PUBLIC BANKING UNIT VI: TOWARD A BRIGHTER FUTURE
“I am opposed to the United States Government, which possesses the sovereign and exclusive privilege of creating money, paying private bankers for the use of its own money. These private bankers do not hire [lend] their own money to the Government; the hire [lend] only the Government’s money to the government, and collect an interest charge annually. I insist it is absolutely wrong for this committee to permit this condition to continue and saddle the taxpayers of this Nation with a burden of debt that they will not be able to liquidate in a hundred years or two hundred years.” – – US Congressman Wright Patman speaking to then Chairman of the Federal Reserve Bank, Marriner Eccles, during testimony to the House Committee on Banking and Currency. March 3-5, 1947
What Congressman Patman was referring to in the above statements was the clause in the U.S. Constitution granting the Congress the authority and duty to create the nation’s money.
THE CONSTITUTION OF THE UNITED STATES
Article 1, Section 8, Clause 5:
[The Congress shall have the power] To Coin Money, and regulate the Value thereof
Subsequent Supreme Court decisions over the years have affirmed the right of the Federal Government, through Congress, to create the nation’s money in all of its forms – coin, paper, electronic. The tragedy – and it is a tragedy – is that through the Federal Reserve Act of 1913 and Wall Street lobbied amendments to this Act in 1933, Congress farmed the money creation powers out to the private commercial banks and, as Congressman Patman stated, the Federal Government is now forced to borrow its own money from the private banks at interest.
Further quoting Patman from a 1941 speech: “We have what is known as the Federal Reserve Bank System. That system is not owned by the Government. Many people think that it is, because it says `Federal Reserve’. It belongs to the private banks, private corporations. So we have farmed out to the Federal Reserve Banking System, that is owned exclusively, wholly, 100 percent by the private banks — we have farmed out to them the privilege of issuing the Government’s money. If we were to take this privilege back from them, we could save the amount of money that I have indicated in enormous interest charges.”
It would be impossible to exaggerate the consequences of what Congressman Patman was saying. The U.S. Government is now around $22 trillion in “debt,” and assuming current monetary trends continue, by 2027 the Federal Government will owe $1 trillion annually just in interest on this debt. And it is all unnecessary. It is all because, long ago, the largest and most powerful private, commercial banks lobbied a pliant Congress to turn the government’s money creation powers over to them.
If, as the framers of the Constitution intended, the Federal Government had retained its Constitutionally granted power to create the nation’s money, the U.S. Federal Reserve Bank (the Fed) would be a fully publicly owned institution. When Congress approved of government spending, the Fed would create the authorized money out of thin air, as it does now, and issue these funds – essentially debt and interest free – directly to the government for use on the congressionally approved purposes.
However, instead of this direct money creation by the government for government spending, we have what Congressman Patman was trying to describe. Under our current system, and for all practical purposes, when congress authorizes government spending, the Fed creates the money out of nowhere, gives it at very low interest to the large, private banks, who then “lend” it to the government at a much higher interest rate by purchasing government treasuries or bonds. This is necessarily simplistic, but much of government “debt” exists to support rich, parasitic, private banking middlemen.
If we as a people are ever going to return our nation to an equitable state of prosperity, we need to democratize the Fed. It needs to become a fully public entity, serving the public good. This will prove to be an extraordinarily difficult political battle fought against the richest and most powerful oligarchic forces.
Perhaps one of the most effective efforts we can make in seeking to reform the Fed, is the establishment of municipal and state-owned public banks. By creating these more local institutions, whose goal is to serve the public good, we as the public can take advantage of the services of the Fed now only available to the private banks, and we can begin to make the essentially corrupt Wall Street mega-banks controlling the Fed ever more irrelevant. We can begin making money the public utility the framers of the Constitution had intended. We can begin making money our servant rather than our master.
For a more in-depth understanding of money and its creation see Congressman Patman’s:
A PRIMER ON MONEY – COMMITTEE ON BANKING AND CURRENCY – HOUSE OF REPRESENTATIVES – 88TH CONGRESS – AUGUST 5TH, 1964
For an excellent daily update on the actions of the Fed see: