Honest Money Constitutional Amendment

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LoveIsTruth
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Re: Honest Money Constitutional Amendment

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Lawful wrote: loveistruth wrote "The "lawful money" i.e. US Treasury Notes are a fraud, because they are not redeemable in gold or silver."

That is a patently false statement.
Not really. US Treasury Note is fiat and unbacked. It is not redeemable in gold or silver. Its purchasing power floats and evaporates at the mercy of government’s printing press. Don’t believe me? Take US Treasury Notes to any store, or even to the US Mint and see if $10 of them will buy more than $10 of unbacked Federal Reserve Notes. They will buy EXACTLY the same amount of goods, because their purchasing power is EXACTLY the same, and is falling like a rock. FRN’s lost about 98% of their purchasing power since the creation of Federal Reserve, and US Treasury Note lost EXACTLY the same amount. This shows that US Treasury Notes are NOT backed by gold, because gold’s purchasing power went UP not down! Therefore US Treasury Note is a FRAUD, as all fiat is, by a strict definition of the word FRAUD.
Lawful wrote: A careful reading the entire page linked will show the reader, there is ALWAYS a bright line distinction between lawful money and "legal tender". Anything can be a "legal tender" but only Notes issued with a full backing of Gold or silver is "lawful money" as issued at face value.

Loveistruths' claim that to be "lawful money" US treasury Notes must be directly redeemable in Gold or Silver coin, is patently FALSE and has no backing in any history, law, congressional definition, courts nor the Constitution.
Now you apparently have a dumb theory that something can be backed by gold, but not redeemable in gold. That is a meaningless statement! If something is NOT redeemable in gold, it is NOT backed by gold, by definition of the word “backed.” To be backed by something IS to be redeemable in that something. Otherwise the word “backed” means exactly NOTHING!

Again, If something is “backed” but not redeemable in gold, it is NOT backed. This “backing” is meaningless and no better than fiat money, because it says, “Trust us.”

As for the Constitution, you are mistaken as well. According to the Constitution, the states are
  • 1) Forbidden to coin money
    2) Forbidden to use anything but gold and silver coin as money.
US Treasury notes produced by the Congress claim to be legal tender for all debts private and public, therefore including debts of the States. And since the States cannot legally use anything but gold and silver coin in payment of debts, then the US Treasury notes must be redeemable in gold and silver coin, but they are not. Thus they are a fraud also from the Constitutional point of view, because they violate the Constitution.

So US Treasury Notes are a FRAUD by every definition.

Wake up!
Last edited by LoveIsTruth on October 5th, 2012, 12:29 pm, edited 1 time in total.

Lawful
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Re: Honest Money Constitutional Amendment

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Loveistruth, your lies are proven. You have been weighed and measured and been found wanting.

All I can tell you is repent.

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LoveIsTruth
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Lawful wrote:Loveistruth, your lies are proven. You have been weighed and measured and been found wanting.

All I can tell you is repent.
Is JUSTICE not a law for you? Is Constitution not a law for you? Your name should have been "Law fool."

;)

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LoveIsTruth
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Re: Honest Money Constitutional Amendment

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Tom Woods Answers Myths About Sound Money


Smashing Myths and Restoring Sound Money
Thomas E. Woods, Jr.

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LoveIsTruth
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Time is running out

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Also
http://www.successcouncil.com/live_pres ... 0004578e52" onclick="window.open(this.href);return false;
http://www.successcouncil.com/live_pres ... nk_you.php" onclick="window.open(this.href);return false;

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LoveIsTruth
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"Legalized Plunder of the American People" - G. Edward Griffin


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Lindsey Williams: The dollar to lose much of its purchasing power by the end of December 2012, and to go into hyperinflation by April or June of 2013.

Get out of all paper assets, because you WILL lose them. Buy food-storage now (it will be too expensive in December); buy durable goods now, and if anything is left after that buy silver and gold. You have been warned. "He who has ears to hear, let him hear."



Be warned:
Now the "elites" are going to "back" SDR's initially with gold and silver, to sucker people in, just like they did with Federal Reserve Notes, which initially were "backed" by gold, but that backing was gradually and quietly removed, until you end up with 100% UNBACKED currency, so they can plunder the peoples of the world at will by pressing a few keys on a computer to create trillions out of nothing. This is the same fraud in progress. This is how SDR's will start, and that is how they will end.

The only REAL solution is to allow Free Competition in Currencies, that Freedom demands. Thus Free Market will end fiat fraud, because unbacked fiat is ONLY possible via a government FORCED MONOPOLY, and speedily dies when Free Competition in Currencies is present. THAT is the TRUE Solution. Everything else are different shades of a lie. Demand Free Competition in Currencies, as advocated by this amendment, and demand PHYSICAL delivery of gold and silver. That is the ONLY way to restore an honest monetary system and to ensurer LIBERTY and Prosperity of the people. There is NO OTHER WAY.

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Being Anti-Fed Isn't Enough
You have to understand money. Article by Tom Woods:
As I noted not long ago, I find myself in serious disagreement with a portion of the end-the-Fed movement. This is the segment of the movement whose complaints are that the Federal Reserve is “privately owned,” that the Fed does not inflate enough, that interest payments are unjust or inherently unpayable all at once, etc.

This is not nit-picking. I am not interested in replacing the Fed with something as bad or worse. The problem with the Fed is not that it isn’t socialistic enough. The problem with the Fed is that it is a creation of Congress and operates with special privileges granted by the government. If only the Fed were truly private, with no government-granted privileges. Then it could do no damage whatever.
Right on, Tom! Remove government forced monopoly, (i.e. allow Free Competition in Currencies), and unbacked fiat ends by the hand of Free Market, together with welfare state and warfare state! That is the purpose of this amendment!

David Merrill
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Re: Honest Money Constitutional Amendment

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It seems by now it may have been more effective to just write up the Amendment?


Ooops! I apologize - you already have.

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LoveIsTruth
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Yep.

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Ron Paul:
"If you had sound money, you would not have deficits, because you cannot print money."


This is the key, politically and economically speaking. Everything else is fluff and different degrees of a lie.

http://www.prisonplanet.com/ron-paul-el ... -gone.html" onclick="window.open(this.href);return false;

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'Fool's Gold' Standards

IMF is planning to produce "gold backed" SDR's as a new global currency. It is a fraud in the making. Just like the original Federal Reserve Act of 1913 called for gold backing of the dollar, only to quietly remove and outlaw such backing later, so is the plan of the banksters regarding SDR's. It may initially be backed by "gold" to sucker people in, but because of the monopoly, it will soon become NOT redeemable in gold, to perpetuate the fiat fraud on global scale. The true solution is to kill the immoral monopoly by legalizing Free Competition in Currencies, as demanded by Free Market, which is the purpose of this amendment (please see the top post).
Ron Paul, in "Why Monetary Freedom Matters," reinforces Salerno's caution on true reform, a market determined money, versus reforms, that while perhaps better than a "false trust in fiat money" will leave too many opportunities for monetary mischief. Paul states, "As far back as the Gold Commission (1982), I've made the case for gold." But he wouldn't close down the central bank: he would legalize competition in currencies, repeal legal-tender laws, and eliminate all taxes on silver or gold purchases, and allow private mints. In essence, his proposal is similar to what F. A. Hayek (1976, 1978) had talked about. Why don't we denationalize money, legalize competition, allow free markets to work, and allow free-market banking to work?

http://lewrockwell.com/orig13/cochran-j1.1.1.html

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LoveIsTruth
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The Money and Banking Quiz
We are a sufficient number of generations into our virtual currency system, and the majority of people accept it without any question. It is inconceivable to most that it could contain a fatal flaw which might eventually lead to its demise – or our loss of personal liberty.

Our system of fractional reserve banking and fiat money is one of the greatest cons ever devised by man. It hides in plain sight by virtue of a deception that is just subtle enough to elude the grasp of almost all who encounter it. Sometimes such an idea cannot be fully communicated through simple explanation. Rather, it must be discovered by each individual in his own way.


The following is not so much a quiz, but possible questions that could be used to lead someone to their own discovery.

http://lewrockwell.com/spl4/money-and-banking-quiz.html


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LoveIsTruth
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When Money Dies | Daniel Sanchez


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LoveIsTruth
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12 Year Old Girl Tells The SHEEPLE the Truth about CORRUPT BANKERS






The only thing she is wrong about is the solution.

The solution is not to give the counterfeiting power into the hands of trustworthy politicians, but to outlaw legalized and monopolized counterfeiting all together, by legalizing Free Competition in Currencies as in this amendment.

Also, there is no such thing as "fair taxes," as there is no such thing as "fair robbery."

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Ditching Before the Fiscal Cliff
by Peter Schiff

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Read more: http://lewrockwell.com/schiff/schiff190.html" onclick="window.open(this.href);return false;

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Can We Live Without the Fed?
[Can we live without plunder?]

Don't make Tom Woods laugh.
by Thomas E. Woods, Jr. woods@mises.org

Recently by Thomas E. Woods, Jr.: Why the Greenbackers Are Wrong

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This was published on January 2, 2013, in Ron Paul’s Monetary Policy Anthology: Materials From the Chairmanship of the Subcommittee on Domestic Monetary Policy and Technology, US House of Representatives, 112[SUP]th[/SUP] Congress.

We have heard the objection a thousand times: why, before we had a Federal Reserve System the American economy endured a regular series of financial panics. Abolishing the Fed is an unthinkable, absurd suggestion, for without the wise custodianship of our central bankers we would be thrown back into a horrific financial maelstrom, deliverance from which should have made us grateful, not uppity.

The argument is superficially plausible, to be sure, but it is wrong in every particular. We heard it quite a bit in the financial press ever since the announcement that Congressman Ron Paul, a well-known opponent of the Fed, would chair the House Financial Services Subcommittee on Domestic Monetary Policy. Fed apologists were beside themselves – a man who rejects the cartoon version of the history of the Fed will hold such an influential position? He must be made into an object of derision and ridicule.

The conventional wisdom runs something like this: without a central bank or its lesser cousin, a national bank, we had frequent episodes of boom and bust, but since the creation of the Federal Reserve System the economy has been far more stable. People who believe in a free market in banking, as opposed to these cartel arrangements, are evidently so uninformed or so blinded by ideology that they have never heard or internalized this one-sentence encapsulation of 19th- and 20th-century monetary history.

Modern scholarship has not been kind to this thesis. Mainstream economists have begun to acknowledge that the alleged instability of the period before the Federal Reserve has been exaggerated, as the posited stability of the post-Fed period. Christina Romer, who chaired the Council of Economic Advisers under Barack Obama, finds that the numbers and dating used by the National Bureau of Economic Research (NBER, the largest economics research foundation in the U.S., founded in 1920) exaggerate both the number and the length of economic downturns prior to the creation of the Fed. In so doing, the NBER likewise overestimates the Fed’s contribution to economic stability. Recessions were in fact not more frequent in the pre-Fed than the post-Fed period.

Suppose we compare only the post-World War II period to the pre-Fed period, thereby excluding the Great Depression from the Fed’s record. In that case, we do find economic contractions to be somewhat more frequent in the period before the Fed, but as economist George Selgin explains, "They were also three months shorter on average, and no more severe." Thus recoveries were faster in the pre-Fed period, with the average time peak to bottom taking only 7.7 months as opposed to the 10.6 months of the post-World War II period. Extending our pre-Fed period to include 1796 to 1915, economist Joseph Davis finds no appreciable difference between the frequency and duration of recessions as compared to the period of the Fed.

But perhaps the Fed has helped to stabilize real output (the total amount of goods and services an economy produces in a given period of time, adjusted to remove the effects of inflation), thereby decreasing economic volatility. Not so. Some recent research finds the two periods (pre- and post-Fed) to be approximately equal in volatility, and some finds the post-Fed period in fact to be more volatile, once faulty data are corrected for. The ups and downs in output that did exist before the creation of the Fed were not attributable to the lack of a central bank. Output volatility before the Fed was caused almost entirely by supply shocks that tend to affect an agricultural society (harvest failures and such), while output volatility after the Fed is to a much greater extent the fault of the monetary system. (For citations on this point and for the previous paragraphs, see the paper by George Selgin, William D. Lastrapes, and Lawrence H. White, "Has the Fed Been a Failure?" available online.)

The 19th-century boom-bust cycles that are supposed to discredit the idea of a free market in money and banking are in fact consistently attributable to artificial credit expansion, a practice given artificial stimulus by means of the various government privileges granted to the banking industry. According to Richard Timberlake, a well-known economist and historian of American monetary and banking history, "As monetary histories confirm...most of the monetary turbulence – bank panics and suspensions in the nineteenth century – resulted from excessive issues of legal-tender paper money, and they were abated by the working gold standards of the times." It is the old story of the faults of interventionism being blamed on the free market.

Contemporaries by and large attributed the Panic of 1819, for example, to the inflationary and then rapidly contractionary policies of the Second Bank of the United States. As often happens when the country is flooded with money created out of thin air, speculation of all kinds grew intense, as eyewitness testimony abundantly records.

During the years when the U.S. had no central bank (the period from 1811, when the charter of the first Bank of the United States expired, and 1817), government had granted private banks the privilege of expanding credit while refusing to pay depositors demanding their funds. In other words, when people came to demand their money from the banks, the banks were allowed to tell them they didn’t have the money, and depositors would simply have to wait a couple years – and at the same time, the bank was allowed to continue in operation. By early 1817 the Madison administration finally required the banks to meet depositor demands, but at the same time chartered the Second Bank of the United States, which would itself be inflationary. The Bank subsequently presided over an inflationary boom, which came to grief in 1819.

The lesson of that sorry episode – namely, that the economy gets taken on a wild and unhealthy ride when the money supply is arbitrarily increased and then suddenly reduced – was so obvious that even the political class managed to figure it out. Numerous American statesmen were confirmed in their hard-money views by the Panic. Thomas Jefferson asked a friend in the Virginia legislature to introduce his "Plan for Reducing the Circulating Medium," which the Sage of Monticello had drawn up in response to the Panic. The plan sought to withdraw all paper money in excess of specie over a five-year period, then redeem the rest in specie and have precious-metal coins circulate exclusively from that moment on. Jefferson and John Adams were especially fond of Destutt de Tracy’s hard-money Treatise on the Will (1815), with Adams calling it the best book on economics ever written (its chapter on money, said Adams, defends "the sentiments that I have entertained all my lifetime") and Jefferson writing the preface to the English-language edition.

While the Panic of 1819 confirmed some political figures in the hard-money views they already held, it also converted others to that position. Condy Raguet had been an outspoken inflationist until 1819. After observing the distortions and instability caused by paper-money inflation, he promptly embraced hard money, and went on to write A Treatise on Currency and Banking (1839), one of the great money and banking treatises of the nineteenth century. Davy Crockett, future president William Henry Harrison, and John Quincy Adams (at least at that time) were likewise opposed to inflationist banks; in contrast to the inflationary Second Bank of the United States, Adams cited the hard-money Bank of Amsterdam as a model to emulate. Daniel Raymond, disciple of Alexander Hamilton and author of the first treatise on economics published in America (Thoughts on Political Economy, 1820), expressly broke with Hamilton in advocating a hard-money, 100 percent specie-backed currency.

Popular references to the Panic of 1837 today urge us to blame President Andrew Jackson for having dissolved the Second Bank of the United States. The most common argument is this: without a national bank to discipline the state banks, the state banks that received the federal deposits after the closure of the Second Bank went on an inflationary binge that culminated in the Panic of 1837 and another downturn in 1839. This standard diagnosis is partly Austrian, surprisingly, in that it blames artificial credit expansion for giving rise to unsustainable booms that end in busts. But the alleged solution to this problem, according to modern commentators, is a robust central bank with implicit regulatory powers over smaller institutions.

Senator William Wells, a hard-money Federalist from Delaware, had been unconvinced from the start that the best way to encourage sound practices among smaller unsound banks was to establish a giant unsound bank. "This bill," he said in 1816,

came out of the hands of the administration ostensibly for the purpose of curtailing the over-issue of Bank paper: and yet it came prepared to inflict on us the same evil, being itself nothing more than a simple paper making machine; and constituting, in this respect, a scheme of policy about as wise, in point of precaution, as the contrivance of one of Rabelais’s heroes, who hid himself in the water for fear of the rain. The disease, it is said, is the Banking fever of the States; and this is to be cured by giving them the Banking fever of the United States.

Another hard-money U.S. senator, New York’s Samuel Tilden, likewise wondered, "How could a large bank, constituted on essentially the same principles, be expected to regulate beneficially the lesser banks? Has enlarged power been found to be less liable to abuse than limited power? Has concentrated power been found less liable to abuse than distributed power?"

A much better solution recommended by hard-money advocates at the time is what became known as the "Independent Treasury," in which the federal deposits, instead of being distributed to privileged state banks and used as the basis for additional rounds of credit creation there, were retained by the Treasury and kept out of the banking system entirely. Hard-money supporters believed that the federal government was propping up (and lending artificial legitimacy to) an unsound system of fractional-reserve state banks by (1) distributing the federal deposits to them, (2) accepting their paper money in payment of taxes and (3) paying it back out again. As William Gouge put it,

If the operations of Government could be completely separated from those of the Banks, the system would be shorn of half its evils. If Government would neither deposit the public funds in the Banks, nor borrow money from the Banks; and if it would in no case either receive Bank notes or pay away Bank notes, the Banks would become mere commercial institutions, and their credit and their power be brought nearer to a level with those of private merchants.

Contemporary opponents of the Bank have sometimes been portrayed as antimarket, antiproperty populists. "Last time we had a central bank," wrote a critic of Congressman Paul in 2010, "its advocates were conservative, hard-money businessmen, and its opponents were subprime borrowers and lenders who convinced President Jackson the bank was holding back the nation." That is as wrong as wrong can be, as we’ll see in a moment. But our critic proceeds from this error to the false conclusion that supporters of the market economy then as now should be supporters of the central bank.

To be sure, opponents of the Second Bank of the United States were no monolith, and even today the central bank is criticized both by those who condemn its money creation as well as by those who criticize its alleged stinginess. On balance, though, the fight against the Second Bank was a free-market, hard-money campaign against a government-privileged paper-money producer. "The attack on the Bank," concluded Professor Jeff Hummel in his review of the literature, "wasa fully rational and highly enlightened step toward the achievement of a laissez-fairemetallic monetary system."

In fact, the most important monetary theorist of the entire period, William Gouge, was a champion of hard money who opposed the Bank; he considered these two positions logically coordinate, indeed inseparable. "Why should ingenuity exert itself in devising new modifications of paper Banking?" Gouge asked. "The economy which prefers fictitious money to real, is, at best, like that which prefers a leaky ship to a sound one." He assured Americans that "the sun would shine, the streams would flow, and the earth would yield her increase, if the Bank of the United States was not in existence." The conservative Bankers’ Magazine, upon Gouge’s death, said that his hard-money book A Short History of Paper Money and Banking was "a very able and clear exposition of the principles of banking and of the mistakes made by our American banking institutions."

Another important hard-money opponent of the national bank was William Leggett, the influential Jacksonian editorial writer in New York who memorably called for "separation of bank and state." Economist Larry White, who compiled many of Leggett’s most important writings, calls him "the intellectual leader of the laissez-faire wing of Jacksonian democracy." He denounced the Bank for its repeated expansions and contractions, and for the economic turmoil that such manipulation left in its wake.

The Panic of 1819 had likewise been due to such behavior on the part of the Bank, said Leggett during the 1830s. "For the two or three years preceding the extensive and heavy calamities of 1819, the United States Bank, instead of regulating the currency, poured out its issues at such a lavish rate that trade and speculation were excited in a preternatural manner." Leggett continues,

But not to dwell upon events the recollection of which time may have begun to efface from many minds, let us but cast a glance at the manner in which the United States Bank regulated the currency in 1830, when, in the short period of a twelve-month it extended its accommodations from forty to seventy millions of dollars. This enormous expansion, entirely uncalled for by any peculiar circumstance in the business condition of the country, was followed by the invariable consequences of an inflation of the currency. Goods and stocks rose, speculation was excited, a great number of extensive enterprises were undertaken, canals were laid out, rail-roads projected, and the whole business of the country was stimulated into unnatural and unsalutary activity.

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As in later crises, banks were allowed to suspend specie payment (a fancy way of saying that the law permitted them to refuse to hand over their depositors’ money when their customers came looking for it) while permitting them to carry on their operations. The knowledge that government could be counted on to bail out the banks in this way created a lingering problem of moral hazard that would affect banks’ behavior in the future.
Leggett blamed artificial credit creation for the Panic of 1837:

What has been, what ever must be, the consequence of such a sudden and prodigious inflation of the currency? Business stimulated to the most unhealthy activity; a vast amount of over production in the mechanick arts; a vast amount of speculation in property of every kind and name, at fictitious values; and finally, a vast and terrifick crash, when the treacherous and unsubstantial basis crumbles beneath the stupendous fabrick of credit, and the structure falls to the ground, burying in its ruins thousands who exulted in the fancied security of their elevation. Men, now-a-days, go to bed deeming themselves rich, and wake in the morning to find themselves stripped of even the little they really had. They count, deluded creatures! on the continued liberality of the banks, whose persuasive entreaties seduced them into the slippery paths of speculation. But they have now to learn that the banks cannot help them if they would, and would not if they could. They were free enough to lend their aid when assistance was not needed; but now, when it is indispensable to carry out the projects which would not have been undertaken but for the temptations they held forth, no further resources can be supplied.

Toward the end of 1837, he added:

Any person who has soberly observed the course of events for the last three years must have foreseen the very state of things which now exists.... He will see that the banks...have been striving with all their might, each emulating the other, to force their issues into circulation and flood the land. He will see that they have used every art of cajolery and allurement to entice men to accept their proffered aid, that in this way they gradually excited a thirst for speculation which they sedulously stimulated until it increased to a delirious fever and men in the epidemic frenzy of the hour wildly rushed upon all sorts of desperate adventures. They dug canals where no commerce asked for the means of transportation, they opened roads where no travelers desired to penetrate and they built cities where there were none to inhabit.

The Panic of 1857 was the result of a five-year boom rooted in credit expansion. The most capital-intensive industries of that decade, railroad construction and mining companies, expanded the most during the boom. States had even backed railroad bonds, promising to make good on those bonds if the railroad companies did not.

President James Buchanan engaged in no vain effort to reflate the economy. He observed in his first annual message, "It is apparent that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits." The economy recovered within six months, even though the money supply fell, interest rates rose, government spending was not increased, and businesses and banks were not bailed out. But Buchanan cautioned Americans that "the periodical revulsions which have existed in our past history must continue to return at intervals so long as our present unbounded system of bank credits shall prevail."

Buchanan envisioned a federal bankruptcy law for banks that, instead of giving legal sanction to their suspension of specie payments (that is, their failure to honor their depositors’ demands for withdrawal), would in fact shut them down if they failed to make good on their promises. "The instinct of self-preservation might produce a wholesome restraint upon their banking business if they knew in advance that a suspension of specie payments would inevitably produce their civil death."

Until recently it was customary to refer to the 1870s as the period of the "Long Depression" in the United States. The modern consensus holds that there was no "Long Depression" after all. Even the New York Times recently observed:

Recent detailed reconstructions of nineteenth-century data by economic historians show that there was no 1870s depression: aside from a short recession in 1873, in fact, the decade saw possibly the fastest sustained growth in American history. Employment grew strongly, faster than the rate of immigration; consumption of food and other goods rose across the board. On a per capita basis, almost all output measures were up spectacularly. By the end of the decade, people were better housed, better clothed and lived on bigger farms. Department stores were popping up even in medium-sized cities. America was transforming into the world’s first mass consumer society.

Farmers, moreover, who panicked at falling prices for agricultural commodities, at first failed to note that other prices were falling still faster. The terms of trade for American farmers improved considerably during the 1870s.

As for historians, they seem to have been fooled by the statistics on consumer prices, which fell an average of 3.8 percent per year. And since the conventional wisdom holds that falling prices and depression are intimately linked – they are not – they concluded that this must have been a time of terrible depression. With the gold standard restored in 1879 after being abandoned during the Civil War, the 1880s were likewise a period of great prosperity, with real wages rising by 20 percent.

The post–Civil War panics in the United States were due in large part to the unit-banking regulations in many states that forbade branch banking of any sort. Confined to a single office, each bank was necessarily fragile and undiversified. Canada experienced none of these panics even though it did not establish a central bank, the establishment’s trusted panacea, until 1934. As Milton Friedman was fond of pointing out, when 9,000 banks failed in the U.S. during the Great Depression, not a single bank failure was taking place in Canada, where the banking system was not damaged by these regulations.

Moreover, as Charles Calomiris has noted, the bank failure rate during the pre-Fed panics was small, as were the losses depositors suffered. Depositor losses amounted to only 0.1 percent of GDP during the Panic of 1893, which was the worst of them all with respect to bank failures and depositor losses. By contrast, in just the past 30 years of the central-bank era, the world has seen 20 banking crises that led to depositor losses in excess of 10 percent of GDP. Half of those saw losses in excess of 20 percent of GDP.

Just from an empirical point of view, therefore, the case for the Fed is far weaker than its proponents admit or realize. Still, as in so many other areas, critics of the status quo are reflexively condemned as cranks, and alternatives are dismissed as unthinkable. But they are unthinkable only because we have allowed fashionable opinion to keep us from thinking them. We have been forced into a box that confines our choices to various forms of statism. The movement to end the Fed is an astonishing and most welcome first step toward clawing our way out.

January 4, 2013


Thomas E. Woods, Jr. [[email="woods@mises.org]send him mail[/email]; visit his website], a senior fellow of the Ludwig von Mises Institute, is the creator of Tom Woods’s Liberty Classroom, a libertarian educational resource. He is the author of eleven books, including the New York Times bestsellers Meltdown (on the financial crisis; read Ron Paul’s foreword) and The Politically Incorrect Guide to American History, and most recently Nullification and Rollback.

Copyright © 2013 Thomas Woods

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LoveIsTruth
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Re: Honest Money Constitutional Amendment

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The Myth of Fed Independence

by Murray N. Rothbard
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Excerpted from The Case Against The Fed

By far the most secret and least accountable operation of the federal government is not, as one might expect, the CIA, DIA, or some other super-secret intelligence agency. The CIA and other intelligence operations are under control of the Congress. They are accountable: a Congressional committee supervises these operations, controls their budgets, and is informed of their covert activities. It is true that the committee hearings and activities are closed to the public; but at least the people’s representatives in Congress insure some accountability for these secret agencies.

It is little known, however, that there is a federal agency that tops the others in secrecy by a country mile. The Federal Reserve System is accountable to no one; it has no budget; it is subject to no audit; and no Congressional committee knows of, or can truly supervise, its operations. The Federal Reserve, virtually in total control of the nation's vital monetary system, is accountable to nobody – and this strange situation, if acknowledged at all, is invariably trumpeted as a virtue.

Thus, when the first Democratic president in over a decade was inaugurated in 1993, the maverick and venerable Democratic chairman of the House Banking Committee, Texan Henry B. Gonzalez, optimistically introduced some of his favorite projects for opening up the Fed to public scrutiny. His proposals seemed mild; he did not call for full-fledged Congressional control of the Fed’s budget. The Gonzalez Bill required full independent audits of the Fed’s operations; videotaping the meetings of the Fed’s policy-making committee; and releasing detailed minutes of the policy meetings within a week, rather than the Fed being allowed, as it is now, to issue vague summaries of its decisions six weeks later. In addition, the presidents of the twelve regional Federal Reserve Banks would be chosen by the president of the United States rather than, as they are now, by the commercial banks of the respective regions.

It was to be expected that Fed Chairman Alan Greenspan would strongly resist any such proposals. After all, it is in the nature of bureaucrats to resist any encroachment on their unbridled power. Seemingly more surprising was the rejection of the Gonzalez plan by President Clinton, whose power, after all, would be enhanced by the measure. The Gonzalez reforms, the President declared, “run the risk of undermining market confidence in the Fed.”

On the face of it, this presidential reaction, though traditional among chief executives, is rather puzzling. After all, doesn’t a democracy depend upon the right of the people to know what is going on in the government for which they must vote? Wouldn’t knowledge and full disclosure strengthen the faith of the American public in their monetary authorities? Why should public knowledge “undermine market confidence”? Why does “market confidence” depend on assuring far less public scrutiny than is accorded keepers of military secrets that might benefit foreign enemies? What is going on here?

The standard reply of the Fed and its partisans is that any such measures, however marginal, would encroach on the Fed’s “independence from politics,” which is invoked as a kind of self-evident absolute. The monetary system is highly important, it is claimed, and therefore the Fed must enjoy absolute independence.

“Independent of politics” has a nice, neat ring to it, and has been a staple of proposals for bureaucratic intervention and power ever since the Progressive Era. Sweeping the streets; control of seaports; regulation of industry; providing social security; these and many other functions of government are held to be “too important” to be subject to the vagaries of political whims. But it is one thing to say that private, or market, activities should be free of government control, and “independent of politics” in that sense. But these are government agencies and operations we are talking about, and to say that government should be “independent of politics” conveys very different implications. For government, unlike private industry on the market, is not accountable either to stockholders or consumers. Government can only be accountable to the public and to its representatives in the legislature; and if government becomes “independent of politics” it can only mean that that sphere of government becomes an absolute self-perpetuating oligarchy, accountable to no one and never subject to the public’s ability to change its personnel or to “throw the rascals out.” If no person or group, whether stockholders or voters, can displace a ruling elite, then such an elite becomes more suitable for a dictatorship than for an allegedly democratic country. And yet it is curious how many self-proclaimed champions of “democracy,” whether domestic or global, rush to defend the alleged ideal of the total independence of the Federal Reserve.

Representative Barney Frank (D., Mass.), a co-sponsor of the Gonzalez Bill, points out that “if you take the principles that people are talking about nowadays,” such as “reforming government and opening up government – the Fed violates it more than any other branch of government.” On what basis, then, should the vaunted “principle” of an independent Fed be maintained?

It is instructive to examine who the defenders of this alleged principle may be, and the tactics they are using. Presumably one political agency the Fed particularly wants to be independent from is the U.S. Treasury. And yet Frank Newman, President Clinton's Under Secretary of the Treasury for Domestic Finance, in rejecting the Gonzalez reform, states: “The Fed is independent and that’s one of the underlying concepts.” In addition, a revealing little point is made by the New York Times, in noting the Fed’s reaction to the Gonzalez Bill: “The Fed is already working behind the scenes to organize battalions of bankers to howl about efforts to politicize the central bank” (New York Times, October 12, 1993). True enough. But why should these “battalions of bankers” be so eager and willing to mobilize in behalf of the Fed’s absolute control of the monetary and banking system? Why should bankers be so ready to defend a federal agency which controls and regulates them, and virtually determines the operations of the banking system? Shouldn’t private banks want to have some sort of check, some curb, upon their lord and master? Why should a regulated and controlled industry be so much in love with the unchecked power of their own federal controller?

Let us consider any other private industry. Wouldn’t it be just a tad suspicious if, say, the insurance industry demanded unchecked power for their state regulators, or the trucking industry total power for the ICC, or the drug companies were clamoring for total and secret power to the Food and Drug Administration? So shouldn’t we be very suspicious of the oddly cozy relationship between the banks and the Federal Reserve? What’s going on here? Our task in this volume is to open up the Fed to the scrutiny it is unfortunately not getting in the public arena.

Absolute power and lack of accountability by the Fed are generally defended on one ground alone: that any change would weaken the Federal Reserve’s allegedly inflexible commitment to wage a seemingly permanent “fight against inflation.” This is the Johnny-one-note of the Fed’s defense of its unbridled power. The Gonzalez reforms, Fed officials warn, might be seen by financial markets “as weakening the Fed’s ability to fight inflation” (New York Times, October 8, 1993). In subsequent Congressional testimony, Chairman Alan Greenspan elaborated this point. Politicians, and presumably the public, are eternally tempted to expand the money supply and thereby aggravate (price) inflation. Thus to Greenspan:
  • The temptation is to step on the monetary accelerator or at least to avoid the monetary brake until after the next election. Giving in to such temptations is likely to impart an inflationary bias to the economy and could lead to instability, recession, and economic stagnation.
The Fed’s lack of accountability, Greenspan added, is a small price to pay to avoid “putting the conduct of monetary policy under the close influence of politicians subject to short-term election cycle pressure” (New York Times, October 14, 1993).

So there we have it. The public, in the mythology of the Fed and its supporters, is a great beast, continually subject to a lust for inflating the money supply and therefore for subjecting the economy to inflation and its dire consequences. Those dreaded all-too-frequent inconveniences called “elections” subject politicians to these temptations, especially in political institutions such as the House of Representatives who come before the public every two years and are therefore particularly responsive to the public will. The Federal Reserve, on the other hand, guided by monetary experts independent of the public’s lust for inflation, stands ready at all times to promote the long-run public interest by manning the battlements in an eternal fight against the Gorgon of inflation. The public, in short, is in desperate need of absolute control of money by the Federal Reserve to save it from itself and its short-term lusts and temptations. One monetary economist, who spent much of the 1920s and 1930s setting up Central Banks throughout the Third World, was commonly referred to as “the money doctor.” In our current therapeutic age, perhaps Greenspan and his confreres would like to be considered as monetary “therapists,” kindly but stern taskmasters whom we invest with total power to save us from ourselves.

But in this administering of therapy, where do the private bankers fit in? Very neatly, according to Federal Reserve officials. The Gonzalez proposal to have the president instead of regional bankers appoint regional Fed presidents would, in the eyes of those officials, “make it harder for the Fed to clamp down on inflation.” Why? Because, the “sure way” to “minimize inflation” is “to have private bankers appoint the regional bank presidents.” And why is this private banker role such a “sure way”? Because, according to the Fed officials, private bankers “are among the world’s fiercest inflation hawks” (New York Times, October 12, 1993).

The worldview of the Federal Reserve and its advocates is now complete. Not only are the public and politicians responsive to it eternally subject to the temptation to inflate; but it is important for the Fed to have a cozy partnership with private bankers. Private bankers, as “the world's fiercest inflation hawks,” can only bolster the Fed’s eternal devotion to battling against inflation.

There we have the ideology of the Fed as reflected in its own propaganda, as well as respected Establishment transmission belts such as the New York Times, and in pronouncements and textbooks by countless economists. Even those economists who would like to see more inflation accept and repeat the Fed’s image of its own role. And yet every aspect of this mythology is the very reverse of the truth. We cannot think straight about money, banking, or the Federal Reserve until this fraudulent legend has been exposed and demolished.

There is, however, one and only one aspect of the common legend that is indeed correct: that the overwhelmingly dominant cause of the virus of chronic price inflation is inflation, or expansion, of the supply of money. Just as an increase in the production or supply of cotton will cause that crop to be cheaper on the market; so will the creation of more money make its unit of money, each franc or dollar, cheaper and worth less in purchasing power of goods on the market.

But let us consider this agreed-upon fact in the light of the above myth about the Federal Reserve. We supposedly have the public clamoring for inflation while the Federal Reserve, flanked by its allies the nation’s bankers, resolutely sets its face against this short-sighted public clamor. But how is the public supposed to go about achieving this inflation? How can the public create, i.e., “print,” more money? It would be difficult to do so, since only one institution in the society is legally allowed to print money. Anyone who tries to print money is engaged in the high crime of “counterfeiting,” which the federal government takes very seriously indeed. Whereas the government may take a benign view of all other torts and crimes, including mugging, robbery, and murder, and it may worry about the “deprived youth” of the criminal and treat him tenderly, there is one group of criminals whom no government ever coddles: the counterfeiters. The counterfeiter is hunted down seriously and efficiently, and he is salted away for a very long time; for he is committing a crime that the government takes very seriously: he is interfering with the government’s revenue: specifically, the monopoly power to print money enjoyed by the Federal Reserve.

“Money,” in our economy, is pieces of paper issued by the Federal Reserve, on which are engraved the following: “This Note is Legal Tender for all Debts, Private, and Public.” This “Federal Reserve Note,” and nothing else, is money, and all vendors and creditors must accept these notes, like it or not.

So: if the chronic inflation undergone by Americans, and in almost every other country, is caused by the continuing creation of new money, and if in each country its governmental “Central Bank” (in the United States, the Federal Reserve) is the sole monopoly source and creator of all money, who then is responsible for the blight of inflation? Who except the very institution that is solely empowered to create money, that is, the Fed (and the Bank of England, and the Bank of Italy, and other central banks) itself?

In short: even before examining the problem in detail, we should already get a glimmer of the truth: that the drumfire of propaganda that the Fed is manning the ramparts against the menace of inflation brought about by others is nothing less than a deceptive shell game. The culprit solely responsible for inflation, the Federal Reserve, is continually engaged in raising a hue-and-cry about “inflation,” for which virtually everyone else in society seems to be responsible. What we are seeing is the old ploy by the robber who starts shouting “Stop, thief!” and runs down the street pointing ahead at others. We begin to see why it has always been important for the Fed, and for other Central Banks, to invest themselves with an aura of solemnity and mystery. For, as we shall see more fully, if the public knew what was going on, if it was able to rip open the curtain covering the inscrutable Wizard of Oz, it would soon discover that the Fed, far from being the indispensable solution to the problem of inflation, is itself the heart and cause of the problem. What we need is not a totally independent, all-powerful Fed; what we need is no Fed at all.


Murray N. Rothbard (1926–1995) was dean of the Austrian School, founder of modern libertarianism, and chief academic officer of the Mises Institute. He was also editor – with Lew Rockwell – of The Rothbard-Rockwell Report, and appointed Lew as his executor. See Murray's books.

Copyright © 2013 by the Ludwig von Mises Institute. Permission to reprint in whole or in part is hereby granted, provided full credit is given.
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Re: Honest Money Constitutional Amendment

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Gold & Silver Ep1: Mike Maloney -
Hidden Secrets of Money




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Why the Greenbackers Are Wrong (AERC 2013)

by Tom Woods

One of Ron Paul’s great accomplishments is that the Federal Reserve faces more opposition today than ever before. Readers of this site will be familiar with the arguments: the Fed enjoys special government privileges; its interference with market interest rates gives rise to the boom-bust business cycle; it has undermined the value of the dollar; it creates moral hazard, since market participants know the money producer can bail them out; and it is unnecessary to and at odds with a free-market economy.

Unfortunately, not all Fed critics, even among Ron Paul supporters, approach the problem in this way. A subset of the end-the-Fed crowd opposes the Fed for peripheral or entirely wrongheaded reasons. For this group, the Fed is not inflating enough. (I have been told by one critic that our problem cannot be that too much money is being created, since he doesn’t know anyone who has too many Federal Reserve Notes.) Their other main complaints are (1) that the Fed is “privately owned” (the Fed’s problem evidently being that it isn’t socialistic enough), (2) that fiat money is just fine as long as it is issued by the people’s trusty representatives instead of by the Fed, and (3) that under the present system we are burdened with what they call “debt-based money”; their key monetary reform, in turn, involves moving to “debt-free money.” These critics have been called Greenbackers, a reference to fiat money used during the Civil War. (A fourth claim is that the Austrian School of economics, which Ron Paul promotes, is composed of shills for the banking system and the status quo; I have exploded this claim already – here, here, and here.)

With so much to cover I don’t intend to get into (1) right now, but it should suffice to note that being created by an act of Congress, having your board’s personnel appointed by the U.S. president, and enjoying government-granted monopoly privileges without which you would be of no significance, are not the typical features of a “private” institution. I’ll address (2) and (3) throughout what follows.

The point of this discussion is to refute the principal falsehoods that circulate among Greenbackers: (a) that a gold standard (either 100 percent reserve or fractional reserve) or the Federal Reserve’s fiat money system yields an outcome in which outstanding loans cannot all be paid because there is “not enough money” to pay both the principal and the interest; (b) that if the banks are allowed to issue loans at interest they will eventually wind up with all the money; and that the only alternative is “debt-free” fiat paper money issued by government.

My answers will be as follows: (1) the claim that there is “not enough money” to pay both principal and interest is false, regardless of which of these monetary systems we are considering; and (2) even if “debt-free” money were the solution, the best producer of such money is the free market, not Nancy Pelosi or John McCain.

ImageTo understand what the Greenbackers have in mind with their proposed “debt-free money,” and what they mean by the phrase “money as debt” they use so often, let’s look at the money creation process in the kind of fractional-reserve fiat money system we have. Suppose the Fed engages in one of its “open-market operations” and purchases government securities from one of its primary dealers. The Fed pays for this purchase by writing a check on itself, out of thin air, and handing it to the primary dealer. That primary dealer, in turn, deposits the check into its bank account – at Bank A, let us say.

Bank A doesn’t just sit on this money. The current system practically compels it to use that money as the basis for credit expansion. So if $10,000 was deposited in the bank, some $9,000 or so will be lent out – to Borrower C. So Borrower C now has $9,000 in purchasing power conjured out of thin air, while Person B can still write checks on his $10,000.

This is why the Greenbackers speak of “money as debt.” The $9,000 that Bank A created in our example entered the economy in the form of a loan to Person B. In our system the banks are not allowed to print cash, but they can do what from their point of view is the next best thing: create checking deposits out of thin air. Banks issue loans out of thin air by opening up a checking account for the customer, whose balance is created out of nothing, in the amount of the loan.

The Greenbacker complaint is this: when the fractional-reserve bank creates that $9,000 loan at (for example) ten percent interest, it expects $900 in interest payments at the end of the loan period. But if the bank created only the $9,000 for the loan itself and not the $900 that will eventually be owed in interest, where is that extra $900 supposed to come from?

At first this may seem like no problem. The borrower just needs to come up with an extra $900 by working more or consuming less. But this is no answer at all, according to the Greenbacker. Since all money enters the system in the form of loans to someone – recall how our fractional-reserve bank increased the money supply, by making a loan out of thin air – this solution merely postpones the problem. The whole system consists of loans for which only the principal was created. And since the banks create only the principal amounts of these loans and not the extra money needed to pay the interest, there just isn’t enough money for everyone to pay off their debts all at once.

And so the problem with the current system, according to them, is that our money is “debt based,” entering the economy as a debt owed to a bank. They prefer a system in which money is created “debt free” – i.e., printed by the government and spent directly into the economy, rather than lent into existence via loans by the banks.

In the comments section at my blog I have been told by a critic that even under a 100% gold standard, with no fractional-reserve banking, the charging of interest still involves asking borrowers to do what is literally impossible for them all to do at once, or at the very least will invariably lead to a situation in which the banks wind up with all the money.

All these claims are categorically false.

It is not true that “there is not enough money to pay the interest” under a gold standard or a purely free-market money, and it is not even true under the kind of fractional-reserve fiat paper system we have now. It certainly isn’t true that “the banks will wind up with all the money.” There are plenty of reasons to condemn the present banking system, but this isn’t one of them. The Greenbackers are focused on an irrelevancy, rather like criticizing Barack Obama for his taste in men’s suits.

I want to respond to this claim under both scenarios: (1) a 100% gold standard with no fractional reserves; and (2) our present fractional-reserve, fiat-money system.

In order to do so, let’s recall what money is and where it comes from.

Money emerges from the primitive system of barter, in which people exchange goods directly for one another: cheese for paper, shoes for apples. This is an obviously clumsy system, because (among a great many other reasons I trust readers can conjure for themselves) paper suppliers are not necessarily in the market for cheese, and vice versa.

A money economy, on the other hand, is one in which goods are exchanged indirectly for each other: instead of having to be a hat-wanting basketball owner in the possibly vain search for a basketball-wanting hat owner, the basketball owner instead exchanges his basketball for whatever is functioning as money – gold and silver, for example – and then exchanges the money for the hat he wants.

People dissatisfied with the awkward and ineffective system of barter perceive that if they can acquire a more widely desired and more marketable good than the one they currently possess, they are more likely to find someone willing to exchange with them. That more marketable good will tend to have certain characteristics: durability, divisibility, and relatively high value per unit weight. And the more that good begins to be used as a common medium of exchange, the more people who have no particular desire for it in and of itself will be eager to acquire it anyway, because they know other people will accept it in exchange for goods. In that way, gold and silver (or whatever the money happens to be) evolve into full-fledged media of exchange, and eventually into money (which is defined as the most widely accepted medium of exchange).

Money, therefore, emerges spontaneously as a useful commodity on the market. The fact that people desire it for the services it directly provides contributes to its marketability, which leads people to use it in exchange, which in turn makes it still more marketable, because now it can be used both for direct use as well as indirectly as a medium of exchange.

Note that there is nothing in this process that requires government, its police, or any form of monopoly privilege. The Greenbackers’ preferred system, in which money is created by a monopoly government, is completely foreign and extraneous to the natural evolution of money as we have here described it.

And make no mistake: money has to emerge the way we have described it. It cannot emerge for the first time as government-issued fiat paper. Whenever we think we’ve encountered an example in history of a pure fiat money being imposed by the state, a closer look always turns up some connection between that money and a pre-existing money, which is either itself a commodity or in turn traceable to one.

For one thing, pieces of paper with politicians’ faces on them are not saleable goods. They have no use value, and therefore could not have emerged from barter as the most marketable goods in society.

Second, even if government did try to impose a paper money issued from nothing on the people, it could not be used as a medium of exchange or a tool of economic calculation because no one could know what it was worth. Are three Toms worth one apple or seven fur coats? How could anyone know?

On the other hand, the money chosen by the market can be used as a medium of exchange and a tool of economic calculation. During the process in which it went from being just another commodity into being the money commodity, it was being offered in barter exchange for all or most other goods. As a result, an array of barter prices in terms of that good came into existence. (For simplicity’s sake, in this essay we’ll imagine gold as the commodity that the market chooses as money.) People can recall the gold-price of clocks, the gold-price of butter, etc., from the period of barter. The money commodity isn’t some arbitrary object to which government coerces the public into assigning value. Ordering people to believe that worthless pieces of paper are valuable is a difficult enough job, but then expecting them to use this mysterious, previously unknown item to facilitate exchanges without any pre-existing prices as a basis for economic calculation is absurd.

Of course, fiat moneys exist all over the world today, so it seems at first glance as if what I have just argued must be false. Evidently governments have been able to introduce paper money out of nothing.

This is where Murray Rothbard’s work comes in especially handy. In his classic little book What Has Government Done to Our Money? he builds upon the analysis of Ludwig von Mises and concisely describes the steps by which a commodity chosen by the people through their voluntary market exchanges is transformed into an altogether different monetary system, based on fiat paper.

The steps are roughly as follows. First, society adopts a commodity money, as described above. (As I noted above, for ease of exposition we’ll choose gold, but it could be whatever commodity the market selects.) Government then monopolizes the production and certification of the gold. Paper notes issued by banks or by governments that can be redeemed in a given weight of gold begin to circulate as a convenient substitute for carrying gold coins. These money certificates are given different names in different countries: dollars, pounds, francs, marks, etc. These national names condition the public to think of the dollar (or the pound or whatever) rather than the gold itself as the money. Thus it is less disorienting when the final step is taken and the government confiscates the gold to which the paper certificates entitle their holders, leaving the people with an unbacked paper money.

This is how unbacked paper money comes into existence. It begins as a convertible substitute for a commodity like gold, and then the government takes the gold away. It continues to circulate even without the gold backing because people can recall the exchange ratios that existed between the paper money and other goods in the past, so the paper money is not being imposed on them out of nowhere.

Free-market money, therefore, is commodity money. And commodity money is not “debt-based” money. When a gold miner produces gold and takes that gold to the mint to be transformed into coins, he simply spends the money into the economy. So free-market money does not enter the economy as a loan. It is an example of the “debt-free money” the Greenbackers are supposed to favor. I strongly suspect that many of them have never thought the problem through to quite this extent. If what they favor is “debt-free money,” why do they automatically assume it must be produced by the state? For consistency’s sake, they should support all forms of debt-free money, including money that takes the form of a good voluntarily produced on the market and without any form of monopoly privilege.

The free-market’s form of “debt-free money” also doesn’t require a government monopoly, or rely on the preposterously naive hope that the government production of “interest-free money” will be carried out without corruption or in a non-arbitrary way. (Any “monetary policy” that interferes with or second-guesses the stock of money that the voluntary array of exchanges known as the free market would produce is arbitrary.)

But now what of the Greenbacker claim that interest payments, of their very nature, cannot be paid by all members of society simultaneously?

This is clearly not true of a society in which money production is left to the market. The Greenbacker complaint about interest payments in a fractional-reserve system is that the banks create a loan’s principal out of thin air, and that because they don’t also create the amount of money necessary to pay the interest charges as well, the collective sum of loan payments (principal and interest) cannot be made. Some people, the Greenbackers concede, can pay back their loans with interest, but not everyone.

But this is not what happens in the situation we have been describing, in which the money is chosen spontaneously and voluntarily by the individuals in society, and in which government plays no role. Money in this truly laissez-faire system is spent into the economy once it is produced, not lent into existence out of thin air, so there is no problem of “debt-based money” yielding a situation in which “there is not enough money to pay the interest.” There is no “debt” created at any point in the process of money production on the free market in the first place. The free market gives us “debt-free money,” but the Greenbackers do not want it.

Suppose I, a banker, lend you ten ounces of gold, at ten percent interest. Next year you will owe me 11 ounces: ten ounces for the principal, and one ounce for the interest. Where do you earn the money to pay me the interest? Either by abstaining from consumption to that extent and saving up the money, or by earning it through providing goods or services to others. In other words, you earn the money to pay the interest the same way you earn the money to pay for anything else.

(Even under the classical gold standard, in which gold backed only some of the paper money in circulation, there is still a portion of the money supply – namely, the money substitutes that have gold backing – that were not lent into existence, and which can therefore serve as the source of interest payments.)

Although the “there isn’t enough money to pay the interest” argument fails, I want to take up a related warning about sound money – a warning I noted at the beginning of this essay – that I read in the comments section of my blog: moneylending at interest by the banks will yield a long-run outcome in which the bankers have all the money.

The argument runs like this: if banks can lend 1000 ounces of gold today and earn 100 ounces in interest (assuming a 10 percent rate of interest) at the end of the loan period, then in the next period they’ll have a new total of 1100 ounces to lend out, and in turn they can earn 110 in interest on that. Then they’ll have a total of 1210 ounces, and when they lend that out they’ll earn 121 ounces in interest. In the next period they’ll have 1331 (which is 1210 plus the 121 they earned in interest in the previous period) ounces, etc. Eventually, they’ll have everything.

This is completely wrong, although even if it were right, presumably even bankers need to buy things at one point or another, so the money would be recirculated into the economy in any case. The money commodity itself rarely yields people so much utility that they will hold it at the expense of food, water, clothing, shelter, entertainment, etc. And when it is recirculated, the same money can be used to make interest payments on multiple loans.

The more important reason that red flags should be going up here is that this warning would apply to any business, not just banking. For example, if Apple sells us great electronic equipment, it earns profits. Those profits allow it to invest in more efficient production processes, which means Apple will be able to produce even more and better computers and other devices next year. If we buy those, Apple will have still more profits, which means they’ll be able to produce still more and better products the year after that, and before you know it, Apple will have all our money.

So what’s left out of these scenarios? Demand. Consumers do not have an infinite demand for electronic products. If Apple keeps producing more iPods, it will have to sell them at lower and lower prices in order to induce us to buy them. This is economics 101 – the law of demand, derived in turn from the law of marginal utility. The more electronics I buy, the less utility I derive from additional units of such goods (and thus the less eager I am to purchase more). Meanwhile, as my remaining cash balance is depleted by these purchases, the marginal utility of my remaining money increases (and thus the more eager I am to hold on to that money rather than exchange it for still more consumer electronics).

The same goes for consumer (and producer) loans. The Greenbacker objection assumes that demand for loans is infinite. Like zombies, we’ll continue to demand loans no matter what the interest rate, and banks will always be able to find more people willing to take on more credit. But as we saw above, in order to induce us to absorb a greater supply of Apple electronics, and/or to induce additional buyers to enter the market, the prices of those goods had to fall.

This principle holds true for credit as well. To induce us to accept an increasing supply of credit, the banks will have no choice, given the law of demand, but to lower the rate of interest. Two consequences follow. As they earn less in interest, they will be less able to afford to pay their customers competitive interest rates on savings accounts and on financial products like CDs. And as those customers turn away from the banking system in search of higher yields outside banking, the banks will have less to lend. These twin pressures place an upper limit on the amount of credit the banks can extend.

So you can breathe easy. The banks won’t wind up with all the money after all.

On the free market, the production of money would occur in the same way that the production of any other good takes place, with no money producer being granted any monopoly privilege. The average person doubtless has a difficult time imagining how money could exist without a monopoly producer. Wouldn’t everyone want to go into the money-production business? After all, you get to create money. Why, I’ll just create my own money and spend it! Isn’t that naturally more lucrative than producing other goods?

First of all, no one can expect to print pieces of paper with his face on them and spend them into circulation. Nobody would accept them, needless to say, and as we have seen, it is impossible for money to be introduced ex nihilo in this way. The only kind of money that can emerge on the free market is one that, at least at one time, had been considered a useful commodity. Paper money can come into existence on the free market and without coercion if it serves as a redemption claim for the commodity money, but irredeemable paper money cannot originate without government threats or violence.

Again, as we saw previously, the pattern is this: a commodity is freely chosen by market participants to serve as money, for convenience paper receipts fully convertible into that money begin to circulate as money substitutes, and finally the government removes the commodity backing from the paper and only the paper circulates. That is in fact what happened in the United States in 1933.

So your friend Joe shouldn’t expect in a free market to be able to print up some paper notes with his face on them and be able to exchange them for goods and services. In addition to the logical problems with this that we examined before, he’d also look crazy for even trying such a thing.

Also, as with every other industry, profit regulates production. The production of money, like the production of all other goods, settles on a normal rate of return, and is not uniquely poised to shower participants in that industry with premium profits. As more firms enter the industry, the rising demand for the factors of production necessary to produce the money puts upward pressure on the prices of those factors. Meanwhile, the increase in money production itself puts downward pressure on the purchasing power of the money produced.

In other words, these twin pressures of (1) the increasing costliness of money production and (2) the decreasing value of the money thus produced (since the more money that exists, ceteris paribus, the lower its purchasing power) serve to regulate money production in the same way they regulate the production of all other goods in the economy.

Once the gold is mined, it needs to be converted into coins for general use, and subsequently stamped with some form of reliable certification indicating the weight and fineness of those coins. Private firms perform such certification for a wide variety of goods on the free market. This service is provided for newly coined money by mints.

Banking services would exist on the free market to the extent that people valued financial intermediation, as well as the various services, such as check-writing and the safekeeping of money, that banks provided.*

The intermediation of credit consists of borrowing money from savers, pooling those funds, and using those pooled funds to extend loans to borrowers. Banks earn the interest-rate differential that exists between the rates they charge to borrowers and the rates they pay to savers. The pooling of savings and the identification of projects to which those funds can temporarily be directed is an important service in a market economy.

And as with the production of all other goods and services on the market, credit intermediation is regulated by profit. It cannot be multiplied indefinitely, as a great many Greenbacker commentators appear to believe. In the same way that high profits in any industry attract newcomers to that industry and thereby dissipate those profits, a high interest-rate differential between borrowers and savers will attract more people into credit-intermediation services. These entrants will need to pay higher interest rates to savers in order to acquire additional funds to intermediate to borrowers. Conversely, in order to attract additional borrowers they will need to lower the interest rates charged to those borrowers. These twin pressures – higher rates paid to savers, and lower rates earned from borrowers – dissipate bank profits and place an upper bound on credit intermediation activities. So again, the banks face a natural limit to their activities, and cannot earn all our money.

So far, we have considered the case of a gold standard or a pure free market in money. But under a non-market system of fiat-money and fractional-reserve banks the Greenbackers’ concerns are still misplaced. There are plenty of reasons to criticize fiat money and fractional-reserve banking, but since the case against them is undercut by false arguments, I want to take apart this particular false argument.

We know from our earlier analysis that money has to emerge on the market as a useful commodity, and that the state theory of money, whereby money has value only when and because the state declares it to have value, is untenable.

When Franklin Roosevelt confiscated Americans’ gold in 1933 and gave them paper money in exchange, this money did not enter the system “as debt.” It was a simple act of conversion of specie into paper. (Thanks to J.P. Koning for tracking down that link.) This is how all hard-money systems become fiat ones: the precious metal that backs the currency is taken away, and the people are left only with paper given to them in exchange for their metal. And since that portion of the money stock that consists of the redemption of the people’s specie into paper is not debt-based – the government is giving them the money, not lending it – it becomes a permanent portion of the overall money stock from which interest payments can be drawn. There is, therefore, always a portion of the money stock that is unconnected to any debt, so there is no built-in process even in a fractional-reserve fiat paper system by which debts must be collectively unpayable.

Under the gold standard as it existed in the United States, the banks issued both kinds of money substitutes in the Misesian typology: money certificates (paper that serves as a receipt for gold on deposit) and fiduciary media (paper that, while physically indistinguishable from money certificates, does not correspond to any gold on deposit; this is what the banks create when they want to increase the money supply beyond just the stock of gold). Only the fiduciary media would qualify as being “debt-based money,” because only the fiduciary media enters the system as new loans. The money substitutes that correspond to gold in the banks’ reserves are not debt-based. They do not enter the economy in the form of a loan. They enter the economy as receipts for gold on deposit with the banks. This portion of the money stock, too, becomes a permanent fund, even after the transition to a fiat money system, from which interest payments can be drawn.

Remember, once again, that when people pay banks interest on their loans, these interest payments themselves will in large measure be spent into the economy by employees of the bank. The same unit of money can thus be used to pay principal or interest on multiple loans as it circulates again and again. There is no reason that bankers or anyone else would want to earn profits and never spend or invest them, unless someone happens to be a fetishist deriving pleasure from literally rolling in the money itself. This is unusual.

Far and away the best defenses and descriptions of a pure free market in money are Jörg Guido Hülsmann’s book The Ethics of Money Production and Jeffrey Herbener’s astonishing 2012 congressional testimony before Ron Paul’s monetary policy subcommittee. I strongly urge you to read at least the Herbener testimony. It is beautifully written and its logic practically compels the reader’s assent. (While you’re at it, watch this video in which Professor Herbener explains why he became an Austrian mid-career, even though he stood to gain nothing professionally by doing so.)

In short, there is no need to replace the Fed with another government creation. There is no good reason to replace the Fed’s monopoly with a more directly exercised government monopoly. All we need for a sound money system are the ordinary laws of commerce and contract.

Let’s oppose the Fed for the right reasons, and let’s oppose it root and branch: not because it doesn’t create enough money out of thin air (is this really a fundamental critique of the Fed, after all?) but because the causes of freedom, social peace, and economic prosperity are at odds with any coercively imposed monopoly, and because the naive confidence in the American political class that the Greenbacker alternative demands is beneath the dignity of a free people.

(Thanks to Robert Murphy for his comments on this essay.)

*There is a tradition within the Austrian School, particularly among Rothbardians, of separating these functions of banks. Banks can act as money warehouses or as credit intermediaries, or as both. These are not the same thing. It is possible to imagine banks that offer one service or the other, as well as to conceive of banks that offer both services but distinguish sharply between them. Checking deposits, for instance, would be available to customers on demand, and so in that case the bank would be operating as a money warehouse, while savings accounts, CDs, etc., would be considered a loan to the bank, with which the bank could engage in intermediation activities.

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Re: Honest Money Constitutional Amendment

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What If?

by Larry LaBorde

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Re: Honest Money Constitutional Amendment

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Why Are Your Children Buying Houses for Ben Bernanke?

FREEMANSPERSPECTIVE · Aug 6th, 2013


Image

Every now and then I like to look at government numbers and see what they really mean. I ran into this batch several months ago but hadn’t had time to play with them till now. What I found shocked me so badly that I ran them three times on a calculator and once using exponents. As you’ll see below, these are “Oh my God” numbers.

Here are facts:

The average US house sells for about $300,000, and the Federal Reserve is buying $40 Billion dollars’ worth of mortgages per month. (If that sounds like a bunch of numerical gobbledegook to you, please hang on for just a moment.)

The Fed has been very public about this, by the way. They explain that they are purchasing “mortgage-backed securities” (for your safety, of course), and they surround the discussion in financial-speak. But, in the end, they are buying houses, plain and simple. It’s all there, for those who wish to check.

Now, here are those numbers:
  • $40,000,000,000 per month, divided by $300,000 per house = 133,333 houses per month.
Let’s round that down to 130,000 to account for the various financing fees and transfer taxes.

So, Ben Bernanke is buying 130,000 houses per month. Kind of shocking, no?

That means that since this program began in September of 2012, the Fed has bought 1.43 million houses.

And, by the way, there is no end in sight.

In Fairness to Ben

Now, to be fair, I should clarify that your kids are not really buying all those houses for Ben Bernanke personally – they’re buying them for his bosses – the owners of the Federal Reserve.

You didn’t think the Fed was owned by the government, did you?

Oh, no. It is owned by the big banks. I’d tell you exactly who, except that no one knows exactly who. We know that people own shares of the Fed banks (there are twelve of them in all), but the US government is keeping the details secret.

Think I’m making that up to be flamboyant? Please, check it out for yourself! They admit that “the big banks” own the Fed, but they never say which ones. A list did circulate in the 1930s, but that was the last time.

How Your Children Are Forced to Pay

You may have heard this before, but if not, hang on to something:

The Fed uses dollars to buy bonds from the US Treasury. These dollars, however, do NOT come from their savings. Instead, they come as a check that is “drawn upon itself.” (That quote is from the Fed’s own documents, by the way – a paper called Modern Money Mechanics.)

In other words, the Fed just makes up the money. They are buying all those houses with money they just make up! (But it’s surrounded with very intricate accounting, of course.)

But it also means that your children have to pay off the bonds!

The Fed sells all those bonds to investors – who will, of course, want their money back, with interest.

So, where will the money for paying off those bonds come from? From taxes, of course.

When a government sells a bond, they are selling a right to their tax receipts. And that means your kids will be taxed to pay it all off.

The Fed will keep the houses, of course, but hidden behind paragraphs of confusing financial and accounting terminology.

Bye Bye Home Ownership

Home ownership in America is falling off a cliff, as you can see in this graph:

Image

So, Mr. and Ms. America, get ready to meet your new landlords: Benny and the Banks.

Paul Rosenberg

FreemansPerspective.com

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Re: Honest Money Constitutional Amendment

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Modified the Brief Explanation section thus:
Fiat (unbacked) "money" is the single greatest instrument of plunder ever invented by the mind of man.
Free Competition in currencies kills fiat
, because fiat cannot exist without aggressive violence of government forced monopoly, which aggressive violence is the definition of evil, and is the opposite of justice and of Free Market.

Again, fiat (unbacked) currency is nothing but an instrument of plunder of the people by the government, via legalized counterfeiting and inflation; therefore, Free Market, absent government coercion, will reject such a fraudulent currency, for the simple reason that no one likes being plundered!

So, Free Competition in currencies slays fiat, and with it welfare state and warfare state, because it makes it impossible for the government to rob and plunder the people, and steal their wealth through legalized counterfeiting and inflation.

Thus, Free Competition in currencies binds the government down with the chains of sound money, making impossible government plunder via legalized counterfeiting, and therefore, making possible liberty and prosperity of the people.

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Re: Honest Money Constitutional Amendment

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Bankers Tell It Like it is
Top 10 Quotes that Reveal their Crimes


...

The history of banking in the modern era (since the establishment of the Bank of England in the late 17th century), has been nothing but an ugly cavalcade of theft of sovereign national treasuries too vast to calculate. From the beginning, these large private central banks (the Bank of England, the Federal Reserve, the Bank of Japan, etc.), were intentionally designed to operate freely above the rule of law in their respective nations. They have been the financiers of most of the conflicts and wars in the last two centuries and are continuing to do so unabated to the present. Countless millions have died in these bankers’ wars in service to the unbridled greed of these financiers.

Through the massive inflation of each nation’s currency they dominate, the bankers have robbed the citizens of the purchasing power of their money and with it, their life savings. Since the establishment of the Federal Reserve in 1913, for example, the purchasing power of the US dollar has been eroded to nearly 1/100th of its original value. This has not been accidental. This was planned from the beginning. Private fractional reserve central banking is the greatest criminal conspiracy that continues to this day to hide in plain sight.

But please, don’t just think this is only our opinion. Fascinatingly, the bankers themselves have throughout the decades, clearly revealed their purpose and intent. At this juncture, we would like to offer some quotes for you by the highest ranking members of the banking elite, past and present.


“The bank hath benefit of interest on all moneys which it creates out of nothing.”William Paterson, founder of the Bank of England in 1694

“Let me issue and control a nation’s money and I care not who writes the laws.”Mayer Amschel Rothschild (1744-1812), founder of the House of Rothschild.

“If my sons did not want wars, there would be none.”Gutle Schnaper, wife of Mayer Amschel Rothschild and mother of his five sons

“The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests.” The Rothschild brothers of London writing to associates in New York, 1863

“Banking was conceived in iniquity and was born in sin. The Bankers own the Earth. Take it away from them, but leave them the power to create deposits, and with the flick of a pen they will create enough deposits to buy it back again. However, take it away from them, and all the fortunes like mine will disappear, and they ought to disappear, for this world would be a happier and better world to live in. But if you wish to remain slaves of the Bankers and pay for the cost of your own slavery, let them continue to create deposits.”Sir Josiah Stamp, President of the Bank of England in the 1920s, the second richest man in Britain

“When you or I write a check, there must be sufficient funds in our account to cover the check; but when the Federal Reserve writes a check, there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money.”From the Boston Federal Reserve Bank pamphlet, “Putting it Simply.”

“Neither paper currency nor deposits have value as commodities. Intrinsically, a ‘dollar’ bill is just a piece of paper. Deposits are merely book entries.”“Modern Money Mechanics Workbook” – Federal Reserve of Chicago, 1975

“I am afraid the ordinary citizen will not like to be told that the banks can and do create money. And they who control the credit of the nation direct the policy of Governments and hold in the hollow of their hand the destiny of the people.”Reginald McKenna, as Chairman of the Midland Bank, addressing stockholders in 1924

“I am just a banker doing God’s work.”Lloyd Blankfein, CEO, Goldman Sachs, 2009

“Banks do not have an obligation to promote the public good.”Alexander Dielius, CEO, Germany, Austrian, Eastern Europe Goldman Sachs, 2010


So there it is in their own words. The arrogance, elitism, and condescension of bankers towards the common citizen are starkly revealed. These brilliant criminals have created the Ponzi scheme of all Ponzi schemes and so far, protected it from any form of criminal prosecution. However, that might be about to change. Awareness of their criminality is growing throughout the world at a rapid pace but never doubt that this group will fight tenaciously and be willing to go to any extremes to protect their centuries’ old scam. We predict there will undoubtedly be more strange banker deaths ahead of us in the ensuing weeks, months, and years.

The next time you walk into your local bank, please ask yourself this question, “Do I really want to entrust my hard earned wages and savings to a centuries’ old criminal scheme?” If you don’t, please consider gold and silver for protection of your wealth.”

Read full article: http://www.lewrockwell.com/2014/03/no_a ... ike-it-is/

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