Sound Money for a Sound State


Every day we see signs of waning confidence. The politicians pontificate and the markets plunge. Talking heads rile the trading floors. People are panicking, but are unsure as to what drives the panic. Lying behind this turmoil is the fundamental flaw in our economy: our money. The antidote is gold.

Over the last few months we have seen gold rally up to $1000. Suddenly it is being heralded as the investment (if you held it since 2001, you’d really be laughing at this), and rightfully so. Even mindless stock jockeys speak to the fact that in times of uncertainty, gold is the place where people should park their cash. It is the asset of last resort. Yet if this is considered the only safe place to put our money when times are hard, then why not just make this our currency? Why do we have a paper dollar whose intrinsic worth is equivalent to that of paper and ink, or alternatively your faith in Nancy Pelosi?

As the always pithy Daily Reckoning notes, over the last 2,500 years, an ounce of gold has maintained a value roughly equivalent to 350 loaves of bread. Seems like a pretty safe store of wealth to me. Alternatively, the value of the dollar has dropped over 95% since the government (under the auspices of the Federal Reserve) took control of our money less than one hundred years ago. You have to ask yourself, would you rather have your government constrained in the money it creates by a tangible asset that has always held its value, or a government that holds its heavy hand on the cranks of the printing press?

This brings into question another issue. The government does not control the bread supply, the iPod supply or the Kudlow supply. But when it comes to money, a good exchangeable for these other goods and services, we give the government free rein. Sure, one might argue that the central bank is technically private, but this is just the deceitful nature in which the government bends the rules of its Constitution. It is akin to Fannie and Freddie being “quasi-public” entities. But why should the government grant itself a monopoly on this product, while subjecting all private firms to its anti-trust laws?

And how does the government maintain this monopoly on money? Why, legal tender laws of course. There was a time when money was coined privately, but those days are long gone. The question is, why shouldn’t the government allow a little friendly competition for the paper that it prints? The answer is that the power to control the money supply is great. Mainly, it allows the government to plunder the people. Here are a few politicians on the matter:

“Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.”

Daniel Webster’s disdain is matched by that of Thomas Jefferson:

“The evils of this deluge of paper money are not to be removed until our citizens are generally and radically instructed in their cause and consequences, and silence by their authority the interested clamors and sophistry of speculating, shaving, and banking institutions. Till then, we must be content to return quoad hoc to the savage state, to recur to barter in the exchange of our property for want of a stable common measure of value, that now in use being less fixed than the beads and wampum of the Indian, and to deliver up our citizens, their property and their labor, passive victims to the swindling tricks of bankers and mountebankers.”

On the other hand, he asserts,

“Specie is the most perfect medium because it will preserve its own level; because, having intrinsic and universal value, it can never die in our hands, and it is the surest resource of reliance in time of war.”

What of Woodrow Wilson, the man who signed the Fed into existence?

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.”

How about an economist for good measure? Perhaps our old friend Mr. Keynes:

“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Thanks for that one, Johnny.

If paper money through inflation impoverishes the citizenry and destroys capitalism, then one has to wonder why the people continue to allow this system to hold sway across all nations. Further, the historical track record of paper monies shows that every single one has failed. But we continue to entrust our money to our politicians. To be sure it is great for some — for the bankers, the war-profiteers and the debtors, inflation is a boon. Not to mention the fact that it allows the government to do whatever it wishes — to run up unlimited debts, fight endless battles and further extend its largesse to its favored sons. This is an immoral process and one that undermines the integrity of our nation.

As we see the flood of people to gold as the only safe asset, in a time without price inflation no less, it behooves us to question the paper money through which our politicians pilfer. Restore power to the rightful hands of the people to produce their own currencies, and we can give the central bankers a run for their money. Our liberty depends upon it.

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  1. Anonymous
    February 27, 2009 at 1:00 am

    The need for redeemable money, say backed by gold, is sound. Nonetheless, this addresses only a part of the problem. Let us note that depressions have occurred despite having a gold standard, even as late as 1921. The deeper problem is credit expansion, which can occur by a single independent bank, when it loans out more credit than it can cover. This is akin to embezzlement, and it is surely fraud to pretend that the assets of the bank are fully redeemable (even as the government rescues that bank). The problem is magnified by pooling the insolvency of banks, by printing fiat money, by fractional reserve, and by government borrowing.Consequently, although the gold standard is important, the underlying problem is when money (as a medium of exchange) is not fully redeemable by capital. This requires an even more radical solution. The gold standard, through currency competition, must put the Fed out of business. Then it is also necessary to prosecute fraud, so that banks either guarantee that all money is redeemable, or else inform the public that their funds are at risk (thereby allowing other banks to provide dependable and competitive loans).Yet the problem is not primarily monetary, economic, or even political. Rather the moral issue must be raised, to clarify that theft by income distribution or fraud is wrong, and warrants punishment. Only with the recognition that a sound monetary foundation is a moral requirement, does it become feasible to reverse the political commitment to bail out the consequent economic disasters.Allen

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