03/01/11 Why are so many state legislators beginning to call for issuance of a form of gold money?
The Constitution prohibits states from coining money but allows them to make “gold and silver Coin a Tender in Payment of Debts.” By prohibiting everything except “gold and silver Coin” the Constitution clearly considers gold and silver coinage to be legitimate, no matter who issues it.
States haven’t issued currency in any form for more than a hundred years. So why now? Disgust is probably the answer. Various state legislators are disgusted by the federal government’s promiscuous dollar-printing. Accordingly, legislators in a dozen states are contemplating legislation to issue gold or silver-based currencies, including Utah, South Carolina, Virginia and New Hampshire.
The transcript of the debates in the original Constitutional Convention shows that the attitude of the Founders toward paper money was one of contempt. One delegate, Roger Sherman, called for the insertion of an absolute prohibition against states issuing their own paper money.
Sherman’s argument prevailed, as the Founder’s decided that the states would not possess the power to “emit bills of credit, nor make any thing but gold and silver coin a tender in payment of debts” making these prohibitions absolute…
As for the federal government, the earliest drafts of the Constitution included language permitting the federal government to issue unbacked paper money. But this language would not survive the final draft.
Many of the Founders objected strongly to this power. The objections were summed up by delegate Oliver Ellsworth, who sought to “shut and bar the door against paper money.”
“Paper money can in no case be necessary,” Ellsworth argued, “The power [to issue it] may do harm, never good.”
Since most of the Founders agreed, the federal government was also denied the power to issue non-convertible paper money. The federal government mostly operated within these constraints – the main exception being the Civil War, when saving the Union took precedence over all other considerations.
But for most of American history, dollars have been convertible into gold or silver. It is a 20th century innovation to have non-convertible currency. In 1932, FDR denied US citizens the right to convert their dollars into gold by US citizens. Then, in 1971, Richard Nixon denied foreign central banks the right to convert their dollars into gold.
On August 15, 1971, Nixon declared:
I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold… Now, what is this action – which is very technical – what does it mean for you?
Let me lay to rest the bugaboo of what is called “devaluation.”
If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today. (Emphasis supplied.)
President Nixon called the suspension “temporary,” but it has been anything but temporary…and the dollar has suffered as a result.
The dollar today is worth less than a quarter was worth in 1971. And yet, Washington has been curiously unresponsive to the suffering brought by Nixon’s failed promise. Why? Because Washington, itself, has been a primary beneficiary of monetary depreciation.
The federal government spent $15 billion from 1789-1900. Not $15 billion a year. $15 billion cumulatively. Uncle Sam will spend $10 billion per day in 2011. The federal government spends more every two days than it did altogether for more than America’s first century. Although these sums are not adjusted for inflation, they give a correct impression of the magnitude of the change from what our Founders set forth and our early statesmen delivered.
How does Washington get its hands on so much money? Three ways. Taxation, borrowing and printing dollars. The third mechanism is usually the easiest road…at least for a while. Almost no one complains about printing dollars because almost no one feels the resulting consequences directly or immediately.
The power to print money at whim is wrong. It is toxic to our personal and national wellbeing. And it is unconstitutional.
No wonder that legislators in twelve states are considering issuing their own gold-based currencies. By doing so, these states are challenging the federal abuse of an unconstitutional power – challenging the issuance of unhinged paper money.
Federal officials should take these state initiatives as a cue. Federal officials have sworn to preserve, protect and defend the Constitution of the United States. Let them take their oath seriously and restore the convertibility of dollars to gold.
Regards,
Ralph Benko
for The Daily Reckoning
Ralph Benko
Ralph Benko, a member of the bar of the State of New York, is Senior Advisor, Economics, of the American Principles Project, and was called by the United States Department of the Treasury to testify before the U.S. Gold Commission on the constitutional history of American monetary policy. He is also an Advisor for The Gold Standard Now and an important contributor to the Gold Standard 2012 project.
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Thanks for the excellent article Mr. Benko! It is very clearly written and should understandable by any lay person.
I very much appreciate the active role that you have in trying to bring about monetary sanity. The reality is that this condition, or problem, will default to correcting itself since it is unsustainable. Perhaps your continuing efforts will soften the trauma of that correction.
“Why are so many state legislators beginning to call for issuance of a form of gold money?” Because they are dumber than rocks and just as predictable. Gold is crap and just as Warren Buffet says “I would rather own farm land than all the gold in the World.” But then legislators are short on common sense.
IF Buffet ever said such a patently stupid thing, (and I greatly doubt he could be that dumb) then he was refering to gold as an INVESTMENT – not as MONEY.
…but GOLD is crap???
Wake up, man. It’s Federal Reserve Notes that are truly CRAP!!
The basic premise of this article is correct. It is and has always been unconstitutional for the government to print money.
But that’s not how our system works today, and as a result is the one glaring weakness in an otherwise spot-on analysis.
How does our system work today? The Federal Reserve prints our currency. Is it part of our government? Here’s the conundrum – not really. It is a quasi-government organization, a hybrid cartel with a board of directors but no shareholders other than the commercial banks. Their representatives including the chairman are appointed by the President and approved by the Senate but other than that the Federal Reserve acts completely independent of anyone.
Now here’s the rub. Article I Section, Clause 2 of the US Constitution gives the government the power to borrow money on the credit of the United States. And that is precisely what they are doing, thanks to an accounting trick devised by the people who invented the Federal Reserve, knowing full well this loophole exists in the Constitution. You see, whenever the US government needs money, they draft a Treasury bill. The Federal Reserve then prints up the necessary money to cover the bill and “lends” the US government the money. Never matter the fact that the money must be printed out of thin air to buy the US debt instrument, it gets created and is “loaned” into existence.
So you see, the entire affair is legal, and constitutional. But is that what the founding fathers had in mind? I’d be willing to bet it is not. However, it should also be noted that Thomas Jefferson himself was extremely weary of that clause and later professed he was sorry it ever was included.
Oh, and CT is so hopelessly ignorant I don’t even know why he bothers to post to a site such as this one.
Meant to say “Article I Section 8 Clause 2″ above. Omitted the “8″.
Poor Chris C. Not a clue.
Let them eat gold.
How about a currency based on the country with the greatest nuclear megatonage and delivery accuracy and the ability to render the counterpart country and its currency and gold standard advocates it might have and their gold holdings melted or vaporized?
You think this scenario is unlikely under 1990 Yugoslavia-like global economics? Get your yellow relic and find a big Dresden rock (to hide under.)
So what happens if US went back to the Gold Standard and the price of gold drops, how would that be covered in such a large economy? Who sheds their money?
The Idea of using gold coins to pay for everything sound totally ridiculous. Can you imagine going to Walmart and having to check the price of gold at the checkout line. How do you make change? Today Gold was $1,431.20 an oz, or $50.48 a gram, a penny weighs 2.5 grams, not a lot of room the make small change. Would we have to use scales?
Then there’s the effect of the governments buying the gold and driving up its price would the price not drop once the gold was removed form the market.
Just Wondering
TG,
There are answers to all your questions.
In the early days of the Republic, after the Constitution was 1st ratified, the monetary system was based on a silver standard, not a gold one. This allowed the use of much smaller amounts to be used in everyday transactions. Gold was allowed to float in relation to silver as a function of the ratio of abundance, so something like 16:1 was used at the time (I forget exactly).
There was unbelievable stability in that system due to the fact that whenever the economy grew, it spurred more miners to go out and mine silver and gold. Therefore this feedback effect always had a price stabilizing force on the price of silver/gold.
In fact, one dollar was defined as 371.25 grains of silver. It was a stroke of genius because it clearly defined the physical weight and composition of one dollar. There could be no counterfeiting. On the contrary, the government set up services to coin silver and gold coinage from the people’s own holdings, as a free service. This solved many of the problems that we face today in our fiat paper system, and also led to sweeping confidence by the people in their own money system.
Under this system, the government is obligated to not interfere with the price of gold and silver, as the feedback effect mentioned previously would keep it very stable in the long term. Therefore buying/selling of gold in the open market makes no sense.
You have to think in yesterday’s terms to appreciate it. Thinking of the system using today’s paper dollar as a measuring stick will only lead to false assumptions and more unanswerable questions.
Tried to post an answer to you TG, but I guess this comment section swallowed it up. Maybe it will show up later – I don’t know. If it does ignore this post.
Buffet talking about farm land and gold was yesterday on Squawkbox. But then think what you wish o master of bass. We all have our fantasies. As intelligent as you want to pretend to be seems to have missed what a devils advocate is.
yea this section seems to be sucking off some of the comments. Oh well it is still probably the best run site on the web. And of course I will question many things said.
TG,
I will try a much shorter version of my earlier post to see if it gets through.
The United States used a silver coin standard right after the ratification of the Constitution. This settled your problem with being able to make change from $1,400 gold. Gold was also used but its value was determined as a ratio of its abundance to silver (which if I remember right was 16:1).
As for the US government buying/selling gold to influence prices, there would be no incentive to do that under a silver standard.
Under this standard, they defined one dollar as 371.25 grains of silver. It was a stroke of genius, because it fixed the exact composition and weight of one dollar to a precious commodity, in this case silver.
Since all money was honest (the only paper money was receipt money which meant it was 100% silver backed), there was no incentive for the government to influence its price.
Keep in mind the US enjoyed a great many years of economic nirvana under this system, until the money masters tried (and succeeded) in introducing the nation’s first central bank.
The previous posts withstanding, the actions we would need to take in returning to an honest money system would be immeasurably more difficult than what our founding fathers had to do in laying down the law in the Constitution, simply because our present system is built upon entrenched monied interests that have built up a paper empire after nearly 100 years of monetary rule.
Simply put, even if you knew what the new system would look like (after years of disagreement and deal-making), you would have the almost impossible task of draining the almost $2 trillion of Federal Reserve notes from circulation, paying off the $14.2 trillion in FRN-denominated national debt, revaluing all existing contracts (mortgages, loans, investment portfolios, etc.) in terms of the new dollar, and coining/printing the new currency and making it available to the public.
Oh, and passing a law to revoke all powers of the Federal Reserve, the hardest one of all.
I am done with this site. It has swallowed up 3 comments I put in a great deal of time to craft.
If anyone wants to learn the truth regarding the Federal Reserve and the monetary system (and how to fix it), come over to shtfplan(dot)com, where I go under the same moniker. There are others who are like minded and much smarter than myself.
Chris C
Thanks for your reply
But after some research into history and what happened to Spain when a huge amount of new gold was found in the new word, I think the idea of returning to a gold standard is nothing I would support.
And then there is what Bernanke said about the fact that there is not enough gold in the world to cover our current money supply
http://online.wsj.com/article/BT-CO-20110301-714533.html
Chris, NOT difficult at all. Easy & Simple;
1st, AUDIT THE FED & its criminal frauds become obvious. 2nd, the “national debt ? ” and all the fed reserve “NOTES”? are the banksters’ notes & debt to We The People, on whose backs the banksters have been riding for 112 years, so REPUDIATE EVERY NOTE/BILL/DEBT denominated in federal reserve notes instead of “DOLLAR” as defined in the US Codes. 3rd, all the fed reserve properties, employees’ properties, stockholders’ properties, where and as found are seized and forfeited to the public treasury. 4th, all fed board members, officers, employees, agents, lawyers, lobbyists are arrested and charged with perjury, treason, forgery, counterfeiting, fraud, etc under RICO, and jailed without bail ( as flight risks) pending public trial. They are roadkill caught in your headlights! TURN ON YOUR HEADLIGHTS!!!
Egils continues:
5th, print and spend US Notes into circulation for a limited time. 6th, authorize commercial banks to hold Gold and Silver in their vaults, and to issue Gold and Silver Certificates as real wealth money, redeemable and transferable, BUT NOT more than 2 times the value of what’s in their vaults; 7th, Authorize State Banks ( like North Dakota’s), and Tribal Banks ( like Glacier Bank of Polson, Montana ), and authorize local credit based upon local wealth. 8th , retain ONLY the fed’s check clearing function and cancel their remaining chartered functions. 9th Authorize trade/barter/alternative currency systems and let the free markets determine what works best 10. Require Bernard Madoff and George Soros operate all social benefits systems like social security and Obamacare from their own pockets, from prison. lol
Monetary authority is separated between the federal government and the several sovereign States.
Only the federal government has authority to Coin our Money pursuant to Article I. sec. 8, Cl. 5, U.S. Constitution.
Only the States can declare what shall be a legal tender within their sovereign borders and by terms of Article I, sec. 10, U.S. Constitution they are are limited to no Thing but gold and silver coin.
Gold is too limited a commodity to use as currency for the over 7 billion people alive today. Other materials have more value, but exchange currency (like the current dollar) is more viable as a flexible means of measuring wealth… Something the United States recognized with the adoption of paper money in our earliest history. The ‘demand’ for the return of the Gold Standard however has been something radical right organizations like the John Birch Society has advocated for years, along with their current successors Koch Industries and their bought-&-paid-for T.E.A. ‘party’. A strong warning against their choice should be the fact that the Koch brothers father was a founding member of the JBS.