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Six Questions On Monetary Reform
By
Edwin Vieira, Jr.
Foreword
This Monograph asks and answers six of the most important questions concerning
America's monetary system.
Any thinking person realizes today that something is very wrong with our money.
Precisely what is wrong remains largely undefined in most people's minds,
because there has been no meaningful public debate on monetary fundamentals in
this country for more than half a century. Thus, the public has been denied
crucial knowledge of how our system is supposed to work, and what has gone
wrong and instead has been fed, through the schools and the media,
disinformation concocted by the very people who led us into the present mess.
Yes, some concerned citizens have tried, through the courts or by proposed
legislation, to resolve the money question and reform the system. All to no
avail. The bills die in committee; and court challenges to fiat currency are
dismissed as "frivolous" and appeals denied without hearings or meaningful
opinions.
Nonetheless, something must be done, because continued use of irredeemable
Federal Reserve Notes (and bank-deposits denominated in Federal Reserve units)
as our nation's currency will eventually lead to economic disaster, followed by
social chaos and political reaction. A broadly based counterattack to impose
constitutional reforms on the monetary and banking systems as a whole is much
needed. This Monograph can be an effective tool in such an endeavor.
This Monograph reviews the situation and provides answers which concerned
citizens can then use to provoke public debate, thereby molding public opinion
on the issue of monetary reform:
1. What is the economic role of money?
2. Why is the relationship between money and government important?
3. Why is the Constitution important to money and banking?
4. What powers over money and banking does the Constitution delegate to the
government?
5. Why should constitutional monetary and banking reform be an important issue
today?
6. Why should Americans demand restoration of the constitutional systems of
money and banking?
Pick one of these questions, read and study what this Monograph contains, and
then put it into your own words and write a letter to the editor of your local
paper. Use the information to help you participate in radio talk-shows. Raise
the issue at meetings of clubs or other groups to which you belong. Speak out
in every other way you can.
Join the debate wherever it is taking place now. START the debate everywhere
else! It all helps to mold public opinion. This Monograph provides every
citizen with ample information to begin to do the job we must do for America's
future. If we average Americans do not act, we will have none but ourselves to
blame when no one else does it for us.
Richard L. Solyom, Chairman Sound Dollar Committee
Although all too many Americans are unaware of it, whether the United States
should return to constitutional systems of money and banking is one of the most
important issues facing the nation today. To understand why, several questions
need answers:
1. What is the economic role of money?
Unfortunately, people too often confuse "money" with "wealth. Wealth may, but
does not always, consist of money, because wealth need not be capable of
performing the special function of money. And even a very large quantity of
some types of money for example, German paper marks from the period of the
Weimar Republic in the early 1920s may be worth very little, precisely because
that money cannot perform (or only very poorly performs) the function that
money must fulfill to have or maintain value.
Strictly speaking, "money" is nothing more or less than the social medium of
exchange. In any advanced economy, people do not barter goods for goods,
services for services, and goods for services in direct exchanges, but instead
engage in indirect exchange: that is, exchanging some goods and services for
money on certain occasions, and then exchanging that money for other goods or
services on other occasions. This system of indirect (or monetary) exchanges is
far more efficient than direct barter, and therefore maximizes the total social
welfare that derives from all exchanges. "Money" is what facilitates this
system of indirect exchange.
Monetary transactions determine the "prices" of goods and services, the values
of goods and services expressed in the medium of exchange. All prices are
economically interrelated, because ultimately all goods and services compete
with one another.1 Because of this interrelation, prices function as signals to
entrepreneurs, indicating how scarce resources should be allocated so as to
maximize total social welfare. If money-prices properly reflect the real
valuations of goods and services throughout society, then resources will tend
to be allocated away from the production of less valuable, towards the
production of more-valuable, goods and services.2 This will tend to maximize
the efficiency and value of all production, and thereby the real material
wealth of society as a whole.
Of course, the key condition for the operation and success of this process is
that money-prices properly reflect the real valuations of goods and services
throughout society. This condition will not be fulfilled if there is what free
market economists call "intervention" in the economy through the action of
politicians and government bureaucrats, of politically or economically powerful
private special interest groups, or of other organized criminal elements.
"Intervention" involves the use of force or fraud to divert the allocation of
resources from what society as a whole desires, and what benefits society as a
whole, to what the politicians, bureaucrats, special-interest groups, or
mobsters want, and what benefits them at the expense of everyone else.3 All
intervention in the economy to some degree injects non-rationality into the
system, because intervention operates by forcing or deceiving individuals into
doing what they would otherwise not do in the pursuit of, and what does not
serve, their own interests.
Many forms of intervention are designed to interfere with the free formation of
prices the classic example being outright governmental price controls. Because
prices fixed through intervention are not rational, in that they do not reflect
the true valuations of goods and services by society as a whole, such prices
misallocate that is, waste scarce resources and diminish total social wealth
and welfare, compared to what would have occurred had prices been set by full
and fair competition in the free market.
That scarce resources are wasted, and total social wealth and welfare are
decreased, does not mean that some individuals and groups do not obtain (or
think they obtain) special, unearned benefits from intervention that they would
not have received in a free-market economy. Indeed, the primary motivation for
intervention is the desire of some individuals and groups to use force or fraud
to appropriate for themselves, at the expense of everyone else, more wealth
than they could have earned by competing peacefully and honestly in the free
market.
Now, because all prices in an advanced economy are expressed in units of money,
intervention in the monetary system will necessarily have a pervasive, negative
effect on the allocation of resources and the promotion of social welfare.
Intervention in the monetary system is comparable to an infection in the body's
blood-supply, which systematically harms all organs that contact the blood, and
therefore is potentially more dangerous than an equally virulent infection
localized in one organ only.
The central importance of the monetary system to the price-structure, to the
allocation of social resources, to the production of all goods and services,
and to the distribution of real wealth throughout society teaches three
lessons:
First, a society does not enjoy a free-market economy when its monetary system
including the nature of the monetary unit and the supply of money is controlled
or subject to continuous intervention by the government or by private groups
colluding with the government.
Second, the shrewdest and therefore the most dangerous public and private
interventionists will seek to infiltrate, to manipulate, and eventually to
control the monetary system, precisely because the monetary system is at the
center of and systematically affects the system of production and distribution
of all social wealth.
Third, the most profitable form of intervention in the monetary system is what
is known today as "monetary policy" more accurately described as "legalized
counterfeiting: the ability of the government and private groups acting in
concert with it to obtain for themselves, under color of law, new supplies of
money without having to invest a commensurate amount of their own real
resources or labor in the production of that money.4 Legalized counterfeiting
requires some pseudo-legal mechanism by which the government, specially favored
private groups, or both together can manipulate the supply and purchasing power
of money (that is, what money will buy) for their own special benefit, and at
everyone else's expense.
Generally, this manipulation involves increases in the supply of counterfeit
money, which decreases the purchasing power of each unit of money, which in
turn increases the prices of goods and services in the economy compared to what
those prices would have been in the absence of monetary intervention. These
increases in the prices of goods and services John Q. Public calls "inflation.
To be accurate, however, the term "inflation" should be reserved only for the
expansion of the supply of counterfeit money. Increases in prices are an effect
of inflation; legalized counterfeiting is the means by which inflation occurs;
and the greed of predatory governmental officials and special-interest groups
to obtain unearned wealth is the cause of inflation.
Legalized counterfeiting can take several forms, including:
of our country called "Bills of Credit")5;
"deposit-currency" by specially privileged banks.
Debasement of coinage involves decreasing or even eliminating altogether the
silver or gold content of coinage, while stamping the coins with the same
nominal values, at the mint.6 Although probably the most common form of
legalized counterfeiting throughout history, straightforward debasement of
coinage has several disadvantages:
First, it is crude and often obvious. Observant people can actually see what is
happening before their eyes, because there are physical changes in the money
(such as its size, shape, weight, color, hardness, and chemical reactivity).7
This may lead to political repercussions against the government.
Second, debasement of metallic coinage is costly relative to the printing of
paper currency or the pen-and-ink or electronic creation of "deposit-currency,
because even debased coins must be minted of some variety of metal with a
market value greater than that of paper, ink, or electronic "blips.
Third, debasement of metallic coinage is limited by the residual free-market
value of the base-metal used for the coins.8
And fourth, debasement of metallic coinage is not completely effective as a
means to loot the public, because informed people will hold full-valued silver
and gold coins in preference to debased specie coins or completely base
metallic coins, spend debased or base-metallic coins rather than full-valued
silver and gold coin and arrange through so-called "gold-clause contracts"9 and
other similar devices to maximize their incomes in full-valued silver and gold
coins.10
Fraudulent fractional-reserve notes are a paper currency that promises to pay
on demand a certain number of monetary units (in the United States, "dollars")
in standard silver or gold coins, but with respect to which currency the issuer
both maintains less than enough coin to redeem all the notes it puts into
circulation and fails fully to inform the public of its inability to pay on
demand, hoping that holders of the notes will never seek to redeem at one time
more than the small amount of silver or gold coin the issuer holds in "reserve.
11
The primary advantage of legalized counterfeiting through fractional-reserve
currency is that the swindle is difficult for many people to understand, and
can be prolonged by the use of propaganda that deceives people as to the
"soundness" of the banks, or by the creation of public or private
"deposit-insurance" schemes that mislead people into believing that even
unsound banks can be considered safe because they will be "bailed out" in an
emergency.12 However, the emission of fraudulent fractional-reserve notes also
has two main disadvantages:
First, to maintain public confidence in the fractional reserve system, the
issuers of the notes must maintain some "reserve" of silver and gold coins to
redeem notes on demand. This limits the aggregate face-values of the notes that
may be issued.
And second, if public confidence in the ability of the issuers to redeem their
notes sufficiently declines, so-called "bank runs" will occur (as they have
historically occurred again and again), resulting in bankruptcy of the issuers
unless the government intervenes to suspend the requirement of redemption or
otherwise protect the banks against the consequences of their own profligate
behavior.
Fiat paper currency is (in the trenchant words o former central banker and
monetary expert John Exter) an "I owe you nothing currency. Although most
modern fiat currencies such as contemporary Federal Reserve Notes ("FRNs") are
printed in the form of "notes" (promises to pay) of central banks or
governmental treasuries, in substance they are not "notes" at all, or at best
are partially or fully repudiated "notes, because their holders have no legal
right to require the issuers to pay the "notes ... face values in standard
silver or gold coins. The great advantage of fiat currency is that it
eliminates the possibility of the classic "bank run. For a classic "bank run"
is, by definition, a sudden rush by large numbers of people to redeem their
notes for more-valuable specie coins. Because a fiat currency, again by
definition, is not redeemable in anything a traditional "run" against a bank
emitting fiat currency can never occur.13 Nonetheless, fiat currency still has
three main disadvantages:
First, even though composed of paper, fiat currency costs something to produce;
and, because it is composed of paper, fiat currency in circulation must be
replaced at relatively short intervals.
Second, because members of the public can actually hold it in their physical
possession, fiat currency can "escape" from the banking system, thereby
reducing the amount of the banks' so-called "reserves" (which depend upon the
amount of currency on deposit), the banks' abilities to lend (which depend upon
the size of their "reserves"), and their profitability (which depends upon the
amount of their loans).
And third, because members of the public can actually hold fiat currency in
their physical possession and thereby can deal in "cash, they can retain a
certain amount of financial and business privacy, thereby insulating themselves
from surveillance and control by the government and its client banks.
Finally, deposit-currency is the product of bank credit-expansion. In the
course of making new loans, the banks simply "create out of nothing" "deposits"
valued in so many units of money (in the United States, "dollars"), which the
borrowers holding the deposits may spend by check, or by receipt of paper
currency or base-metallic coins.
In exchange for the deposits so created, the borrowers promise to repay the
banks the amounts of the deposits with interest, and provide some security with
market values supposedly equivalent to the nominal values of the deposits.
Through this kind of transaction the banks "monetize" the borrowers' security.
Thus, when banks purchase governmental obligations with new deposit-currency,
they "monetize the public debt. Because the public debt can be paid (if at
all) only with taxes collected in the future, the monetization of this debt
amounts to the present monetization of future taxes.14 Deposit-currency is
perhaps the ultimate form of legal counterfeiting, because: (i) being
imaginary, it is capable of instantaneous creation; (ii) depending on
essentially no physical resources for its creation, it is unlimited in amount;
(iii) lacking any intrinsic value, it is almost costless to produce; and (iv)
having no physical substance, it is not subject to loss or accidental
destruction.
The usual long-term effect of all forms of monetary intervention is to increase
the supply of money-units.15 If this is done through the banking-system (as
typically happens with fractional-reserve, fiat, and deposit-currencies),
monetary intervention involves or encourages credit expansion: that is,
increases in loans and the burden of debt and interest beyond what would have
occurred in the free market.16
These contrived increases in loans may be advantageous in the short run to the
government and its political clients (who will spend the proceeds of the loans
on immediate expenditures, and foist off on future taxpayers the repayment of
principal and interest), and to private banks (which profit from the payment of
interest). But, by encouraging and facilitating debt beyond what the free
market would consider necessary or prudent, credit-expansion tends to create
three major problems for everyone else in society:
First, credit-expansion creates a social problem. If the new, legal but
counterfeit money-units are loaned to individuals (monetizing personal debt),
credit-expansion maximizes the worst aspects of hedonistic consumerism and
materialism. And by increasing the absolute amount of debt (relative to what
would have been incurred in a free market), it also maximizes the burden of
interest payments on borrowers, thereby mortgaging the future welfare and
financial security of individuals and their families for the evanescent
vanities of the present.
Second, credit-expansion creates an economic problem. If the new, legal but
counterfeit money-units are loaned into the capital markets (monetizing
entrepreneurial debt), credit-expansion causes the familiar "boom-and-bust"
business cycle (perhaps more properly called the "banking cycle"), with all the
waste that cycle entails for society as a whole.
Third, credit-expansion creates a political problem. If the new, legal but
counterfeit money-units are loaned to the government (monetizing the public
debt), in the vast majority of instances the proceeds of the loans are simply
consumed, not "invested, so that (as in the case of loans incurred for private
consumer-spending) the burden of principal and interest-payments becomes a dead
weight on the backs of the taxpayers who must "pick up the tab" in the future
for the expensive indulgences of politicians and special-interest groups in the
present.
This permanently divides society into two antagonistic classes: the holders of
the public debt (often the very banks that created the intrinsically valueless
legal but counterfeit money that made the loans politically or economically
possible in the first place) and the taxpayers who must (as the modern jargon
goes) "service" that debt with real resources the government forcibly extracts
from their own labor.
The apologists for modern "monetary policy" argue that the government or a
cartel of private banks such as the Federal Reserve System ("FRS") is necessary
to "stabilize" the money supply and thereby the purchasing power of money,
rates of interest, and other financial variables in the economy for the benefit
of society as a whole. This is nonsense.17
First, any supply of an economically sound money is capable of performing all
the services of money that society needs.18 And no formula exists by which
bureaucrats or bankers can decide that the supply of money extant in the
economy at any time is "insufficient, or ought to be increased by X or Y%.
Rather, to the extent that the supply of money should change at all, changes in
that supply should be determined and can rationally be determined only in the
selfsame way that changes in the supplies of all other goods and services are
determined: by the operations of the free market.
If participants in the market conclude that increasing the supply of money
would be advantageous, through the process of competition they will bid
resources away from other areas of production and into the mining, refining,
and minting of silver and gold, until the profit obtainable from producing
further units of money is less than the profit obtainable from employing the
requisite capital and labor in other productive pursuits.
The great advantage of this process is that it automatically sets the supply of
money in a rational relationship to the supplies of all other goods and
services that exchange against money, thereby fully integrating money into the
economy as opposed to a system whereby the supply of money is set by the at
least partially political decisions of a governmental bureaucracy or specially
privileged private banking-cartel.
Second, the purchasing-power of money is its "price" expressed in non-monetary
goods and services. In a free market, all prices must be allowed to change, up
or down, to reflect the real economic interests of all members of society.19
Although it is a unique price, to remain a free market price, the
purchasing-power of money, too, must be free to change as the economic needs of
society demand.
Third, the one economic lesson the Twentieth Century has taught with clarity
and finality is that central economic planning does not work, and cannot be
made to work, no matter what political party or gaggle of self-styled "experts"
is in charge. No governmental agency or private cartel in league with
governmental "wise men" possesses enough knowledge rationally to fix the prices
even of such simple commodities as bread, shoes, or roofing nails. How, then,
could the fonctionnaires [sic] of government or a cartel hope to fix the price
of the most complex, and perhaps most important, economic commodity of all
money when that price reflects the ever-changing values of all other
commodities?!
Even the average American realizes that any politician who advocated creation
of a "Federal Bread Board" to set the price, supply, quality, and means of
delivery of bread throughout the nation ought to be branded a buffoon, and
permanently barred from any political position immediately, if not sooner. Yet
few Americans stop to think that the present Federal Reserve Board which, in
effect, has the power to set the price, supply, quality, and means of delivery
of money from day to day is in principle (and, as history shows, in practice as
well) a creature even more ridiculous and dangerous than any Federal Bread
Board could ever be.20 And even fewer Americans appreciate that anyone who
knowingly advocates the continuation of the FRS as it now operates is no true
friend of the free market.
And fourth, the power to fix the price, supply, quantity, and distribution of
money is the power to enrich and to impoverish at will. As such, it cannot be
entrusted to politicians, governmental bureaucrats, "expert" economic advisors,
the leaders of special-interest groups, or anyone else for that matter. NO ONE
can be trusted with the power to loot the economy through manipulation of
money. NO ONE.
Far from being a beneficial tool for "stabilizing" the economy to the advantage
of almost everyone in society, modern "monetary policy" legalized
counterfeiting has resulted in the forcible and fraudulent redistribution of
wealth on a massive scale from the majority of productive people in society to
the minority of political and special interest-group drones who swell the ranks
of the marauding army of counterfeiters or tag along as their camp-followers.
Indeed, modern "monetary policy" exists primarily to take from the truly "rich"
(the people who produce real wealth through honest labor and savings, and who
for that reason are capable of being looted) and give to the truly undeserving
"poor" (the people who want to acquire real wealth without having to work or to
save for it, and who for that reason seek the aid of governmental coercion to
expropriate from others what they cannot earn).
For example, if, by increasing the supply of money in society, bank
credit-expansion results in increased prices for commodities, a wage-earner
whose salary does not increase step-by-step with commodity-prices will suffer a
steady decrease in his real income, while some land-speculator who misuses the
new bank-loans to build a predictably unprofitable shopping-center in the Texas
badlands will enjoy an immediate increase in his real income (even though the
loan proves wasteful when the shopping-center eventually "goes belly up" in the
hands of the greenhorns on whom the speculator unloads it).
In this case, manipulation of the money-system effectively redistributes wealth
from the wage-earner (who is relatively poor, but is producing wealth that can
be stolen from him) to the speculator (who is relatively rich, but is not
producing wealth subject to confiscation through inflationary credit-expansion,
and who benefits from that credit-expansion).
Legalized counterfeiting results in three varieties of monetary theft:
Theft through transactions ("monetary larceny"). New money always enters the
economy in a particular place, at a particular time, and in the possession of a
particular individual or group. When it does, the holder of that new money (X)
purchases goods and services at their then present, low prices. As the new
money spreads through the economy, prices of goods and services change,
generally upwards, including the prices of the goods and services X bought. X
has clearly benefited by spending the new money before anyone else.
But some people in society (A and B) must pay the new, higher prices for the
goods and services they need before their incomes increase by their acquisition
of any of the new money. Other people (C and D) must pay the new, higher prices
without any increases in their incomes. And still other people (E and F) must
pay some higher prices before their incomes increase, but also receive those
increases while the prices of other goods and services they buy are still low.
The overall effect of the injection of the new money into the economy, then, is
a complex redistribution of wealth: X benefits at the expense of A, B, C, D, E,
and F; and E and F benefit to a lesser degree at the expense of A, B, C, and D.
If X is the government, the effect of the injection of the new money is akin to
"taxation" of A, B, C, D, E, and F albeit "taxation" that is neatly hidden by
the complexities of the monetary and banking systems.
If X is a private individual or group, the effect of the injection of the new
money is what is deceptively called today "redistribution of wealth" akin to
"picking the pockets" of A, B, C, D, E, and F, who probably have no inkling as
to how constantly rising prices of goods and services are related to
manipulation of the supply of money, and how some people benefit, and others
lose, from this manipulation.
Theft from savings ("monetary embezzlement"). All other things being equal,
increases in the supply of money result in decreases in the purchasing-power of
each unit of money. An individual (G) who holds a fixed amount of "cash" or is
owed debts denominated in units of money before an injection of new money into
the economy will find, after that injection (and all other things remaining
equal), that his "cash" and the debts he is owed have lost real value as
against goods and services.
His monetary wealth has depreciated in substance, even though it has remained
unchanged in nominal terms. To the extent of that depreciation, G s wealth has
been redistributed to people such as X, E, and F. If X is the government, and G
is some naif holder of long-term government bonds unaided by shrewd financial
advisors, this sequence of events can be described as incremental repudiation
of the public debt which, in principle, is unconstitutional,21 but nevertheless
occurs without significant outcry from the public.
Theft by foreclosures ("monetary robbery"). Finally, if the legal
counterfeiters engage, not in credit-expansion, but in credit-contraction
(which, in practice, often amounts to a decrease in the supply of money, or an
increase in the purchasing-power of money), debtors unable to pay their
outstanding loans because their incomes have decreased as the decreasing supply
of money in the society depresses economy activity, or unable to obtain new
loans because the banks refuse to exercise their special privilege to create
more money, face foreclosures and forcible seizures of the real or personal
property that serves as the collateral to secure their outstanding loans. If
these loans are owed to the banks, the change in the banks' "monetary policy"
amounts to outright expropriation of the debtors.
Of course, that a debtor has overextended himself and defaults on a loan is
not, by itself, a valid reason to criticize a creditor who demands his
contractual rights to foreclose on the debtor's collateral. If, however, the
creditor is the bank that "created out of nothing" the fiat currency or
deposit-currency the debtor borrowed in the first place, other considerations
may come into play. First, if the debtor's present inability to pay is the
result of a monetary stringency contrived by the banking-cartel, equity should
require that the bank be restrained from taking undue advantage of a situation
it created that renders temporarily impossible the debtor's ability to fulfill
his contractual obligations.22
Second, if the banking-cartel's powers to create money "out of nothing, as
well as to destroy that money, derive from a monopolistic governmental grant,
the government can fairly (and in justice ought to) require that the banks use
one of those powers for the short-term relief of people disproportionately
harmed by the use of the other power.23
Third, if the special privilege the government grants to the banking-cartel to
create fiat currency or deposit currency "out of nothing" is itself illegal (as
it is under the Constitution 24) a loan-contract the consideration for which on
the side of the bank was the creation of such currency should be voidable at
the option of the debtor, and unenforceable in the courts. 25
II. Why is the relationship between money and government important?
In the United States, the relationship between money and government is vitally
important, because money has not only an economic, but also a political
character.
The political relationship between money and government is institutionalized at
the highest level of the legal system.
First, the Constitution the basic legal and political charter of the nation
explicitly delegates to the government certain powers with respect to money,
and withholds others.26 Obviously, to the extent the Constitution withholds
powers from the government (or, in legal parlance, creates governmental
"disabilities"), the Constitution depoliticizes money, because it explicitly
denies the government (or the process of party and special-interest-group
politics working through the government) the ability to take certain definite
actions that affect money.
For example, the States lack power to "make any Thing but gold and silver Coin
a Tender in Payment of Debts,27 no matter what special interest groups,
politicians, elected officials, bureaucrats, or judges may desire. Less
obviously, but equally truly, to the extent the Constitution grants powers to
the government, it also depoliticizes money, because it implicitly denies the
government (or the political process) the ability to take actions beyond or in
contravention or derogation of the powers actually delegated.
For example, that Congress has the power to "coin Money and regulate the Value
thereof, and of foreign Coin"28 implies that Congress has no power to "print"
or otherwise "emit" money that is incapable of being coined that is, that
Congress lacks power to generate domestic money, or to recognize foreign money,
other than actual coin (such as paper currency).
Second, a fundamental purpose of government, at every level, is to protect
individuals' property and liberty.29 Money is itself property. Moreover, in a
complex exchange economy, money is the medium in which contracts for exchanges
of property among individuals express the prices or values of the property
exchanged. And the right to make and enforce contracts is a basic element of
individual liberty.30 Therefore, the constitutional role of government with
respect to the protection of property and liberty implies a derivative,
protective relationship with money.
Third, the government's own fiscal operations that is, the taxing, borrowing,
and spending the Constitution allows31 almost exclusively employ money as the
medium of payment.32 Clearly, in an economy in which governmental taxation,
borrowing, and spending are significant in amounts relative to total
transactions, the government's choice of which money it will use will have a
decided effect on the use of that money by everyone else. For example, the
national government (albeit unconstitutionally) repudiated its promises to
redeem paper currency with gold domestically in 1933, silver domestically and
internationally in 1968, and gold internationally in 1971.33 Since those dates,
it has not collected taxes in silver or gold money, borrowed silver or gold
money from the credit markets, or spent silver and gold money to pay its debts
or make any of the numerous "transfer" payments that constitute the modern
"welfare-state" system.
Instead, it has used as money only FRNs (or bank deposits payable in FRNS),
which are redeemable in base-metallic coinage, not silver or gold. As a
consequence, although American silver and gold coins are in every proper sense
still "money, 34 and although people may lawfully own silver and gold coins,
may enter into so-called "gold-clause contracts" that specify gold or silver
coins as the media of payment to the exclusion of paper currency or
base-metallic coins,35 and may obtain and circulate silver and gold coins
denominated in "dollars" that the United States Treasury itself now mints (the
so-called "American Eagle" coins 36) nevertheless, essentially the only money
in general, day-to-day circulation today consists of FRNs (or bank-deposits
payable therein) and "clad" coinage.37
This is no doubt in large measure the response of the marketplace to or a
reflexion of the government's use of FRNs and "clad" coins as its media of
exchange. And there is equally no doubt that, were the government to begin,
say, taxing in silver and gold (and thereby effectively requiring people to
obtain silver and gold to pay those taxes), more and more individuals would
offer their goods and services for sale at prices denominated in silver and
gold; and silver and gold coins would rapidly be reintroduced as monies in
general, day-to-day circulation.
Thus, even within the narrow ambit of the government's constitutional powers
and disabilities, the inherently political relationship between government and
money is extensive and important.
The thoroughly political character of contemporary money and banking renders
even more significant indeed, highly dangerous both politically and
economically the relationship between government and money. The modifier
"thoroughly" deserves emphasis, because the political character of contemporary
money and banking is non- and even anti-constitutional, in that the national
government and the quasi-public cartel of private banks that make up the FRS
claim powers far beyond any the Constitution, fairly or even imaginatively
interpreted, delegates. And, for all intents and purposes, the government and
the banks deny that the Constitution imposes any monetary disabilities on them
at all.38
First, the relationship between government and money of which most people are
at least vaguely aware, and of which most people probably approve without any
real thought if they know about it at all, is present-day monetary policy.
Governmental and FRS officials tout monetary policy" as (and most people likely
believe it to be) necessary to "stabilize" the economy through a species of
"central economic planning. The fallacies of these claims have been exploded
above. Important to recognize at this juncture is that contemporary "monetary
policy" is strongly anti-constitutional in at least two respects.
By manipulating the purchasing-power of money from day to day (over the long
term downward), modern "monetary policy" expropriates the holders of money and
impairs the obligations of all contracts denominated in or to be fulfilled
through the payment of money. That is, modern "monetary policy" radically
infringes on rights of property and liberty throughout American society in the
vast majority of cases, with the victims more or less in the dark as to what is
going on economically or politically, and without legal recourse even if they
do realize their victimization.
"Radically" is the correct adverb, because in principle nothing prevents
"monetary policy" from being employed to destroy completely the exchange-value
of the FRN or the "clad" coinage, thereby extinguishing the value of all
holdings of cash or bank-deposits and of all long-term contracts payable in
paper or base-metallic money, "redistributing" wealth on a massive scale, and
throwing the whole economy into chaos.
Indeed, since the founding of the FRS in 1913, ostensibly to "stabilize" the
monetary and banking systems, FRN paper currency has lost over 90% of its
purchasing-power; and even a continued rate of depreciation of 3%, which
contemporary markets would likely consider modest, would result in a further
loss of 95% of purchasing-power in the next 90 or so years! The effect of this
huge, chronic depreciation on private property rights, the fulfillment of
contracts, and the economy as a whole should be self-evident.
Furthermore, modern "monetary policy" is an attempt to restructure the American
economy and government away from the free market and republican institutions
towards socialism or fascism: socialism, if the so-called "planning" behind the
"monetary policy" is entirely the brain-child of governmental bureaucrats; or
fascism, if (as is the case in the United States today) the "planning" is
largely the product of "experts" in some private cartel (such as the FRS)
exercising special legal privileges in concert with governmental bureaucrats
and elected officials.
This follows directly, not only from the structure and operations of the FRS
cartel (which fits the classic pattern of a fascistic, or corporative-state,
scheme of economic regulation), but also and especially from the perverse
effects "monetary policy" has on private property and individuals' freedom of
contract. Private property and freedom of contract are key, indispensable
elements of the free market.
To the extent that "monetary policy" denies or interferes with private property
and freedom of contract, it destroys or undermines the free market,
substituting instead either socialism or fascism. So, the contemporary
relationship between government and its cronies in the private FRS
banking-cartel, on the one hand, and money, on the other hand, is political not
only in the sense that government is exercising powers (legitimate and
illegitimate) over money, but also in the sense that the result of the exercise
of the illegitimate powers is the transformation of American society from
freedom to fascism in a most important particular!
Second, the relationship between government and money of which most people are
probably unaware, and of which most people probably would thoroughly disapprove
were they aware of it, is the misuse of present-day "monetary policy" as an
instrument of hidden taxation. When the banking system "monetizes" governmental
debt, and the government spends into circulation the newly created
purchasing-power, the effect is a "redistribution" of wealth from society as a
whole to the government and its clients that is essentially the same as occurs
through direct taxation, but not subject to the normal political checks on
taxation, such as free and open public debate.39
In essence, this process amounts to taxation without informed consent on the
part of the "hidden taxpayers" (those adversely affected by expansion of the
money-supply). Thus, in effect, "monetization" of governmental debt through
"monetary policy" amounts to a modern-day variant of taxation without
representation largely over which the American War of Independence was fought!
For that reason, the relationship between contemporary government and money is
inescapably political, because "monetary policy" enables the government to
employ the quintessentially political power of taxation, in the form most
offensive to republican sensibilities.
Third, the overall result of all this is a transmogrification of the political
system, through which a private group the banking-cartel and the class of
professional creditors who traffic in governmental obligations in effect enjoys
a political "partnership" with elected and appointed officials for the purpose
of looting the public, by means of a mechanism of monetary manipulation few
individuals are even aware exists, let alone understand.
From the perspective of the victimized public, it matters little whether the
banking-cartel or governmental officialdom is the "senior partner" in this
arrangement of "spend and spend, tax and tax, inflate and inflate, elect and
elect. Whichever is in control, the financiers and their political henchmen
share in the spoils surreptitiously plundered from the public.
Political-economic logic, however, suggests that the banking-cartel and its
allies in haute finance exercise a dominant influence over the politicians and
bureaucrats in the long run. A government that recognizes no constitutional
limitations on its monetary powers, after all, does not need to create money
through the cumbersome process of requesting an "independent,
quasi-governmental banking cartel to monetize interest-bearing public debt.
Rather, the government treasury itself could simply emit legal-tender treasury
notes (presumably, redeemable in base-metallic coin just as are FRNS), without
the payment of any interest.40 That the present system of creation of fiat
currency through monetization of interest-bearing public debt continues to
exist at all, then, indicates that the government is to some significant degree
the captive of the creditors organized around the FRS banking-cartel.41
Further, near-conclusive evidence of this is the failure of any candidate
considered by the all-powerful national media to be a major contender for
election to high national office to propose abolition of the FRS and transfer
of its authority to create money "out of nothing" to the Department of the
Treasury (let alone a return to constitutional money and banking!). Apparently,
successful candidates realize that the "kiss of death" even for entry into the
race for, as well as for election to, office is any suggestion that the FRS
should be "nationalized" outright, deprived of its vaunted and valuable
"independence, or simply eliminated altogether in favor of constitutional,
free-market monetary and banking systems.
If, in contrast to the mythology of twentieth-century "democracy, the true
importance of a particular institution or issue is how little real public
debate about it the arbiters of political power behind the scenes allow, the
FRS and its authority to create money "out of nothing" must be among, if not
the, most important institutions and issues in the United States today. From
the banking-cartel's point of view, "silence is golden" indeed!
The historical development of the present monetary and banking regime also
supports the conclusion that the banking-cartel and its allies tend to control
the bureaucrats and elected officials over the long term. After the Civil War,
a great political struggle began between a group promoting the monometallic
"gold standard, and a group favoring silver as money (often called the "free
silverites, because they demanded that the government coin all silver brought
to the mints). Although their policies were not always well thought out, at
base most "free silverites" were monetary constitutionalists, in that they
believed that both gold and silver should be equally money of the United
States, the relative supplies of which the market should determine through the
mechanism of "free coinage.
The monometallic "gold-standard" party, conversely, was at base
anti-constitutionalist in principle, in that the necessary implication of its
promotion of the unitary "gold standard" was the notion that Congress has the
power to manipulate the monetary system at will. For if Congress may establish
a monometallic "gold standard" without constitutional restraint, it may just as
well establish a monometallic "copper" standard (as it has to a certain extent
with the "clad" coinage) or a nonmetallic "paper" standard (as it has with the
FRN).
Revealingly, many of the influential people who promoted the monometallic "gold
standard" in the late 1800s then became powerful advocates of central banking
(eventually through the FRS) in the early 1900s. One of their recommendations
at that time was the centralization of the nation's gold stock. This was not
achieved in the Federal Reserve Act of 1913, but did come to pass with
Roosevelt's "gold seizure" in 1933 when the Great Depression provided the
necessary economic crisis.
Since then, the government has (as the saying goes) "gone off the gold
standard" (domestically in 1933, internationally in 1971) and "gone off the
silver standard" (domestically and internationally in 1964 through 1968),
arriving today at the "copper" and paper" standards or, perhaps more
descriptively, the political" standard, because the value of today's money
depends more on political than on economic decisions and events. Extraordinary
suspicion is not necessary to see a rather straightforward plan here:
First, the reduction of the constitutional system of gold and silver money to
the monometallic "gold standard, which would allow centralization of control
over the precious metal that constituted the monetary "standard.
Second, the creation of a central-bank cartel, issuing a paper currency
originally made redeemable in gold to allay public suspicion.
Third, sudden confiscation of all Americans' gold coin, repudiation of the
promise to redeem the banks' paper currency, and centralization of gold
holdings in the Treasury, on the pretext of responding to an economic crisis.
Fourth, even after the crisis had passed and the economy had fully recovered
following World War II, introduction of base-metallic coinage into, and removal
of all silver coinage from, circulation. Until,
Fifth, America found herself saddled and bridled with fully political money.
The important lesson here is that, although individual members of the financial
oligarchy are mortal and pass from the scene, the institutions they control
outlive them, or any segment of the electorate that might coalesce to oppose
the puppet-politicians the elitists dress up and parade around as "the people's
choices" in the biennial "free elections.
Because the members of the oligarchy control those institutions today, they are
capable of carefully choosing and training their successors who will control
those institutions tomorrow, thereby perpetuating their policies and permitting
very long-term plans to be set in motion and brought to fruition. Politicians
and bureaucrats, distinguishably, do not hand-pick their successors election
after election. Therefore, that the banking and monetary systems of this
country have developed according to an obvious plan over a period of about one
hundred years indicates that they are the product of something other than the
electoral process Americans naively call "democracy.
III. Why is the Constitution important to money and banking?
That the government's control over money and banking may very well reflect, not
popular sovereignty and "democracy, but instead behind-the-scenes manipulation
by powerful self-perpetuating private "wire-pullers" highlights the vital
importance of the Constitution to money and banking.
The most important purpose of government is to protect society from predatory
special-interest groups that is, groups with interests distinct from and
antagonistic to those of society as a whole that attempt to serve those
interests by means of force or fraud. Government is necessary to promulgate and
enforce laws to control these groups by deterrence if possible, by punishment
where deterrence fails.
Government, however, consists of only ordinary men who change not their
characters simply because they win elections or receive appointments to
bureaucratic positions, but remain ever prone to commit the sin of pride,
succumbing to avarice, ambition, and the love of power. And for that reason,
history teaches that governmental officials themselves often form predatory
special-interest groups. However, in principle these groups are far more
dangerous to society than any private criminal gang:
First, predatory governmental officials constitute an organized, coherent body
of men one of the purposes of which is precisely to draw resources from society
(through the power of taxation, for example) to use for ends that officials
determine. Moreover, people in society expect those officials to operate in an
organized fashion for that purpose. A private group that formed itself for such
end would immediately arouse suspicion and receive careful scrutiny.
Second, predatory governmental officials are centrally positioned to loot
society within a defined geographical area. Moreover, people expect those
officials to exercise their authority throughout their jurisdiction. A private
group that claimed such a territorial prerogative would also be highly
suspicious and subject to investigation.
Third, these officials disguise their predation through pretended enforcement
of otherwise legitimate powers, such as taxation, regulation, eminent domain,
prosecution of criminals, and so on. Moreover, people expect them to do
precisely that (in form, if not in substance), and often cannot perceive what
is really happening, because they do not understand the law or how it is being
misapplied or disregarded. No private group can claim to act on the basis of
such authority.
Fourth, in any dispute with private citizens, predatory governmental officials
are presumptively "in the right. If charged with wrongdoing (and if any
inquiry occurs at all) they investigate, prosecute, judge, and generally acquit
themselves, and have concocted all sorts of "immunity" defenses to shield
themselves and their accomplices from liability even when their malefactions
are fully exposed.
Moreover, people aggrieved but without legal recourse because of the corruption
of the courts cannot even defend themselves, because the officials wield a
monopoly of "legitimate" force, against which resistance is akin to "treason.
No private group can pretend that self-defense against its aggression is
somehow "rebellion.
Fifth, predatory officials can conspire with predatory private groups to make
private predation effective where it would otherwise fail for example, by
licensing specially privileged cartels that a free-market economy would quickly
destroy through competition. This "divide-and-conquer" tactic turns one segment
of society against others, weakening the resistance that society as a whole
could otherwise put up.
Thus, a petty street-corner "stick-up artist" can demand a citizen's money at
the point of a shiv. But even he lacks the effrontery to pretend that he has
lawful authority to rifle the citizen's pockets, that the citizen is making a
"contribution" or "sacrifice" for the "public good, that the robber is
performing a "public service, that he is the citizen's "sovereign" and after
stealing the victim's money can follow him around endlessly telling him how to
live his life in other ways or, worst of all, that the citizen may not pull out
a pistol and defend himself, because to do so would be a crime! Yet, predatory
governmental officials misbehave this way ceaselessly and shamelessly.
Thus, to brand criminal officials and private crooks as equally bad is both
inaccurate and unfair to the crooks. Official crime is always worse than
private lawbreaking because, whereas private lawbreaking is merely a violation
of law, and honestly recognized as such even by the lawbreakers themselves,
official crime amounts to "lawless law" or "legal terrorism: law-breaking that
is camouflaged and defended as law-enforcement, for the purpose of denying
citizens the protections of law so that they may be more easily stripped of the
property the law's very purpose is to safeguard. Therefore, no criminals are
more dangerous, culpable, and needful of being exposed than criminal officials.
The Constitution is the law that controls the making and enforcement of all
other laws. The Constitution is thus the law for government. It sets definite
bounds on governmental action, by defining what officials may do (their powers)
and, perhaps more importantly in a free society, what they may not do (their
disabilities). It determines what actions of officials taken (as the lawyers'
saying goes) "under color of law" are, in fact, lawful. Any action of any
official that transgresses the Constitution is not and can not be "law, but is
either usurpation (exercise of a power the particular official does not have)
or tyranny (exercise of a power that no one has or should have). That is,
officials act constitutionally, or as usurpers, or as tyrants there is no other
alternative.42
This is not to say that the Constitution has always been or now is necessarily
complete. For example, the formal abolition of slavery required enactment of
the Thirteenth Amendment. Neither is it to say that the Constitution is
necessarily the best possible system of governmental powers and disabilities
that might theoretically be devised. However, it is the supreme law of the land
now; and no governmental official acts as an "official" in the true legal sense
of that word unless he acts in conformity with the Constitution as it now
exists.
Therefore, insofar as anyone claims to be an "official, exercising "official"
powers, he implicitly claims to be following and therefore to understand the
provisions of the Constitution that pertain to the performance of his duties.
If he cannot explain how his actions conform to the mandates of the
Constitution, he is at least a charlatan. If he refuses to prove that
conformity when challenged, he is presumptively at least an usurper. And if he
tries to punish the people who challenge his actions as unconstitutional, he is
definitely a tyrant.
This applies just as much to officials who exercise powers over money and
banking as it does to any other officials.
IV What powers over money and banking does the Constitution delegate to the
government?
The only conclusion any careful student can draw from American history is that
the Constitution established silver and gold coin exclusively as the money of
the United States.
In 1787, the Founding Fathers were deeply concerned, in the most practical
possible way, with the role of government in America's monetary and banking
systems. They themselves were eyewitnesses to the raging inflation and business
depression what we today know all too well as an "inflationary depression" or
"stagflation" that followed the emission of "Bills of Credit" (paper money) by
both the Continental Congress and the States during the War of Independence.
And they recognized that that inflationary depression was the result of that
emission that governmental "monetary policy" (to use the modern jargon) had led
to the disaster. Therefore, confronted with the task of drafting a new
fundamental law to control the government, the Founders carefully crafted the
monetary powers of the Constitution to prevent repetition of such a calamity,
by (they hoped forever) outlawing what James Madison in the Federalist Papers
denounced as the "fallacious Medium" and "improper and wicked project" of paper
money.
First, in Article I, Section 8, Clause 5 and Article I, Section 10, Clause 1,
the Constitution adopts silver and gold coin exclusively as the money of the
United States. The standard of value in this system is the "dollar, as that
coin historically existed in the late 1700s, containing 371-1/4 grains (troy)
of fine silver. The Founders knew no other "dollar. Indeed, one may
confidently say that, had the members of the Constitutional Convention been
presented with a table on which lay every form of coin and paper currency that
has circulated in the economy of the United States from the earliest days until
today, and asked to identify the "dollar, each and every one of them would
unerringly have identified one, and only one, silver coin as a "dollar. So,
when the Constitution mentions the "dollar" as it does in Article I, Section 9,
Clause 1 and in the Seventh Amendment it can mean but one thing.
Under the constitutional system, the legal value of all silver coins must be
proportional to the weight of silver they contain, in comparison to the dollar.
The legal value of all gold coins must be proportional to the weight of gold
they contain, in comparison to the dollar, at the prevailing free-market
exchange ratio between gold and silver. All silver and gold coins may be legal
tender for the dollar-values of the silver or gold they contain. And Congress
retains exclusive authority to coin money and regulate its value according to
these principles.
Second, in Article I, Section 8, Clause 2 and Article I, Section 10, Clause 1,
the Constitution prohibits, implicitly or explicitly, the emission of any form
of paper money (what the Founders called "Bills of Credit"). And the latter
provision disables the States from imposing on unwilling creditors "any Thing
but gold and silver Coin" as a "Tender in Payment of Debts" which re-emphasizes
that Congress may declare only silver and gold coin a legal tender.
Third, in Article I, Section 8, Clauses 1, 2, and 5, Article I, Section 10,
Clause 1, and the Fifth, Ninth, Tenth, and Fourteenth Amendments, the
Constitution denies Congress and the States any power to seize the people's
silver or gold except through proper means of taxation, and to prevent specific
performance of private contacts explicitly payable in silver, gold, or any
other monetary medium. And,
Fourth, in Article I, Section 8, Clause 3, Article IV, Section 2, and the
Fifth, Ninth, Tenth, and Fourteenth Amendments, the Constitution guarantees
individuals free entry into private banking; ensures that private banks may
issue their own, non-fraudulent notes and other securities, and deal in
deposits of silver, gold, foreign currencies, or any other monetary medium; and
outlaws any governmentally sponsored banking monopoly or cartel.
Taken together, these constitutional provisions define a monetary and banking
system that reflects and relies on free-market principles:
commodity money, money capable of being coined or tendered as coin.
international markets historically recognized as pre-eminent silver and gold.
most convenient during the 1700s, and would find convenient still today the
dollar of 371-1/4 grains of silver. And,
implicitly incorporating the system of "free coinage" traditional in
Anglo-American law.
Equally true is that the only conclusion any careful student can draw from
American history is that, since the Civil War, governmental officials have
followed policies that radically diverge from constitutional principles of
money and banking.
First, in 1862, Congress emitted the first legal-tender paper currency since
ratification of the Constitution. Shortly thereafter, the Supreme Court upheld
this emission on the specious theory that it amounted to a permissible "forced
loan" from the people.
Second, in 1913, Congress created the FRS, a quasi-public, mostly private
banking-cartel that asserts political "independence" from supervision by
Congress, the President, the courts, or the electorate and that is specially
privileged to emit its own paper currency, FRNs. Although Congress has declared
these notes to be "obligations of the United States, in complete disregard of
Article I, Section 9, Clause 7 of the Constitution it has never enacted a
single statute authorizing the dollar-amount of such obligations the FRS can
"create out of nothing" and for which the Treasury of the United States
ultimately, the American people as taxpayers are supposedly liable.
Third, in 1933, Congress declared FRNs legal tender for all debts, public and
private, and rescinded the requirement that FRNs be redeemable in gold coin for
citizens of the United States.
Fourth, in 1933 and 1934, Congress licensed the President to seize all gold
coin held by American citizens, and nullified all private and public contracts
that called for payment in gold.
Fifth, in 1965, Congress terminated coinage of constitutional (silver) dollars
and authorized the first debased "clad" coinage.
Sixth, in 1968, Congress terminated redemption of any form of United States
paper currency in silver coin.
Seventh, although in 1973 and 1977 Congress permitted Americans once again to
own gold and to make private contracts payable in silver or gold, nevertheless
it continued to refuse to pay or redeem any obligations of the United States in
silver or gold coin. And,
Eighth, although in 1985 and thereafter Congress authorized the minting of
various new silver and gold coins, these coins do not circulate freely as media
of exchange, because their face values are far below their market values.
Thus, since 1968, for all practical purposes the money of the United States has
consisted almost solely of: (i) legal- tender FRNs, not redeemable in silver or
gold coin; and (ii) "clad" coins composed entirely of base metals. As the
supreme law of the land, the Constitution requires that no changes be made in
its content except by formal amendments. The monetary provisions of the
Constitution have never been amended. Yet officials of the government act as if
the most drastic possible amendments have been ratified. Specifically,
constitutional dollar must contain 371-1/4 grains of that metal.
although the Constitution provides that "No State shall * * * make any Thing
but gold and silver Coin a Tender in Payment of Debts, and delegates to
Congress no authority to do otherwise.
than "Bills of Credit, because of their irredeemability) have become America's
currency, although the Constitution provides that "No State shall * * * emit
Bills of Credit, and delegates no power to Congress to emit such "Bills"
either. And,
supply of America's money, although the Constitution provides that Congress
alone has power "to coin Money and regulate the Value thereof.
Who is fooling whom here?! No one. Any clear-thinking person can comprehend
that no coincidence whatsoever exists between the contemporary regimes of money
and banking in this country and the Constitution. Has paper currency in the
hands of present-day politicians, bureaucrats, and self-interested bankers
shucked off its noxious character as a "fallacious Medium" and "improper and
wicked project, that caused the Founding Fathers to outlaw it? Or have
present-day politicians, bureaucrats, and self-interested bankers, in league
against the American people, contemptuously cast aside the Founding Fathers and
the Constitution precisely in order to misuse that "fallacious Medium" for
their own "improper and wicked projects"? But the answer to these questions is
obvious: The present-day monetary and banking systems of the United States are
unconstitutional, through and through.
V. Why should constitutional monetary and banking reform be an important issue
today?
To judge from the contemporary press and media, monetary and banking reform
along constitutional lines is simply not an "issue" in political discourse.
(Actually, no reform of any kind along constitutional lines is an "issue,
because the press, the media, politicians, officials, pundits, academics, and
just about everyone else including judges pay mere lip-service, if any
attention whatsoever, to the Constitution.) There is no alternative to
constitutional reform, however.
No one doubts that contemporary America is in serious financial difficulties.
To contend that these difficulties were caused solely by the absence of
constitutional money and honest banking would be to overemphasize the roles of
money and banking. The true causes of America's financial difficulties and all
her other problems that trace back to misbegotten governmental policies are
avarice, ambition, and the love of power in special-interest groups,
professional politicians and bureaucrats, and their camp-followers. Yet, no one
can doubt that America's financial difficulties could never have become as
acute and menacing as they are had this country adhered to the constitutional
principles of money and banking.
Neither can anyone believe that the present regime of non- or
anti-constitutional money and banking has within it the methods or the means to
tackle these difficulties. No the present system of money and banking cannot
eradicate, or even lessen, but only exacerbate America's financial
difficulties, because the present regime is the problem, everything else being
merely a symptom.
The present regime of unconstitutional money and banking does not work but,
more than that, it can not work, and will not be made to work.
First, the system of irredeemable legal-tender paper urgency and central-bank
credit expansion cannot work, no matter who may be in charge of the monetary
and banking authority, because the system is a species of nonrational "central
economic planning. The problems central economic planning causes central
economic planning cannot rectify, any more than dinosaurs could have
constructed computers to assist them in avoiding their own extinction, had they
known they were threatened. To the contrary: Central economic planning
typically "solves" problems by creating new (and usually worse) problems.
For example, to "solve" the problem of ever-increasing prices of goods and
services because of increases in the supply of fiat currency (what the public
calls "inflation"), central economic planning imposes "price controls. Then,
to "solve" the problem of scarcity of goods price controls cause, central
economic planning mandates rationing. Then, to "solve" the problem of the
so-called "black market" that comes into being to help people acquire rationed
goods, central economic planning imposes criminal penalties on buying and
selling in the "black market. And so on, and so on, and so on ad nauseam.
Central economic planning is a merry-go-round of economic incompetence: The
wheels turn, the lights flash, the painted wooden horses go up and down, the
calliope plays, and the riders strain to pluck down the brass ring but everyone
simply goes 'round and 'round in a circle, at a large cost. A real carousel,
though, is entertainment, and meant just for fun. The ride is worth the price
of admission. Central economic planning, conversely, pretends to be a (even
the) way to "manage" a national economy. It is supposedly a serious endeavor.
But it is an unnecessary, nonrational trip to nowhere, in which the price of
admission is, over the long term, disaster to the economy (even though, in the
short term, it advances the careers of politicians and bureaucrats and lines
the pockets of greedy special-interest groups).
Second, even were the system of central economic planning embodied in
contemporary fiat currency and central banking itself theoretically capable of
self-reform and correction, it would still remain a species of monopoly or
oligopoly power (that is, a system that excludes most people from the process
of decision-making, but subjects them to the decisions made without their
consent). Unlike the constitutional system of money and banking where no one
group controls the monetary unit (the silver "dollar"), the type of currency
used (silver and gold coins), the supply of money (which arises from "free
coinage" of whatever silver and gold the market brings to the mints), or who
may engage in honest banking and allied pursuits, under today's
unconstitutional monetary and banking regimes a self-perpetuating clique of
politicians, bureaucrats, private bankers, and their cronies runs the show, to
the exclusion of everyone else.
Monopolistic power, however, is always subject to abuse, and is usually abused,
because its main use (and the source of the profits it puts in the monopolists'
pockets) is abuse. Monopolists infrequently, if ever, apply their power to
serve the public good. For, if they did, in almost every case they would first
have to dissolve the parasitic monopoly they control, which they never
voluntarily do! So one must predict that the monopolists who control America's
monetary and banking regimes will (mis)use their power, not only to the
exclusion of everyone else, but at everyone else's expense. If not now, then
assuredly sometime.
That is, even were central economic planning workable as a matter of economics,
it is unworkable as a matter of human nature. Even if the "planners" knew what
to do in pursuit of the public interest, their own self-interest would
eventually divert them from the paths of rectitude into the by-ways of personal
profit. In short, central economic planning cannot be trusted to control modern
monetary and banking "policy, because people cannot be trusted to control
monetary and banking "policy. In anyone's hands, modern monetary and banking
"policy" is a veritable "license to steal, which no one should be granted.
Third, even were central economic planning in money and banking workable as a
matter of theoretical economics, and even were human nature less prone to
succumb to original sin than it has always been, the history of twentieth
century America teaches that people somewhat less righteous than candidates for
sainthood have been in charge of affairs since the beginning of the FRS, and
appear likely to remain in charge for the indefinite future (absent
disestablishment or radical alteration of the regime). Indeed, American history
exhibits a systematic looting of the public, through apparently planned,
step-by-step destruction of the constitutional monetary system, including:
usurped power over the monetary system;
borrower (the American people) to the lender (the financial oligarchy) through
the collection- agency of the government;
all kinds, and other police-state measures, to subject the American people to
an all-encompassing surveillance of their monetary and banking activities; and,
last but not least,
subjects are simply not even allowed to be raised as issues" in political
campaigns or legislative debates, to be taught in schools, to be the themes of
television "docu-dramas, and so on.
The result of all this has been to put into the hands of an unelected,
supposedly "independent" agency of someone (the FRS) essentially totalitarian
power over money and banking. The term "agency of someone" is necessary,
because the FRS is certainly not the agent of the Constitution (the charter of
government authorized by the American people), because it is plainly
unconstitutional. Neither is the FRS the agent of the government (the
office-holders selected by the American electorate), because it claims to be
"independent" of Congress, of the President, and of the courts (which, by
definition, an "agent" could never be).
Inasmuch as the FRS over the last eighty years has facilitated (through credit
expansion) the greater and greater indebtedness of both the government and the
average American, apparently the FRS is the agent of a class of coercive
creditors: people who invest in governmental debt (paid immediately through
taxes), governmentally guaranteed debt (paid through taxes if the debtors
default), and private debt the government helps to collect through court
judgments, foreclosures, bankruptcy-proceedings and so on.
Thus, it should surprise no one that the problems of America's monetary and
banking regimes chronic depreciation of the currency and chronic increases in
the load of interest-bearing debt have become worse and worse over the years
since 1913. For the regimes are largely unworkable except to depreciate the
currency and maximize debts; and it apparently has been in the interest of
those in control to do exactly that.
For real reform, the American people must focus on the goal they want to
achieve. This goal is quite different from the goal of the political and
economic oligarchy that operates through the FRS. The oligarchy's goal first,
foremost, and forever is to maintain its own power, no matter what. If not
entirely the product of the present monetary and banking regimes, this power
works through and needs those regimes to be effective. Therefore, the
oligarchy's goal and implicit in its "solution" of any problem in money and
banking is to preserve the present regime (and thereby the oligarchy's power),
at whatever cost to everyone else. The oligarchy will never voluntarily return
to the constitutional system of silver and gold coinage and nonfraudulent
banking.
Conversely, the goal of the American people must be to install (or, actually,
to reinstall) monetary and banking systems that serve society as a whole, not
just a few self-perpetuating political and economic special-interest groups.
In the course of achieving that goal, provision must be made for selectively
directing the inevitable economic losses that monetary and banking reform will
occasion.
First, no significant reform (constitutional or otherwise) can or will be
costless. Since World War II, inflation of the supply of flat currency alone
has "redistributed" wealth on a massive scale. If each "redistributed" FRN
"dollar" has been coercively or fraudulently redirected from a use of more
value to society as a whole to a use of less value (but of greater value to
some special-interest group), then the total misallocation of resources by the
nonrational central economic planning of the FRS has certainly been very large.
Returning to constitutional systems of money and banking will expose much of
this hidden waste for what it is, deflating the value of "assets" that monetary
legerdemain artificially propped up.
Second, the losses that return to constitutional systems of money and banking
may unavoidably cause should not fall on innocent parties, or be spread out
indiscriminately among the American people as taxpayers. For example, if X has
a long-term commercial contract with Y that is payable in FRNs, and reform of
the monetary system significantly lowers the real purchasing-power of FRNs, X
should not in justice be required to absorb the loss, nor should the American
people be required to "bail out" X.
Rather, Y should be required to pay the real value of that contract, in
whatever the new medium of exchange may be, so that X receives the real benefit
and Y bears the real burden of the contract as they originally negotiated it.43
On the other hand, if X owes a certain amount of FRNs to bank B that is a
member of the FRS, X should be allowed to repay that debt in FRNs, no matter
how low the purchasing-power of FRNs may sink, because FRNs are the notes of
the cartel to which B belongs.
The American people are not truly responsible for the present mess in money and
banking under which everyone outside the privileged elite suffers. And,
therefore, they should not be asked, let alone required, to "sacrifice" to
correct the mistakes and malfeasance of their "leaders" and the wire-pullers
who yank those "leaders" around from behind the political scenes.
After all, the American people would be theoretically responsible only if they
had had full disclosure from their "leaders" of what was going on and its
consequences namely, that the constitutional system was being replaced with a
fascistic banking-cartel, that non-rational central economic planning was being
substituted for a free-market system of money and banking, that a political and
economic oligarchy was assuming direction of monetary and banking affairs
largely for its own purposes, and so on. But, since creation of the FRS in
1913, there has never been the kind of "wide-open" national political debate on
the fundamental issues of money and banking that took place, time and again,
during the 1800s.
To the contrary: since 1913 those issues have been turned into non issues. For
example, the "gold seizure" and repudiation of "gold-clause contracts" in 1933
and 1934 were unprecedented events that struck at the very heart of the
constitutional monetary system. Yet, even in 1936 these acts were not raised as
major issues in the presidential campaign, and have never been raised since.
True, in 1973 and 1977 people in Congress friendly to sound money were able to
pass legislation that restored Americans' rights to own gold and to make
"gold-clause contracts.
But even they did not promote this legislation as part of a broadly based
political counter-attack to impose constitutional reforms on the monetary and
banking systems as a whole. And, presumably, the opponents of sound money did
not fully exert themselves to block this legislation precisely because they
recognized that it was not part of such a broadly based counter-attack, and
precisely because they foresaw correctly, it turned out that the vast majority
of Americans who were (and today remain) uneducated in monetary and banking
matters would not make effective use of the rights to own gold and to make
"gold-clause contracts.
Similarly, although the day-to-day policy decisions of the FRS with respect to
the money-supply, interest rates, and other matters are often the subjects of
media coverage and political controversy, the existence, structure, supposed
"independence, and powers over money and banking of the FRS are not. The
"issue" the American people and their elected representatives are allowed to
"debate" is whether the FRS is exercising its powers well or poorly not whether
the FRS, or any other quasi-public or governmental agency, should have those
powers at all under our Constitution.
Under these circumstances, to structure monetary and banking reform on a theory
that all Americans should "sacrifice" equally would be unfair to the vast
majority, who have already sacrificed a great deal in national wealth,
productivity, and so on because of the FRS and the refusal of their elected
representatives to enforce the Constitution.
VI. Why should Americans demand restoration of the constitutional systems of
money and banking?
The only remaining question is why Americans should demand restoration of the
constitutional Systems of money and banking, as opposed to some other,
supposedly more "modern" arrangements. There are at least six good reasons.
The present unsatisfactory monetary and banking regimes are the products of
violations whether intentional or inadvertent of the Constitution. Today's
problems are the result of not adhering to the system the Founders created. It
is only logical to presume that, if a failure to follow the "user's manual" has
caused a machine to break down, consulting the manual will at least help to
correct the situation.
The present monetary and banking regimes are the products of statutes,
regulations, and court decisions in large measure unconstitutional, to be sure,
but there nonetheless. Any reform of the present regimes will require the
repeal or radical amendment of at least some of these statutes and regulations
and the enactment of new ones, and will no doubt generate a large volume of
litigation. In all of this, the Constitution must be controlling. For the
Constitution sets the only rational political, legal, and moral boundaries on
the powers of legislators, administrators, and judges. If the American people
do not look to the Constitution, first and foremost, as their only sure rule of
action, and their basis on which to gauge the rectitude of the actions of their
elected and appointed representatives, they will lack any real guidance at all.
Recognition that, with respect to money and banking, the Constitution has been
misinterpreted, neglected, or even improperly set aside since 1913 and must now
finally be enforced before it is too late will allow the American people to
assign responsibility or culpability for what has happened, and to structure
reforms so as to impose the unavoidable costs on the parties and institutions
that actually caused or contributed to the contemporary mess, rather than
piling the financial burden indiscriminately on the backs of innocent taxpayers
who have been misled for generations about what was going on. The other
alternative to say that monetary and banking policy since creation of the FRS
in 1913 has all been a "big mistake" for which no one is to blame would be, in
effect, to allow those who created the mess to profit from it, while imposing
the burden of cleaning it up on faultless, duped Americans.
The constitutional system is eminently workable, because it contains numerous
fixed points of legal reference on which all Americans of good will can agree
once they have studied the Constitution and its history. For example, under the
constitutional system the "dollar" is a known weight of coined silver (371-1/4
grains); government may not issue any form of paper currency ("Bills of
Credit"); and only "gold and silver Coin" may be made "a Tender in Payment of
Debts. Thus, there is no need to debate what the monetary unit should be,
whether government can substitute debt-instruments (such as Treasury Notes or
FRNs) for commodity money of silver and gold, or whether government can force
creditors to accept substitutes for the real money they contracted to receive
from their debtors. Those issues (and many others as well) the Constitution
settles definitively.
Because these fixed points are if the Constitution is properly enforced already
the law, agreement on what the Constitution requires automatically sets the
standards of the monetary and banking systems, and to a very great extent
dictates what must be done to reform the present regimes. In contrast, for even
a majority of Americans to agree on some new, supposedly "ideal" monetary and
banking systems seems less than likely. And for any such "ideal" systems to
become part of the Constitution through the complicated process of amendment
seems highly improbable.
On the other hand, to argue that some "ideal" systems can be enacted into law
without a constitutional amendment, because the Constitution gives legal carte
blanche to the government in monetary and banking matters, is to perpetuate the
fundamental problem Americans face today: that money and banking are out of
control precisely because they have been removed from constitutional restraints
and thoroughly politicized, so that "anything goes
In short, the only practical way to bring legal order into money and banking,
and to keep it there, is to return to fixed, knowable, and already known
constitutional principles.
There is no need, moreover, for Americans to tax their brains to devise some
new, supposedly "ideal" systems of money and banking, because the
constitutional systems the Founders enacted are, both politically and
economically, good ones. As explained above, constitutional money and banking
are, for all intents and purposes, free-market money and banking, with a
particular form of money (silver and gold coins based on the "dollar" as the
unit) fixed for the government.
This is in principle the most desirable of all possible worlds, because it
severely limits the authority and freedom of action of the government, allows
individuals to use whatever they desire as money (except in dealing with the
government), and protects society against deceptive practices such as
fraudulent "fractional-reserve" banking. Economists may debate no doubt
endlessly whether silver and gold coins are the absolutely "best" form of money
in some theoretical sense. Historically, however, silver and gold coins have
always performed admirably as money. And this record certainly commends them as
an appropriate, if not the "best, choice for the money the government is
required to use.
Surely, if the Founders' choice of silver and gold coins as official
governmental money had never been effective in constraining the ability of
elected officials and bureaucrats to manipulate the monetary and banking
systems, those officials and bureaucrats (and the private special-interest
groups supporting them) would not have worked so tirelessly since the late
1800s to remove silver and gold coins from day-to-day use as Americans' media
of exchange, media of taxation, and so on! And if silver and gold coins are not
the "best" money for all purposes, at least the constitutional system does not
require that private individuals use them (except in dealing with the
government).
Finally, a movement to restore constitutional principles of money and banking
can help to rally Americans behind their country, rekindling hope in our
governmental institutions and helping to dispel the cynical view that those
institutions are hopelessly corrupt and the pessimistic view that nothing can
be done to rectify the situation. If this were all that a renewed public debate
on money and banking accomplished, it would be a fine achievement indeed.
NOTES
1 E.g., a consumer may have to decide whether to spend his disposable income on
a new automobile or an overseas vacation. Only after he decides to forego the
vacation in order to purchase an automobile will he have to choose among the
many competing makes available. In this instance, the initial competition is
between vacations and automobiles. Obviously, the prices of vacations, as
compared to the prices of automobiles, will strongly influence the consumer's
actions.
2 E.g., if the selling price of some consumer good X is higher than the selling
price of consumer good Y, all other things being equal entrepreneurs will tend
to invest in the production of X rather than Y This will increase total social
welfare, because the higher price of X indicates that consumers value it more
than Y, and would be benefitted by an increase in the amount of X, and a
corresponding decrease in the amount of Y, produced.
3 People are often reluctant to conceive of the government as engaged in
systematic fraud. This attitude, however, is naif. See, e.g., J.T. Bennett &
T.J. Lorenzo, Official Lies: How Washington Misleads Us (1992).
4 This definition distinguishes monetary intervention from the simple crime of
counterfeiting, on the one hand, and from the quite legitimate activity of
mining, refining, and coining the precious metals silver and gold into
commodity money, on the other hand.
5 See U.S. Const. art. I, 10, cl. 1.
6 This differentiates debasement through legalized counterfeiting from "coin
clipping, "coin shaving, private counterfeiting and other forms of debasement
that take place outside the mint and not under color of law.
7 In the United States today, though, people capable of making correct
observations about money seem to constitute a small minority. For example,
under present law the base-metallic "clad" "dollar coin * * * is 1.043 inches
in diameter and weights 8.1 grams, whereas the "clad" "half dollar coin * * *
is 1.205 inches in diameter and weighs 11.34 grams"; and both coins are
composed of the same "sandwich" of copper and nickel. 31 U.S.C. 5112(a)(1,
2), 5112(b). The average person apparently sees nothing incongruous about a
supposedly less-valuable coin being larger and heavier than a more-valuable one
of the same substance! This anomaly is not the product of some popular delusion
peculiar to base-metallic coins. For under present law the "fifty dollar gold
coin contains one troy ounce of fine gold, whereas the "ten dollar gold coin
average person apparently sees nothing strange in the result that five
"ten-dollar" gold coins (total nominal value of "fifty dollars") contain 1-1/4
ounces of gold, while one "fifty-dollar" gold coin contains only 1 ounce of
that metal!
8 This holds only where the issuer of the coins retains the original nominal
values and sizes (e.g., debasing a "dollar" coin by gradually cheapening the
metallic content from silver to copper, from copper to nickel, from nickel to
iron, and so on). If the issuer also changes the sizes of the coins (making
them smaller), and the denominations (making them larger), or both, no
practical physical limits to debasement exist.
9 See 31 U.S.C. 5118(d)(2).
10 To be maximally effective, government and its cronies must link debasement
to a "call in" or seizure of outstanding full- valued silver and gold coins,
and especially to a prohibition of "gold-clause contracts, as the United
States government did in the 1930s. See H. Holzer, How Americans Lost Their
Right to Own Gold and Became Criminals in the Process (Committee for Monetary
Research & Education, Monograph No.35, December 1981).
11 A system of nonfraudulent fractional-reserve currency, in which the issuers
fully disclosed to the public that holding the currency involved a risk of
loss, is not impossible to imagine. If the public were fully informed about how
such a system operated and what its risks were, however, probably relatively
few people would choose to hold as their money fractional-reserve currency in
preference to 100% reserve currency or silver or gold coins themselves.
12 Few people seem to appreciate that, if fractional-reserve currency schemes
were truly safe in an economically meaningful way, there would be essentially
no need for deposit insurance. "Insurance, after all, deals with contingent
risks. The greater the need for deposit insurance, the greater must be the risk
of default by the banks. Where the government insures the entire banking
system, the risk must be both pervasive and significant.
13 E.g., holders of contemporary FRNs can demand that the "notes" be "redeemed"
in "lawful money. 12 U.S.C. 411. The medium of redemption, however, will be
base-metallic, not silver or gold, coins. See 31 U.S.C. 5118(b), 5118(c)(1)
(B, C), 5119(a). To the extent that these "clad" coins contain some real metal
with a small residual market value, FRNs are not a completely repudiated, or
true flat, paper currency. For purposes of practical analysis, however, FRNs
may be considered essentially a flat currency, because it is difficult to
imagine a "bank run in which people raced to exchange FRNs for "clad" coins.
Of course, a "bank run" can occur in a flat-currency system when people,
suspicious of a bank's solvency, rush to withdraw money of any kind from their
accounts before the bank "goes bust. In this case, however, people make a
"run" on the bank to obtain the money they originally deposited, not to convert
one form of money into another through "redemption.
Analytically, however, because a person's deposit (say, in a checking account)
may be considered "deposit-currency, a "run" of this kind is akin to a
traditional "run, because the depositor is attempting to "redeem" his
"deposit-currency" (the pen-and-ink notations or electronic "blips" in the
bank's accounts) for paper currency or base-metallic coins. But if a central
bank or governmental treasury stands ready to provide individual banks with all
the bank-notes they need to convert "deposit-currency" into "cash" on demand,
then, although a traditional run may occur, it cannot "break the bank. Also,
"deposit-insurance" schemes are a means banks and governments use today to
avert "runs" of this kind, by convincing people that their deposits are safe no
matter how irresponsible the bankers may be, because the taxpayers will make
good on the bankers' losses.
14 Old debt can, of course, also be paid with money borrowed in the future (new
debt). But then the new debt remains to be paid. If the debt were paid
immediately with taxes collected contemporaneously, no "borrowing" would take
place (and certainly no interest would be chargeable on the debt).
15 Episodes of intervention intentionally aimed at decreases in the supply of
money are historically rare.
16 The best explanation of modern banking is by Murray N. Rothbard, The Mystery
of Banking (1983).
17 For reliable information on the economics of money, its supply, its
purchasing power, and so on, see Ludwig von Mises, Human Action: A Treatise on
Economics (1963); Murray N. Rothbard, Man, Economy and State: A Treatise on
Economic Principles (1970).
18 In a hyperinflationary environment, such as existed in Weimar Germany in the
early 1920s, radical increases in the supply of paper currency may appear
necessary to enable the currency to continue to perform albeit poorly and for
only a short period of time the functions of money. See, e.g., Constantino
Brescioni-Turroni, The Economics of Inflation (1937). This situation arises,
however, precisely from the economic unsoundness of the currency.
19 In a free market, the purchasing-power of silver and gold coinage would
probably tend to increase slowly over time, which would particularly benefit
wage-earners and retired individuals on pensions, and encourage investment in
long-term projects. Under interventionism, the purchasing-power of paper
currencies and deposit-currencies has tended to decrease rapidly, reducing the
real take-home pay of wage-earners and the real value of pensions, discouraging
long-term investments, and lifting people into ever-higher tax-brackets so that
the government could confiscate and squander ever more of their wealth.
20 Even when not if a Federal Bread Board fouled up the production and
distribution of bread, the people could still bake their own bread. But when
the Federal Reserve Board fouls up the monetary and banking systems, forms of
money other than the FRN are not readily available for the people to use.
21 See Perry V. United States, 294 U.S. 330 (1935).
22 E.g., government can protect banks from excessive runs on their deposits.
Veix V. Sixth Ward Ass'n, 310 U.S. 32, 34-41 (1940). If "bank runs" by
depositor-creditors are viewed as a type of self-help "foreclosure" on
bank-debtors, it should follow that government can protect debtors of banks
from oppressive foreclosures. Cf. Home Building & Loan Association v.
Blaisdell, 290 U.S. 398 (1934).
23 See Wickard v. Filburn, 317 U.S. 111, 131 (1942)("[i]t is hardly lack of due
process for the Government to regulate that which it subsidizes").
24 See E. Vieira, Jr., Pieces of Eight The Monetary Powers and Disabilities of
the United States Constitution (1983).
25 The classic example in American law is Craig v. Missouri, 29 U.S. (4 Pet.)
410, 436-37 (1830).
26 Grants of power: See, e.g., U.S. Const. art. I, 8, cl. 2 (power to "borrow
Money"), cl. 5 (power to "coin Money and regulate the Value thereof"). Denials
of power: See, e.g., U.S. Const. art I, 10, cl. 1 (States may not "coin
Money, "emit Bills of Credit, or "make any Thing but gold and silver Coin a
Tender in Payment of Debts").
27 U.S. Const. art. I, 10, cl. 1.
28 U.S. Const. art. I, 8, cl. 5.
29 See U.S. Const. amends. V and XIV (no person shall be deprived "of life,
liberty, or property, without due process of law").
30 See U.S. Const. art. I, 10, cl. 1 (States shall not pass any "Law
impairing the Obligation of Contracts").
31 See U.S. Const. art. I, 8, cls. I and 2.
32 Indeed, the Constitution explicitly limits the power of Congress to "borrow"
to the power to "borrow Money. U.S. Const. art. I, 8, cl. 2.
33 These acts are now codified in 31 U.S.C. 5118(a-c).
34 E.g., all United States silver and gold coins are denominated in "dollars"
and remain "legal tender, even today. See 31 U.S.C. 5101, 5103.
35 See 31 U.S.C. 5118(d)(2).
36 See 31 U.S.C. 5112(a)(7-10), 5112(e).
37 The qualification of "general, day-to-day" circulation is necessary, because
silver and gold coins are in limited circulation. Most of the time, however,
these coins are held (not spent) by individuals responding to Gresham's Law,
which teaches that people will tend to spend less-valuable money (in this case,
FRNs and "clad" coins) and to hold in their cash balances more valuable money
(silver and gold coins).
38 Presumably, even Congress and the State governments would concede that the
explicit prohibitions the Constitution directs against the States still apply.
See U.S. Const. art. I, 10, cl. 1. This, however, is perhaps a questionable
presumption, as the States generally impose on their citizens FRNs as "legal
tender, even though: (i) FRNs are not themselves gold or silver coins and are
not redeemable in gold or silver coins; and (ii) the Constitution mandates that
"No State shall *** make any Thing but gold and silver Coin a Tender in Payment
of Debts.
39 Indeed, when "monetization" of governmental debt results in general
price-increases in the marketplace (what the public calls "inflation"), the
government and its apologists blame a laundry-list of convenient scapegoats,
such as unions, greedy businessmen, Swiss "gold speculators, and so on, in
order to divert public suspicion from the true culprits. See Higgs, "Blaming
the Victims: The Government's Theory of Inflation, The Freeman, Vol. 29, at
397 (1979); T. Bethell, Television Evening News Covers Inflation: 1978-79
(1980).
40 E.g., assume that, in order to fund a budget of W "dollars" in year A, the
government taxes X "dollars" from the public and borrows Y "dollars" by
monetization in year A, promising to repay Y "dollars" in principal and Z
"dollars" in interest in year B. Further assume that, when year B arrives, the
government decides to collect its entire revenue through taxes, including the Y
+ Z needed to pay off the debt incurred in year A. If the government spends as
much in year B as it did in year A (i.e., W = X + Y), it must collect a further
Z in taxes to pay the interest on the debt. It could do this, without
overburdening the public with taxes, if the tax-base had increased i.e., if the
economy had become more productive as the result of the government's
expenditure of Y in year A, and therefore tax revenues increased even though
tax rates remained the same. In this case, the expenditure of Y could be
considered in some sense an "investment, as it had increased taxable
productivity in society as a whole. However if Y did turn out to be an
"investment" in this sense, that would be the consequence of the expenditure in
year A, not of the requirement that the government also tax from the public and
pay to bond holders Z in year B. The "investment" effect could have been
achieved without any monetization of interest-bearing debt, simply by emission
of governmental fiat currency directly from treasury.
On the other hand, if the tax-base does not increase by year B as a result of
the government's expenditure of Y in year A i.e., if the expenditure turns out
to be complete "consumption, or even waste, rather than "investment" -, the
taxes necessary to pay the interest due (Z) will constitute an increased,
deadweight burden on society, for the special benefit of the banking- cartel
which created the new money "out of nothing" in the first place.
In both cases, the government and the general public gain nothing by
"monetization" of interest-bearing public debt, in preference to a system of
direct creation of flat currency by the treasury itself. If any creation and
expenditure of flat currency can "stimulate" the economy in a productive
fashion (i.e., can function as an "investment" by government), there is no need
for that creation to be accompanied by the incurrence of interest- bearing
public debt. And, if creation and expenditure of flat currency turns out to
constitute pure "consumption, there is even more obviously no need for that
creation to burden the taxpayers with the duty to fund payments of interest.
This is not to say, of course, that the emission of flat currency by the
government would be advisable in and of itself, in preference to a system of
constitutional (silver and gold) money only that, if fiat currency must be
used, common sense teaches that it should be generated without the burden of
interest-payments.
41 To be sure, the government apparently can, from time to time, pressure the
banking-cartel into temporarily following policies more favorable to the
short-term political interests of officeholders than to the longer-term
interests of the financial elite. But the banking-cartel's compliance with the
government's demands on these occasions, one suspects, evidences merely the
wisdom of the parasite that avoids angering the host. That the parasite, on
occasion, moderates its behavior in favor of the host in order to maintain its
(the parasite's) own position does not change the essentially parasitic nature
of the relationship.
42 See Poindexter v. Greenhow, 114 U.S. 270, 290-91 (1885).
43 This approach was adopted in the Southern States after the Civil War, when
Confederate money had become worthless, but contracts of innocent parties
denominated in that money remained to be executed. See, e.g., Thorington V.
Smith, 75 U.S. (8 Wall.) 1, 11-14 (1868).
1993 National Alliance for Constitutional Money, Inc.
CONTACT INFORMATION
Larry Parks, Executive Director
FAME,501(c)(3)
Box 625, FDR Station
New York, New York 10150-0625
Phone:212-818-1206
Fax: 212-818-1197
LPARKS@FAME.ORG
www.fame.org