This essay provides a brief history of the origins of the international banking system, which today holds considerable political power over our nominal heads of state. The precursors to the modern banking system began operating soon after the power of the Roman Catholic Church was severely curtailed by the Peace of Westphalia in 1648. The Church had been the preeminent transnational power during the Middle Ages. But after the sun set on its power, bankers began consolidating influence and eventually became the new transnational power in our modern era.
The Power of Popes
The Middle Ages lasted a thousand years. Traditional dates range from the deposition of the last emperor in Rome (476 AD) to the conquest of Constantinople by the Turkish Sultan in 1453. The Roman Catholic Church was the most powerful institution in Europe during that time, with popes generally wielding significant power over secular heads of state.
That arrangement traditionally began on Christmas Day in the year 800 AD, when Pope Leo III presented Charlemagne with the crown of the Holy Roman Empire. Experts now question the historicity of that story, which comes to us from Charlemagne’s contemporary biographer. What is not in doubt is that the popes rose to a position of power over the crowned heads of Christendom in the centuries after the Fall of Rome.
The feudal economic system began to collapse after the Black Death ravaged Europe in the mid-1300s. By the early 1500s, the Protestant Reformation began to challenge the Church’s political authority. By the early 1600s, the bitter religious conflict had escalated into the horrific Thirty Years’ War.
The Peace of Westphalia finally brought that war to a close in 1648. It formally established international borders, laid the groundwork for the modern nation-state, and severely curtailed the power of the Roman Catholic Church. The idea was that the pope would no longer be allowed to influence the choice of religion in foreign lands. States that wished to be Protestant would be allowed to do so under the new international rules. It was the birth of our current geopolitical paradigm.
The Power of Central Banks
Nature, as the saying goes, abhors a vacuum. Just 46 years after the Peace of Westphalia, in 1694, the Bank of England, wittingly or unwittingly, began the long process of filling the power vacuum left at the apex of European geopolitics.
In that year, bankers from London and Edinburgh pooled their resources and loaned considerable funds to King William III, who desperately needed financing for his war against France. The bankers proceeded to sell off the rights to collect the money that the King now owed. The resulting promissory notes soon began circulating as one of Europe’s first national paper currencies.
After these paper notes were widely accepted as a form of payment, bankers had the power to print money. They only needed to hold enough actual gold or silver in their vaults to satisfy customers seeking to redeem paper for coins; only a fraction of the value of the paper currency they issued was backed up by precious metals. They learned this trick from England’s contemporary goldsmiths. But the Bank of England institutionalized the practice of fractional reserve lending on a national scale.
Over the ensuing centuries, central banks, similar to the Bank of England, have been established in nearly every country in the world. Their financial monopoly over the issuance of currency bears a striking resemblance to the spiritual monopoly that the Vatican parlayed into immense wealth during the Middle Ages.
By 1930, coordination between these central banks was formalized in Switzerland with the establishment of the Bank for International Settlements, which serves as a central bank for central bankers. Like the popes during the Middle Ages, today’s international banking system is a transnational authority that wields considerable political power over the nominal heads of state.
In our own time, conservative politician Barry Goldwater once remarked, “Most Americans have no real understanding of the operation of the international money lenders…It operates outside the control of Congress and manipulates the credit of the United States.”
New Order of the Ages
In 1618, the Thirty Years' War was ignited by the infamous Defenstration of Prague, an incident where enraged Protestants hurled Catholic administrators from a high window in Prague Castle. A photograph of the site where this occurred, taken by the author, serves as the Title Card for this essay.
An amusing coincidence of symbology is also to be found at this site.
Just outside, visible in the Title Card, stands a large stone pyramid with a copper capstone. Though it was placed there in the 20th century, this piece of Egyptian symbology is eerily reminiscent of the unfinished pyramid and the Eye of Providence found on the Great Seal of the United States and on the back of every US one-dollar bill (inset).
All US paper money is labeled “Federal Reserve Note” because the Fed, NOT the US Treasury, issues the currency and backs its value. The central banking system, pioneered by London and Edinburgh bankers in 1694, today wields tremendous power. That is particularly true in the case of the US dollar, which remains the world's reserve currency.
The twin Latin mottos Annuit Coeptis and Novus Ordo Seclorum appear above and below the pyramid on the US one-dollar bill. These translate to “God favors us” and "a new order of the ages". The latter phrase was lifted straight from the Roman poet Virgil.
More fitting mottos could scarcely be imagined for the long historical process that saw the fall of the spiritual monopoly of the popes and the rise of the currency-issuing monopoly of the banks. The fact that banking houses now occupy a similar station of political and economic dominance could not be better symbolized at the site of a significant turning point in that process.
Conclusion
Just as the Roman Catholic Church was once the most powerful institution during the Middle Ages, banks are today the most powerful institutions in our modern world. The shift from the medieval to the contemporary age involved the fall of one transnational authority and the rise of another. Where the Church used to monetize a spiritual monopoly to achieve great wealth, the central banks that arose in the aftermath of the Thirty Years' War are still monetizing a monopoly on currency issuance.
Since you made it this far, patient reader, kindly consider hitting the ❤️ button above or below; it really helps!
Further Materials
It was only with the creation of the Bank of England in 1694 that one can speak of genuine paper money, since its banknotes were in no sense bonds. They were rooted, like all the others, in the king’s war debts. This can’t be emphasized enough. The fact that money was no longer a debt owed to the king, but a debt owed by the king, made it very different than what it had been before. In many ways, it had become a mirror image of older forms of money. The reader will recall that the Bank of England was created when a consortium of forty London and Edinburgh merchants—mostly already creditors to the crown—offered King William III a £1.2 million loan to help finance his war against France. In doing so, they also convinced him to allow them in return to form a corporation with a monopoly on the issuance of banknotes—which were, in effect, promissory notes for the money the king now owed them. This was the first independent national central bank, and it became the clearinghouse for debts owed between smaller banks; the notes soon developed into the first European national paper currency.
David Graeber, Debt: The First 5000 Years, 2011, page 339
The story of goldsmiths who practically embezzled the gold entrusted to them is told time and again. Given the outrageous criminal laws of the time, it's hardly convincing to argue that such embezzlement actually took place on a large scale.
It's more likely that it was the fintech innovation of "credit lending" that made the financing of the economy possible. This trick is described in the following post:
https://reneemenendez.substack.com/p/the-ancient-fintech-innovation-which?utm_source=profile&utm_medium=reader2
And the rationale for the foundation of central banks can be found in an insurance arrangement against bank runs:
https://reneemenendez.substack.com/p/from-credit-lending-to-the-central?utm_source=profile&utm_medium=reader2
I'm looking for FEEDBACK on this essay!
Let me know what you think in the text box above...