Read the Introduction
The sentence that gives this book its name was printed by the Government of the United States in its own publication, at page 41 of a report it issued on August 5, 1964. It reads: "The private banks have deposited not a penny of their own funds, or their depositors funds, with the Federal Reserve banks."
That single line is the reason for the title on the cover and the reason for the method inside it. A claim about the money system is easy to make and easy to dismiss, because the person making it can always be answered with the question of where he got his information. This book answers that question in advance. Every statement of substance in it is the Government's own statement about the Government's own machinery, printed by the Government's own press, and given with the page where the Government prints it.
The publication is A Primer on Money, the report of the Subcommittee on Domestic Finance of the Committee on Banking and Currency of the House of Representatives, 88th Congress, 2d Session, published at Washington by the Government Printing Office in 1964 and dated August 5 of that year, its letter of transmittal signed by Wright Patman as chairman. It is written in question and answer form, ten chapters, and it sets out to explain to an ordinary person how the money supply of the United States is manufactured. A committee print is not a law, and nothing in this book treats it as one. What a committee print is, and what it is worth, is a body of Congress describing the machinery it oversees, in its own words, with its own page numbers, in a document anyone can obtain.
The book is built on that description and on nothing softer. Where the print quotes a named official, the official is named and the occasion is given, so that the testimony behind the quotation can be found. Where the print states a figure, the figure belongs to the years 1962 through 1964 and is held to those years, because a figure lifted out of its date becomes a false statement in the hand of whoever lifts it. Where this book needs law rather than description, it goes to the enrolled act, and it cites the act the way the act is enrolled, with its Public Law number, its chapter, its volume and page in the Statutes at Large, and then the code section as the current location. A document that leads with a nickname instead of the enrolled designation has not been to the law, and this book does not cite that way.
What the report describes is a mechanism, and the description is startling in the plainness of it. A cash reserve is not a pile of anything. It is a bookkeeping credit entered into the ledgers of the Federal Reserve banks, credited first by the Federal Reserve and then passed along through the banking system, and when the chairman of the committee asked to be shown the reserves at the Federal Reserve Bank of New York, and again in the spring of 1960 at the Federal Reserve Bank of Richmond, there were no reserves to see. A bank that buys a security does not take the money from anywhere. It writes the money into existence, and the report says so without ornament. The Federal Reserve, buying a Government bond, does exactly what any bank does, and it creates the money. What stands behind the currency in circulation is almost entirely the Government's own obligations rather than the commercial and industrial loan paper the original design contemplated. The member banks' stock in the regional banks, which reads like ownership, is described by the Chairman of the Board of Governors in 1941 as more in the nature of an enforced subscription than an ownership in the usual sense, and in 1942 he put it more plainly still, that the Government for all practical purposes owns the Federal Reserve banks. The same report prints the other side of that argument in the same chapter, from the American Bankers Association textbook, and leaves both statements standing side by side for whoever reads it.
Follow that description to its end and a question writes itself. If the unit in use is made by an entry and unmade by the reverse entry, then the record of the entry is the thing that operates, and the balance is what is actually being worked with. An obligation is then not a substance owned by anyone but a position of two reciprocal entries. And if that is the machinery, then the only question a person needs to put to the record is the question this book asks on every page of it. What was entered, by whom, and by what authority.
The three parts of that question organize everything that follows, and the parts are taken in order.
The first part, what was entered, asks for the entry itself. The reserve has no physical form to be located or inspected, and it is written by one institution into an account held by another. The unit is called into being by the same kind of writing, at the Reserve and at the commercial bank, and it is unmade by the same kind of writing in the opposite direction, so that creation and destruction are one rule read forwards and backwards.
The second part, by whom, asks which offices hold the pen. Two kinds of institution are able to manufacture the money in use, the Federal Reserve and the commercial banks, and no third party has the power. The class of institutions required by statute to hold reserves with a Federal Reserve Bank is named in the law, and the accounts themselves keep only that class. This book states that boundary plainly, and it states it early, because a great deal of what circulates on this subject loses its footing exactly here.
The third part, by what authority, asks for the instrument behind the hand. The answer is an act of Congress with a number and a date. The Federal Reserve Act was enrolled as Pub. L. 63-43, ch. 6, 38 Stat. 251, on December 23, 1913, and the reserve requirements that decide which balances must be held now stand in the section that the Depository Institutions Deregulation and Monetary Control Act of 1980, Pub. L. 96-221, title I, 94 Stat. 132, amended. The report itself puts the question of authority on the record in the words of an officer of the Treasury, who testified in 1960 that the belief that the banks supply the reserves on which the system runs is a misconception, and that those reserves are created under an authority that has been described. Described is the word worth keeping. An authority that has been described has a place in a document, and a document can be found.
One boundary belongs here at the front rather than at the end, and the book keeps it in every chapter. The report describes a mechanism. It creates no private right of action, it names no debtor, and it settles nothing about who owes whom. It is a description of the machinery, in the Government's own voice, from its own press, and that is all it is. So the claim of this book is narrow and exact. The money in use exists as records of debit and credit, and interest is charged on records that the institution created at negligible cost to itself. That is the claim, and it goes no further. Nothing here will tell you that a debt of yours has been paid, that a lien has been released, or that a paper you were told about stands behind a certificate of birth. Those propositions are not in the report, not in the register, and not in this book, and the place this book does go is the place the record goes, which is the ledger, the entry, and the act that authorizes the hand that writes it.
Three cautions travel with the method.
The figures belong to their dates. Every quantity in the report is a figure of 1962 to 1964, and it is quoted as of its own year and no other. A dollar amount from 1963 is evidence of what stood on the books in 1963, and this book never carries one forward as though it described the present.
The quotations are the extraction's. The report was read in a text extraction of a scanned volume, and the scan carries the noise that scans carry. Any quotation here must be verified against a printed copy of the report before it is used in any filing, and the chapters say so where the quotations carry weight.
The description is not a defence. A person holding this book and a notice from an office still has to answer the notice in the way the law of that office requires, within the time the law allows, and with the record the office keeps. What the report supplies is the clearest available statement of what the entries in that record are, who is entitled to make them, and where the authority for them was written down. That is what makes the record usable.
Read the counts back to the office that keeps them, and the question to put is the one question the machinery cannot answer against its own record. What was entered, by whom, and by what authority. The ledger is not hidden. It is unread, and reading it is the work of this book.
A false balance is abomination to the LORD: but a just weight is his delight. (Proverbs 11:1, KJV 1769)
A false balance is a count that will not bear reading, and a just weight is a count that can be read back. The entries this book works with are on file, they were written by named offices under numbered acts, and the question that the machinery cannot answer against its own record is the question the record itself invites anyone to ask. That is the whole of the undertaking here, and it begins on the next page.