Frederick Raphael Burch.

The true function of money & the false foundation of our banking system online

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Frederick Raphael Burch


626 New York Block,

Seattle, Wash.

Copyright, 1922


Frederick Raphael Birch

All rights reserved




Chapter I, The Mercenary Few 7

II. Banks and the Banking System... 14

III. The Origin of Money 22

IV, Definitions of Money 28

V, The Perversion of Money 40

\T, The Fallacy of Interest 56

VII. Condition of Labor 66

VIII. Condition of Capital 71

IX. Wealth and Capital 81

X. The Money Question 95

XI, Law and Facts 114

XII, The Remedy 128



THE ERRONEOUS conception of the proper
status and true function of money has led to
its perversion, the evil result of which is so
clearly evidenced by our present banking system.

In this volume I undertake to prove the fol-
lowing propositions:

1st. Money is not a commodity. This being
true :

2nd. Money is no part of wealth. Hence :

3rd. Money can never become capital. Not
being capital :

4th. Money has no earning power. And it
follows :

5th. Interest, or profit, on money is unearned.

6th. Gold and silver, in common with lead and
zinc, are commodities.

7th. Money is something entirely different.
It has no more natural connection with gold and silver
than it has with lead and zinc. We must not confuse
money with the commodity which may be chosen as its
tangible vehicle.

8th. Money is the medium of exchange and the
measure of value ; a convenient and exact method
of book-keeping; and only as such does it properly

9th. Money is brought into existence by law.

10th. A commodity cannot be created by law.
All that a law can do is to function as a law.

11th. No individual, nor body of individuals,
should be permitted to own or control a function of
law and charge others a tax for its use.

12th. The government is the true depositary
of the law and the proper executive of its functions.

13th. These powers are usurped by the bankers
and money-lenders, and the evil results of this usur-
pation are colossal ; they will disrupt and destroy
civilization unless a remedy be applied.

14th. The remedy.

— Frederick Raphael Burch.


AS WE LOOK back over the pages of his-
tory, and contemplate the many advances
humanity has made toward intellectual and
industrial freedom, we are inclined to congratulate
ourselves far beyond what the facts warrant. Some
of the most deplorable systems of the past have seem-
ingly been eradicated, but they have been conquered
in name only. The underlying principles of the same
systems exist today, and are at the bottom of great
abuses which yet obtain sanction of law and public

From the dawn of history it has been the bane of
the world to have a mercenary few studiously devis-
ing methods by which the many could be induced to
contribute to the few the surplus of their production,
and to keep the many in ignorance of the means by
which it is accomplished.

In ancient Greece the oracle was the efficient
means whereby the few could impose on the many
by representing that the gods had commanded thus
and so. Rome followed with patrician control of the
land and of the functions of government. Central
Europe improved on this idea and evolved the feudal
system. Later, in the eleventh century, this system
was established in England by William, Duke of Nor-
mandy. Under it the mercenary few regulated the

8 The True Function of Money

social and political relations, including the rights of
landed property throughout the kingdom. A feudal
proprietor was one who held his lands from another,
on condition of certain services which he, as a vassal,
was bound to perform for that other, as his suzerain
or superior. This peculiar relation was established
for the purpose of obtaining and preserving military
strength. With the exception of the duty of military
service to their superior, the vassals of the king practi-
cally were invested with sovereign power within their
own dominions, having vassals in various degrees be-
neath them; and living in their fortified castles, often
by means of pillage, while the peasantry were bound as
serfs, or slaves, to the soil.

The feudal barons being thus in control of the
land, the people were compelled to become subservient
to their masters. An aristocracy arose, which en-
shrouded itself in the mystic doctrine of the divine
right to rule ; the people were held to serve, and to
contribute to their masters the surplus of their pro-

As we scan the pages which recount the growth
of this system, and contemplate the hopeless condition
of those serfs, we will unconsciously hail ourselves as
thrice blessed that we. of the present day, have passed
beyond such injustice. But, have we?

A system founded upon such doctrine could not
survive. Conditions became intolerable. Step by step,
through seas of tears and rivers of blood, the people
forced their persecutors to yield ground. The entire
system was builded upon the ignorance and fear of the
many and the cupidity and duplicity of the few. In

The Mercenary Fezv 9

France the condition of the people became unbearable.
Death was preferable to an existence under such bur-
dens. The storm broke and spent its fury in the
French Revolution. Every member of the mercenary
few, throughout the world, trembled, and the lesson
which they learned was salient.

Before the French Revolution had convulsed the
v»'orld, our forefathers were sowing the seeds of lib-
erty in the fruitful soil of the \\'estern Hemisphere.
Realizing the palpable injustice of conditions in Eng-
land, the founders of this Republic resolved to deny
the hated institution of a landed aristocracy any foot-
hold therein. X'o aristocratic titles and no hereditary
political rights were to be allowed. The United States
of America thus became the standard-bearer of the
doctrine of equal rights ; and the mercenary few were
temporarily restrained. This condition continued till
the outbreak of our Civil War.

It was while our country was trembling in the
balance of national existence, that the mercenary few
began to realize the power existing in the control of
the nation's money. With a deliberation sublime in
its assurance, the bankers set about the undoing of
their country by attempting to foist an enormous debt
upon the men at the front, and which they succeeded
in doing in the late \\^orld War. Fortunately in the
earlier day we had great and strong men at the head
of affairs, and the bankers were told that their serv-
ices were not required. Treasury notes and green-
backs were issued, and. to the surprise of all orthodox
political economists, they actually were money, and
they performed all the functions of money.

10 The True Function of Money

This was a condition which the mercenary few
could not tolerate. It behooved them to devise a new
method by which they could secure and retain con-
trol of the money. On June 3rd, 1864, the National
Bank Act was passed. By this act the government is
forestalled in any desire which it may have to repeat
its former action and ignore the will of the bankers.
Upon conforming to certain rules as to organization
and operation of the banks, the bankers, in ef-
fect, came into complete control of the volume of
money permitted to circulate. This leaves them the
masters of our temporal welfare.

This financial body, known as bankers or finan-
ciers, has the avowed purpose of acquiring, controll-
ing, and loaning the nation's money for their own
profit. The members are evidently pledged never to
invest one dollar legitimately, but rather to hamper
commerce incessantly by periodically hoarding the
money, thus creating a scarcity of legal tender, which
in turn inflates the rate of interest and demoralizes

The money, theoretically the people's, but which,
under the present system, is in reality all the bankers'
and, under their domination and control, is periodically
refused at the banks, and thereby a scarcity is created
at the most inopportune time. This causes the grim
visage of the torture of an earthly hell to appear within
the horoscope of the man of business, and none but
the banker can grant him salvation. The price of this is
to pay the higher interest rate demanded and, besides,
a complete disclosure of his private business aflfairs

The Mercenary Few 11

and of those of his friends with whom he has or had
business relations.

This association of bankers, or financiers, is as
thoroughly organized as greed and selfishness can dic-
tate. Its headquarters, we will assume, is somewhere
in the old world, mayhap London. The affairs of the
association in the United States are in the hands of
able assistants whose headquarters are on Wall Street,
New York. Every city throughout the United States
has its subsidiary headquarters, and every town and
hamlet, which supports a sufficient population, has its
official agent, — its local bank. Each of these official
agents is in the hands of its correspondent, and these
correspondents are, in turn, in the hands of their cor-
respondents, and so on to final convergence at head-
quarters in Wall Street, New York.

The association managers can push an electric
button in Wall Street, and, instantly, every banker
throughout the land, if he be in good standing, will
feel the thrill of the contact. With the system thus
organized, we will follow the career of the producer
of today. He finds his existence one of unrequited
toil and of hopeless labor for his daily bread. He
resolves upon the only expedient by which to extricate
himself. Taking his small means, he boldly enters
business, that arena of fierce competition, to do battle
against fearful odds. He soon learns that the scarcity
of money, and the profound stagnation of that which
is in circulation, has engendered a system of credits.
He must conform to this system in order to compete.
This soon depletes his little treasury, and, before he
is aware, he has unwittingly committed the cardinal

12 The True Function of Money

sin of becoming short of that medium which the law
ordains legal tender. Ruin, utter ruin and disgrace,
the welfare of his family, the pitying glances of his
friends, — all rise before him like a hideous nightmare.
He feels the more advanced pangs of hell's torment.
His friends would gladly help him in his extremity,
but they are in the same fix. seeking, not granting

In this crisis, there is but one house of refuge
open to receive him, — his local bank, — with his tem-
poral savior, the manager thereof, waiting to grant
salvation ; that is, if he so sees fit. Penitently he ap-
proaches, truthfully he discloses his private business
affairs, and humbly he prays for a remission of his
sins, — the price or penalty thereof to suit the banker's
pleasure. He thus discloses, to the very one who con-
trols his destiny, the innermost secret of his ability
to maintain independence, and has incidentally di-
vulged the business of all his friends with whom he
has or had dealings. He is now at the full mercy
of the bank. There is nothing left to do but watch
the banker's thumbs. Thumbs up means, let him
live ; thumbs down means, let him die, commercially

Thus the bank has become our universal house
of temporal salvation ; the shrine of the almighty dol-
lar, our altar ; and the manager of the bank our tem-
poral savior. Under the present system of permitting
money to become a profit-producing commodity, there
is no escaping a membership in the faith. Deflection
from its tenets brings disaster, and a refusal of the
benefits of civilization.

The Mercenary Fezv 13

These conditions throw him into the ranks of
labor, where he is so manipulated by the very force
which crushed him, that naught but his daily bread
shall be his, the profits of his labor being systematic-
ally absorbed by the banks, by reason of the money
loaned to his employer, as will be seen later.

The producer of today seems as ignorant of his
rights as he was in former ages. He complacently
accepts the doctrine, that in order to avoid poverty
he must practice it ; to escape being a pauper, he must
live the life of a pauper; and to enjoy the world he
must persistently reject all its beauties.


THE business world holds the same relation to
the banks and the money-lenders that the play-
ers on the outside of the table do to a faro bank.
The "bank" has the medium of exchange all hoarded.
This medium is evidenced by little celluloid chips or
discs. The players borrow these chips by depositing
money as security. Thus equipped, they begin to strive
for profit by taking chances on the fall of the play.
They win and lose, apparently from the "bank," but
actually from each other. The "bank" loses nothing,
but, to the contrary, is the only winner, the percentage
on the game, — the interest.

Gambling is so demoralizing and useless that legis-
latures pass laws prohibiting the practice. Loaning
money by privately controlled banks is just as unde-
sirable and unnecessary : yet. under our present sys-
tem, it is a highly respectable occupation.

Money, as decreed by the various governments, is
evidenced by small gold and silver discs and paper.
These coins and bills, as they are called, are very
easily lost or stolen, and when once gone are hard to
identify. It is impracticable for each citizen to pro-
vide a thief or burglar-proof vault wholly for his own
use ; consequently, a few men will construct a vault
sufficiently large to accommodate a great number, and

Banks and The Banking System 15

others deposit their money therein. This constitutes
a bank.

Naturally, the depositors do not feel that it would
be fair for the banker to take care of their money for
nothing, and hence arises the tacit understanding that
the banker shall have the privilege of loaning the
money, and whatsoever it shall profit in interest will
be his. This arrangement is eminently satisfactory
to the banker.

With this control the banker is in a position to
inaugurate a system so like unto the faro game just
described. He has control of the chips, — the people's
money. He passes them out to the people again with
the compact that they will be returned at a stated
time, plus the interest. The people receive the chips
(loaned money) and enter with zest into the grand
game of profit and loss. What one wins the others
lose ; — but not the bank. The more some win, the
more others will lose ; but not the bank. Every win-
ning by some makes a losing by others a certainty,
and of which of them the banker wots not. Scarcity
of money aggravates the trouble ; higher and higher
mounts the rate of interest ; and more and more is
the money hoarded. Sooner or later the people's
money on deposit has accomplished a most astonishing
feat : it has won itself away from the people and
passed into the hands of the banker.

For all this the people have received naught in
return, unless, perchance, a pleasant smile and the
pleasure of being addressed by their correct names.
Wall Street is the place where this system is operated

16 The True Function of Money

on a wholesale plan, and each bank throughout the
country is an active assistant.

Imagine a business, the full productive capital of
which is furnished by the people, but which is oper-
ated in behalf of private individuals, and directly
against the interests of those who furnish the capital.
In time the bankers have won from the people all that
the people had, and this without the slightest risk and
without one tap of productive labor.

The banking system divides the world into two
rclasses — the depositors, the constant borrowers of
' their own money ; and the bankers, the constant lend-
ers of something they do not own, and at the price of
an enormous tribute. This gain is greater by far than
the gain of the most favored commodity, and is great
enough to absorb in the aggregate the profits of the de-

Let us examine the possibilities of these gains :
The Federal Reserve Act provides as follows :

"Sec. 19. Demand liabilities within the mean-
ing of this Act shall comprise all deposits payable
within thirty days, and time deposits shall comprise
all deposits payable after thirty days, and all savings
accounts and certificates of deposit which are subject
to not less than thirty days' notice before pay-
ment. * * *

"(b) A bank in a reserve city, as now or here-
after defined, shall hold and maintain reserves equal
to fifteen per centum of the aggregate amount of its
demand deposits and five per centum of its time de-

Banks and The Banking System 17

The reserve of a bank is that portion of its de-
posits which is kept in hand to meet average liabili-
ties, and which is therefore not employed in discounts/
and loans.

These provisions of that act make the following
a possibility : — I can open a bank and the people will
deposit with me one hundred thousand dollars pay-
able on demand. As I have to keep only fifteen per
cent of my aggregate demand deposits, I can make
an initial loan of eighty-five thousand dollars. This
money, in practice, is not withdrawn from the bank,
but is left as a checking account. However, if the
money is really taken out of the bank and paid to an-
other person, that person immediately re-deposits in
the bank. It makes no difference which bank he de-
posits in. as all the banks enjoy all the deposits, and
this will give me my share.

That we may more clearly perceive the condition,
we will say that this same eighty-five thousand dollars
are re-deposited in my bank. This gives an added
deposit, in the aggregate, and I can now loan 85%
of this amount, or seventy-two thousand two hundred
and fifty dollars.

This sum is re-deposited with me, and I can again
loan 85% of this amount, or sixty-one thousand four
hundred and twelve dollars and fifty cents.

We now understand the possibilities. Carry this
computation through, and we see that a bank with one
hundred thousand dollars demand deposits can be
strictly within the law and yet create an interest-bear-
ing debt of five hundred and sixty-six thousand six
hundred and sixty-six dollars and sixty-six and two-

18 The True Function of Money

thirds cents, and in the end will have the original one
hundred thousand dollars as reserve in the bank.

Figure the above sum on ninety-day loans at 8%
per annum, and we find the interest for one year to
be forty-six thousand seven hundred and eleven dol-
lars and fifty-five cents, or a little over 46.7% on the
original one hundred thousand dollars, — which is all
the cash used in the transaction. Figure the same
sum at 12%, the usury limit in some states, and we
find the interest, for one year, to be seventy-one thou-
sand one hundred and twenty-one dollars and sixty-
six cents, or more than 71% on the original one hun-
dred thousand dollars.

The same law permits the time-deposits to be so
manipulated that they will create an interest-bearing
debt of one million nine hundred thousand dollars,
which sum, computed at 8% per annum on ninety-day
loans, will yield one hundred and fifty-six thousand
six hundred and twenty-one dollars and ten cents, or
more than 156% per annum on the original one hun-
dred thousand, and at 12% will yield two hundred and
thirty-eight thousand four hundred and sixty-six dol-
lars and seventy-four cents, or more than 238% per
annum on the only cash in the transaction, — the orig-
inal one hundred thousand dollars. Our banking sys-
tem is thus in a position to receive the people's money
on deposit and use it to saddle the above enormous
debt upon the same people, and levy the crushing trib-
ute which the foregoing figures disclose.

This practice of exacting interest on money by a
privately-controlled banking system has brought the
monev, — the blood of commerce. — into the hands of

Banks and The Banking System 19

a very few ; and thereby constitutes them the autocrats
of our temporal destiny. They are thus empowered at
will to contract or expand the volume of money in cir-
culation. The contraction is accomplished by period-
ically refusing loans and calling in all outstanding ob-
ligations, which in turn stagnates and demoralizes

The principle of the right of money to earn in-
terest is based upon the false conception that money
is a commo'dity. The so-called orthodox political
economist is quite satisfied with this conception. That
we may perceive the fallacy of this reasoning, let us
assume this idea to be sound. Under these conditions
two men labor at the same work for the same' length
of time. One takes his pay in money, say one hun-
dred dollars, and the other in a horse valued at an
equal amount. They each start a savings-bank, one to
use his money an"d the other to use his horse, for loan-
ing purposes. As before seen, the man with the money
can create an interest-bearing debt of nineteen times
the amount of his money, and in the end will have all
his money back in the bank as a reserve. Apply the
privilege of the banking law to the man with the horse,
and he could have nineteen horses earning for him,
and in the end will have his horse back in the bank.
It is evident that there are not nineteen horses earn-
ing; still, the owner of the horse can collect these vis-
ionary earnings. This is exactly what is done by the

It is strange that the same intellect will pronounce
this transaction the height of absurdity when applied

20 The True Funetion of Money

to the commodity. — horse. — and a paragon of common
sense when applied to the alleged commodity, money.

Most people entertain a deep-seated conviction
that, if a bank loans five thousand dollars, and the
borrower purchases an autotruck with the money, the
bank had furnished the borrower with the autotruck,
and. in sound logic and justice, has an interest therein
which entitles it to share in the profits earned by the
truck, and also to have those profits guaranteed. Let
us analyze this transaction and comprehend exactly
what was done. It is evident that the borrower could
not have negotiated the loan unless his credit was am-
ple to cover all demands. This credit, then, was the
capital with which he sought to acquire the autotruck.
His credit is based upon one hundred thousand bush-
els of wheat of a market value of one hundred thou-
sand dollars. He would gladly exchange five thou-
sand bushels of wheat for the autotruck, but the seller
cannot use wheat. — he must have some other com-
modity, or perhaps several commodities.

This gives rise to that complex exchange which
requires a medium for the economical consummation
thereof. The borrower must apply to the banker for
a loan, that is. the privilege of using his own credit.
The banker says : "Permit me to levy a tax upon your
credit, that thing yott have produced, and / will per-
mit you to use it : and as a security that you will pay
me this tax. together with my means of levying the
same. — the principal. — you must pledge to me all your

Banks and The Banking System 21

This is the unfounded and unauthorized basis
upon which the profit-producing power of money is

placed. An understanding of the true status of money
will point the way to a correction of this evil.


WHEN living in a primitive condition, hu-
man beings have no need for money. All
commerce may be carried on in the prim-
itive manner in which they live. It is natural
and convenient to barter among themselves with
the actual commodities at hand. Thus, one will
have a fish and another a rabbit. It transpires
that they are each fond of fish and rabbit and desire
to have a little of each, rather than all of one or of
the other. As a result, they agree to exchange one-
half a fish for one-half a rabbit, and vice versa. Hav-
ing done this, a transaction has been consummated in
the world of commerce as full and complete as any
which has ever heretofore been or will ever hereafter
be efifected. The purchase of a battleship by one na-
tion from another is no more a complete transaction
than this.

This primitive method of carrying on commerce
can remain in its simplest form only so long as each
member of society is an actual producer and simple
and modest in his desires. Complex conditions, con-
certed action along special lines of endeavor, larger

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