Do we need to understand how money works? I’m not talking about the laws of personal finance and thrift. I’m talking about our system of money and systems of money in general. The common attitude seems to be indifference and ignorance. I’ve always been astounded by this since so much of our daily routine is wrapped up in issues about working, providing for ourselves and others; and the almost universal desire to prosper and achieve a certain standard of living. Perhaps part of the seeming indifference is a sort of capitulation to the ever-growing hectic pace of life and fear that any kind of serious inquiry into how our money does or should work would only take away from the precious free moments we have while offering nothing in return. It would be highly ironic indeed if the “fear of receiving nothing for our efforts” were the reason we never took the time to understand how our money does and should work.
I intend to show that no other contemporary issue relating to our liberties and way of life are more important than this one. Be warned that any effort to understand money and our current system of money and credit can be a very difficult and frustrating experience. I’ve made many attempts in the past and given up on it. But after deciding that I absolutely had to understand these things and praying for help I believe I understand it sufficiently to explain most of our current problems. I also believe that I can explain why a classic or 100% gold standard is the most advanced, sophisticated, simple, and honest system of money possible. I will argue for this standard from an economic position (using basic math, history and natural law), a constitutional position (using the Constitution), and a moral position (using the scriptures). In the economic portion I will dispel a lot of the misconceptions about the gold standard and refute some of the more common objections to it.
The conclusion I’ve come to in my studies, so far, is that our current system of money is complicated and difficult to understand because there is a presumption that the system is sensible and honest. It is not. Confusion and frustration come as you continue to look for something that is not there. It is a way to turn people into slaves without them realizing it. The people who benefit from this dishonest system must either convince us not to look at it, or control what we see and think when we do look at it to keep us from recognizing the bondage it puts us in. The good news is that honest money is so simple and straightforward that understanding the one can be the key to rejecting the other view.
Honest money is based in light and by “light” I mean simplicity, clarity, and confidence. Our current system is based in darkness and by “darkness” I mean confusion, intentional hyper-complexity for the purpose of obfuscation. It is its inherent darkness that makes it so difficult to understand. The good news is that light always dispels darkness. My hope is that an explanation of honest money will expose the corruption and wickedness of our current system and lay a principled foundation of understanding for replacing it with a system of honest money.
SECTION I: WHY UNDERSTANDING HOW OUR MONEY WORKS MATTERS
Understanding our how our money does work versus how it should work matters because it directly affects our property rights. The right to property is the right that protects all other rights. As our right to property is encroached we become less able to defend other rights and reclaim lost ones because more and more of our limited time and energy must be expended to provide less and less of the basic necessities. Since we all work for money we must be certain that the money we earn represents the real value that we believe it does when we give up our irreplaceable time and energy for it, otherwise we are being robbed through fraud. Without understanding how our money does and should work we cannot be certain of this and are at the mercy of those who do understand how our money works. Our current system of money does not provide the value that a free market would require in exchange for our goods and services. It forces us to give up what we would not otherwise give up and diminishes our ability to enjoy the full extent of our property and it does this at an ever-increasing rate. The more we lose our property rights through this corrupt system the more we become the property of those who control it. This is a sin (D&C 101:79).
NOTE: Much could be said about our current system and many books have been written on the subject. Since it is my purpose to spend most of my efforts focusing on honest money I will only cover enough to show why our current system is corrupt. I will simply state things as they are and not take the time to back up those claims or get into the history of how all this happened. It is a very interesting story that reads like a Greek tragedy. For those interested in learning more here are a few recommendations to help you get started:
(The Money Masters: How Banks Create the Worlds Money — directed by Bill Still)
- This is the 15th most viewed documentary on youtube of all time. It is nearly 3.5 hours long and very informative. Although I do not agree with his solution to our problem, for reasons I’ll explain later in this paper, his explanation of the problem is accurate and the historical detail he provides is very rich and useful.
(The Creature from Jekyll Island: A Second Look at the Federal Reserve — by G. Edward Griffin)
- Nearly 600 pages and the most in depth book I was able to find on the subject. The book is well researched and thorough. The author also has a better understanding and explanation of how truly honest money would work, therefore his offered solution is superior to the one offered by Bill Still.
SECTION II: OUR CURRENT SYSTEM OF MONEY
“Are you honest in your dealings with your fellow man?”
The corruption of our current money system is comprised of five elements: Fiat Money, Legal Tender Laws, Debt, Fractional Reserve Lending, and Arbitrary Inflation. The purpose of this corrupt system is to control and manipulate the money supply. Those who control and manipulate the money supply can control and manipulate everybody who uses money.
FIAT MONEY AND LEGAL TENDER LAWS
The first step to taking over the money supply is to issue a currency that does not have to represent anything of value. This is called fiat currency. Fiat means, by decree. In other words you simply declare something to be so and voila that magically makes it so. When individuals do this we call them insane. When governments do this reactions vary depending on an individual’s ability to think critically. Governments decree that a particular currency is now worth so much relative to actual goods and services. But, since government has no more power to change reality than individuals do, nobody is willing to give up anything of real value in exchange for it. For a fiat currency to work people must accept it in exchange for goods and services of real value. The solution is to threaten them and force them to take it using the police and military powers of government. Normally this would be called extortion, but when government does this it is called legal tender laws.
Usually in a free market it takes a superior product or service to drive out an inferior product or service, but with money it is just the opposite. When people are forced to accept lower quality money for their goods and services then they become motivated to force other people to accept it by spending only the lower quality money. Bad money drives out the good money and this is called Gresham’s Law. It is a law of human behavior that is based on the fact that we all want to receive greater value for our goods and services when we make economic exchanges.
To take over the money supply it is not necessary to outlaw other forms of money initially, simply introduce the worst form of money possible and force other people to accept it using a legal tender law and eventually you’ll be the only show in town. At this point, if you haven’t already, you can secure your position by outlawing all other forms of currency or money. This is another kind of legal tender law that is harsher and more severe than the first. [The infamous “mark of the beast” spoken of in Revelations is nothing more than a very harsh legal tender law (see Rev. 13:16–17)]. Once it is in place then total control over the money supply is complete. The important thing to remember about how to take over the money supply is that it all starts with fiat currency, or money by decree in conjunction with legal tender laws that are also by decree. These monetary decrees always hurt people with the least amount of money the most, because they are the most dependent on the small amount that they have for its quality. In light of these facts I find the following scripture in Isaiah applicable:
Woe unto them that decree unrighteous decrees, and that write grievousness which they have prescribed;
To turn aside the needy from judgment, and to take away the right from the poor of my people that widows may be their prey, and that they may rob the fatherless! (Isaiah 10:1–2)
DEBT AND FRACTIONAL RESERVE LENDING
Most people as they begin to inquire earnestly into how our current money works are very alarmed to discover that nearly all of it (90%) or more (basically the entire money supply except what can be found in coins) is borrowed at interest from a private bank called the Federal Reserve. Our government does not issue any of the money we use in everyday life (except for our coins). The Federal Reserve, at the request of our government, issues all of this money. Our government prints up bonds (think bondage) and then exchanges these for a quantity of Federal Reserve Notes (cash/currency) in any amount they desire at any given time. The bonds received by the Fed require the government to pay back all the money the Fed gives them plus interest at a certain time. Taxpayers, via the income tax, pay the interest on these bonds. The primary purpose of the income tax is to pay the interest on these bonds. The debt accrued under this system is never paid off and the only payments that the Fed ever receives are the interest payments from taxpayers. When the time to redeem the bonds arrives (pay back the principle with interest) the government simply refinances the loan into a much larger loan to account for any new money desired as well as the principle and any remaining interest on the old loan. A larger loan generally means larger interest payments that eventually translate into tax increases. The important thing to keep in mind is that over time more and more of our taxes go to pay interest on the national debt, while less and less go to pay the actual expenses of government; even though the expenses of government are increasing. Wars, social programs, and even more basic services of government are paid using borrowed money and then the taxes collected go to pay the interest on these borrowed funds.
Where did the Federal Reserve get all this money to loan out? It simply created it out of nothing. This is called fiat currency. Our government granted a special and exclusive privilege to the Federal Reserve, under the Federal Reserve Act, that allows them to do this. But it gets more insane than that. This newly created money is then loaned out at interest. Since they have the sole privilege of issuing our money it is impossible to pay back the debt because every dollar in existence was borrowed into existence carrying with it an interest bearing liability! This means that the total debt will always be greater than the total money supply. This problem, as bad as it is, is made even worse by banks ability to lend out more money than they actually have (called fractional reserve banking). Like all bank loans, these debts carry additional interest making them, on the aggregate, mathematically impossible to pay off. The important thing to remember about all of this is that the only way for anybody to eliminate one debt is for an even greater debt to be incurred by someone else.
If you can understand everything I’ve just written, but it seems hard to believe and you still don’t get it because it just doesn’t make sense then, in the words of Congressman Ron Paul; “you understand it just fine.” Our entire money system is based on debt. In fact, our money is debt because practically all of it was borrowed into existence. Although it is conceivable that you could avoid some of this trap simply by not going into any kind of debt and refusing to pay your income tax or other taxes (ignoring for the moment that choosing this route would create a host of other problems for you). However, even if you could get away with all this you would still be in the tar pit with the rest of us because there is no escaping the biggest problem of all: arbitrary inflation.
Inflation is simply an increase in the money supply. Under an honest system of money you could and most likely still would have inflation as well as deflation, but it would not be artificial, man-made inflation that can never accurately predict what the demand for money will be. The supply of money should always be determined by the demand for money. Man-made inflation is arbitrary and violates this principle for the unjust gain of a few at the expense of the many. It also does this at the risk of currency disintegration and the destruction of our entire economy.
Arbitrary inflation eliminates the control you have over the value of your money and puts that control into the hands of those who control the money supply. Every increase in the money supply without a corresponding increase in actual wealth (measured in more hard goods and services) eventually decreases the buying power of each unit of currency proportionately, but it doesn’t happen all at once. Everyone does not feel this loss of purchasing power evenly. In fact, whoever has access to the newly created money first actually experiences a significant increase in buying power, because they did not have to give any time or effort in exchange for it. The further down the line you are before having access to the newly created money the more diluted and weak it becomes. The last people to receive this money are harmed the most. These are usually the poor, the old, the widows and the fatherless. The important thing to remember about arbitrary inflation is that it increases the buying power of those who control it at the expense of those who do not. And that power is limited only to the amount that can be stolen from others. In other words, the wealth destroying/stealing power of arbitrary inflation is unlimited.
Inherent in this corrupt system is a forest fire of debt and taxes that can only grow until there is nothing left to destroy. The system itself makes it impossible for these twin dangers of liberty to be reversed or even restrained. This is a mathematical certainty based on incontestable proof. Any politician who thinks or promises otherwise is either ignorant or lying. What will be the consequence of all this? Reflecting on this very question of public debt and taxation, Thomas Jefferson had this to say:
I am not among those who fear the people. They, and not the rich, are our dependence for continued freedom. And to preserve their independence, we must not let our rulers load us with perpetual debt. We must make our election between economy and liberty or profusion and servitude. If we run into such debts as that we must be taxed in our meat and in our drink, in our labors and our amusements, for our callings and our creeds, as the people of England are, our people, like them, must come to labor sixteen hours in the twenty-four, [and] give the earnings of fifteen of these to the government for their debts and daily expenses… have no time to think, no means of calling the mismanagers to account; but be glad to obtain subsistence by hiring ourselves to rivet their chains on the necks of our fellow sufferers… This example reads to us the salutary lesson that private fortunes are destroyed by public as well as by private extravagance. And this is the tendency of all human governments. A departure from principle in one instance becomes a precedent for a second, that second for a third, and so on, till the bulk of the society is reduced to be mere automatons of misery, to have no sensibilities left but for sinning and suffering. Then begins indeed the bellum omnium in ommnia (the war of all against all), which some philosophers, observing [it] to be so general in this world, have mistaken…for the natural instead of the abusive state of man. And the fore horse of this frightful team is public debt. Taxation follows that, and in its train wretchedness and oppression (The Making of America, Skousen, p.395)
The earnest warning contained in Jefferson’s prose makes clear the choice we must make “between economy and liberty or profusion and servitude.” To choose frugality, self-sufficiency and liberty we must have honest money.
Who is to blame for all this? Although it is the government that inflates it is we the citizenry that determine who are rulers in government will be. Politicians have learned that to get elected they must make promises. This is fine until people start listening to and believing promises that are lies. All that a tyrant must do to turn people into slaves is to promise those same people that he can give them whatever they want and get them to believe that he can do this by making somebody else pay for it. It is the unchecked greed and covetousness of the many that gives power to the greed and covetousness of the few. It is our own greed, covetousness and disregard for justice that blinds us to the false promises of power seekers and turns us into their slaves. When every man seeks to oppress his neighbor (Isaiah 5:3) we will all fall into the very pit we were digging for others. At bottom, inflation is a moral problem that, in a democratically elected republic, can be traced back to the people. To a large extent, we have the government we deserve. Only a moral people can enjoy the benefits of honest money.
SECTION III: UNDERSTANDING THE ECONOMICS OF HONEST MONEY
Before making an economic argument for a classic gold standard it is important to understand what we mean by “economics.” To give you an example of a lousy definition lets look at what a typical dictionary says:
The branch of social science that deals with the production and distribution and consumption of goods and services and their management
Perhaps a simpler definition would be the science of exchanges or the study of exchanges. I should add: between individuals. The most important thing to remember about economics is that it studies a certain kind of human behavior, the kind of behavior we all exhibit when we go shopping, or selling, or working on something we intend to sell, or engage in any kind of trade with someone else. Economic activity is human activity.
Also, before making an economic argument for the gold standard we should ask the question: Who’s the expert? How should we view the different economists who claim to be experts? When they disagree, who is right? Or, are they all wrong together? In trying to answer these question it is helpful to understand some background into the different schools of economic thought that are most prevalent today. There are at least three worthy of mention.
The first is the economic thought of John Maynard Keynes. His thought is the most prevalent. If you have a degree in economics or took a class in high school or college then this is the guy they crammed down your throat. He believed in big government, deficit spending, public debt, and inflation. He said these things were good and so people who like big government, debt, inflation, and all the rest like Keynes. He validates the power grabs of many power seekers, so they promote him every chance they get. Because of this, his ideas are the most widely known and believed among society at large.
The second school I want to mention is the Chicago School of economics, sometimes known as Monetarist school. Its chief spokesman is Milton Friedman. Generally the ideas that come from this school are much better than those promoted by Keynes, but they still promote ideas that have been proven false concerning money. If you took a class or have a degree in economics then most likely these ideas were given to represent the “other side.” At bottom they both believe in a certain amount of government intervention into the economy. Government intervention into the economy equals forced exchanges. Keynes believed in a lot of forced exchanges. Friedman believed in less, but still believed in some.
The third school I’ll mention is the most important. It is the Austrian School of economics. Its chief spokesmen are Menger, Mises, Hayek, and Rothbard among others. The reason this school is more important than the others is because they are the only ones who fully accept the implications that economic activity is human activity. They desire to understand the science of how exchanges really take place between others without force or restraint. To their thinking, any exchange that wasn’t completely 100% voluntary between the parties involved does not provide true insight into the understanding they seek. To their mind any exchange that involved force or fraud was not really economics at all, but something else. And any call for government (forceful) action by “economic experts” into the economy (other than to punish fraud) simply hinders our ability to achieve real economic understanding.
The reason we must talk about Keynes in this paper is because a lot of the misconceptions that people have regarding the gold standard are because of him, even though a lot of the people who have these misconceptions don’t know a lot about Keynes. Keynesian thought is a lot like the ancient art of alchemy. It was a pseudo-science that tried to turn lead into gold. It was proven false and is no longer considered real science. Like alchemy, the whole point and intent of Keynesian economic thought is to avoid and circumvent the natural laws that govern economic activity. Because of this, it will always be ultimately useless in its ability to predict phenomena and therefore it cannot offer any useful suggestions and insights into how we should act.
Austrian economics, on the other hand, actually tries to understand things as they really are, and as they really will be, NOT as some individual or group of power seekers would want them. Austrian economics acknowledges that there are natural laws that govern economic activity (i.e. the actions of men). Although it’s not perfect, as a discipline it seeks to understand and apply these laws, not change or ignore them.
THE ECONOMIC ARGUMENT
In addition to possessing integrity, understanding honest money requires at least two things: A correct theory of value and correct knowledge of how money originates.
A CORRECT UNDERSTANDING OF VALUE
So exactly what is something worth? How do you determine the value of the things you buy? Some may say price equals value, but this is a mistake. If I pay $5 for a hamburger and I value the $5 as much as the hamburger, then I am no better off after I’ve made the exchange. In fact, if I view the value of my $5 and the offered hamburger as equal then I would have no motivation to go through the effort of making an exchange. What would be the point?
As we think about these questions and consider why we buy the things we do, we discover that economic value is entirely personal and subjective. It has always been this way and always will be. The way we value things changes as our circumstances change. Even if two people assign equal value to the same thing at the same time this coincidence does not change the fact that the value each person assigned was arrived at in a uniquely personal and subjective way. A thirsty man will place greater value on a glass of water than a man who is not thirsty. If I want to trade for something you have, I need something you value more. Trade occurs not because there is an equality of value between goods, but because there is a MUTUAL INEQUALITY of value. That is, I value what you have more and you value what I have more, so we become willing to exchange what we have for what we want. The total numbers of people who desire to trade at any given time are referred to as “the market,” and “market value” is simply an aggregate of all the individual and subjective values as they relate to any one commodity in a fixed amount.
Honest money requires an honest and free society where people allow each other to decide how much something is worth to him or herself without force or fraud. In a free market some people will put greater or lesser value on a particular item or commodity than the overall “market value” will for the same item. It is their right to do so. We should never try to fix the “market value” because it is constantly changing based on peoples needs and desires. It is hubris and foolishness to think that such a thing is even possible. Nor should we force others to accept what the current “market value” is for their goods and services, because it may not reflect their value. We should never fix economic values for others even if we choose to fix them for ourselves. No matter how “fair” and “honest” government officials try to be when they issue fiat currency it always violates this principle. Dishonest money ignores or rejects the right of individuals to determine for themselves the value of their own and others goods and services. Dishonest money must, to a greater or lesser extent, arbitrarily fix and adjust economic values for all. This is usually done through legal tender laws.
HOW MONEY ORIGINATES
A correct knowledge of how money originates is essential to understanding honest money. I am not talking about a historical knowledge of how money originated, but rather the general principle of how money would originate at anytime under any set of circumstances.
It is a historical fact that all money originated as a commodity that over time began to be valued more for its exchangeability than for its qualities as a mere commodity. What we must know is could money have originated ANY OTHER WAY than as a commodity? Is this possible? The answer is no. The reason is that before it (money) could be used as a medium of exchange it first had to be assigned a value relative to other commodities in the market place. Money cannot simply appear on the scene out of nowhere with no introduction or explanation of value and then be accepted by everyone as a medium of exchange. We wouldn’t know how to exchange it! How can money be introduced or explained in terms of value without relating it to a desired commodity? It cannot.
How then did such names as “dollar,” “franc,” “peso,” and “mark” originate and emerge in their own right as independent moneys? The answer is that these names invariably originated as names for units of weight of particular money commodities (usually gold or silver). The British pound sterling was originally just that: a pound of silver. “Dollar” originally applied to an ounce of silver. (The Case for a 100 Percent Gold Dollar by M.N. Rothbard, p.12)
PRIVATE BILLS OF CREDIT AS HONEST MONEY
Since money always originates as a commodity, any commodity has the potential to become used as money depending on the needs and demands of the market. Honest money does not have to be gold or silver or any particular commodity or any particular combination. The only requirement is that people voluntarily accept it in exchange for their goods and services. For example: If a farmer wants to issue bills of credit that guarantee to the bearer a certain amount of his crop, eggs, potatoes, milk, meat, whatever in exchange for the things he needs (fuel, seed, building materials, labor, etc.) he is free to do that. People would be free to accept or reject his bills of credit, but if he had a good reputation and joined a co-op with other farmers and they formed a warehouse and a store that provided an even greater selection of commodities and finished goods, then people might be willing to trade their goods and services for these certificates realizing that they could use these certificates themselves or trade them to others for things not available at the farmers co-op. Other co-ops or trade groups could develop and issue their own certificates for goods and services.
The previous example may not develop exactly as outlined in a free market, but the point is that people could adjust quickly to any system of money that they and the market desired. Historically, market demand has put a greater emphasis on gold and silver, but where these things were scarce money still developed as other commodities. The use of gold and silver in one area of the market did not at all hinder other parts of the market from choosing different forms of money. This is a wonderful principle that provides tremendous flexibility and a nearly infinite possibility of opportunity by meeting the needs and desires of others. This principle is called “free trade” and we all have a natural right to engage in it.
All money originates as honest money. It becomes dishonest once it no longer represents an actual commodity. For people to accept and trust dishonest money they must first see it as something detached and separated from actual goods and services. Without this corruption of thought, dishonest money will never enjoy a high level of trust, even if it is forced on people through legal tender laws.
COMMON MISCONCEPTIONS ABOUT THE GOLD STANDARD
A classic gold standard will limit the amount of economic activity because gold is limited.
This is probably the most common misconception about a 100% gold standard. There is zero evidence to support this. “Economic activity” simply means the total number of exchanges or transactions taking place at any given time. The fallacy lies in the belief that a limited supply of money necessitates a limited number of transactions. This is not true. Although gold is limited it can be divided an infinite number of ways. Any supply of money can facilitate an infinite number of transactions. If the supply of money increases while the total stock of real wealth stays the same or goes down then the amount of money necessary to complete a transaction simply increases. If the supply of money decreases while the total stock of real wealth stays the same or goes up then the amount of money necessary to complete a transaction simply decreases.
The fact that gold is limited is the whole point for using it. This eliminates arbitrary inflation. So the fact that gold is limited is the solution, not the problem!
- By the way, how do believers in the cult of fiat currency explain America’s prosperous and expanding economy for over a hundred years prior to leaving the gold standard?
A classic gold standard would require people to use gold and silver in their transactions because the money supply would be limited to gold.
As already noted previously, this would not be the case. The only thing a classic gold standard requires is honesty in how money is represented through paper notes, tickets, claim checks, or other paper instruments. This is why I use the term “honest money” more than I use the term “gold standard.” The reason the term gold standard was so prevalent when it was practiced was because the market demand for gold as money was higher than for any other commodity. Gold was usually more exchangeable than other forms of money and since other forms of money had to compete with gold, then gold became the money of choice where it was plentiful. Where it was scarcer; silver, copper, beaver skins, bank notes or private bills of credit would appear in its place to facilitate trade.
A gold standard as honest money simply means no fractional reserve lending and no fiat currency. It means that all forms of paper money and private bills of credit must be redeemable for 100% of whatever they make a claim for immediately upon demand by the bearer of the note. Anyone issuing paper money or bills of credit that fail to do this will be guilty of fraud and punished according to the law. A classic gold standard also means that everybody has the right to issue honest money in accord with market demand. The free market would determine the money supply. No government or banking cartel would have any control over the money supply and no legal tender laws would exist forcing others to accept any particular kind of money. Each individual class of money would stand or fall on its own intrinsic merit, integrity, usefulness, flexibility and market demand. The money with the greatest number of favorable qualities would receive the widest circulation.
Under a classic gold standard whoever owned all the gold would control the money supply.
It is true that under a gold standard there were wealthy and powerful individuals who tried to control the money supply by hoarding all the gold and refusing to spend it into circulation. Being very wealthy they could sit back and wait longer than anybody else before they had to engage in trade to meet their needs. Through this means they hoped to acquire even greater wealth with greater ease by waiting until even a small amount of gold could get them valuable commodities and lands. They calculated that the demand for gold would be high since its supply would be artificially limited. But did this ever really work?
One can hoard gold to drive up its demand, but only to a point. As we’ve seen, when gold is scarce people simply revert to silver and other kinds of money. If people can get what they need and want without using gold, then even if gold is scarce it will not go up in value as money. The reason being that the gold itself is no more useful as money when people are comfortable using silver, private bills of credit or other forms of money to get what they want. In a free market the demand for money will simultaneously create the supply because people will negotiate, compromise, and innovate until a reliable and regular system of money becomes uniform. For example: In the early days of the Mormon pioneers in Utah, receipts for goods from the local Bishop’s store house would often circulate as money, both among Mormons and non-Mormons. Even though the U.S. was on a gold standard at the time, gold was relatively scarce in Utah, at least at the beginning, and so other forms of money like this were developed. The only way a “gold hoarding scheme” would work is if the people were required to use gold and all other forms of money were outlawed through a legal tender law.
Under a free market the ability to innovate and develop new forms of honest money are limitless, almost instant, and very flexible. Under these conditions it is impossible for anyone or any group to control the money supply for all. In fact, it is precisely because the “gold hoarding scheme” failed by those who tried it that the corrupt rich desired our current system under the Federal Reserve! Only by using the powers of prostituted government can anybody gain control over the money supply.
THE MOST ECONOMICAL SOLUTION
The classic gold standard is the most sophisticated, simple and prosperous system of money available. The reason it is superior to other proposed alternatives to our current system, such as those proposed by Bill Still in Money Masters, is because it solves the problem of how to regulate the money supply. His proposal, along with every other that strays from the gold standard, advocates that the government issue all our currency and be the sole source of our money. Even though his plan requires them to do this without charging interest, the government must still determine what the money supply should be. The problem with this is that it requires an impossible economic calculation. They must determine the correct money supply without knowing what the demand is. To know the demand for money they would have to simultaneously know the needs and desires of every person participating in the market and how much of those needs and desires each person decides to meet for him or herself at any given time. And they would have to know this all the time with all its constant changes and variations. This is impossible for man and God himself does not govern in this way (D&C 93:30).
It is beyond the purpose of this paper to discuss in depth the problems that arise when the supply of money is either in excess of demand or deficient to meet it. So I will simply say that too much money leads to inflation. Not enough leads to recessions and depressions. Either consequence leads to wealth destruction because individuals are no longer getting accurate information from the market on what decisions they should make to pursue their goals. They make decisions based on faulty information. Miscalculation breeds more miscalculation, and the miscalculations that started from the government become systemic.
There are three separate provisions in the Constitution that affect the issue of honest money. The first, mentioned in Article I: Section 8, is the right of Congress “to borrow money on the credit of the United States”. Out of the three provisions affecting honest money this one is the trickiest. To many this clause represents a defect in the Constitution. The point is certainly debatable and Jefferson himself wished that an amendment could be passed to eliminate this power of Congress. Why did the founders, who were so interested in personal liberty, include a provision that could be so dangerous to it?
The founders provided the Congress with the ability to borrow because they wanted to give the new government as many tools as possible to perform its functions properly. They had just concluded a difficult and hard fought war. They wanted the new government to have more ability to function than the old one under like circumstances. Since even the Articles of Confederation allowed the government to borrow and these articles were considered as insufficient in the powers they granted it is conceivable to see why they continued to include this power in the new Constitution. The point of the Constitution was to broaden and strengthen federal power, not weaken it further. But this does not mean that they were eager for our new government to use this power. George Washington counseled that the best way for preserving public credit was to use it as sparingly as possible.
If we have a correct understanding of what real money is, then this provision becomes far less threatening to individual liberty. When we realize that all real money is just another commodity that happens to be used more for purposes of exchange then actual use of the commodity itself then we can distinguish it from all forms of fiat currency. No provision of the Constitution allows for the borrowing of fiat currency.
Provided we followed the Constitution as our founders intended and Congress found itself needing to borrow real money (most likely for a war or some other crisis), how would it work? Thomas Jefferson had an ingenious answer to this question. He admitted that during times of war the expense of the war may require more than what ordinary taxes could raise. So, based on the fact that the expense of war will be borne by us all anyway, then the money to pay for it should be borrowed from the citizens, interest free, and not from a private bank. Under his plan the federal government could issue treasury notes in whatever amount necessary to pay its expenses during a time of war. A tax of comparable amount would be imposed to redeem the extra currency within a certain period of time. This allows the government to raise the necessary funds quickly and pay back the loan gradually, when the war is over, avoiding any long-term inflation. By promising to pay the holders of these notes back in gold or silver within 10 years or less Jefferson was confident that no legal tender law would be necessary for it to be accepted (See. Making of America, Skousen p.498). Would these “treasury notes” be considered honest money? The answer is yes for two reasons. First, the notes would represent the commodity of gold or silver; only it would not be redeemable for such until the note expired. Second, the notes themselves would represent all the facts of their redemption openly and people would not be forced to accept them. If they wanted to pay their portion of war taxes some other way, then they would be free to do so.
The one major defect of the borrowing provision granted to Congress is that it does not require the borrowing to be restricted to times of war or national crisis. Nor does it restrict the way Congress can borrow to that outlined by Jefferson. They allowed ultimate flexibility to the Congress and counted on the people to choose wise administrators who would be sensible to the liberties of individuals in how this power was used. We must concede that no matter how airtight the constitution is written it takes a moral people to enjoy and maintain honest money.
The next provision grants Congress the power “to coin money, regulate the value thereof, and of foreign coin, and fix the standards of weights and measures.” This power allows Congress to produce the national coin and prescribe its weight and purity or “value,” and specify the same with regard to foreign coin in terms of the national coin of the United States. This provision, regardless of how some people have understood it, does not give to Congress the right to issue fiat or paper currency and assign it a value. The phrase, “regulate the value thereof,” referred only to determining the purity or fineness and weight of the gold or silver coin that was to be issued by the Congress and to evaluate the same qualities in foreign coins. This provision allows the federal government to issue only coins and not paper money.
Our founders were determined that we have honest money, but they did not feel any need to regulate its supply. They were confident that private banks could fill the market demand for paper money backed by gold and silver. Every bank would have the right to issue its own private notes based on its own stores of gold and silver. Thus private bank notes would compete with other private bank notes based on the reputation of the bank issuing the notes. The only role of government in this regard would be to regulate its weight and measure as well as to punish and discourage fraud. To ensure that everyone understood how important honest money was the Coinage Act of 1792 invoked the death penalty for anyone debasing the money.
The third provision in the Constitution affecting honest money was a restriction placed on the Sates as a condition for joining the Union under the new federal government. “No State shall…coin money, emit bills of credit, make anything but gold and silver coin a tender in payment of debts, pass any…law impairing the obligation of contracts…” This restriction was a direct assault on the abuse of paper money through legal tender laws. There are a couple of different ways of understanding this restriction based on how we read the word “tender.” Both of them are useful.
One meaning that can be taken from this statement is that if the State wants to pass a legal tender law it can only apply to gold and silver. In other words, if the state is going to force a creditor to take anything other than what he and the debtor have previously agreed to for elimination of the debt it MUST be gold and/or silver. The state cannot require a creditor to give up his claim on a debtor for any other kind of payment than that previously agreed to or gold and silver. This restriction does not require the State to make gold and silver a legal tender, only that if they have any ideas about engaging in legal tender foolishness, then it must respect only gold and silver. Technically, if a State did pass a legal tender law with respect to gold and silver, forcing people to accept it from their debtors, then it is conceivable that this could impair the obligation of contracts. If, for instance, I wanted apples in exchange for my eggs, and we had a contract that stated such, and you gave me gold instead, then, with these legal tender laws in place it would do me no good to try and sue you for breach of contract. I would have to accept your gold instead of the apples.
Another meaning applies to the State itself and how it will retire its own debts. This provision requires the State to pay its expenses in gold and silver. Because of this we can see why, although not required to, the state may need to pass a legal tender law regarding gold and silver to ensure its gold and silver are accepted as payment for its debts. The founders felt that giving states the right to force others to accept gold or silver would not do any real damage to individual liberty, since historically the market has found gold and silver to be the most desirable and useful forms of money. And this provision allowed them to be unequivocal in preventing states from being able to steal from their citizens through inflation schemes. Such protection may not have been possible any other way.
The most important thing to keep in mind regarding this particular provision as it relates to honest money is that with the State being required to pay their debts in gold and silver they cannot be required to accept anything less from the federal government. If the federal government violates its own principles, passes legal tender laws, and forces the States to accept something other than gold and silver then they are forced to pay their debts in unconstitutional money. The only way for this provision to hold is for both the federal and state governments to stick to gold and silver.
PAPER MONEY AND CONSTITUTIONAL CORRUPTION
Any study of American history at the time the Constitution was ratified and particularly the notes of the Constitutional convention will reveal that the founders had no desire to give government the power to issue paper money, with or without legal tender laws. When the issue came up Gouverneur Morris, James Wilson, John Langdon, George Read, Pierce Butler, and Oliver Ellsworth all spoke out against it. Ellsworth said the power to issue paper money was not necessary and that such a power may do harm, but never good. Langdon said he’d “rather reject the whole plan than retain the three words ‘and emit bills.’” Admittedly there where some members of the convention that wanted to make the emission of bills of credit an available resource to the congress if an emergency, such as war, should make them necessary. But in the end the words “and emit bills” was left out. The one thing they were all in agreement with, even those who thought the power to emit such bills may be necessary, was that no legal tender law should require anyone to accept such bills under any circumstances. The entire recorded discussion can be read on pages 470-471 in the 1987 Norton paperback edition/Bicentennial Edition of Notes of the Debates in the Federal Convention of 1787 reported by James Madison.
Unfortunately, the issue of paper money did not go away because of the debatable defect in the Constitution already mentioned. As stated previously, the Constitution gave Congress the power to borrow. With this in mind, immediately after the Constitution was ratified, Alexander Hamilton went about to try and establish a national bank that would be able to issue paper currency and use these to make loans to the federal government. Since the Constitution restricted the government’s ability to issue paper money, but gave them the power to borrow; Hamilton thought to get around this by having a bank loan the government paper money instead. (This is actually far worse than giving the government the power to issue paper money, because now a private bank can do it and they are just as likely to abuse paper money as the government. Except now they can charge interest as well). To the dismay of Jefferson, Madison, and others, Hamilton was successful. But eventually the banks charter was not renewed and the issue of whether the United States would and should have a central bank became a recurring conflict at various times throughout our history.
Since many supporters of central banking and fiat money justify their schemes as constitutional, based on Hamilton’s position, we must delve into Hamilton a little further.
With regard to Alexander Hamilton, who was also at the convention, it is astonishing to note that he did not speak up at all during the previously mentioned discussion. Are we to assume that someone who was so eager to establish a central bank had no opinion on the issue of paper money? All we have from Hamilton, as far as the notes go, is his mysterious silence. In fact he has almost no recorded comments at all by Madison during the entire course of the debates. He is mentioned once at the beginning making a plea before the convention that they adopt a form of government identical to the British (with King and all). Madison did not record his actual remarks. All Madison says is that Hamilton’s speech was admired by all and agreed to by none. Once the Constitution is completed Hamilton springs to life again and becomes one of its most ardent supporters during the ratification process. His arguments for the Constitution in the Federalist Papers are brilliant and should be admired by all. But once again this appears rather curious since he was so much more in favor of a British form and system of government. Why was he so eager to defend something he had almost no active role in developing?
At this point I can only offer my opinion. It is a fact that Hamilton wanted a central bank. You cannot have a central bank with the authority to issue paper money for the whole country without a central government. Although “central government” is not synonymous with “federal government.” “Federal government” was all that Hamilton was going to get and he wouldn’t have gotten that if the States did not accept the Constitution. This is why he was so vigorous in defending and promoting it during the ratification process. He adopted the method so many power seekers use: Secure whatever power you can. Over time you can stretch it through influence, manipulation, interpretations, etc., to meet your ambitions. Getting the Constitution ratified was phase one for Hamilton, getting the new congress to approve a national bank was phase two. He would use a reinterpretation of the “coin money and regulate the value thereof” clause as well as the clause that gives congress the power to borrow, as a pretext for authority.
Hamilton believed that a national debt would be a national blessing and I’ve heard people justify government debt because of this. However, just because he believed this does not make him right. Nor can we be sure that he was sincere. (After all he personally benefitted as one of the founders of the new bank). I will not venture any further into postulating what Hamilton’s motives were for setting up a private central bank. But for those who truly want to make a constitutional case for fiat currency and private central banks with congressional approval of monopoly status to control the money supply, why should Hamilton be given so much preferential treatment over the other founders and over the original understanding of the Constitution itself? He was just one man and prone to miscalculation. (Just ask Aaron Burr).
Regarding the national debt as a national blessing, Jefferson had this to say:
As the doctrine is that a public debt is a public blessing, so they [the supporters of state debt assumption] think a perpetual one is a perpetual blessing, and therefore wish to make it so large that we can never pay it off.
At the time we were funding our national debt, we heard much about ‘a public debt being a public blessing’; that the stock representing it was a creation of active capital for the ailment of commerce, manufactures, and agriculture. This paradox was well adapted to the minds of believers in dreams… If the debt which the banking companies owe be a blessing to anybody, it is to themselves alone, who are realizing a solid interest of 8 or 10 percent on it. As to the public, these companies have banished all our gold and silver medium, which before their institution we had without interest, which never could have perished in our hands, in the hour of war; instead of which they have given us to hundred million of froth and bubble, on which we are to pay them heavy interest until it shall vanish into air… The truth is that capital may be produced by industry, and accumulated by economy; but jugglers only will propose to create it by legerdemain tricks with paper (The Making of America, Skousen, p.394)
The purpose of the Constitution was to protect rights and perpetuate liberty, not enslave us to a system of money that ensures perpetual debt. It is conceivable that the ability to borrow is a blessing, but to believe that the necessity of doing so and incurring a debt is also a blessing is a gross error. Borrowing under any circumstances, no matter how little, no matter how temporary, involves risks and dangers and to do so when our need is urgent can be fatal. The system of honest money advocated in our Constitution encourages thrift, savings, prudence and every virtue that tends to prevent the need for borrowing in the first place.
Surely this is the simplest argument to make in supporting a 100% gold standard. We should be honest in our dealings with others. An accurate representation of what we are giving up to the other person in return for what we are getting in any exchange is required. The Lord commanded the Israelites of old:
Ye shall do no unrighteousness in judgment, in meteyard, in weight, or measure.
Just balances, just weights, a just ephah, and a just hin, shall ye have: I am the Lord your God, which brought you out of the land of Egypt. (Lev. 19:35–36)
Thou shalt not have in thy bag divers weights, a great and a small.
Thou shat not have in thine house divers measures, a great and a small
But thou shat have a perfect and just weight, a perfect and just measure shalt thou have: that thy days may be lengthened in the land which the Lord thy God giveth thee.
For all that do such things, and all that do unrighteously, are an abomination unto the Lord thy God. (Deut. 25: 13–16)
In addition to these verses there are at least 4 more specific references in the book of Proverbs to the use of just weights and measures in conducting trade with others. A “floating,” “fluctuating,” fiat currency does not meet the required qualifications found in these verses for engaging in honest trade.
In addition to commanding the Israelites to be honest in their dealings with others the Lord forbade them to exact usury from each other. Usury can mean merely interest charges or very high, excessive interest charges. What do we call interest charges that are calculated so as to make them impossible to pay off? Is it honest and moral to intentionally seek to bring others into bondage? Honest money allows individuals in debt to pay their debts honestly through hard work and enterprise. With honest money each individual retains his personal power and right to add to the money supply if his personal situation demands it. This way, we do not have to rely on others to improve our situation. Only a system completely free of any legal tender laws and where the right to trade and enter into contracts and covenants with others can qualify as a moral system of money. The classic gold standard meets these qualifications and should be embraced and supported by all honest people.
The problems of money and economics are human problems and all human problems have spiritual solutions. At bottom, the problems of dishonest money are those of fraud and force. The “fraud” of dishonest money commences the moment it becomes detached from any kind of commodity or claims to represent more than it actually does. The “force” must follow in the form of legal tender laws. These things violate human agency and bring with them every destructive consequence. Like so many other difficult and complex human issues, when we cut to the core we see that all the problems result from force or fraud, and that the required solution always begins with respecting the agency of others. May we respect the agency of others by choosing honest money and enjoy the liberty and prosperity that will surely follow.