Wednesday, June 17, 2009

Analysis of Byron Dale’s Monetary Reforms

Analysis of Byron Dale’s Monetary Reforms as Presented in Bashed by the Bankers
Thomas Allen

This paper is my analysis of Byron Dale’s monetary reforms as presented in his book Bashed by the Bankers (Pro-American Educational Foundation, 1988). 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 at the end of the line or lines.

More than half of his book is about the abuse that he personally received from corrupt government. I do not question the abusive treatment that Dale received. That the system would treat him in the way described is certainly plausible. He provides an excellent description of governmental corruption. My focus is on his monetary proposal.

Dale does a good job describing the current monetary system, which the Keynesians, Friedmanites, and allied groups promote. On the monetary system, the major disagreements between the Keynesians and Friedmanites are the criteria for issuing the money and regulating its supply.

Dale offers two ways to replace the current monetary system. "We could return to using gold and silver coin issued into circulation without being loaned, or by simply having the U.S. Treasury issue paper money and spend it into circulation" (p, 51). His preference is for the U.S. Treasury to issue (print) paper money and spend it into circulation.

He proposes that the U.S. government print and spend paper money into circulation to build and maintain roads. It would not be issued for any other purpose. He writes, "The spending of the paper money would be limited to building roads which would be of equal benefit for all. Since roads can only be built by labor, in reality, all that would be done would be to monetize labor. As the money was spent, it would flow into circulation and we would all have debt-free money with which to meet our needs for a medium of exchange based on labor performed" (p. 51).

Dale’s major disagreement with the Keynesians and Friedmanites is the methodology used to create and issue money and to regulate its supply. Although Dale considers these differences of great importance, his proposal does not differ fundamentally from that of the Keynesians or Friedmanites. His proposal rests on the same fundamental principle as theirs. That is, the creation of money and the regulation of its supply is a political instead of an economical issue. Instead of allowing the markets to create and regulate the money automatically, the government or its central bank (Dale wants to abolish the central bank or Federal Reserve) should arbitrarily create and regulate the money.

Keynesians and Friedmanites accept the established methodology of lending new money into circulation. (Much of this lending occurs in the form of the Federal Reserve or banks buying U.S. government securities.) Friedmanites would lend money into circulation such that the money supply would grow at a constant rate. Keynesians would lend money into circulation such that a certain interest rate, unemployment rate, price level, or another target is maintained. Dale’s methodology is to have the U.S. government to print and spend money into circulation to build and maintain roads. Although each has a different methodology for inserting new money into the economy, they agree on the fundamental principle of fiat money. They agree that some agency should arbitrarily create and manage the country’s money instead of allowing the markets to create and mange its money automatically. They agree that politicians, bureaucrats, and "experts" can manage the country’s money better than the people. In monetary matters, they distrust the people but trust politicians, bureaucrats, and "experts." Furthermore, they agree that paper money should be irredeemable.

In some respects, Dale’s system is inferior to that of Keynes and Friedman. They have a method of removing some excess money from the economy. Their removal is payment of debt. Dale’s system seems to lack any method of removing excess money. The Keynesians and Friedmanites have measurable targets for which to strive. Dale’s system seems to lack any measurable target. At what rate are roads to be built and maintained? How many roads are enough?

His proposal is a fiat monetary system that does not differ much from that promoted by the Keynesians and Friedmanites. It merely cuts out the bankers—primarily the central bank, the Federal Reserve. The U.S. government assumes the role of regulating the money supply by the quantity of money that it prints and spends to build and maintain roads. Like theirs, it operates independently of the demand for money.

He also claims that interest and taxes cause inflation: "You see, the unpaid interest caused by our present debt-money system increases taxes. This ever increasing interest and taxes is the real cause of inflation" (p. 51).

Under the current monetary system, this claim is true to a certain degree. Debt is used as money. The U.S. government needs to borrow enough money each year to assure that enough money is placed in circulation to pay interest on public and private loans. However, interest rates and taxes do not in and of themselves cause inflation. The last part of the nineteenth century was an era of deflation. Yet interest-bearing loans were made, and taxes were levied and collected.

He does not believe that his monetary system will be inflationary. Once "interest and excess taxes are removed from the price of goods and services, the value (buying power) of the dollar will return" (p. 99). He errors if he believes that his proposal is not inflationary. His methodology for money issuance has no relationship to new goods being offered for sale. Hazlitt defines inflation as "an increase in the supply of money that outruns the increase in the supply of goods."[1] Most economists agree with this definition.

Interest and taxes do not determine the value of money. The value of money depends on its quantity and quality. Dale’s system is designed to feed corruption. Under his system, the money supply will explode as graft will cause excessive road construction. His system all but guarantees that the money supply will grow rapidly without limits. Furthermore, his money lacks quality. It is merely an irredeemable paper promise. Although supposedly backed by labor, no one can redeem his money into labor. If it were redeemable, a person could take a stack of certificates to the Treasury and demand redemption in labor. The Treasury would give him an equivalent amount of labor (slaves?) for the certificates. Dale’s backing of his money with labor is as meaningless as the U.S. government’s backing of federal reserve notes with gold between 1933 and 1968. During that time, no U.S. citizen could take a stack of federal reserve notes to the Treasury or a Federal Reserve Bank and demand payment in gold.

Amazingly, he wants to entrust the government with the responsibility for issuing and regulating the country’s money. He uses more than half his book to describe governmental corruption that he personally endured. Governmental corruption established the current monetary system. Corrupt government has maintained it. Yet these corrupted and easily corruptible politicians and officials are supposed to become virtuous when the government changes the criteria and methodology for creating and issuing money.

What Dale fails to realize is that the primary problem with the current monetary system is not who creates or issues the money or what criteria or methodology is used to issues it. The problem is fiat money itself. Fiat monetary systems are completely arbitrary. The supply of money is independent of the demand for money. Politics and not economics guides its issuance.

Dale correctly notes, ". . . the one’s holding the power to create that money have control over every person and every business" (p. 62). To protect the people from this control, the founding fathers left the creation of money directly in the hands of the people. Dale wants to place it in the hands of the U.S. government. Instead of lending money into circulation as it is currently done, the U.S. government would print and spend it into circulation. Governmentally issued paper money is as much debt money as the current federal reserve note, which is an obligation of the U.S. government. All paper money is a promise, an obligation, and is, therefore, a debt. Government notes (certificates as he calls his money) are merely noninterest bearing and usually nonpayable forced loans on the people as a whole.

Dale states, "If we are to be free, our nation’s money must be put into circulation debt-free" (p. 66). This is true, but not in the sense that he means it. Commodity money, gold and silver, can be put into circulation debt-free. It is not true of paper money, which he promotes. Being a promise and an obligation, all paper money is debt. It may be interest-free debt, but it is still debt. It may be nonpayable debt, but it is still debt.

Dale claims that paper money and bank-issued debt money began with the establishment of the Bank of England (p 66). It did not. Banks issued bank notes before the Bank of England existed. Parliament gave the Bank of England a monopoly on issuing bank notes. Unlike federal reserve notes, which are legal tender, i.e., a debtor can force his creditor to accept them in payment of debt, true bank notes are not. (Governments have made bank notes issued by their central bank legal tender when they planned to cheat the people by suspending redemption.) Furthermore, banks had to redeem bank notes in gold or silver unless the government suspended redemption. When bank notes are not legal tender, no bank has a monopoly on issuing bank notes, and banks must redeem them on demand, banks are greatly limited in the amount of money (bank notes and checkbook money) that they can "create out of nothing."

Dale also errors when he claims that the Bank of England does not belong to the English government (p. 66). True, it was chartered as a private bank. However, the British government nationalized it in 1946.[2] Thus, it became part of the British government.[3]

Dale declares, "Freedom dictates that money, the medium of exchange, must get into circulation among all the people by a method that will benefit all equally, and which will not incur debts to anyone in getting it into circulation" (p. 67).

A return to constitutional money will achieve his goal much better than his proposal. His proposal makes the creation of money a political issue. The U.S. government owns the money and is responsible for its creation. Under the constitutional monetary system, the people individually own the money. They, and not the government or banks, are responsible for its creation. The constitutional monetary system is the true classical gold and silver standard accompanied by the real bills doctrine or commercial money principle.

Under the constitutional system, the people acting in their individual capacity 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 activity. 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.

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 Dale promotes, politics governs the creation and supply of money.

The silver certificate illustrates an interest-free form of fiat money issued by the U.S. government. It was fiat money because the U.S. government arbitrarily decided the quantity to issue and because the monetary value of the silver into which it could be redeemed exceeded the nonmonetary value of that silver. That is the market value of the silver in a silver dollar was less than a dollar at that time. Although interest free, the paper certificate itself was a promise, an obligation, and, therefore, a debt. It promises to pay the holder on demand 371.25 grains of pure silver in the form of a silver dollar for each dollar noted on the certificate. Thus, it was a debt of silver owed by the U.S. government payable on demand to the bearer of the certificates.

Dale asserts that in the pre-Federal Reserve days, when banks issued paper money, i.e., bank notes, they did so via lending at interest (p. 68). Not all bank notes were issued through a lending process. Some were issued through a conversion process. A person may have deposited gold or silver coins and have withdrawn money as bank notes. Thus, banks converted gold and silver coins to bank notes. The bank could have used bank notes to buy real bills of exchanges (commercial money).[4] Thus, it converted commercial money into bank notes. Nevertheless, like all forms of credit money, including the fiat money that Dale wants the U.S. government to issue, bank notes are promises and obligations.

Dale quotes Mayer Amschel Rothschild’s frequently quoted statement: "Permit me to issue and control the money of a nation and I care not who makes its laws" (p. 84). I do not question the authenticity of this statement. However, if taken literally, it cannot be true. Rothschild would definitely have to be concerned about who makes the laws. He could never gain a monopoly to issue and control the money unless the government gave it to him and protected his monopoly from competition. His bank, like all banks, exists at the pleasure of the government. A tyrannical government can always destroy all banks and execute all bankers on a whim. In any scheme to loot the people, banks and bankers, including central banks and bankers, are always the junior partners. Those who really control the government are the senior partners. For these reasons, bankers must control the government to protect their monetary monopoly.

Dale paraphrases Rothschild’s statement: "Whoever controls the volume of money in any country is absolute master of all industry and commerce" (p. 84). This statement is true. So why does Dale want to give the U.S. government control of the money and make it the "absolute master of all industry and commerce?" Many fiat money reformers correctly consider politicians among the most corruptible of humans and the easiest to corrupt. How long would it take the bankers or their equivalent in road construction to own the political leaders? Once they own the political leaders, they have acquired control of the money and by that the economy. Why does Dale want to give them such power? Instead of giving the government the control of the money, would it not be better to place the control of the money where the Constitution places it: in the hands of the people?

Dale shows that America has been conquered by war, albeit indirectly, by religion, and by economic conquest (p. 85).

The first (war) was achieved with the Cold War (pp.85-86). This war has now been replaced with the War on Terrorism. The Cold War was a hoax and so is the War on Terrorism.

The second (religion) was accomplished by the deterioration of Christianity (pp. 85, 86-87). This was achieved by the gaining control of schools and seminaries and subverting the education of students. The primary purpose of this conquest is to end opposition to interest on money.

The third (economic conquest) has been accomplished by removing gold and silver from coins, elimination of redemption of paper money in specie, and the introduction of federal reserve notes (pp. 85, 87ff). Once gold and silver money was removed only federal reserve notes remained, that is, debt became the money of the country. Money could only be created by creating debt (p. 94).

Dale argues that the current federal reserve note is unlawful (p. 93). I agree with him about its unlawfulness. I consider it unlawful because it is not redeemable on demand in gold or silver and because Congress has no authority to create a central bank or give it or any entity a monopoly to issue paper money. With the later, Dale qualifiedly agrees; he would not only allow the U.S. government to have such a monopoly but would give it such a monopoly. With the former, I am not sure that he agrees.

He quotes Marx’s and Keynes’ claim that debauching a country’s currency is the surest way to overturn a society (p. 94). This is true. That is why the founding fathers declared gold and silver money under the Constitution. Gold and silver are extremely difficult, if not impossible, to corrupt without quick detection. Paper money, especially if the government or its central bank issues it, is easy to corrupt without detection until much of its destructive work is done. Dale asserts that money is corrupted "by changing it from wealth to debt, and loaning it to the people at interest, which is impossible to repay" (p. 95).

At least Dale, unlike most fiat money reformers, wants to amend the Constitution to make his monetary system constitutional (p. 97). However, he still wants to force his money on the people through legal tender laws. He knows, at least subconsciously, that people will not accept fiat money for long unless they government forces it on them.

Dale calls his money "United States certificates" (p. 97). Historically, in the United States, when "certificate" is used in connection with money, it means a warehouse receipt that is redeemable on demand. For example, for each dollar in silver certificates that it issued, the U.S. government claimed to hold 371.25 grains of pure silver or 412.5 grains of a standard silver coin (silver 90 percent fine) into which it could redeem its silver certificates. It held enough silver to redeem all silver certificates. When the U.S. government issued gold certificates, it held enough gold coins or bullion to redeem all gold certificates.

Dale claims that his money monetizes labor (p. 51). He states, "all money (medium of exchange) will be spent into circulation, backed by or based on labor performed or needed services rendered" (p. 99). If his money is truly in the form of certificates, then they must be redeemable on demand in labor. As the U.S. government owns and controls these certificates, it must maintain enough labor (slaves?) out of circulation to redeem all its outstanding certificates. I do not believe that this is Dale’s intent.

Instead of calling his currency "certificates," he should be honest and call it "notes." When the U.S. government issues notes, those notes may be irredeemable and backed by the weapons of the government as where U.S. notes between 1862 and 1879 and after Roosevelt’s thief to the people’s gold in 1933. They may be redeemable as were U.S. notes between 1879 and 1933. However, the U.S. government held only enough gold to redeem about half its notes. As Dale’s money is irredeemable and is backed by the weapons of the government (if it were not, it would not be enforced via legal tender laws), he should be honest and call his currency "notes." Does he avoid using "notes" because thinking people could easily see that his money is debt, which "note" signifies?

Moreover, labor as money or backing for money results in poor quality money. It lacks most of the attributes that make something capable of serving as money. These attributes are portability (relatively high value per unit of weight), homogeneity (uniformity), durability, divisibility, recognizability, high marketability (high liquidity, universally acceptability), and stability in value. Labor is not homogenous. One person’s labor can vary greatly from another person’s. Also, an individual’s labor can vary over time. That labor is divisible is questionable and is highly limited. Its marketability as is its stability is highly variable. How long can a labor unit last? In a market economy, labor is not generally acceptable in exchange for all goods offered for sale. Furthermore, how much labor does the monetary unit equal?

Dale’s money would be denominated in dollars (p. 98). However, he does not define his dollar. Like all fiat money adherents, he leaves the dollar undefine. He leaves it a vague abstraction.

The founding fathers understood the dollar to be the weight of silver in a Spanish milled dollar. Where "dollar" is used in the Constitution, it has this meaning.

According to the Bible, money has three components: quantity, measurement, and substance. Genesis 23:16 illustrates this concept. 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.

Dale’s money, like the current federal reserve note, lacks two of these three components. For example, his $20 certificate has quantity (20). The dollar appears to be its measurement. But what is it measuring; is it weight, volume, distance, energy, power, or time? What is its substance? It has to be more than paper as paper is merely the representation of something else.

Dale would cancel all governmental debt securities held by the Federal Reserve. Governmental debt securities "held by natural born persons . . . would be honored and paid out of the Treasury with United States Certificates" (p. 98). When Dale speaks of the government debt, I am not sure if he limits it to the debts of the U.S. government or if he intends to include debts of States and local governments. He seems to include their debts. If he means to include their debts, his proposal is unconstitutional. The Constitution does not authorize the U.S. government to pay the debts of States and local governments. Furthermore, such an act would reward imprudent action.

He also wants the U.S. government to bailout with direct interest-free loans "any person who could show they [sic] had lost, or were about to lose their home, farm, or business because of defects in the present Federal Reserve money system" (p. 98). Thus, the prudent and good money mangers would be penalized, and the imprudent and poor money mangers would be rewarded.

He would cease issuing federal reserve notes, but would allow them to continue to circulate. As federal reserve notes wore out, they would be removed from circulation (p. 98).

Dale opposes charging interest on loans. He cites several Bible verses to support his opposition. He cites Exodus 22:25, Leviticus 25: 35-37, and Nehemiah 5:1-13 (p. 68).

His references do not prohibit usury per se. The reference to Exodus and Leviticus prohibit charging a poor person of one’s nationality (in the true sense of the word), ethnic group, or racial kinsman interest on loans. His reference to Nehemiah does seem more general. However, the people paying the interest seem to be living in the poverty. Whether general or specific, the prohibition is not against charging interest per se. Deuteronomy 23:20[5] allows lending with interest to people outside one’s ethnic group or race.[6] The prohibition is against charging people of one’s nationality, ethnic group, or race interest. Because of this restriction, Jews have gained control of banking. Church law prohibited White Europeans from lending at interest to other White Europeans. Thus, Europeans seldom lent. If they did, they did with convoluted contracts with fees, insurance, and other requirements that were tantamount to interest in everything but name. Thus, if a merchant or king needed to borrow money, he usually borrowed from Jews, and he often had to if he needed money.

To put this usury prohibition in terms of modern America, a White baker could not make interest-bearing loans to Whites. However, he could make interest-bearing loans to Blacks, Latinos (mestizos), Indians, Asians, and other non-Whites. If a White American needed to borrow money, he would have to use a Black, Asian, Indian, or Latino banker or loan company.

As Dale would prohibit interest-bearing loans (p. 98), why would banks lend? As money deposited in a savings account is an interest-bearing loan to the bank, why would people want to save money in a bank if they are not going to be paid for it?

Dale demands that banks and bankers disguise their interest as "sharing the risk and the sharing of profits" (p. 98). Lenders always share the risk when they make loans. They risk the borrower defaulting on the loan. Even if the loan is collateralized, the amount due on a defaulted loan may exceed the value of the collateral. (The housing market of 2008 illustrates this possibility.) Furthermore, if the collateral is adequate to repay the loan, the lender pays the cost and time of converting the collateral to cash. If lending is truly risk free, lenders would always be repaid on time and would never go bankrupt. Contrary to the claims of the anti-usury folks, lending is not without risk.

One thing that has always puzzled me about the anti-usury people is why they never set up a loan company and make interest-free loans. (Most do not really want to make truly interest-free loans. They want to disguise interest as fees, share of profits, etc. A truly interest-free loan occurs when a person lends money to another for a stated time. When that period ends, the borrower pays the lender the sum of money borrowed. He does not pay fees, buy any insurance, etc. The total cost of the loan is the amount borrowed.) If their interest-free loans were cheaper than interest-bearing loans, they should soon drive those who made interest-bearing loans out of business.

Also, the anti-usury people never explain why they want to outlaw savings account other than prohibiting anyone, including widows and orphans, from receiving any kind of interest payment.

Dale proposes to outlaw fractional reserve banking. Banks would not be allowed to create checkbook money. Only money that has been deposited may be lent (p. 97). If a bank is allowing two or more people to use the same money simultaneously, has it really created any new money? Whether it has or not, many economists consider this action to be fractional reserve banking. If Dale wants to accomplish his goal, he needs to make clear that banks may not lend money deposited in checking accounts. He does hint at such prohibition (p. 98), but he should be more emphatic. Banks may only lend bank capital and money deposited in savings accounts.

Dale gives a good synopsis of the history of money in the United States. He shows a good understanding of constitutional money (pp. 65-66, 67, 68). He is aware that gold and silver are constitutional money. His understanding of free coinage is greater than that of many advocates of the gold standard.

However, he errors in claiming that gold and silver need to be coined to be money, i.e., coining monetizes them (p. 65). It does not. Bullion bars were often used to make large payments. In less advanced societies, shavings from a block of precious metal were often used. Even gold dust has been used as money. Coining makes the monetary use of gold and silver more convenient. When gold and silver are the money, the important thing is the weight and purity and not shape or stamp. (The only value of the government’s stamp is its certification of weight and purity.)

He describes a possible problem with the use of gold and silver money (p. 66). That problem is giving banks a monopoly over the gold and silver money and letting them lend it into circulation. This problem would exist even if the government retained the monopoly for itself and spent the gold and silver money into circulation. What he is describing is a fiat monetary system using gold and silver. Instead of letting the markets automatically decide how much gold and silver is needed as money, the government or its agent, usually its central bank, decides.

Dale quotes Section 14 of the Coinage Act of 1792: "It shall be lawful for any person or persons to bring to the said mint gold and silver bullion, in order to their being coined; and that the bullion so brought there shall be assayed and coined as speedily as may be after the receipt thereof, and that free of expenses to the person or persons by whom the same shall have been brought" (p. 74). He comments, "In other words, have the metal monetized—turned into money" (p. 74).

Dale errors if he believes that the Coinage Act of 1792 turned gold and silver into money. It did not. Gold and silver were money before this Act was adopted. This Act does not make gold and silver money; the people had already done that through their market acts centuries before—long before any government got involved in coining gold or silver. This Act is acknowledging what the people had already decided in their economic activities. If gold and silver were not money before this Act was adopted, the people would have had to be conducting their business with barter as there would have been no money before the adoption of this Act.

Dale praises President Jackson, who prevented the renewal of the Second Bank of the United States. He remarks that America needs more "statesmen with the honesty, courage and intelligence of men like Andrew Jackson (p. 73)." We do need such men. He castigates "politicians who sell out to the highest bidder" (p. 73). These easily bought politicians, whom the money interest has own since before the establishment of the Federal Reserve, are the ones who control the U.S. government today. Yet Dale is willing to give such corrupt and corruptible men absolute control of the country’s money. The easily corruptible more often rise to power than noble statesmen. Their ease of corruptibility is the asset that the power brokers value most because it makes the agent-client easier to control. Consequently, the founding fathers denied the U.S. government and State governments the authority to create, issue, and control the country’s money. They wisely left its creation, issuance, and control directly in the hands of the people.

Dale claims that the hoarding of gold by banking conspirators caused the failure of most state-chartered banks during the nineteenth century. Because of this hoarded gold, banks could not redeem their bank notes (p. 70). Actually, monetization of state bonds with bank notes caused most of these banks to fall.[7] If gold were being hoarded, soundly operated banks would have made fewer loans because they would have had less to lend. They would have discounted fewer bills of exchanges because they would have had fewer gold reserves with which to redeem their notes that may have been presented for redemption before the bill was paid. Hoarding did not cause bank failures. Unsound banking practices did.

Dale praises Lincoln, who hated the Constitution so much that he went to war to destroy it, and his issuance of paper money (pp. 74-75). Rational people were saving (hoarding) their gold as insurance against uncertain times. As Lincoln was unwilling to raise taxes high enough or to pay high enough interest to dishoard this gold, he resorted to noninterest bearing and nonpayable forced loans called U.S. notes or greenbacks. He resorted to unconstitutional money to finance his war to destroy the Constitution.

Dale states, "Abraham Lincoln evidently understood that it did not make much difference what was used for money, as it did how that money was used" (pp. 74-75). Where or what is the relationship between "what was used for money" and "how that money is used?" Money can be used for good or evil—the "how money is used." Lincoln used it to kill more than 550,000 men in his successful endeavor to destroy the Constitution. Money can be made of material that has value in and of itself like gold or silver that people voluntarily accept. Money can be made of material that has little value in and of itself like U.S. notes and federal reserve notes that the government must force the people to use. (One exception to the use of governmental force to get people to use paper money was the Confederacy. Confederate money, unlike U.S. notes, circulated without the backing of legal tender laws.[8] However, Confederate money circulated less than five years and died like all governmentally issued paper money with its issuing government.)

Presumably gold disks minted and spent by a gold mining company to pay its employees and suppliers would have no monetary value as a private concern issue them. However, if the government prints and spends paper money, then that paper has monetary value—presumably without the necessity of legal tender laws—because the government has issued it. How this money gets its value, no one can adequately explain without tying it to earlier commodity money that it or its ancestor paper money replaced.

In support of his action to issue irredeemable paper money, Lincoln said, "Money will cease to be a master and become a servant of humanity" (p. 75). Like many Presidents, Lincoln was a proficient liar. Money is the servant of those who create and control it. Consequently, the founding fathers left the creation and control of money directly in the hands of the people. They denied the U.S. and State governments any power to create and control the country’s money. Lincoln usurped this power. He stole it from the people and gave it to the U.S. government. By so doing, the U.S. government ceased being the servant of the people and became their master. Later, the U.S. government made a few big bankers partners when it transferred the control of the country’s money to the Federal Reserve. Dale acknowledges the power of the Federal Reserve and wants to remove it from the Federal Reserve and reassign it to the U.S. government, but apparently not to the people.

Dale quotes a paragraph from an editorial printed in the London Times after Lincoln issued his greenbacks. The writer of the editorial expressed his fear that Lincoln had discovered away to pay off debts and provided the country with all the money that it needed for commerce and to make the United States a great and prosperous country. With his paper money, Lincoln would draw all the wealth and brains of the world to America (p. 80).

This editorialist obviously knew very little history. Irredeemable paper money is more dangerous to the issuing government than it is to anyone else. If a country fails to extinguish its irredeemable paper money, the paper money will destroy it—at least that has always happen historically.

Although Lincoln’s greenback did destroy the heart and soul of the Constitution, they did not completely destroy the United States. The reason that they did not do so is that Congress froze the quantity in circulation, and Congress authorized their redemption in gold in 1879.

Dale gives a good brief description of the end of the silver standard in the United States with the Coinage Act of 1873 (pp. 81-84). He illustrates the importance of Congressmen reading and understanding a bill before they vote on it instead of relying on their colleagues with nefarious agendas. According to Dale’s description of the skulduggery with that Act (p. 84), Congressmen need to check bills after passage to ensure that it was the bill voted on. Apparently, some Congressmen who voted for the bill did not realize that the bill ended the free coinage of silver and by that the silver standard and the constitutional dollar. (The "dollar" mentioned in the Constitution is the weight of silver in the Spanish milled dollar. No other dollar can be a constitutional dollar.)

Dale gives a good review of the changes in the redemption promise wording on U.S. paper money. He shows how the paper money went from promising redemption in gold to containing no promise of redemption (pp. 89-93).

In summary, Dale’s proposed monetary system is not lawful under the current Constitution. First his paper money is not redeemable in gold or silver, the only money recognized by the Constitution, on demand. Second, and more important, the Constitution does not authorize the U.S. government to print or issue paper money of any kind. Dale seems to recognize this problem. He is one of the few fiat money reformers that seeks to make his paper money constitutional via a constitutional amendment.

Dale opposes using gold and silver as money and prefers that the government issue paper money necessary to build roads. His opposition to precious metal money, he fails to explain. He acknowledges that gold and silver are the moneys of the Constitution (p. 65). Also, he acknowledges that, unlike paper money, gold and silver are no one’s obligation. Although he knows about the virtues of gold and silver as money, he opposes them. Why? He does not explain.

Furthermore, he does not explain what will prevent Congress from turning road construction into one gigantic vote buying machine and paving over the country. His plan will change the whole economy and center it around road construction and maintenance. His proposal seems to contain no brakes to prevent runaway inflation.

When given a choice between printing money and raising taxes, most Presidents and Congressmen will choice printing money. How long will it take before the U.S. government begins using printing-press-road-construction money to fund other activities in the name of building and maintaining roads? In the name of protecting roads and road builders from terrorists, it could fund the Department of Defense and wars with printing-press-road-construction money. Likewise, to educate the next generation of road builders, it could fund education with printing-press-road-construction money. Congress and the President would soon find a way to connect all their pet projects to road construction and fund it with printing-press-road-construction money.

Dale and I can agree, I believe, on at least two issues. One, the Federal Reserve needs to be abolished, except its check clearing operation, which private associations can assume. Two, the current monetary system is dysfunctional, unconstitutional, and needs reconstruction. Our major disagreement is that he wants to continue the current fiat monetary system although managed differently. I want to return to the constitutional commodity monetary system.

Dale is an intelligent man. He understands the problems with the current monetary system better than most. He also has a good understanding of the history of America’s monetary system. What I do not understand is why he does not see that the underlying problem with today’s monetary system is not who issues the money or what mythology is used to issue it. Moreover, it is not interest-bearing loans. The fundamental problem is that a central authority arbitrarily controls the monetary system. Dale does not object to this arbitrary control over the money and by that the control of the economy and by that the control of the people. His objections to the current system concern who does the controlling and the methodology used for the controlling. He prefers having politicians and their bureaucrats in the U.S. government controlling the money instead of the bureaucrats of the Federal Reserve. He prefers the U.S. government printing and spending the money directly into circulation for road projects instead of the convoluted methodology used by the Federal Reserve.

Actually, he could achieve his goal using the Federal Reserve. Congress could require the Federal Reserve to buy all U.S. securities. The money that the Federal Reserves creates to buy these securities would function like the money that Dale wants the U.S. government to create and spend. As the law requires the Federal Reserve to rebate to the Treasury all interest earned above its operating costs, this money would be interest-free. Now all Dale would need to do is get a law enacted that restricts Congress to spending all this new money on road projects.

Dale does offer a return to gold and silver coinage. It would occur after his system increases the value of the dollar (p. 99). Unfortunately, the monetary reforms that he is proposing will continue the destruction of the value of the dollar instead of restoring it. If it does restore the value of the dollar as he claims, his proposal is highly deflationary.[9]

Furthermore, why go through the convoluted process that he proposes? If the objective is to return to the use of gold and silver as money in everyday transactions, his system is not only unnecessary; it will not achieve that goal.

If the objective is to return to full-bodied gold and silver coins as the founding fathers set forth, it can be achieved with an easier approach. First, all legal tender laws need to be repealed. Federal reserve dollars would no longer be legal tender. No debtor could force his creditor to accept federal reserve dollars in payment unless he had contracted the debt in federal reserve dollars. Second, the mint needs to be reopened to free coinage of gold and silver. The coins would be denominated in pennyweights and have the grains of gold or silver stamped on them. Third, no fixed exchange rate would exist among gold, silver, or federal reserve dollars. They would exchange against each other at the rate that the markets decided. Fourth, as debts made in federal reserve dollars are paid, these federal reserve dollar are removed from circulation and permanently retired. Fifth, the Federal Reserve should be abolished and the regulation of banking returned to the States where it constitutionally belongs. Other reforms are needed, but these are the key ones that parallel Dale’s proposal.

As for interest-bearing loans, people who oppose them need to establish companies that make noninterest-bearing loans. If their loans cost less money than the traditional interest-bearing loans, they will soon drive the traditional lenders out of business.


1. Henry Hazlitt, The ABC of Inflation, p. 6.

2. "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.

3. The nationalization of the Bank of England did not noticeably change the British fiat monetary system. Thus, the problem lies not with the ownership structure of the central bank; it lies with centralized banking and fiat money.

4. When a bank buys a real bill of exchange, it does not buy a debt instrutment. It buys a clearing instrument. When it buys a bill at a discount, it is not receiving interest. The discount rate is not an interest rate. Whereas the rate of interest relates to the propensity to save, the discount rate relates to the propensity to consume.

5. "Unto a stranger [foreigner, nonrelative, racial alien] thou mayest lend upon usury. . . ."

6. Richard Kelly Hoskins, War Cycles—Peace Cycles (Lynchburg, 1985), pp. 3, 31.

7. Arthur J. Rolnick and Warren E. Weber, "Free Banking, Wildcat Banking, and Shinplasters." Arthur J. Rolnick and Warren E. Weber, "Banking Instability and Regulation in the U.S. Free Banking Era," 1985.

8. Hoarse White, Money and Banking (Boston, 1896), p. 166.

9. Many haters of gold claim that we can never return to the gold standard because such a return would be highly deflationary.
Copyright © 2009 by Thomas Coley Allen.

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