|
"Why Does The United States Need Six Questions On Monetary Reform
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:
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:
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,
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:
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 fro |