Let's End the Money Racket (Part III)
What Would a True Gold or Silver Standard Look Like?
Long before our nation was founded the American colonies were plagued by three important problems — none of which exists today: one, an inability of the various provincial governments to raise real money in an emergency; two, the absence of a uniform currency that could be traded across provincial lines; and three, a constant drain on America’s real money supply. Eventually, all of these problems were fixed with the issue of statutory counterfeit. Clearly, all of them could have been fixed with real money had there only been a better understanding of money in general — both real and counterfeit — and had the allure of statutory counterfeit not been so attractive.
Funding Government: As a nation of largely independent, self-sufficient, real community-oriented farmers who cleared and owned land, it was difficult for the individual provincial governments to levy taxes in the rural areas.1 American farmers, although loyal to the British crown, felt little loyalty to distant provincial governments headed by British magistrates and elected American assemblies whose members emanated principally from the coastal towns and cities. What is more, there was no sophisticated system of landlords who could easily extract tithes (feudal taxes) from the fruits of the farmers’ labor. America was very different from Europe, and most Americans wanted to keep it that way.
In contrast, the much wealthier merchants living in large towns and cities along the Atlantic seaboard were very aware of the goings-on of their respective provincial governments, but had little notion of the true needs of their fellow Americans who lived along the frontier and had to contend with French territorial ambitions and the panoply of Indian tribes who resented the ceaseless dwindling of the forests on which they depended for their wild game — indeed, the primary causes of government-declared emergencies. As a consequence, these merchants were far more likely to perceive the ceaseless warring along the frontier as an attempt on the part of local British magistrates to win acclaim from those members of the British parliament and the King’s court in London with their own territorial ambition than a genuine those vulnerable to both just and unjust attacks along the frontier.
In order to overcome the above financial handicap our early provincial governments issued what were called bills of credit. These bills were sold into existence in exchange for the supplies and munitions necessary to conduct war. In order to make these bills of credit attractive to government suppliers, they had to insure that others would accept them as a substitute for real money. This was achieved with three simultaneous promises of which only the first was ever kept. Firstly, these bills could be used in lieu of real money (specie — gold and silver coin) to pay one’s taxes. Secondly, these bills could be redeemed for real money by the government after a certain period had passed. Thirdly, the government promised that it would only issue what it absolutely needed to overcome a temporary short-fall in revenue until the emergency had passed.
Without going into great detail (for more detail please see the latter chapters of Volume I and early chapters of Volume II of Mount Cambitas — The Story of Real Money) the second promise was often replaced with another second promise, and the consequent new issue of bills of credit broke, in turn, the third promise that new issues would only be used to cover the expense of emergency supplies and munitions — not cover for the unkept second promise. With regard to the first promise, the government could never not accept its own “money” in the payment of taxes without appearing ludicrous to those who paid their taxes. To make a long story short, our founding fathers concluded that
“No State shall … emit Bills of Credit;
make any Thing but gold and silver Coin a Tender
in Payment of Debts ….”
The Citizenry of the United States. 1789.
United States Constitution, Article I, Section 10, § 1.
Now, imagine a modern America in which statutory counterfeit were forbidden and the American state were badly in need of supplies and munitions to defend our nation. This financial emergency could easily be overcome with the issue and sale of war bonds at an above-average, market rate of return. It is through the promotion and sale of these bonds that Jay Cooke, an entrepreneur from Sandusky, Ohio, became very wealth during Lincoln’s War of Consolidation.
War bonds are different from the government bonds typically issued today and sold in large number to large commercial banks and wealthier Americans.
Firstly, the principal (face value of the bond) is much smaller and therefore available to the average income earner. Secondly, every school child understood that government, like him, must pay back what it borrows, but that unlike him, government pays back what it borrows with taxes that the child will have to pay once he has become an adult. Thirdly, every student understood that those who purchase such bonds pay fewer taxes, because the interest that each receives on such bonds offsets part of what is owed in taxes. In short, those who do not buy the bonds would not only put their nation at risk, but would finish by paying more for its rescue than what it would otherwise cost them.
Uniform Currency: Previous to our nation’s founding there were as many different coins in circulation in America as there were nations who issued them and denominations in which they were issued. As nearly all Americans were immigrants we yearned for certain of the things that we forewent when we left the motherland to come to America in search of religious and political freedom and greater economic opportunity. The merchants on the coast provided us with these things. They sold to overseas traders what we produced in America, purchased from European traders what we desired from “home”, and sold what they purchased to us here in America where we were struggling to establish our new home. Indeed, America was not solely a nation of farmers.
Because we, Americans, were an adventurous lot we traveled far and wide to sell our wares and accepted real money from many different lands. Although the Spanish dollar was the most common real money of the day there were many other coins from other lands especially those of Great Britain, the United Dutch Republic, France, and Portugal. America’s trade with the Spanish and Portuguese colonies in and around the Caribbean sea was substantial. The Dutch were very adventurous as were we.
As previously indicated the American provincial governments were notorious for their issue of bad credit, and no overseas trader would accept their bills of credit in exchange for goods that he sold to local traders in the provinces. Real money, in turn, would fetch a fair exchange in the homeland of the overseas trader.
Only after we fought and won our independence from the British empire were we in a position to create our own coin — and this, despite several real attempts to do just that before we had successfully seceded from the empire. Even after the United States of America were initially formed, however, we still had trouble with the creation of a uniform money that could be traded across all States.
Alas, we were never able to do at the national level what the Exchange Bank of Amsterdam was able to do at the local level with global ramifications more than a century and a half earlier — namely, take the coin of all trades above a certain amount, no matter their source, melt-it-down, separate out the gold and silver, and mint new coin with a standard, reliable weight that everyone could trust. This said, it was not that the brilliance of the Dutch had escaped us.
“The Congress shall have Power …
To coin Money, regulate the Value thereof, and of foreign Coin,
and fix the Standard of Weights and Measures; …”
The Citizenry of the United States. 1789.
United States Constitution, Article I, Section 8, § 5.
Rather the allure of getting rich quick among the savvy few and the inability to organize and execute such a plan by the conscientious few among the less-informed many made it genuinely difficult to institute a uniform money. The struggle between these two groups — the savvy and the conscientious few — constitutes a substantial portion of the subject matter of Volume II of Mount Cambitas. Important is that the organizational barrier that existed in America during the late 18th century no longer exists today. This is not to say that today’s hurdle is not large, but unlike yesteryear it is so much easier to inform the less-informed many, if only the conscientious few would make the effort.
Important is that we have already agreed on a uniform national money supply, and it is well-established throughout the world. All we have to do now is transform it into something more enduring that better reflects what it has always pretended to be, but has never truly been — a reliable standard that preserves its value across time and space.
What is more, it is not all that difficult. Simply, the many have to demand it, and the conscientious few must rally the many behind it.
Once again, the goal is not to destroy the banking industry, for it plays too vital a role in all voluntary, free-market economies. Rather, it is to turn the industry away from its current self-serving, highly destructive medium-of-use — namely, statutory counterfeit.
We will save our third point until next time; whereupon we will explore what a smooth transition might look like.
In Liberty,
Roddy A. Stegemann, First Hill, Seattle 98104
Author of Mount Cambitas - The Story of Real Money and “A Call for the Restoration of Monetary Order”.
It is important to distinguish between the real communities of the past with the artificial communities of the present. A real community is a group of people who share a common habitat and way of life that binds them together with each other and nature in such a way that the individual could very well perish in the absence of his community. These communities differ dramatically from the often contrived communities of today that provide modern social “scientists” and “engineers” with a raison-d’être while they systematically destroy real communities around the world with their statistically derived conclusions about the nature of humanity and how it is that government can build a comprehensive, global, secular utopia.