United States Constitution, Article I section 8 & 10:
“Congress shall have the power to borrow money, to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.”
“…and to provide for the punishment of counterfeiting…No state shall coin money, emit bills of credit, or make anything but gold and silver coin a tender payment of debts.”
The founding father’s of America could likely be considered one of the greatest meetings of brilliant minds in human history. It is no coincidence that congress was specifically granted the privilege to “coin” money but not to “print it”. As we’ve discussed in previously in Issue #3 the American colonies already knew all about the hazards of inflationary monetary policy and money backed by nothing. In fact, many of the authors of the constitution were quite outspoken when it came to their feelings on paper money and bills of credit issued by the state. But don’t take my interpretation at face value…
George Washington once said:
“I do not scruple to declare that, if I had a voice in your Legislature, it would have been given decidedly against a paper emission. Upon the general principles of its utility as a representative, and the necessity of it as a medium, and as, far as I have been able to understand its advocates (for the two papers you sent me were the same, and contained no reasons of the House of Delegates for the local want of it in your State, though I have seen, and given them a cursory reading, elsewhere) I should have been very little less opposed to it.”
“To assign reasons for this opinion would be as unnecessary as tedious. The ground has been so often trod that a place hardly remains untouched. But, in a word, the necessity, arising from a want of specie greater than it really is, I contend that it is by the substance, not with the shadow of a thing, we are to be benefited. The wisdom of man, in my humble opinion, cannot at this time devise a plan by which the credit of Paper money would be long supported; consequently depreciation keeps pace with the quantum of the emission; and articles for which it is exchanged rise in a greater ratio than the sinking value of the money. wherein then is the Farmer, the Planter, the Artizan benefitted? The debtor may be, because, as I have observed, he gives the shadow in lieu of the substance, and in proportion to his gain, the creditor, or the body politic suffer: for whether it be a legal tender or not, it will, as hath been observed very truly, leave no alternative—it must be that or nothing. An evil equally great is, the door it immediately opens for speculation; by which the least designing, & perhaps most valuable part of the community, are preyed upon by the more knowing and crafty speculators. But contrary to my intention & declaration, I am offering reasons in support of my opinion—reasons too, which of all others, are least pleasing to the advocates for Paper money I shall therefore only observe, generally, that so many people have suffered by former emissions, that, like a burnt child who dreads the fire, no person will touch it who can possibly avoid it. The natural consequence of which will be, that the specie which remains unexported, will be instantly locked up.”
The 10th amendment to the Constitution states:
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the states are reserved to the states respectively, or to the people.”
The means that the only people who are legally allowed to issue bills of credit, in accordance with the Constitution, are the people themselves. This is why the Federal Reserve was cleverly formed as a private institution which lends to the US Treasury. Unconstitutional legal tender laws force you to settle debts and pay your taxes with worthless pieces of paper.
I don’t want this one to go on for too long, but there is more to the story. Stay tuned for part 2 tomorrow.
Book of the Month:
The Dao of Capital: Austrian Investing in a Distorted World
-“Density (overgrowth) and uniformity (too much of one thing—namely immediate-returning or high-yielding capital, as opposed to the more roundabout variety—growing in the economy and “fertilized” by distortion) are the evidence of malinvestment in the economy, exceeding the amount of available resources. Investment cannot exceed savings any more than seeding in the forest can exceed land, nutrients, water, and sunlight—but under these interventions, the system acts as if that’s what is happening. This is what makes the boom so delusive and ultimately illusory.”
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