"Abraham Lincoln's Monetary Policy"

Readers: Apparently this document represents a research project in need of some scholarship.  This document was checked for authenticity by faculty of the University of Missouri, Kansas City Department of Economics. Their commentary comes next. I will follow that with a comment based upoin the general historical context, that begins with identifying Abraham Lincoln as having been a Henry Clay sort of Whig before there was a Republican Party.

The following is the result of the Univ of Missouri, KC research on the authenticity of this document. their text follows: "Ok, I think I have the Lincoln issue settled. The claim has been made that the short text called “Monetary Policy,” attributed to Lincoln in a number of books and elsewhere, are in fact the words of Gerald G. McGeer summarizing his (i.e., McGeer’s) interpretation of Lincoln’s thoughts on these matters. The confusion has in part been due to the text being cited as “Senate Document #23, p. 91,” entitled “National Economy and the Banking System of the United States” and dated 1865.

  It appears that in 1935, McGeer arranged for the text to be introduced as “National Economy and the Banking System of the United States” in the Senate, and so it became part of the Senate record, and therefore “Senate Document No. 23.” Whether some parts of the text may be quoted from various speeches or writings of Lincoln’s, or whether it is paraphrased, or simply McGeer’s summary, is not yet totally clear, but it appears that it is not literally Lincoln’s text. In addition, McGeer, a Canadian, was a member of Parliament for a time, and so also had the ability to introduce various texts in the Canadian Senate.

“Monetary Policy” does, however, appear to be a fair and accurate presentation of Lincoln’s thoughts on these matters as they developed over his career. Before the Civil War, there was no national currency and no national banking system (after the Second Bank of the US was dissolved) in the United States. State-chartered local banks issued their own currencies, which expanded their lending capacity and profitability. Many felt, however, that the system was too unstable to promote economic prosperity, support business confidence, and guarantee the availability of credit. If the bank of issue could not honor its own notes, it closed its doors, and its currency became worthless. Because of the risk involved in accepting bank notes, businesses and other banks would only accept them after discounting the bills. So there was no uniformity in currency values in the United States.

  Prior to the formation of the Republican Party, Abraham Lincoln was among those Whigs who supported the creation of a national bank to provide a secure currency. The National Banking Act of 1863 and 1864 created a network of nationally chartered banks that issued national bank notes supplied to them by the comptroller of the currency. The national banks were required to hold federal government bonds as backing for their note issues—thus did the Treasury increase the demand for its bonds. State banks were driven out of the business of making loans via note issue by a prohibitive 10 percent federal tax on the issuance of their bank notes. The historian Heather Cox Richardson writes approvingly of how Lincoln and fellow Republicans' “willingness to introduce government control of the nation's money” led inevitably to expanding “permanently the national government's economic role in the nation” (1997,90).

This is definitely an area for further research. No doubt a dissertation on this period of economic history, analyzed within a chartalist/functional finance perspective, could be a worthwhile and fruitful endeavor.
  Heather Cox Richardson, 1997, The Greatest Nation on the Earth: Republican Economic Policies during the Civil War, Cambridge, MA: Harvard University Press."
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So .... the issue is still not really settled. Dr. Stephanie Kelton Univ. of Missouri, KC Econ Dept.  
 

 

Re-Imagining Economics Admin continues:

A few important details are required to give President Lincoln's general monetary policies some context. First that he was a supporter and admirer of Henry Clay, founder of the Whig Party, Senator of Kentucky, and at one point Speaker of the House of representatives. Clay supported a National bank controlled by the government, that issued the national and sovereign currency. Lincoln's first Sec. of the Treasury was Salmon P. Chase, of the later Morgan Chase fame, and was strongly opposed to the issuance of the Greenbacks, though they were indeed established. This make it obvious that Chase was a political appointee primarily and that Lincoln pursued his own agenda. A Colonel Dick Taylor is mention as having suggested the idea of the Greenback, as a strategy to finance the Union side of the US Civil War.

 The importance in this policy by Pres. Lincoln is that his monetary policy as implemented in 1865 was an advancement of the issuance of the US Greenbacks which began in 1861, and was a sovereignty based currency rather than a privatization of the currency and capital distribution which conventional banking vastly preferred because it provided them with great profits, and a structural control of who would and would not have access to that currency and capital. The flip side of this was actually a compromise demanded by private bankers to fund the conduct of the US Civil War known as the National Banking Act of 1863 and 1864. The greenback was clearly a primary reason for the superiority of the Union's economic policies over the Confederate economic policies.

The later significant compromise was the National Banking Act of 1863/64, which granted national charters to banking corporations and instituted an Office of the Comptroller of the Currency. This particular 1865 statement, if it was able to be documented, makes clear Lincoln's intention to pursue the sovereignty based principle of currency rather than the faux specie and privatization of the banking utility. End of Admin comment.

Preface accompanying the document as published 

Preface and Postscript
by Michael Rowbothham
from his Grip of Death (1998)

Preface

At the end of the civil war, President Abraham Lincoln produced his justification for the government creation of money. His Monetary Policy is one of the world's great political declarations; a masterpiece of succinct advocacy and irrefutable justice. In it, he notes the inadequacy of gold and silver, and consequent need for an additional means of exchange. It proclaims the right and duty of government to create such currency, and supply this to the economy free of debt through government spending, thus reducing the need for taxation. Wages are declared to be a higher priority than bank interest, and the economy is to be protected from the "vicious currency" of banks. The creation and supply of money, he defined "not only the supreme prerogitive of government, but it is the government's greatest opportunity".

Lincoln's Monetary Policy is included here in its entirety.

Monetary Policy (1865)

Money is the creature of law, and the creation of the original issue of money should be maintained as the exclusive monopoly of national government. Money possesses no value to the state other than that given to it by circulation.

Capital has its proper place and is entitled to every protection. The wages of men should be recognized in the structure of and in the social order as more important than the wages of money.

No duty is more imperative for the government than the duty it owes the people to furnish them with a sound and uniform currency, and of regulating the circulation of the medium of exchange so that labour will be protected from a vicious currency, and commerce will be facilitated by cheap and safe exchanges.

The available supply of gold and silver being wholly inadequate to permit the issuance of coins of intrinsic value or paper currency convertible into coin in the volume required to serve the needs of the People, some other basis for the issue of currency must be developed, and some means other than that of convertibility into coin must be developed to prevent undue fluctuation in the value of paper currency or any other substitute for money of intrinsic value that may come into use.

The monetary needs of increasing numbers of people advancing towards higher standards of living can and should be met by the government. Such needs can be met by the issue of national currency and credit through the operation of a national banking system. The circulation of a medium of exchange issued and backed by the government can be properly regulated and redundancy of issue avoided by withdrawing from circulation such amounts as may be necessary by taxation, re-deposit and otherwise. Government has the power to regulate the currency and credit of the nation.

Government should stand behind its currency and credit and the bank deposits of the nation. No individual should suffer a loss of money through depreciation or inflated currency or Bank bankruptcy.

Government, possessing the power to create and issue currency and credit as money and enjoying the right to withdraw both currency and credit from circulation by taxation and otherwise, need not and should not borrow capital at interest as a means of financing government work and public enterprise. The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers. The privilege of creating and issuing money is not only the supreme prerogative of government, but it is the government's greatest creative opportunity.

By the adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts, and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power.

Abraham Lincoln, Senate document 23, Page 91. 1865.

Postscript by Michael Rowbotham

It is noteworthy that Lincoln issued this statement of his monetary policy in 1865, just before the end of the civil war. A matter of weeks later, he was assassinated. As the publication date and whole tenor of the document show, Lincoln's intention was to advance his monetary policy, based upon the government creation of money, and apply it more fully after the war. The motive behind Lincoln's assassination has never been established, and is usually attributed to the deranged actions of a lunatic. However, it has been speculated many times that Lincoln's death was connected with the fact that such a monetary policy as he was proposing, if pursued effectively, would have signaled the end of the banking and money power in the United States, and very rapidly everywhere throughout the developing world. Once that one government was seen to be capable of supplying its nation's monetary needs, others would certainly have followed. The power and profit which national debts and widespread private industrial debts provided to the world's most shadowy and powerful elite - bankers and financiers - would have soon vanished.
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From Michael Rowbotham, The Grip of Death: A Study of Modern Money, Debt Servitude, and Destructive Economics (Jon Carpenter Publishing, 1998), pages 220-221

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