Rebuttal to "The Case For Competing Precious Metal Currencies"
A continuation of my debate with Walt Theissen about monetary systems and why the current system, with all of its problems, should not be abandoned. by Bill Gee
(centrist)
Friday, February 25, 2011
I will now do my best to rebut Walt Theissen's arguments in favor of a "competing precious metal currency", and make the mainstream argument as to why such an argument is dangerous and threatens the very stability of the economic system we now live in.
After reading Walt's case, I have to admit that his Utopian description of what life would be like in a limited currency environment has its appeal. Unfortunately, just as the every Utopian scholar before him (i.e. Sir Thomas More, Karl Marx, Vladimir Lenin, etc.) his vision sounds a lot better in the abstract rather than in the practice of it.
The Horrible Tragedy Of Legalized Fraud
While ignoring Walt's little word-play regarding "loaded" terminology, I believe his assessment of the flaws of the banking system as it exists is spot on and indeed, it is one that I have repeated in my own columns. Control over the money supply should begin and end with the Federal Reserve. Allowing the banks to "double count" deposits as both a liability and an asset is contrary to basic Accounting practices and should be made illegal.
The Benefits of Competing Precious Metal Currencies
Walt then correctly points out that the Constitution gives the right to print and coin money directly to the Federal Government, and by extension, the Federal Reserve. States do not have that authority. He also points out that states do have the authority under Article I, Section 10 to coin Gold and Silver as legal tender. Therefore, if states wanted to create a competing currency based on Gold or Silver, they can start today. So what's stopping them?
The Return Of The Free Market
The "free market" as described by Walt, would require a major paradigm shift in the economic psyche. All our lives we have been taught that "more is better". We measure economic prosperity by the level of Inflation and by increases in Gross Domestic Product. Our benchmark for individual economic success is measured by how many millions of dollars we can amass in our bank accounts.
Prices are supposed to go up as the value of our investments (in particular, the value of our real estate) goes up. Our sense of self-worth with regard to our careers hinges on how many thousands of dollars we take home. If prices go down, we have been programmed to believe that's a bad thing, and if our wages go down, then we are programmed to believe that we have done something wrong.
No doubt, we do work twice as hard as our grandparents to meet the same standard of living. But Austrian Economists would argue that this is due to a corrupt banking system and a Central Bank providing too much easy credit and thus over stimulating the money supply, not the currency itself. This is why Austrian Economists like Professor Scott Sumner argue for stronger regulation of banks, and disciplined Inflation and NGDP targeting. If we can do that, then we will see the fruits of our labor retain its value.
To Walt's second point, it is important that we do become investors and savers. Companies that are worthy of our investment dollars should receive it, and everyone should be an investor in our economy. When we choose to hold our cash in a mattress, it will lose value over time and rightly so. A mattress does not contribute to growing businesses and growing jobs, while a stock or bond purchase in companies we care about does just that. The mega-wealthy of the world should not be the only ones out there picking the winners and losers in the market.
How The Numerous Benefits Of A Limited Money Supply Play Out
I'm sorry, but this overly Utopian description of how a limited money supply will benefit the whole of society sounds great, but it ignores a fundamental flaw of the human condition: Greed. This is the same mistake made by Karl Marx and Sir Thomas More when they set about to describe a world where greed has been conquered and man's greatest creative efforts are spent on the betterment of human society.
From the day that the first human societies arose from the African savannah, those who have more have taken from those who have less, and those who have less have tried to take from those who have more. The very notion that war will end just because money is more scarce is hubris on the part of those who believe in the idea.
If money is not the object of desire, it will be food, power, religious idealism, or any other of the many scarce resources, real or imagined, that will fuel mankind to pick up a club or a gun and kill his neighbor.
The Power of Monetary Competition
There is no power in Monetary Competition simply because it will never happen. Period.
Instead, we should focus our efforts on ridding ourselves of the criminals who have taken a system that had successfully pulled us out of the Great Depression and turned it into a corrupt free-for-all where those at the top of the economic food chain are institutionally obligated to feed upon the carcasses of those at the bottom. When that is done, the Federal Reserve needs to get out of the "banking" business and instead go back to its original mission of setting nominal inflation and NGDP and be the only institution where new dollars can be added to our economy.
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Posted By: sarasile
Date: February 28, 2011 05:23:03 PM
The comment below was originally placed on Walt’s article, The Case For Competing Precious Metal Currencies. I am now placing it here in the comments to Bill Gee’s Rebuttal.
PS. I believe a typo in Walt’s article is responsible for the impression that Article I, sec. 10 allows the states to coin money. It actually prohibits the states from doing so.
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.
