James Madison Quotes
A rage for paper money, for an abolition of debts, for an equal division of property or for any other improper or wicked project, will be less apt to invade the whole body of the Union than a particular member of it.
James Madison, 1751-1836, 4th President of the United States (Democratic Republican, VA), The Federalist, No. 10
Sourced by: Eigen's Political and Historical Quotations
The same argument can be made against the modern paper money supply. What Jefferson and most of the founding fathers, with the exception of Alexander Hamilton. did not realize was that the major stability of any kind of money was not only the silver or gold that backed it but the political and legal stability of the nation and the size of its productive economy. Where Jefferson was right however is that all these banknotes at the time were issued by local private banks. The Government had no responsibility for paper money and had no knowledge of how much paper money any bank issues and whether or not they had any silver to back it up. Banks didn’t trust other bank’s notes and would only redeem them at a discount. A $10 note from a South Carolina bank might only be worth $7 in New York and $6 in Boston. The early American monetary system was a mess.
What Franklin Delano Roosevelt began, President Nixon would in 1971 complete by removing America from the gold standard entirely and ending fixed rates of exchange. There have been those in government who did not understand the modern economics of money and who believed that currency had to have a fixed rate of exchange for gold or silver otherwise it was worthless. Roosevelt had to deal with them as did Nixon later. Even into the 21st century when it had been amply demonstrated that the best currency in the world was the United States dollar precisely because it was backed up by the full faith and credit of the United States Government, there were those who complain that United States money is not sound currency and argue for the return of the gold standard.
Most of the Founding Fathers would be scandalized by the banking and finance system we have in modern times. There is not a single bank in the nation that would meet Adams’ criteria for not being a “cheat.” See {615649} for a similar view and {630666} for another quote by Adams regarding banks. Interestingly, Adams was a very conservative politician and generally supported the establishment, but banks at that time were not thought of as part of the establishment. They had a somewhat unwholesome reputation at best.
At the time any private bank could issue their own money. Private sector bankers thought it outrageous that the Congress should consider trampling on their rights to issue money. The solution that was finally adopted some years later was to use the Federal Reserve Board to control the money supply. It is independent of the Congress and the President but members are appointed by the President and confirmed by the Senate. Our system, like no other system, is a compromise where neither the Government or the Private Sector controls the American money supply.
He was against paper money. At the time, any bank could issue its own paper money or “banknotes”. However other banks would not redeem the banknotes for the full amount; they would “discount” the note. Usually, the further away the bank was from the original bank, the more discount they took. Interstate commerce was almost impossible. Alexander Hamilton, Jefferson’s nemesis, had a much more modern point of view and fortunately his view prevailed. Paper money could only work if it was issued by a central bank with no discounting by other banks. The paper money had to be “legal tender”.
In modern America, there are two political views of this notion. The one held by a small majority of the population is Trenchard’s quotation taken literally. Their view is that there if the is no way to maintain liberty if there is too wide a gap between the rich and the rest of the population. The second variant, held by many conservatives limits the equality to equality of opportunity. They are loathe to take any position that says that any gap between the rich and the remainder of the citizens might be too large. They would particularly disagree with the first sentence of another Trenchard quotation, {627024}.
At the time, a bank note—paper money issued be a private bank—was not backed by any gold or silver and was not insured bym the government. A bank could print as much as they wanted, so it was always worth less as the further you were from the particular issuing bank, the less you could get your bank note, because no one knew whether or not the issuing bank would redeem the note or even be in existence. So every private bank note had diminished value for the public. However, carrying gold and silver around and making change for precious metals was difficult and often impractical. So people used banknotes. The same thing happens with credit cards today. The merchant has to pay a fee to the credit card company and the bank and therefore charges us more for whatever we buy. But most consumers and merchants are willing to pay the difference to obtain the convenience of the credit card,
Much of the South during the Civil War lived in a fantasy universe where all the reality would not impinge upon them. Eggleston was an accomplished writer who had served in the Confederate army of the Civil War. 20 year after the war he wrote a series of articles for the prestigious Northern Atlantic Monthly trying to convey the war from the Southerner’s point of view. The South just kept printing money to take care of their perceived war and civilian needs without regard to the value of the money they were printing. Even in the 21st century collectors had a great deal of Confederate paper money, that had value only as a historical curiosity.
Three years after he wrote this essay, the U. S. Economy suffered the Meltdown of 2008 and the Great Recession where the major American banks had much too small capital bases to survive so the Federal Reserve and the taxpayer bailed the banks out. Much of the problem was if a consumer or a business borrows money from a bank, he/she must have a capital base at least equal to the amount borrowed. But under the modern American banking system, if a bank wants to borrow from the people, the bank doesn’t even have to have a capital base of as much as ten percent of what it borrows and often has considerably less.
During the Civil War, the U. S. Government printed paper money (specie) for the first time. 20 years afterward, the paper money was still controversial.
Wealthy men had purchased cheap land and moved into the area establishing large ranches and farms. The then very wealthy “newcomers” tended to do dominate the local politics and had much influence on national politics. They would employ the locals, but at very low wages.
This is a remarkable quotation in that it proposed exactly what the United States did in the Nixon administration. We went off the gold standard and backed American money with the wealth and “full faith and credit” of the nation and all its assets. It has been the strongest and most sought after currency in the world despite the fact that it is not backed by gold or silver as earlier American currency was.
James Madison Jr. was an American statesman, diplomat, expansionist, philosopher, and Founding Father who served as the fourth president of the United States from 1809 to 1817. He is hailed as the "Father of the Constitution" for his pivotal role in drafting and promoting the Constitution of the United States and the United States Bill of Rights. He co-wrote The Federalist Papers, co-founded the Democratic-Republican Party, and served as the fifth United States Secretary of State from 1801 to 1809.
