are similar to those that I read in the 1970s. (When corrected for inflation, a bottom in real terms occurred in the 1970s, but was masked by inflation.) If the bottom occurred in the 1970s, then according to the timeline of this theory, the next bottom should not occur until circa 2020. Many of the current advocates of the Kondratiev Wave are predicting that gold like everything else, except the dollar, will decline in value.
Paper money always loses value over time and eventually becomes worth no more than its Btu content or toilet paper. (In Zimbabwe, a roll of toilet paper has 720 squares and cost 10,000 Zimbabwean dollars. So, if one changes his $10,000-note in the one thousand $10-notes, he has 720 sheets for wiping and $280 left over for spending. [This was in 2004 before Zimbabwe’s hyperinflation began really to accelerate.]) An ounce of gold remains an ounce of gold forever. Paper money loses value because the government, through its surrogate central bank, can print money easier than it can raise taxes.
My outlook on the dollar is pessimistic. The dollar is going down and gold up. Debt is going to drive the dollar down. Before this run is over, which will last another five to ten years, gold is going to $5000 an ounce assuming things do not get really bad [my timing was off considerably for the dollar amount or for the years]. (The run is not over until the DJIA can be bought for an ounce of gold, which means stocks have a long way to fall and gold has a long way to rise.) If things get really bad, then gold is going beyond anyone’s wildest speculation. The wildest speculation that I have come across made by a person who follows the gold market is $111,000 per ounce. This should be a floor. If things get really bad, Mr. Rittenhouse is correct in that all our lives will be in great danger.
Gold is probably the hardest market to trade or to invest in. In stock, bonds, real estate, and all other markets, the trader or investor has to fight his greed or his fear — never both together. In gold, he has to fight both at the same time. When gold is sky-high, greed enters as it does in other markets. Yet, when gold is sky-high, it is there because of fear.
The bottom line is spend your federal reserve notes but save your gold. Use federal reserve notes as a purchasing medium, and use gold as a store of value.
Copyright © 2004, 2019 by Thomas Coley Allen.