Fiat Currency, Central Banking and the True Constitutional Money System

[Truth-Bringer]

Most liberals support the Federal Reserve. Yet, private banks, and therefore rich bankers and "old wealth" families, profit from the deal which created a central banking system of private banks under government control. It's basically a corporation granted a monopoly by the government, but subject to more direct oversight by the government. Still, profit is made by rich bankers - there is a reason they lobbied the government for its creation. And the use of fiat currency has created excess inflation which has hurt the poor and working class the most.

Most conservatives support the Federal Reserve. Yet the creation of a central bank is one of the 10 planks of the Communist Manifesto. And grants more government control over an incredibly important sector of the economy. Not to mention that legal tender laws force everyone to use paper currency that would otherwise be worthless -- which goes against the original intent of the Constitution, history, and common sense by denying American citizens the use of money with intrinsic value.

What's the truth on the matter from a Constitutional perspective?

The truth is:

"The only substances ever declared as money within the U.S. were gold and silver, in coin form, with copper/nickel serving in token capacity only. See: 12 USCA 152 re. "lawful money" and Coinage Act of April 2, 1792, at Sections 11, 16, & 20; re. copper/nickel tokens, see Sec. 9, and 31 USCA 460."

Original U.S. Constitution

Art. I Sec. 8 Cl. 5
[Congress shall have Power ...] To coin Money, regulate the Value thereof, and of foreign Coin, ...;
Art. I Sec. 10 Cl. 1
[No State shall ...] make any Thing but gold and silver Coin a Tender in Payment of Debts; ...

Note that there is no such prohibition against Congress, or any delegated power to make anything legal tender. Congress was originally understood to have no power to make anything legal tender outside of federal territories, under Art. I Sec. 8 Cl. 17 and Art. IV Sec. 3 Cl. 2, but in 1868 a Supreme Court packed by Pres. Ulysses S. Grant, in the Legal Tender Cases, allowed Congress to make paper currency issued by the U.S. Treasury, backed by gold, legal tender on state territory, a precedent that remains controversial to this day, when courts allow paper currency not backed by anything to be considered "legal tender".

Link

What took us away from the Constitutional model was the court packing scheme by Grant and the unconstitutional ruling made by that court, which you can read about here.

Here are the some more detailed views of the Founding Fathers on the Constitutional money system:

"The founding fathers were concerned about the unrestrained control of the money supply. One thing they all agreed upon was the limitation on the issuance of money,

Thomas Jefferson warned of the damage that would be caused if the people assigned control of the money supply to the banking sector, "I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a money aristocracy that has set the government at defiance. This issuing power should be taken from the banks and restored to the people to whom it properly belongs. If the American people ever allow private banks to control the issue of currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children will wake up homeless on the continent their fathers conquered. I hope we shall crush in its birth the aristocracy of the moneyed corporations which already dare to challenge our Government to a trial of strength and bid defiance to the laws of our country" Thomas Jefferson, 1791

Many of the founding fathers experienced the damage caused by fiat currency. Most of the revolutionary war was financed by worthless currency called "Continentals".

# The Continental Currency ("Not worth a Continental") that American colonists issued for the Continental Congress to finance the Revolutionary War was replaced by the US Dollar in 1785 when The Continental Congress adopted the dollar as the unit for national currency. At that time, private bank-note companies printed a variety of notes. After adoption of the Constitution in 1789, Congress chartered the First Bank of the United States and authorized it to issue paper bank notes to eliminate confusion and simplify trade. The U.S. Constitution (Section 10) forbids any state from making anything but gold or silver a legal tender. The Federal Monetary System was established in 1792 with the creation of the U.S. Mint in Philadelphia. The first American coins were struck in 1793. The U.S. Coinage Act of 1792, consistent with the Constitution, provided for a U.S. Mint, which stamped silver and gold coins. The importance of this Act cannot be stressed enough. One dollar was defined by statute as a specific weight of gold.

# The Act also invoked the death penalty for anyone found to be debasing money.

# President George Washington mentions the importance of the national currency backed by gold and silver throughout his initial term of office and he contributed his own silver for the initial coins minted.

# The purchase of The US Mint in Philadelphia, was the first money appropriated by Congress for a building to be used for a public purpose. It was purchased for a total of $4,266.67 on July 18, 1792.

Link

Here's the Coinage Act so you can read it for yourself

"SEC. 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be pursuant to the directions of this act, through the default or with the connivance of any of the officers or persons who shall be employed at the said mint, for the purpose of profit or gain, or otherwise with a fraudulent intent, and if any of the said officers or persons shall embezzle any of the metals which shall at any time be committed to their charge for the purpose of being coined, or any of the coins which shall be struck or coined at the said mint, every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death."

Having said all this, fiat currency has unfortunately always been legal, but only in very limited, defined circumstances. The Founders believed:

(1) It should be done only in FEDERAL TERRITORIES and not in the STATES
(2) It should be done ONLY if absolutely necessary and if there was no other option
(3) It should be done ONLY in WAR TIME and NEVER in PEACE TIME
(4) It should ONLY be done TEMPORARILY and NEVER permanently
(5) That it promoted INSTABILITY and not stability
(6) And James Madison said it was still EVIL even if used in this temporary manner
(7) And Jefferson once asked if a Constitutional veto could be put on fiat currency even in this limited usage

The bottom line is that FIAT CURRENCY WAS NEVER INTENDED TO BE LEGAL TENDER. It was never the intention of the Founders to allow the government to force fiat currency as legal tender on the American people. If they wanted to do that, they could have easily done so. Instead, they demonstrated their true convictions by making it illegal to remove gold/silver backing from legal tender and invoking the death penalty for anyone who violated this.

 

[Federal Farmer]

Thanks for the link TB, and I'm well aware of the contoversy over "fiat currency", as well as all of the other unconstitutional laws, regulations, and dictates our government has foisted upon us.

To be perfectly honest though, I'm not nearly as concerned about "fiat currence" as I am about many of the other challenges facing us today, mainly because I understand the flaws and pitfalls of relying upon a currency that is based on Gold, Silver, or any other tangible resource, that being that our entire economic system could easily be turned on it's ear by an enemy of ours simply by their flooding the world market with whatever that tangible resource might be. Our current economy is based on our GDP, or to put it in simpler terms, what we as a nation produce, which allows us to be extremely flexible in our efforts to remain dominant on the world market.

Imagine for a moment if you will that our "money" was still valued on Gold. What do you think would happen to our economy, overnight, if South Africa suddenly flooded the world market with gold? That prospect is exactly why we removed ourselves from the Gold and Silver Standards, not counting the fact that there simply hasn't been enough Gold mined in the history of the world to sustain a global economy as we have today.

As it pertains to inflation, the historical fact is that, within reason, the dollar was relatively stable over time from 1800 until the beginning of WWII, and it was our necessity to finance, and later to pay off our war debts that actually started us on the inflationary climb we're dealing with today. It further accelerated due to our enormous expenses during the Cold War, in our effort to defeat Communist expansion, and has slacked off somewhat since the fall of the former Soviet Union in 1990. Early this year, I undertook a project to document the history of the inflation of the dollar, based upon it's 1800 value, and consolodated the information in the chart below.

The fact is that despite inflation, actual incomes have increased exponentionally ahead of inflation in the past 60 years. Consider the fact that the "poor" in America today have, on average, 2 cars, own their own homes, 2 or more color TV's (even plasma), cable or satellite, cell phones, and on and on and on. Go back to pre-WWI and look at the condition of the "poor" during that time. Look at the condition of the "poor" in the mid 19th century, or better yet, during the mid 18th century, and there simply isn't any comparison.

 

[Truth-Bringer]

The fact is that despite inflation, actual incomes have increased exponentionally ahead of inflation in the past 60 years. Consider the fact that the "poor" in America today have, on average, 2 cars, own their own homes, 2 or more color TV's (even plasma), cable or satellite, cell phones, and on and on and on. Go back to pre-WWI and look at the condition of the "poor" during that time. Look at the condition of the "poor" in the mid 19th century, or better yet, during the mid 18th century, and there simply isn't any comparison.

There has definitely been an increase in incomes as well, but to say that the poor are better today simply because of this isn't taking something else into factor: TECHNOLOGY. Take away electricity, refrigeration, and automobiles, and most people would very quickly perceive life becoming much harsher.

People are working 2 and 3 jobs today to keep up. Several years ago, women in the family had no need to work. Today, they have to just to keep pace. People also have acquired huge amounts of debt today.

But let's go back to the 1800's. Americans had the lowest tax rates in the world at that time among industrialized nations. And they were all paid in gold and silver. Those facts alone prove they were more prosperous.

Here are a few links that show the poverty in the rest of the world in comparison:

"The Tzar did not share real power with these groups, and the poor classes were the most destitute and impoverished in Europe. In fact, up until the 1850's, the vast majority of Russia's millions of citizens were peasants -- and the majority of these peasants were still serfs! Russia was still based on repressive and grueling serf-based agriculture, while other countries in Europe were undergoing the industrial revolution! Poverty, illiteracy, suffering, and cruelty were the defining characteristics of Russian social and political life. With no protections under law, there was no way to voice discontent or work for change."

http://www.hcc.hawaii.edu/distance/hist/reform.htm

(Note the excuses at the end - Americans didn't have any legal protections for revolting against the British - but they did so to secure their freedoms. If you want more rights, you have to be willing to fight for them. The Russians apparently weren't...)

While the following site on the mining industry doesn't mention taxes (rather conveniently - since it seems liberal) the population figures it shows are revealing. All these people are choosing to immigrate to the United States instead of elsewhere which proves that "word on the street" was that Americans were doing well and if you wanted a chance at prosperity, you should move to America:

"In 1850, there were about two hundred Chinese people in America. When the Gold Rush occurred, the white workers in the West left their jobs to mine gold, drawing many Chinese to America. Their main goal of coming was to make enough money here to have a more comfortable life when they went back to China. By 1880, there were over 100,000 Chinese here."

(^ proving they made their money - which was tax free and which was more than they could make in China - and went back with an improved standard of living thanks to our economy.)

The other population shifts occur, the link says, due to high food prices in Europe and various famines. But it fails to explain why they were suffering from agricultural problems. We'll see an example of why below by looking at Hungary.

http://library.thinkquest.org/J003298F/immigration.htm

Here's an interesting bit of history - and this really was the predominant experience for most other people in the world:

"In the early to mid-eighteenth century, Hungary had a primitive agricultural economy that employed 90 percent of the population. The nobles failed to use fertilizers, roads were poor and rivers blocked, and crude storage methods caused huge losses of grain. (the rulers - i.e. government were mismanaging things and had stifled the economy so that there was no incentive for anyone to perform these jobs...imagine that...)

Barter had replaced money transactions,

(The economy broke down due to mismanagement...)

and little trade existed between towns and the serfs. After 1760 a labor surplus developed. The serf population grew, pressure on the land increased, and the serfs' standard of living declined. Landowners began making greater demands on new tenants and began violating existing agreements. In response, Maria Theresa issued her Urbarium of 1767 to protect the serfs by restoring their freedom of movement and limiting the corvee. Despite her efforts

(government action failed to resolve what government action created in the first place...imagine that...)

and several periods of strong demand for grain, the situation worsened. Between 1767 and 1848, many serfs left their holdings. Most became landless farm workers because a lack of industrial development meant few opportunities for work in the towns. (With the nobles and royals managing the economy, there was no free industry - the market was stifled)

Joseph II (1780-90), a dynamic leader strongly influenced by the Enlightenment, shook Hungary from its malaise when he inherited the throne from his mother, Maria Theresa. Joseph sought to centralize control of the empire and to rule it by decree as an enlightened despot. He refused to take the Hungarian coronation oath to avoid being constrained by Hungary's constitution.

(Uh oh...I'm already nervous...sounds a little Bush-like...)

In 1781 Joseph issued the Patent of Toleration, which granted Protestants and Orthodox Christians full civil rights and Jews freedom of worship.

(hmmmm... so there wasn't much personal freedom either...well imagine that...)

He decreed that German replace Latin as the empire's official language and granted the peasants the freedom to leave their holdings, to marry, and to place their children in trades.

(peasants - the common people had no property rights, no marriage rights, and no right to educate their children due to previous government action...it's a shame we can't get the tax rates on them...I'm sure it's high)

The "Kingdom of Hungary", "Kingdom of Croatia", and the "Grand Principality of Transylvania" became a single imperial territory under one administration, called "Lands of the Crown of St. Stephen". When the Hungarian nobles again refused to waive their exemption from taxation,

(so the other lesser rulers were exempt from taxation due to previous government action...talk about some hypocrites...they want to run everybody else's life but be exempt from their own rules)

Joseph banned imports of Hungarian manufactured goods into Austria and began a survey to prepare for imposition of a general land tax.

(and of course the guy loses to his own megalomania and blocks free trade and raises taxes...somehow I knew we wouldn't have a happy ending on this one...LOL)

http://en.wikipedia.org/wiki/Hungary_in_the_18th_and_19th_century

 

[Federal Farmer]

There has definitely been an increase in incomes as well, but to say that the poor are better today simply because of this isn't taking something else into factor: TECHNOLOGY. Take away electricity, refrigeration, and automobiles, and most people would very quickly perceive life becoming much harsher.

Of course they would, but if all of those things were taken away, everyone, regardless of their station or wealth would perceive lige as harsher. Myself, I still remember a single light bulb hanging from the ceiling of the small farm house I grew up in, I remember using an 'out-house' (which was always too close in the summer, and too far in the winter), and riding a horse to town because it was too far to walk, and I was too young to drive. I've lived what you call "harsh", and while it wasn't as 'comfortable' as things are today, it's not like it'll kill you.

People are working 2 and 3 jobs today to keep up. Several years ago, women in the family had no need to work. Today, they have to just to keep pace. People also have acquired huge amounts of debt today.

Poor financial responsibility is nobody's problem except those who refuse to handle their financed responsibly. To be blunt, it's a 'strawman' argument. My wife hasn't worked outside the home since we've been married, because we've been frugle, and haven't concerned ourselves with "keeping up with the Jones's". What you call an effort to "keep pace" is vanity, pure and simple, and those who allow themselves to engage in such, deserve what they get, including their overbearing debt, two or three jobs, farming their kids out to the lowest bidder because their mother isn't at home to raise them herself, and then they wonder why their kids are totally disfunctional, A.D.D., and on 5 different kinds of medications.

But let's go back to the 1800's. Americans had the lowest tax rates in the world at that time among industrialized nations. And they were all paid in gold and silver. Those facts alone prove they were more prosperous.

Actually, it proves nothing of the kind. The amount of taxes, or what currency one is paid in is not a measure of prosperity, unless you properly consider what the currency was worth compared to what the cost of the goods you had to purchase with it, and the number of hours one had to work to earn that currency. People today are working fewer hours, for more money, for more reasonably priced goods than at ANY time in this nations history.

 

[Truth-Bringer]

Federal Farmer, I thought you were honest, but now I can see you only selectively apply your Constitutional standards. You've failed to address the issue here. Seems like you only want something to be Constitutional as long as you happen to like it.

Regardless, your arguments about the gold standard in general are also incorrect:

"Mr. Still claims that it would be a mistake to return to a gold-backed monetary system because most of the world’s gold now is held by the bankers. This is a deceptively appealing argument. First, it is not true. Central banks do hold more gold than any other single entity; but the total inventory of gold in the hands of private citizens, as bullion or coins or jewelry or known deposits in working mines, is much larger. If money were to be restored to a precious-metal base, this largely invisible reserve would be more than adequate to supply the demand. We must remember that the limited supply of gold as a monetary base is an advantage, not a disadvantage. If it were not scarce, it would not have utility as money. The smaller the supply, the more valuable it is. As pointed out in The Creature from Jekyll Island, any amount of gold or silver will work just as well as any other amount. The only difference is how valuable each unit of measure will be. The argument that “we don’t have enough gold in the world” is without foundation, and those who say this do not understand the fundamental mechanics of money."

Link

 

[Truth-Bringer]

Gold is not a ‘Barbarous Relic’

By Doug Casey
How many times have you heard gold described as the “barbarous relic”? It is a favourite phrase of gold - bashers everywhere who are trying to make gold the object of derision.

Why the gold standard is a brilliant invention

Gold is not a barbarous relic because gold communicates value today as effectively as it did 50 years ago and much better than does the United States dollar. In contrast to national fiat currencies today, gold tends to hold its value; in other words, the purchasing power of gold remains relatively unchanged. In fact, this precious attribute of gold is timeless because the above-ground stock of gold grows approximately at the same rate as world population growth and new wealth creation.

There is indeed a barbarous relic: central banking itself. Central banks are barbarous in part because they conspired to put an end to Newton’s brilliant invention — the gold standard — that safeguarded sound money for 200 years. However, it is the process of central banking itself, as it has come to be practiced, that deserves the greatest public wrath.

10 Reasons Why central banking is 'barbarous':

Link

 

[Federal Farmer]

Federal Farmer, I thought you were honest, but now I can see you only selectively apply your Constitutional standards. You've failed to address the issue here. Seems like you only want something to be Constitutional as long as you happen to like it.

Oh damn, another Paulistinian who wishes to feign dissapointment because I don't buy into their pie-in-the-sky fantasies and deliberate misinterpretations of the Constitution. The Constitution is not now, nor has it ever been a suicide pact, and even considering going back to the Gold or Silver standards IS suicidal. Like it or not, the facts are the facts, we are part of the global economy, and placing our entire economic system at jeopardy on a flawed interpretation of the Constitution is just plain silly.

The Constitution clearly states, in Article 1 Section VIII that the "Congress shall have Power To...borrow Money on the credit of the United States...To coin Money, regulate the Value thereof, and of foreign Coin," and "to provide for the Punishment of counterfeiting the Securities and current Coin of the United States;" (emphasis mine). Please note that along with coins, the Constitution also clearly mentions "securities" which is exactly what our modern paper money is.

As to your not-so-cleverly worded rebuttal, what the author conveniently neglects to mention is, as I alluded to earlier, that in the entire history of civilized society, approximately 142,000 tons of gold has ever been mined. Even if we were to assume that all of that gold were to be converted strictly for your currency coins, that gives us, at todays (June 14, 2008) gold price of $870.00 per oz., a total world value of $3,953,280,000,000, or just about one trillion dollars more than the United States annual budget. The entire global GDP, according to the IMF, is approximately $65 Tn, so what do you propose, that all of the nations of the world get together and come to a unanimous agreement to go back on the gold standard, and adjust all of their economic values accordingly? That would be quite an achievement, especially given that currently, they can't seem to decide if terrorism is a bad thing or not! What of the countries that have no gold naturally occurring in their territorial limits? Are they not going to suffer perpetual impoverishment since they will have to buy their gold from countries that do? What of the countries that do have plenty of gold within their territorial limits? Is the rest of the world to have their entire economies held hostage to those countries ability, or desire, to mine and make available their gold, not unlike OPEC and their oil?

No, any time an economy is based on any tangible thing, whether it be gold or puka shells, there will always be the "haves" and the "have nots" based strictly on greed and the ability or willingness of those who control the gold, or puka shells, to produce their item. When an economy is based on the value of the labor of the people, the PEOPLE decide how much they are going to be worth based on their own labors, and nobody can control that except for the individuals themselves. Given that, in the other thread, you admitted to being a slave, I can see how you would rather remain in your nice, safe, sheltered corner and let someone else decide for you where you will work, when you will work, and how much they will pay you for your work, but as a free man, I much prefer to decide those things for myself, and to enjoy the fruits of my labors all the more because I decided how much I could earn, and not be limited by what some Sheik or gold miser decides.

Your humble & obt. svt.
Federal Farmer

[EDIT]
Oh, and BTW, I AM honest, completely honest, especially when it comes to the Constitution. I'm honest enough to read the Constitution, as well as the thousands of supporting documents written by the same authors, so that I will have as full and complete an understanding of what they meant when they wrote the words we see in the Constitution, and to not insert my own prejudices and beliefs into a discussion of the document. Mayhaps one day, when you've done as much real research on the subject as I have, you too will be not only "honest" (as far as your limited experience allows you to be), but COMPLETELY honest from having done the hard work of research into the subject, and not just parroting what someone else tells you to say.

 

[Truth-Bringer]

The Constitution clearly states, in Article 1 Section VIII that the "Congress shall have Power To...borrow Money on the credit of the United States...To coin Money, regulate the Value thereof, and of foreign Coin,"

Which refutes nothing in my original post. You really like Straw Men, don't you?

Oh, and BTW, I AM honest, completely honest, especially when it comes to the Constitution.

No, you're not.

 

[Federal Farmer]

Which refutes nothing in my original post. You really like Straw Men, don't you?

It completely refutes your entire premise about "fiat money", and yes I do like strawmen, since every time you bring them up, I get to burn them down (it's that little pyromaniac streak in me)

No, you're not.

OOH, THAT hurt (not), tell you what, why don't you PROVE IT! Show us even one place where I've lied, distorted the facts, or in any way intentionally misrepresented them. You've leveled the accusation twice now, so let's see if your little tug boat ass can back up your battleship mouth.

I notice that you've failed to address any of the points I brought up, which means that, as my grandchildren would say, you've been PWNED!

 

[Truth-Bringer]

It completely refutes your entire premise about "fiat money",

No, it doesn't. Saying it does and proving it does, are two very different things.

OOH, THAT hurt (not), tell you what, why don't you PROVE IT!

The proof is that you still haven't addressed anything in my original post, old man. The one who's PWNED is you.