“When a politician establishes a system of lending institutions, should the politician allow the income to go to a financial elite.”
Sir James Steuart from Scotland wrote about economics including Public Debt and Banking in England before the French Revolution. This is before the subject of economics was a subject. This was 250 years ago and about seventy years after the Bank of England had been created by a private syndicate of businessmen. His book, ‘An Inquiry into the Principles of Political Economy’, was published nine years before the book by Adam Smith: ‘Wealth of Nations’. James Steuart also advocated the issuance of paper money by government banks. He believed that economic development must be purposefully managed by the state. Steuart had a respect for the needs of the people. His writing shows a respect for the community and has a questioning stand against taxation, capital accumulation, profit, financial power, and production. Bankers, of course, do not like such an approach. The creditor class prefers things to be managed by the ‘market’ which is a euphemism for ‘managed by the creditor class’. His book is difficult to read but has some thought provoking gems in places. His thinking was new and in uncharted territory. [1] He deserves a place in economic history and his words are helpful to the understanding of economics. When I started my journey to unravel economics using my typical scientific and engineering approach, excerpts from this book were some of the first things I read and they greatly helped the start of my four year journey.
These excerpts give a glimpse of his thinking.
“When a statesman, therefore, establishes a system of public credit, the first object which should fix his attention is to calculate how far the constitution of the state, and its internal circumstances, render it expedient to throw the revenue of it into the hands of a moneyed interest.”
My modern English translation:
“When a politician establishes a system of lending institutions, should the politician allow the income to go to a financial elite.”
“Europe was possessed by our ancestors free from taxes; our fathers saw them imposed, and we now see how fast they become mortgaged for our debts.”
“Our forefathers gave us a Europe that was free from taxation. Our recent fathers saw taxes imposed. The state and individuals are all now heavily in debt to private banking interests and in peril of losing their property. When banks arrive in a nation, the property gets mortgaged to the banks.”
“Let us now suppose what is actually the case in Great Britain, that from the swelling of public debts an enormous fund of personal property is created. This is formed out of the income of the whole nation; and as it has been purchased by those who have lent money to the state, in common language it is included in what we call the moneyed interest: ....”
“In Britain, the massive increase in National-Debt has created enormous property wealth for a financial elite. This enormous wealth derives from the income of the nation to the benefit of those who lent money to the nation. In common language, it is those we call the 1%.”
“To say all in one word, a total bankruptcy, and abolition of taxes, would bring this nation back to the situation it was in before taxes and debts were known.”
This is remarkably similar to the combined campaigns of the Jubilee and Robin Hood associations.”
“Debts have increased far beyond the imagination of every mortal.”
“Note: James implies that debts were non-existent or minimal before the advent of Private Banking Corporations that were allowed to put the government and the people into an exponential debt system where the debts are unpayable.”
“Upon the occasion above mentioned, government availed themselves of the bank of England, ...... They engaged the bank to discount all tallies issued for the interest of debts; that is, in other words, to turn those sticks into money: but as public credit was so low that money could not be found to discharge even the interest of the advance made by the bank, the government consented, that all advances of that kind should bear compound interest quarterly, at 6 per cent. What a monstrous profit to the bank! What a charge upon the state! Had a bank of circulation upon mortgages been established at that time, money would have come in at a moderate simple interest to individuals, who would have availed themselves of them, for the payment of all public burdens. Instead of which, industry was made to, suffer the public money did not come in; taxation stopt; expenses went on, and deficiencies were paid by the public at this monstrous charge.”
“The government allowed the interest-free tally stick money system to be replaced by a debt based money system owned by a Private Banking Corporation inappropriately called the ‘Bank of England’. The Bank did not belong to England but to a group of private individuals. The government foolishly paid interest to the Private Bank of England on the issued money at 6% each three months. This was a monstrous profit to the bank which was charged to the citizens through a newly established taxation system. The taxation system was set-up for the purpose of collecting money to be given to the owners of the bank.”
“The subject of credit and debts is so connected with many questions relating to taxes, and to the application of their amount, that the unity of the subject would have suffered little in blending them together.”
“The debts of the government to the private bankers is very connected to the taxation charged to the people. So close is the relationship that the taxation department might be considered a collection agency for the banks.”
“They carried their views to nothing less than obtaining a majority in the house of commons, by the weight of their wealth, and of becoming the absolute rulers of the nation.”
“The bankers have stacked the parliament with politicians in their pocket to the extent that the bankers have control of parliament.”
“The greatest part of notes issue from the banks,... ,either in consequence of a loan, or of a credit given by the bank, to such as can give security for it.”
“The bank creates the money out of thin air as needed. The banks create credit as the consequence of a loan to those that have assets that can be mortgaged.”
“By the first step, namely, by refusing credit, it appears passive only in allowing natural causes to destroy both the bank and the nation, as I think has been proved.”
“If the bank does not lend, it will destroy the bank and the nation.”
“When public credit is employed for raising money upon payment of a perpetual interest; or if, whatever be the plan laid down, capitals should not happen to be discharged, but the debts should swell continually; in this case, the contingent consequences are many and various, far exceeding any man’s sagacity to investigate.”
“If National Debt is perpetual, the final consequences are beyond imagination. Debts will swell continually towards an unimaginable catastrophe.”
“This however we may suppose at least, because we see the progress of it already, that the interest of the creditors will daily gather strength, both in parliament and without doors: and if from small beginnings it have arrived at the pitch we now see, it is very natural to conclude, that, in time, it may become stronger, and that at last, the creditors of the nation may become the masters of it.”
“The banks will get strong influence in parliament and elsewhere. The bankers may become strong enough to become the masters of the nation.”
“but how often do we see ambition putting on the face of public spirit, and animating the resentment of a nation, under colour of providing for her security? Hence wars, from wars expense: recourse is had to credit”
“Ambitious persons give the illusion of looking after our interests. They create the talk of hate and war and offer to provide us with security. Wars will be created creating immense debt to Private Banking Corporations.”
“namely the money created in proportion to the demand for it”
“Money creation needs to vary in accordance with economic conditions.”
“Money creation needs to expand with demand for money.”
“He is also implying that a money supply should not be a fixed set amount but should rise and fall as needed. In practice it is business that needs money before it can create money. Credit should be available for business startup and business expansion.”
“conversion of the former monied interest into a new landed interest”
“The Money-Power (bankers) take over the assets of the nation and become the major landholders.”
“The exchequer having no money to pay the interest as it fell due, paid with tallies; these fell to great discount,”
“How the bankers got rid of the debt-and-interest-free-money system of tally sticks that had worked well for 700 years. The bankers got the government into debt for their money. The debt enabled the bankers to rid the nation of the sovereign’s debt free tally stick system. Although the tally stick system was not perfect, it was debt free.”
“This was the case, in the example above cited, when seven millions ready money, borrowed by the late king of France, became a debt of thirty-two millions on the state.”
“Usury destroyed the monarchy of France! Seven million units of debt became thirty-two million of unpayable debt.”
Of interest, Adam Smith does not mention James Steuart (latter Denham) in his ‘Wealth of Nations’ published nine years later. Smith attacks many of the ideas of Steuart. Certainly, the above sentences would not have pleased the ‘Moneyed Interests’. Britannica.com mentions that ‘One of Adam Smith’s main goals in writing The Wealth of Nations was to refute Denham.’ (James Steuart).”
Adam Smith introduced the idea that the government should stay out of economic matters. The economy will find its own balance when led by the invisible hand and employment and economic growth will maximize themselves without government interference. He advocated that human self-interest would maximize results leading to greater efficiency. Whereas James Steuart reasoned that human self-interest would not create situations for public good and that regulation and control was needed to prevent the excesses and abuses by business persons.
Just by chance, the Adam Smith approach with its free market and tolerance of usury just happened to be the way the creditor class would prefer, so the book by Adam Smith got a heavy promotion.
James Steuart, who was later called James Denham, was concerned that private self interest would not ensure the best outcome for the citizens. This is the market approach favored by latter mainstream economists. He has concerns that private self interest would be used for personal gain in money, power, and influence. Private self interest needed to be well regulated by the statesman. The statesman is required to safeguard the public good. He suggest that the combination of commerce and self-interest will lead to the abuse of power as there is no natural mechanism to prevent abuse of wealth. Thus he advocates state intervention to prevent the abuse of wealth and power. Much of his work is observational on the characteristics that developed in the years following the creation of the private Bank of England. His writings were neglected because they were not popular with the ‘powers that be’ and those involved with the expansion of empire.
“In other words, James upset the establishment. Conveniently, another book came out that supported the status quo. And we still don’t have an economics profession that looks after the interests of the people.”