Colonial Scrip, Greenbacks, & Tally Sticks

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ams5995

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Money Masters claims that tally sticks were used to build the British Empire and were the most successful currency ever used. It also claims that the primary cause of the American Revolution was Britain's forceful removal of Colonial Scrip - a highly successful fiat currency that the colonies had control over. The movie claims fiat can be successful as long as the people through the government control it rather than a private central bank. Why would a public central bank controlled by the people and government using fiat currency not work? Is Money Masters wrong?
 
ams5995 said:
Money Masters claims that tally sticks were used to build the British Empire and were the most successful currency ever used. It also claims that the primary cause of the American Revolution was Britain's forceful removal of Colonial Scrip - a highly successful fiat currency that the colonies had control over. The movie claims fiat can be successful as long as the people through the government control it rather than a private central bank. Why would a public central bank controlled by the people and government using fiat currency not work? Is Money Masters wrong?
Click to expand...

Im impressed.. There is actually a substantiated source for Franklin's quote on the cause of the revolution being the taking away of money.. Ive been looking for a hard copy source of that for the better part of last year. Ill have to check it out
 
Mike, how'd you come across this book? I downloaded it and am reading parts.

I also want to point out that Money Masters says Andrew Jackson killed the national private bank, but he did not kill fractional reserve lending (the state banks used this to their advantage to re-institute a private bank known as the Federal Reserve). The monetary reform act that is proposed (included with the DVD) wants us to establish full reserve lending. So while Ron Paul may be like Jackson in wanting to rid us of the national private bank, I still have many questions about the feasibility of a public national bank, fractional, full, and free reserve lending as well as fiat vs gold and silver standard.

The central theme I think ALL Ron Paul supporters can agree on (if not then many) is that the Federal Reserve is corrupt because it is private. Other than that...
 
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According to Adam Smith's Wealth of Nations they also used corn as a form of paying rent I believe.
 
Any disciplined fiat system can avoid catastrophy. However, every single fiat currency has eventually lost discipline, and is easily manipulated. The reason people like gold is that it forces discipline and can't be manipulated.

I love money masters, but I disagree with thier conclusion. Thier dislike of the gold standard is based on a belief that central bankers control most of the gold (they sold most of it since they made it) and the effects of deflation post civil war (which had a lot more to do with fractional reserve lending and greenback retirement.

I don't know where they are going to find these angels who know exactely how much new money is correct, that's what the current system is supposed to be doing after all.
 
according to money masters, it is not a gold or fiat currency that is the problem. it is fractional reserve lending in conjunction with private central banks who can use their power to centralize the worlds wealth into the hands of a few using the boom and bust cycle.

the central banks should be able to scientifically manipulate currency to avoid recessions, right? well then they can also manipulate currency to cause one! that is what they are doing. if it was in the hands of a public central bank, the right amount of money would exist at the right time. there would be no incentive for the public central bank to cause a boom or a bust.

i am unaware that the gold standard has ever been more successful than a fiat based currency as i know of no country that uses it now. i respectfully disagree with the notion that gold is more of a form of money than paper, shells, or anything else. money is what we want it to be.
 
The trouble is money supply. If you increase supply by fractional reserve banking you've still got inflation. If you froze the money supply on a fiat system (i.e. fixed number of dollars circulating no matter what) it'd be just as good as the gold standard. Trouble is practical, not theoretical.
 
centralizing wealth through irresponsible lending practices is a temptation they have because there is little accountability.

irresponsible lending practices are the direct result of increasing the money supply too much. i think it is possible to avoid that.
 
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Go to the Money Masters web site and read their proposal for a new money system. They don't really advocate a government-run bank rather than a private one. They advocate moving to a full-reserve system and only adding to the money supply at a small fixed rate every year. Therefore no "person" has control over the money supply. It would all be statistical.

I agree with the premise of Money Masters that it's fractional reserves that causes many of the problems. That gives the banks power to create money, and they've proven to be pretty poor at it. But don't be so quick to think that the government will do better. Afterall, aren't most people on this forum anti-government type people? The Fed merely prints the money when the government requests it. They are irresponsible lenders, but they're not really the ones causing the money to be printed out of control.

The gold standard is also flawed, unlike some will admit. As long as fractional reserves are in place, all the gold standard does is slow the rampant inflation. It doesn't stop it, and probably doesn't do a very good job to slow it, because the sheeple never ask for the physical gold.

I think the Money Masters solution on their web page is very well thought out and one of the only anti-Fed solutions I've seen that is a real proposed solution, rather than just a phrase like "gold standard" with no plans behind it.

http://www.themoneymasters.com/mra.htm
 
Most people who back a gold standard are also against fractional reserve lending.
 
ams5995 said:
according to money masters, it is not a gold or fiat currency that is the problem. it is fractional reserve lending in conjunction with private central banks who can use their power to centralize the worlds wealth into the hands of a few using the boom and bust cycle.

the central banks should be able to scientifically manipulate currency to avoid recessions, right? well then they can also manipulate currency to cause one! that is what they are doing. if it was in the hands of a public central bank, the right amount of money would exist at the right time. there would be no incentive for the public central bank to cause a boom or a bust.

i am unaware that the gold standard has ever been more successful than a fiat based currency as i know of no country that uses it now. i respectfully disagree with the notion that gold is more of a form of money than paper, shells, or anything else. money is what we want it to be.
Click to expand...


For your information, here is how the money is actually created:

Everyone blames the government for the money problems. I wish to point out that the government is basically a smoke screen for the real powers that pulls the strings of the government - the Federal Reserve Bank.

The inflation that we see everyday is not the result of government spending or printing. Inflation is the result of the fractional reserve practice of private banks. This practice allows the banks to expand the "money" supply 9-10 times as illustrated :

HOW THAT MONEY GOT INTO CIRCULATION:

Here's how the Federal Reserve created $3 billion dollars a day. I'm using a 10% reserve requirement it is easy to follow mathematically. The actual overall reserve requirement is now about 6.5%.

STEP ONE

The Federal Open Market Committee decides we need $3 billion new dollars every work day.

STEP TWO

To create that $3 billion, the New York Federal Reserve Bank's Trading Desk buys $300 million worth of U. S. Government securities. Note that $300 million is ten percent of $3 billion. Where does the Federal Reserve Bank "get" that $300 million? It simply creates it "out of thin air."

STEP THREE

A check for $300 million is sent to the bond dealers who sold the government securities. The bond dealers ALWAYS deposit the checks in the big New York City banks, as a result those banks always get the biggest benefits from the creation of new money. The bond dealers' checking accounts are credited with $300 million and the banks that received and cashed the checks are also credited with $300 million of "new reserves."

STEP FOUR

With a 10% reserve requirement, the banks only need to keep 10% of the $300 million "in reserve" and can loan out the remainder, which means that these banks can now loan out $270 million. Where did this $270 million come from? It was created "out of thin air" just like the Fed itself created the first $300 million. Now there is $570 million in circulation - the $300 million created by the Fed and the $270 million created and loaned into existence as interest-bearing debt.

STEP FIVE

The $270 million loan just created is then deposited either in the same banks or others, it makes no difference. When that $270 million appears in bank checking accounts, it becomes $270 million worth of "new reserves" and those banks only have to keep 10% of $270 million, or $27 million, in "reserve" and can loan out the other 90% or $243 million.

STEP SIX, etc

This process repeats itself in bank after bank, and, ultimately, the original $300 million created by the Federal Reserve grows to ten times that amount, $3 billion. The result is that the Fed now holds, and draws interest on, a new $300 million of government securities, and the banks have loaned into existence another $2 billion 700 million - The Fed now holds an additional $300 million of our debt and the private banks have created another $2 billion 700 million of new "debt-money." A total of $3 billion between the Fed and the private banks. And we, as a country, are now even deeper in interest-bearing debt. This is the way our monetary system created $3 billion out of nothing.
 
scooter said:
As long as fractional reserves are in place, all the gold standard does is slow the rampant inflation. It doesn't stop it, and probably doesn't do a very good job to slow it, because the sheeple never ask for the physical gold.
Click to expand...

With a gold standard, it means that every dollar in circulation can be immediately exchanged for an equivalent amount of gold at all times. It also means that current accounts in a bank can't be used as assets for the bank to loan against, since they would then be creating money that wouldn't be backed by gold.

Time deposits can be used as assets for lending, but only up to the amount of the deposit. Again, if more money than that were created, it would mean new dollars coming into existence that weren't backed by gold.

Whether or not people ask for the physical gold should be immaterial with a properly designed gold standard. The key thing is that having dollars backed by gold limits the government and the bank's ability to create new dollars at will, because there is only a finite amount of gold that can be used to back the currency.
 
@DebtFree -- your example is close, but not quite correct.

In Step 4, the entire original $300M would be considered reserves for the banks. That means they would be able to lend out an additional $2.7B right away as freshly created money.

Also, government securities are created and sold by the Treasury, so bond dealers aren't involved at first -- although they can be involved in the resale of bonds that are originally sold to the public or to foreign investors.
 
AceNZ said:
In Step 4, the entire original $300M would be considered reserves for the banks. That means they would be able to lend out an additional $2.7B right away as freshly created money.
Click to expand...

He was actually correct there. The money creation scheme isn't a 10 times system, it is a 10% reserve system.

When the Federal Reserve loans out $300 million to the bank, they keep 10% on their balance and loan out 90%. Not 10,000%.

Where the real problems come in is that the $270 million they loan out goes into another bank, who then only needs to keep $27 million on the balance while loaning out the remaining $243 million, which then goes into another bank.

One key that you all are missing is that this isn't necessarily a bunch of money that just gets "created out of thin air." As the loans are repaid, the "new money" gets erased from the system because technically it belonged to someone else's checking/savings account anyway. The only money that gets created and never accounted for is the interest payments.

DebtFree, do not lose sight of the fact that it IS government spending that causes a lot of this. The Fed introduces money into the system by purchasing those government securities. The money trail starts when the federal government takes out $300 million more debt, then the Fed buys up a lot of that debt and sells some of it to the open market. It's the US treasuries that create the initial reserves, which then kicks off the fraction-reserve lending problem.
 
Mike Mitrosky said:
Im impressed.. There is actually a substantiated source for Franklin's quote on the cause of the revolution being the taking away of money.. Ive been looking for a hard copy source of that for the better part of last year. Ill have to check it out
Click to expand...

It goes deeper.

I think Rothbard ignored the benefits of colonial scrip over specie in his book, A History of Money and Banking in the United States.

He only briefly addresses the pure colonial scrip in the opening chapter where he says they are inflationary. Which for the most part is true. Problem was there was no specie, but Rothbard denies saying there was no specie because printing of the scrip drove it out. So we got a chicken/egg argument, did colonies print scrip to combat deflationary forces of lack of specie, or did the printing of scrip drive out the specie.

What I found most interesting is the part where Rothbard mentions Pennsylvania's system on page 54. (Book online here) He say's:

Even the least inflated paper, that of Pennsylvania, had suffered an appreciation of specie to 80 percent over par.
Click to expand...

Now the 'paper' of Pennsylvania was not 'fiat' in the complete sense (see Pennsylvania Pound). It was backed by land, and not in the same way as the Massachusett's land bank that Rothbard criticizes in his work. It was government operated and the land-backed currency circulated as legal tender. On land mortgages one could borrow up to twice the value of their land.

What I find interesting is that this should or could have caused prices to double (loaning out twice the value of the security) when according to Rothbard specie only appreciated 80%. It seems by these bits and pieces of information, Pennsylvania may have been operating a sound money system that was land-backed in the absence of specie.

The Currency Act of 1764 outlawed this system and Franklin and others believe this to be the primary cause of the Revolution.

Anyway, if I get a more clear picture I'll try to post a new thread.
 
This fact is also mentioned in Money Masters part 8.

Transcript here

But they completely omit any description or presentation of the "land bank system" as it was operated.

I've found over the last week that it's extremely difficult to get free open sources of information on the land bank system that isn't copyrighted.
 
ams5995 said:
Money Masters claims that tally sticks were used to build the British Empire and were the most successful currency ever used. It also claims that the primary cause of the American Revolution was Britain's forceful removal of Colonial Scrip - a highly successful fiat currency that the colonies had control over. The movie claims fiat can be successful as long as the people through the government control it rather than a private central bank. Why would a public central bank controlled by the people and government using fiat currency not work? Is Money Masters wrong?
Click to expand...

It is important to understand that while Talley Sticks were successful that there were also corresponding currencies in use during the period that Talley Sticks were used.

Concerning Colonial Scrip, it worked for a while but by the late 1750s, hyper-inflation had wrecked the economies of several of the Colonies. Off the top of my head I think Mass. suffered from 800% inflation, the Carolinas from 900%, Conn. from around 1000%, and Rhode Island hit over 2000% inflation. If I am not mistaken, Penn. was the only Colony that didn't suffer because its Scrip was backed by land and the taxes on that land, the Penn. Scrip also expired every 5 years or so and had to be redeemed.
 
I love Money Masters because of its great presentation of history, and even include it on the homepage of my www.TrueWorldHistory.info website. However I don't agree with the solution it offers. It's a socialist solution. Plank #5 of the Communist Manifesto is: Centralisation of credit in the hands of the State, by means of a national bank with State capital and an exclusive monopoly.


My opinion on Money Masters is that it is a valuable tool for teaching people about history, but figure we can cross the bridge of what to replace the current system with when we get to it. The most important thing is to get people to understand what the Fed. is, and Money Masters does a great job at that. If we use it to teach people about the Fed. that doesn't mean we have to follow it's offered solution.
 
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