Analysis of the American Monetary Institute’s American Monetary ActThomas Allen
This paper analyzes of the American Monetary Institute’s (AMI) August 18, 2008, version of "The American Monetary Act" and AMI’s description and explanation of the Act. This Act and description can be found at http://www.monetary.org/amacolorpamphlet.pdf, which can be found at http://www.monetary.org/index.html.
I have italicized words of the Act and AMI’s explanation of the Act and my paraphrases and summaries of its words. My commentary is in roman letters. I have provided references to pages of the article containing the Act and sections of the Act and have enclosed them in parentheses at the end of the line or lines.
This Act is an unconstitutional piece of fascist legislation. Any statist would be enamored of it. It gives the U.S. government total control of the money and by that control of the economy and by that control of the people.
Like most fiat monetary reformers, AMI correctly describes the current fiat monetary system and identifies its flaws. However, like most fiat monetary reformers, AMI fails to identify the real cause of the problem. The real cause of the country’s monetary problem is fiat money. (The current banking system is a secondary problem and, as AMI notes, also needs reconstruction.)
To AMI and most other fiat monetary reformers, the problem is not fiat money itself. The problem is the entity creating and issuing the money. If the government were to create and issue the money directly instead of banks or other private entities, then monetary nirvana would be achieved.
AMI is of the school that money is a creation of government and not of the markets. Money is what the government declares it to be. Apparently, people never used money until some monarch thought of it. Money is not a market (economic) concept; it is a political concept.
AMI believes the ancient and medieval monetary philosophy that the king’s (government’s ) decree creates money and fixes its value. AMI like the peasants of old lives in superstitious awe of the government and believes that its effigy and stamp give money its value, and not the material of which it is made.
If the government’s decree really did give money its value, then debasement of coins would have worked. For example, the government reduces the weight of silver in a coin from 20 pennyweights to one pennyweight and stamps the one-pennyweight coin as having 20 pennyweights of silver. The markets, i.e., the people in their commercial activities, would soon discover that their new coins were short 19 pennyweights of silver. They would then require payment of 20 new one-pennyweight coins though they were stamped as 20-pennyweight coins to pay for items that used to sell for one 20-pennyweight coin. The government would have to use draconian laws to force the people to accept its under weight coins as having the same value as full weight coins. Even then the people would refuse whenever they could. Only with the payment of debt could the government force its underweight coins on the people at its nominal value. As its courts enforce contracts, its courts usually would allow debtors to force their creditors to accept a one-pennyweight coin stamp as having 20-pennyweights of silver in payment of a debt of 20-pennyweights of silver.
AMI acknowledges that "the power to create money is an awesome power" (p. 2). Because of this awesome power, the founding fathers did not give the U.S. government the power to create and issue money. They also denied the States such power. They dispersed the power among the people. Instead of entrusting the government with the power to create money, they entrusted this power to the people. (They did not entrust it to a banking monopoly either although the Hamiltonians corrupted the Constitution to create one.)
AMI remarks that the power to create money is like having "a ‘magic checkbook,’ where checks can’t bounce" (p. 2). As show below, AMI wants to give the U.S. government such a checkbook. However, under the monetary system envisioned by the Constitution, no person, no bank, and no government have such a "magic checkbook."
Under the constitutional system, the people acting in their individual capacities decide how many gold and silver coins are needed by the gold and silver that they have coined and by the quantity of coins that they melt for other uses. The people decide how much commercial money to create through their productivity and business activities. They, not the banks, decide how much commercial money (real bills of exchange) to convert to bank money (bank notes and checkbook money). With their consumption, they remove commercial money and bank money into which it has been converted from the economy. Thus, the supply of money automatically equals the demand for money. (See the appendix for a description of the commercial money.)
Under the monetary system set out in the Constitution, economics governs the creation and supply of money. Under fiat monetary systems, including the one that AMI promotes, politics governs the creation and supply of money.
AMI notes that when money is "controlled privately it can be used to gain riches, but more importantly it determines the direction of our society by deciding where the money goes – what gets funded and what does not" (p. 2). Does AMI really believe that politically powerful interest groups will not direct what gets funded under its system? They will follow the Israeli model. Israeli front groups lobby Congress to appropriate large sums of aid for Israel. Part of this aid is indirectly rebated to the Congressmen supporting it via campaign contributions and support, favorable reviews in the news media, and lucrative jobs for friends and relatives and even the Congressmen themselves. Likewise, private benefactors of infrastructure appropriations will use, as they currently do, similar tactics.
Furthermore, AMI implies that if money is privately controlled, it will go into warfare. Contrarily, it implies that if the government controls the money; it will not go into warfare (p. 2). Does anyone really believe that a war mongering administration will not create money to spend on its pet wars?
AMI cites Article 1, Section 8 of the Constitution and claims that it gives the U.S. government "power to issue money and spend it into circulation to promote the general welfare through the creation and repair of infrastructure, including human infrastructure – health and education . . ." (p. 2). It does not. Except for training and treating military and naval personnel, the Constitution gives the U.S. government no authority to appropriate money for health or education. The Constitution denies the U.S. government any authority to create or issue money.
Moreover, AMI reduces people to the level of buildings and roads. It considers them just so much infrastructure. When the power that it wants to give the U.S. government is considered, people become slaves of those who really control the government. In that sense, the people are infrastructure like roads and buildings.
AMI claims that money "is not tangible wealth in itself, but a power to obtain wealth. Money is an abstract social power based in law; and whatever government accepts in payment of taxes will be money" (p. 2). True, fiat money like the one that AMI promotes has no tangible value. However, real money, Scriptural money (see Genesis 23:16), has tangible value. Tangible value is what gives real money its value. Its value is the value of the material of which it is made. Fiat money is an abstract based on law. Its value relies on the weapons of the government that creates it. Once its government dies, its value vanishes. Real money’s value transcends governments. Its value is independent of any government. Would people prefer to hold money that dies with their government? Conversely, would they prefer to hold money that is independent of time and place and that survives the death of their government?
When money’s value comes primarily from its use to offset tax liabilities, the country has a primitive monetary system "in the sense of being stripped of much of its usefulness and value as a medium of exchange for all transactions within society." Legal tender laws are necessary to force its use in other transactions.
When money derives its value from taxation, it has been politicized. A politicized monetary system locks "the individual into a relationship with his government that smacks of economic serfdom."
AMI constantly identifies flaws and abuses of the current monetary system. It asserts that the cause of these problems is that banks have privately created and issued the money (p. 2).
The current monetary and Federal Reserve banking systems are unconstitutional. With this AMI would agree. However, AMI argues that it is unconstitutional because banks are creating private money instead of the U.S. government creating the money. That is not why they are unconstitutional. They are unconstitutional because Congress does not have the authority to delegate any entity monopolistic powers that the Constitution does not give Congress. Congress has no authority to establish banks, and the U.S. government has no authority to function as a bank. The Constitution gives the U.S. government no authority to create and issue money.
AMI promotes printing new money and spending it on infrastructure instead of paying for these projects with borrowing or taxation. It claims that such new money will not be inflationary (p. 2). It wants to create and spend money on education and healthcare. Also it claims that these expenditures will be noninfltionary (p. 3). Why will this new money not be inflationary? Hazlitt defines inflation as "an increase in the supply of money that outruns the increase in the supply of goods." Thus, inflation occurs when money is created in excess of new goods being offered in the markets for sale. Inflation and deflation are monetary phenomena. A rise or fall in general prices often results from inflation and deflation. Spending money on infrastructure has no relationship to new goods being offered for sale. It does not immediately increase the volume of new items ready to be sold. More money is available to buy the same number of items. This is inflation. As more money is chasing the same quantity of goods, a rise in general prices can be expected.
If creating money to pay for roads, bridges, dikes, education, healthcare, etc. is not inflationary, then creating money to build factories, apartments, shopping centers, machinery, etc. would not be inflationary. They are all investments in capital or personnel. Why would a private entity creating money to pay for things like these be inflationary as AMI implies whereas when the government does the same thing, it is not inflationary? What can the government create and spend money on that would be inflationary?
AMI asserts that its proposal is not inflationary (p. 13). By its definition of inflation, it is not and cannot be inflationary. AMI seems to declare that any money created and spent by the U.S. government, except for warfare, is by definition noninflationary. Anyone who claims that it is, is deluded. He is having a knee-jerk reaction caused by the propaganda and mythology (the reigning error) "that government issued money has been irresponsible, and inflationary" (p. 13).
AMI claims that under its proposal, "The reason that inflation is avoided is that real wealth is created with the money spent into circulation on infrastructure, and education and health care. It results in the provision of real goods and vital services and the existence of these serves to control inflation" (p. 13).
Thus, AMI believes that printing numbers and the sacred words "legal tender" on paper can create wealth. If AMI’s money does create real wealth, which it does not, no one can convert his money into that wealth. With the true gold and silver standard accompanied by the commercial money principle (real bills doctrine), a person can convert his paper money to the real wealth represented by that paper money. He can convert his bank notes into consumer goods or into gold or silver. With AMI’s money, no one can redeem it into a few square feet of road or a hospital and use these few square feet as he pleases.
AMI does state that expenditures on warfare are inflationary. Military expenditures are inflationary in part because money is not directed to create values for life (p. 13). The creation of money spent on the military may be about the only thing that AMI recognizes as inflationary when the government creates the money. Thus, money spent to defend live and property, a primary duty of government, is inflationary. Expenditures for the police, fire departments, emergency management, ambulances, and the like appear to be inflationary. Or does AMI arbitrarily declare that one form of defense is inflationary and another form is not? Why is spending money to protect people from natural bacteria through governmental funding of healthcare not inflationary whereas spending the same amount of money to protect people from weaponized bacteria through governmental funding of the military is inflationary? Either both should be inflationary or neither should be.
Further, AMI claims that military expenditures are inflationary because it destroys the values of life (p. 13). When roads, schools, hospitals, and the like are built, they often destroy the values of life. They destroy forests, farmland, homes, and people’s lives (emotionally and psychologically if not physically although that occasionally happens) among other values of life. Sometimes they destroy whole communities as with urban renewal. (Is AMI going to oppose condemnation of property to protect these values of life?) Although their destruction is usually on a much smaller scale than war, the destruction is just as real. AMI might argue that the value of a forest, farm, or home is destroyed to build a road, but that lost value is replaced by the greater value of the road. (As value is subjective and varies with each individual, such an assertion cannot be emphatically made.) Perhaps this true overall, but for the people forced from their ancestral home place, it is not. Likewise, warmongers could argue that their action may destroy the value of some old property and a few undesirable people, but they will be replaced with new, higher valued infrastructure. This replacement will generate enormous wealth—using AMI’s logic. All that the army has done is to remove the slums as in urban renewal. Why is one inflationary and the other is not?
Let’s apply AMI’s reasoning to projects of the Department of Defense (DOD). DOD projects do not seem to be infrastructure as they are involved with warfare, either present or future. Therefore, a road open to the public built on a military base is not infrastructure. Yet a road closed to the public built in a national park is considered infrastructure. Thus, using printing press money to build the military road is inflationary whereas using it to build the park road is not. At least this seems to be AMI’s claim. Presumably, all money spent on the DOD has to be tax money to prevent inflation, but AMI is not clear on this point.
Money is fungible. If part of the appropriated money is printing press money and part of it is tax money, as far as the economy is concerned, which type of money goes where is unimportant. From an inflationary perspective, where the money comes from (taxes or printing press) is the important thing, and not where it goes (defense or domestic infrastructure). The economy sees no difference between spending a billion dollars of tax money on tanks and a billion dollars of printing press money on dams and spending a billion dollars of printing press money on tanks and a billion dollars of tax money on dams. In both situations the same amount of money from the same sources is spent on the same things.
AMI is correct that expenditures for warfare can be inflationary. If printing press money pays for it, it is inflationary. If taxation pays for it, it is not inflationary.
AMI seems to have a unique definition of inflation. Its definition appears to be that any amount of money created by the government is noninflationary. The exception is money spent on defense (warfare); that money is inflationary. That is, the government can create and spend all the money that it wants to, and none of that money will be inflationary if it is spent on infrastructure. AMI’s definition of infrastructure is broad enough to cover everything except defense. However, any amount of money created by private bankers, counterfeiters, and other private parties, including the people, is highly inflationary even if spent on infrastructure because the people, and not the government, created the money.
AMI claims that governments do a better job of "issuing and controlling money than the private issuers" (p. 2). I presume that by private issuers AMI means privately owned banks, especially privately owned central banks and not the people in general. However, considering AMI’s animosity toward and mistrust of the people, I may be making an incorrect presumption. It may intend to include the people in general. If so, it is opposing the Constitution. As noted above, under the Constitution, the people acting in their individual capacities create money and spend it into circulation. As for private banks causing inflation, they cause it in collaboration with the government. With the consent and often at the command of the government, they create money to buy government securities. To protect its banker benefactors who have issued too much money, the government suspends redemption. (In the United States, the U.S. government has suspended redemption domestically since 1933 and internationally since 1971.) Thus, the government allows banks to violate their contract to redeem their paper money. Without government collaboration, inflation of privately issued money is shallow and short-lived.
As for central banks, they are creatures of the government creating them. They live at the pleasure of their creator government. (AMI is aware of this because it abolishes the Federal Reserve, the central bank, by incorporating it into the U.S. Treasury [p. 2].) Whenever the central bank ceases to do what its creator government wants it to do, it ceases to exist.
AMI’s monetary reform has three parts and all three must be enacted for its system to work (p 3). They are:
First, incorporate the Federal Reserve System into the U.S. Treasury where all new money could be created by government as money, not interest-bearing debt, and spent into circulation to promote the general welfare (p. 2).
Second, halt the bank’s privilege to create money by ending the fractional reserve system in a gentle and elegant way. All the past monetized private credit would be converted into U.S. government money. Banks would then act as intermediaries accepting savings deposits and loaning them out to borrowers (p. 2).
Third, spend new money into circulation on infrastructure, including the crucial "human infrastructure" of education and healthcare needed for a growing society. . . . This would create good jobs across our nation, re-invigorating local economies and re-funding government at all levels (p. 3).
Let’s look at this three proposals. Incorporating the Federal Reserve System into the U.S. Treasury does not really solve anything. The British government nationalized the Bank of England in 1946. Thus, the Bank of England was incorporated into the British government. Not much changed after that except a governmental bureau controlled the creation and issuance of money instead of a privately owned central bank. The problem is not the organizational structure or ownership of the entity in charge of the creation and issuing the money. The problem is the centralization of monetary creation and issuance and the money itself.
AMI is correct in that the money that it proposes will not be interest-bearing debt. It conceals that its money will be noninterest bearing debt forced on all the people—rich and poor alike. It is borrowing from the people just as surely as it would have if it had sold them bonds and took the money. When the government issues paper money or its electronic equivalent, it takes capital from all classes without regards to their ability to forgo the use of their capital.
Ending fractional reserve banking, i.e., lending demand deposits or using demand deposits as reserves for loans, is desirable and needed.
As noted above, the U.S. government has no constitutional authority to spend money on "crucial ‘human infrastructure’ of education and healthcare." AMI’s proposal is little more than the Keynesian notion that a country can spend itself into prosperity.
One of greatest tax revolts that the world has ever witnessed occurred because Congress was taxing one region, the South, to pay for infrastructure in another region, the North. When Lincoln was elected President on a platform of transferring more wealth from the South to the North by significantly increasing tariffs, the Southern States seceded. They saw their choices as seceding or sending evermore wealth to the North in the form of paying higher prices on northern goods or paying higher tariffs, which were used to build northern infrastructure. At least AMI solves the problem of taxing one part of the country for the benefit of another. It taxes the whole country with its forced loans of United State money and its accompanying inflation for the benefit of the politically powerful.
AMI does use a per capita basis for grants to States (p. 11 [§503]) and to a lesser extent for interest-free loans to States and local governments to minimize "playing politics over expenditures" (p. 11). Such per capita formulation may reduce politics or at least the appearance of politics. However, the per capita consideration does not apply to Congress’ direct funding of infrastructure projects. No such restriction can be forced on Congress statutorily; when it enacts a law that conflicted with the statute, the new law overrides the earlier statute. Congress’ direct funding is where the corruption will be the fiercest and most vicious. The Act has no check against this corruption and cannot have any check. Congress can and will play favorites and benefit one region or group at the expense of another. (Those who receive United States money first receive it at full value. Those who receive it later receive it at its reduced inflationary value.)
AMI claims that if the U.S. government creates and issues money for levees that money will be spent to build levees (p. 4). Granted, such money will be spent to build levees. However, AMI goes on to imply that money would not be lent for speculation (p. 4). As AMI allows private banks to lend savings (p. 2), people could borrow money for speculations. Only if the government dictates to banks the things for which they can lend can speculative loans be avoided. Such micromanagement of banking is fascism.
Like the Hamiltonians and other statists who have controlled the U.S. government for at least a century, AMI gives the clause "to promote the general welfare" an extremely broad interpretation (p. 4). In the name of promoting the general welfare, the U.S. government can do just about anything that it wants to do. This interpretation makes the specific delegation in Article 1, Section 8, and the Tenth Amendment irrelevant. Why did the writers of the Constitution bother with specifically delegating anything to Congress if the general welfare provision gave it such broad powers?
The general welfare provision should be understood as a limiting provision instead of an empowering provision. Whenever Congress appropriated money, it was to be spent for the benefit of the country as a whole instead of for the benefit of one section of the country. The appropriation was to be for the benefit of all the people in the country instead of a select group of people. For example, appropriating money to establish and operate a mint to coin gold and silver benefits the country and the people as a whole. Appropriating money to build levees along the Mississippi benefits people who live and work along the Mississippi, but it does not benefit the people in Alaska. Thus, the proper use of the general welfare clause prohibits appropriating money for these levees. (Furthermore, appropriating money to build levees is unconstitutional anyway. The Constitution does not delegate Congress the power to build levees.)
AMI’s Monetary Act begins with a false premise. Section 2, Paragraph 1, reads, "The Federal Reserve Act of 1913 effectively ceded the sovereign power to create Money delegated to Congress by the Constitution to the private financial industry" (p. 4). The Constitution delegates Congress the power to "coin" money. It does not delegate Congress the power the power to "create" money. As noted above, the people "created" money when they brought their gold or silver to the mint to have it "coined."
Section 2, Paragraph 4, reads, "The power of Government to create Money and spend or loan it into circulation as needed is similar but different in nature from the power to create and market instruments of indebtedness; it eliminates the need to pay interest charges on the nation’s money supply, to financial institutions and removes their undue influence over public policy" (p. 4). How does the government know how much money is needed? Just as the Federal Reserve has no way of knowing how much the economy needs, the U.S. government likewise has no way of knowing.
AMI promotes its system as away to eliminate interest payments from the U.S. government’s budget (pp. 4, 7). It does do that. Contrary to what AMI may assert, it does so by substituting noninterest-bearing debt, AMI’s United States money, for interest-bearing debt.
Elimination of paying interest on debt from the U.S. government’s budget can be effectively achieved under the current system. All Congress has to do is to require the Federal Reserve to buy all U.S. government securities. As the current law requires the Federal Reserve to rebate to the U.S. Treasury all interest that it earns above its operating costs, these securities become interest-free loans. If Congress believes that the Federal Reserve is keeping too much money, it can cap the amount that the Federal Reserve retains to cover its operational costs.
AMI claims that its reforms will greatly reduce the influence of private lenders over public policy decisions (p. 7). It probably will. However, it will increase the influence of the construction, educational, healthcare, and many other industries that will be competing for free money. As Congress can give all these groups all the money that they want under AMI’s proposal without borrowing or raising taxes, Congress will seldom say "no." (Congress probably will not make what it is doing blatantly obvious by appropriating money directly to the favored firm. It will conceal it as contracts, subsidies, and the like.)
AMI calls its money United States money. Its "nominal unit" is "the U.S. dollar" (p. 6 [§101]). AMI comments, "It does not prescribe a value for the dollar in terms of commodities, or labor or any other thing. The value of the currency unit is already known in the market in terms of its relation to assets and goods and services and existing obligations" (p. 6). So, the value of a dollar is what a dollar will buy. Whatever AMI’s dollar is, it is not the dollar of the Constitution. The dollar of the Constitution is the weight of silver in the Spanish milled dollar.
AMI admits that, unlike Scriptural and constitutional money, its money has no substance. Its money is an undefined and undefinable abstraction. It does not differ from the current federal reserve note.
According to the Bible, money has three components: quantity, measurement, and substance. Genesis 23:16 illustrates this idea. Abraham bought a burial plot. He paid 400 (quantity) shekels (measurement of weight) of silver (substance). In pre-1933 money, if a person bought something with a $20 gold coin, he paid with money that had quantity (20), measurement (dollar, a unit of weight equal to 23.22 grains), and substance (gold). If he paid with a $20 gold certificate, his currency promised to deliver money containing these three components on demand.
AMI’s money like the current federal reserve note lacks two of these three components. For example its $20 of United States money has quantity (20). The dollar appears to be its measurement. However, it is not. AMI claims that money is that abstraction. Therefore, its dollar is an abstraction. It measures nothing. A unit of measurement has to be something concrete and definable like the foot, ounce, minute, or horsepower so that things can be compared to it. It has to be something that instruments can determine.
With pre-1933 gold money, $20 in gold weighed twice as much as $10 in gold. Even if the disks had no inscription on it, a disk containing 464.4 grains of gold had twice the purchasing power of a disk containing 232.2 grains of gold. It was twice as large and weighed twice as much.
AMI’s money cannot be measured. If the inscriptions are removed from AMI’s money, its $20 would look like its $10. They would both have the same value: nothing.
According to AMI, "This value [of its money] is not fixed but adjusts to continuous changes in supplies and desirability of goods and services and is also influenced by the existing supply of money" (p. 6). This is true. Like the federal reserve dollar, the value (purchasing power) of AMI’s money will trend downward. Most likely its value will decline even more rapidly as creating and spending money will be easier for the U.S. government under AMI’s system than under the present system. When given the choice between raising taxes and printing money, most politicians will choose to print money because it is much less painful—they receive much less opposition.
AMI’s proposal seems to lack any effective way to remove any excess money. The only way that excess money can be removed under its system is for the U.S. government to have a budgetary surplus. It would have to collect more taxes than it spends. As AMI’s system is designed for deficit spending, having a surplus is highly unlikely.
Of coarse, AMI may argue that if money is being created to pay for infrastructure, no excess money can be created. However, its definition of infrastructure is so broad that it could be construed to cover nearly everything. Contrary to AMI’s assertion, its monetary system is highly inflationary, i.e., it creates large quantities of excess money.
Like all fiat money, AMI’s money is forced on the people with legal tender laws (p. 6 [§102]). By resorting to legal tender laws, AMI is admitting that its money is overvalued and inferior and as such cannot stand competition—especially from real money. Money that satisfies the needs of the people best needs no protection from competing types of money. As AMI wants to give its money a legal monopoly, it is admitting that its money fails to satisfy the needs of the people best.
AMI has to force its money on the people because it would have no value otherwise. If its money had real value, people would accept it without legal tender laws. AMI knows, perhaps subconsciously, that its money is overvalued and, therefore, people must be forced to accept it. Like the current monetary system, its monetary system can only function through coercion and cannot survive open completion with real money. Legal tender laws are unnecessary for true and honest money. Superior money will circulate without legal tender laws.
Sennholz summaries the evils of legal tender laws as follows:
To declare paper money legal tender may be one of the greatest evils government may inflict upon its subjects. It confers terrible financial power on government—far greater, indeed, than the power to tax. It affects economic production and distribution, influences the formation of prices, and makes all private property easily accessible to government. Legal tender laws permit government to take income and wealth without the people's consent. usually even without their knowledge. In the end, it is bound to destroy the private-property economy.
Supreme Court Justice Stephen Field warned against the evil of making paper money legal tender. He wrote:
The arguments in favor of the constitutionality of legal tender paper currency tend directly to break down the barriers which separate a government of limited powers from a government resting in the unrestrained will of Congress. Those limitations must be preserved, or our government will inevitably drift from the system established by our Fathers into a vast, centralized, and consolidated government.
History has shown that Field was correct. Irredeemable legal tender paper money has led to "a vast, centralized, and consolidated government." AMI not only aims to maintain the "vast, centralized, and consolidated government," but it wants to expand it.
About legal tender laws, Parks asks, "If the money is good, and would be preferred by the people, then why are legal tender laws necessary? If the money is not good, then why in a democracy should people be forced to accept it?"
Section 103 authorizes the Secretary of the Treasury to finance budgetary deficits by creating and spending money (p. 6). Thus, printing press money or its electronic equivalent will finance deficits. No real restraints are placed on exploding the expenditures of the U.S. government and funding them with printing press money.
Section 105 sets forth provisions that will presumably control the money supply. The Secretary of the Treasury "shall pursue the policy that the supply of money in circulation should not become inflationary nor deflationary in and of itself" (p. 6 [§105, ¶1]). A Monetary Authority, a board of nine people, establishes targets (p. 7, [§105, ¶2]) for the Secretary to use (p. 7, [§105, ¶3]). If the targets are not met, the Secretary reports this discrepancy to Congress (p. 7 [§105, ¶4]).
What are these monetary targets? Are they solely the quantity of new money created and spent without observation of effects? This does not seem to be AMI’s intent. Are these targets related to price levels, wage rates, or interest rates? AMI emphatically states more than once that money created by the government and spent on infrastructure is not inflationary and presumably cannot be deflationary. So, why have targets anyway?
Do these nine elite "experts," whose knowledge on monetary needs must exceed that of the entire country, have the authority to decide what these targets should be? It seems so. Once they decide what the targets should be, how are they going to decide what the appropriate level or range should be? Are they going to use aeromancy, anthropomancy, astrology, cartomancy, hydromancy, oneiromancy, or pyromancy? Whatever they use, it is not going to be scientific unless someone develops a scientific methodology to foretell the future. To be sure, they will certainly dress it in scientific and economic garb.
Regardless what these targets are, the whole exercise of setting them is superfluous and meaningless. (Is their purpose to deceive the people into believing that the U.S. government is properly tending to and regulating the money?) If the money supply or whatever exceeds the targets or causes the targets to be exceeded, the targets can be ignored. Congress does not require itself to raise taxes or cut spending to bring the money supply or its effect in line with the targets. Congress does not direct the President or the Secretary of the Treasury to cut spending or raise taxes to bring its money supply or its effect back to the targets. (Possibly, taxes would have to be cut or spending increased to meet the targets. However, unless the Monetary Authority sets highly inflationary targets, the money creation under AMI’s system is going to be excessive instead of deficient.) Congress can simply ignore the targets and keep pleasing its constituents by appropriating them more money without corresponding tax increases—if the inflation tax is ignored.
Section 301 sets out the procedures for converting federal reserve notes into AMI’s new United States money. AMI comments, "We won’t call them notes because that indicates debt, and they are not debt (p. 8). Yes they are debt! AMI’s new United States money may be noninterest bearing debt, but it is still debt. It may be nonpayable debt, but it is still debt. Paper money is representation of something beyond itself. Therefore, it is a promise or obligation—hence, debt. AMI is merely trying to deceive the people by substituting "money" for "note."
Section 302 sets forth provisions to eliminate fractional reserve banking (p. 8). Elimination of fractional reserve banking is one of the few good proposals offered by AMI. No longer would banks be able to create money "out of thin air." (AMI does not object to creating money "out of thin air." Its objection is who gets to create it. Its proposal allows the U.S. government to create money "out of thin air." Under the gold and silver standard, no money is ever created "out of thin air.")
AMI proposes to allow banks to borrow money at interest from the U.S. government (p. 8 [§302, ¶4]). This provision is among the many unconstitutional provisions of this Act. No where does the Constitution authorize the U.S. government to lend money to banks.
Section 303 limits interest rates (p. 9). Presumably, if inflation drives the market rate above the 8-percent maximum rate inclusive of fees, legal lending ceases. (Of coarse, AMI argues that the creation of its money, which has no relationship to the markets’ demand for money, would not and cannot be inflationary. Therefore, inflation need not be considered.) When legal lending ceases, the U.S. government has yet another excuse to extend its power and control over the people. (AMI seems to believe that if the dictator is elected, the power that he possesses is irrelevant.)
Title V of the Act sets out the requirement to create money to fund infrastructure (pp. 9-12), which AMI defines broadly to cover nearly everything not related to warfare.
Section 502 provides for interest-free loans to States and local governmental entities for infrastructure improvements (p. 11). No where does the Constitution authorize such loans.
Section 503 requires giving the States grants for them to use "in broadly designated areas of public infrastructure, education, health care and rehabilitation, and paying for unfunded Federal mandates" (p. 11). Again, no where does the Constitution authorizes such grants.
Many problems, especially those related to the centralization and consolidation of political power, have grown out of the U.S. government giving States grants. These grants have stripped States of their independence and make them subservient to the U.S. government bureaucrats. State legislators and governors no longer serve the will of their people. They serve the will of the U.S. government. In their lust for "free" money, the States have enslaved themselves. The creators have become the vassals of their creation. AMI wants to continue their bondage.
Under Section 504, AMI set out its farming parity program (p. 11). It proposes to continue the enslavement of farmers. In the name of protecting the family farm, parity programs have nearly made the family farmer extinct. AMI gives no valid reason that its program will succeed where all others have failed—at least failed in their ostensible objective. They have been highly successful at concentrating agriculture under the control of a few giant agribusinesses.
Under Section 505, AMI sets forth a funding requirements for education. Congress is to fund a program for "our educational system that will at least put the United States on par with other highly developed nations, and create a learning environment so that every child has an opportunity to reach their [sic] full educational potential" (p. 12). This has been the professed objective of nearly every educational program that Congress has funded. As government, especially the U.S. government, spends more money on education, the country moves farther away from this objective. Its real objective has been to dumb down Americans to make them obedient slaves of the people who really control the U.S. government. Its objective is to dumb them down so that they will believe this idiotic proposal of AMI—that they will believe that a people and a country can really make themselves rich by having the government print words on paper, call it money, spend it, and force the recipient to accept it at the point of a gun (legal tender laws).
AMI wants evermore federal control over education. It wants to expand pre-kindergarten programs (p. 12). It wants to capture and indoctrinate children as young as possible. Enthralling children earlier to the government makes them easier for their rulers to control.
At least AMI is right about one thing. "We shouldn’t rely on local property taxes to solve a problem that has for so long been a national short-coming" (p. 12). AMI wants to substitute printing press money for local property taxes to fund education. No tax money should be used to fund education.
History has shown that the more money that the U.S. government has spent on education, the less educated the people have become. If AMI really wanted to improve education, it would forbid Congress to appropriate or lend any money for education. Moreover, it should demand complete privatization of education.
Section 506 is a provision to give each citizen a tax-free grant. This would be a one time payment (p. 12). This is nothing more than using printing press money to bribe the people into accepting AMI’s imbecilic plan. It wants to create money to pay the people to accept their own enslavement. Sadly, most probably would accept the bribe.
AMI’s purpose for giving these grants is to prevent deflation until Congress get its money machine going to fund infrastructure (p. 12).
AMI seems to be arguing that if Congress fails to create and spend enough money on infrastructures or dump enough money into the economy, deflation will occur. Deflation is possible. On the other hand, Congress cannot create and spend enough money to cause inflation by definition. If AMI is correct and if deflation occurs, the U.S. government could never overcome the deflation by creating and spending enough new money on infrastructure. The country would have to go to war because only military action is inflationary. Alternatively, the government would have to force private banks and counterfeiters to create money and spend it. Money created and issued by private banks and counterfeiters cause inflation. At least this is the conclusion that one derives from AMI’s presentation.
Section 507 sets out the requirement for universal healthcare (p. 12). This is more proof that AMI aims to establish fascism. If the objective of socialized medicine is to provide everyone, especially people who are really sick, with high quality, inexpensive medical care quickly, it has been a complete failure. Most do not even provided two of these three (quality, inexpensiveness, and quickness). Most are usually slow and expensive with variable quality.
The problem with healthcare in the United States comes not from a lack of governmental funding or oversight. It comes from too much governmental interference and a lack of competition. The government has sided with allopathic medicine and expends resources to suppress all its competition.
AMI asserts that its universal healthcare will not be inflationary (p. 12). How paying for universal healthcare with printing press money is not inflationary, it fails to explain satisfactorily. The best explanation that is has is its unsupported claim that all the money created by the government for healthcare and other infrastructure is not and cannot be inflationary by definition.
AMI offers two examples of successfully governmentally issued money of to support its position. These two examples are the Continental and greenback (p. 13).
AMI claims that the Continental’s loss of value came from British counterfeiting and not from the Continental Congress over issuance. Later AMI notes that money that is created and spent on warfare is inflationary (p. 13). Most Continentals were issued to pay for warfare. Which caused the inflation? Was it spending printing press money on warfare? Or, was it British counterfeiting?
AMI cites the greenback as a successfully governmentally created and issued paper money. True, it was much more successful than most fiat currencies. However, its success is contributed to features lacking in AMI’s money. First, the government limited the quantity of greenbacks and slowly reduced their quantity. AMI’s money expands indefinitely and without limits. Second, and most important, the people expected them to be redeemed at par (one greenback dollar for one gold dollar), and they were in 1879. Third, from 1879 to 1933, the government backed the outstanding greenbacks with gold. It held between about a third and a half of the outstanding value of greenbacks in gold. Because the people using the greenback knew that they could redeem them in gold anytime on demand, they did not rush to do so. AMI’s money is irredeemable.
When Roosevelt ended the gold standard in 1933 and greenbacks could no longer be redeemed in gold, their value declined. It declined as much as the value of federal reserve notes declined. If AMI’s theory were correct, greenbacks should have retained their value. A greenback dollar should have become worth more than the federal reserve dollar. Yet it did not. It maintained parity with the federal reserve dollar. This is strong evidence that AMI’s theory is wrong.
AMI’s system rests upon the integrity, honesty, and wisdom of a group of men not known to have these qualities. It relies on the incorruptibility of perhaps the easiest group of people in the world to corrupt. It entrusts vast amounts of power to Congressmen, Presidents, and cabinet officers. As a group, these politicians are notorious for their lack of probity. Most of them arrive at these high offices because the power brokers find them easy to control.
Fiat money reformers are rightly concerned about concentrating the power to control the supply of money and credit in the small group of people who run the central bank (Federal Reserve). They can see that the people who run the central bank will be tempted and will give into the temptation to use their power for selfish ends to the detriment of the country. Yet they seem not to recognize that political leaders and government bureaucrats suffer from the same temptations. History shows that political leaders are morally and ethically among the weakest of mortals. More often than not, their lust for power and fame injures the country. The problem of corruption exists even if some independent agency of "experts" is empowered to issue the currency. Whenever power becomes concentrated, the temptations of selfishness, self-interest, and corruption are usually too great to resist.
AMI places an enormous amount of trust in politicians, a group not known for its trustworthiness. It distrusts the people with the control of the monetary system. If it trusted the people, it would follow the example of the founding fathers and let the people create their money directly.
The founding fathers wisely did not trust giving political leaders, including themselves, the vast amount of power that AMI wants to give them. They left the creation of money directly in the hands of the people. With their control of the money, the people could better protect themselves from the government and the demagogues and despots, who always seek to control it.
Most of the founding fathers and supporters of the true gold and silver standard advocate using money based on the principles that God revealed. They advocate using the material, gold and silver, that He provided for money.
AMI like other adherents of fiat money advocates money based on the principles proclaimed by pagans, such as Aristotle. It advocates using manmade money. It wants money created and imposed by force instead of choice. It wants money that is independent of the people and is totally dependent on the whim of a ruling elite.
Walter E. Spahr remarks:
It should not be surprising that apparently all who would socialize our economy are opposed to the restoration of a redeemable currency in the United States. Either because they understand the relationship between an irredeemable currency and the processes of socialization or because they simply note that Socialist, Communist, and Fascist governments employ irredeemable currencies as a means of controlling and managing the people, advocates of government dictatorship seem invariably to defend irredeemable currencies with the utmost vigor. The evidence seems overwhelming that a defender of irredeemable currency is, wittingly or unwittingly, an advocate of socialism or of government dictatorship in some form.
So long as a government has the power over a people that is provided by an irredeemable currency, all efforts to stop a government disposed to lead a people into socialism tend to be, and probably will be futile. The people of the United States have observed all sorts of efforts, organized and individual, to bring pressure upon Congress to end its spending orgy and processes of socialization. It should be amply clear by this time that none of these efforts has succeeded. Moreover, there is no reason for supposing that any of them, except the restoration of redeemability, can succeed in arresting our march into socialism.
Spahr describes the result of AMI’s proposal. Whether AMI’s real goal is socialism, it does not state in this article. Whatever its professed objective is, it gives the U.S. government absolute power over the people. Its proposal is pure statism.
In summary, AMI’s proposed monetary system has many flaws. A few follow.
1. It is unconstitutional. The Constitution does not authorize the U.S. government to issue any kind of paper money—at least its writers were convinced that it did not.
2. The dollar is left undefined. It is a vague abstraction. It has no substance or measure. Value can only be measured against tangible things that have value in and of themselves. An abstract value does not exist economically. (Although AMI would deny it, AMI’s dollar derives its value from the federal reserve dollar. The federal reserve dollar derives its value from its connection to gold in 1933 and 1971.) As far as AMI is concerned, the "dollar" is dependent on the whims of Congress and is whatever Congress arbitrarily proclaims it to be.
3. Contrary to its assertions, AMI’s monetary system will be highly inflationary.
4. AMI’s system relies heavily on men of good will who place the interest and welfare of the country above their own. It depends solely on the probity of politicians. It depends on the type of person who is seldom elected to Congress and the type of person who has not been elected President for more than a century.
5. Not only does AMI’s system depend on politicians of integrity, it also depends on competent politicians. Rare is a government that is wise, competent, and honest.
6. It will breed corruption. The whole system is designed of feed corruption.
7. AMI’s money is inelastic. It does not change to meet the economic demand for money. Political needs instead of economic needs determine the quantity of money. The quantity of its money cannot vary to meet the ever-changing demand of the people or business for money. AMI’s system is designed so that the quantity of money always grows even when the economic demand for money declines. Furthermore, AMI’s system like all fiat monetary systems has no way of really knowing the economic demand for money. The money mangers can only guess at that demand. Besides, real economic demand for money is always subordinated to the political and fiscal needs of the government under all fiat monetary systems including AMI’s.
8. Like other fiat money adherents, AMI mistakenly believes that the government is competent to manage the money supply. Never has history shown a well-managed fiat currency. Inconvertible paper monetary systems have always failed. Even the best ones fail in less than three generations. Many fail in less than a decade. There is no reason to believe that AMI’s system would last more than a decade.
9. Central planning has proven itself to be a failure. Yet AMI wants more central planning.
10. AMI seems to believe that if the government prints enough money, which is a liability of the government, it becomes an asset. It does believe that the government can create real wealth by creating and spending money for its broadly defined infrastructure.
Other articles posted at AMI’s website may answer some of the questions and resolves some of the issues raised in this paper. The purpose of this paper is not to evaluate all AMI’s material. It is limited to analyzing its August 18, 2008, version of "The American Monetary Act."
[Editor’s note: The original contains an appendix that described the real bills doctrine. To reduce the length of this article, the appendix has been omitted. A detailed description of the real bills doctrine is found in the author’s book Reconstruction of America’s and Banking System: A Return to Constitutional Money.]
1. Thomas Coley Allen, Reconstruction of America’s Monetary System and Banking System: A Return to Constitutional Money (Franklinton: TC Allen Co., 2009), pp. 72-81.
2. Edwin Vieira, Jr., "The Constitutional Imperative in Reform of the Monetary and Banking System of the United States,"1993, http://www.fame.org/HTM/ Vieira_Edwin_ The_ Constituion_ Imperative_in_the_ Reform_of_the_ Monetary_ EV-003.HTM, May 19, 2008.
4. Allen, pp. 72-81.
5. Henry Hazlitt, The ABC of Inflation (Lansing: Constitutional Alliance, Inc., 1964), p. 6.
6. This definition or one similar to it is used by most economists. Rothbard and his followers define inflation as any amount of money issued beyond the monetary metal. As AMI’s monetary system has no monetary metal, every piece of money issued would be inflationary.
7. Also see §2, ¶6 (p. 4) and §401 (pp. 9-10).
8. "Bank of England," Funk & Wagnalls New Encyclopedia (1983), IV, 257. William Bridgwater and Seymour Kurtz, ed., The Columbia Encyclopedia, 3rd ed. (New York, 1963), p. 162.
9. Joseph French Johnson, Money and Currency in Relation to Industry, Prices, and the Rate of Interest, revised ed. (Boston: Ginn and Company, 1905), p. 325.
10. Charles Adams, For Good and Evil: The Impact of Taxes on the Course of Civilization (New York: Madison Books, 1993), pp. 323-337.
11. The phrase "to promote the general welfare" is not in the Constitution. The Constitution reads, "The Congress shall have Power to lay and collect Taxes . . . to pay for the Debts and provide for the common Defense and general Welfare of the United States. . . ."
12. Frederick A. Bradford, Money and Banking, 4th ed. (New York: Longmans, Green and Co., 1938), p. 342. Lloyd B. Thomas, Money, Banking, and Economic Activity, 2nd ed. (Englewood: Prentice-Hall, Inc., 1982), p. 150.
13. Allen, pp. 17, 72, 84, 247-248.
14. Allen, pp. 30-35.
15. Hans F. Sennholz, Money and Freedom (Spring Mills: Libertarian Press, 1985), p. 26.
16. Johnny Silver Bear, "The Nature of Money and our Monetary System," Aug. 20, 2004, wysiwyg.//156/http://www.financialsense.com/editorials/ 2004/0820.html, Aug. 25, 2004.
17. Larry Parks, "Interchange between Professor Robert Mandell and Larry Parks re: the Legal Tender Issue," http://www.fame.org/HTM/ Mandell%20and%20Parks.htm, May 19, 2008.
18. At the terminal stage of hyperinflation, paper money reaches its intrinsic commodity value of its Btu content, and in that sense it may cease to be debt.
19. Garet Garrett, The People’s Pottage (Caldwell: The Caxton Printers, Ltd., 1953), p. 46.
20. Allen, pp. 74-75. George Bancroft, A Plea of the Constitution of the United States, Reprint (Boring: CPA Book Services, Inc.), pp. 40-43.
Copyright © 2009 by Thomas Coley Allen.
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