Saturday, July 18, 2009

Analysis of Charles Norburn’s Monetary Reforms

Analysis of Charles Norburn’s Monetary Reforms as Presented in Honest Money
 Thomas Allen

This paper is my analysis of Charles S. Norburn’s monetary reforms as presented in his book Honest Money: The United States Note (New Puritan Library, 1983). His words and my paraphrases or summaries of his words, I have italicized. My commentary is in roman letters. I have provided references to pages in his book and have enclosed them in parentheses.

Norburn advocates following Lincoln’s example and having the U.S. government print U.S. notes without the restrictions placed on Lincoln’s notes. He claims that his monetary system eliminates high interest, overwhelming debt, and high taxes (p. xi).

He proposes (1) to abolish the Federal Reserve and replace it with a system run by honest men who place the interest of the country above personal gain, (2) to cease issuance of interest-bearing U.S. government securities, (3) to have the U.S. government to print its own money to pay its expenses and to lend it at interest, (4) to replace all existing money with new money, U.S. notes, and (5) to cancel interest as it is paid in (pp. 123-124). U.S. notes are to replace federal reserve notes and be the only paper money in circulation (p. 127).

Norburn’s proposal is a typical fiat monetary reform. He differs from others in some details, but not in fundamental principles. Like all other fiat monetary reformers, he believes that politicians, bureaucrats, and "experts" can manage the country’s money better than the people as a whole. Thus, he trusts politicians, bureaucrats, and "experts," but distrusts the people. As do most fiat money reformers, he highly distrusts, if not despises, bankers and wants to abolish the Federal Reserve. Like other fiat money reformers, he wants to transfer the powers of central banking vested in the Federal Reserve to the U.S. government. Unlike many fiat money reformers, he does not offer any real criteria or guidelines for the money managers to use to control the money supply to prevent inflation or deflation. He seems to allow Congress to create and spend money on whatever it desires. As are all fiat monetary systems, his proposal is unconstitutional.

Norburn expresses his belief that before an item can function as money, governmental compulsion is necessary. He does admit that gold and silver were used as money centuries before any government minted the first gold and silver coins (p. 4). Gold and silver have been used as money until recent times even without a government’s seal on it. Before World War I in parts of Asia, purchases were made by cutting silver from a bullion bar of silver.[1]

When the value of the money equals the value of the material of which it is made, such as silver coins under the true silver standard or cigarettes in prisons, governmental coercion is not needed. When a government mints coins, it makes the circulation of coins easier as it certifies the metal content of the coin—assuming that the government is honest. Force is only needed to get people to accept overvalued (underweight) coins. Thus, force is needed to get people to accept irredeemable paper as paper money has no substances or value in and of itself.

Norburn gives a lengthy discussion of Lincoln’s U.S. notes as this is the primary model of his proposal (19-27). When Lincoln could not borrow money at a low enough interest to finance his unconstitutional war to destroy the U.S. Constitution, he resorted unconstitutional money in the form of noninterest bearing, irredeemable forced loans[2] called U.S. notes or greenbacks.

When the government issues notes for use as money, e.g., U.S. notes, it is forcing a loan on the people. It is borrowing from the people just as surely as it would have if it had sold them bonds and took their money. This forced loan of government notes falls on the poor and rich alike. When the government borrows by selling bonds, it takes money only from those who can afford the investment. It takes the capital that can best be spared from the country’s wealth. With notes it takes capital from all classes and disturbs, at least temporarily, the normal conditions of every business.[3]

According to Norburn, U.S. notes were printed as notes: "Because these notes were obligations of United States government—promises to eventually pay for the goods and services the government would buy on credit. On each note was printed the exact amount of dollars government owed its bearer" (p. 20). Gold or government bonds did not back them. They were merely a promise to pay (p. 20). To pay what? If the government were to pay them in dollars, it would have paid the bearer upon redemption, 371.25 grains of pure silver[4] for each U.S. note dollar presented. Lincoln had no intentions of doing this.

Norburn asserts that "they we authorized by the Constitution and were backed by wealth, strength and integrity of the nation" (p. 20). Whatever these U.S. notes were, the U.S. Constitution definitely did not authorized them—at least not in the minds of the writers of the Constitution. The writers of the Constitution actually discussed granting Congress the power to print and issue paper money and voted against giving it that power. Thus, the writers of the Constitution never delegated Congress any authority to print or issue paper money of any kind[5]

If the "wealth, strength and integrity of the nation" backed these U.S. notes, that backing was a meaningless, nebulous intangible. If something really backs money, the issuer can redeem it on demand for whatever it represents. Thus, a silver certificate is redeemable on demand in the amount of silver specified on the certificate. A bank note under the gold standard is redeemable on demand in the amount of gold specified on the bank note. How could one redeem a U.S. note on demand in the "wealth, strength and integrity of the nation"? He could not. He could pay excise taxes, but not tariffs (tariffs could be paid with Norburn’s U.S. notes), with it. He could force his creditors to accept it in payment of debt. The debt paying attribute was a windfall for bankers who got to pay depositors who had deposited gold dollars with heavily depreciated U.S. note dollars. This "wealth, strength and integrity of the nation" seems to be no more than the ability to pay taxes and to cheat lenders and creditors, including bank depositors.

Norburn remarks, "The notes were enthusiastically accepted at face value" (p. 20). If they "were enthusiastically accepted," why did Congress have to declare them to be legal tender so that debtors could force their creditors to accept them as payment of debt?

U.S. notes traded at face value, but they did so because the North replaced the gold-dollar standard with the U.S. note-dollar standard. Items were priced and wages paid in the U.S. note-dollar standard instead of in the gold-dollar standard. If someone bought an item with gold, the sales price was discounted.

The opposite was true on the West Coast. Unlike the North, men of integrity and honor inhabited the West Coast. They did not tolerate a debtor cheating his creditor with cheap money. The West Coast remained on the gold-dollar standard. If some bought an item with U.S. notes, he paid a premium above the list price.

U.S. note dollars did depreciate against the gold dollar. The table below, which is from Johnson, shows the price of gold in U.S. notes and the price of U.S. notes in gold. (Johnson uses “greenbacks”; I have changed greenbacks to “U.S. notes.”) The price of gold is the average for each year.

Norburn claims that one virtue of "the government’s issue of its own notes was that all this took place without a middle man" (p. 21). Except the insignificant cost of printing, no costs were involved. These notes were interest-free loans. "No extra taxes had to be collected to pay a profit [interest] to the bankers" (p. 21). At least here he does admit that U.S. notes were interest-free loans although he seems to deny it elsewhere.

If the government were to live within its means, it would never have to collect extra taxes "to pay profit to the bankers." It would never have to borrow. If Lincoln had the testosterone to levy sufficient taxes to fight his war, he could have fought his war to destroy the Constitution without debt and without resorting to unconstitutional forced loans in the form of U.S. notes. He issued U.S. notes because the people in the North would have rebelled against him if they saw how much the war cost. Like most "great" leaders, Lincoln concealed the cost of war by resorting to the inflation tax. The people ended up paying for the war as they fought it; only they did not realize it because much of the cost was concealed from them.

Norburn objects to the prohibition against using U.S. notes to pay tariffs and interest on U.S. government securities (pp. 21-22). If, as Norburn claims, U.S. notes were really accepted at full face value, no difference would exist between the face value of a $10 U.S. note and a $10 gold coin. Thus, these prohibitions should have not mattered. However, they did because a $10 U.S. note always traded at a discount against a $10 gold coin until 1879 when it became redeemable in gold at par.

Norburn blames the bankers for the depreciation of U.S. notes (p. 127). If he were a true fiat money adherent, he would claim that his beloved U.S. note did not depreciate. They never changed value. Gold appreciated; it changed value. (Being true fiat money adherents, Friedman and Schwartz assert in A Monetary History of the United States that gold traded at a premium to U.S. notes.[6])

Norburn contends that among the 7000 different kinds of bank notes in the country then, only U.S. notes carried an inscription that they could not be used to pay import duties or interest on U.S. government bonds. He implies that these restrictions contributed to, if not out right caused, their lost in value (p. 127). Norburn is being disingenuous. He is deceiving with a half truth. True, these 7000 bank notes did not declare that they could not be used to pay import duties or interest on U.S. government bonds. However, he does not mention that unlike U.S. notes, they were not legal tender. No one had to accept them as payment for anything including import duties and interest. With the two aforementioned exceptions, U.S. notes were legal tender for all debts. Thus, a debtor could force a creditor to accept them as payment. A debtor could not do that with bank notes.

Norburn is also being disingenuous by implying that U.S. notes were unsecured, i.e., not backed by gold (p. 127). Again, he deceives with a half truth. Gold did not back U.S. notes between 1862 and 1879. In 1879 U.S. notes became redeemable in gold on demand. In preparing for this redemption, the U.S. government accumulated enough gold to redeem (back) about a third of the outstanding U.S. notes. In 1932, gold backed about half the outstanding U.S. notes. U.S. notes remained at par with gold between 1879 and 1933 not because of anything inherent in U.S. notes or that the U.S. government issued them. They remained at par for the same reason that national bank notes issued by national banks remained at par between 1879 and 1933 and federal reserve notes remained at par between 1914 and 1933. All remained at par with gold because all were redeemable in gold on demand.

If U.S. notes possessed any inherent property that gave them value in and of themselves as gold and silver coins do, they would have traded at a premium to federal reserve dollars after 1933. They never did. They always traded at par. If being issued by government and being accepted as payment for taxes gives money certain inherent properties that give it value, why were not U.S. notes more valuable than federal reserve notes? After all, the evil bankers and Federal Reserve issued federal reserve notes. After 1933 the quantity of federal reserve notes (and their electronic equivalent) steadily grew. The quantity of U.S. notes remained the same or declined. As the excessive growth of federal reserve notes lead to their decline in value, why did U.S. notes also decline in value? Could it be that U.S. notes have no inherent property that gives them value in and of themselves? Could it be that the problem is fiat money and not who issues it or how it is issued?

Norburn seems to find nothing immoral or unethical about paying a loan made in high-valued money (gold) with low-valued money (U.S. notes). If the debtor pays the nominal amount (one U.S. note dollar for each gold dollar due), no harm has occurred. The debtor has not cheated the creditor. Apparently, those who had made loans in gold believed that they were being cheated or else they would not have demanded that interest payments on U.S. bonds be in gold and later that the bonds themselves be paid in gold. (After the value of the U.S. note dollar came close to the gold dollar, the banks agreed to accept U.S. notes as payment for their U.S. government bonds.)

However, Norburn does believe that it was immoral and unethical for bankers to accumulate U.S. notes when they traded at a steep discount to gold and use them to buy U.S. government bonds and then accept payment for these bonds in U.S. notes that had greatly appreciated, i.e., traded at a slight discount to gold or in gold dollars (pp.24-25).

Strangely and somewhat hypocritically, but not surprisingly, Norburn can see the injustice in buying bonds with inferior U.S. notes and being paid with superior gold. Yet he seems not to see the even greater injustice of buying bonds with superior gold and being paid with inferior U.S. notes.

His complaint about buying bonds with U.S. notes whose exchange rate with gold is low (say $1 U.S. note equals 35 cents in gold [p. 25]) and receiving U.S. notes when the exchange rate is high (say $1 U.S. notes equals 95 cents in gold) is uncalled for and shows his ignorance or his subconscious denial of fiat money. Making such comparisons with gold shows that he truly sees gold as the monetary standard and not U.S. notes. A true adherent of fiat money would see the value of U.S. notes remaining constant and the value of gold fluctuating. By making such a complaint, Norburn, like gold standard adherents, sees the value of gold remaining constant and the value of U.S. notes fluctuating. He shows his doubts that the money that he is promoting is really honest money. A true adherent of fiat U.S. notes sees no injustice in buying a $1000 bond with U.S. notes and receiving a $1000 in U.S. notes in payment when the bond matures. If Norburn sees any injustice in this, he does not really believe in what he is advocating.

If fiat money like U.S. notes is the standard money, then its exchange rate with gold is no more relevant than its exchange rate with salt, iron, or corn. Like salt, iron, and corn, gold is just another commodity bought and sold with the fiat currency.

When he writes that U.S. notes fell to 35 cents, he is saying that the gold dollar remained constant in value and the value of the U.S. note dollar fell. A true fiat money adherent would have written that gold rose in value. He would have claimed that the value of U.S. notes remained constant. If Norburn were a true fiat money man, he would have said that gold sold for $59 per ounce instead of saying the U.S. notes sold for 35 cents. Instead of the value of U.S. notes changing, the value of gold changed.

Norburn presents the national banking system as a great coup for bankers because it gave banks the power to issue money (p. 23). Although it did give national banks the power to issue money, that power was nothing new—even as Norburn notes (p. 19). State banks had been printing and issuing bank notes since the adoption of the U.S. constitution. They continued to print and issue bank notes until Congress levied a tax on them sufficient to end them.

When all the restrictions that the National Banking Act placed on national banks are considered, this law was hardly a victory for bankers. It prevented national banks from accepting savings deposits and prohibited domestic and foreign branch banking. It limited the quantity of bank notes that banks could issue and established reserve requirements. National banks could only conduct general commercial banking business. Restrictions were placed on their lending activity. The law prevented national banks from financing exporters and importers as it prevented them from accepting drafts drawn by them.[7]

To establish a mechanism for Lincoln and the U.S. government to force banks to buy U.S. government securities was the primary purpose of the National Banking Act. The law required bankers to back their bank notes with U.S. government securities. They had to buy U.S. bonds if they wanted to issue bank notes.[8]

Contrary to what Norburn believes, the National Banking Act did give the U.S. government control of the country’s money supply albeit indirect control. It could control the money supply by controlling the quantity of its outstanding debt. It could increase the money supply (bank notes) by expanding its debt and contract it by contracting its debt. (With the various silver coinage acts that Congress enacted between 1878 and 1900, the U.S. government also acquired additional control over the money supply.)

Norburn describes the Federal Reserve (pp. 37ff, 51ff, 111ff). He supports the objectives of the Federal Reserve. These objectives were to provide an elastic currency, to rediscount commercial papers, and to supervise banking in the United States (p. 37). The country’s banking reserves were also centralized and concentrated in the Federal Reserve. Norburn contends that if the Federal Reserve "was to be the nation's central bank, operated for the benefit of all its people, the Treasury should have provided money to start operation" (p. 37). However, the Federal Reserve Act required the Federal Reserve to "be financed by sales of Federal Reserve stock to commercial banks" (p. 37).

Norburn does not object to centralized banking. His system requires it. His objection is to ownership and control. He objects to the apparent private ownership and the control that bankers have over it (pp. 38-39).

Norburn points out that the Federal Reserve’s monetary management, or perhaps more correctly mismanagement, caused the recession of 1921 (p. 41) and the Great Depression (p. 42). It expanded credit to finance the boom of the 1920s and then contracted it (pp. 41-42). A similar pattern of credit expansion and contraction is seen in other economic contractions. Norburn seems to be suggesting that once the monetary authority (either the government or its central bank) begins to expand credit, it should never stop expanding—at least not until the money is inflated to zero. To do so leads to a recession or a depression.

Norburn is absolutely right about one thing. He remarks, "In going off the gold standard, there was no honest reason to take the peoples’ (sic) gold" (p. 42). Along with stealing the people’s gold, he discusses several other monetary reforms that Congress made. One was legalizing the open market operation. With the open market operation, Congress gave the Federal Reserve control of the U.S. government bond market (pp. 43-44). The Federal Reserve can expand and contract the money supply by buying and selling U.S. government bonds. The Federal Reserve had been illegally buying U.S. government bonds since its beginning. As it was doing the U.S. government a favor, the government ignored the violations. The Federal Reserve’s declared purpose of discounting eligible bank paper, which eventually fell into disuse (p. 49), was replaced by dealing in government bonds (pp. 44, 49).

Norburn laments the death of the U.S. note (pp. 46-48). The U.S. government ceased printing $5 and $10 notes in 1968 and $100 notes in 1971 (pp. 47-48). Norburn believes that "The very perfection of the note was its undoing. Its threat to the bankers was short lived" (p. 47). It threatened the bankers, so they had to terminate it (p. 47).

As the bankers control the U.S. government as is evident by the establishment of the Federal Reserve and expansion of its powers, they controlled the issuance of U.S. notes. They also controlled the President, as Norburn notes, and the Secretary of the Treasury. (Most Secretaries of the Treasury have been bankers or connected with banking [pp. 81-83].) U.S. notes died for the same reason that national bank notes died. They died because they were redundant. Nothing important differentiated them from federal reserve notes.

About reserves held by banks after 1933, Norburn remarks that they have "neither substance nor intrinsic value" (p. 56). These reserves are "nothing more than magnetized particles (bits and bites), on computer discs" (p. 56). Norburn seems not to realize that in the monetary system that he proposes as a replacement for the current system, bank reserves will have "neither substance nor intrinsic value." In the current system, reserves are computer data based on interest-bearing governmental debt. Under his system, reserves are computer data based on noninterest bearing government debt. (The way Norburn sets up the banking system, banks may not need reserves.) Norburn does acknowledge that like the current system, most of the money in his system will be electronic money, i.e., "magnetized particles . . . on computer discs."

Norburn comments on the extravagant expenditures of the Federal Reserve (pp. 61-62) and concludes, "In reality, the Federal Reserve System is a private banker's bank, controlled by international financiers, totally independent of our government, and in its many aspects and connections, largely run for private profit (p. 62)."

The way that the system is set up, the Federal Reserve is encouraged to spend extravagantly on itself. Whatever it fails to spend goes to the U.S. Treasury. If Congress finds that the Federal Reserve is spending too much, it can always amend the Federal Reserve Act to cap its expenditures.

As for the independence of the Federal Reserve, if it fails to please the people who really control the U.S. government, it will cease to exist or be modified to make it more subservient. The Federal Reserve exists at the pleasure of the U.S. government. Congress can abolish it anytime for any reason as Norburn admits when he has Congress abolishing the Federal Reserve. The people who control the U.S. government are the same people who control the Federal Reserve. The independence of the Federal Reserve is a myth.

Norburn discusses the confusion about the ownership of the Federal Reserve and comments on the private ownership of the Federal Reserve (pp. 64-67), which he finds abominable. Economists disagree about whether the Federal Reserve is privately owned and controlled or publically owned and controlled. Economists representing the U.S. government or the Federal Reserve usually argue that it is publically owned and controlled. Most other economists who express an opinion claim that it is privately owned and controlled. A few economists contend that the ownership is irrelevant because the Federal Reserve does mostly what the U.S. government wants it to do. Others disagree about the Federal Reserve doing the bidding of the U.S. government; they aver that the U.S. government does the bidding of the Federal Reserve.[9]

As the Bank of England shows, the ownership structure of the central bank matters little. The British government nationalized the Bank of England in 1946[10 ] and made it part of the government. Not much changed.

As Norburn states, the Ninth Circuit Court ruled that the 12 regional Federal Reserve banks are privately owned (p. 64). He also notes that Marriner Eccles, Chairman of the Federal Reserve Board of Governors, and later William Martin, also chairman of the board, claim that member banks do not own the Federal Reserve (p. 65). The ownership of the Federal Reserve is confusing.[11] Is this confusion deliberate?

Norburn discusses the Federal Reserve as it stood in 1983 and the economic crisis of the early 1980s (pp. 111-115). He argues, "The Federal Reserve has ultimate control of all the wealth of this nation, and those bankers who control the system use it as their own personal tool to enrich themselves at the expense of the nation" (p. 111). He is correct about the first loyalty of the Federal Reserve is to the bankers and not to the country.

Like most fiat money reformers, Norburn condemns interest (pp. 76-77), yet his system calls for interest (p. 138, 148). As Howard Katz has explained in his blogs and articles ( and research/katzndx.html), without interest the industrial revolution would not and could not have occurred. Interest encouraged people to save and to turn their savings over to middle men, bankers, who paid them interest (the evil compound interest at that) on their savings. Banks could pool many small savings into the large sums that entrepreneurs needed to build their factories, railroads, power plants, and the like.

Like many foes of interest, especially compound interest, Norburn uses an example of a penny lent at compound interest when Jesus was born would earn an incomprehensibly astronomical amount of money (pp. 76-77). Of coarse, they never show a real case where this happened because they cannot. I am not aware of anyone showing an incident of a person receiving compound interest on a loan for a century. Too many things can happen before the person or his descendants own the universe with the interest earned. The borrower may pay off the loan or go bankrupt. The lender may call in the loan to spend it. If he does not, his heirs most likely will. Also, the lender must avoid all sorts of disasters, especially wars, and thefts, especially theft by government.

Norburn’s problem with interest, including compound interest, is not with interest itself. It is who receives the interest. He has a low opinion of the bankers receiving interest. Nevertheless, he advocates the U.S. government receiving interest (pp. 138, 148). He does, however, oppose the U.S. government paying interest (p. 138). Thus, he advocates forced interest-free loans in the form of U.S. notes and their electronic equivalent.

Norburn gives an incorrect description of the gold standard. He writes, "Its high price came about because its connection with money" (p.91). Apparently, Norburn was among those who believed that when Nixon stopped redeeming dollars in gold, the price of gold would collapse. To the contrary, it soared when freed from the chains of the dollar. Norburn knew this because he wrote his book in 1983. True, using gold as money adds value to it. However, gold had a high value per unit of weight before it was used as money. This high unit value contributed to the market choosing gold for money.

Norburn cites several examples of what he considers abuses of gold money and the gold standard. One was financiers demanding redemption in gold of large quantities of paper money issued by the U.S. government (p. 92). Apparently, people should not expect the U.S. government to keep its promises. It had promised to redeem its U.S. notes in gold and its Treasury notes of 1890 in gold or silver at its desecration. It chose to redeem the Treasury notes in gold to maintain the dollar’s standing in world commerce as most of the world was on the gold standard. Both U.S. notes and Treasury notes of 1890 were fiat money. Congress and the Secretary of the Treasury decided how much to issue instead of the markets. Furthermore, neither were fully backed by gold although the Treasury notes of 1890 were supposed to be fully backed by silver. Without these fiat moneys, the financiers could not have executed the schemes of which Norburn accuses them.

Norburn states that these financiers redeemed the notes for gold. Then when the Treasury needed to replenish its gold, they sold it the gold back at a profit (p. 92). For each $100 in Treasury notes, which were mostly what was redeemed, that they redeemed, they received five double eagles ($20 gold coins) or 2322 grains of gold (the law defined the dollar as 23.22 grains of gold). When they "sold" this gold back to the Treasury, they received $100 in U.S. notes or $100 in gold certificates for each 2322 grains of gold "sold." That is the "price" that the Treasury by law "paid" for gold. Where was the profit?

Norburn notes that when the U.S. government discontinued using silver coins, it allowed the people to keep their silver coins and allowed silver certificates to continue to circulate although they were no longer redeemable in silver. He states that should have been way to go off gold. The people should have been allowed to keep their gold coins (pp. 92-93). People with advance knowledge of Roosevelt’s theft of the people’s gold profited handsomely. They redeemed their U.S. notes and federal reserve notes at the rate $20.67 per ounce of gold. Later they sold this gold for $35 per ounce. They could not tolerate ordinary people sharing in this profit. Perhaps this was the main reason for Roosevelt’s theft. Here was their profit. It was not returning to the gold standard as Norburn surmised (p. 92).

Norburn discusses returning to the gold standard (pp. 117-121). Like many people who consider returning to the gold standard, Norburn thinks of returning with the dollar equal the approximate current dollar value of gold, which was about $500 per ounce at his writing. He comments on the absurdity of minting $5 (0.01 ounces), $10, and $20 gold coins and concludes that paper money would be used in place of gold coins (p. 118). There is no reason to fix the "price" of gold at some absurdly high level of federal reserve dollars. No reason exists even to fix the "price" of gold in the federal reserve dollar. A return to sound money does not require this fixed conversion. To return to sound money requires opening the mint to free coinage[12] of gold and silver, stripping the federal reserve dollar of its legal tender status, and letting the markets decide the exchange rates. Furthermore, the U.S. government should cease printing federal reserve notes except to replace worn out notes or if necessary to pay its obligations contracted in federal reserve notes. It should immediately cease contracting in federal reserve notes and start contracting in gold and silver and pay its employees in silver. All contracts and obligations made for federal reserve notes would be paid in federal reserve notes. After a certain date, banks would cease lending federal reserve dollars.[13]

Norburn notes that the gold standard does not limit the money issued (pp. 118-119). This is true to a certain extent. The gold standard does regulate the quantity of credit money (paper money and electronic money) issued if the issuer of the credit money has to redeem it in gold on demand.

He remarks that the gold standard did not prevent the inflation of the 1920s (p. 119). Again, this is true. However, governments had made the gold standard dysfunctional when they abandoned the real bills doctrine. Abandoning the real bills doctrine made producers the servants of the bankers instead of the consumers. Like most other governments and central banks, the U.S. government and Federal Reserve insisted on following monetary policies that were incompatible with the gold standard. When they had to choose between the gold standard and their manipulative monetary policies, they chose their manipulative monetary policies.[14]

Furthermore, the United States did not have a pure gold standard. It had a gold standard accompanied by fiat money, U.S. notes. Federal reserve notes also accompanied it. Although they were not fiat money at this time as they were not legal tender, to some extent they acted like fiat money. Because the central bank issued them, they circulate for a much longer time before redemption than a common bank note issued by a local bank would have. Thus, they could be over issued with little threat of redemption. Originally, federal reserve notes were to be issued to rediscount real bills of exchanges. That principle was abandoned at the beginning of World War I when the U.S. government wanted to finance its war effort with credit money, which the Federal Reserve provided.

Norburn erroneously believes that bankers want a return to the gold standard. He is convinced that people who want to return to the gold standard are under the spell of bankers’ propaganda (p. 120). Bankers prefer fiat money to gold. Fiat money gives them more power. Gold restricts their power. Bankers may promote a fiat monetary system that incorporates gold, but they will never promote the true gold standard. Under the true gold standard, the markets determine the quantity of money instead of bankers and governments. The true gold standard frees the people and businesses from the control of bankers.

Norburn claims that bankers perverted and destroyed the gold standard (p. 120). Bankers may have perverted the gold standard, but they did not destroy it. They had no power to destroy it. Only the President and Congress could destroy the gold standard. Only they could outlaw it. Outlaw it Congress and the President did in 1933.

Furthermore, government is as guilty, if not more so, as the bankers at perverting the gold standard. If governments had sent bankers to prison for failure to redeem their notes instead of protecting them by allowing them to suspend redemption, the corrupting influence that bankers had over money and the economy would have ceased long ago.

Norburn asked how would the country return to the gold standard? Would the government buy gold from the bankers (p. 120)? Here Norburn shows his ignorance of the gold standard. (Or does he really understand the gold standard, and is he trying to deceive people into supporting his scheme?) The government would buy gold from no one. It would merely open the mint to free coinage of gold and strip the federal reserve notes of its legal tender status. Furthermore, the government would not own any of the coins that it minted except those it received in payment of taxes and fines. If bankers wanted to convert their gold to coins, they, like everyone else owning gold bullion, would bring it to the mint for coinage. The gold after coinage would be worth no more than it was before coinage. It could, however, be easier to use as money.

Norburn seems to reject the notion of free coinage (p. 120), which is essential to the gold standard. It does not exist without free coinage. He objects allowing bankers "to coin their own tremendous hoard" (p. 120). He also seems to reject monetizing gold (p. 120). Under the gold standard gold is money. One cannot have a gold standard without gold being money.

He claims that gold cannot be free market money because a small group of men in London sets its price daily (p. 120). A small group of men in London may set the price at which they will buy and sell. However, they cannot force anyone in the United States to buy or sell at that price. If they set the price much above the market value, people will rush to sell them their gold. If they set it much below the market value, people will rush to buy their gold. The markets set the price of gold, and not a small group in London.

Norburn writes, "The amount of money issued depends upon the character of the men in charged of the system, not on hard money backing" (pp. 118-119). A fiat monetary system will work better when managed by men of integrity, but it will still fail because even men of integrity are not omniscient. A true gold standard was designed for sinful men; it does not depend on men of integrity to decide how much money to issue. The quantity of money is independent of the decisions of any one group of men.

Furthermore, this statement shows Norburn’s ignorance of the gold standard. Gold may back fiat money as it did U.S. notes between 1879 and 1933. However, under the gold standard, gold never backs the money. Gold is the money! The money is gold! It does not back itself; it is itself.

Norburn claims that the Rothschild-Rockefeller axis controls most of the world’s gold. Therefore, gold should not be used as money because the Rothschilds and Rockefellers would use their vast gold hoard to oppress the people (pp. xiii-xiv, 120-121).

The Rothschilds and Rockefellers and their associates may own large hoards of gold, but such ownership is unknown and uncertain. If they do own large hoards of gold, what will they do with it? They really have only three options. They can spend it, lend it, or hold it. If they dump (spend) large quantities in the markets quickly, they may create economic turmoil. However, any turmoil created would be short-lived if the government does not intervene to soften the crisis. Moreover, they lose control of all the gold that they dump. If they chose the lending route, they can lend no more than the markets want to borrow. As they try to lend more, interest rates fall. An economic contraction may follow as these loans are paid—especially if bankruptcy cancels them. However, such contraction is unlikely as they are lending real money, gold, instead of credit money, paper. If they used their gold to support the issuance of bank credit money (checkbook money or bank notes), they could create economic dislocation if the created money is used for things other than real bills. Nevertheless, such credit expansion is short-lived as people will soon begin redeeming the credit money for gold. The bankruptcy of some banks may result with loses to depositors. Nevertheless, the crisis will be short-lived if the government does not intervene to soften the crisis or worse intervene to suspend redemption. The bankers would lose much of their gold from the crisis. If they just hold the gold, they would not affect the monetary system. The value of gold as money would adjust to the supply available for money.

The manipulation that Norburn describes (pp. 25, 26) could not have occurred under a pure gold standard. With what could they have bought the gold? Under a pure gold standard, they could only buy gold with gold or paper money redeemable in gold on demand. Since 1862 when the U.S. notes were first issued, the United States has had fiat money accompanying gold money—until 1933 when the gold standard was abandoned. Even after 1879 when U.S. notes became redeemable in gold, they remained fiat money. Congress, not the markets, decided how many to issue, and gold never fully backed them. From 1873 when Congress abolished the silver standard until 1900 when Congress made the silver dollar a subsidiary coin of gold, silver dollars were fiat money. Congress and the Secretary of the Treasury decided the quantity issued, and the metal content was worth less than a dollar. (Between 1878 and 1900, silver dollars were legal tender in their own right and were not directly redeemable in gold.) The same is true of silver certificates and Treasury notes of 1890; they were fiat money. Without these fiat moneys, Gould, Fisk, Morgan, Rothschild, and others could not have manipulated gold. With these fiat moneys, they could "buy" gold and "sell" gold. Norburn describes what these manipulators did, but he blames the gold standard instead of the fiat moneys, as the U.S. government issued them.

A cabal could possibly manipulate gold under the gold standard with bank notes. However, manipulation with bank notes is much more difficult than with U.S. notes and is short-lived. Unlike U.S. notes, bank notes are not legal tender. No one is required to accept them. They are redeemable in gold on demand. Unlike legal tender U.S. notes, which were redeemed infrequently, bank notes are typically redeemed frequently. If bank notes were used to manipulate gold, people soon find themselves holding too many bank notes. They will redeem the excess bank notes for gold and end the manipulative expansion. The result could be a classic bank run.

When banks follow sound banking practices, gold manipulation is virtually impossible under the gold standard. Only gold and commercial money (real bills of exchange) are converted to bank notes. Only when banks issue bank notes to buy bills of acceptance, financial bills, treasury bills, and the like do bank notes become available to manipulate gold. Thus, unsound banking practices can lead to gold manipulation. However, manipulation will be short-lived as the note holders rush to convert the excess notes in gold.

On the other hand, the primary purpose of having fiat money like U.S. notes is to have a money that is easily manipulated. Furthermore, fiat money, including U.S. notes, can be manipulated cheaply and stealthy. Anyone who fears the manipulation of money should support the gold standard and oppose fiat money.

Most of the money issued under Norburn’s system would be electronic money (computer entries) as is most of today’s money (pp. 127-128).

Norburn’s proposes to strip bankers of their power, ability, and privileges of creating money and give it to the U.S. government (p. 128). Somehow this action gives the people the power, privilege, and ability to create money (p. 128). Norburn, like most fiat money reformers, confuses the government with the people. Although the proclaimed underlying principle of the government of the United States is that it is of, by, and for the people, it never has been and probably never will be. The founding fathers knew this. For that reason when they wrote the Constitution, they placed the power, privilege, and ability to create money directly in the hands of the people. They did this by adopting the true classical gold and silver standards.

Norburn quotes Article 1, Section 8, Paragraph 5 of the Constitution, which states, "Congress shall have power . . . to coin money, regulate the value thereof, and of foreign coin. . . ." He declares that only Congress can exercise the powers listed Article 1, Section 8 (pp. 133-134). If true, why did the writers of the Constitution bother with including some, but not all, of the powers delegated in Article 1, Section 8 in Article 1, Section 10, which lists powers denied the States? Norburn asserts that Congress has no implied power to delegate any of its powers (p. 134).

He cites the Supreme Court ruling in 1870 that Congress has the power to issue legal tender notes to circulate as money (p. 134). This ruling violated contracts by declaring that U.S. notes could be used to discharge debts contracted in gold or silver coins or contracted before the legal tender laws. This ruling overturned an earlier Supreme Court ruling on U.S. notes that declared that Congress could not make U.S. notes legal tender for debts contracted before the enactment of the legal tender laws.[15] This 1870 ruling was also contrary to the intent of the writers of the Constitution.

Norburn, agreeing with Supreme Court rulings,[16] declares that Congress has absolute dictatorial powers over the country’s money and may do whatever it pleases except delegate that power (134-135). He supports Congress’ possession of these dictatorial powers; his system demands such power. Not only must Congress have absolute power over the country’s money, it must also have absolute power over all financial institutions that handle money (p. 135). He asserts that all benefits of his system must go to the people (p. 135). In reality, that means that the people who really control the U.S. government get to spend this free money on their wars, vote buying welfare programs, pet projects, cronies, and self aggrandizement. Of coarse, they do it in the name of the people; thus, the benefits go to the people. Like all fiat money reforms, his reform breeds corruption.

Norburn advocates repealing the Federal Reserve Act and associated laws and by that abolishing the Federal Reserve. The U.S. government would take over all assets of the Federal Reserve. A new agency of the U.S. government called the "United States Treasury Bank" becomes the sole creator of money. Under the current system, banks create bank credit by entry in ledgers or computers and lend the credit at interest to the government or the people. Under Norburn’s proposal, the U.S. government creates credit by entry in its ledgers or computers. It prints its own notes and uses these notes and credit for its purchases. The U.S. government accepts these notes as payment for taxes (pp. 136-137).

If the government can create all the money that it needs, why would it need to tax? When the typical politician has a choice between taxing and printing money as Norburn gives them, they choose printing money. Rasing taxes can galvanize hostile opposition. Printing money seldom does. Norburn gives politicians the ability to print all the money that they need to buy votes, benefit lobbyists, and please their constituents. The temptation to open the printing presses, or worse the computers as electrons move faster, full throttle is too much for the typical politician to resist.

Norburn does recognize that politicians, bureaucrats, and citizens may see his system as an unlimited source of money for their aggrandizement (p. 147). However, he does not offer any solution to prevent this other than fill Congress with men of integrity. If that were a viable solution, he would not have written his book offering a solution to the country’s monetary and economic problems. The country would not be having monetary and economic problems. Congress would have strengthened instead of abandoning the gold standard.

Norburn’s United States Treasury Bank creates credit and money for agencies of the U.S. government interest free. Loans to States and local governments for Congress-approved needs are at low interest, and they can only borrow from the United States Treasury Bank (pp. 138-139). So much for the Tenth Amendment. Norburn wants to give the U.S. government absolute control of the States and local governments. As States and local governments do most of their construction and capital improvements with borrowed money, Norburn gives the U.S. government absolute veto over construction by the States and local governments.

Norburn’s United States Treasury Bank can lend money to banks at interest for relending. This money is the only money that banks can lend (p. 139). He does not allow banks to lend their capital or their customers’ deposits (p. 139, 170). If they cannot lend deposits, which includes savings accounts, why should they offer savings accounts? Thus, Norburn’s system seems to end traditional savings accounts.

Furthermore, other than the integrity of politicians, what prevents Congress and the President from giving their friends, lackeys, toadies, apologists, and cronies low interest loans? Norburn’s proposed bill, which he includes as an appendix (pp. 159-175), forbids the U.S. government from making such loans (p. 171). Such a statutory prohibition is meaningless against a Congress that wants to reward certain people with low-interest loans. It can merely change the law. The founding fathers strongly advised against trusting men, especially governmental officials.

The United States Treasury Bank assumes the responsibility of the Federal Reserve of providing banks with currency (p. 141). Federal reserve notes are removed from circulation and replaced with new U.S. notes (pp. 141-142).

Norburn states, ". . . the governors of the United States Treasury Department of Money have the information to control money; the power to supply money when and where needed; to withhold money when there is too much in circulation, and to calculate the tax required to keep the system in balance" (p. 142). Unfortunately, no matter how intelligent, honorable, and honest they are and no matter how much information and power they have, this group will be unable to do the task that Norburn gives them. To do this task, they have to be omniscient. They have to know the subjective evaluation of all the participants and potential participants in the markets of all items, goods and services, being offered or may be offered in the markets. They would have to know this not only for the United States, but for the entire world. Worse these subjective evaluations are continuously changing. (When a person is hungry, he places a much higher value on a meal than he does when he is full.) Otherwise, they will never know how much money is needed, when it is needed, and where it is needed.

Norburn should have known better than to believe or advocate such a scheme. A few years before he wrote his book, a United States agency decided how much gasoline was needed, when it was needed, and where it was needed instead of letting the markets decide. This system was a disaster as this group of deciders never knew how much was needed and when and where. Some places had an abundance of gasoline. Most places had shortages and long lines of cars waiting to get fuel. Money is more complex than gasoline distribution. Why should we expect some group of governmental bureaucrats to manage money any better than they managed gasoline?

The great advantage of the true gold standard, especially when it is accompanied by the real bills doctrine (commercial money principle) is that it quickly adjusts the money supply to match the real demand for money. It quickly delivers the right amount of money where it is needed and when it is needed. Whenever it fails to do so, it is because of governmental intervention. The gold standard automatically accounts for and adjusts to meet the ever changing subjective evaluations of market participants.

Norburn writes, "Under the proposed plan, the interest you might pay would be paid on your own money, used for your own benefit, and obliterated" (p. 146). This claim is pure fiction. The interest that a borrower pays does not end up in his pocket. If it did, why pay it. If the interest is used for the benefit of the borrower, it is used for his benefit as politicians and bureaucrats declare what his interests are. Rarely would their declaration correspond with what the borrower considers his benefits to be.

Norburn does make one proposal that is long overdue. He recommends eliminating most regulatory agencies of the U.S. government because most of them are unconstitutional. Such regulatory activity, if any, rightfully belongs to the States (p. 148).

He believes that the U.S. government can be adequately operated with interest earned from its loans, tariffs and taxes, and royalties from leasing mineral rights to the lands that it owns (pp. 148-149). When the vast amount of money that Norburn’s system offers is considered, believing that the U.S. government would restrict itself only to activities that this revenue could fund is difficult.

Norburn identifies some benefits that his proposal would deliver (pp. 151-155). Among these are, "A stable dollar. Never again either inflation or deflation. No more recessions or depressions" (p. 151). If his system accomplishes this, it will do something that no fiat monetary system has ever done.

Another benefit is that "interest, once paid, . . . would be canceled and the money paying them return to nothingness" (p. 152). If interest received by the government is "canceled and the money paying them return to nothingness," how can interest be considered as a source of revenue for the government as Norburn claims? One benefit that he identifies for his system is that interest paid to the government will lower taxes and the benefit will be extended to the interest payer (pp. 151-152). The statement implies that the government is going to spend the interest that it receives on something. Whatever it spends the interest on presumably will benefit the tax payers.

Norburn should have titled his book "Dishonest Money" instead of "Honest Money" for that is what he proposes to give America. Although he advocates a significant reduction in the size of the United States government, he gives those who really control the government absolute control over the American people. He gives them this control by giving them absolute control of the money, which gives them absolute control of the economy. The only good aspect of his proposal is the abolition of the Federal Reserve and most regulatory agencies of the U.S. government. Norburn promotes tyranny instead of freedom.


1. Carl Menger, Principles of Economics, trans. James Dingwall and Bert F. Hoselitz (New York: New York University Press, 1976), p. 281.

2. U.S. notes do not really deserve to be called loans, forced or otherwise. They were worse than forced loans. A loan implies payment sometime in the future. The U.S. government had no intension of ever paying off its U.S. notes. Only a small part was ever paid, i.e., only the notes redeemed in gold and extinguished were ever really paid.

3. Thomas Coley Allen, Reconstruction of America’s Monetary and Banking System: A Return to Constitutional Money (Franklinton: TC Allen Co., 2009), p. 240. Joseph French Johnson, Money and Currency: In Relation to Industry, Prices, and the Rate of Interest, rev. ed. (Boston: Ginn and Co., 1905), p. 325.

4. At this time the dollar was defined as 371.25 grains of pure silver. Also, at this time a dollar in silver was worth more than a dollar in gold, which is why silver dollars did not circulate.

5. Allen, pp. 74-75. George Bancroft, A Plea of the Constitution of the United States, (Rpt. Boring: CPA Book Services, Inc.), pp. 40-43. Luther Martin, Secret Proceedings and Debates of the Convention (1838; Rpt. Hawthorne: Omni Publications, 1986), pp. 55-56.

6. Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867-1960 Princeton: Princeton University Press, 1963), p. 58ff.

7. American exporters and importers had to finance their trade through London bankers. Rothschild was the dominate London banker.

8. For a more detailed discussion of the National Banking System, see Allen, pp. 144-148.

9. About the Federal Reserve, Congressman Louis McFadden, Chairman of the Banking and Currency Committee, said, "Every effort has been made by the Fed (the Federal Reserve System) to conceal its powers, but the truth is the Fed has usurped the government. It controls everything here and it controls all our foreign relations. It makes and breaks governments at will" (p. 111). Even today, some Congressmen are convinced that the bankers and Federal Reserve control the U.S. government.

10. "Bank of England," Funk & Wagnalls New Encyclopedia (1983), 257. William Bridgwater and Seymour Kurtz, ed., The Columbia Encyclopedia, 3rd ed. (New York, 1963), p. 162.

11. For a more detailed discussion of the ownership of the Federal Reserve, see Allen, pp. 150-153.

12. Free coinage means that any private person may bring any amount of gold or silver to the mint for coinage, and the mint coins all the gold and silver presented to it.

13. For an outline of steps to take to return the gold standard, see Allen, pp. 264-268.

14. Allen, pp. 42-43, 58, 121-124.

15. Hoarse White, Money and Banking (Boston: Ginn & Co., 1896), pp. 231-232.

16. The Supreme Court is notorious for its ability to construe clear language in the Constitution limiting the power of the U.S. government to increase the powers of the U.S. government. Like all U.S. court, the Supreme Court seldom lets the Constitution stand in the way of political expedience and personal biases. Any ruling that increases the power of the U.S. government increases the power of the Supreme Court. Consequently, the Supreme Court can never be impartial when judging a State law or when an individual contests a federal law.
Copyright © 2009 by Thomas Coley Allen.

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