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The Corrupt Origins of Central Banking

From MISES DAILY ARTICLES

The Corrupt Origins of Central Banking

TAGS U.S. HistoryInterventionismMoney and Banking

Thomas J. DiLorenzo

[Originally published December 2008.]

Central banking has been a corrupt, mercantilist scheme and an engine of corporate welfare from its very beginning in the late 18th century. The first central bank, the Bank of North America, was “driven through the Continental Congress by [congressman and financier] Robert Morris in the Spring of 1781,” wrote Murray Rothbard in The Mystery of Banking (p. 191). The Philadelphia businessman Morris had been a defense contractor during the Revolutionary War who “siphoned off millions from the public treasury into contracts to his own … firm and to those of his associates.” He was also “leader of the powerful Nationalist forces” in the new country.

The main objective of the Nationalists, who were also known as Federalists, was essentially to establish an American version of the British mercantilist system, the very system that the Revolution had been fought against. Indeed, it was this system that the ancestors of the Revolutionaries had fled from when they came to America. As Rothbard explained, their aim was

To reimpose in the new United States a system of mercantilism and big government similar to that in Great Britain, against which the colonists had rebelled. The object was to have a strong central government, particularly a strong president or king as chief executive, built up by high taxes and heavy public debt. The strong government was to impose high tariffs to subsidize domestic manufacturers, develop a big navy to open up and subsidize foreign markets for American exports, and launch a massive system of internal public works. In short, the United States was to have a British system without Great Britain. (p. 192)

An important part of the “Morris scheme,” as Rothbard called it, was “to organize and head a central bank, to provide cheap credit and expanded money for himself and his allies. The … Bank of North America was deliberately modeled after the Bank of England.” The Bank was given a monopoly privilege of its notes being receivable in all tax payments to state and federal government, and no other banks were permitted to operate in the country. It “graciously agreed to lend most of its newly created money to the federal government,” wrote Rothbard, and “the hapless taxpayers would have to pay the Bank principal and interest.”

Despite these monopolistic privileges, a lack of public confidence in the Bank’s inflated notes led to their depreciation and the Bank was privatized by the end of 1783. But Morris did not give up on his scheme. He recruited a young Alexander Hamilton to serve more or less as his political puppet within the Washington administration. (Rothbard called Hamilton “Morris’s youthful disciple.”) In fact, the reason why Hamilton became Treasury secretary, despite having no reputation at all in the field of finance, was the recommendation by Morris to George Washington. (During the Revolutionary War, when he was an aide to Washington, Hamilton took the time to write Morris a 30-page letter proclaiming that he agreed with every one of his ideas about protectionist tariffs, corporate subsidies, and a government-run bank to finance them.)

Morris and his fellow Nationalists wanted a king-like chief executive who would rule over a mercantilist empire, just as the king of England ruled over his mercantilist empire. They, of course, would be the ones to advise and instruct the “king” and benefit financially from such an empire. So their young protégé Hamilton commenced his seven-year crusade to overthrow the first US constitution — the Articles of Confederation — by calling for a new constitutional convention to supposedly “revise” the Articles of Confederation. At the convention, Hamilton laid out his (really Morris’s) plan: a permanent president who would appoint all the governors and who would have veto power over all state legislation. Under such a plan, state sovereignty would have been destroyed, and there would have been no escape from the central government’s high taxes, protectionist tariffs, heavy debt, and foreign-policy imperialism — the agenda of the Nationalists.

The Hamilton/Morris plan was defeated, of course, as was the proposal made at the convention to include a central bank among the delegated powers to the federal government. But the government was more highly centralized, as “the Nationalist forces pushed through a new Constitution” and “were on their way to re-establishing the mercantilist and statist British model…” (p. 193). They begrudgingly acquiesced in a Bill of Rights in return for the anti-Federalists’ support for the new Constitution. And most importantly, writes Rothbard,

A critical part of their program was put through in 1791 by their leader, Secretary of the Treasury, Alexander Hamilton, a disciple of Robert Morris. Hamilton put through Congress the First Bank of the…. United States…. modeled after the old Bank of North America [whose]….longtime president and former partner of Robert Morris, Thomas Willing of Philadelphia, was made president of the New Bank.

In making his case to President Washington for the constitutionality of a central bank, which had been explicitly rejected at the constitutional convention, Hamilton invented the idea of “implied powers” of the Constitution. These were “powers” that were not expressly delegated to the federal government in the document, but could be “implied” by clever lawyers like Hamilton. This of course became a roadmap for the total destruction of constitutional limitations on the powers of the federal government.

The First Bank of the United States “promptly fulfilled its inflationary potential,” Rothbard writes in his History of Money and Banking in the United States (p. 69). It issued millions of dollars in paper money and demand deposits “pyramiding on top of $2 million in specie.” The Bank invested heavily in the US government, and “The result of the outpouring of credit and paper money by the new Bank of the United States was … an increase [in prices] of 72 percent” from 1791–1796.

Northern merchants provided the main political support for Hamilton’s Bank, whereas southern politicians like Jefferson supplied most of the opposition to it, seeing it as nothing more than a vehicle for financing an American version of the corrupt British mercantilist system, which would be destructive of liberty and prosperity. They were right, of course, and remain right to this day.

Source: Will County News

City of Lockport rejects Homer 33C counter proposal on impact fees

News Release

Homer CCSD 33C

Goodings Grove   Luther J. Schilling   William E. Young   William J. Butler

Hadley Middle   Homer Jr. High

 

Contact: Charla Brautigam, Communications/Public Relations Manager

cbrautigam@homerschools.org | 708-226-7628

 

For Immediate Release:

Dec. 15, 2017

 

City of Lockport rejects counter proposal

Home builders to pay 80 percent less in school impact fees starting July 1

 

Adding classroom space to accommodate new students whose families decide to build in Lockport just got a whole lot trickier in Homer School District 33C.

 

On Dec. 6, the City of Lockport voted to reduce its school impact fees 80 percent, cutting the amount of dollars school districts collect from home builders to ensure adequate facilities are available to serve new growth. School districts use the impact fees to help build new schools and classroom additions.

 

“The reduction may encourage more development in Lockport but at the expense of its schools,” said Superintendent Kara Coglianese.

 

Last year, Homer 33C collected about $450,000 in impact fees from home builders in Lockport and Homer Glen.

 

Impact fees helped pay for a $1.7 million addition at Butler School in 2008.

 

Schools are the “most important reason” families give when building a new home, said Christi Tyler, Homer 33C’s Assistant Superintendent for Business. It’s why they choose to build in one community or another, she added.

 

Since January, Homer 33C has received $127,000 in impact fees from Lockport alone.

 

Even though new housing starts have slowed in recent years, Homer 33C’s student enrollment has continued to climb. It now serves 3,682 students — up from 3,556 students in 2010.

 

As a result of the slow, steady growth, nearly every school is close to capacity. It’s just a matter of time before a new school or building addition is necessary, said Tyler.

 

Three years ago, the district moved every kindergartner to Schilling School to relieve overcrowding at Butler School. It’s now feeling pressure at Hadley Middle School and Homer Junior High School, which serves every child in Homer 33C.

 

In the spirit of cooperation, Homer 33C, Will County School District 92 and Lockport Township High School District 205 submitted a counter proposal calling for a 40 percent reduction in school impact fees — the same amount that the City of Lockport offered to cut from its own fees.

 

The Council rejected the counter proposal, arguing a new industrial development that includes three warehouses will more than make up for the lost impact fees.

 

In addition, they say the City can always reinstitute the fees if housing starts to boom.

 

Only one Council member, Catherine Perretta, voted against the fee reduction. Council member Jim Petrakos abstained from voting because his company, Tria Architecture Inc., is working on a facility master plan for the district.

 

The company recently performed a facility audit for the district and identified $36.6 million in repairs that need to be addressed at the district’s aging facilities. Among them are $3.7 million in repairs at Butler School alone.

 

“Completing such projects will exhaust the district’s funds,” said Coglianese, “leaving little left for building additions when the needs arise.”

 

She went on to call the 80 percent reduction short-sighted.

 

“As the housing market begins to rebound, which it has started to do, it will only put money back in the pockets of a few residential land developers,” she said.

 

 

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Source: Will County News

Northern IL. Univ. Trustees unanimously vote a $600,000 severance package for former Univ. President Doug Baker, who resigned amid a patronage scanda

DECEMBER , 2017

The Northern Illinois University Board of Trustees approved an expensive severance package for former university President Doug Baker, despite the scandal ending his tenure.

The Northern Illinois University Board of Trustees unanimously voted to approve a $600,000 severance package Dec. 7 for former University President Doug Baker, who resigned amid a patronage scandal.

Baker resigned from his post in June following the public release of an investigation showing improper hiring practices. The report revealed NIU paid a combined $1 million to at least five people the university hired as though they were part-time instructors to avoid competitive bidding requirements. Investigators said that under Baker’s watch, the university “committed a pattern of circumventing procurement requirements and violating employment policies and rules.” This was in “an effort to meet President Baker’s directives to select high-paid consultants (one of whom was a friend), and pay for travel and lodging, without restrictions.”

The NIU Board of Trustees first received the report in August 2016, roughly 10 months before the report became public and Baker resigned. The revote to approve the contract came after a DeKalb County judge ruled the package null and void Nov. 22 because the board had originally violated the Open Meetings Act, failing to disclose a meeting agenda for the closed meeting at which the board granted Baker his severance.

According to the Board of Trustees’ agenda for its meeting Dec. 7, Baker’s deal – which totals just over $600,000 – includes paying him his base salary of $450,000, a one-time lump sum of $137,500 and $30,000 for Baker’s “reasonable, unpaid expenses for legal counsel in relation to his service to the University.”

State Sen. Tom Cullerton, D-Villa Park, who sits on the Illinois Senate’s higher education committee, slammed the board’s decision.

“Failed administrators and executives shouldn’t receive golden parachutes for wasting taxpayers’ time and money,” Cullerton said in a press release. “Our state universities and community colleges need to stop abusing state funds. These dollars should go toward educating our children, not lining the pockets of ineffective administrators.”

But unfortunately for taxpayers, expensive “golden parachutes” at Illinois public universities are nothing new.

In 2015, the College of DuPage Board of Trustees approved a $763,000 severance package for President Robert Breuder. During Breuder’s tenure at the College of DuPage, the college hid more than $95 million in spending – including hundreds of thousands of dollars paid to businesses connected to college leadership, his membership in a private shooting club and nearly a quarter of a million dollars in alcohol listed on ledger lines as “instructional supplies.”

The Chicago Tribune called the $763,000 payout “one of the largest severance packages for a public employee in state history.”

In 2016, too, Chicago State University paid university President Thomas Calhoun Jr. $600,000 in severance despite Calhoun’s serving just nine months of a five-year contract.

The recklessness in giving out golden parachutes is a symptom of the waste in Illinois higher education. The administrative bloat – and high costs it carries ­– diverts money needed for students toward administrators, all on the backs of taxpayers. In 2015, more than half of the state’s $4.1 billion spent on public universities went to retirement costs alone, and more than half of Illinois’ 2,465 university administrators working that year received a base salary of $100,000 or more.

Given all the waste already prevalent in higher education – and the misguided prioritization of administrators over students – the NIU Board of Trustees should have denied the $600,000 severance package to a president marred by scandal. Instead, the board turned its back on taxpayers and students.

Source: Will County News