Categories
Article I Section 10 Article I Section 8 Coin Money Gold Intelwars Legal Tender money paper money Silver Sound money

Why Is Paper Money Constitutional?

The official money of the United States today is paper currency. But that’s clearly not what the Constitution says. It says that gold and silver coins shall be the nation’s currency. 

How is that possible? I thought the Constitution was supposed to be the highest law of the land. I also thought that it was the responsibility of the U.S. Supreme Court to enforce the Constitution. Why then are Americans living under a paper-money monetary system rather than the system stipulated in the Constitution?

Article 1, Section 8, of the Constitution gives Congress the power to “coin money.” It is not given any power to “print” money. Coining money is not printing money. At the risk of belaboring the obvious, coining money entails making coins out of metals.

The Framers preferred coins made from gold and silver. How do we know this? Because of Article 1, Section 10, which states in part: “No State shall make any Thing but gold and silver Coin a tender in Payment of Debts.”

It would be difficult to get any clearer than that. So the question naturally arises: Why have the States made paper money a tender in payment of debts, given that the Constitution expressly limits them to making only gold and silver coin legal tender? And why hasn’t the Supreme Court forced the states to comply with the Constitution?

Equally important, why has the Supreme Court failed to force the federal government to comply with the Constitution? It’s clear that by the express language of the Constitution, the Framers, as well as our American ancestors, not only favored gold and silver coins as the official money of the United States but also engrafted such a system onto the Constitution itself? Isn’t it the responsibility of the Supreme Court to enforce the Constitution?

It was President Franklin Roosevelt who, along with his Congress, abrogated America’s founding monetary system. Citing the economic emergency of the Great Depression, Roosevelt and his Congress decreed that America would no longer use gold and silver coins as its official money. Instead it would resort to paper money as its official money. 

Roosevelt then went a step further. He ordered everyone to turn in his gold coins to the federal government. In return, they would receive paper money. Anyone who was caught owning gold coins — which had been the official, legal money of the American people for more than a century — would be criminally prosecuted for a felony.

There was at least one big problem, however, with Roosevelt’s actions: He didn’t secure a constitutional amendment prior to nationalizing gold and making paper money legal tender. Remember: the Constitution is the highest law of the land. It controls the actions of the president and Congress. The executive and legislative branches cannot amend the Constitution. They are required to comply with the Constitution.

Moreover, the Constitution does not provide an emergency exception. That means that its provisions remain fully operative and enforceable despite any emergency. 

Unfortunately, the Supreme Court abrogated its responsibility to enforce the Constitution, which enabled Roosevelt to get away with his monetary power grab. 

That’s how Americans have came to live under a paper-money system notwithstanding the clear language to the contrary in the Constitution. That’s also how federal officials have been able to confiscate the income and wealth of the American people through decades of monetary debasement.

The post Why Is Paper Money Constitutional? first appeared on Tenth Amendment Center.

Share
Categories
Federal Reserve Gold Intelwars interest rates Monetary Policy Silver Sound money

Has the Fed Let the Inflation Genie Out of the Bottle?

The dramatic ascent of precious metals markets this summer reflects what could be just the start of a longer-term decline and fall in the Federal Reserve note’s value and status.

With gold prices surpassing $2,000 per ounce recently, the monetary metal has now made new all-time highs versus all the world’s major fiat currencies. Gold is, as former Federal Reserve chairman Alan Greenspan has acknowledged, the “ultimate money.”

The Fed, by contrast, is the ultimate inflator.

Fed officials won’t tolerate deflation (an increase in the purchasing power of the currency) – or even “no-flation” (in the form of a stable-value Federal Reserve note).

In defiance of their statutory mandate to pursue “price stability,” Fed officials are waging a deliberate campaign to generate higher rates of price inflation.

According to a CNBC report, “In the next few months, the Federal Reserve will be solidifying a policy outline that would commit it to low rates for years as it pursues an agenda of higher inflation… in which inflation above the central bank’s usual 2 percent target would be tolerated and even desired.”

Meanwhile, the Fed continues to suppress interest rates across the yield curve. On Tuesday, the yield on the 10-year Treasury note fell to a record-low 0.52 percent.

A falling dollar (the U.S. Dollar Index in July suffered its biggest one-month decline since 2010) coupled with spiking precious metals prices and rising inflation expectations would normally send investors fleeing from bonds, forcing their yields up.

But these are not normal times.

“Not only have Treasury yields been historically low, they have been unusually stable,” notes Barron’s. “That would be consistent with ‘yield curve control,’ a method of pegging long-term borrowing costs. This has been among the policies under discussion by the Fed…”

It appears that a “yield curve control” policy is already being implemented behind the scenes as part of the Fed’s bond-buying operations.

The Fed is now the largest single institutional holder of U.S. Treasuries. Through the powers of self-dealing and an unlimited printing press, the Fed can manipulate the bond market like a puppeteer.

But for how long can the central planners artificially sustain a bull market in bonds that is becoming increasingly divorced from market realities? At some point, interest rates will hit a final bottom.

Conventional wisdom used to be that 0 percent was the absolute floor. But in recent years, we’ve seen trillions of dollars’ worth of European cash and debt instruments carry negative yields.

There need not necessarily be any “zero lower bound” on rates on any part of the yield curve. However, even if U.S. rates never turn negative in nominal terms, they can go deeply negative in real terms – with no lower bound.

“There is nothing more bullish for gold and silver prices than steeply negative real interest rates.”

To illustrate, if benchmark bond yields hover around 0.5 percent, that nominally positive yield is actually negative (-1.5 percent) assuming a 2 percent inflation rate.

Fed policymakers can effectively cut rates by raising inflation.

And by the way, there is nothing more bullish for gold and silver prices than steeply negative real interest rates on fiat currencies.

Maintaining negative real interest rates – as opposed to negative nominal rates – is the path the Fed is on… not the path Europe took.

Europe’s negative interest rate policies are now widely viewed as having failed to achieve central bankers’ objectives of stimulating borrowing and economic activity.

Negative nominal rates sent the signal that an economic freeze was in place, so people continued to hunker down financially.

But pushing inflation rates higher gives the illusion of growth.

Though the real economy may be shrinking in the aftermath of coronavirus lockdowns, a stock market pumped up by Fed liquidity injections does stimulate paper wealth creation. In theory, that paper wealth might trickle down into actual consumer demand and job creation.

In reality, the Fed is transferring wealth to Wall Street and pain to Main Street.

Financial wealth will to some extent find its way into the real economy – in the form of higher price inflation. That’s what soaring precious metals markets seem to be telegraphing.

The Fed’s inflation-raising scheme is in many ways far more dangerous than negative interest rate policy.

Central bankers can manipulate interest rates with precision if they are careful. But they should not be so arrogant as to believe they can successfully manipulate inflation rates up to particular targets and keep them there.

Once the inflation genie is let out of the bottle – once consumers, businesses, and investors begin to act on expectations of higher rates of price increases – inflationary psychology can snowball faster than the Fed can issue policy statements.

Inflationary episodes like we saw the late 1970s – and like we’ve been seeing over the past four months – are characterized by extreme volatility amid dollar insecurity.

Holders of Federal Reserve note dollars and dollar-denominated real negative-yielding IOUs are like sheep lining up to get slaughtered through purchasing power losses.

Those who want to survive the coming inflation must seek the protection of sound assets, including sound money – gold and silver.

Share
Categories
Constitutional Tender Cryptocurrency Federal Reserve Gold Intelwars Silver Sound money

Status Report: Sound Money in the States

If you want to end unconstitutional, overreaching federal power – end the Fed. It’s the engine that drives the most powerful government in this history of the world.

But Congress will never abolish the central bank. It can’t even come up with the will to audit the Fed.

So what can we do?

Even though state action can’t end the Fed, there are steps states can take that will undermine the Federal Reserve’s monopoly on money. By passing laws that encourage and incentivize the use of gold, silver and cryptocurrency in daily transactions by the general public, state action has the potential to create a wide-reaching impact and set the foundation to nullify the Fed’s monopoly power over the monetary system.

Over the last two years, a number of states took concrete steps in this direction.

REPEAL TAXES ON SOUND MONEY

The first step is to repeal taxes on gold and silver.

Imagine if you asked a grocery clerk to break a $5 bill and you were charged a 35 cent tax. Silly, right? After all, you were only exchanging one form of money for another. But that’s essentially what a sales tax on gold and silver does.

Sales tax and capital gains taxes treat gold and silver as a commodity instead of money. They also create a barrier to using gold and silver in everyday transactions. Repealing taxes is a crucial first step toward the use of specie as money.

Last year, Kansas and West Virginia both repealed their sales tax on the sale of gold, silver and other precious metal bullion. This is an important first step toward creating currency competition and breaking the Fed’s monopoly on money. They joined at least 37 states that have already done the same.

While repealing state sales taxes on precious metals may seem like a relatively small step, it removes one barrier to owning gold and silver and eliminates a penalty on the use of sound money.

GOLD BULLION DEPOSITORIES

Establishing gold bullion depositories that facilitate the use of sound money is another step states can take to undermine the Fed’s monopoly on money.

Gov. Greg Abbott signed legislation creating the state bullion and precious metal depository in June of 2015. The facility began accepting deposits on June 6, 2018. The depository provides a secure place for individuals, businesses, cities, counties, government agencies, and even other countries to store gold and other precious metals.

You don’t have to be a Texas resident to use the depository. Any U.S. citizen can set up an account online and then ship or personally deliver metal to the facility. The Texas Bullion Depository accepts gold, silver, platinum, rhodium and palladium.

The law also creates a mechanism to facilitate the everyday use of gold and silver in business transactions.

While the depository does not currently have a system in place to facilitate everyday transactions with gold and silver, it remains part of the long-term plan. According to an article in the Star-Telegram, state officials want a facility “with an e-commerce component that also provides for secure physical storage for Bullion.” 

Ultimately, depositors will be able to use a bullion-funded debit card that seamlessly converts gold and silver to fiat currency in the background. This will enable them to make instant purchases wherever credit and debit cards are accepted.

By making gold and silver available for regular, daily transactions by the general public, the new depository has the potential for a wide-reaching effect. In practice, the Texas Bullion Depository will operate much like the privately-owned UPMA already established in Utah.

In 2019, Texas passed a constitutional amendment and enabling legislation that exempts precious metals stored in the Texas Bullion Depository from certain taxes. Enactment of this law ensures there won’t be any barriers to using gold and silver stored in the depository for everyday financial transactions.

THE CRYPTO ALTERNATIVE

Gold and silver aren’t the only currency alternative. Cryptocurrency could also crowd out federal reserve notes.

In 2018, Wyoming enacted several laws to facilitate and encourage the use of cryptocurrency, positioning itself to become the national leader in cryptocurrency and blockchain sectors.

In 2019, the state followed up with three more laws to support and encourage the use of cryptocurrencies in the state.

The first law created a legal framework for chartering “special purpose depository banks” tailored to serve cryptocurrency and blockchain businesses. The second law specifies that digital assets are property within the Uniform Commercial Code and authorizes security interests in digital assets. The law also clears the way for banks to serve as crypto custodians. A third bill signed by the governor enables securities to be issued in a tokenized form in Wyoming. “Normally, a stock certificate is a piece of paper. … If you want to use a blockchain token to represent a stock certificate, [that would be] legal in Wyoming. [It would be] a legally issued security,” the sponsor of the bill said.

In combination, these laws have not only set Wyoming on the path toward becoming the cryptocurrency capital; they also take an important first step toward generating currency competition. 

If other forms of money, whether it be cryptocurrencies or gold and silver, gain a foothold in the marketplace against Federal Reserve notes, people will be able to choose them over the central bank’s rapidly-depreciating paper currency. The freedom of choice expanded by these laws helps allow Wyoming residents to secure the purchasing power of their money.

All of these state efforts open the door for a serious push-back against the Fed and its monopoly on money. But state action alone won’t accomplish the goal. Ultimately, it will be up to everyday people to take advantage of these state laws and actually start using gold, silver and cryptocurrency as money.

For more details on state efforts to undermine the Federal Reserve’s monopoly on money, make sure you read our latest State of the Nullification Movement report. You can download it for free HERE.

Share
Categories
Constitutional Tender Federal Reserve Gold Intelwars Sound money

The Federal Reserve: The Engine that Drives the Powerful Government in History

Over the last few years, the sound money has become one of the Tenth Amendment Center’s primary policy areas. The objective; create an environment for currency competition that can potentially undermine the Federal Reserve’s monopoly on money.

Why?

Because the Fed is the engine that drives the most powerful government in this history of the world.

Money is power, and the Federal Reserve serves as an unlimited spigot pumping dollars the economy. It monetizes the federal debt and enables a level of borrowing that wouldn’t be possible otherwise. Without the Fed, there would be no foreign wars. There would be no massive, unsustainable social programs. There would be no police state. There would be no corporate welfare programs. The federal government would truly be limited.

If you want to end unconstitutional, overreaching federal power — end the Fed.

All of this money printing and intervention also distorts the economy.

Before the crash in the first quarter of 2020, the stock market soared to record highs in 2019. The surging markets were a favorite subject of President Trump’s Twitter feed. It was proof, according to him, that we experienced “the greatest economy in American history.” 

To hear the president tell it, the world had never seen this kind of economic growth. But the truth is the world did see it – during the Obama administration. Economic growth during the Trump administration looked an awful lot like economic growth during the Obama era. In 2019, GDP grew by 2.3 percent. That wasn’t even as high as Obama’s best year. 

In historical terms, U.S. economic growth in 2019 was tepid.

The crash in early 2020 revealed the rot in the economy’s foundation. While most people blame the coronavirus for the market crash, the pandemic was merely the pin that popped the bubble. In fact, we saw trouble in the stock markets in the fall of 2018, long before the coronavirus reared its ugly head. The Fed had to rush in a save the day by cutting interest rates.

So, if the economy wasn’t really booming, why was the stock market setting records? And how did it revive so quickly after the coronavirus crash in March 2020?

Look no further than the Federal Reserve.

You simply cannot grasp the economic big-picture without understanding how Federal Reserve monetary policy drives the boom-bust cycle. The effects of all other government policies work within the Fed’s monetary framework. Money-printing and interest rate manipulations fuel booms and the inevitable attempt to return to “normalcy” precipitates busts.

In simplest terms, easy money blows up bubbles. Bubbles pop and set off a crisis. Rinse. Wash. Repeat.

The Fed wields enormous power through its ability to maintain a monopoly on money. It also creates a weakness because there are steps we can take to undermine and break down that monopoly power.

By passing laws that encourage and incentivize the use of gold, silver and cryptocurrency in daily transactions by the general public, state action has the potential to create a wide-reaching impact and set the foundation to nullify the Fed’s monopoly power over the monetary system.

There are a number of concrete steps states can take to expand the market for gold, silver and crypto as money.

  • Recognize Gold and Silver as Legal Tender
  • Eliminate Sales Taxes and Capital Gains Taxes on the Exchange of Money (Gold, Silver, Platinum)
  • Establish State Gold Depositories
  • Incentivize the use of cryptocurrency and eliminate all state taxes

As highlighted in the 2019-2020 State of the Nullification Movement report, three states passed laws to encourage currency competition and Texas continued to ramp up operations at its gold depository.

The Big Picture

The United States Constitution states in Article I, Section 10 that, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.”

Currently, all debts and taxes in states around the country are either paid with Federal Reserve notes (dollars), authorized as legal tender by Congress, or with coins issued by the U.S. Treasury – almost none of which contain gold or silver.

In a paper for the Mises Institute, constitutional tender expert Professor William Greene said that when people in multiple states actually start using gold and silver instead of Federal Reserve Notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.

“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a ‘reverse Gresham’s Law’ effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes).

“As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people.

All of these state efforts open the door for a serious push-back against the Fed and its monopoly on money. But state action alone won’t accomplish the goal. Ultimately, it will be up to everyday people to take advantage of these state laws and actually start using gold, silver and cryptocurrency as money.

Share
Categories
Article I Section 10 Constitution Federal Reserve History Intelwars Sound money

Monetary Destruction in America

The Constitution made it crystal clear what the official money of the United States was to be when it called the federal government into existence. That money was to be gold coins and silver coins, not paper money.

Article 1, Section 10, of the Constitution, which is a restriction on the power of the states, states, “No State shall … coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts….”

What were “bills of credit”? That was the term used at that time for paper money. Through that provision in the Constitution, the Framers expressly prohibited the states from issuing paper money. It prohibited them from making anything but gold coins and silver coins legal tender or official money. It prohibited the states from issuing their own coins, leaving that power and responsibility to the federal government.

With respect to the federal government, Article 1, Section 8, states, “The Congress shall have Power …To coin Money, regulate the value thereof, and of foreign Coin…. To provide for the Punishment of counterfeiting the Securities and current Coin of the United States.”

Why wasn’t there an express prohibition on the power of the federal government to emit “bills of credit” or paper money? The reason is that the Constitution established a government of limited, enumerated powers. The federal government’s powers were limited to those listed in the Constitution. If a power wasn’t enumerated, it couldn’t be exercised. Since there was no power to issue paper money given to the federal government, it couldn’t exercise such power.

It was different with the states. Under the Constitution, they were to have whatever powers they wished to exercise, unless there was an express restriction on a particular power within the Constitution. That was why the Framers deemed it necessary to restrict the powers of the states when it came to money: no printing of paper money, no coining of money, and no making anything but gold coins and silver coins official money.

The federal government, on the other hand, was given the power to coin money, not print money, and to regulate the value of such money. It was also given the power to punish people for counterfeiting “the Securities and current Coin of the United States.”

Article 1, Section 8 of the Constitution also gave Congress the power “To borrow Money on the credit of the United States.” That’s what counterfeiting “the Securities” of the Constitution was referring to — debt instruments of the United States, such as bills, notes, and bonds.

There is something important to realize about the federal government’s debt instruments: It was understood that they were not money or “legal tender” but rather promises to pay money — i.e., promises to pay gold coins and silver coins.

When we consider all of these constitutional provisions, it is easy to see that the Framers intended to establish a monetary system in which gold coins and silver coins were to be the official money of the United States. And, in fact, that is precisely what happened after the federal government was called into existence. The Coinage Act of 1792 established the first mint in Philadelphia for the purpose of issuing coins. The silver dollar was the first unit of money issued. That would be followed by the silver half-dollar, quarter-dollar, dime, and half-dime. Gold coins consisted of the $10 gold Eagle, $5 Half-Eagle, and $2.50 Quarter-Eagle.

That gold-coin, silver-coin system remained the monetary system of the United States for more than 125 years. It turned out to be the most stable monetary system in history, one that, along with no income taxation, no welfare state, no warfare state, no immigration controls, and very few economic regulations, played an important role in the tremendous rise in economic prosperity and rising standards of living in the United States throughout the 19th and early 20th centuries.

It is often said that America’s “gold standard” was a system in which paper money was “backed by gold.” Nothing could be further from the truth. There was no paper money. There were only debt instruments promising to pay gold and silver. The system was one in which gold coins and silver coins were the official money of the United States.

Paper money

Why did our American ancestors have such a deep antipathy toward paper money? They knew that throughout history public officials had plundered and looted people through the use of paper money. To finance their ever-burgeoning expenses, public officials, of course, would first resort to tax increases. At some point, however, taxes would get so high that people would begin to resist, cheat, or, in extreme cases, violently revolt. That’s when kings and other regimes would resort to the printing press to finance their expenditures. They would simply crank up their printing presses, print whatever amount of money they needed, and go spend it.

The result would be a devaluation of everyone’s else’s money. That reduction in the value of money would be reflected by an overall increase in the prices of goods and services that people would be purchasing. For example, let’s say that before the government began inflating the money supply, the price of a shirt was $10. After the government’s inflation, the shirt cost, say, $15. That reduction in the value of money was the same as a tax; the difference was that the inflation tax would be hidden.

That’s what made the scheme beautiful from the standpoint of public officials — that most people had no idea that the government was behind the overall rise in prices. People would see prices rise on everything and blame it on rapacious businesspeople. Governments would even encourage this mindset by imposing wage and price controls or by whipping up anti-inflation campaigns, even while continuing to spend their newly printed money.

The Framers not only knew monetary history, they had had first-hand experience with monetary destruction. During the Revolutionary War, the Continental Congress had printed paper money called the “Continental.” To finance its expenditures, it printed so many Continental dollars that by the time the war was over, they were all worthless. At the time the Constitutional Convention was drafting the Constitution, everyone was still familiar with the phrase “Not worth a Continental.”

That’s not to say, however, that it was impossible to plunder and loot people through debasement of coinage. Rulers were notorious for doing that long before Gutenberg invented the printing press. The king would issue, say, royal gold coins certified to contain one ounce of gold. When the coins entered the realm in payment of taxes, the king would shave off the edges and melt the shavings down into new coins. He then would put the old coins back into circulation even though they contained less than the one ounce of gold they were represented to contain. At the same time, the king would make his coins “legal tender,” or official money, in the realm. No one was permitted to question the credibility of the king’s legal tender even if they contained less gold than their face value represented them to contain.

Thus, theoretically that could have turned out to be the case with America’s gold-coin, silver-coin standard. The federal government could have done what rulers throughout history had done and begun debasing its gold coins and silver coins. It never did that. The American people experienced the longest period of sound money — more than a century — in history.

An exception occurred during the Civil War. Abraham Lincoln’s war expenditures were skyrocketing. Having raised taxes to the highest levels possible to finance his war, Lincoln decided to resort to the time-honored device to which rulers throughout history had resorted — the printing press. He began printing large amounts of debt instruments and using those to pay people. Since the debt instruments promised to pay people gold coins, people were willing to accept them in lieu of the actual gold coins.

Problems arose when people realized that the Lincoln regime could not honor all of the debt instruments that it had put into circulation. That risk caused the Lincoln notes to begin trading at a discount. In other words, let’s say that a federal note promised to pay the holder $10 in gold. Lincoln then begins inflating the amount of federal notes. Someone walks into a store and sees something that has a price tag of $10 on it. He pulls out his federal note promising to pay the holder $10 and offers it to the storekeeper. The storekeeper says no. He’ll only take a $10 gold eagle in payment. If the customer insists on paying in notes, the storeowner will insist on payment of a $15 note, in order to cover the risk of default by the Lincoln regime.

What did Lincoln do then? He resorted to another time-honored way to plunder and loot people through inflation. His regime simply made federal notes “legal tender” for all debts. That meant, in our example above, that the storeowner would be legally required to accept at face value the devalued notes of the Lincoln regime. He would have to accept a $10 bill when it was only worth, say, $7 in the marketplace.

There were people damaged by Lincoln’s legal-tender law. One of them was Henry A. Griswold, who was the holder of a promissory note for $1,000 from one Susan P. Hepburn. When the note came due, Hepburn tendered $1,000 in Lincoln’s paper money to Griswold in payment of the note. The problem was that the paper money was selling at a discount in the marketplace, which meant that Griswold was receiving less in gold than the two parties had contracted for.

Hepburn v. Griswold ended up in the U.S. Supreme Court. In 1870, the Court held that Lincoln’s legal-tender law was unconstitutional. The Court held that while the federal government had the power to coin money, the Constitution did not give it the power to make paper money legal tender. It also held that the Constitution did not give the federal government the power to impair contracts, which Lincoln’s legal-tender law had clearly done.

Less than a year later, owing solely to a change in justices on the Supreme Court, Hepburn v. Griswold was overruled in Knox v. Lee and Parker v. Davis. The Court held that Lincoln’s legal-tender act was justified during a time of national emergency. The dissent of Justice Stephen J. Field explained what was happening and foretold what was to come:

The power to commit violence, perpetrate injustice, take private property by force without compensation to the owner, and compel the receipt of promises to pay in place of money, may be exercised, as it often has been, by irresponsible authority, but it cannot be considered as belonging to a government founded upon law…. From the decision of the Court I see only evil likely to follow.

Lincoln’s legal-tender law was later repealed, and America returned to its gold-coin, silver-coin standard.

The Fed

In the late 1800s and early 1900s, however, America began moving in the direction of socialism, interventionism, and imperialism. Socialist programs such as
Social Security, national health care, public schooling, and minimum-wage laws were originating in Germany and winning support in the United States as part of the Progressive movement.

In 1898, the United States entered the Spanish-American War with the ostensible aim of assisting Spanish colonies to win their independence from Spain. The real aim was to acquire such colonies for the United States, beginning a shift toward empire and foreign intervention.

A big problem with a shift toward socialism and imperialism was expense. Socialism and imperialism are expensive. If the federal government were to go down that road, it would require significant increases in federal taxes, which posed a big problem for federal officials because America had no federal income tax.

For more than a century, Americans had lived without federal income taxation. People were free to keep everything they earned and decide for themselves what to do with it. The result was a massive accumulation of capital, which made workers more productive, leading to tremendous increases in real wage rates and standards of living in America. Combined with sound money, open immigration, and few economic regulations, America became the most economically prosperous society in history and, also, the most charitable society in history.

There was always the possibility of shaving the edges off America’s gold coins when they entered the federal government’s coffers in payment of taxes, as kings of old had done. The American people, however, would never have put up with that. Moreover, the tradition of sound money was too well-established for the federal government to try such a thing.

In 1913, there were two significant events, both of which permitted the federal officials to begin breaking out of their financial straitjacket. In that year, Americans adopted a federal income tax and the Federal Reserve System, both of which enabled Woodrow Wilson to embroil the United States in World War I with the foolish aim of “making the world safe for democracy” and ending all future wars.

The establishment of the Federal Reserve was consistent with the overall trend toward socialism. The Fed was based on the socialist principle of central planning, in that it was given the power to centrally plan the amount of U.S. debt instruments being introduced into the economy. As with other socialist programs, the result was a disaster.

Throughout the 1920s, the Fed over-issued federal debt instruments, creating an artificial economic boom during the “roaring 20s.” When people began demanding the gold coins that the notes promised to pay, the Fed panicked and over-contracted the supply of debt instruments. That caused the stock-market crash in 1929, which was then followed by the Great Depression.

Franklin Roosevelt blamed the economic crisis on the failure of America’s “free enterprise” system rather than place responsibility where it lay — with the Federal Reserve. He then used the crisis to revolutionize America’s economic system. The primary purpose of the federal government became to take care of people through welfare-state programs. That’s what Social Security was all about, a socialist program that had originated in Germany. He also converted the federal government into a manager of the economy and a regulator of economic activity. In 1941, with his political machinations against Japan, he was able to embroil the United States in another foreign war, leading to a long road of costly foreign interventionism.

To ensure that the federal government would never have any problems paying for this new socialist, imperialist, and interventionist direction, the Roosevelt administration decreed an end to America’s gold-coin standard. Gold ownership by Americans was made illegal. Even though gold coins had been the official money established by the Constitution and had been the official money for more than 100 years, Roosevelt made it a felony offense for Americans to own non-numismatic gold coins. Everyone was required to deliver his gold to the federal government and was given irredeemable federal notes in return.

Roosevelt’s nationalization of gold ranks among the most tyrannical acts in the history of the United States. It was no different in principle from what the communist regime in the Soviet Union was doing.

During the Nixon administration, the federal government announced that it would no longer honor international obligations payable in gold. Instead, such obligations would be paid in irredeemable paper notes.

The floodgates were now open for unrestrained federal spending for socialist, imperialism, and interventionist programs. The constraints that the Framers had placed on the federal government were gone — and without even the semblance of constitutional amendments.

The finest monetary system in history was destroyed, and the federal government became one gigantic engine of plunder and looting of American taxpayers, both directly through the progressive income tax and indirectly through the inflationary policies of the Federal Reserve.

There is but one solution to all this socialist, imperialist, and interventionist mayhem: economic liberty. That means a repeal of all socialist programs, including Social Security and Medicare, the end of all imperialism and interventionism, the restoration of a limited-government republic, the repeal of the Federal Reserve System, and the adoption of a free-market monetary system.

This article was originally published in the February 2020 edition of Future of Freedom.

Share
Categories
Constitutional Convention Federal Reserve Founding Principles Intelwars Sound money

Freedom and Prosperity: The Importance of Sound Money

Sound money is a key to a free and prosperous society. That principle was clearly reflected in the monetary system that the Constitution established when it called the federal government into existence.

Our ancestors didn’t trust government officials with power. They believed that the greatest threat to their own freedom and well-being lay not with some foreign regime but rather with their own government. They understood that historically most people had lost their freedom and prosperity at the hands of their own governments rather than at the hands of some conquering foreign power.

That was why the American people lived for more than a decade under the Articles of Confederation, a governmental structure that provided for a federal government with extremely weak and limited powers. Under the Articles, the federal government didn’t even have the power to tax.

That was precisely how our American ancestors wanted it. For them, a weak federal government meant a federal government that was incapable of destroying their freedom and economic well-being.

When the delegates met at the Constitutional Convention, they were charged with the task of simply modifying the Articles of Confederation. Instead, the delegates came up with a proposal for a federal government that was very different from that under the Articles. Under this new governmental structure, the federal government would have much more power, including the power to tax.

Given their conviction that government was the main threat to their freedom and well-being, most Americans were not excited about the proposal. They could envision ending up with a federal government that would enslave them, confiscate their property, incarcerate them, torture them, impoverish them, and even kill them, all without due process of law.

The proponents of the Constitution emphasized that the federal government would be prohibited from doing such things to Americans because the Constitution itself set forth the limited powers that the federal government could exercise. If a power wasn’t enumerated, it couldn’t be exercised.

Historically, one of the most effective ways that political rulers would destroy the liberty and economic well-being of the citizenry was through control over the nation’s monetary system. That’s because governments would inevitably use that control as a way to finance ever-burgeoning expenses of the king, his court, and often his wars against foreign regimes.

To pay for such expenses, the king would tax his subjects. The king’s law required people to pay their taxes. If a person refused, the king’s soldiers or other agents would simply seize the person’s assets and arrest and incarcerate him. Nothing would be permitted to interfere with the process of seizing people’s assets or income to pay for the king’s expenses and debts.

However, kings knew that when taxes got too high, people would get angry. If the anger got deep enough, rebellion and revolution would become a possibility, which was certainly not in the kings’ best interests.

Thus, when a king’s taxes rose to the point where revolution became a possibility, he would resort to his control over the nation’s money to acquire the additional resources that he needed to fund his burgeoning expenses and debts.

The history of money

In commerce, people enter into trades with one another in order to improve their respective standards of living. A person with lots of apples, for example, trades with a person with lots of oranges. At the moment of the trade, both sides benefit because each is giving up something he values less for something he values more.

However, over time that barter system becomes impractical because often people with lots of apples want to trade with someone with lots of pears. Sometimes, however, the person with lots of pears wants oranges but not apples. And the person with lots of oranges wants apples but not pears.

Historically, to facilitate trades, people began using commonly used commodities. The most popular became gold and silver. The person with lots of apples would use a small quantity of gold or silver to buy some pears. The person with the pears would then use that gold or silver to purchase oranges. The person with oranges would use it to buy apples.

Over time, kings assumed the power to mint the gold and silver into coins. Their argument was that this process would ensure that people could trust the coins in circulation to be valid and legitimate. If the king’s coins said “One ounce of gold,” presumably people could rely on that representation because it was the king making it.

Kings, however, figured out a way to turn this power to their advantage. People would pay their taxes in, say, gold coins. Once the coins entered the government’s treasury, the king’s monetary agents would shave a small part of the gold from around the edges of the coin. The process came to be known as “clipping the coin.”

The king would then put the coins back into circulation. The problem, of course, is that while the coin said “One Ounce Gold Coin” on it, it now contained less than one ounce, owing to the king’s clipping of the coin.

Meanwhile, the king would melt the shavings down and create new coins with them, which obviously multiplied the number of coins at his disposal to pay for his ever-increasing expenses and debts. This inflation of additional coins, however, would debase the value of all the other coins in circulation.

This process of monetary debasement inevitably left people worse off. For example, a seller might receive from a purchaser of his wares a coin purporting to contain one ounce of gold but actually containing less than an ounce. When he went into the marketplace to buy something for one ounce of gold, he could encounter sellers who demanded his one-ounce coin plus a bit more, given that his one-ounce gold coin no longer contained one ounce of gold.

Thus the king’s clipping of the coin and his inflation of the money supply became a means by which he could secretly and surreptitiously tax people. Another reason that kings preferred this way of taxing people to the direct way was that most people didn’t realize what the king was doing. When prices rose across the realm, which is the way a debased currency manifests itself, the citizenry would blame it on sellers and producers rather than on the king.

Once the printing press was invented, the process became even more beneficial to political regimes. They would decree that paper bills and notes issued by the government, rather than gold and silver coins minted by the government, were now the official “legal tender” for the nation. That meant business would be transacted in “fiat” or paper money that was being printed and supplied by the government.

It didn’t take long for governments to realize that they could use the printing press to print up as much paper money as they wanted to pay for their ever-growing expenses and debts. No more clipping the coin, melting the shavings, and producing more coins with them. Just crank up the printing press and print up as much money as they needed.

Of course, the process would have the same destructive effect as debasing coins. As the inflated supply of paper money flooded the economy, the value of everyone’s money went down. That reduction in value was reflected in rising prices across society, which people inevitably blamed on producers and sellers, just as they did when coins were being debased.

Guaranteeing sound money

The delegates at the Constitutional Convention knew that the American people were well versed in the history of monetary debasement at the hands of government officials. They also knew that Americans had just recently experienced this phenomenon during the Revolutionary War, when the Continental Congress and state governments had resorted to the printing press to pay for the war effort. They ended up printing so much paper money that they destroyed the value of everyone’s money. That’s how the phrase “Not worth a Continental” came into existence.

Thus, the Framers knew that if they were to persuade the American people to abandon the Articles of Confederation in favor of the new governmental system, the Constitution would have to make it clear that the new federal government would lack the power to destroy people’s liberty and economic well-being through monetary debasement.

That’s how the American people acquired the most effective sound-money system in history, one that lasted for more than 100 years. It was a system that not only protected the citizenry from monetary debasement but also played a major role in the monumental increase in the standard of living of the American people throughout the 19th century.

The Constitution was a document that set forth the limited powers of the federal government and, at the same time, restricted some of the powers of the states. The idea was that if a power wasn’t expressly delegated to the federal government, it couldn’t be exercised. The idea also was that the states were authorized to exercise any power they wanted (subject to any limitations in state constitutions) except those powers that were expressly prohibited by the Constitution.

The Constitution delegated the power to coin money to the federal government. At the same time, it did not expressly delegate a power to the federal government to issue paper money, which, at that time, was referred to as “bills of credit.”

The Constitution also expressly prohibited the states from making anything but gold and silver legal tender. It further expressly prohibited the states from issuing “bills of credit” or paper money.

The Framers’ intent was clear: the U.S. economy would be based not on a paper-money monetary system, but rather on a gold standard. The official money of the American people would be both gold coins and silver coins.

The Constitution also provided the federal government with the power to borrow money, a power that U.S. officials would exercise through the issuance of bonds, notes, and bills. While such instruments would often circulate and appear to be money, everyone understood that they weren’t money at all but instead promises to pay money.

Today, it is often said that the United States had a monetary system based on paper money that was backed by gold. That is incorrect. There is no way that our American ancestors would ever have accepted the Constitution if it was going to bring into existence a paper-money monetary system. The system the Constitution brought into existence was one based on gold coins and silver coins.

From the very beginning, the U.S government took charge of minting the coins. While it was theoretically possible for federal officials to begin “clipping the coin,” as rulers had done throughout history, they didn’t do that, possibly because they knew that Americans would never tolerate such political tampering with their money.

The result was a system of sound money, the likes of which the world had never seen. Given that people were assured that government lacked the power to destroy or harm them through monetary debasement, they were free to make long-term loans and investments, which contributed to the economic prosperity of the nation. People even felt safe buying 100-year bonds from private corporations, knowing that they (or their heirs) would not be paid back in cheapened, devalued money.

Unraveling

The finest monetary system in history came unraveled in the 20th century. In 1913, the Federal Reserve System was established, which was a government agency charged with centrally planning America’s monetary system. It proved to be a disaster, especially in 1929, when its monetary calculations went awry, resulting in the stock market crash that year, which was followed by the Great Depression.

U.S. officials, led by President Franklin Roosevelt blamed the crash and the Depression on America’s “free-enterprise system” rather than on the Federal Reserve, where the responsibility for the crisis lay. Roosevelt used the crisis as an excuse to destroy America’s gold-coin, silver-coin standard in favor of a paper-money standard that rulers throughout history had used to plunder and loot their citizens and subjects.

Keep in mind that the Constitution also provided for an amendment process should Americans wish to change any aspect of their constitutional system. The Constitution could not be amended by either presidential decree or legislative enactment.

Yet that is precisely what Roosevelt and Congress did. They destroyed the monetary system on which the nation had been founded through executive decree and congressional legislation. They used the crisis of the Great Depression as their justification, but they knew that the Framers had intentionally not included a crisis or emergency justification in the Constitution for the exercise of tyrannical powers.

And there is no better word than “tyranny” to describe what Roosevelt and Congress did. “Morally reprehensible” would be a close second. Roosevelt ordered every American to deliver his gold holdings to the federal government. If an American failed to do so and was caught with gold coins, he would be arrested, prosecuted, convicted, and incarcerated for having committed a grave felony offense.

In return for their gold coins, Roosevelt gave Americans federal promissory notes, which effectively promised to pay them nothing. Soon after Roosevelt nationalized people’s gold, he devalued the paper debt instruments that he had delivered to Americans in exchange for their gold.

Roosevelt’s conversion of America to a paper-money monetary system, one managed by a central bank (the Federal Reserve), opened up the floodgates for federal spending and debt, which would increasingly grow as America moved toward a welfare-warfare state way of life. Decade after decade, as federal spending and debt grew, the feds would crank up the printing presses to augment the ever-increasing taxes they were collecting to pay for the welfare-warfare monstrosity.

Over time, all that “bad money” pushed silver coins out of circulation. People were discovering that they would be better off retaining their silver coins and using the alloyed coins and paper money with which U.S. officials were flooding the market decade after decade. The Lyndon Johnson administration accelerated the process by discontinuing the issuance of silver certificates in 1964, followed by the Coinage Act of 1965, which eliminated silver from dimes and quarters and reduced the silver content in half-dollars from 90 percent to 40 percent.

Today, countless Americans are financially strapped, barely making ends meet. Many people live paycheck to paycheck and are unable to save up a nest egg. The financial situation becomes worse with each boom and bust that periodically afflicts America’s economy.

Unfortunately, all too many of them fail to realize that one of the primary reasons for this phenomenon is America’s paper-money system and the ability that it provides federal officials to plunder and loot the American people.

Is the solution to this monetary mayhem a return to America’s founding monetary system? That certainly would be preferable to America’s paper-money, central banking system under which Americans have now lived for more than 100 years.

But the ideal is one set forth by the libertarian economist Friedrich Hayek in an essay he wrote, “The Denationalization of Money,” in which he advocated a complete separation of money and the state. Thus, just as the Constitution prohibits the federal government from intervening in religious affairs, a similar amendment would prohibit it from intervening in monetary affairs.

A necessary prerequisite for the achievement of a free, peaceful, normal, prosperous, and harmonious society is a monetary system based on sound money. A monetary system based entirely on free-market principles would go along way toward achieving such a society.

This article was originally published in the December 2019 edition of Future of Freedom.

Share
Categories
Cryptocurrency Federal Reserve Gold Intelwars Silver Sound money

Is Your State Destroying Your Money?

Is your state destroying your money?

Most states are, but several have taken action in the last few years to support sound money. You can find out how your state ranks in the 2019 Sound Money Index compiled and published by the Sound Money Defense League and Money Metals Exchange.

The Sound Money Index is the first of its kind, ranking all 50 states using 12 different criteria to determine which states maintain the most pro- and anti-sound money policies in the country.

Wyoming, Texas, and Utah emerged as the best states on sound money in the nation. with South Dakota, Alaska, Arizona, New Hampshire, and Washington not far behind. These states have implemented policies that repeal taxes on gold and silver, established gold and silver as legal tender and, make it easier to transact business with sound money. Texas has established a state Bullion Depository.

The Sound Money Index evaluates each state’s sales and income tax policies involving precious metals, whether a state recognizes the monetary role of gold and silver under the U.S. Constitution, whether a state holds pension, reserves, or debt denominated in gold or silver, whether a state has imposed precious metal dealer/investor harassment laws, and other criteria.

Maine, Tennessee, Ohio, and Kentucky joined Vermont, Arkansas, and New Jersey as the worst states on defending sound money.

Money Metals Exchange, a national precious metals dealer recently ranked “Best in the USA,” and the Sound Money Defense League, a national, non-partisan sound money advocacy group joined together to produce the authoritative ranking

“Federal policy and the privately-owned banking cartel known as the Federal Reserve System are the root causes of inflation, instability, and currency devaluation,”  Sound Money Defense League  Policy Director Jp Cortez said. “However, there are steps states can take to protect their citizens from the ill effects of America’s unbacked paper money system, and many of them are taking those steps.”

One of the most important steps to support sound money is repealing taxes on gold and silver.

Imagine if you asked a grocery clerk to break a $5 bill and he charged you a 35 cent tax. Silly, right? After all, you were only exchanging one form of money for another. But that’s essentially what Virginia’s sales tax on gold and silver did. By removing the sales tax on the exchange of gold and silver, Virginia will treat precious metal specie as money instead of a commodity. This represents a small step toward reestablishing gold and silver as legal tender, and breaking down the Fed’s monopoly on money.

“We ought not to tax money – and that’s a good idea. It makes no sense to tax money,” former U.S. Rep. Ron Paul said during testimony in support an Arizona bill that repealed capital gains taxes on gold and silver in that state. “Paper is not money, it’s fraud,” he continued.

Practically speaking, eliminating taxes on the sale of gold and silver cracks open the door for people to begin using precious metals in regular business transactions. This would mark an important small step toward currency competition. If sound money gains a foothold in the marketplace against Federal Reserve notes, people would be able to choose the time-tested stability of gold and silver over the central bank’s rapidly-depreciating paper currency.

During the 2020 legislative session, South Carolina could become the fourth state to recognize gold and silver as legal tender. Utah led the way, reestablishing constitutional money in 2011. Wyoming and Oklahoma have since joined.

The effect has been most dramatic in Utah where United Precious Metals Association (UMPA) was established after the passage of the Utah Specie Legal Tender Act and the elimination of all taxes on gold and silver. UPMA offers accounts denominated in U.S. minted gold and silver dollars. The company also recently released the “Utah Goldback.” UPMA describes it as “the first local, voluntary currency to be made of a spendable, beautiful, physical gold.”

The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” Currently, all debts and taxes in South Carolina are either paid with Federal Reserve Notes (dollars) which were authorized as legal tender by Congress or with coins issued by the U.S. Treasury — very few of which have gold or silver in them.

Constitutional tender expert Professor William Greene said when people in multiple states actually start using gold and silver instead of Federal Reserve Notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.

“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes). As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level is what will get us there.

Wyoming has also taken steps to encourage and facilitate the use of cryptocurrency and to support the development of blockchain businesses. Cryptocurrencies open up another pathway to this same goal of creating currency competition and undermining the Federal Reserve’s monopoly on money.

Share
Categories
Dollar Federal Reserve Gold Intelwars Silver Sound money

U.S. Federal Reserve Notes: “Money” Backed By Nothing

At one time, the U.S. monetary system was backed by gold. Now it’s not backed by anything.

But most Americans don’t realize this. In fact, nearly a third of respondents to a recent survey believe the U.S. dollar is still backed by gold. Only 7 percent of the people polled got the answer right – the dollar isn’t actually backed by anything.

Meanwhile, 29.3 percent said the dollar was backed by gold, 4.1 percent said it was backed by oil, 5.8 percent said it was backed by bonds and 23.6 percent confessed that they simply didn’t know.

Thirty percent of those polled answered that the dollar is backed by the U.S. government. While technically correct, that’s a distinction without a difference. When you strip away the semantics, this still means it’s not backed by anything.

The dollar is what is known as a fiat currency. That means it is not backed by a physical commodity such as gold or silver. Fiat currencies derive their value from the fact that the issuing governments say they have value. They sustain their value because the government maintains monopoly power over money – dictating that only its fiat currency can serve as “legal tender.”

Currency in the United States used to be backed by gold. You could exchange your dollars for a fixed weight of metal. But under Pres. Franklin D. Roosevelt in the 1930s, the government began to move away from gold-backed currency. In 1971, Pres. Nixon severed the tie altogether.

Why?

Because gold or silver-backed money poses problems for governments. They cannot easily inflate the money supply. There always has to be a sufficient amount of metal to back the currency in circulation. But governments and central banks can print fiat currencies at will. In a nutshell, fiat currencies allow governments to create money out of thin air to fund their vast expenditures. The warfare and welfare state in America would be impossible without the fiat currency and the central bank facilitating debt monetization.

When he announced the closing of the gold window, Nixon said, “Let me lay to rest the bugaboo of what is called devaluation,” and promised, “your dollar will be worth just as much as it is today.”

This was also a lie.

According to the Consumer Price Index data released by the Bureau Labor of Statistics, the dollar has lost more than 80 percent of its value since Nixon’s fateful decision. Meanwhile, the dollar value of gold has gone from $35 an ounce to about $1,500.

The purchasing power of the dollar continues to diminish every day, but this is just a shadow cast by the real truth — the dollar is effectively valueless.

Paul Krugman stumbled on this truth in a rant against bitcoin. The Keynesian economist said cryptocurrency was actually a step back in the evolution of money because its value isn’t “tethered to anything.” In other words, there is nothing underlying its value.

But as a fiat currency, the dollar isn’t tethered to anything either. It has value because people have faith that it has value. When you boil it all down, dollars are nothing more than pieces of paper and numbers in computers.

When Krugman bashed bitcoin because it isn’t “tethered to anything,” he must have realized he was backing himself into a corner, because he went out of his way to emphasize dollars are backed by the “full faith and credit” of the U.S. government and we need dollars to pay our taxes.

The value of a dollar doesn’t come entirely from self-fulfilling expectations: ultimately, it’s backstopped by the fact that the U.S. government will accept dollars as payment of tax liabilities — liabilities it’s able to enforce because it’s a government. If you like, fiat currencies have underlying value because men with guns say they do. And this means that their value isn’t a bubble that can collapse if people lose faith.”

But this is demonstrably false as the Germans learned during hyper-inflation of Weimer Republic and more recently experienced by the people of Venezuela.

In effect, there is no floor on how weak the dollar can become in terms of purchasing power merely because the IRS insists on receiving dollars for its tax bills. Economist Robert Murphy explained why the value of fiat currencies can fall to near-zero in an episode of the Contra Krugman podcast.

If by assumption, the dollar’s very weak, then that means you could sell one hour of your labor to get a trillion dollar bills. So, the fact that you need to hand over to the IRS a bunch of dollar bills, by itself does not tell me any information about the relative strength of the dollar. That’s consistent with the dollar being worth, you know, $1 gets you a loaf of bread or you need a quadrillion dollars to get a loaf of bread. That’s equally consistent with the fact that I have to pay my taxes in dollars.”

The “lack of tethering” argument Krugman makes against crypto applies equally to fiat dollars. Despite men with guns, the dollar’s value can still decline virtually zero. Again, we just have to look at countries like Venezuela and Zimbabwe as they suffer through hyperinflation to see this truth. Government backing does not guarantee value.

And unlike government-created fiat money, a cryptocurrency has a limited supply built into its system. For instance, bitcoin has a maximum of 21 million coins, so its purchasing power cannot be reduced like the U.S. dollar by printing more. As Ron Paul said, cryptocurrencies create more competition for government fiat currency.

“Governments aren’t very tolerant of competition, and they’re not even tolerant with using the Constitution to compete with the fiat dollar. Because gold and silver, you can’t use it.”

Financial guru Jim Grant wrote that the reason the gold standard is so often demeaned by modern economists and politicians is because, “The modern sensibility quakes at the rigor of such a system.”

But those “rigors” are exactly what we need. Sound money forces governments to maintain fiscal discipline. It limits spending and ultimately, the growth of government itself. It’s no wonder that the political class rejects any kind of commodity-based money.

Instead, politicians have replaced the gold standard with another standard. Grant calls it the “Ph.D. standard,” a system run by politicians and central planners.

That system features monetary oversight by former university economics faculty — the Ph.D. standard, let’s call it. The ex-professors buy bonds with money they whistle into existence (“quantitative easing”), tinker with interest rates, and give speeches about their intentions to buy bonds and tinker with interest rates (“forward guidance”).

This is exactly what politicians like Nixon, Ford, Carter, Reagan, Bush I, Clinton, Bush II, Obama and Trump wanted — the ability to spend without restraint and grow government with no limits. The result: massive national debt and devalued currency that buys the average person less and less every year.

Share
Categories
central banking Federal Reserve government spending Intelwars Sound money

The Founders Warned Us About the Fed

The Federal Reserve just lowered interest rates for the second time this year and announced more quantitative easing by injecting even more U.S. dollars into the market. The days of cheap money will soon come to an end, and I fear that many people won’t realize what’s happening until the rug is pulled out from under them.

As economist Henry Hazlitt wrote, the practices of the Fed distort the real-world market indicators of cost, future prices, investments and production. A recent study from the National Association for Business Economics showed that 72 percent of economists now predict that a recession will occur between 2020 and the end of 2021. Some have even warned that the U.S. is on the brink of the biggest bubble in world history — not just a correction of a business cycle or another recession, but a complete collapse of the U.S. dollar.

Yet the dangers of centralized banking are not new knowledge. For centuries, people (including many of our founding fathers) have tried to warn us of the numerous threats posed by institutions like the Federal Reserve.

Today, it’s understood by many that the recklessness of the Fed allowed for the subprime mortgages that caused the Great Recession of 2008. With over $22 trillion in debt, $120 trillion in unfunded liabilities, and, soon, an all-time high debt-to-GDP ratio (comparable to World War II levels), however, it’s not overstating it to say that the Fed-facilitated out-of-control federal government spending constitutes the greatest threat to the American way of life in history.

To understand the full extent of the debt and the destruction of the dollar, it’s essential to realize that paper money has a history of being printed as bills of credit to finance runaway government. In 1775, the Founders attempted to use paper money without gold or silver backing, and they found that the inflation robbed them of any value. In 1788, Thomas Jefferson wrote, “Paper is poverty. It is only the ghost of money, and not money itself.”

The Coinage Act of 1792 then set specific ratios for gold and silver coinage, placing gold and silver in control rather than a central bank. This lasted until the passage of the Federal Reserve Act of 1913, which allowed for the formation of the Federal Reserve System just two decades before Pres. Franklin D. Roosevelt started to come after private ownership of gold and silver in the 1930s. In 1944, the Bretton Woods system made the U.S. dollar the reserve currency of the world, when it was still partially backed by gold and silver.

Finally, in 1971, the Nixon Administration suspended wages, issued price controls, and canceled dollar-to-gold convertibility, completing the final step in ending the “gold standard.” This gave the central government planners — and the federal reserve — the power to print money without restraint. This is how the national debt has been able to reach the levels that it has. The only thing backing the U.S. dollar today is public debt.

Remember when Coke was a nickel? In 1913 (the year the Fed was founded) a bottle of Coke cost five cents. Today, a bottle of Coca-Cola costs an average of $1.79. While there are many factors (like supply and demand, cost of goods, etc.) that help set prices, inflation plays a critical part. At an average inflation rate of 3.12 percent annually, inflation alone accounts for $1.30 of the actual cost of Coke.

The addition of more U.S. dollars doesn’t mean that anyone is more wealthy; in fact, it means that the dollars you have are worth less. You will need a higher amount of dollars to buy the same goods and services. Hence, saving inflated dollars, in many cases, is losing value. Those who save money are being robbed.

With the continued decline of the dollar, there could also be hyperinflation on an unprecedented scale. Both James Madison and Thomas Jefferson warned that “the greatest threat to be feared” was the “public curse” of “public debt”, and that “banking establishments are more dangerous than standing armies.” The founding fathers understood the dangers of centralized manipulation of the money supply, the hidden taxation of inflation, and the control of buying power. They understood that gold and silver are real money.

Furthermore, if we look at the history of money, we can see that precious metals, mainly gold and silver, have been used for coinage for over 2600 years; in one way or another, gold and silver have been used by people for over 6000 years.

American revolutionary leader Christopher Gadsden once said in Sept. 1764 that “The evils attending a wanton exercise of power, in some of the colonies, by issuing a redundancy of paper currency, has always been avoided by this province, by a proper attention to the dangerous consequences of such a practice, and the fatal influence it must have upon public credit.”

People across the U.S. should heed his warnings by allowing gold and silver to be used as legal tender once again. Some states like Utah have done just that. While this won’t stop the Federal Reserve’s destruction of the dollar, it will allow people to convert dollars to sound money before a collapse. Sound money, like gold and silver, acts as a check and balance on big government, a hedge against inflation, and a way to combat manipulation by the Fed.

This is exactly why, in my home state, I will soon be filing the “2020 South Carolina Sound Money Bill”, allowing South Carolinians to use gold and silver as legal tender. I will also introduce legislation to exempt gold and silver from capital gains tax, both of which are already exempt from sales tax in South Carolina. We the People can restore sound money by using the Ninth and Tenth Amendments to the U.S. Constitution.

It is my hope that, with the success of these bills, other policymakers elsewhere will become inspired to lead by example on this vital issue as well. The key to protecting the American way of life from the federal reserve’s obliteration of our currency rests with the legislatures, but we must heed the lessons of history now.

Share