A continuation of my debate with Bill Gee about monetary systems and why the current system, which is based on legalized theft, should be abandoned. by Walt Thiessen
(libertarian)
Friday, February 25, 2011
As previously promised, I now present my case showing the tremendous benefits that come with ultimately abandoning the debt-based (i.e. counterfeit) monopoly monetary system under which we all suffer today. Up until now, the debate between Bill Gee and myself has focused on the current system, in which we played tug-of-war over what to do about what we both agree is a highly flawed system. Bill has taken the mainstream position that the current system cannot be changed, no matter how flawed it is, so that the best we can hope to do is to regulate it. This is the most positive argument he has made in its defense. I argued that change is necessary, and today via this article I add that it is highly desirable. Then I turn to the alternative where see for ourselves the abundant positives to be found there.
In brief, the positives are so numerous as to be a shining beacon of light compared to the gray, drab, impoverished, so-called "positives" of the current system. I wish I could jump right into the joyful activity of listing them, but we must first explain why they aren't happening under the current system. So before we delve into a litany of the positives associated with true currency competition and the restoration of precious metals as currencies, let's take a moment to focus on the root of the truly terrible system under which we are currently oppressed.
The Horrible Tragedy Of Legalized Fraud
Bill has critically described my use of terminology as being "loaded", and I gladly agree with his description and rejoice in it. When an economic system depends upon organized, legalized, fraudulent practices for its existence, we are all morally obligated to use loaded terminology to describe it, and those who refrain from doing so abandon their moral responsibility in the matter. Consider a parallel, hypothetical case. Murder is currently (and rightfully) illegal. What if we legalized it? What if we made it perfectly, legally acceptable for men and women to kill each other for whatever reason? Would Bill then criticize me if I were to use the loaded terminology of describing such a society as being one based on murder and mayhem? If murder were considered legal and proper, would he require that I describe the killing of men by men to use a more emotionally neutral term such as "systemic human liquidation"?
The analogy may seem extreme to some, but it's necessary and required from my viewpoint, as well as from the viewpoint of anyone who professes to claim any sympathy for the masses and for justice. We have an entire monetary system, not just here in the United States but also in every other country around the world, which is based completely on what I call Legalized Fraud. Bill referred to this same class of activity as "Inflation Control" in his first article in our debate, but his term doesn't do justice to what actually occurs. Let's take a moment to review what he first wrote about it.
"Unfortunately, most of the money that is created in the economy these days is created by banks, not the Fed. Here is a quick illustration:
"For simplicity, we will assume a Reserve Requirement of 10%.
"Jim deposits $100,000 into his local bank.
"The bank deposits $10,000 into the Federal Reserve Bank to meet its reserve requirement, and loans $90,000 to Jill, a small business owner.
"There is now $190,000 in the money supply because Jim still owns the money in the bank, which he can withdrawal at any time because his deposit is FDIC insured. Jill has $90,000 that the bank gave her, which she spends to expand her business. She will eventually pay that money back with interest, which the bank will then lend to someone else."
What Bill described is actually the first leg of my Legalized Fraud Triad. It is a practice whereby banks lend out money that does not (and never did) belong to them, money that was expropriated and used by the banks without the permission of the money's true owner: the depositor.
Here's how the fraud happens. When you walk into a bank to make a deposit, the bank gives you a receipt and sends you on your merry way. What do they do then? They mark it in their accounting as a liability, because they owe you the money. That's the right thing to do. After all, that money belongs to you. You have turned it over to them for safe-keeping. It is yours, to be claimed on demand whenever you choose. That's why checking accounts are often referred to by economists as "demand accounts".
But the bank doesn't stop there. They also count that exact same deposit as an asset for lending. In other words, they count and record it twice in their accounting. Without this shady accounting method, which no other business on earth is legally permitted to engage in, banks could not possibly lend out the money you deposited! If you or I engaged in this exact same activity, we would be thrown into prison without the slightest hesitation by the authorities, but bankers get rewarded for the exact same activity for which the rest of us get punished.
Legally permitting banks to lend out money in this fashion is 100% wrong, immoral, unethical, and highly destructive to all of us. In this manner, banks become legalized counterfeiters, because their double-dip bookkeeping effectively increases the money supply in the manner Bill described. The solution long proposed by mainstream economists, who like the advocates of "systemic human liquidation" refer to this banking practice with high-minded terms like "sound financing", have long since abandoned their moral responsibility to cry that legalized counterfeiting is wrong, preferring instead, like Bill does, to treat the banks' abhorrent behavior as if it were unavoidable and even acceptable.
The second leg of my Legalized Fraud Triad is that banks lend out deposits in the long term while promising to return the money to the depositor in the short term. This is really a logical extension of the first leg of the triad, but it is also separate because it involves a second, legalized crime. The first legalized crime is that the money is loaned out without the permission of the depositor, which is a form of theft. The second legalized crime is that the money is returned to the depositor before it is paid back by the borrower to whom the bank loaned that same money, which is a form of fraud.
The third leg of my Legalized Fraud Triad is that banks and governments conspire to issue monopoly money (pun intended) that is backed by nothing but debt. I call it monopoly money because it is money that is granted a legal monopoly by the government. Like the money in the popular board game, this money is equally worthless in the long run. When you back money by debt, you effectively force the entire population to go into debt in order to survive financially (although there is great reason to doubt that such a condition can reasonably be described as "survival").
The Legalized Fraud Triad lies malevolently at the root of virtually every economic malady we face today or indeed have ever faced in the past 300 years.
The solution I propose is twofold:
Allow precious metals to legally compete as currencies, including as privately issued currencies
Make Legalized Fraud in all its forms illegal
The Benefits of Competing Precious Metal Currencies
First and foremost, we should recognize the Constitutional benefit of precious metals. The U.S. Constitution actually addresses the question of money in some detail. The founding fathers clearly did not want us to use paper as money. Here's the relevant passage:
Article I, Section 8: "The Congress shall have Power...To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;
Article I, Section 10: "No State shall...coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts..."
There are a number of key points here. First, Congress is not only empowered to coin money, but the state governments are prohibited from creating anything BUT gold and silver coin as money. The founders clearly didn't want anything but gold or silver to be used as money. Unfortunately, they limited their prohibition to the states, opening the door for the federal government to issue paper money, but we also know that the founders didn't want paper money to exist at all. That's why they included the phrase, "emit Bills of Credit". Paper money is a type of "bill of credit". A look at the minutes from the debate at the Constitutional Convention in 1787 clearly shows that the will of a significant number of the attendees was that paper money should be avoided at all cost. The fledgling new country had already suffered a few years back under the paper money issued by Robert Morris's Bank of North America, the country's first attempt at a central bank. Also, each of the states had previously endured horribly destructive inflationary periods during their respective colonial experiences when the colonial governments issued paper money, known as "scrip", that created devastating economic deprivations and consequences. These experiences were all fresh in the founders' minds at the time of the Convention.
So a major benefit of allowing competing currencies is that we would move back toward what the Constitution's framers envisioned.
But the benefits of allowing precious metals to compete as currencies with debt-based money (and with each other) go far beyond mere Constitutional benefits.
The Return Of The Free Market
Most people today refer to the marketplace as a "free market", but in fact it is nothing of the sort. A free market is one where prices fall over time as the supply of goods and services steadily increases. A defining feature of a free market is that it has a limited money supply. Without a limited money supply, it is impossible for prices to steadily and consistently decrease, which means that economic costs increase over time rather than decreasing over time. Most economists wrongly associate decreasing prices solely with deflation, but in fact a healthy, free economy and a deflationary economy are entirely different. It is true that deflation can lead to lower prices, and it is true that deflation manifests as recession. But it is not true that prices can only decrease due to deflation, and it is certainly not true that when prices decrease due to natural market processes (without any money supply changes) that the effect is recessionary.
No one alive today has ever experienced a true free market. You can't have a free market if you don't have a limited money supply, because without a limited money supply you can't keep the fruits of your own labor. Each of us must continuously lose what we've earned under a perverse system where the money supply regularly increases, thus destroying the value of individual units of money over time. We've all been victimized by legalized fraud all our lives, and so we have never experienced the benefits that a free market entails. Most of us don't even realize that a better system is possible, because we've been browbeaten by the current system so long.
The gigantic advantage to having a limited money supply is that it is limited. When the money supply neither increases or decreases in size to any significant degree, while the supply of goods and services increases, prices decrease. This is a huge benefit, in mammoth contrast to the detriment of prices falling due to deflation. I would term natural price reduction under a limited money supply as true prosperity, because those who are not directly responsible for the production and distribution of goods and services under a limited money supply nevertheless benefit from the prosperity such a system creates. Unlike the fake "prosperity" under the boom/bust cycle, prosperity under a limited money supply is lasting and permanent.
The limited money supply benefit takes two forms.
First, limited money supplies drive the cost of living down over time, rather than up as we've experienced all our lives. People today have to work more than twice as hard, twice as long in order to maintain the same standard of living their grandparents enjoyed 50 years ago. In another 50 years, two generations later, workers will find that they have to work more than twice as hard, twice as long as we have to work today just to make ends meet. There is no question that debt-based money drives the cost of living upward on a continuous basis, thereby driving more and more people into poverty over time.
Second, the money that the masses earn for the work they do retains its value when the supply of money is limited. Bill and I have been debating this point extensively, but there can be no doubt that when money retains its value, the result is far better for all of us than when it loses its value. When a worker earns money that retains its value, he gains and retains the full value of his labor. When a worker is paid in money that loses its value, he is deprived of the benefits of his labor.
Further, when he saves money that retains its value over time, even if he doesn't choose to invest it, he ends up being better off later on because in the long run his money ends up buying more than it bought when he originally earned it. His hard work is rewarded in full, as is his frugality.
Contrast this with a debt-based (counterfeit) monetary system like the one we have now where that same worker is financially punished if he puts the money he earned into a safe place. By the time he retires under such a system, he finds that the money he so frugally saved over the years is only worth a tiny fraction of its original value. The value of his earlier hard work has been surreptitiously stolen from him over the years.
How The Numerous Benefits Of A Limited Money Supply Play Out
It is truly impossible for us to overestimate the immense benefits inherent in having a limited money supply to work with. When the money supply is limited, prices fall over time until they are so dirt cheap that even the poorest of people can afford to take time off from their work and enjoy the benefits of leisure time. The physical, emotional, and mental stress that a debt-based monetary system creates and places on all individuals would disappear entirely over time. The rat race would no longer be necessary because people would no longer have to keep scrambling to keep up with their current standard of living. The value of labor would increase relative to the cost of living as people found they could work less and less while still satisfying their economic wants and needs. This would correspond with tremendous advances in the arts, sciences, and other areas of knowledge as all aspects of human understanding increased due to all the extra free time people experienced.
The distinction between the "first world" and the "third world" would finally, eventually end as the benefits of limited money supplies spread throughout the world. The expanding gap where the rich get richer while the poor get poorer would suddenly reverse direction 180 degrees and close over time, in direct contrast to our experience where the gap continuously increases. The reason for the dramatic change is that the rich would no longer be able to use the banking and "easy credit" system to systematically and forcibly transfer the value of wealth earned by the poor into the pockets of the rich, thereby making the rich richer.
The tendency toward war would greatly decrease over time. Economic prosperity for all (rather than for a minority) would render most war-like desires of people unnecessary, thus making war more undesirable. It is a valid truism that when people become more prosperous themselves, they simultaneously become less jealous of their neighbors' prosperity. Terrorism would become a thing of the past. World wars would become mere relics of history.
Governments would shrink in size over time. Tax loads would decrease for all. Homelessness would disappear over time. Liberty would increase dramatically. The need for a publicly-planned social safety net would dissipate over time and soon disappear entirely. The small amount of remaining people in need of assistance would no longer overwhelm private charitable institutions. Health care, today so unaffordable, would become highly affordable. Food would become cheap. Housing could be bought and 100% paid for in a matter of a year to two rather than over a 30 year (or longer) period. The ideal of government-induced home ownership that helped lead to the housing bubble would be replaced by real, affordable home ownership sustained naturally by the marketplace. Automobiles prices would fall, and alternative forms of personal transportation would flourish. Renewable energy would become more economical and affordable. Alternative forms of energy would develop and enter the marketplace at a faster rate. Personal travel would skyrocket and would increase leading global understanding among peoples at a much faster pace than we already experience. Entertainment prices would decrease. The price of everything would decrease. Making money would be more about figuring out ways to get goods and services into the hands of people as easily and cheaply as possible. There would also likely be a change needed to the copyright and patent system, which is currently oriented toward creating special monopolies for the few with money to burn. Instead, it should be about rewarding creators, not monopolists, and the need for change would become more and more obvious over time. Under inflationary economies like the one we have now, such a need is much less obvious, but it is also wreaks much more havoc than it would under a limited money supply system because it's harmful results are more easily hidden under the inflationary, debt-based, counterfeit money, thus making it easier to get away with engaging in even more of it. When the negative results are more noticeable, there is greater public pressure to block those results, and the perpertrators become much less willing to engage in them.
People would work far fewer hours if the money supply were limited and not regularly growing at such an alarming rate. It's likely that the average person who used to have to work 40 or more hours a week in order to survive would end up working less than 20 hours a week while fully and easily funding all of their fundamental economic needs, a transition achieved within less than one generation. Only those interested in attaining huge wealth would work long hours, and they wouldn't be able to magically get themselves there via cornering large lines of credit and obtaining monopoly positions. Instead, they'd have to do it via what I call "old" capitalism, where they acquire capital by earning it, rather than by borrowing it. Lending wouldn't disappear entirely, but it would cease to be the dominant all-or-nothing game that it is now, where only those entrepreneurs willing to go deep into debt have a chance of making their dreams come true. The rich would continue to have an advantage in this regard, but it would no longer be a permanent advantage. Instead, the uber-rich class would dissipate over time. The age of the billionaire would end, to be replaced by universal prosperity.
Politics would transition from being a system devoted to using government power to allow one group of people to steal from another group. It would transition into a system where the goal is to increase liberty rather than to increase entitlements, since poverty for the many would no longer be our global direction. Both conservative and liberal agendas would have to adjust to the new reality, but that would be a good thing, not a bad one. Centrism would cease to be about picking the lesser of two evils, to be replaced by picking between the greater of two goods. Statism would slowly disappear entirely.
As more and more free time becomes available to people, creativity would explode in ways that we can only faintly imagine today. Take the movie industry, for example. Right now, it's mainly a game for the rich, even with the tremendous advance in technology that make it possible to put high quality video equipment into the hands of ordinary people. But free up their time as well, while enabling them to support themselves through a more honest economic system, and we will enjoy the privilege of watching our entire society transform before our eyes within a single generation. In fact, it is difficult to imagine a single aspect of society that would not change for the better if given the chance to operate under a limited money supply system.
The Power of Monetary Competition
The biggest obstacle to the success of such a system is banks. The second biggest obstacle is government. Both banks and governments have long histories of attempting, usually successfully, to undermine the monetary systems they are empowered to manage and operate. This is why the only way to ensure that limited money supplies remain limited is to have separate monetary systems based on separate commodities and put them in competition with each other. Requiring that society only use one, single money supply guarantees manipulation and value stealing by the privileged few (bankers and politicians), who do so because by manipulating the money supply they can achieve all kinds of centralized power and wealth for themselves. But require currencies to compete with each other freely in the marketplace, and it becomes extremely difficult for any power to pervert a currency by cornering and manipulating it. Now, they must corner not just one currency, but rather all the competing currencies, or else fail miserably to achieve their nefarious goals. If they try to manipulate one currency, the other currencies, via market actions, end up punishing the manipulators and those who favor the manipulated currency. They watch their manipulated currency lose value overnight, rather than seeing its value slowly dissipate, thereby giving them time to transfer the loss into the hands of the innocent who hold units of the manipulated money.
In this system, government no longer monopolizes the money supply. So instead, the government is forced to revert back to the one task it should have been doing all along: punishing counterfeiters and thieves. Government needs to focus on making it illegal for banks to count bank deposits as both liabilities and assets at the same time. That's how you insure that money supplies will remain limited and that prosperity will therefore spread to everyone, not just to a chosen, select few with friends in high places.
The views expressed
in this article are those of Walt Thiessen only and
do not represent the views of Nolan Chart, LLC or its affiliates.
Walt Thiessen is solely responsible for the contents
of this article and is not an employee or otherwise affiliated
with Nolan Chart, LLC in his/her role as a columnist.
Posted By: sarasile
Date: February 27, 2011 08:02:46 PM
Hello Walt, I just want to make a few comments in support of your (and mine as well) position that gold and silver coin need to resume their rightful place as the only lawful money in these United States.
Regarding Article I, sec. 8, Congress is tasked with “coining money” and “regulating the value” of such coin and “foreign coin”. The meaning of this is that Congress is given the exclusive authority (remember, Article I, sec. 10 prohibits that power to the states) to coin money, period. Not print notes to pass off as money (the Treasury Note or “greenback dollar of the war between the states period) or monetize debt as the Federal Reserve system today enables them to.
You rightly noted that Article I, sec. 10 prohibits the states from “coining money” but as that power was not granted to the federal government, and, as that government is one of “enumerated powers” and that authority is not granted, it does not exist. In Max Farrand’s book, The Grand Convention, which basically consists of all the known notes from all the delegates at the Philadelphia Convention of 1987, we can see that the power
“to emit bills” to the Congress was considered and resoundingly rejected. The vote (one state, one vote) was 0 for, 12 opposed, 0 abstentions, and 1 not represented. (Rhode Island failed to send any delegates)
In fact, the main reason that the Philadelphia Convention even occurred was that the lack of a sound currency impeded trade and commerce so severely that it threatened the new nation’s very existence. Growing out of the Chesapeake Bay conference at George Washington’s home in 1785, where it was determined that the issue needed every state’s participation, to the Annapolis Convention of 1786, where only half the states sent delegates but decided to request the Continental Congress call for a national convention. This convention’s purpose was to promulgate and propose amendments to correct the defects in the current plan of government (the Articles of Confederation), which Congress did. This resulted in the 1787 Convention.
Some time later, after the power “to emit bills” was voted down, the issue came up again as a power for the states “to emit bills” with the consent of the Congress. This was opposed by most delegates and when it was voted on the vote was 0 for, 11 opposed, 1 abstention (New York’s two delegates voted for and opposed and so was treated as an abstention) and 1 not represented.
So there it is. The power for both the federal government and the states “to emit bills” was considered and overwhelmingly denied.
The powers that are granted the federal government in Article I, sec. 8, are “To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” This meant that the Congress would specify the amount of precious metal in the coins they minted, and determine the amount of metal in foreign coin to establish the exchange rate between United States coin and various foreign nation’s coin. Many foreign nation’s coins were legal tender in the US until 1857.
Returning to Article I, sec 10, where it says in part “No State shall…coin money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts;…we see that the states are prohibited from coining money but they are given the power to declare the tender in payment of debt, that power being restricted to only “gold and silver Coin”.
Again, there it is. No Thing is to be declared a tender to pay a debt in this country but gold and silver coin, period! That did not mean that private bank notes could not be circulated but it did (does) mean that no one can be compelled to accept something other than coin by a court or government. Of course they could (and often did) voluntarily accept something other than this if they chose, and that is the key distinction.
To learn more about this critical subject see:
“A Caveat Against Injustice; or an Inquiry into the Evils of a fluctuating Medium of Exchange” by Roger Sherman of Connecticut, the only person to sign all four of our founding documents. (The Continental Association was the first, it created the Continental Congress)
“A Plea For The Constitution of the United States of America; wounded in the House of its Guardians” by George Bancroft, historian, Secretary of the Navy, Founder of Annapolis Naval Academy and the only one ever to be granted full speaking privileges on the floor of the US Senate based on his person, not his office.
“The Grand Convention” by Max Farrand, noted Constitutional scholar.
Walt, I understand the benefits of Limited Supply of money that you describe here, but the part about ending wars and eliminating poverty I'm not so sure. It all sounds very good but I have a hard time believing the bigger claims. I want to believe it but we can't prove it because it is all thought experiments.
I wish there was a way that we could prove you right. Maybe if there would be a way to do an experiment with inmates currently in jail where we give each a specific limited "jail currency" that they can trade with each other for goods and services and we can all see what happens. If one inmate collects too much or tries to manipulate the currency, then the other immates will stop using it maiking his currency worthless. Or some other experiment like that.
