By David Redick
The USA started as a group of English colonies that banded together to reduce oppression and control by the English government, headed by King George III. Various disputes led to the Lexington and Concord gunfights in 1776 which started the Revolutionary War. The Articles of Confederation in 1778 documented the rules and goals of the thirteen sovereign colonies working together. After the war, a Constitutional Convention was convened in1787 to just ‘tune-up’ the Articles of Confederation and the writing was completed on September 17. They went beyond the tune-up and gave many powers to the federal government. Note that the purpose of this, or any, Constitution is to stipulate what the government may, may not, and must do. It is not a group of laws (‘law of the land’) but a list of powers granted by the people. The legislature then makes laws within the powers.
When the Constitution was issued to the States for ratification, a major dispute ensued between the Federalist group (likes strong central government, and ‘managed economy’; visit this page) led by Madison and Hamilton (who wrote the ‘Federalist Papers’), and the anti-Federalist group (likes strong State and personal rights; visit this page) led by Patrick Henry. Another group, led by George Mason of VA, insisted on ten amendments (the ‘Bill of Rights’; to protect the people in case the Federal government exceeded the actual powers granted) to be included before issuing the original Constitution. Twelve were written, and the first ten were ratified. The new Constitution was sent to the states for ratification, and first signed by Delaware on Dec. 7, 1787, and last by Rhode Island on May 29, 1790.
The Growth of Federal Power
Departments, Agencies, Programs, and Wars: One can present a long list of power functions created by the Federal government (most are unconstitutional), or taken from the States. While it seems clear that national defense, treasury, and international affairs are federal responsibilities (with ‘Departments’ led by ‘Secretaries’), the list has grown to fifteen today including national control with Departments of Agriculture, Commerce, etc., plus hundreds of ‘agencies’, many of which have unconstitutional rules and police powers (forced compliance, fines, arrests, etc.). See the list here. This gives the federal government a monopoly on many aspects of business and personal conduct, and there is an incentive for ambitious, control-oriented, politicians to seek votes with too much regulation and taxes on ‘the rich’ (or less with big campaign donations!; ‘crony capitalism’), while creating welfare entitlement programs for the so-called ‘under-privileged’ and ‘disadvantaged’, most of whom caused their own problems. Private charity can handle most of the ‘truly needy’ with much less cost and fewer side effects. If these programs were run by the States, there would be incentive to treat people and firms with minimal control (low taxes, and regulations) to avoid having them relocate to another State (vote with their feet!). The States would eliminate many programs since they can’t create money ‘out of thin air‘, as the Feds do. The damaging effects of the Federal style includes reduced incentive for innovation and work because ‘it’s not worth it’ when taxes are high.
Of course only strong governments use war as a tool to gain land and power. The War of 1812 was our first venture, followed by the Mexican-American, Civil, and Spanish-American wars, and many others. These would not have happened if the States were in control. They did not have enough money or power, and it is not likely that a group of states would invade another country. Refer to this link about how all of our wars since the Revolution were started on lies, and read below how we used fake money to pay for most of them. Our first overseas war was the Spanish-American war, and since then we have invaded many countries abroad (we now have 900 bases in 130 countries), and murdered thousands of people in the process of building Empire-USA.
Problems caused by paper money made from ‘thin air’: From its start in 1778, the Federal government has wanted to control the monetary system so as to finance their programs of war and welfare, which are still with us today! The Colonies, and early US states, used many types of currency from other nations, and had no ‘official’ U.S. money. With the fall to zero value of the paper scrip issued by colonies, and the paper Continentals for the soldiers in the Revolution, the people had learned their lesson about how paper money fails due to creation of excessive quantities, with no redemption for gold. Thus, per article IX, the Articles of Confederation referred to ‘value of coin’ (thus metallic) as money, and the Constitution went further in Section 10, part 1 by requiring use of gold and silver for coins, made by the States.
To implement these rules, Congress enacted the ‘Coinage Act of 1792’ (The Mint Act) and established gold and silver as the monetary standards of the United States. The act also allowed for the creation of a national mint. It was the world’s first decimal-based monetary system.
Between the adoption of the Constitution and the Civil War the United States government did not issue paper money as we know it today, but on many occasions it did issue short term debt called ‘Treasury Notes’.
In 1861 Lincoln needed money to finance the so-called ‘Civil War’ (actually a war of aggression against the South, which had the right to secede, to retain them as a source of cotton, and a market for Northern manufactured goods), so he got Congress to pass a bill authorizing the printing of full legal tender treasury notes to pay soldiers and buy war goods. The initial ‘Greenbacks’ were redeemable in gold or silver, but redemption soon ended so the Legal Tender Act of 1862 was issued to force people and firms to accept them. Next came the National Bank Acts of 1863 and 1864 that created a system of federally chartered ‘national banks’ that issued bank notes. The Acts also put a ten percent tax on state bank notes, which ended their money-making profit so they all quit, which gave us a federal monopoly on money creation! The Secret Service was created, so only DC could safely make counterfeit money! The Federal government finally achieved a monopoly on creation of money!
After several versions of gold and silver money laws, some devious politicians and bankers conspired to get the unconstitutional ‘Federal Reserve System’ approved on December 23, 1913. It was a true ‘central bank’ but the politicians knew they couldn’t get approval for one, so they gave it a phony name. Its ‘mandates’ of ‘stable value of the USD’, and ‘full employment’ were fake means of getting political and citizen support. Another function was to be ‘the lender of last resort’ to bailout insolvent banks!! Remember; ‘All central banks are created by and for politicians and bankers, so neither runs out of money’. Until FDR ended redemption for people in 1933, the Fed Notes could be redeemed by any owner for gold at $20.67 per ounce. After that, only nations could redeem, but had to pay $35 oz. In the 1960s, many nations worried that we were low on gold so started redeeming in large amounts. We indeed were running out, so Nixon ended redemption on August 15, 1971. Soon thereafter, ALL nations ended redemption. Since then the economic strength of a country has determined the value of its currency, short of excessive monetary inflation. Thus the US Dollar (USD) has been the world’s primary ‘reserve currency’ since 1971, which means banks hold it for transactions, and most international deals are done in USD. It had been used in 90% of international transactions until our economic breakdown in 2008, and is now about 60%. That decline means other nations are less dependent on us, and may not follow our policies or demands! Many nations, led by China and Russia, are now using their own currencies for deals, which reduces demand for the USD. Due to monetary inflation (creating new money), and reduced demand, the USD purchasing power has dropped by a factor of ten since 1971, and a factor of 4 since 2000. This means we are heading for an economic cliff much worse than 2008, and must reduce our spending on war and welfare, or CRASH! Table 1 shows our extreme debt that most officials consider unpayable!!
The Honest National Debt and Unfunded Liabilities
A. $ 18.4 tn National Debt (disclosed debt)
B. 97.4 Key Misc. unfunded Liabilities (not disclosed, ‘off-budget’, includes;
1) Medicare A, B, and D,
2) gov’t debt held by the public, and 3) Federal employee pensions and job benefits.)
14.2 Social Security (all unfunded)
$ 111.6 trillion Total for B
$ 130.0 trillion = Grand Total (A+B)
(Source: USDebtClock.org, Aug. 20, 2015)
What can we do as a nation to avoid the crash, and spare our children and their friends a life near poverty?
My Plan to Avoid the Crash and Achieve More Liberty, Peace and Prosperity
These are the key issues;
1. Use of Gold as Money, with no government monopoly: History shows us that when countries use sound money (such as gold coins, or paper and base-metal tokens as redeemable receipts for gold) made by private mints (including banks), and no government monopoly, they have zero or low price inflation, zero or minor ‘cycles’ of economic panic or depression, and more peace, liberty, and prosperity (smaller governments, less war). The main reason is that the government cannot create gold ‘out of thin air’ to pay its bills, and thus must spend less on wars and welfare, etc.! We would expect all countries to use sound money, except the leaders want more money than they can get by just taxing, especially for wars.
Why Gold? All forms of money serve as a ‘medium of exchange’, ‘unit of account’, and ‘store of value’, which makes it convenient and flexible compared to barter. Think of commodity money as just a step up from barter, but with the flexibility of using it to buy anything. Note that when a valuable commodity (such as gold) is used as money -‘monetization of gold’-, the money has market value (based on demand for industrial and consumer uses) equal to the goods or services in the transaction. Thus it can also be a ‘store of value’ (savings; keep some for later use), even when not used as money (often called ‘intrinsic value’).
When gold is used as money, it has no ‘price’ in dollars, yen, etc. Weight is the unit of account (such as milligrams). Sellers will set prices in weight of gold. There will be prices IN weight of gold, but not OF gold! (Example; What is the price of a dollar?). Gold money will have an ‘exchange rate’ with other money, but not a ‘price’. This will take some getting used to as we evolve to pricing in weight of gold.
To achieve broad use, commodity coins must be made of, or contain, a material that has these ten characteristics:
- Rare, with a low amount in existence now, and limited new supply,
- Malleable; can be pressed/stamped into coins,
- Durable; Stable physically and chemically; doesn’t break, rust, or rot; can be stored; lasts through much handling,
- Easy to identify, and determine purity and weight,
- Difficult or impossible to counterfeit,
- Homogeneous; a piece is the same throughout,
- Divisible into pieces; diamonds and pearls aren’t,
- High value per ounce; not bulky to handle or store,
- Acceptable to most Sellers; familiar and saleable,
- Has market value when not used as money. Thus;
a. is equal in value to the items in a transaction, and
b. is a store and measure of value.
The ‘market’ (users of money; not governments or habit) has decided that gold fits these requirements best, but silver and copper can have a role in parallel, with no fixed ratios set as to value per gram (i.e., no bi-metallic standard). The coins must be valued and marked by weight of their precious metal content (such as ‘milligrams’), or the amount they can be redeemed for.
There is always ‘enough’ gold for money, because if a nation’s economy (GDP) grows faster than its gold supply, the increased demand will cause their gold for domestic transactions to APPRECIATE in purchasing power per ounce, which in turn cause deflation (lower prices). The same logic applies to the world economy. It is self-adjusting and needs no government meddling!
The conversion from Fed Notes to ‘Gold as money’ would entail dividing our money supply (M3, including Treasuries) into the ounces of gold we own (the Fed claims 8,134 tonnes, but is probably much less). Under the present system, this would value gold at about $55,000 per troy ounce. Upon conversion, each USD would be redeemable for a tiny amount of gold, as calculated above. This would eliminate any ‘run’ to get rid of one’s USD before conversion. Later, a new currency would be issued to replace the Fed Notes. See more detail in my book Monetary Revolution USA from Amazon.com, and posted free at part 2 in the left margin of my site www.Forward-USA.org.
2. Restore the Power taken from the States
As discussed in the Introduction above, our nation started with the States having considerable power, but they have been stripped of much of it over the years. In some cases (highways, welfare, medical, etc.) they give it up in exchange for money for Federal subsidies of state functions (maybe some votes too!).
a) An obvious first step is to revise amendment 16 of the Constitution to limit or end Federal income taxes. A low flat tax or sales tax could be the answer.
b) Restore amendment 17 of the Constitution, which will again allow the States to appoint the US Senators, thus representing State interests.
c) A more complex step is to give the States more direct power over the federal government. (even more than in the original constitution). I suggest we copy the Canton system in Switzerland. The Cantons can vote to void a federal law, or terminate a legislator. This keeps the central government legislators giving priority to the people rather than themselves!
Space does not allow discussion of Medicare, Medicaid, Social Security, Immigration, etc., but these need to be considered in any final plan.
I don’t underestimate the difficulty of, and opposition to, a transition to gold as money, and restoring power to the States. Some will say we should set less ambitious goals, but I say these lesser goals are just steps along the way and we must never stop striving for the ultimate goal of reducing harmful government spending and control.
Maybe if we hit bottom hard enough (2020, 2030?) in the current recession, people and the government will start to listen to us.
Dave Redick is a businessman, engineer, economist, and author of books and essays aimed at bringing more Liberty, Peace, and Prosperity to the USA and the world. See more of his work at www. Forward-USA.org, and his books at Amazon.com.