There is something curious in the movements of this modern complicated machine, the funding system; and it is only now that it is beginning to unfold the full extent of its movements. In the first part of its movements it gives great powers into the hands of government, and in the last part it takes them completely away.

— Thomas Paine, 17961

In America, money creation has been an issue of contention since Europeans settled on the North American continent. It was one of the major issues that caused the Revolution and the establishment of the United States. It was one of the primary causes of the Civil War.2 Underlying the controversy are beliefs about two fundamentals: who should govern and what is money.

Who should rule?

Some believe a few elites should rule – and wealth is a good indicator of who is deserving of power. People who are rich are considered by some to be better and smarter and therefore deserve the power to rule over the rest of us. This point of view is often promoted by those of great wealth. It is supported by those who tend toward an authoritarian view of the world – a world where one is either a leader or follower, and strong authoritarian rule is considered the natural order and desirable.

Others believe humans are created equal under the law and everyone should be able to participate in decision-making that affects their lives. This is a mutual respect, collaborative or partnership model of human society.

These opposing views have been in a tug-of-war perhaps since time began. As Riane Eisler so deftly posits in The Chalice and the Blade: Our History Our Future (1988),3 we have been moving back and forth between partnership and dominator models of society for millennia. Since the power of money creation bestows the power to rule, one’s belief in who should rule will determine who should get to create money for a society.

Evolving ideology and technology

Our decision-making and governing strategies are evolving. We know more today about how the best decisions are made than we did before. However, we are very slow to implement what we know. In part, this is because the political right has strongly promoted the idea that all government is bad. And, while one might think the idea that we must have a government and make decisions together goes without saying, it doesn’t. As Republican strategist, Grover Norquist crowed in 2001 when the Bush II administration successfully cut taxes on the wealthy, “I don’t want to abolish government. I simply want to reduce it to the size where I can drag it into the bathroom and drown it in the bathtub.” 4 This is a common sentiment now in America; belief in government per se is at a low ebb.

So, I’m saying it: every land has laws made using some form of government. People live in societies, and societies establish behavior standards, a way to hold people to those standards, and a way to resolve inevitable conflicts. Living in society means following its rules or accepting the consequences. Some societies do better than others at engaging everyone in issue-based rule-making and problem solving, that genuinely resolves conflicts, instead of creating new ones. But that is about quality of governance, not about whether societies are governed. The quality of governance is evolving and money plays a role.

The divine rights of monarchs

Up until the last few hundred years, most laws were made by powerful rulers who issued declarations as they saw fit. A monarch could declare, “Let it be done!” and it was. The right to declare and issue money was an important buttress for the general powers of monarchs.

We once believed the best decisions were made by special people – often with an inherited right to rule, considered by their birth to be chosen by divine right. Even when they were the strongest or meanest or richest, there was a tendency to think that if they were in authority, they were supposed to be there. Nearly all large scale governments for the first few thousand years of recorded history used this model. If we compare an individual to a community, this was society’s childhood. In childhood we are first unconsciously, then consciously dependent on authority, and consequently in awe of it. So, in society’s childhood, rulers are held in awe and dependence on their whim is considered natural.

The emergence of human rights

In the age of the early empires, the creation of money for the realm was the right of the ruler, and an important source of wealth and power. About 800 years ago, as global trade increased, a merchant class developed their own system of accounting and settlement that functioned as a private money system. This encouraged a shift away from the idea of a single divinely sanctioned ruler because it gave an independent and overriding power to the private financial sector. The power to issue money shifted from a few individuals and their inner circle with hereditary, ruling power to a few wealthy individuals and their inner circle with power in the global marketplace.

Concurrently, the idea that individual rulers could make a mess of things gained traction; we began to believe that a broader based decision-making and power structure might be a better choice. The evolution of money played a role in making the shift from the divine right of monarchs to the rule of law and republics with broader based governing structures. The concept of human rights blossomed. Perhaps these centuries have been society’s adolescence.

An adolescent tends to see the world in terms of being dependent or being independent. The drive to become an independent adult is strong and the cry for freedom from authority is loud. However, it is common for adolescents to simply switch their authority figure from parent to the alpha dog in their peer group; it takes a healthy growing up process for children to truly become conscious, independent individuals, able to recognize and function in an interdependent world. And not everyone makes it to this level of maturity.

Still evolving

Can we say that there is a parallel with governance? We the people are conscious of the historical tradition of dependence on a government that reflects the opinions and views of a tiny elite group of people. We have struggled to be independent of kings and the whims of despots, but still have family power dynasties and give greater voice to those with extreme wealth. There has been a lot of dysfunction in our growing up, and too many of us have shifted allegiance to the authority of capital – the authority of those who have the most money. We have been comfortable putting blind faith and trust in the integrity and authority of the bankers, financiers and the marketplace. I recommend the book, The Divine Right of Capital by Marjorie Kelly (2001) for an exposition of this state of affairs.5

Individually and collectively, we are still evolving. We are learning to recognize our interdependence and to step into the responsibility of genuine self-governance. This means balancing freedoms with responsibilities. If your politician is talking about freedom and liberty, ask that they give equal time to individual and civic responsibility for the general welfare. Choosing a money system that supports genuine self-governance will be a step toward achieving this balance.

Defining money

Is money a commodity or a social technology?

Defining money as a commodity that can be stored as wealth benefits the wealthy, and a dominator model of society. This is the particle theory of money (Chapter 3.16). Defining money as a social technology supports a partnership model of society. This is the wave model of money. How we define money has been debated since well before the founding of our nation.

Colonial Currencies and the British Crown

The early European settlers in America did not have any money of their own. They brought the money of European countries with them. It wasn’t enough. People bartered and exchanges were made as accounts with a general store. These accounts were sometimes settled with the fruits of one’s own labor, or using Native American wampum for a while, as well as a variety of experiments in local commodities, coin and currency. Colonists soon recognized the need for their own money.

America became a great monetary laboratory, experimenting with various kinds of money, such as agricultural commodities (Maryland and Virginia, 1632–1692); gold and silver coins (Massachusetts, 1652– 1685); land banks (South Carolina, Massachusetts, 1675–1740s); true common wealth money spent into circulation (Massachusetts, 1690– 1714); and common wealth money lent into circulation (Pennsylvania, 1723–1726). For a comprehensive review of the history of money, read The Lost Science of Money by Stephen Zarlenga (2002). It is rich in stories for the history buff and provides an in-depth look at the historical basis for our concepts of money.6

The wealthy banking interests consistently promoted the idea that true money was gold or silver because it was a commodity and real, meaning tangible. At the same time, most meant fractional gold reserve money. Some described their bills of credit as a derivative of real money, not to be considered as money, however much they were used as such. When inevitable bubbles and busts occurred because of the issuance of privately issued, fractional-reserve IOU-future-value money (a.k.a bills of credit ), they consistently promoted the story that the problems were with government or with any central control over their money creation.

By the 1600s the private British banking interests had control of Britain’s monetary system. They pressured the crown into refusing to allow the colonists to create their own money. In the 1600s and 1700s this pressure waxed and waned as the colonists defied the British and experimented. In the late 1700s the pressure grew relentless. This meant a shortage of money, difficulty doing business, and extreme hardship – a major reason for revolution.

Articles of Confederation

When the colonies joined together to revolt and establish their own government, a uniform and stable money was of primary concern. The Articles of Confederation gave the federal government the power to emit bills of credit that would be used as legal tender for paying taxes and for all exchanges. During the course of the Revolutionary War, our Congress authorized the printing of $200 million in legal tender, calling them Continentals. Though called, bills of credit, these were pure commonwealth money; they were not promises to pay later, or promises to pay some quantity of gold or silver. They were backed by the commitment of our young nation.

From the point of view of the global money interests – home based in England and Scotland at that time – the creation of a sovereign or commonwealth currency was a dire threat to their global control of commerce. The British ship, the HMS Phoenix, sat off New York’s shore with printing presses on board turning out counterfeit $ bills to flood the fledgling and war torn economy. When the British General Howe took New York in 1776, the printing presses moved into town, cranking out untold numbers of counterfeit notes. The British ran ads in the paper asking for people willing to carry the false currency into areas held by the rebellion. They succeeded in crashing the value of the Continental, but it took them all six years of the Revolutionary War to do it.7

The Continentals got us through our war of Independence, but the counterfeiting and follow-up propaganda of the money powers convinced many that the money collapsed because it was issued by government, instead of private interests. They used the false idea that private bankers’ money was fully backed by gold or silver and therefore the only true money.


At the time our Constitution was written there were confused and confusing arguments about the best money for our nation. Some founders believed that money was a commodity and should be outside the purview of government. Some founders fully understood the role of money creation and wanted that power to belong to government. Other founders, mostly bankers and financiers themselves, argued for the power to rest in their hands.

For example, Alexander Hamilton became the Secretary of the Treasury in 1790 and played a significant role in shifting the power to create money from the government to the private bankers by promoting the United States Bank Act of 1791. He then became a founding member-owner of the bank.8

Some argued about whether money should be created at the state or federal level by private interests or by government. Some misunderstood the role of a central bank (in service to its members) and saw a central bank as an issue of state vs. federal authority, and made their arguments accordingly.

Another argument was about the nature of money. Some argued only gold and silver could be money, effectively ignoring the fact that gold and silver were generally only a standard and reserve, not the bulk of the money in circulation.

So, what arguments won out? What does our Constitution say about money creation?

 PrevOur Current System 5.41