Read Part I 1.1. and 1.2.:

Can We Finally Face Up to America’s Bankruptcy? Monetary Reform for the 2028 Election. Part I

By Richard C. Cook, October 08, 2026

The Historical Theft of the Sovereign Power of Money Issuance by the Money Power. Part I

By Richard C. Cook, October 13, 2026

The government of the nation called the United States of America began to take form through the meeting of the First Continental Congress at Carpenter’s Hall in Philadelphia on September 5, 1774. It wasn’t until June 22, 1775, that the SecondContinental Congress authorized the issuance of $2 million in bills of credit to fight a possible war. This was the famed “Continental Currency.”

Bills of credit are paper money, not backed by gold or silver, but issued by an authority which promises to guarantee their value in trade at face value. Usually that authority also promises to accept them as payment of taxes or other obligations owed to said authority.

The Massachusetts Historical Society writes:

“From June 1775 to 1779, Congress ordered eleven emissions of Continental Currency to the amount of 226 million Spanish milled Dollars. These bills constituted 82% of the federal government’s income during this period. At first the currency circulated at a par with the Spanish milled dollar, but since the states were simultaneously emitting their own bills of credit and debt certificates to cover their war expenses, the glut of bills issued without sound financial revenues soon led to depreciation of all forms of circulating paper, but especially that of Congress. Great Britain contributed to this financial instability through counterfeiting the issues of 20 May 1777 and 11 April 1778 to such a degree that Congress recalled both issues in their entirety. In January 1777, $1.25 of Continental Currency could purchase $1 in specie (gold or silver coins). By January 1781, it took $100 in Continentals to obtain $1 in hard money. This depreciation had effectively put an end to circulation of the paper bills by 1779, when Congress resolved to stop issuing them altogether.”

Historians note that the counterfeiting was planned as an act of war, to be carried out by the British army on ships moored or anchored in New York harbor using presses brought from England for that purpose.

The financing of the Revolutionary War between the U.S. and Great Britain was extremely lop-sided. Britain had stores of gold and silver specie to spend; additionally, the Bank of England, now 90 years old, both lent money to the British government and acted as the government’s agent in selling bonds, largely to wealthy London financiers.

The British national debt rose sharply due to the war, with bond sales accounting for 40% of the cost. The Bank of England was able to create money printed “out of thin air” based on pledges made by Parliament to levy the taxes needed to pay off the loans with interest. Even though Britain spent 80 million pounds on the war, when the war ended the national debt was 250 million pounds owed to the wealthy money lenders. Net profit: 212.5%, not counting interest paid during the conflict itself. If anyone doubted the eagerness with which the Money Power took a country to war, here was the answer. Fortunes were made.

The U.S. Continental Congress had no such banking system from which to borrow, with the first private commercial bank not being chartered until 1781. This was the Bank of North America in Philadelphia. With the British Currency Act gone, apart from the deteriorating Continental Currency, the war effort relied in part on the resumption of issuance of bills of credit, along with sale of bonds, by the states, which paid for their militias as key components of the available military manpower.

Congress was also able to borrow substantial sums of money to spend on weapons and supplies, from the Netherlands and France. Within the former colonies, barter transpired heavily, as did domestic manufactures, especially milling and metal working, due to reduction of the population’s ability to import from abroad during wartime.

It is critical to note that while the Bank of England was able to redeem at least a limited part of the money it lent in gold, neither the Continental Congress nor the states enjoyed this luxury. Britain thus fought the war by using the newfangled system of a privately-owned and profiteering central bank, with stores of gold and silver in reserve, while the former colonies relied on age-old methods of barter and government scrip that had prevailed going back to “Merrie Olde England” since time immemorial. Still, when these methods came up short, they borrowed.

It’s also critical to note that even with such disadvantages, the Continental army, with their own populations having their backs to the wall and British knives to their throats, ended up defeating sizeable British mercenary armies, including Hessians hired out of Germany, whose soldiers were well-armed but had little personal stake in the outcome.

Even today, we can see that political/economic/military systems based on high-finance are inherently weaker and less motivated than those of smaller nations struggling to survive but enflamed by indigenous patriotic values. Look at Vietnam and Afghanistan, and today Iran, as examples.

Now, following Independence, with the Articles of Confederation ratified in 1781, the states continued their wartime practices of issuing their own bills of credit, but little could be done at a national level to issue money or pay down debt, while the new Constitution that was ratified in 1788 remained ambiguous on the subject of money.

The Constitution did give Congress the power to “coin money” and “regulate the value thereof,” along the lines of ancient British tradition. Later, the “coining of money” was interpreted as including the printing of paper banknotes and, and, in our own day, transmittal of digital funds with the government authorized to declare all valid forms of money to be legal tender in the satisfaction of debts. But it took a Supreme Court ruling in 1884 in the case of Juilliard v. Greenman to confirm this power. Thus the federal government’s ability to create money which had been part of English common law for centuries took almost another century to clarify in favor of the government. This was the case until the Money Power seized the power of money creation for good through the Federal Reserve Act of 1913.

The Constitution also gave the government the right to borrow money and thereby to incur debt, but it did not explicitlyauthorize the issuance of bills of credit, thus leaving the question open as to whether any future emissions of paper had to be backed by gold or later by either gold or silver. When the government did eventually issue bills of credit during the War of 1812 and the Civil War the question of metallic backing remained ambiguous.

But the Constitution did not specify what emissions of paper were authorized, if any. This left taxation as the only available means for raising money to make payments on the debt, with the power to tax being duly written into the Constitution, whereas such power did not exist at the national level under the Articles of Confederation.

Critically, however, the states were prohibited by the Constitution from issuing their own bills of credit, though they could sell bonds in the open market, as New York did to build the Erie Canal. At the same time, the states and even localities, oddly enough, could charter banks operating within their jurisdictions to make loans by printing their own currencies backed by gold and silver specie.

In other words, a state or locality could in fact create money as it were by proxy if they authorized private businessmen to act in their behalf. This later became the era of Wildcat Banks, with rival institutions launching frequent runs against their competitors. Such banks could be chartered by a state or local government or owned outright and numbered over 2,000 nationwide by the time of the Civil War.

All this left open the question of whether a national bank should be authorized and chartered by the federal government. Many, such as Alexander Hamilton, said “Yes” and many others, like Thomas Jefferson, said “No.”

When the Constitution was ratified and a new government formed in 1789, it took on the payment of Revolutionary War debt through the levy of customs duties which, with land sales and excise taxes, were intended to raise enough money to pay for day-to-day government operations and a modest military establishment for defensive purposes.

But the numbers didn’t work.

Politically, the question of the hour was whether the fledgling government, founded on republican principles, could use the powers enumerated by the Constitituion to live within its means, or whether it would be sucked into the ongoing wars then being fought by the European powers, chiefly between Great Britain and its coalitions, vs. France.

This was when Alexander Hamilton stepped onto the stage of history. As the nation’s first secretary of the treasury, Hamilton was responsible for setting up the Bank of the United States, known to history as the “First” Bank.

The proposal split the nation. The pro-bank forces coalesced around Hamilton, who lived in New York City and had been involved in creating the early financial institutions that would someday make New York a rival only to the City of London for global dominance. Hamilton and his supporters gradually coalesced into what would become the Federalist Party.

The power of the New York financiers, who also created the first U.S. stock exchange, was surpassed in those days only by those of Philadelphia, which had gained influence as the nation’s capital during most of the Revolution and of the new national government from 1790-1800.

Opposing Hamilton’s proposals were the planters of the Virginia aristocracy led by Thomas Jefferson, his protégés James Madison and James Mason, and agriculturists in the North as well as leaders of the southern states dependent on slave labor who were habitually in debt to their British merchant-agents, called “factors.”

Jefferson’s faction became rivals to the Federalists and were known as the National Republicans, or the Democratic-Republicans. This split stands until today as the origin of the U.S. two-party system. The best historical account may be found in former President Martin Van Buren’s 1867 treatise, Inquiry into the Origin and Course of Political Parties in the United States.

Jefferson said Hamilton’s bank, the legislation for which Hamilton designed with the charter of the Bank of England sitting on his desk, was unconstitutional and that Congress had no authority to authorize any corporation, much less this one.

This was when Hamilton came up with the idea of “implied powers,” which held that if an action were constitutional, such as to “provide for the common defence [sic],” it was thereby “implied” that anything done to implement that action was to be similarly allowed. It can be seen that such a doctrine removes any and all restraints on federal government actions and is an avenue to totalitarian rule. It can even be argued that it’s this argument which, over two centuries, has effectively destroyed U.S. constitutional government.

The argument exposes Hamilton to charges of blatant hypocrisy. Today few remember that writing in the Federalistpapers, specifically Federalist No. 84, Hamilton opposed the inclusion of a Bill of Rights in the Constitution. For ordinary people, the Bill of Rights, especially freedom of speech, religion, and the press, and the right to bear arms has become among the most important parts of the American governing system. Through his opposition, Hamilton proved himself to be deeply, profoundly anti-democratic, particularly when he later argued the doctrine of “implied powers.” In Federalist No. 84 he claimed that the Constitution itself protected individual rights by its very existence, a manifest falsehood.

President George Washington supported Hamilton’s proposal for the Bank. Events showed that Hamilton’s covert purpose, a purpose he reportedly expressed to the British Minister Plenipotentiary to the U.S. George Hammond, was to finance an American “empire.” This empire presumably would march in league with the British in taking over the world.

Hamilton saw himself as generalissimo of the American forces, as he had been when he rode out with Washington’s blessing to crush the Whiskey Rebellion. A major step would be to create a standing army to go to war against France, which was thwarted when President John Adams made peace with Napoleon. In fact, Hamilton had even designed his own uniform. Of course, his ambitions were snuffed out in 1804 long after he had left the government when he was shot dead by Vice-President Aaron Burr.

The Bank of the United States, the “First” Bank, was a national bank chartered by the U.S. Congress in 1791 for a 20-year term to stabilize the nation’s credit and manage post-Revolutionary War debt. It was proposed by Hamilton and signed into law by President George Washington, with $10 million in capital, 20% owned by the government and 80% by private investors. The government borrowed money from Amsterdam investors to purchase its shares. The shares of private investors consisted of paper IOUs.

The Bank’s functions were:

As the federal government’s Fiscal Agent, the Bank held tax revenues on deposit, managed federal funds, paid government bills, and paid off debt to European investors.

The Bank issued banknotes that served as a national currency, which were accepted for federal excise tax payments.

Unlike modern central banks, the Bank also functioned on a small scale as a commercial bank, lending to private citizens and businesses.

As the largest corporation in the U.S., the Bank exerted significant control over credit and the money supply by collecting state bank notes.

Headquartered in Philadelphia, the bank opened in 1791 and expanded to branches in major port cities like Boston, New York, and Charleston. Given the intense political opposition from Thomas Jefferson and James Madison, who argued it was unconstitutional, the Bank’s charter was not renewed in 1811. The Bank set a precedent for future central banking, including the Second Bank of the United States and the modern Federal Reserve.

But the Bank had an ulterior purpose, with Alexander Hamilton setting out to gain support for the federal government among the financial elite, both U.S. and abroad, by designing a financial system that connected the economic interests of wealthy creditors to the federal government’s solvency. Hamilton believed that if the rich depended on the government’s financial health, they would actively support its stability and success, especially in matters involving war and peace. This created a bias for a philosophy of endless war, as war always involved the government borrowing money and spending beyond its means. The lesson from Great Britain and its ruinous debt from the wars against the colonies and later Napoleon was clear. The result was that the Money Power became the driving force behind the British Empire and remains so today.

In America, it was the rich investors who became the backbone of the Federalist Party, of which Hamilton became the de facto leader, especially after the federal government took over state debts from the Revolutionary War, creating a large, unified national debt to be paid through taxes. Of course Hamilton made many enemies who saw him as a traitor to the country and the Constitution. Few were surprised when he died in a duel with one of his political enemies.

To many, Hamilton has been lauded as a hero for being the first voice to argue that the U.S. should look forward to becoming as powerful and important a nation-state as the leading nations of Europe. He also saw a natural affinity and potential alliance with the growing British Empire. In his belief that the U.S. government should actively facilitate the development of “manufactures” and what we today call “infrastructure,” he has been viewed as the founder of the “American System,” though that phrase was not used for a specific political program until Henry Clay’s speech in the House of Representatives in 1824.

Hamilton, however, did speak of “the American system (l.c.)” as a general program of national economic independence in Federalist No.11. What the phrase signified during the first half of the nineteenth century was a tripartite program, never fully implemented, of a national bank, tariffs to protect domestic manufactures from being undercut by cheap goods largely coming out of Britain, and “internal improvements,” which at the time mainly meant government-funded roads, canals, and marine facility construction.

The problem with Hamilton’s approach was that by enriching the already-wealthy by essentially bribing them with promises of preeminence in national economic affairs, the government then handed over these affairs to a competing, and financially superior, power center that had not been elected by the people.

So that if, for instance, the financial powers wanted the nation to go to war against France, which was actually the case in the late 1790s, the constitutional prerogatives held by Congress and the executive, could be set at naught. This was thwarted, as mentioned above, when President John Adams, who distrusted banks, countered Hamilton’s desire for such a war by making peace with Napoleon. Hamilton was furious, as he already saw himself as the American military commander in such a war.

After the legislation was passed for the First Bank of the United States, it quickly became the largest corporation in the country, but, as stated before, its charter was allowed to lapse in 1811 during the presidency of President James Madison.

Madison’s mentor, Thomas Jefferson, had been elected president in 1800 and 1804. Jefferson and his followers in what had become the National Republican Party had a vision of a nation whose backbone was independent farmers, including, of course, the Southern planter class, as opposed to the bankers and financiers of the growing American cities and their European counterparts.

Jefferson said, “Banking establishments are more dangerous than standing armies.” While the National Republicans held the presidency, later becoming the Democratic Party of President Andrew Jackson and his successors, state and local banking had grown rapidly as the predominant means of supplying working and investment capital to the nation’s enterprise. But a return to a national bank was anathema to Jackson, et.al.

Still, the question of whether a national bank could assert powers superior to Congress and the president came back with the chartering of the Second Bank of the United States in February 1816. The Second Bank, under director Nicholas Biddle, was much more controversial than the First. It had come into existence mainly to service the federal debt the government incurred in fighting the ill-advised War of 1812 against Britain.

Biddle had a way of lending money to members of Congress to secure their favor and was accused of favoritism in deciding to whom the Bank would lend money. The power and reach of the Bank was greatly enhanced by the fact that as the government’s fiscal agent it kept all federal revenues in its vaults, which gave a powerful boost to its ability to lend money.

When Andrew Jackson was eventually elected president in 1828, the “Bank War” began with Jackson eventually killing the Second Bank by withdrawing federal funds in favor of what later became the government’s “Independent Treasury.” This kept the government out of the hands of the Bank until its charter expired in 1836 and remained a powerful weapon by which the government maintained some degree of freedom from control by the Money Power all the way up to the creation of the Federal Reserve in 1913.

Much of the history of the 19^th century can be seen as a struggle between the Money Power and constitutionally elected officials, with the financiers eventually winning the battle by creating the Federal Reserve, getting the Income Tax Amendment enacted, and taking the U.S. into World War I. It is likely safe to say that the U.S. might never have entered into the European wars of the 20^th century, including WWI, WWII, and what appears to be the start of WWIII today, without this takeover by the Money Power.

One last issue remains in this discussion of Hamilton’s intentions and actions, which is the support he gave to development of American manufactures as opposed to Americans simply buying cheap goods from Europe, especially England, while the U.S. continued to devote itself to farming and fishing along with marketing of lumber, naval stores, and similar commodities. Hamilton’s report On Manufactures proposed a detailed catalogue of manufactured products to be produced through capitalization from public revenues similar to the way France grew its economy during the reign of Louis XIV.

To examine this question, we first need to look at the actual operations of the First Bank of the United States, as the government had virtually no ability on its own to appropriate funds to support manufacturing. The exception was legislation passed in 1794 to establish armories at Springfield, Massachusetts, and Harpers Ferry, Virginia. The armories began construction with appropriations of $81,865, with no private investment and no government borrowing. Without financial encumbrances, the armories operated during their lifetimes entirely under government control. A notable achievement was when Harpers Ferry supplied weapons and equipment for the Lewis and Clark expedition.

During the 1790s, the government appropriated modest funds for keeping a small army and navy functioning, along with modest salaries for civilian government officials at the capital in Philadelphia and at the customs houses in New York, Philadelphia, Boston, and Charleston. Government revenues consisted almost entirely of tariff duties and excise taxes, chiefly the whiskey tax that provoked the Whiskey Rebellion in 1794. Thus the only other source of funds was to borrow, which was the reason Hamilton set up the First Bank of the United States in the first place.

But before the Bank was even authorized, Congress passed the Funding Act of 1790, which led to the issuance of $63 million in new federal government bonds to pay the Revolutionary War debt still outstanding at full face value, leading to the windfall profits for speculators who had scoured the countryside to purchase war bonds, many from war veterans, for pennies on the dollar.

Once the legislation for the First Bank was passed, it became the government’s primary short-term creditor in amounts equivalent to 60% of the Treasury Department’s short-term capital of $10 million. The government didn’t even have the money to purchase its share of the Bank’s capitalization, so it resorted to borrowing $2 million from investors in the Netherlands. It borrowed from the same sources to pay Revolutionary War debt to France and Spain.

In fact, interest on the debt was by far the government’s biggest expense during the 1790s, when payments on the debt’s principal and interest required an average of nearly 80% of annual government expenses, with interest consuming 40% of annual revenue. In 1792, interest payments consumed $3.2 million compared to total spending of $3.7 million. In 1794, interest was still 49% of the budget.

The heavy lending to the government by the Bank meant that little was left for lending to the private sector, much of which was extended to land speculators. The Bank also lent to state governments, with a loan of $80,000 being made to Pennsylvania during the Bank’s first six months. For private borrowers, the maximum term of a loan was 60 days at 6% interest with no collateral required. Borrowers were essentially friends of the bank directors.

When Thomas Jefferson assumed the presidency in 1801, he reduced the borrowing from the Bank, releasing a little more capital for short-term business loans, but there was no way the Bank was ever going to have money available for lending for manufactures or for the infrastructure to support them. It wouldn’t be until the 1820s with funding for the National Road that federal infrastructure spending became possible, though in a highly limited way.

Nor would minting of coins at the new U.S. Mint in Philadelphia provide the government with working capital, as all the silver and gold presented at the mint came from banks or private individuals, with the mint turning it into nine categories of U.S. coinage for free.

So Hamilton’s dream of federal support for manufactures would remain just a dream. In fact, the Bank itself was a failure. It did virtually nothing to capitalize business, manufacturing, or infrastructure. Its loans to private parties were mainly to enrich land speculators. And the money it charged the government to pay the Revolutionary War debt could have been saved for future generations if the Washington and Adams administrations would have had the foresight and courage to issue bills of credit for this purpose as time would later show was entirely constitutional.

There was meanwhile movement elsewhere in the country at the levels of private enterprise and state and local government. For as long as the nation remained at peace, even with Hamilton agitating for war against France in the background, commerce and exports were growing, along with the private banking sector which the Money Power would later decry as being out-of-control “Wildcat Banks” which they despised and desperately wanted to subsume under their control.

Meanwhile, Hamilton and his assistant secretary of the Treasury Tench Coxe were promoting the establishment of an industrial village at the Great Falls of the Passaic River at what became the city of Paterson, New Jersey.

The Society for Establishing Useful Manufactures (S.U.M.) was a private, state-sponsored corporation chartered by New Jersey in November 1791, operating as essentially the first American industrial development authority, with authorized capital of one million shares at $100 each. This included action by the state of New Jersey to subscribe $10,000 in stock, along with a 10-year exemption in state property tax and a permanent exemption from county and township taxes. The charter gave authority to build dams, canals, raceways, and other waterworks with no time limit.

Unfortunately, the venture was plagued by embezzlement, slow profits, and competition from British cotton mills and went bankrupt by April 1796. But it continued to operate by leasing mill sites and water power to private manufacturers to build their own factories. The development of industry made Paterson a major center of business where factories continued to operate until 1946, when the city purchased the company’s remaining holdings.

So the U.S. would indeed develop as a world center of manufacturing and enterprise, but not the way Hamilton intended. The U.S. government was permanently limited by its inability to raise or generate money, a development Jefferson and his party welcomed. In fact, they might be called early “Tea Party Republicans.”

With Jefferson having been elected president in 1800 and the country about to double its size through the Louisiana Purchase, the federal government had little role to play except to fight a war against Britain in the War of 1812 and Mexico in the Mexican War, while administering the sale of millions of acres of public land acquired from these wars and from Indian wars and treaties. When the Civil War arrived, the monetary outlook changed radically with the use of Greenbacks and the first income tax. Along the way, President Andrew Jackson paid off the entire national debt for the first, and last, time in American history.

Thanks for reading! Next in the series: “Monetary Wars: 1800-1913”

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Research for this article has been facilitated by Brave AI.

Richard C. Cook is a retired U.S. federal analyst with extensive experience across various government agencies, including the U.S. Civil Service Commission, FDA, the Carter White House, NASA, and the U.S. Treasury. He is a graduate of the College of William and Mary. As a whistleblower at the time of the Challenger disaster, he exposed the flawed O-ring joints that destroyed the Space Shuttle, documenting his story in the book “Challenger Revealed.” After serving at Treasury, he became a vocal critic of the private finance-controlled monetary system, detailing his concerns in “We Hold These Truths: The Hope of Monetary Reform.” He served as an adviser to the American Monetary Institute and worked with Congressman Dennis Kucinich to advocate for replacing the Federal Reserve with a genuine national currency. See his new book, Our Country, Then and Now, Clarity Press, 2023. Also see his Three Sages Substack.

He is a Research Associate of the Centre for Research on Globalization (CRG).

“Every human enterprise must serve life, must seek to enrich existence on earth, lest man become enslaved where he seeks to establish his dominion!” Bô Yin Râ (Joseph Anton Schneiderfranken, 1876-1943), translation by Posthumus Projects Amsterdam, 2014. Also download the Kober Press edition of The Book on the Living God here.

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