Mercantilism Never Ended
An Essay on the 800-Year Arrangement That Still Runs the World
Before the essay: a short version — “The Long Trick: Mercantilism, Explained to a Six-Year-Old” — is attached as a PDF at the top of this post. It is the whole argument in 800 words, for readers who won’t commit to 6,800. If you want the simple version first, read that. If you want the evidence, start here.
The Charter
On 25 April 1694, the English Parliament passed a law with a title that told the truth before the politics buried it: *An Act for granting to their Majesties several Rates and Duties upon Tunnage of Ships and Vessels, and upon Beer, Ale and other Liquors: for securing certain Recompenses and Advantages, in the said Act mentioned, to such persons as shall voluntarily advance the Sum of £1,500,000 towards carrying on the War against France.*¹
A Scottish promoter named William Paterson had brought the scheme to a committee of the House of Commons the year before. The English Crown was broke, its credit poor, emerging from half a century of civil war. It could not raise taxes — the civil wars had been fought partly over that question — and it could not borrow enough from private savers to fight France. Paterson’s group proposed a different arrangement. They would form a bank. The bank would issue new notes. The notes would be lent to the government. The government would pay interest on the loan from earmarked taxes on ships, beer, and spirits.²
The arrangement had one feature that mattered more than any other. The money the bank lent did not exist before the loan was made. It was created by the act of lending.
Paterson said so openly. “The Bank hath benefit of interest on all moneys which it creates out of nothing.”³ The words are from 1694. Sir Edward Holden, founder of the Midland Bank, repeated them in December 1907, and Carroll Quigley observed that the principle “is, of course, generally admitted today.”⁴
When the subscription opened on 21 June 1694 at Mercer House, King William III and the Whig parliamentarians crowded in. More than a million pounds was raised in twelve days.⁵ By 27 July the books were open with the inscription Laus Deo in London — praise to God in London — and the Bank of England was in business. Within two years it had issued £760,000 in notes against £36,000 in cash, gone insolvent, and been permitted by act of Parliament to suspend its obligation to redeem notes in gold while continuing to collect from its own debtors.⁶ Its notes immediately fell to a 20 percent discount. By 1697 Parliament had prohibited any competing corporate bank from being established in England, and counterfeiting Bank of England notes had been made a capital offence.⁷
This is the hinge. Every major financial arrangement that followed — Hamilton’s Bank of the United States in 1791, the Federal Reserve in 1913, the dollar standard after 1971, the Eurodollar market that emerged in 1957 and now dwarfs the regulated banking system — is a variation on 1694. A private institution creates money. It lends that money to a state. The state pledges an earmarked revenue stream to pay interest. The state receives political cover, prestige, and something it could not obtain by direct taxation: the ability to finance wars, empires, and bailouts without asking its population to pay up front.
Mercantilism — the economic system that produced 1694 — never ended. It was renamed, and then it was relocated. Its current address is the City of London, the Crown Dependencies, the British Overseas Territories, and their affiliated jurisdictions on the U.S. Atlantic and Gulf coasts. The arrangement is recognisably the one Paterson proposed, now operating at planetary scale.
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Venice: Where the Template Was Written
Most general histories devote little space to Venice. Martin Erdmann suggests the reason is that much of Venice’s history is one sordid event after another. But Venice prevailed economically and militarily for more than 1,200 years, was the centre of the early modern book trade with over a hundred publishers, and supplied the political template that every subsequent mercantile empire copied.⁸
The Venetian oligarchy pursued a trade policy that was exclusive in every sense: trade routes required authorisation; state regulations were elaborate; the government itself was involved in trading companies; monopolies on specific goods were maintained by law.⁹ The city-state ruled through executive committees, above all the Council of Ten, and its ruling doctrine was summarised by Pope Pius II: something is just if it serves the state’s interests; something is pious if it expands the empire.¹⁰
What Venice built was a specific machine. Its financiers centralised the gold and silver trade and ran public mints. By 1310 the precious metals trade was the dominant sector in Venice. Venetian banks deprived monarchs across Europe of control over coinage and currency.¹¹ Twice a year, fleets of up to thirty ships sailed under naval escort from Venice to the Levant loaded with silver, returning with gold. The profits on this trade exceeded the usurious interest rates the Venetian banks charged at home — and they charged those too.¹²
After 1255, Henry III of England could no longer pay his debts to Venetian bankers, known in northern Europe as Lombards. He had borrowed at rates between 120 and 180 percent to finance foreign wars. When the Lombards went bankrupt on English insolvency, it triggered a European economic crisis — part of the chain of events that culminated in the Black Death.¹³ In the midst of the chaos, the Venetians encouraged their ally Edward III to make war on France, beginning the Hundred Years’ War. The Wars of the Roses followed.
By the early 16th century Venice had been militarily contained. In December 1508, France and Austria assembled the League of Cambrai — France, Spain, Germany, the Papacy, Milan, Florence, Savoy, Mantua, Ferrara — to destroy the republic. At Agnadello in April 1509 Venetian mercenaries were defeated by the French, and Venice lost most of the territory it had accumulated over eight centuries. Rapid diplomacy allowed the city-state to survive, but its oligarchs drew the lesson. The lagoon city was no longer defensible. Plans were laid to relocate.¹⁴
The Council of Ten selected the Netherlands and the British Isles. The Giovani party in Venice abandoned reconciliation with the Habsburgs and the Vatican and worked toward a military alliance with England and Holland. Wealthy Venetians played a documented role in establishing the Dutch East India Company in 1602 and the Amsterdamsche Wisselbank in 1609.¹⁵ In 1603 the Venetians and Genoese took over the administration of James I’s finances and transferred their methods to the British East India Company.¹⁶ The Republic of Venice itself survived until 1797, when the French Revolutionary armies finally dissolved it. But the substance of Venice — its oligarchs, their capital, their methods — had left for the North Atlantic two centuries earlier.
The template that arrived in Amsterdam and London consisted of these elements: a ruling merchant-financier class; a state whose coercive apparatus was available for commercial use; chartered trading companies with armies and navies of their own; central banks that concentrated precious metal and issued credit on top of it; a political doctrine that equated the interest of the oligarchy with the interest of the state; a willingness to sell anything to anyone regardless of consequence; and a diplomatic posture that played rivals against each other while quietly acquiring the substance of their power. Roger Crowley, historian of the Venetian empire, notes that Venice claimed the right to sell anything to anyone regardless of intended use; slaves and war materiel were sold to the enemies of the Byzantine Empire on which Venice’s wealth depended.¹⁷
When people described as “paranoid” or “conspiratorial” draw a line from the Council of Ten to the institutions that run 21st-century finance, they are not inventing the line. They are tracing a documented migration. The oligarchs moved. They took their methods with them. Professional historiography has at times made this difficult to see by treating each national form of mercantilism — Spanish, Dutch, French, English — as a separate case study. The forms are variations on a structure that was already complete in Venice by 1300.
Amsterdam and the Crown: The First Relocation
The Dutch iteration moved faster and more violently than the Venetian original had. Between 1602 and 1795, the Dutch East India Company (VOC) sent 4,785 ships to Asia carrying over 2.5 million tons of goods; the British East India Company, over the same period, sent 2,650 ships and carried 500,000 tons.¹⁸ The VOC was a chartered company with the authority to wage war, seize territory, and hold slaves. Its settlements, military fortresses, and captured goods belonged to the company and its investors, not to the Dutch government. Its army and navy reported to a governor-general and an Indian Council.¹⁹
The Amsterdamsche Wisselbank, founded in 1609, was the first central bank in the modern sense — a bank that held the bullion of the commercial city and issued deposit credit against it, with the credit circulating as a more reliable medium of payment than the debased coinage of the time. It worked. By the middle of the 17th century Amsterdam was the financial centre of Europe, and the Dutch had driven the Portuguese from most of their Asian trading posts and established colonies in the Americas.²⁰
England watched. The First Anglo-Dutch War (1652–54), fought over the Navigation Act of 1651, was a deliberate attempt to break Dutch middleman trade. The Navigation Act prohibited the import or export of goods between Asia, Africa, the Americas, and England except on English ships with captains and crews at least three-quarters English.²¹ Adam Smith, who was no friend of mercantilism, noted the Act’s effect with clinical precision: it did not increase England’s trade but redirected it, substituting long-distance trade for domestic trade, and it served its purpose by weakening the Dutch.²² The Dutch, exhausted by wars against Louis XIV and by the taxes those wars required, ceded commercial primacy to England by the Peace of Utrecht in 1713.
The transfer was not only commercial. In 1688 the Whig oligarchy in England, joined by the merchants and financiers of the City of London, decided that the Catholic Stuart dynasty was insufficiently committed to the new capitalist-mercantilist order and replaced it. They invited William of Orange, the Dutch stadtholder, to invade. He arrived with 463 warships and 20,000 soldiers and took the throne as William III. The English Whig propagandists — Daniel Defoe, John Locke, Jonathan Swift, all well paid for their services — called the coup the Glorious Revolution.²³
The event that the textbook presents as a victory for constitutional liberty was, in its immediate effects, the opposite. Seats in Parliament were openly for sale within a few years. The Hunting Bill of 1692 restricted the independent livelihoods of working-class people. A sweeping transfer of Crown lands to large landowners at token prices or by direct confiscation gave the Whig class the estates that still constitute the core holdings of the English landed gentry. The traditional property rights of the rural peasantry — already eroded by three centuries of enclosure — were dissolved. Property rights became absolute for the new holders, and laissez-faire replaced the older Stuart policy of regulating wages and prices and protecting peasants from eviction.²⁴
The 1694 Bank of England charter followed five years later. It was not an isolated event. It was the capstone of a regime change.
The Mechanism
A medieval goldsmith accepted gold on deposit and issued paper receipts. The receipts were claims on specific quantities of gold held in the vault. Over time the goldsmith noticed that depositors rarely all claimed their gold at once. It became possible to issue more paper receipts than there was gold in the vault, lend the excess receipts out at interest, and collect the income stream while keeping only a fraction of the claimed gold in reserve. Murray Rothbard, tracing the development in The Mystery of Banking, observes that this fractional-reserve operation is indistinguishable in substance from embezzlement: the receipts are warehouse receipts; issuing more of them than there is grain in the warehouse is fraud when any other warehouse does it.²⁵
What the Bank of England charter added was the sovereign state’s protection of this operation. The state would accept the Bank’s notes in payment of taxes, which created a floor under demand for the notes. The state would prohibit competing banks. The state would, when pressed, simply permit the Bank to suspend redemption in gold while continuing to demand redemption from its own debtors.⁶ In exchange, the Bank would finance the state’s deficits by creating new money out of nothing, lending it to the Treasury, and collecting interest from the taxpayer forever.
Quigley, writing in 1966, described the mechanism precisely:
The creation of paper claims greater than the reserves available means that bankers were creating money out of nothing … orders and checks drawn against deposits by depositors and given to third persons were often not cashed by the latter but were deposited to their own accounts. Thus there were no actual movements of funds, and payments were made simply by bookkeeping transactions on the accounts. Accordingly, it was necessary for the banker to keep on hand in actual money (gold, certificates, and notes) no more than the fraction of deposits likely to be drawn upon and cashed; the rest could be used for loans, and if these loans were made by creating a deposit for the borrower, who in turn would draw checks upon it rather than withdraw it in money, such “created deposits” or loans could also be covered adequately by retaining reserves to only a fraction of their value. Such created deposits also were a creation of money out of nothing.²⁶
A bank with a 2 percent reserve requirement can lend out fifty times the money deposited with it. That process quietly transfers purchasing power from people who hold money — wage earners, savers, pensioners — to people who receive the newly created loans, which in the modern era means the state, the largest corporations, and the financial sector itself. Keynes observed that debasing a currency is the most subtle and certain way to overturn the existing social order, and that perhaps one person in a million could diagnose what is happening.²⁷
This is the machine that 1694 legalised. What followed was the machine being moved, expanded, hidden, and exported.
Hamilton’s Transplant, 1791
After the American Revolution, the men who had fought England over taxation and trade restriction proceeded to replicate England’s financial architecture. The Bank of North America, chartered in 1781 under the Articles of Confederation, was explicitly modelled on the Bank of England. It received the monopoly privilege of having its notes accepted at par with specie in all federal and state tax payments. No other bank was permitted to operate. In return, it created money and lent most of the new money to the federal government, on whose debt the taxpayer would pay principal and interest.²⁸ When its notes depreciated outside Philadelphia, the Bank hired people to dissuade holders from redeeming them — a measure, as Rothbard dryly notes, scarcely calculated to improve long-run confidence.²⁹
The Bank of North America collapsed as a central bank within two years. The mercantilist party regrouped. Under the new Constitution ratified in 1788, Alexander Hamilton — a disciple of Robert Morris, the Philadelphia financier who had promoted the first attempt — pushed through the First Bank of the United States in 1791. Its design was Bank of England in miniature: a 20-year charter; notes legally redeemable in specie but kept at par by the federal government’s acceptance of them in taxes; the Bank serving as depository for federal funds; monopoly of national charter for the duration.³⁰
Hamilton’s reasoning was explicit. In his 30 April 1781 letter to Morris he argued for protective tariffs, a central bank, property taxes, poll taxes, and high government debt. He argued that virtually unlimited borrowing by the Treasury would benefit the public. He wrote that “Great Britain is indebted for the immense efforts she has been able to make, in so many illustrious and successful wars” to precisely this arrangement.³¹ Douglas Adair, a former editor of the Federalist Papers, described Hamilton’s method:
With devious brilliance, Hamilton set out, by a program of class legislation, to unite the propertied interests of the eastern seaboard into a cohesive administration party, while at the same time he attempted to make the executive dominant over the Congress by a lavish use of the spoils system. In carrying out his scheme, though he personally was above corruption, Hamilton transformed every financial transaction of the Treasury Department into an orgy of speculation and graft in which selected senators, congressmen, and certain of their richer constituents throughout the nation participated.³²
The First Bank of the United States duly inflated. It issued millions of dollars of paper pyramided on two million in specie, lent $8.2 million to the federal government by 1796, and drove wholesale prices from an index of 85 in 1791 to 146 in 1796 — a 72 percent increase. The three commercial banks that had existed at ratification became twenty-eight by 1800 and one hundred and seventeen by 1811, a fourfold increase in a decade.³³ The Jeffersonians let the Bank’s charter expire in 1811 by one vote. A Second Bank of the United States was chartered in 1816, fought to the death by Andrew Jackson in the 1830s, and wound down. The United States spent the next seventy-seven years without a central bank, though with a proliferating system of state banks that collectively performed many of its functions.
The interval ended on Jekyll Island, Georgia, in December 1910. What filled the gap between Hamilton’s defeat in 1811 and Jekyll Island a century later was the rise of an international banking network whose central node was a single family.
The Rothschild Bridge
Meyer Amschel Rothschild was born in the Frankfurt ghetto in 1743, a generation after the Bank of England was chartered. He established five sons in five European capitals — Nathan in London, James in Paris, Salomon in Vienna, Carl in Naples, Amschel in Frankfurt — and built them into what Quigley calls the greatest of the nineteenth-century banking dynasties.³⁴ The family’s innovation was structural. Five branches in five sovereignties, each legally independent, each coordinating through private family correspondence, each able to move capital across borders that sovereigns could not cross. A state could default. A Rothschild branch in that state would survive, because the capital had already moved elsewhere.
The machinery that the Bank of England had built in one country, the Rothschilds built across all of Europe at once. Quigley describes their methods and those of the other great private banking houses — Baring, Lazard, Erlanger, Warburg, Schroder, Seligman, Mirabaud, Mallet, Fould — as sharing five characteristics: they were cosmopolitan and international; they were close to governments and particularly concerned with government debt, including foreign government debt in poor-risk areas like Egypt, Persia, Ottoman Turkey, Imperial China, and Latin America; their interests were almost exclusively in bonds rather than goods, because they admired liquidity and regarded commitments to commodities or real estate as the first step toward bankruptcy; they were fanatical devotees of the gold standard and of deflation, which they called “sound money”; and they were devoted to secrecy and the secret use of financial influence in political life.³⁵
The Napoleonic Wars were the pivot. Erdmann notes that among the credit innovations that let England outlast France was Rothschild capacity to transfer funds across European countries to pay English forces and their allies.³⁶ Quigley goes further: the Bank of England credit system was England’s “chief weapon” in the victory over Napoleon in 1815. Napoleon, “as the last great mercantilist, could not see money in any but concrete terms, and was convinced that his efforts to fight wars on the basis of ‘sound money,’ by avoiding the creation of credit, would ultimately win him a victory by bankrupting England. He was wrong.”³⁷ The credit system of 1694 defeated the last mercantilist emperor, and the Rothschilds were the principal agents of that credit.
After Waterloo, the family’s position consolidated. In 1819 the Rothschilds entered the board of regents of the Bank of France, where their name remained for the next century and a quarter.³⁸ They underwrote war debts, peace settlements, railways, and industrial expansion across the continent. They were, Quigley observes, “a constant, if weakening, influence for peace” through the 1830s and 1840s, because constant war was injurious to commercial capitalism and they preferred the steady interest on reconstruction debt.³⁹
The American bridge ran through a man called George Peabody. In 1835, with loans from the Brown Brothers and Nathan Mayer Rothschild, Peabody founded a banking house in London.⁴⁰ Nineteen years later Junius S. Morgan joined as partner. After Peabody’s death the firm passed entirely to the Morgans. Junius’s son, John Pierpont Morgan, moved the bank to America and renamed it J.P. Morgan & Co. Following the 1907 Wall Street Crash — the crash Jekyll Island was convened to prevent from recurring — the reconstituted firm gained control of a significant portion of the American financial and industrial system.⁴¹ Quigley’s summary of the transition is one line: “In this system the Rothschilds had been preeminent during much of the nineteenth century, but, at the end of that century, they were being replaced by J.P. Morgan whose central office was in New York, although it was always operated as if it were in London (where it had, indeed, originated as George Peabody and Company in 1838).”⁴²
The baton passed from London to New York, but the firm and the methods were continuous. The men who drafted the Federal Reserve Act on Jekyll Island were not outsiders seizing the machinery. They were the machinery’s new custodians.
Jekyll Island, 1910
The meeting was secret. It was hosted by Senator Nelson Aldrich, a Rockefeller kinsman. The participants were Frank Vanderlip of Rockefeller’s National City Bank, Paul Warburg of Kuhn, Loeb & Co. who had come from Germany to promote central banking, Henry Davison of J.P. Morgan & Co., and Charles Norton of the Morgan-controlled First National Bank of New York. They drafted what became, with modifications, the Federal Reserve Act of 1913.⁴³
Rothbard describes the structural consequence:
In the first place, the banking system was transformed so that only the Federal Reserve Banks could print paper notes. The member banks, no longer able to print cash, could only buy it from the Fed by drawing down deposit accounts at the Fed. The different reserve requirements for central reserve city, reserve city, and country banks were preserved, but the Fed was now the single base of the entire banking pyramid.⁴⁴
The average reserve requirement for all American banks before the Fed was 21.1 percent. Under the 1913 Act it was cut to 11.6 percent, then to 9.8 percent in June 1917.⁴⁵ Between December 1913 and January 1920, total bank demand deposits rose from $9.7 billion to $19.1 billion; total currency and demand deposits from $11.5 billion to $23.3 billion. Member bank deposits grew by 250 percent while non-member deposits grew by a third — the impetus was unambiguously from the centre.⁴⁶
Quigley, writing from inside the establishment he was describing, noted that the central bankers were themselves not the substantive powers. They were agents of the investment bankers who had raised them up. Benjamin Strong, the first Governor of the Federal Reserve Bank of New York and the man who actually ran American monetary policy from 1914 until his death in 1928, came from Bankers’ Trust — a bank created by the Morgans. He was persuaded to take the Fed job by Henry Davison, a partner at J.P. Morgan & Co., and Dwight Morrow, another Morgan partner.⁴⁷ Quigley wrote:
The substantive financial powers of the world were in the hands of these investment bankers (also called “international” or “merchant” bankers) who remained largely behind the scenes in their own unincorporated private banks. These formed a system of international cooperation and national dominance which was more private, more powerful, and more secret than that of their agents in the central banks.⁴⁸
In 1694 a private bank had been chartered to create money for the state. In 1913 a cartel of private banks was chartered to create money for the state. The essential arrangement was identical. The scale and the protective camouflage had grown.
1971: The Gold Window Closes
The Federal Reserve Act had included a concession to its critics: the dollar would be redeemable in gold, at $20.67 per ounce. Roosevelt broke the domestic gold standard in 1933, devaluing the dollar to $35 per ounce, confiscating private gold holdings, and burying the metal at Fort Knox.⁴⁹ The international gold standard — under which foreign governments and central banks could still convert dollars to gold at $35 — survived the Second World War and was formalised as the dollar’s role in the Bretton Woods system negotiated in 1944.
The war in Vietnam killed it. The Korean War had been financed by the Fed monetising federal deficits, transferring the cost from current taxpayers to future bondholders. The Vietnam escalation after 1964, combined with the Johnson administration’s Great Society domestic spending, produced balance-of-payments deficits the United States could not plausibly cover with its gold reserves. France and Germany began cashing in their surplus dollars for U.S. gold on what approached a monthly basis. By March 1968 the American gold stock had fallen to the $10 billion floor beyond which the Treasury had privately signalled it would suspend further sales. The London Gold Pool was disbanded. Central banks informally agreed to stop converting their dollar inflows into gold.⁵⁰
On 15 August 1971 Nixon made the embargo official. Hudson’s analysis of what happened that day is among the most important passages in post-war economic history:
Three years later, in August 1971, President Nixon made the gold embargo official. The key-currency standard based on the dollar’s convertibility into gold was dead. The U.S. Treasury bill standard — that is, the dollar-debt standard based on dollar inconvertibility — was inaugurated. Instead of being able to use their dollars to buy American gold, foreign governments found themselves able to purchase only U.S. Treasury obligations … As foreign central banks received dollars from their exporters and commercial banks that preferred domestic currency, they had little choice but to lend these dollars to the U.S. Government. Running a dollar surplus in their balance of payments became synonymous with lending this surplus to the U.S. Treasury. The world’s richest nation was enabled to borrow automatically from foreign central banks simply by running a payments deficit.⁵¹
Rothbard’s assessment was simpler: Nixon declared national bankruptcy.⁵²
The standard account presents the abandonment of gold as a technical adjustment forced by changing economic circumstances. Hudson’s account, drawn from his years as a balance-of-payments analyst on Wall Street, is that the United States had discovered something better than gold. It had discovered that the imperial power could impose its own debt on the world as the primary reserve asset. The bigger the American deficits grew, the more dollars accumulated abroad; the more dollars accumulated abroad, the more foreign central banks were structurally compelled to recycle them into Treasury securities. The United States could therefore run any deficit it chose, and the rest of the world would finance it.
This is the 1694 arrangement at planetary scale. A central institution — now the Federal Reserve and the U.S. Treasury together — creates money, lends it to the sovereign, and extracts interest from the population that uses the money. The population being taxed through this arrangement is no longer England. It is the world.
Keynes’s observation that perhaps one person in a million could diagnose what was happening applies with particular force to the period after 1971. Most educated people in 2026 cannot describe the mechanism. The inflation they have lived with their entire lives is treated as a natural phenomenon, like weather. It is not. It is a transfer.
The Relocation: Eurodollars, 1957
While the dollar standard was being constructed above the waterline, a parallel relocation was happening below it. The agent was the City of London. The instrument was the Eurodollar market.
In June 1955 staff at the Bank of England noticed odd trades at Midland Bank — the bank now part of HSBC. Midland was taking U.S. dollar deposits unrelated to any commercial transaction, and offering interest rates higher than U.S. regulations permitted. A Bank of England official called in Midland’s chief foreign manager for a chat. Shaxson records the Bank of England’s internal conclusion: “We would be wise, I believe, not to press the Midland any further.”⁵³
In 1957 the British government, trying to shore up the pound after the Suez humiliation, raised interest rates and imposed controls on overseas lending in sterling. London banks responded by shifting their international lending from sterling into dollars, using the unregulated market that Midland had opened. The Bank of England made a decision: the transactions had not taken place in the United Kingdom for regulatory purposes. Since they had not taken place in the United Kingdom, no other authority could reach in to regulate them either. London banks began keeping two sets of books — one for onshore transactions where at least one party was British (regulated), one for offshore transactions where neither party was British (not regulated).⁵⁴
A new market had been born. Shaxson calls it “no more than a bookkeeping device,” but observes that it would change the world.⁵⁵
The Soviet Union, anxious that its dollar holdings in New York could be frozen if the Cold War turned hot, began holding dollars in London instead — the first Moscow Narodny deposit in 1957 was only a few hundred thousand dollars. By late 1959 the Eurodollar market held $200 million. By the end of 1960 it held $1 billion. By the end of 1961 it held $3 billion.⁵⁶ Kennedy’s 1963 Interest Equalization Tax, designed to discourage dollar outflows, succeeded only in driving Wall Street lending offshore to London. Henry Alexander of Morgan Guaranty understood what had happened: “This is a day you will remember. It will change the face of American banking and force all the business to London.”⁵⁷
The Eurobond market followed in 1963 — unregulated offshore bearer bonds whose holder owned them, with no records kept. A Bank of England memo from that year captures the posture: “However much we dislike hot money, we cannot be international bankers and refuse to accept money.”⁵⁸
Federal Reserve vice-chair James Robertson identified the architecture early: the emerging Euromarket centres in the Bahamas and Cayman were not branches in any meaningful sense. “They are simply desk drawers in somebody else’s desk.”⁵⁹ When American regulators pressed the Bank of England for action, the response, epitomised by one senior official, was: “It doesn’t matter to me whether Citibank is evading American regulations in London. I wouldn’t particularly want to know.”⁶⁰
In 1986 Margaret Thatcher ordered the Bank of England to stop regulating the City of London’s financial markets altogether. This was the Big Bang. Tim Congdon, one of the City’s own spokesmen, observed at the time that the Big Bang was “a sideshow to, indeed almost a by-product of, a much Bigger Bang which has transformed international finance over the last 25 years.”⁶¹ The Bigger Bang was the Eurodollar market. The Big Bang was the moment the British government stopped pretending to regulate what was happening within its own sovereign space.
The Spiderweb
What emerged between 1957 and 1986 is the structure the reader now lives inside without knowing it. Shaxson’s term for it is the British spiderweb.
The inner ring: the three Crown Dependencies — Jersey, Guernsey, the Isle of Man. The U.S. publication Tax Analysts estimated conservatively in 2007 that these three islands alone hosted about $1 trillion in potentially tax-evading assets. Jersey’s offshore deposits were $800 billion in mid-2009.⁶²
The intermediate ring: the fourteen British Overseas Territories, the last surviving outposts of the formal empire. Cayman, Bermuda, British Virgin Islands, Turks and Caicos, Gibraltar.⁶³ Between them they have a quarter of a million inhabitants and host a significant fraction of global finance. The Cayman Islands is the world’s fifth largest financial centre, with eighty thousand registered companies, over three-quarters of the world’s hedge funds, and $1.9 trillion on deposit — four times as much as in all the banks in New York City. It has, at the time Shaxson wrote, one cinema.⁶⁴
The Caymans are nominally independent. In reality the British Queen appoints the Governor, who presides over a locally elected cabinet but retains control of what matters — defence, internal security, foreign relations, the police commissioner, the auditor general, the attorney general, the judiciary. The final court of appeal is the Privy Council in London. MI6 is highly active. The local legislators have no meaningful power over the money.⁶⁵
The outer ring: independent states with deep historical links to British finance — Hong Kong, Singapore, the Bahamas, Dubai, Ireland, and newer entrants. New offshore centres continue to be established. Ghana announced one in 2006 with assistance from Barclays. Botswana is setting up another. Vanuatu was established by the British government in 1971, nine years before its independence.⁶⁶
In a 2009 study, Jason Sharman attempted to set up forty-five secret front companies using the internet and the seedy offshore advertisements in airline magazines. Seventeen companies agreed without checking his identity. Four of those were in classic havens like Cayman or Jersey. The other thirteen were in OECD countries — seven in Britain and four in the United States.⁶⁷ The offshore system is no longer primarily about palm-fringed islands. The two most important secrecy jurisdictions in the world are Manhattan and London. The United States, by the Tax Justice Network’s own Financial Secrecy Index, is the world’s most important secrecy jurisdiction. Britain ranks lower partly because the British spiderweb has been formally decomposed into the Crown Dependencies and Overseas Territories, each counted separately.⁶⁸
A 2008 U.S. Government Accountability Office report found that Citigroup had 427 tax haven subsidiaries, of which 290 were in the British spiderweb. Morgan Stanley had 273, of which 220 were in the British zone. News Corporation had 152, of which 140 were in the British zone. Enron, before its bankruptcy, had 881 offshore subsidiaries: 692 in the Caymans, 119 in Turks and Caicos, 43 in Mauritius, 8 in Bermuda. All in the British spiderweb.⁶⁹
In 2008 the Cayman Islands reported to the IMF $750 billion in portfolio assets. Ordinary accounting would require the other side of the balance sheet — deposits and obligations — to match. Instead the Caymans reported $2.2 trillion in liabilities: three times the assets. The discrepancy is not an accounting error. It is the visible shadow of funds that have been moved offshore and have not been accounted for onshore.⁷⁰
The system has a function. Shaxson summarises it cleanly: the offshore system has been responsible, discreetly, for the greatest ever shift of wealth from poor to rich, and it undermines democracies by offering the wealthiest members of society escape routes from tax, from financial regulation, and from other normal democratic controls.⁷¹ By the Tax Justice Network’s estimate, somewhere between $21 and $32 trillion sits in offshore jurisdictions.⁷² This is not the domain of celebrity tax-dodgers. The major users are the largest banks and multinationals.
What Mercantilism Is
Mercantilism is not an economic theory about gold and trade balances that Adam Smith refuted in 1776. It was never that. Smith himself understood this:
Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer. The maxim is so perfectly self-evident, that it would be absurd to attempt to prove it. But in the mercantile system, the interest of the consumer is almost constantly sacrificed to that of the producer; and it seems to consider production, and not consumption, as the ultimate end and object of all industry and commerce.⁷³
Smith saw the system for what it was: a deliberate arrangement in which the coercive power of the state was captured by commercial interests and used against consumers, peasants, colonial subjects, and foreign producers in equal measure. The “favorable balance of trade” was always a cover story. The real arrangement was the machinery the cover story protected.
That machinery has six components. First, a central bank that creates money and lends it to the state, protected by state prohibition of competitors. Second, chartered corporations with state-backed monopolies — the BEIC and VOC historically, the Wall Street megabanks and tech monopolies now — whose private interests are treated as identical with the national interest. Third, a tax system whose actual function is to underwrite interest on permanent state debt, which can never be repaid because repaying it would dissolve the bank that created it. Fourth, a labour force made available to the system by the destruction of prior forms of self-sufficiency — through enclosure in 17th-century England, through deindustrialisation and debt servitude in 21st-century America. Fifth, military and police capacity sufficient to enforce all of this at home and, when necessary, abroad. Sixth, offshore jurisdictions within which the capital of the beneficiary class can escape the regulations and taxes the rest of the population is made to bear.
Every element of this structure was present in Venice by 1300. Every element was transferred to Amsterdam and London by 1700. Every element survived the passage from British Empire to Commonwealth after 1945. Every element is running in 2026, operating through dollar reserves, Eurodollar markets, offshore secrecy jurisdictions, and a central banking system that no longer pretends to any discipline beyond its own political convenience.
Erdmann argues that mercantilism also has a religious dimension — that the system occupies the architectural position religion used to occupy, commanding total loyalty, demanding financial sacrifice, and offering its own eschatology of progress.⁷⁴ Whether one accepts that frame or not, the structural claim holds without it. Mercantilism is an arrangement in which a merchant-financier class captures state power and uses it to extract rents from the population the state nominally serves. It was the arrangement in 1300. It was the arrangement in 1694. It is the arrangement today.
What Venice Looks Like in 2026
The Cayman Islands has one cinema and hosts three-quarters of the world’s hedge funds. Jersey holds about $800 billion. The Caymans report liabilities three times their assets without explanation. Citigroup has 427 tax haven subsidiaries. The Federal Reserve has unlimited power to create dollars, and every dollar created is eventually held by a foreign central bank that has no choice but to lend it back to the U.S. Treasury by buying U.S. debt. The United Kingdom’s economy is, in substantial part, the administrative cost of running the spiderweb on behalf of capital that is nominally independent of it.
William Paterson told the truth in 1694. The Bank hath benefit of interest on all moneys which it creates out of nothing.
The Doge has been replaced by the governor of a central bank. The Council of Ten has been replaced by the boards of the investment banks Quigley identified — the Morgans, the Rockefellers, the Kuhn-Loebs and their 21st-century successors — that select the central bankers and then speak through them. The Venetian fleet has been replaced by the spiderweb of jurisdictions, none of them individually visible, that collectively handle a significant fraction of global finance. The slaves of the Venetian islands have been replaced by the wage-dependent populations of Europe, America, and the former colonies, all of whom pay the interest on state debts they never voted to incur and inflation they cannot track.
Pope Pius II in the 15th century said of the Venetians that something was just for them if it served the state’s interests, and pious if it expanded the empire. That doctrine is the operating principle of every Western finance ministry, every central bank, every multinational bank headquartered in the City or on Wall Street.
Venice was not destroyed in 1797 when the French revolutionary armies entered the lagoon. Its oligarchs had left two centuries earlier, with their capital, their methods, their doctrine, and their appetite. They set up in Amsterdam and London. They chartered a bank in 1694. In 1957 a handful of trades at Midland Bank gave them a new jurisdiction outside any regulator’s reach. In 1971 they persuaded Washington to make the world’s reserve currency a claim on nothing but the American state’s willingness to issue more of it. In 1986 they told the Bank of England to stop regulating them altogether.
They are still here. The address is 1 King William Street and Grand Cayman and Wall Street and Geneva and Singapore. The charter is still in effect.
The arrangement was never dismantled. It was moved.
References
Martin Erdmann, The Greed for Gold and Glory (hereafter GGG), 245, citing the text of the Bank of England Act 1694.
Murray N. Rothbard, The Mystery of Banking, 2nd ed. (Auburn: Ludwig von Mises Institute, 2008) (hereafter MoB), ch. XII; GGG, 243–45.
Carroll Quigley, Tragedy and Hope: A History of the World in Our Time (New York: Macmillan, 1966) (hereafter T&H), quoting William Paterson at the charter of the Bank of England, 1694.
T&H, same passage, citing Sir Edward Holden, 18 December 1907.
GGG, 245–47; MoB, ch. XII.
MoB, ch. XII. By end 1696 Bank of England notes outstanding were £765,000 against £36,000 in cash.
MoB, ch. XII.
GGG, 19; and Erdmann interview, citing inter alia W.H. McNeill, Venice: The Hinge of Europe, 1081–1797 (Chicago, 2009); Roger Crowley, City of Fortune: How Venice Won and Lost a Naval Empire (London: Faber, 2012); John Julian Norwich, A History of Venice (New York: Vintage, 1989).
GGG, 20.
Pope Pius II, quoted by Erdmann, interview with Unbekoming, April 2026.
GGG, 28, citing Frederic C. Lane and Reinhold C. Mueller, Money and Banking in Medieval and Renaissance Venice (Baltimore: Johns Hopkins University Press, 1985), vol. 1.
GGG, 28–29.
GGG, 30.
GGG, 30–31.
GGG, 32.
GGG, 35.
GGG, 20, citing Crowley, City of Fortune, 22.
GGG, 74.
GGG, 75–76.
GGG, 72–73.
GGG, 101.
Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, Book IV, ch. 2, quoted at GGG, 102.
Erdmann interview with Unbekoming, April 2026; GGG, chapter on the Glorious Revolution.
Erdmann interview; GGG, 103–08 on enclosure and the Hunting Bill.
MoB, ch. VII on deposit banking and embezzlement.
T&H, section on credit creation and the founding of the Bank of England.
John Maynard Keynes, The Economic Consequences of the Peace (London: Macmillan, 1919), ch. VI; cited by Erdmann in interview.
MoB, ch. XV; GGG, 314.
MoB, ch. XV.
MoB, ch. XV.
Alexander Hamilton, letter to Robert Morris, 30 April 1781, quoted at GGG, 314–17.
Douglas Adair, quoted at GGG, 317, citing William Graham Sumner, Alexander Hamilton.
MoB, ch. XV.
T&H, section on the Rothschilds as the greatest of the nineteenth-century international banking dynasties, with branches in Vienna, London, Naples, Paris, and Frankfurt.
T&H, section on the five common characteristics of the international merchant-banking houses: cosmopolitanism, concern with government debt, bond-preference over commodities, devotion to the gold standard, and commitment to secrecy.
GGG, section on Rothschild credit transfers across European states during the Napoleonic Wars.
T&H, section on the Bank of England credit system as England’s “chief weapon” in the victory over Napoleon in 1815 and on Napoleon as “the last great mercantilist” attempting to fight on “sound money”.
T&H, section on the Bank of France board of regents, noting Rothschild entry in 1819 and the family’s continued presence into the twentieth century.
T&H, section on the Rothschilds as “a constant, if weakening, influence for peace” through the 1830s and 1840s, preferring steady interest on reconstruction debt to the disruption of war.
GGG, 348, on George Peabody’s 1835 founding loans from Brown Brothers and Nathan Mayer Rothschild.
GGG, 348, on the Peabody-to-Morgan succession and the post-1907 consolidation of American financial and industrial power in J.P. Morgan & Co.
T&H, section on the nineteenth-to-twentieth-century transition, noting that the Rothschilds “were being replaced by J.P. Morgan whose central office was in New York, although it was always operated as if it were in London (where it had, indeed, originated as George Peabody and Company in 1838).”
MoB, ch. XV on the Jekyll Island meeting of December 1910.
MoB, ch. XVI.
MoB, ch. XVI, citing Phillips, McManus, and Nelson, Banking and the Business Cycle (New York: Macmillan, 1937).
MoB, ch. XVI.
MoB, ch. XVI on Benjamin Strong’s Morgan connections.
T&H, section on the investment bankers and their control of central banks in the 1920s.
MoB, ch. XVII.
Michael Hudson, Super Imperialism: The Origin and Fundamentals of U.S. World Dominance, 2nd ed. (London: Pluto Press, 2003) (hereafter SI), ch. on the end of Bretton Woods.
SI, ch. on August 1971 and its aftermath.
MoB, ch. XVII.
Nicholas Shaxson, Treasure Islands: Dirty Money, Tax Havens and the Men Who Stole Your Cash (London: Vintage, 2012) (hereafter TI), ch. 4, citing Bank of England internal memo, 1955.
TI, ch. 4.
TI, ch. 4.
TI, ch. 4.
TI, ch. 4, quoting Henry Alexander of Morgan Guaranty.
TI, ch. 4, citing Bank of England memo, 1963.
TI, ch. 4, quoting James Robertson, vice-chair of the Federal Reserve.
TI, ch. 4, quoting a senior Bank of England official.
TI, ch. 4, quoting Tim Congdon, 1986.
TI, ch. 5 on the spiderweb’s inner ring; Martin A. Sullivan, “Offshore Explorations: Jersey,” Tax Notes, 23 October 2007.
TI, ch. 5 on the intermediate ring.
TI, ch. 5 on the Cayman Islands.
TI, ch. 5.
TI, ch. 5 on the outer ring.
Jason Sharman, cited in TI, ch. 9 on the ease of setting up secret front companies.
Tax Justice Network, Financial Secrecy Index, cited in TI, ch. 9.
U.S. Government Accountability Office, “Large U.S. Corporations and Federal Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or Financial Privacy Jurisdictions,” December 2008, cited in TI, ch. 5.
Philip R. Lane and Gian Maria Milesi-Ferretti, “Cross-Border Investment in Small International Financial Centers,” IMF Working Paper 10/38, February 2010, cited in TI.
TI, preface.
Tax Justice Network estimates cited in TI, ch. 9.
Adam Smith, Wealth of Nations, Book IV, ch. 8, quoted at GGG, 64.
Erdmann interview with Unbekoming, April 2026, on the civil religion thesis.
Nicely done
Genius!