Analysis of Richard Cook’s Monetary Reforms as Presented in We Hold These Truths
This paper is Part III of my analysis of Richard C. Cook’s monetary reforms as presented in his book We Hold These Truths: The Hope of Monetary Reform (Tendril Press, 2008–2009). 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.
Mr. Cook claims “that the program would free mankind from the control of the monetary elite which has unjustly usurped the fruits of the labor of society” (p. 67). It does do that. However, it does so by putting them under the control of the political elite, who will then unjustly usurp the fruits of the labor of society. Mr. Cook’s program does not set the people free. It merely changes their master, who in reality is probably the same elite.
Mr. Cook expresses his underlying fascist tendencies when he suggests that the government is a better regulator of the economy than are the markets (p. 81), which he seems to hold in utter contempt. Mr. Cook errs when he claims that the attitude of deregulation and letting the markets regulate the economy instead of the government began in the Reagan administration (p. 81). Keeping the government out of the economy was the general attitude until the progressive Wilson administration. The major exceptions were federal subsidizes of infrastructure, such as canals and railroads, and protective tariffs, which lead to Southern secession. If President Reagan and the following presidents truly believed in nongovernmental intervention, why did the Code of Federal Regulation grow, not only unabated, but often at an accelerated rate?
Mr. Cook asks, “But if market-based economics is so wonderful, why do we have stagnating employee incomes, rapidly increasing control of wealth by the very rich, a middle class in decline, growing poverty collapse of our manufacturing job base, a bursting housing bubble, resurgent commodity inflation, shaky stock prices, trillion dollar war in the Middle East financed by runaway deficit spending, and capital markets dominated by predatory equity and hedge funds” (p. 82)? The answer is that we have a heavily governmentally manipulated market as Mr. Cook advocates. The problems that Mr. Cook identifies are the results of the conflict between the government trying to control the markets and the markets trying to free themselves from that control. Many of these problems result from the government creating and protecting a banking cartel. These problems will not go away if Mr. Cook’s program is adopted. They will become worse as he advocates evermore governmental control of the economy.
Mr. Cook condemns ever growing debt in the United States and blames it on the markets (p. 82). His solution is not to reduce debt. It is to replace one form of debt with another. He would deny this because he fails or refuses to see government notes as a noninterest bearing, nonrepayable form of debt. As it is never payed down, his debt always grows.
Mr. Cook is convinced that banks derive their power from free market ideology (p. 84). They do not. They derive their power from governments. Governments gave them this power through the creation and maintenance of central banking and governmental regulations. (Central banks are not creatures of the markets. They are creatures of governments. The markets did create them. Governments did. Markets have never created a central bank.) The last thing that most bankers want to do is to operate in a free market. If they had to operate in a truly free market, they would lose the power that Mr. Cook ascribes to them. (President Bush’s bailout of the banks was Mr. Cook’s governmental intervention and not the markets operating. President Roosevelt’s suspension of the bankers’ obligation to redeem their notes in gold as they had contracted to do was Mr. Cook’s governmental intervention and not the markets operating.)
Like most fiat monetary reforms, Mr. Cook fondly quotes Benjamin Franklin’s admiration of paper money (p. 89). Franklin admired paper money because he made a small fortune printing it. By the time of the U.S. Constitution’s adoption, he had seen the destructive effects of governmentally issued paper money, i.e., governmentally issued credit. By then he had lost much of his enthusiasm for paper money. Thomas Jefferson, Thomas Paine, James Madison, and most of the founding fathers abhorred paper money. This hostility toward paper money appears in the U.S. Constitution where Congress was stripped of the power to emit bills of credit, i.e., to issue paper money, that the Articles of Confederation granted it. (Thus, Mr. Cook’s program requiring the U.S. government to issue paper money and its electronic equivalent is unconstitutional in spite of what any court may declare.)
Mr. Cook shows his ignorance of monetary history when he writes, “Because the colonial notes were spent directly into circulation not issued by a central bank through lending at interest, they did not inflate” (p. 90). Colonial notes were highly inflationary.
Mr. Cook notes that by 1811 when the charter of the First Bank of the United States expired, state-chartered banks “had begun to issue paper money through fractional reserve banking” (p. 94). He also notes that lending was “confined mainly to commercial transactions under the ‘real bills’ doctrine” (p. 94). Some points of clarification are needed. First, under the real bills doctrine, banks do not really lend when they buy a real bill of exchange. Real bills are commercial money. They can be and were used to discharge debt. When a bank buys a real bill, it merely converts commercial money (the real bill) to bank money (bank notes and checkbook money). Second, the discount rate (the difference between what one pays for a real bill and its value at maturity) is not an interest rate. Savers determine rates. Consumers determine discount rates. (This does not mean that governments do not intervene to fix rates. When governments fix rates, they create excesses or shortages.)
Like most fiat monetary reformers, Mr. Cook expresses admiration for President Lincoln (pp. 96-97). Does he admire Lincoln because he did more than any other president to destroy the U.S. Constitution? He does admire Lincoln’s issuance of the unconstitutional greenback (p. 96) to fight his war to destroy the Constitution.
Like nearly all monetary economists, be they hard-money folks or easy-money folks, Mr. Cook claims that “silver was demonetized by the Coinage Act of 1873” (p. 97). This is not exactly true. This Act did not demonetized silver. It ended the silver standard. Silver continued to be used in subsidiary coins (dimes, quarters, and halves). Between 1878 and 1900, silver as silver dollars was used as fiat money. Congress and the Secretary of the Treasury instead of the markets decided the quantity to issue. Moreover, the value of silver in a silver dollar was less than a dollar. In 1900 with the Gold Standard Act, silver dollars became subsidiary coins for gold.
Mr. Cook is probably correct when he claims that the Coinage Act of 1873 “was in line with a worldwide banker-sponsored shift toward a gold standard” (p. 97). The elimination of the silver standard was necessary to eliminate the gold standard, which occurred in the 1933.
Mr. Cook errs when he writes, “In creating it [the Federal Reserve System], Congress ceded its constitutional authority over the nation’s monetary system to the private financiers” (p. 98). With the Federal Reserve Act, Congress did create a banking cartel, but it has no constitutional authority to do so. The Constitution grants Congress no authority to act as a bank. Therefore, it can give no entity such authority. Just as importantly, the Constitution grants Congress no authority over the country’s monetary system. Its only authorities on monetary matters are defining the monetary unit and coining all the gold and silver presented to the mint for coinage. Thus, it ceded none of its constitutional authority. What it ceded was authority that it had usurped.
Originally, the Act prohibited the Federal Reserve from buying treasury securities and using treasury securities as collateral for note issuance. When World War I broke out, the Federal Reserve and the U.S. government ignored this prohibition. The Federal Reserve bought treasury securities (p. 98). Later, Congress legitimized this illegal activity.
Again, Mr. Cook harps on deregulation and its destructive effects (p. 103). Again, I ask, “If we have had all this deregulation, why has the Code of Federal Regulation (CFR) continued to grow at an accelerated rate?” (When I first began working with the CFR in the early 1970s, I worked with one or two volumes. When I last worked with the CFR in 2007, I was working with 20 volumes. If all the material incorporated by reference were included, several hundred volumes would be needed. So much for deregulation.) Deregulation is not the cause of America’s financial and economic problems. A lack of deregulation is the cause. At the root of America’s economic problem is excessive regulation.
Mr. Cook blames much of the financial and economic problems of the country on “monetarism” and the resulting erratic expansion and contraction of money supply (pp. 102-104, 171-172). Mr. Cook’s understanding of monetarism differs significantly from mine. According to Milton Friedman, the father of monetarism, the money supply should grow at a known steady rate year-after-year with no regards for interest rates, unemployment, governmental budgetary needs, or anything else. Friedman’s concept differs greatly from Mr. Cook’s description. Like Mr. Cook, I have no use for the monetarist approach to regulating the money supply.
Mr. Cook declares that credit creation should be “through our constitutional system whereby Congress is authorized to create money and regulate its value” (p. 128). The Constitution does not authorize Congress to create money. It authorizes Congress to coin money. To coin money and to create money are entirely two different things. Money cannot be coined until it is created. Mr. Cook’s despises market-created gold and silver money. They can be and have been used as money without being coined. Coining makes their use easier. The Constitution recognizes this fact. Under the Constitution, if no private person brought any gold or silver to the mint, there would be no coins. If the U.S. government undertook to coin gold and silver on its own account, it would first have to steal the gold or silver from someone. (Between 1878 and 1900, it did mint silver dollars on its own account. It could do so because it could buy silver with gold and the silver coins minted contained less silver than the monetary value of the coin.)
Mr. Cook argues that the federal government should control credit instead of private bankers (p. 128). Except authorizing Congress to borrow money, the Constitution does not authorize the U.S. government to become involved with credit. If Mr. Cook wants a constitutional system that removes the control of credit from bankers and international financiers, he should advocate the true real bills doctrine and concomitant gold and silver standards. Such a monetary and credit system can operate without banks although not as efficiently. However, they make the control of credit private by putting it directly in the hands of the people. (Mr. Cook does not trust the people with the control of credit. The government, which he entrusts with the control of credit, is not and can never be the people.) Moreover, they also greatly restrict governmental monetary adventurism. They would prevent governmental control of credit, the establishment of Social Credit and its concomitant fiat money. They are a greater threat to Mr. Cook’s proposal than the current system. His proposal is only a major modification of the current system. The gold and silver standards with the real bills doctrine is a replacement.
Mr. Cook remarks that “under the regime of the world’s all-powerful central banking systems, money is brought into existence only as debt-bearing loans” (p. 145). This may be true today, but it has not always been true. Before President Roosevelt stole the people’s gold, money came into the system whenever a gold smelter cast an ingot of gold and certified its weight and purity.
Thieves like Roosevelt, whom Mr. Cook admires although he was a front man for the big bankers, whom Mr. Cook despises, are the type of people that Mr. Cook wants to entrust with managing the country’s monetary. A banker like a Morgan is despicable, selfish, and greedy when he is a banker. However, if he were to become a politician or a governmental bureaucrat like the head of the Bank of England, he suddenly becomes an altruistic and honorable person of probity and integrity. Although Mr. Cook distrusts bankers, he seems to trust politicians and bureaucrats implicitly.
However, Mr. Cook distrusts governmental officials to manage the current economy or even doubts that they can (p. 146). Yet he not only wants these people to manage the economy under his system, but he advocates that they do. They have to because his program calls on them actively to manage the monetary system and, by that, the economy.
Mr. Cook is correct when he writes, “The fundamental objectives of monetary policy should be to secure a healthy producing economy and provide for sufficient individual income” (p. 148). His proposal fails to achieve this goal. Contrary to his assertion, it is highly inflationary. He also advocates heavy governmental intervention in the economy, which retards economic growth. Mr. Cook displays a strong distrust of freedom.
Mr. Cook is a strong advocate of a guaranteed income (pp. 9, 148). People should be guaranteed a minimum standard of living even if they produce nothing and are as parasitic as bankers and speculators. To give someone a guaranteed income, the wealth has to be forcibly taken from someone else. If an individual forcibly takes another person’s wealth even to give to a third party, he would be called a thief and punished as such. However, if he is shrewd, he steals through the government. Not only does he then get away with his theft, he is considered the victim who deserves what he gets—and more. Mr. Cook conceals this theft with his printing press money and its electronic equivalent. He also cuts everyone in on the deal by giving everyone a bribe. Although he would deny it, he is transferring wealth from producers to nonproducers by depreciating the money.
Mr. Cook believes that everyone in the country has a claim to what everyone else produces (p. 148). Yet this philosophy of “from each according to his production to each according to his need” is not communism. Again, Mr. Cook conceals his communistic scheme with printing press money and its electronic equivalent.
Mr. Cook not only wants the U.S. government to guarantee every American a minimum income, but he wants governments of rich countries through the United Nations to guarantee everyone in the world a minimum income (p. 158). (Mr. Cook appears to be a strong supporter of the U.N. [p. 174].) He is a firm believer in using governments to plunder producers for the benefit of nonproducers. Producers are to be the slaves of nonproducers. He really does support a parasitic society—only the parasites are no longer bankers and speculators.
Mr. Cook is right when he writes, “The U.S. and world economies are on the brink of collapse due to the lunacy of the financial system, not because we can’t produce enough. Contrary to so many doomsayers, the mature world economy is capable of providing a decent living for everyone on the planet” (p. 149). Yet he fails to connect a declining standard of living with fiat money. As the monetary system has moved farther from the gold standard, the standard living for the common man has declined at an increasing pace. Only sound money and minimum governmental oversight can unleash this productive power that will significantly raise the standard of living especially for the poor. Mr. Cook offers neither. To the contrary, he offers an unsound monetary system and massive governmental intrusion.
Mr. Cook refuses to realize that the gold standard, especially when accompanied by the silver standard, protects the common man from bankers and governments by limiting their power over him. Consequently, bankers and governments have been hostile toward the gold standard. Mr. Cook sees the danger of the bankers and wants to protect the common man from them. However, he does not seem to see the greater danger of government—at least not under his system although he vaguely sees it under the current system. This ignorance or deliberate blindness is unexplainable unless he is so blinded by his system, which demands subordination of the common man to the government, that he refuses to see it.
Mr. Cook contents that his recommendations are based on economic ethics (p. 153). The ethics underlying his propose system are the same as those underlying the current system. They are fraud and force. Both force loans on the people in the form of irredeemable legal tender paper money. They deceive people into believing that they can get something for nothing. In both systems, the money is created out of nothing.
Mr. Cook is correct in that “human morality should be the common denominator and essential element in making economic policy decisions” (p. 153). Unfortunately, his proposal is no more moral than the current system. He believes that a gang of thugs acting as government has the right to take someone’s property without his consent. He does object to much of this taking under the current system, but he demands such taking under his system. He seems to object to “might makes right” (p. 154). Yet his system relies on this principle.
Mr. Cook is a firm believer in command and control. The government telling (commanding) markets what to do solves financial and economic problems. Mr. Cook distrusts liberty. Freedom and markets cannot be trusted to solve financial and economic problems.
Mr. Cook seems to believe that self-interest governmental bureaucrats acting under the facade of “charity, compassion, or service to mankind” (p. 154) can better direct production and services of the economy than the profit motive. Profit sends a clear signal to entrepreneurs informing them what the people want and when and where they want it. What do nonrisk taking bureaucrats use to guide themselves in providing for the people? Gut feelings? Personal basis? Mr. Cook’s desires?
What happens when people use their money in way that Mr. Cook finds objectionable, such as speculation? Does the government outlaw arbitrarily objectionable spending?
Mr. Cook objects to war (pp. 155, 191-192). Yet his scheme makes financing war easy. Under his system, the government can fight wars with printing press money. It need not finance them with taxes or borrowing. Only gold and silver have been much of an impediment to war. Because they make war so difficult, governments quickly abandon them when they want to fight a war of any significant.
Mr. Cook disagrees with the notion “that money is, or should be, a thing of value in-and-of itself, or that this value is created by ‘market forces’” (p. 178). Commodity money, like gold coins, has value as money because the material of which it is made has value in-and-of itself, i.e., has value because of its nonmonetary use. Supply and demand gives fiat money value, which originally comes from its connection with commodity money. The only other mechanism that gives money value is to fix the price of everything in the economy in terms of the monetary unit. How does Mr. Cook propose that money receive its value?
Mr. Cook claims “that money serves its socially-beneficial purposes only when it is regarded as an instrument of law and an economic medium-of-exchange and when it is regulated by a government which can responsibly direct its benefits to the welfare of all citizens” (p. 179). Apparently, before a governmental edict decreed a certain item to be the medium of exchange, i.e., money, money served no socially-beneficial purpose. If the markets decide what is to be used as money, money can serve no socially-beneficial purposes. Or at least its socially-beneficial purposes are severely limited. (To Mr. Cook, money’s socially-beneficial purposes seem to be the welfare state with socialized healthcare and education.)
Markets easily and efficiently create money and credit when and where it is needed and in the quantity needed. Mr. Cook would have the government regulate money by always increasing its supply regardless of demand. The government would create and issue money to cover most of its operating expenses, to subsidize prices, and to fill the perceived gap between national income and gross domestic product.
Like most fiat monetary reformers, Mr. Cook believes that the Constitution authorizes Congress to print and issue money (p. 179). It does not. The writers of the Constitution thought that they had denied Congress the power to print money when they removed the provision in the draft that authorized Congress to emit bills of credit.
As he states, the Supreme Court did declare that the Constitution authorized the printing and issuance of greenbacks (p. 179). However, the first time that the Supreme Court ruled on the constitutionality of the greenback, it ruled that it was unconstitutional. Only after President Grant did his version of packing the Court did the Supreme Court rule that the greenback was constitutional. What this ruling shows is that when given a choice between political expediency and personal bias verse original intent, the Court nearly always chooses political expediency and personal bias over original intent. This preference is the root of nearly all of the economic problems of the United States. If courts had followed the wording and intent of the Constitution, the Federal Reserve would not exist. Neither would the U.S. government’s micromanagement of the economy and the welfare state.
Mr. Cook claims that “fractional reserve banking under a privately-owned central is not ordained by our Constitution” (p. 179). He is correct. However, based on his premise that the Constitution is highly elastic and that it gives Congress the authority to control and regulate money, the Federal Reserve is constitutional. Congress chose to control and regulate money through “fractional reserve banking under a privately owned central bank.” The Constitution does not prohibit Congress from delegating its powers to private entities or using them to exercise its powers.
Mr. Cook claims that the current system forces people into ruinous debt (p. 179). On the private level, no one is forced to borrow. The way to avoid ruinous debt is not to borrow. Those who run the government can force ruinous debt on taxpayers by their extravagant spending. However, if the people want to avoid this ruinous debt they can vote people into office who adamantly oppose the welfare-warfare state. Mr. Cook’s scheme does not eliminate ruinous debt. It merely changes its form to noninterest bearing, nonrepayable debt.
Mr. Cook is correct about the Federal Reserve’s incompetence and inability to manage the country’s money properly and to influence the economy appropriately (pp. 183ff). Yet he believes that politician and bureaucrats are fully competent and able to manage the country’s money and economy. Unlike the Federal Reserve, the government can at least dictate how individuals are to spend their money and what economic activities are to be undertaken. Did not the Soviet Union and Mao’s China do this?
1. Thomas Allen, "Massachusetts Notes: The Perfect Money" (Franklinton, N.C.: TC Allen Co., 2009).
Copyright © 2009 by Thomas Coley Allen.
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