Saturday, September 26, 2009

French Revolution Part I

The French Revolution
Part I: The Foundation

Thomas Allen

[Editor's Note: Footnotes, most of which contain additional information about the conspirators, in the original are omitted.]

In 1773, Mayer Amschel Rothschild invited twelve wealthy and influential Jews to meet with him in Frankfurt. His objective was to convince them to pool their resources so that they could use their combined resources to finance and control a world revolutionary movement. Through revolution, they would gain control of the world, including its resources and people. The twelve agreed to join with Rothschild in a conspiracy to control the world.[1]

Rothschild’s plan called for wrecking economies to create large-scale unemployment and bringing the masses to near starvation. With their propagandists, they would inflame hatred against the ruling class. They would advocate political freedom to convince the electorate to surrender their power and prerogatives to the plotters and their agents. They would promote moral corruption, drugs, and vice. The conspirators would foment and control wars so that both sides would accrue ever larger debts. They would buy political candidates and officeholders to do their bidding. Rothschild and his co-conspirators would bring down existing governments, with either internal or external foes, and replace them with people under their control.

To aid them in their conspiracy, they got Adam Weishaupt to organize the Order of the Illuminati. The Order of the Illuminati became a front for the Jewish Kahal, the Jewish International World Government. The goal of the Jewish Kahal was to attain political, economic, and moral world dominion[2]—the New World Order.

Adam Weishaupt (Spartacus), who was, according to Louis Blanc, "one of the most profoundest conspirators who have ever existed,"[3] founded the Order of the Illuminati on May 1, 1776 in Bavaria. Duke Ferdinand of Brunswick, Grand Duke Ernest of Gotha, William IX of Hesse-Kassel, Mirabeau, and, probably, Friedrich Christopher Nicolai were also founders of this Order.[4] The Jesuits, Assassins, Roshaniya, ancient Mysteries, and Freemasonry were important contributors to the doctrines of the Illuminati.

Weishaupt based his original inner council on the pentagram, the symbol of Sirius, the Blazing Star. His inner council had five members: Weishaupt himself, Kolmer (who initiated Weishaupt into Illuminism), Francis Dashwood, Alphonse Donation de Sade (from whom comes the word "sadism"), and Meyer Amschel Rothschild.[5]

Weishaupt’s primary proposes for establishing the Order of the Illuminati was to promote secretly his egalitarian goals. The goal of his Illuminati was to abolish (1) all established governments, especially monarchies, (2) all private property and inheritance, (3) nationalism and patriotism, which would be replaced with internationalism and universal brotherhood, (4) marriage and family life, (5) all religions, especially Christianity. Out of the resulting chaos and anarchy would arise a New World Order with its one-world totalitarian government controlled by the Illuminists. His philosophy was based on the philosophy of Jean Jacques Rousseau (private property is the cause of all man’s problems) and the anti-Christian doctrines of the Manichaeans.

To conceal the anti-Christian goal of his Order of the Illuminati, Weishaupt directed that initiates be told that the Order sought to perfect Christianity and that Jesus was the originator of Illuminism. Members were guided from Christianity to Deism, then to atheism, and finally to Satanism. Weishaupt dressed his secret tenets in Christian terminology. Only high degree members knew the true goals of the Order.

He soon used the Illuminati to infiltrate and gain control of Freemasonry. Then the Illuminati used Freemasonry to bring about his goal of infiltrating and then destroying all governments and religions and setting up a New World Order ruled by the Illuminati.

Weishaupt, who was a Jew who converted to Catholicism,[6] may have been a Jesuit priest.[7] At least Jesuits had previously held the position of professor of canon law at Ingolstadt University to which he was appointed in 1773. Regardless of his background, the maliciously anti-clerical Weishaupt was placed in charge of instructing students in the canons of the Church. Two years later he became dean of the Faulty of Law.

As a professor, Weishaupt advocated freedom from religious restraint and from legitimate civil authority. His teachings met strong opposition from the Jesuits. By accusing the Jesuits of being "the secret force behind the subversive secret societies," the Illuminists were able to get them expelled or suppressed in several countries. Finally in 1773, the pope dissolved the society. (However, Frederick the Great of Prussia not only did not abolish the Jesuits in Prussia; he protected and encouraged them.)

Weishaupt, who became a Freemason in 1777, was a member of the Masonic Lodge Theodore in Munich. Kolmer had initiated him into an ancient order and the Mysteries of the East in 1771. Weishaupt appears to have become a Satanist. Nevertheless, Weishaupt emphasized rationalism over mysticism and Theosophy.

Weishaupt did not originate the destructive doctrines that he advocated. He did not corrupt Freemasonry; it was corrupted before he came on the scene. He saw Freemasonry as an institution to be used to achieve his goals and proceeded to organize and control it toward that end. His goals were consistent with Freemasonry. Furthermore, the anti-Christian conspiracy was already in place waiting for him to organize, direct, and complete.

Backing Weishaupt, who was the supreme head of the Order of the Illuminati, were some of the leading Jewish bankers of Europe. His backers included Moses Mendelssohn, Daniel Itzig, Benjamin and Abraham Goldsmid, Moses Mocatta, Meyer Cerfbeer, and David Friedlander.[8] (Bernard Lazard, a Jewish writer, asserts that "there were Jews, Cabalistic Jews, around Weishaupt."[9])

Weishaupt welded together a highly efficient system. He combined "the disintegrating doctrines of the Gnostics and Manichaeans of the modern philosophers and Encyclopaedists, the methods of the Ismailis and the Assassins, the discipline of the Jesuits and Templars, the organization and secret of the Freemasons, the philosophy of Machiavelli, the mystery of the Rosicrucians."[10] He was a master at using people.

The goal of the Illuminati was (and is) to destroy utterly Western Christian society. It sought to destroy all political and religious authority. Private property was to be abolished. Nationalities were to be obliterated. Society was to be reorganized with the masses reduced to slaves ruled by the masters, the Illuminati, who would have absolute and unchecked power. Then universal equality would be achieved. Weishaupt’s goal was to destroy all existing governments and religions and to establish a New World Order. Being an extreme materialist, he had utter contempt for all religions; their only useful purpose was for him to use to deceive, manipulate, and control. This New World Order would have a totalitarian world government with a libertine Luciferian religion. Weishaupt and the Illuminati selected France as the country in which to begin the revolution.

Weishaupt demanded that members of the Illuminati dedicate themselves totally to the work of the Order. They had to place at its service all that they had—their honor, liberty, property, and life. They had to abandon all allegiances to country and Church. Furthermore, they bound themselves to secrecy and pledged unquestionable obedience to all commands of their unknown superiors.

Rich men were recruited for their money. Women were recruited because they were easy to lead (mislead) and because they could be used to influence prominent men. University professors and teachers were recruited because they could train and recruit young professionals. Religious leaders were recruited partly because Weishaupt enjoyed corrupting them and partly because of their influence. Judges, political leaders, and high-level bureaucrats were also recruited. Most members were to be kept ignorant of the true goals of the Order. They were to remain ignorant of higher ranks until they had been groomed enough to advance. Only adepts of the highest ranks knew the true goals of the Order.

Members were incited to spy on one another and on their friends, families, neighbors, and all whom they encountered. They were to discover weaknesses that the Illuminati could use to advance their cause. Members had to reveal compromising information, such as an unknown criminal act or sexual indiscretions that superiors could use as blackmail, or members would be required to commit a crime that superiors could use against them.

Among the members of the Illuminati were Prince August Karl von Hardenberg, Christian Bode (Freemason, privy councillor of the Prince of Hesse-Darmstadt), Cagliostro (known as the "Prince of Mystery"), Prince Charles of Hesse, Jean Baptiste Clootz (Anacharsis), Count Ludwig Cobenzl, Marquis de Constanza (Diomedes, secretary of the Order) Friedlander (Jewish banker), Johann von Goethe, Johann von Herder, Hertel (Marius), Itzig (Jewish banker), Immanuel Kant (philosopher), Baron Adolph von Knigge (Philo), Count Leopold de Kollowrath-Krakowski, Baron Maendl (Freemason and Chamberlain of the Elector of Bavaria), Massenhausen (Ajax), Moses Mendelssohn (Jewish philosopher and silk merchant), Mirabeau (a leader of the French Revolution), Baron de Montgelas, Wolfgang Amadeus Mozart (composer, Freemason), Christopher Friedrich Nicolai (publisher of a literary review in Berlin, Freemason), Mayer Amschel Rothschild (Jewish banker, founder of the House of Rothschild), Count de Saint-Germain, Count Aurelio Saviola (keeper of the archives of the Order ), Frederick von Schiller (poet), Baron von Schroeckenstein (Mahomed), Baron Joseph von Sonnenfels, Voltaire (philosopher), Christoph Wieland, and Xavier von Zwack (Cato, Freemason, lawyer, Privy Councilor to Prince von Salon).[11]

In 1782, Ferdinand, Duke of Brunswick, acting as Supreme Grand Master, called the Congress of Wilhelmsbad. This meeting became known as "the Convent of Wilhelmsbad." Delegates came from every part of the British Empire, all the countries of Continental Europe, the colonial possessions of France, Holland, Portugal, and Spain, and the United States. At least three million members of secret societies from around the world were represented at the Congress of Wilhelmsbad. Among the attendees were Bode, William Dohm, Knigge, Gotthold Lessing, Mirabeau, Saint-Germain, Saint-Martin, Lord Shelburne (William Petty) of England, and Willermoz. Two of Weishaupt’s associates, Knigge and Dietrich von Dittfort control the convention. Willermoz presided over the convention.[12]

The Illuminati had infiltrated Freemasonry and eventually had gained control of it. At the Congress of Wilhelmsbad, Weishaupt with the aid of Knigge and Dittfort formally combined the Order of the Illuminati with the Freemasons. Other secret societies, such as the Martinists, Rosicrucians, Templars, Knights of Beneficence, and the Brothers of Amity, were also united with the Illuminati and Freemasonry at the Congress. The Congress of Wilhelmsbad also united Freemasonry and allied secret societies with the international financiers. The resulting organization contained some of the most powerful men in Europe.[13]

When the Congress of Wilhelmsbad adjourned, two important accomplishments had been achieved. One, the various secret societies of Europe had been consolidated into Freemasonry and had become universal. Frederick the Great became the Grand Master of universal Freemasonry. Two, the Illuminati had ascended into leadership.[14] Thus, Weishaupt and his associates and backers could now carry out what Kelly calls the "Great Conspiracy" and Webster calls the "World Revolution."

Through Knigge, Weishaupt got the Congress of Wilhelmsbad to approve his plan and goal of the Great Conspiracy. That plan included Pantheism and communism of women, goods, and general concerns. Execution of the plan called for the destruction of the Church and Christianity and the elimination of all existing civil governments. The resulting void would be filled by a utopian universal republic where absolute equality, social brotherhood, and licentiousness would prevail and all social, moral, and religious restraints would be abolished.

Weishaupt established higher degrees and initiated suitable Freemasons and his own people into these higher degrees. As a candidate rose to higher degrees, he learned more about the nature and true goals of the Order of the Illuminati and Freemasonry. If he were found suitable for further illumination, he would rise to the next degree. If he were found unreliable, his advancement ceased. By controlling the higher degrees, the Illuminati controlled the Masonic lodges and used them to destroy society.

As with other illuministic societies, the greatest virtue that an Illuminate could possess was blind and unquestionable obedience to unknown superiors. Without such obedience, an Illuminate could never rise. He had to subordinate all national, religious, and patriotic allegiances and sentiments to his unknown superiors.

Only select Freemasons from the highest degree were aware of Weishaupt’s plans. Only those Freemasons who had completely rejected the God of the Christians and His Son, Christ Jesus, were initiated into the highest degree and became privy to the purpose of the Illuminati. These adepts of the highest degree became, in effect, high priests of the Synagogue of Satan. Lucifer became the god whom they worshiped. (The worship of Lucifer does not require religious ceremonies and overt acts of worship as occur in most religions. The act of blasphemy or rejecting the God of the Christians, Christ, or the Church is an act of worshiping of Lucifer.)

To thwart rivals within Freemasonry, lodges could not send local money to affiliated superiors. The Illuminati had independent sources of money and did not need local money.

Through power, money, sex, and blackmail, the Illuminati brought influential people under its control. Young people from the well-bred families were selected for indoctrination at prestigious schools. Thus, the Order of the Illuminati became "the Master Conspiracy of the Great Conspiracy."[15]

Like today’s illuministic conspirators, the Illuminati advanced their ideology by promoting and supporting their members, agents, sympathizers, and fellow travelers in key positions in government, business, academia, and religion. By controlling these important and influential positions, they could promote and carry out their plans of world domination. From the beginning, they have promoted wars and revolutions on an ever increasing scale.

Accompanying the union of secret societies in Europe was a movement to emancipate the Jews. Jews began to be presented as innocent victims of cruel barbarous Christians. Backing this movement was Prussia. The Congress of Wilhelmsbad issued an edict that Masonic lodges were not to exclude Jews.

The Congress of Wilhelmsbad also decided to move the headquarters of illuminized Freemasonry to Frankfurt. Frankfurt was the center of Jewish financiers: Mayer Amschel Rothschild, Oppenheimer, Schuster, Speyer, D. Stern, and Wertheimer. The plans for the upcoming illuministic world revolution were formulated at the Frankfurt lodge.

In 1784, Elector Carl Theodore of Bavaria outlawed all secret societies, which included the Order of the Illuminati, not recognized by the state. The Illuminati responded by ignoring the edict. In spite of the counsel of his advisors, the Elector had issued the edict. His advisors, who were Illuminati, had greatly ridiculed and expressed considerable doubts about the existence of a conspiracy. Urging the Elector to ignore all evidence of a conspiracy were the conspirators themselves.

Following his edit, the Bavarian government began investigating the Order of the Illuminati. In 1785 the Elector suppressed by name the Order of the Illuminati, and the pope condemned the Order.

When in 1785 Weishaupt’s leadership of the Order of Illuminati became public, he fled Bavaria. He took refuge with the Ernest Louis, Duke of Saxe-Gotha. Here he continued to direct the Order.

The Illuminists turned the Bavarian disaster into a propaganda coup. They proclaimed that Illuminism was dead; the New World Order of the Illuminati was no more. Most people believed the lie. (Many still do.) With public anxiety allayed, the Illuminists became even more powerful.

Although the Order of the Illuminati was outlawed and suppressed in Bavaria and its leader exiled, the important leaders were not arrested or imprisoned. They continued to operate outside Bavaria. Though the Bavarian incident may have destroyed the Order of the Illuminati as a formal society, it did not, however, destroy the Illuminati or Illuminism. The Illuminati merely reorganized. Most likely, the German Union, which Knigge and Charles Frederic Bahardt (a Freemason) attempted to illuminize, was part of this reorganization.[16]

Ostensibly, the German Union was established to oppose those who wanted to suppress "Reason." The stated goal of the German Union was to promote naturalism, to destroy enslaving superstition, i.e., organized religion, and to enlighten mankind. It sought to restore man to his true state of liberty and equality. The German Union was not very successful, but its successor, the Tugendbund (Union of Virtue), which was organized primarily as a political league, was.

After the suppression of the Bavarian Illuminati, Mirabeau carried Illuminism to France where he initiated the Duke of Orleans and Talleyrand. Sieyes and Condorcet soon joined. Barnave, Brissot, Claude Fauchet (a Freemason), Lafayette, and Duke Francois de La Rochefoucauld also became Illuminati. By the time that the French Revolution began, the doctrines of Weishaupt had permeated every lodge of the Grand Orient of France. To Bode and Busch goes much of the credit of this indoctrination.

Although the Order of the Illuminati seems to have disappeared when the Elector of Bavaria outlawed it and Freemasonry in 1785, its philosophical being lived on in Freemasonry and other secret societies. The Order’s ideology and practices lived on (and, indeed, are alive and more vigorous than ever today). Its leaders moved on to organize new societies and to take control of other secret societies, especially Freemasonry with which it had merged at the Congress of Wilhelmsbad in 1782.

1. Eustace Mullins, Federal Reserve (1991), p. 54.

2. Lady Queenborough (Edith Starr Miller). Occult Theocracy (Two Volumes. Hawthorne, California: The Christian Book Club of America, 1933), p. 184, 371.

3. Nesta H. Webster. Secret Societies and Subversive Movements (Palmdale, California: Omni Publication, 1924), p. 207.

4. Clarence Kelly, Conspiracy Against God and Man: A Study of the Beginnings and Early History of the Great Conspiracy (Belmont, Massachusetts: Western Islands, 1974), p. 105. Eustace Mullins, The Curse of Canaan: A Demonology of History. (Staunton, Virginia: Revelation Book, 1987), p. 92. Queenborough, p. 184. Webster, p. 205.

5. Terry Melanson, "Illuminati Conspiracy, Order of the Illumined Wise Men," http://www., Dec. 12, 2002.

6. Salem Kirban, Satan’s Angels Exposed (Huntingdon Valley, Pennsylvania: Salem Kirban Inc., 1980), p. 147. Archibald E. Roberts, Emerging Struggle for States Sovereignty (Fort Collins, Colorado: Betsy Ross Press, 1979), p.153.

7. K.R. McKilliam, Conspiracy to Destroy the Christian West (London, England: The Board of Anglo-Saxon Celtic Deputies), p. 5.

8. Mullins, Curse of Cain, p. 92. Queenborough, p. 184

9. Webster, p. 228.

10. Ibid., p. 231.

11. Una Birch, Secret Societies and the French Revolution Together with Some Kindred Studies (New York, New York.: John Lane Co., 1911), pp. 50, 52. Jacob Katz, Jews and Freemasons in Europe 1723-1939. (Translator Leonard Oschry. Cambridge, Massachusetts: Harvard University Press, 1970), p. 73. McKilliam p. 6. Queenborough, p. 371, 373-374. J.M. Roberts, The Mythology of the Secret Society (New York, New York: Charles Scribner’s Sons, 1971), p. 124. William T. Still, New World Order: The Ancient Plan of Secret Societies (Lafayette, Louisiana: Huntington House Publishers, 1990), p. 74. Webster, p. 236.

12. Denis Fahey, Grand Orient: Freemasonry Unmasked as the Secret Power behind Communism through Discovery of Lost Lectures Delivered by Monsignor George F. Dillon, D.D. at Edinburgh, in October 1884 (New and Revised Edition. Metairie, Louisiana: Sons of Liberty, 1950) p. 27. Jim Marrs, Rule by Secrecy: The Hidden History That Connects the Trilateral Commission, the Freemasons, and the Great Pyramids (New York, New York: Harper Collins Publishers, 2000), p. 240-241, 253. Queenborough, p. 353. James W. Wardner, Unholy Alliances: The Secret Plan and the Secret People Who Are Working to Destroy America (James W. Wardner, 1996), p. 39.

13. Fahey, p. 46.Gary H. Kah, En Route to Global Occupation (Lafayette, Louisiana: Huntington House Publishers, 1992), p. 25, 108. Kelly, p. 90. Mullins, Curse of Canaan, p. 92.

14. The Cause of World Unrest (New York, New York: G. P. Putnam’s Sons, 1920), p. 11.

15. Kelly, p. 107.

16. Ibid, p. 133.

17. Queenborough, pp. 374-375.

18. Birch, p. 54.

[Editor's note: The list of references contained in the original is omitted.]

Copyright © 2009 by Thomas Coley Allen.

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Saturday, September 19, 2009

Response to Dale’s Analysis of "There Is Enough Gold"

Response to Dale’s Analysis of "There Is Enough Gold"
Thomas Allen

This article is a response to "Analysis of Thomas Allen’s There Is Enough Gold" by Byron Dale. Mr. Dale’s analysis can be found at http://www.

Judging from Mr. Dale’s comments, I failed to explain myself adequately on several points. On the other hand, Mr. Dale’s comments are colored by his obsessive hatred of interest, dislike of bankers, conviction of the inadequacy of gold, and love of paper money if the government issues it instead of banks. (Of coarse, one could say that my disdain of fait money and monopolistic control of the monetary system and adoration of freedom and liberty distort my views.) I could include his abhorrence of our current debt-based monetary system, but I loathe it even more than he does. After all, he wants to maintain a fiat monetary system run by bureaucrats and politicians whereas I do not.

To understand Mr. Dale’s comments better, one needs some knowledge of his reform. 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."[1]

The reform that he proposes in his book is much closer to the current system than my proposal. He maintains a fiat paper dollar currency. He only changes who issues the money (the government instead of the Federal Reserve and banking system) and how it is issued (direct spending by the government on road construction instead of lending.) My system scraps the current system entirely including abandonment of the paper dollar and a central body managing the money (both retained by Mr. Dale). It replaces the current system with an entirely new system. (Actually, it is not really all that new; it is similar to the system that existed before 1860.) Under my proposal, the government does not create and spend money into circulation. Banks do not create and lend money into circulation. Mr. Dale’s monetary reform makes only superficial changes instead of fundamental changes as I propose. A more detailed discussion of his proposal as presented in his book Bashed by the Bankers can be found in my booklet "Analysis of Byron Dale’s Monetary Reforms as Presented in Bashed by the Bankers."

Mr. Dale seems convinced that all monetary problems relate to charging interest on loans. He seems to believe that most, if not all, monetary problems would vanish if the charging of interest were outlawed. Does this disdain for interest come from the bad experience that he suffered for failure to pay a loan?

One could add that he despises debt-based money. However, that would be a mistake. As he proposes to replace the current interest-bearing debt-based money with non-interest-bearing debt-based money, his problem is with interest-bearing and not with debt-based.

Now, let’s look at his comments to my article.

Mr. Dale errors when he claims that "the markets did not regulate the gold supply. Miners of gold supplied the gold and they, for the most part mined all that they could find as fast as they could."[2] First, smart miners do not necessarily mine all that they can as fast as they can. Smart miners mine at a rate that maximizes their return. Furthermore, the consumer is the final determinant in the quantity of gold mined by his consumption of gold and gold products.

Apparently, I failed to add enough detail here. Under the classical gold standard the markets regulated the quantity of gold coins and gold bullion used as money. If the markets demanded more coins, jewelry, flatware, and other items of gold were converted to coins. Gold dealers and others presented this gold to the mint for coinage. If the markets decided that too much gold was being used for money, people would melt the excess gold coins and use the gold for other purposes, such as gold teeth and jewelry. (The markets are essentially the sum of every individual acting independently according to his economic contribution.)

Several times Mr. Dale used one of the favorite arguments against the gold standard: The gold mining industry decides how much gold is available. Mr. Dale is correct that the desire for profit drives gold miners. However, gold miners are not particularly concerned about the monetary needs of the country. This argument that gold miners decide the amount of gold available for money fails on at least four accounts.

"First, current mining of gold provides only a small fraction of gold available for monetary use. Nearly all the gold ever mined is available.

"Second, when the real bills doctrine and decentralized banking accompany the gold standard, the quantity of paper money (credit money) available does not correspond to the quantity of gold available. Bank notes and checkable deposits can expand and contract to meet the needs of commerce independently of the quantity of gold. Gold mining does not have a monopoly on gold-based money. [Mr. Dale rejects this fact.]

"Third, gold’s monetary value depends on the integrity of the monetary unit and its issuer and not just the quantity of money. Having a definite fixed monetary unit is more important than the actions of gold miners.

"Fourth, the profit motive guides gold miners. They have an incentive to provide their customers as much gold as they demand in a cost-effective way. Profits of gold mining increases as output increases and production cost decreases."[3]

Gold miners may influence the quantity of gold available, but they do not decide how much of the available gold is used as money.

Mr. Dale claims that using real bills of exchange as money is using paper debt-based money. Like most people, Mr. Dale confuses a debt-credit instrument, i.e., a loan, with a market-clearing-credit instrument, i.e., a real bill of exchange. Real bills are not loans.

"Real bills should not be confused with loans. They are not loans; they are deferred payment. They are used ‘as means of payment [that] have the effect of making commodities [i.e., goods] circulate more rapidly, without the use of money.’[4] They are claims to future money and, as such, evidence of credit transactions. The holder of a bill redeems it on the date specified on the bill for money paid by the person on whom the bill is drawn. Real bills are short-term credit that matures into gold or silver within 90 days.

"The retailer is not borrowing from the supplier, and the supplier is not lending to the retailer. Moreover, the retailer does not retire a loan if he pays his bill before maturity. Real bills finance the production and distribution of goods without debt.[5] They are a form of credit that is not a debt.

"When a bank buys a real bill, it does not make a loan. When a bank buys a real bill, it is clearing and not lending.[6] Therefore, real bills should be considered clearing instruments instead of credit [debt] instruments."[7]

The real bills doctrine automatically provides the markets with the money to buy new goods at the time those goods are being offered for sale. It saves capital for production by eliminating the need to withdraw savings for market clearing (selling new goods). When the goods have been sold (consumed), the new money is withdrawn from circulation and is permanently retired. The new money withdrawn is either the new money created by this real bill or an equivalent amount created by other real bills.

For a more detailed discussion of the real bills doctrine see Reconstruction of America’s Monetary and Banking System by Thomas Coley Allen (pp. 174-194), Antal Fekete’s lectures on the real bills doctrine at private/fekete.html, and articles discussing the real bills doctrine at http://www.

Like most people, Mr. Dale has little understanding of the true gold standard. He states, ". . . the monetary unit is named the dollar. Let’s say that the monetary unit is specific weight of gold, one grain of gold. The price of gold is then one dollar per grain. Therefore one has fixed the price of gold or no one would know what a dollar is." Mr. Dale claims that I error when I state that "the price of gold is not fixed. The monetary unit is a specific weight of gold." While trying to refute my position, he supports it with his example. He states "that the monetary unit is a specific weight of gold, one grain of gold." Then he erroneously concludes that "the price of gold is then one dollar per grain." No, it is not. If the dollar equals one grain of gold, to say that the price of gold is a dollar is absurd. It is like saying that 16 ounces equals a pound; therefore, the price of a pound is 16 ounces. The dollar has been defined as one grain of gold. The dollar is a unit of weight like the pound or gram. It is just limited to gold. The dollar is fixed in terms of gold; gold is not fixed in the terms of the dollar.

This discussion may seem to be an unimportant discourse about semantics. It is not. The distinction is highly important. Is gold to be fixed in dollars, i.e., gold is priced in dollars? That is, the government declares that the dollar is an abstraction, and it has arbitrarily fixed the price of gold. This notion leads quickly down the road to paper fiat money. On the other hand, is the dollar to be fixed in gold, i.e., the dollar is a unit of weight of gold. The government declares the dollar to be a tangible and defines it as a measurable amount of gold. This notion is the essence of the gold standard; the monetary unit is a weight of gold.

Mr. Dale’s comment on my free coinage statement is absurd. Did I really have to add that the law, Congress, defines the monetary unit, the dollar, as so many grains of gold, e.g., 23.22 grains in the Gold Standard Act of 1900. Using this standard, the mint produced a $10 coin containing ten times the weight of gold as a $1 coin if $1 coins were produced at that time. (This is what the Constitution means by "regulate the value thereof.") If the dollar were an abstraction as Mr. Dale promotes instead of a specific unit of weight, then the amount of gold in a $10 coin need not have any relationship to the amount of gold in a $1 coin. That the weight of gold in a $10 coin is ten times the weight in a $1 coin is further proof that the dollar is (or was) a unit of measure for weight. It evidences that the dollar is defined in terms of gold instead of gold being defined in terms of the dollar.

I write that a component of the gold standard is that "no restrictions are placed on exporting or importing gold." Like many people, Mr. Dale expresses great concern that too much gold would be exported, the country would lose most of its money, and people would lack money with which to trade internationally. (People who express this concern about the exportation of gold have little confidence in the free market—especially with money. Moreover, they never seem to be concerned about the excessive importation of gold. Excessive importation can be more disastrous than excessive exportation as witnessed by its destruction of the Spanish empire.) Although Mr. Dale does not mention it, the same problem can occur between regions in the same country. If a country’s gold stock declines enough to affect its value, i.e., causes the value of the remaining gold to rise (which usually results in general prices declining), gold will automatically begin coming into the country. If barriers are not erected to impede the movement of gold, people from countries with an abundance of gold will come with their gold to buy the bargains in countries deficient in gold. Prices of goods in countries deficient in gold are lower than they are in countries with an abundance of gold. (Prices adjust to the quantity of money available—a fact that Mr. Dale seems not to know.)

I note that a component of the gold standard is that "all paper money is redeemable in gold on demand." Mr. Dale cannot possibly be as ignorant as his comment suggests. He comments, "[I]f gold is the money, what is the paper money he is talking about, where does it come from and how does it get into circulation?" He knows the answer to this question because several paragraphs above he comments on the paper money component of the monetary system that I am presenting and refers the reader to the parts of my article where I discuss this paper money, where it comes from, and how it gets into circulation.

Where does Mr. Dale get this notion that adherents of the gold standard want to outlaw paper money? I have never found one that does. Adherents of the gold standard do disagree about whether all paper money should be warehouse receipts, i.e., all paper money is fully (100 percent) backed by gold, or not fully backed by gold. They all agree that all paper money, whether fully backed or not, should be redeemed in gold on demand and should never be legal tender. (A few adherents of the gold standard would allow issuers of bank notes to delay redemption if the note carried a notice that redemption could be delayed.)

Another component of the gold standard that I give is that it is self-regulating and automatically adjusts to meet the demand for metallic money. Mr. Dale asks how this supply would be self-regulating. He is convinced that "the gold miners would regulate the supply of gold by how much gold they found and mined." Gold miners do add to the supply of gold by the amount that they mined. However, unless they are coining their gold, they are not adding to the monetary stock. (The exception is the Rothbard school, which claims that all gold regardless of form—the weight of the metal and not its form makes the money—is part of the monetary stock. I doubt that Mr. Dale is of the Rothbard school.) The markets decide how much gold is being used as money. It decides that by the quantity of gold brought to the mint for coinage and by how many coins are melted for other uses. If the value of gold in jewelry, for example, begins to rise in relationship to the value of gold in coins, people will melt the coins and convert them to the more valuable jewelry until the value of the two are brought back in line. If the value of gold in coins begins to rise in relationship to gold in jewelry, people will convert the gold in jewelry into coins until the value of the two are brought back in line. This example ignores the artistic work of jewelry as is commonly done in India and other countries.

I also note that no monetary policy is necessary and none is desirable. Mr. Dale asks, ". . . if the monetary unit is set by a specific weight of gold isn’t that monetary policy?" I suppose in the broadest sense that defining the monetary unit as a specific weight of gold is a monetary policy in the same sense as defining the pound and foot is a weights and measure policy. However, when people think of monetary policy, they normally think of the government or its central bank manipulating the money supply to achieve some goal, such as interest rates, general price levels, employment, or road construction.

To my statement that "the government does not issue any paper money," Mr. Dale makes another ridiculous comment: "If there is enough gold for a workable money system and the people choose to use that system why would there be any need for any paper money." For some transactions, such as transferring gold from one account to another, which is what a paper check does, or for making large purchases, which is more convenient with paper bank notes, people find paper money more suitable. Mr. Dale knows this. He says so in his book. Why does he make such an absurd statement? Does he want to belittle supporters of the gold standard? He seems to preclude any use of paper money when the standard money is gold coin.

Mr. Dale seems to be almost as obsessed with gold miners as he is with interest. I state that "Gold coins are the property of the individual holding them. . . . No restrictions or controls are placed on the private ownership of gold." He responds, ". . . that sounds good until the miners decided . . . to loan all the gold they mined into circulation as interest-bearing loans." If the gold miners decided to do this, which is highly unlikely, they would only be lending about 2 percent of the world gold stock. The other 98 percent is available for monetary use without borrowing or lending. Are people really going to borrow that 2 percent? Mr. Dale keeps trying to confuse the gold standard with the current federal reserve dollar standard where money is created through the lending process.

Mr. Dale claims that I am contradicting myself when I write, "The government's monetary duties are limited to defining the monetary unit, coining all gold presented to it for coinage and guaranteeing the weight and fineness of such coins. . . ." He asserts that these duties conflict with specifying the monetary unit as a specific weight of gold. What does he think "defining the monetary unit" is? It is specifying (defining) the monetary unit as a specific weight of gold. Where is the conflict? If the government is arbitrary in its declaration of the monetary unit, perhaps a conflict exists. However, if it merely codifies what the markets have already decided as Congress did with the Coinage Act of 1792, no conflict exists.

He also asserts that these duties conflict with free coinage of gold. "Coining all gold presented to it for coinage" is free coinage. I clearly define free coinage as such several sentences earlier. So, I repeat, where is the conflict?

Apparently, in trying to overcome the excessive emphasis that most people placed on the quantity of money while ignoring its quality, I may have over emphasized the quality aspect. As Mr. Dale notes, both are important.

I was trying to stress that the quality of money, i.e., the purchasing power of the monetary unit, is more important than the quantity of money, i.e., the number of monetary units. The more that a given quantity of money can buy, the higher is its quality. The less that quantity buys, the lower is its quality. High quality money can buy a large amount of goods with a small quantity of money. Low quality money requires a much higher quantity of money to buy the same amount of goods. The federal reserve dollar is low quality money, and the gold dollar is high quality money. A gold dollar has the purchasing power 50 times greater than a federal reserve dollar. Fifty federal reserve dollars are needed to do the work of one gold dollar. Thus, a large quantity of low quality federal reserve dollars are needed to do the work of a high quality gold dollar. It is obvious from Mr. Dale’s comments that he thinks in terms of quantity (the more, the better) instead of quality (the higher, the better). Would he really prefer ten million Zimbabwe dollars (July 2008 vintage) to one euro? If he thinks in terms of quantity, he would prefer the ten million Zimbabwe dollars. If he thinks in terms of quality, he would prefer the one euro.

Mr. Dale continues to harp on my not explaining how the markets regulate the money supply. Mr. Dale, you got at least to meet me part way. I explain several times in my article how the markets regulate the money supply. Again, here it is. For metallic money, it is done through free coinage. The mint coins all the gold presented to it for coinage, and the people may melt all the coins that they desire for other usages. The quantity of coins is maintained through minting and melting such that little or no difference exists between the value of gold in coins and gold in other forms. All of this is done without any decision by any political body or governmental bureaucrat.

To this is added the market-driven changes to the money supply through the real bills doctrine or commercial money principle, with which Mr. Dale disagrees. I explain below how money is created under the real bills doctrine.

I have failed to explain myself adequately if Mr. Dale concludes that I am saying "that no one can purchase things with fiat money." People have been buying things with it in the United States since 1933. When I write that "fiat money lack quality," I do not mean that it cannot function as a purchasing medium. I mean that its purchasing power steadily declines over time. Thus, it is a poor store of value. Being a poor store of value, it is a poor measure of value and a poor unit of accounts resulting in arbitrary inflation adjustments being made. Usually, it represents nothing tangible, or at least the issuer is not required to covert it into something tangible on demand.

I do not understand why Mr. Dale fails to find me distinguishing between metallic money and credit money. In the sentence following his comment, I make such distinguish. I give a thorough discussion of the gold standard (metallic money) and the real bills doctrine (credit money).
Mr. Dale claims that my statement about the 100-percent gold standard is false. It is not. Under the 100-percent gold standard, all paper money is merely a warehouse receipt for gold, i.e., all paper money is backed 100 percent by gold.

Mr. Dale errors when he says, especially if he claims that I say, that the "real bills doctrine based on bank created money loaned into circulation at interest is a good money system because it is based on production." I do contend that the real bills doctrine creates credit money based on production. I deny that it is "based on bank created money loaned into circulation at interest." A monetary system based on the gold standard and the real bills doctrine can function without banks although not as efficiency. The real bill itself is money, commercial money. It can be used to discharge debt. If the owner of the real bill sells it to an investor, the investor buys it at a discount. The discount, which is not an interest rate, varies with the maturity date of the bill. Like all prices not fixed by the government, the markets fix the rate.

If he sells it to a bank, the bank buys it with bank notes or checkbook money, i.e., credits the seller’s checking account with the amount of the real bill. The bank is not lending, much less lending at interest. Savers fix the interest rate by their propensity to save. Consumers fix the discount rate by their propensity to consume. Moreover, the bank is not creating money in the true sense. The money creation is done when the retailer accepts (signs) the real bill of exchange. What the bank has done is to convert commercial money (the real bill of exchange) to bank money (checkbook money and bank notes). This action is akin to someone depositing federal reserve notes with a bank and having the bank credit his checking account with the amount of the deposited notes. The bank has merely converted one form of money, the federal reserve notes, to another form, checkbook money.

Mr. Dale keeps repeating that I "never seem to be able to tell us just how a person acting in his individual capacity can product [sic] any kind of money." I have already explained how an individual can convert gold into money by having it coined.

Although an individual seldom converts his labor into money acting as an individual, he can do it cooperatively under the real bills doctrine. If he is part of the work force of a factory, his labor is "monetized," so to speak, into commercial money through the real bill of exchange process. To simplify, I assume that the manufacturer sells directly to the retailer. When the manufacturer sells to the retailer, he offers and the retailer accepts a real bill of exchange. Thus, they have created money, commercial money. With the labor of all the individual factory workers, this money has been created. It is a representation of all the individual workers’ contribution to the finished product. As these workers produce more, they cause the creation of more money.

Mr. Dale vehemently disagrees with my characterization of fiat money. I contend that the government or its central bank arbitrarily regulates the money supply. He asserts, ". . . the key distinction between fait money and gold is wealth based money vs. interest-bearing debt based money." His definition of fiat money is unique. (He probably created this unique definition to avoid his proposed fiat money being called fiat money, which it really is, by contending that wealth-based money is not fiat money. He claims that his proposed money is wealth-based because it is issued to build roads.) If it is interest-bearing debt-based money, it is fiat money. If it is wealth-based money, it is not. By his definition, the French assignat was not fiat money as it was based on land. Every economist whom I have read who has commented on the assignat considers it fiat money. I am not sure how Mr. Dale would classify the U.S. note as it was neither interest-bearing debt-based money (although it was debt based) and was not wealth based between 1862 and 1879 and after 1932. (Mr. Dale probably considers it wealth based between 1879 and 1932 when it was redeemable in gold on demand.)

The definition of fiat money used by many monetary economists is that the money supply is controlled arbitrarily instead of being regulated by the markets. This is its most important aspect. Secondarily, the material of which the standard money is made has less value than the money itself. These are the two criteria that I use for mydefinition.

His comment on fiat money was written to my sentence: "The key distinction between fiat money that uses gold and the true gold standard is the way that the money supply is regulated." I am claiming that gold can be part of a fiat monetary scheme. Mr. Dale seems to be arguing that gold, regardless how the quantity of monetary gold is regulated, is not fiat money. (What about gold lent at interest into circulation? Is that fiat money?) Yet he also seems to consider the federal reserve dollar to be interest-bearing debt-based money from its beginning in 1914 and, therefore, is fiat money. Between 1914 and 1933, the federal reserve note was not legal tender and was redeemable in gold on demand. Was it fiat money? I say no because it was not legal tender—no one had to accept it. Through the redemption process, the markets prevented too many from being issued. By Dale’s definition, it seems to be fiat money because most of it came into being via the purchase of treasury notes. However, gold backed at least 40 percent of the federal reserve notes. This 40 percent was wealth-based money. Was this 40 percent not fiat money? In 1933, Congress ended the redemption of federal reserve notes and made them legal tender. I contend that from this point forward federal reserve notes were true fiat money. Mr. Dale probably agrees. However, with his definition, that all federal reserve notes were fiat money before 1968 is questionable. Gold backed at least 40 percent of the federal reserve notes outstanding until 1945. In 1945 Congress reduced the backing to 25 percent and eliminated it in 1968. As this 40 percent and later 25 percent were wealth-based gold, apparently this money was not fiat money by Dale’s definition.

Like most people, Mr. Dale confuses the markets’ demand for money overall with an individual’s desire for money. If everyone had all the money that he wanted, money would be worthless. Most people want an unlimited supply of money.

He cannot conceive of people melting gold coins to use the gold for other purposes. I explain above why people would melt gold. If gold is more valuable in another product than it is in coins, people will melt coins for use in the higher gold-valued product. If people seek to maximize their wealth, as Mr. Dale suggests, why would they not melt coins? If the value of gold in some non-coin form never exceeded the value of gold in coin form, nearly all gold would be coined. As that has never happened, gold must have a great deal of value outside coins.

Mr. Dale contends that federal reserve notes being legal tender is a nonissue because the U.S. Supreme Court and others do not accept federal reserve notes and require checks. He states that checkbook money is not legal tender, which is true. The reason that these agencies refuse federal reserve notes and require checks is that they do not trust their employees. On the other hand, the Post Office requires federal reserve notes and refuse checks for money orders. (Unless a change has been made in the past two years, no State agency in North Carolina can write a rule that precludes payment in federal reserve notes. The Department of Revenue may be an exception as many of its rules are not subject to normal rulemaking.)

Legal tender laws usually do not require a person to sell his goods or services for federal reserve notes. He can sell them in whatever currency that he wants. However, if he sells on credit, the legal tender laws require him to accept payment in federal reserve notes if the debtor so choice to pay with federal reserve notes.

Stripping the federal reserve dollar of its legal tender status is important in returning to the gold standard. If the federal reserve dollar remains legal tender, the debtor could pay a debt contracted in gold with federal reserve notes.

Under my discussion of the real bills doctrine, I write that the bill of exchange allows the retailer time to get the money that he will use to pay for the merchandise from the buyers of that merchandise. Mr. Dale remarks, "If there was enough money in the system the retailer would have the money to pay for the goods." Where does the retailer get the money for his initial stock? Mr. Dale does not say. Presumably, he would have to save enough money to buy his initial stock. (Mr. Dale’s reform is designed to discourage savings.) Thus, he would have to borrow the money from himself, a bank, or someone else to pay for his initial stock. (Mr. Dale does not like people borrowing.) Mr. Dale suggests that the retailer should be buying his next stock from the money earned from selling his current stock. Is it not more economical to pay for the current stock from the selling of the current stock and for the next stock from the selling the next stock? It does eliminate the need to borrow either from oneself or from a bank. Mr. Dale should like that.

At the point of repeating myself again, Mr. Dale is totally confused about the real bills doctrine. His confusion is never more evident than his comment on the simple example that I give about the real bills doctrine.

He sees a long line of lending where no lending is occurring. A real bill of exchange is not a lending instrument. It is a clearing instrument No one is lending. No one is borrowing. Producers and wholesalers are giving the retailer time to sell the final product to the final consumer. By doing this, they free capital for other uses instead of tying it up in stock.

Perhaps Mr. Dale is confusing the real bills doctrine with the current system. The producer, wholesaler, and retailer are dependent on bank loans to operate. The real bills doctrine frees them from this dependency on bank loans. It allows them to operate without banks and loans. Again, Mr. Dale should like this.

Mr. Dale asks where an investor or bank gets the money to buy a real bill and what kind of money is it and how did it get into circulation. Under the system that I am advocating, the investor gets his money from savings. I have already explained how metallic money and commercial money and the bank money into which commercial money is converted get into circulation. (I am not sure where they would get the money under Mr. Dale’s reform as it discourages savings. However, real bills would not exist under Mr. Dale’s reform as all his money is someone’s obligation.)

Mr. Dale asserts that all checkbook money is bank-created money. If one deposits a gold coin in his checking account, the bank takes the coin and appears to do something mysterious with it—Mr. Dale does not state what happens to it. The bank just creates checkbook money out of nothing—so Mr. Dale implies. Apparently, the money in the checking account is not a claim against the gold deposited. In reality, the bank puts the gold coin in its vault and credits the depositor’s checking account with the gold deposited. The depositor can then write a check on his account instructing the bank to transfer the gold to another person. Mr. Dale is an intelligent person and should know this.

Mr. Dale continuously harps that a bank creates money when it credits a checking account even when money is deposited in a checking account or when a bank converts one form of money to checkbook money. I suppose that one could construe that a bank creates money when it converts money from one form to another. When a person deposits a gold coin in his checking account, in a sense the bank does create checkbook money by crediting to the depositor’s checking account. That checkbook money did not exist before. However, that process is more correctly viewed as conversion instead of creation. The new checkbook money enters the money supply, and the deposited gold coin is removed. When a check is deposited redeeming the gold coin, the gold reenters the money supply and the checkbook money leaves it. No change has occurred in the money supply.

Likewise with real bills, a bank removes it from the money supply when it "creates" checkbook money, crediting the checking account of the seller of the bill, to buy the bill. The bank has not increased the money supply. It has removed the bill, which is money in its own right, from the money supply to offset the checkbook money added. Within 90 days that checkbook money, or an equivalent amount checkbook money and bank notes, is permanently removed from the money supply when it pays the real bill. When paid, the real bill is also retired permanently and removed from the money supply as the goods that it represents have been sold.

These processes differ from the current bank lending process. Currently, banks often create new money as checkbook money when it lends. Mr. Dale, does a bank create money when it lends savings deposits? When the Federal Reserve buys treasury bills, it creates checkbook money, that is, it credits a checking account with the price of the treasury bills. It can do this directly or indirectly through local banks by crediting that bank’s reserves. This is not a conversion process because treasury bills were not and are not money. The Federal Reserve is actually adding new money to the economy without offsetting it by removing an equivalent amount of existing money.
I note that "the real bills doctrine generates the money necessary to buy newly produced goods and retires that money when the goods are sold." Mr. Dale responses, "If there was enough gold money there would be no need for the real bills doctrine." Apparently, my lack of clarity again appears. I never claim that there is enough gold without the real bills doctrine for the economy to function efficiently. (It can function, but not efficiently.) Furthermore, I know that Mr. Dale is obsessed with his loathing of charging interest. Commercially created money (real bills) does not involve interest. To repeat myself, the discount rate for a real bill is not an interest rate.

To explain adequately everything to Mr. Dale, I guess that I needed to write another 30 pages or more. Even then, I could not anticipate all his points of confusion. Furthermore, I doubt that I could convince Mr. Dale that the discount rate is not an interest rate and a real bill is not a loan. No matter how articulately I or anyone else expresses this truth, I doubt that Mr. Dale will ever accept it.

Mr. Dale claims that my statement "with their production, the people create money" could "only be true if everyone bartered." I have already described about how people create money under the real bills doctrine. I will not repeat that here. Barter is not necessary. To my statement that "with their consumption, they destroy money," He remarks, "I didn’t know that eggs, bananas, meat, bread, wine, houses and clothes etc. were money." Where did I say that they were money? True, people consume these products. However, they buy them with gold coins, bank notes, or checkbook money. The seller uses these moneys to pay his bill. Payment of the bill retires (destroys) it. If the owner of the bill receives bank notes or checks in payment, he sends them to the bank of origin for gold. The bank of origin removes (debits) gold from the account on which the check is drawn—thus, destroying that checkbook money. It retires (destroys) the bank notes received and redeemed. Thus, "with their consumption, they destroy money."

Mr. Dale asks why gold is needed with the real bills doctrine. The real bills doctrine cannot work without gold (or another commodity functioning as money, such as silver). Real bills must always mature into specie, i.e., gold in our present discussion. Being a future good or obligation, real bills can only mature into a present good that is no one’s obligation, such as gold. (As fiat money is a future obligation, including Mr. Dale’s fiat money, real bills become nonfunctional under fiat monetary systems.) Moreover, gold functions as the governor or regulator for the whole system. If real bills overestimate or underestimate the value of new goods being offered for sale, gold notifies sellers, bankers, and others that errors are occurring and corrective action is needed. It also prevents inventory speculation, which is discussed below. Moreover, gold is also needed for things that do not qualify to be covered by a real bill of exchange, e.g., things that typically take more than 90 days from production to final consumer, such as houses and factories.

Mr. Dale continuously insists that bankers are earning "all that ‘nice’ interest as profit for not really producing any thing" in connection to real bills. Must I repeatedly rebut that real bills pay no interest? Its discount rate is not an interest rate. I explain this above.

Furthermore, real bills are not loans. They are claims to future money and evidence of credit transactions. They are clearing instruments and not lending instruments. I explain this above.

I state, "Banks merely convert it from one form (real bills or commercial money) to another (bank notes and checkable deposits)." Mr. Dale remarks, "Then why don’t we all just write our own real bills and go deposit in our checking accounts." He has got to be kidding. Is this a serious question? I give the obvious answer: Most of us are not doing anything that would qualify for a real bill of exchange. So, if we wrote one, we would need a coconspirator or some ignorant buffoon to accept (sign) it, or we would have to forge a signature of acceptance. If we then tried to unload it on a bank or someone else, we would be guilty of fraud. I am sure that Mr. Dale knows this.

Nelson Hultberg describes real bills as "temporary bills of exchange that appear simultaneously with goods that are being produced to aid such goods in further transportation along the production/consumption chain. These bills of exchange then go out of existence once the goods have cleared the markets."[8]

Most of us are not directly involved in the production of consumer goods expected to be completely sold within 90 days. Therefore, most of us cannot write real bills of exchange. Mr. Dale, I am beginning to believe that you "must not live in the same world as the rest of us."
Mr. Dale continuously harps on real bills being loans. As I explained above, they are not loans. No one is borrowing. No one is lending. Furthermore, no one pays interest on a real bill. The discount is not interest. If the retailer pays the supplier on delivery instead of 90 days later, he receives the discount. He pays less if he pays at the time of delivery than he would pay if he pays 90 days later. Does that mean he has collected interest from the supplier? Mr. Dale seems to think so.

About the real bills doctrine, Mr. Dale claims that it is "based on the theory that gold was the only real money, money that neither the farmers, nor the businessmen, nor the bankers had." Why would no farmer, businessman, or bank have any gold? That any of them would have been in business without at least at some time possessing gold is incredulous.

He also states, "The real bills doctrine was where the banks could finance industry based on commercial paper guarantees." This is not exactly correct. Not all commercial paper is acceptable for discounting under the real bills doctrine. The only commercial paper eligible for discounting under the real bills doctrine is a real bill of exchange or a promissary note that is functionally the same as a real bill of exchange. Other commercial papers, such as bills of acceptance and bills of accommodation, are really lending and not clearing instruments. A bank may say that it is discounting them, but it is really lending and charging interest.

Mr. Dale is correct when he states that government bonds and broker loans are ineligible. However, he claims that inventory speculation is acceptable under the real bills doctrine. It is not. A function of gold under the real bills doctrine is to prevent inventory speculation. Bank notes and checkbook money created for inventory speculation result in bank notes and checkbook money exceeding the demand for money to buy new goods. The excessive credit money would be redeemed for gold. As people redeem the excess bank money for gold, the bank risks not having enough gold in its vaults to honor these claims (its credit money). If it fails to redeem all its bank money presented for redemption, the government should send the banker to prison for fraud. If the government would imprison every banker who failed to redeem his notes and checks drawn on his bank’s accounts (assuming the account is credited for more than the check), bankers would be strongly discouraged from discounting (buying) any bills based on inventory speculation.

In my demonstration showing that enough gold exists, Mr. Dale complains about my expressing gold in dollars. To make the necessary comparisons, I needed to convert everything to a common unit. I could have converted everything to euros or ounces. I chose dollars because most Americans think about money in terms of dollars.

Mr. Dale must have been "grasping at straws" at this point to find faults with my paper. Apparently, he would have understood the comparison better if I compared gold in ounces to trade volume in dollars.

Toward the end of the paper, Mr. Dale describes the real bills doctrine. His description assumes a central bank like the Federal Reserve. Some of the problems that he associates with the real bills doctrine can occur with a centralized banking system. Although I did not discuss the banking system in my original article as it was beyond the scope of the article, I argue against centralized banking and in favor of decentralized banking in my book Reconstruction of America’s Monetary and Banking System. My first recommendation in reconstructing America’s monetary system is to abolish the Federal Reserve.

Mr. Dale claims that "in the 1792 coinage act the dollar was value in wealth owned, a weight, 24.75 grains of pure gold." This is incorrect. Congress defined the dollar as 371.25 grains of silver (.995 fine) or 416 grains of standard silver (0.892 fine). Thus, Congress defined the dollar as a certain weight of silver, which Mr. Dale acknowledges in another comment, and not gold. (It did not fix the price of silver.) "As for gold, Congress adopted the ‘eagle’ and defined it as equal to ten silver dollars. One eagle contained 247.5 grains of pure gold and was equal in value to 3712.5 grains of pure silver. Thus, in terms of gold, one silver dollar equaled 24.75 grains of pure gold, 27.00 grains of standard gold (0.91667 fine). . . ."[9]

When I state that "when accompanied by the real bills doctrine this amount of gold could accommodate more that $425 trillion in trade quarterly or more than $1.7 quadrillion annually," Mr. Dale claims that I am fractionalizing gold. I am not. Under the real bills doctrine with sound decentralized banking, fractional reserve banking does not exist. Specie or commercial money backs all credit money (bank notes and checkbook money) that a bank "creates" (more correctly, converts). The specie and commercial money remains out of circulation. No one has use of it while the bank money representing that specie or commercial money is in circulation or available for use. Thus, if all bank notes and demand deposits (checkbook money) are fully backed by specie (gold and silver) or commercial money (real bills) maturing into specie, fractional reserve banking as such does not exists. I know that Mr. Dale will never understand that this is not fractional reserve banking. For my inability to explain this concept adequately and clearly, I apologize to him.

Mr. Dale writes, "Before one can have gold or silver stamped into coined money one must have the gold and silver, which seems to be something very hard for most people to get their hands on." If Mr. Dale or anyone else who finds it hard to obtain gold and especially silver, he has not bothered to find any. Gold and silver are easily found without hardly looking—try eBay for a starter. Hundreds if not thousands of money changers exist around the country to change federal reserve dollars into gold and silver. Anyone who can acquire federal reserve notes can acquire silver. One can convert a $20 federal reserve note (less than the cost of a meal for two at a moderately priced restaurant) into one ounce of silver and receive change back. If one observes his change, he may occasionally find a silver dime or quarter. Anyone who earns an average wage can easily save enough to obtain gold if he really wants the gold.

I point out that Gresham’s law explains why one does not see people paying their debts with gold and silver. I noted that people are not going to pay a $1000 debt with 20 $50 gold eagles (20 ounces of gold) or 1000 $1 silver liberty dollars (1000 ounces of silver). Mr. Dale remarks, "If all the things he mentioned above where legal tender and the legal tender law were enforced, all those things would have the same purchasing power." Congress has made all them legal tender. As the debtor chooses the legal tender with which to pay his debts, he will choose the cheapest (lowest quality) one, which is the federal reserve note. (Considering Mr. Dale’s predilection for paper money, he probably would use gold or silver coins, if he could find any, for payment and save his paper money.)

They may all have the same debt paying power although the IRS disputes that. The IRS contends that when a person’s wages are paid with gold eagles, for example, for tax purposes the wage is computed based on the value of the coin’s metal content in terms of the federal reserve notes. It is not computed based on the legal tender value stamped on the coin.

Mr. Dale fails to realize that Gresham’s law trumps legal tender laws when high quality money like gold and low quality money like irredeemable federal reserve notes are both legal tenders. People will spend the low quality money and save the high quality money.

Mr. Dale asserts, "The myth is that there ever [sic, I assume he means never] was enough gold for a good general medium-of-change." If there has never been enough gold, why have people chosen it for money when left free from governmental coercion? People have never voluntarily chosen irredeemable paper money, even the paper money promoted by Mr. Dale, as their money without governmental coercion. Perhaps Mr. Dale can provide an example if I am wrong.

Mr. Dale writes, "The United States Constitution did not declare what was to be or what was not to be dollars." The Constitution does not define year or mile, either, but it uses year and mile as a unit measure—just like it uses dollar as a unit of measure. Mr. Dale must believe that the writers of the Constitution did not have a clue about what they meant by "dollar." They were going the leave its definition to the whim of Congress. Congress could define the dollar on a whim and could change that definition at anytime on a whim. He also must believe that the people as States adopted a constitution that allowed Congress to levy a duty up to $10 per slave imported without knowing what a dollar was. Without this knowledge, they would not know what this tax would be. Would they have approved the Constitution not knowing what a dollar was or would be? Would they have approved the Constitution if Congress could declare the dollar to be anything that it wanted it to be? If so, for all they knew, Congress would define the dollar as a slave. Thus, the importer of slaves would pay the U.S. government up to ten slaves for each slave imported. Does Mr. Dale really believe this? He does if he believes that the definition of the dollar was left to the whim of Congress. (Mr. Dale must maintain that the definition of "dollar" is left to the whim of Congress to justify the constitutionality of the dollar that he proposes in his monetary reform.)

If Mr. Dale is consistent, he must also believe that the definition of "year" and "mile" is left to the whim of Congress. Congress could lawfully change the definition of "year" from one rotation around the sun to 100 rotations and give themselves lifetime tenure. A two-year term would thus last for 200 rotations around the sun. It could lawfully change the definition of "mile"such that the ten-miles-square district over which it is given exclusive legislation covers the whole country.

Contrary to Mr. Dale’s assertion, people knew what a dollar was. Lawfully, Congress can no more change that definition than it can change the definition of year or mile. The definition of "dollar" was not left to the whim of Congress. Everyone knew that the dollar meant the weight of silver in the Spanish milled dollar. Under the Articles of Confederation, Congress had defined the dollar as the weight of silver in the Spanish milled dollar. It adopted that standard because the Spanish milled dollar was customarily used in commerce and business.

Mr. Dale faults my article for my failure to discuss banking. Such a discussion was beyond the scope of my article. If he wants to read my discussion of banking and how it needs to be reconstructed, he should buy my book, Reconstruction of America’s Monetary and Banking System, and read the 80 pages on banking.

I write, "The founding fathers never intended that the U.S. government should issue any kind of paper money. The Constitutional Convention discussed that issue and the Convention rejected granting the U.S. government the authority to print or issue paper money." Mr. Dale responds, "The Constitutional Convention discussed not using bills of credit." Members of the convention used "bills of credit" and "paper money" interchangeably. They were synonymous. James Madison wrote, "Striking out the words [‘to emit bills on the credit of the United States’] cut off the pretext for a paper currency, and particularly for making the bills a tender either for public or private debts."[10] Oliver Ellsworth, who was also a member of the Constitutional Convention and later chief justice of the Supreme Court, concurred with Madison, "This is a favorable moment to shut and bar the door against paper money."[11]

Mr. Dale claims that "the first thing that the founding fathers did under the direction of Alexander Hamilton . . . [was to] set up a bank and issued bills of credit." The United States Bank was a private corporation chartered by Congress. It was not part of the U.S. government. Like all other banks, it could issue bank notes or, as Mr. Dale calls them, bills of credit. As such, it did not violate the constitutional prohibition against Congress issuing bills of credit. (One could construe that chartering the bank was a way to sneak around this prohibition.) I agree with Jefferson that Congress has no authority to charter a bank. Therefore, the United States Bank, like the current Federal Reserve, was unlawful, and its establishment was unconstitutional.

In conclusion, Mr. Dale habitually confuses the monetary system of the gold and silver standard accompanied by the real bills doctrine (commercial paper principle) that I propose with the current monetary system. He seems unable to think outside the parameters of the current monetary system. Because he cannot free himself from the parameters of the current debt-based fiat monetary system does not mean that others cannot. (He wants to maintain a debt-based fiat monetary system.)

In closing, I offer a comment by Professor Walter E. Spahr, Chairman of the Department of Economics at New York University from 1927 to 1956, "What is the meaning of a gold standard and a redeemable currency? It represents integrity. It insures the people’s control over the government’s use of the public purse. It is the best guarantee against the socialization of a nation. It enables a people to keep the government and banks in check. It prevents currency expansion from getting ever farther out of bounds until it becomes worthless. It tends to force standards of honesty on government and bank officials. It is the symbol of a free society and an honourable government. It is a necessary prerequisite to economic health. It is the first economic bulwark of free men."[12]


1. Byron Dale, Bashed by the Bankers (Pro-American Educational Foundation, 1988), p. 51.
2. Byron Dale, "Analysis of Thomas Allen’s There is enough Gold," print/25550, Aug. 21, 2009. All quoted material whose source is not noted is from this source.
3. Thomas Coley Allen, Reconstruction of America’s Monetary and Banking System: A Return to Constitutional Money (Franklinton: TC Allen Co., 2009), p.130.
4. Charles Rist, History of Monetary and Credit Theory from John Law to the Present Day, translator Jane Degras (1940, reprint; New York: Augustus M. Kelly, 1966), p. 35.
5. Antal E. Fekete, "Monetary Economics 101: The Real Bills Doctrine of Adam Smith," Lecture 6, Aug.5, 2002, http// lecture101-6pvf.htm, Sept. 12, 2007.
6. Antal E. Fekete, "Monetary Economics 101: The Real Bills Doctrine of Adam Smith," Lecture 12, Oct.6, 2002, http// lecture101-12pvf.htm, Sept. 12, 2007.
7. Allen, p. 183.
8. Nelson Hultberg, "Cranks in the Gold Community," July 11, 2005,, July 12, 2005.
9. Allen, p. 84.
10. George Bancroft, A Plea of the Constitution of the United States, p. 40.
11. Ibid., p. 43.
12. The Gold Standard Institute, Newsletter #3, August 24, 2009, p. 1.

Copyright © 2009 by Thomas Coley Allen. 

More articles on money.

Sunday, September 6, 2009

Assignat: The Nearly Perfect Money

Assignat: The Nearly Perfect Money
Thomas Allen

The assignat was nearly the perfect money. It was perfect in that it was created and issued by the government and not by the people or banks. It was perfect in that it was not backed by or redeemable on demand in precious metals. Its imperfection came in that it was backed by and convertible into (could be used to buy) lands of the government. To have been absolutely perfect money, the assignat would have had to be backed by nothing except the faith and credit of the French government and redeemable or convertible into nothing. To be absolutely perfect, money has to be completely an abstract intangible representing nothing—or so many monetary reformers and fiat money adherents claim.

When the revolutionary government came to power, France was suffering a lack of confidence and economic stagnation. It concluded that a lack of circulating medium caused the economic problems of France. Instead of using wise management that involved patience and self-denial, "the rarest products of political wisdom,"[1] which would have brought gradual sustainable long-term economic growth, the government choice the easy road of fiat money. Paper money would solve the country’s problems immediately.

The revolutionary government found that the country was poor in gold and silver. However, it found itself rich in land. It had stolen the land owned by the Catholic Church. Also, it had taken the lands of the Crown and the Royalist refugees. It used these lands as the basis for its new paper money, the assignat. Assignats could be redeemed for these lands.

Arguments of the proponents of the assignat included:

1. It would quickly and easily pay for the government’s expenses.

2. Land backed it, and it could be used to buy government land.

3. It would quickly transfer church lands to the people and thus create a cadre of small farmers to support the Revolution.

4. It could not be over issued because any excess would be used to buy land.

5. It was a "virtual mortgage on a landed domain vastly greater in value than the entire issue."[2]

6. It would bring economic prosperity.

7. The French nation was now more enlightened than it was in John Law’s time. (John Law was the author of the great inflation that France had suffered 70 years earlier.)

8. A popular constitutional government now governed France instead of an absolute monarch.

9. Enlighten self-interest and patriotism would maintain the money’s value.

10. Whatever the government decrees to be money is money and derives its monetary value solely from the government’s decree.

The government began issuing assignats in 1789. As the assignats promised to pay in coins and were not legal tender, they were originally credit instruments. They also paid interest. To prevent their usage as ordinary currency, they were issued in large denominations that were convenient sizes for the purchase of land. Government-owned land secured them. "They constituted, so to speak, a general mortgage upon the property of the republic, and were convertible into land at the option of the holder."[3]

In 1790, the government declared the assignat to be legal tender and ceased paying interest on future issues. Also, it began to issue small denomination assignats as metallic coins hardly circulated (caused by the depreciation of the assignat). When the government made the assignat legal tender, it severed its connection to land. When it became legal tender, its value depended more on its quantity in circulation instead of the value of land into which it could be converted. France had committed to a policy of inflation.

With land securing the assignats, people thought that they were adequately secured. They could not understand why gold and silver exchanged at a premium. (This lack of understanding is common among fiat money adherents.)

With each issuance of assignats, the premium on gold and silver rose. Like most fiat money folks and the monetary ignorant, the people and government blamed the bullion dealers. Demagogues clamored for hanging bullion dealers. Premiums would continue to rise until a sufficient number of dealers were hanged. Then assignats would trade at par with coins.

Many believe that British agents were the cause of the assignat’s depreciation. These agents caused people to distrust paper money. (Later British agents were blame for destroying the value of the assignat with counterfeiting.) One "popular theory was that the Bourbon family were, in some mysterious way, drawing off all solid money to the chief centers of their intrigues in Germany."[4] Another explanation was that France imported too much and exported too little.

It never occurred to the adherents of the assignat that assignats were inferior money and that gold and silver were the superior money. The rise in prices could not be the fault of the fiat paper money—or so they believed. However, when people can use inferior money, which legal tender laws give them the right to do, they will use it and save the superior money.

Merchants began charging two prices for their goods and services. They charged a higher price for paper money and a lower price for specie. These merchants were soon denounced as enemies of the Republic. In April 1793, the government outlawed charging different prices for paper money and specie or refusing to accept assignats in payment for goods and services. Merchants could only charge one price, and they had to accept what the buyer offered. In September 1793, the government imposed the death penalty and confiscated the merchant’s property for refusing to accept assignats or accepting them at a discount. Next the government suppressed all commerce in gold and silver in November 1793. Thus, gold and silver ceased circulating, and prices continued to rise. (In August 1795, the government allowed special contracts to be made in specie. Coins soon reappeared in circulation.)

With each issuance of assignats, their value declined and prices rose—slowly at first and then more rapidly. As prices rose, the people demanded more assignats to offset the apparent shortage of money. At first prosperity was blamed for the depreciation of assignats and the rise in prices. Then the lack confidence and knowledge of the country folk were blamed.

Later people began to claim that a depreciating currency was a blessing. Depreciation kept the money in the country by hindering trade with foreign countries and thus encouraging domestic manufacturing.

By mid 1793 prices had risen so much that the government resorted to price fixing. It also levied a special tax on the profits of wholesalers and retailers. Scarcities, especially for food, soon appeared as farmers objected to being cheated. Shortages lead to rationing.

Imports collapsed as foreign goods sold for more than the fixed price. Merchants began going out of business as they were forced to sell at a loss. Those who remained in business did so by selling above the fixed price; they risked guillotining. Farmers had their crops and livestock taken for refusing to sell at a loss; many were guillotined.

Thus, the assignat led to the Reign of Terror (1793-1794). The Reign of Terror hardly slowed the depreciation of the assignat and the scarcity of goods.

About the assignat’s contribution to the Reign of Terror, Del Mar remarks:
There can be little doubt that the excesses of the Reign of Terror were greatly promoted by the operation of the assignats and mandats. This money caused so rapid and tremendous a rise of prices that all vested interests were deprived of value, all fortunes were levelled, and the social order was completely broken down. The landed proprietor and the mendicant of the slums, the gentleman and the ruffian, the industrious citizen and the professional pauper, the honest man and the thief, the patriot and the traitor, the weak, the strong, the small, the great, the good and bad were all mingled together, all ranked alike, all rendered equally rich, equally poor, equally powerful, equally impotent, and equally influential in promoting useful or pernicious ends. The assignats and their counterfeit adjuncts constituted an illimitable measure of value, and it ended, where all illimitability ends, in chaos and in madness.[5]
Such is the destructive power of fiat money.

The government found that printing money could more easily meet its ordinary expenses than levying taxes. Tax revenue declined to the point that the government was relying almost entirely on printing money.

Initially, premiums on precious metal coins typically ranged between 10 and 20 percent. Commodity prices remained steady or rose only slightly. Before midsummer 1793, assignats were satisfying the demand for money caused by the shortage of gold and silver coins and by increases in trade. (If assignats had not been issued, prices would have fallen.) However, after midsummer of 1793, the assignat began to depreciate rapidly, and prices began to rise noticeably and quickly. After midsummer of 1793, the government issued a large quantity of assignats. To these genuine notes was added a large but unknown quantity of counterfeits. By midsummer 1795, assignats were nearly worthless.[6] The inflation rate rose to 13,000 percent.[7]

The government first issued 179 livres in 1789.[8] By 1793, it had issued two billion francs in assignat.[9] By 1796, 45.5 billion in francs had been issued.[10] The value of the assignat had depreciated to 30 to 1 of coin.[11] Prices rose accordingly. By June 1796, 800 assignat francs exchanged for one franc in specie.[12]

[Editor's note: A table in the original that summarizes the issuance and value of the assignat is omitted.]

White gives the following changes in the value of the assignat.[13] Before the issue of December 17, 1791, the value of a 100-livre assignat note had fallen to 80 livres. Soon after that issue, it dropped to 68 livres. At the beginning of February 1792, the value had fallen to 60 livres. Later that month it fell to 53 livres. In November 1792, the value of a 100-franc assignat note rose from 57 francs to 69 francs. This rise was due to military victory and repulsion of invaders and the confiscation of more land to back the assignat. By September 1793, it had fallen to less than 30 francs. With more military victories, it rose to above 50 francs in December 1793. July 1795 saw the value of 100-franc assignat note declining to four francs, then to three, and to two and a half. "On August 1, 1795, this gold louis of 25 francs was worth in paper, 920 francs; on September 1st, 1,200 francs; on November 1st, 2,600 francs; on December 1st, 3,050 francs. In February, 1796, it was worth 7,200 francs or one franc in gold was worth 288 francs in paper. Prices of all commodities went up nearly in proportion."[14] At the end of the assignat’s life, 600 francs in assignat equaled one franc in gold. The assignat had begun its life seven years earlier at par with gold. [Editor's note: 81 livres equals 80 francs, so the two are almost equal.]

[Editor's note: A table in the original that summaries the depreciation (inflationary effects) of the assignat is omitted.]

As with all paper money, counterfeiting was a problem. [Editor's note: A footnote in the original explaining that counterfeiting is a real problem with paper fiat money but not with gold coins is omitted.] In February of 1796, an estimated 100 billion livres of assignats were in circulation. Of these 36 billion were genuine, and the remainder, counterfeit.[15]

Although the assignat did at first stimulate commerce, the stimulation was short-lived. As a result of the assignat, manufacturing and commerce collapsed.[16] About this breakdown, White writes:

All this breaking down of the manufactures and commerce of the nation made fearful inroads on the greater fortunes; but upon the lesser, and upon the little properties of the masses of the nation who relied upon their labor, it pressed with intense severity. The capitalist could put his surplus paper money into the government lands and await results; but the men who needed their money from day to day suffered the worst of the misery. Still another difficulty appeared. There had come a complete uncertainty as to the future. Long before the close of 1791 no one knew whether a piece of paper money representing a hundred livres would, a month later, have a purchasing power of ninety or eighty or sixty livres. The result was that capitalists feared to embark their means in business. Enterprise received a mortal blow. Demand for labor was still further diminished; and here came a new cause of calamity: for this uncertainty withered all far-reaching undertakings. The business of France dwindled into a mere living from hand to mouth. This state of things, too, while it bore heavily upon the moneyed classes, was still more ruinous to those in moderate and, most of all, to those in straitened circumstances. With the masses of the people, the purchase of every article of supply became a speculation—a speculation in which the professional speculator had an immense advantage over the ordinary buyer. Says the most brilliant of apologists for French revolutionary statesmanship, "Commerce was dead; betting took its place."

Nor was there any compensating advantage to the mercantile classes. The merchant was forced to add to his ordinary profit a sum sufficient to cover probable or possible fluctuations in value, and while prices of products thus went higher, the wages of labor, owing to the number of workmen who were thrown out of employment, went lower.[17]
Toward the end of the assignat’s life, business activity began to increase significantly as people unloaded their assignats before they lost more value by buying tangible items.

In 1796, the government replaced assignats with mandats. The government decreed that the mandat was "fully secured and as good as gold." The choicest government lands secured mandats. Thus, the holders of mandats, like the holders of assignats, could convert their paper money into land.

The government issued 800 million francs in mandats[18] to replace the outstanding assignats. Assignats were converted at a steep discount; one mandat equaled 30 assignats. It also issued another 600 million mandats to pay the government’s current operating expenses.[19] In little more than a year the government issued 2.5 billion francs in mandats.[20]

As the people had lost confidence in fiat paper money (confidence is the lifeblood of fiat money), mandats quickly lost value. "Even before the mandats could be issued from the press they fell to thirty-five per cent of their nominal value; from this they speedily fell to fifteen, and soon after to five per cent, and finally, in August, 1796, six months from their first issue, to three per cent."[21] Mandats depreciated to 300 francs in mandats to one franc in coin.[22]

In spite of the legal tender law, people refused to accept mandats at any value. Using the special contract law, people began buying and selling with specie. Gold and silver began flowing into France. Soon the people conducted all economic activity with gold and silver.

In July 1796, the government striped assignats and mandats of their legal tender status, which immediately made them worthless. The government ceased issuing them and returned to specie, and redeemed mandats in specie at one-seventieth of their face value.[23] The people had triumphed over the government and forced it to return to sound money.

France did not blindly travel down the road of paper fiat money. In spite of the promises of the fiat money advocates of perpetual economic prosperity, the French knew the destructive power of fiat money. White remarks:

It would be a great mistake to suppose that the statesmen of France, or the French people, were ignorant of the dangers in issuing irredeemable paper money. No matter how skillfully the bright side of such a currency was exhibited, all thoughtful men in France remembered its dark side. They knew too well, from that ruinous experience, seventy years before, in John Law's time, the difficulties and dangers of a currency not well based and controlled. They had then learned how easy it is to issue it; how difficult it is to check its overissue; how seductively it leads to the absorption of the means of the workingmen and men of small fortunes; how heavily it falls on all those living on fixed incomes,salaries or wages; how securely it creates on the ruins of the prosperity of all men of meagre means a class of debauched speculators, the most injurious class that a nation can harbor,—more injurious, indeed, than professional criminals whom the law recognizes and can throttle; how it stimulates overproduction at first and leaves every industry flaccid afterward; how it breaks down thrift and develops political and social immorality. All this France had been thoroughly taught by experience. Many then living had felt the result of such an experiment—the issues of paper money under John Law, a man who to this day is acknowledged one of the most ingenious financiers the world has ever known; and there were then sitting in the National Assembly of France many who owed the poverty of their families to those issues of paper. Hardly a man in the country who had not heard those who issued it cursed as the authors of the most frightful catastrophe France had then experienced.[24]
(Yet they still fooled themselves into believing that they could master the devil. (Fiat money reformers today have fooled themselves into believing that they can master the devil.)

Del Mar explains the failure of the assignat to maintain its value:

In weighing the merits of the assignats it must be borne in mind that at the period when they were refused by the people, two-thirds of the whole mass afloat were counterfeit; that the genuine portion alone were nearly twenty times as numerous as were the coined livres before the Revolution, and the whole mass sixty times as numerous; that no limit was fixed to the emissions, and—at least towards the last—no previous announcement was made of them, and no one felt certain that they would not be doubled within the coming twenty-four hours; that the assignats were not full legal tenders, because farm-rents and taxes were payable one-half in produce; that rents had been fixed at 10 for 1 and scale payments generally at 30 for 1; that a stay law left the payment of debts to the option of the debtors; that special contracts were proposed to be permitted, and were soon after permitted to be made in coins; and that coins were allowed to circulate side by side with the notes, and thus assist to drag down their value.[25]
With much of Del Mar’s explanation, fiat money advocates agree. The problem was counterfeiting, allowing specie to circulate, allowing contracts to be made in specie (being inferior, fiat money cannot survive competition), and not being full legal tender. Whatever causes fiat money to lose its value is not the fault of fiat money.

Johnson explains the collapse in the value of the assignat and mandat although they were backed by and convertible into land:

Since the assignat and the mandat were a lien upon real estate, why should they have depreciated? The security possessed ample value and the government freely permitted conversion of paper money into land. They depreciated, nevertheless, because the price at which land was convertible kept rising constantly, so that the land value of the assignat steadily declined. The assignat was not a mortgage upon any particular piece of real estate; it was a mortgage upon property in general. In pledging the property of the republic as security the government could do no more than agree to accept the assignat in payment for this land. Evidently steady value could not be given to it by such an agreement unless the prices at which the land would be sold were fixed in the beginning for all time. Its value was due entirely to its services as money, and necessarily declined as the quantity was increased. Such must be the fate of any kind of money based upon property unless the supply is strictly limited.[26]
"For any commodity to serve adequately as money, it needs to be portable (relatively high value per unit of weight), homogenous or uniform, durable, divisible, recognizable, highly marketable (highly liquid, universally acceptable), and stable in value."[27] Land lacks many of these qualities. Some land has high value of several tens of millions of dollars per acre. Other land has low value of a few dollars per acre. Thus, land is highly variable in value, lacks homogeneity, and is not portable. Although it is recognizable and divisible, it is not highly marketable. Land is not liquid and is not universally acceptable. Land makes low quality money. Therefore, any monetary system based on or backed by land will result in low quality money.

John MacKay in his introduction to White’s book identifies four great and fundamental facts from the assignat experience:
(1) Notwithstanding the fact that the paper currency issued was the direct obligation of the State, that much of it was interest bearing, and that all of it was secured upon the finest real estate in France, and that penalties in the way of fines, imprisonments and death were enacted from time to time to maintain its circulation at fixed values, there was a steady depreciation in value until it reached zero point and culminated in repudiation. The aggregate of the issues amounted to no less than the enormous and unthinkable sum of $9,500,000,000 ($9.5 trillion) [sic], and in the middle of 1797 when public repudiation took place, there was no less than $4,200,000,000 in face value of assignats and mandats outstanding; the loss, as always, falling mostly upon the poor and the ignorant.

(2) In the attempt to maintain fixed values for the paper currency the Government became involved in an equally futile attempt to maintain a tariff of legal prices for commodities. Here again penalties of fines, of imprisonments and of death were powerless to accomplish the end in view.

(3) An wholesale demoralisation of society took place under which thrift, integrity, humanity, and every principle of morality were thrown into the welter of seething chaos and cruelty.

(4) The real estate upon which the paper currency was secured represented confiscations by the State of the lands of the Church and of the Emigrant Noblemen. These lands were appraised, according to Mr. White's narrative and other authorities, at $1,000,000,000. Here was a straight addition to the State's resources of $1,000,000,000. It is ominously significant that within one hundred years under the "Peace of Frankfort" signed on the 10th May, 1871, the French nation agreed to pay a war indemnity to victorious Germany of exactly the same sum, namely, $1,000,000,000 in addition to the surrender of the province of Alsace and a considerable part of Lorraine. The great addition to the national wealth, therefore, effected by the immoral confiscation of the lands in question disappeared with compound territorial interest added under the visitation of relentless retribution.[28]
France’s adventure with fiat money destroyed the morality and wealth of its people. It corrupted politicians (not hard to do). Thrifty people it turned into gamblers and speculators as it transferred wealth from workers to speculators. It devastated farmers and laborers, and it impoverished the middle class. France’s fiat money rewarded the heavily indebted wealthy as
it allowed them to pay off their debts with nearly worthless money. The assignat was fatal to

Furthermore, the assignat, like all fiat money, created a large debtor class. These debtors had a vested interest in a depreciating currency. Depreciation allowed them to cheat their creditors by paying them with cheap money. The nucleus of this debtor class was the buyer of government lands. They had made only a small down payment. Heavily indebted speculators joined them in the clamor for the issuance of more assignats, which would depreciate the money even more. They couched their demand for additional issuance with the promise that it was the only way to bring prosperity. (Sounds like today’s fiat money adherents and reformers.)

As with all fiat money, the biggest losers are the common worker, the poor, retired, and savers. The assignat was no different. About the destructive effects that the assignat had on workers and the poor, White writes:
This was hailed by many as a measure in the interests of the poorer classes of people, but the result was that it injured them most of all. Henceforward, until the end of this history, capital was quietly taken from labor and locked up in all the ways that financial ingenuity could devise. All that saved thousands of laborers in France from starvation was that they were drafted off into the army and sent to be killed on foreign battlefields. . . .

Strange as it may at first appear, while the depreciation of the currency had raised all products enormously in price, the stoppage of so many manufactories and the withdrawal of capital caused wages in the summer of 1792, after all the inflation, to be as small as they had been four years before—viz., fifteen sous per day. No more striking example can be seen of the truth uttered by Daniel Webster, that "of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper-money."[29] /p>
White continues:
On whom did this vast depreciation mainly fall at last? When this currency had sunk to about one three-hundredth part of its nominal value and, after that, to nothing, in whose hands was the bulk of it? The answer is simple. I shall give it in the exact words of that thoughtful historian from whom I have already quoted: "Before the end of the year 1795 the paper money was almost exclusively in the hands of the working classes, employees and men of small means, whose property was not large enough to invest in stores of goods or national lands. Financiers and men of large means were shrewd enough to put as much of their property as possible into objects of permanent value. The working classes had no such foresight or skill or means. On them finally came the great crushing weight of the loss. After the first collapse came up the cries of the starving. Roads and bridges were neglected; many manufactures were given up in utter helplessness."[30]
The biggest losers in the assignat fiasco were the working class, salaried employees and small farmers. In whatever country and in whatever era that fiat money is used, the biggest losers have always and will always be the working class, salaried employees, small farmers, and the poor. As with all fiat monetary regimes, the working class and salaried employees end up holding worthless paper while the wealthy shield themselves with tangible assets.
Mirabeau’s comment in January 1789 that paper money was "a nursery of tyranny, corruption and delusion; a veritable debauch of authority in delirium"[31] proved true. (Mirabeau later supported issuing paper money. He believed the adage that has brought down many: "this time is different.")

French patriotism had withstood the monarchs of Europe and their armies. However, it could not withstand fiat money. The assignat brought the Republic down.

The revolutionary government resorted to fiat money in the form of the assignat to save the Revolution and the Republic. The king, aristocracy, and church had drained the country of specie through extravagant and reckless spending. As the Treasury was empty and the government was rich in land, it believed that it needed to convert its land to money. In the end, the fiat money to which the revolutionary government turned to save the Revolution and the Republic ended both the Revolution and the Republic. As much as anything, the assignat brought Napoleon to power with his dictatorial rule.

France needed many years to recover fully from its fiat money adventure. White remarks:
The acute suffering from the wreck and rain brought by assignats, mandats and other paper currency in process of repudiation lasted nearly ten years, but the period of recovery lasted longer than the generation which followed. It required fully forty years to bring capital, industry, commerce and credit up to their condition when the revolution began, and demanded a "man on horseback," who established monarchy on the ruins of the Republic and thew [sic] away millions of lives for the Empire, to be added to the millions which had been sacrificed by the Revolution.[32]
For those who want to learn more about the assignat and its devastating effects on France, I highly recommend Fiat Money Inflation in France by Andrew Dickson White, which can be found at html. It shows a strong similarity between France of the 1790s and the United States of the last 35 years or so.

[Editor's note: The origninal contains an appendix that contains White's summary of the cause and effects of the assignat. This appendix is omitted.]

[Editor's note: The orignial contains an appendix that contains Johnson's comment about the advocates of "ideal" money. That appendix is omitted.]

1. Andrew Dickson White, Fiat Money Inflation in France, (rev. ed., 1914), gildedopinion/assignats.html, July 8, 2009.

2. Ibid.

3. Joseph French Johnson, Money and Currency in Relation to Industry, Prices, and the Rate of Interest (rev. ed., Boston: Ginn and Co., 1905), p. 311.

4. White.

5. Alexander Del Mar, Money and Civilization (1886, Rpt., Hawthorne: Omni Publications, 1975), p. 261.

6. Ibid., pp. 255-256.

7. Richard J. Greene, "Fiat Money System," Mar. 21, 2004, 04/greene032104pv.html, Apr. 23, 2008. Nick Jones, "Fiat Currency: Using the Past to See into the Future,", Jan. 1, 2009.

8. Del Mar, p. 251.

9. Johnson, p. 312.

10. "Assignat," Funk and Wagnalls New Encyclopedia (1983), II, 448.

11. Ibid.

12. Del Mar, p. 255.

13. White.

14. Ibid.

15. Del Mar, p. 252.

16. White.

17. Ibid.

18. Funk and Wagnalls New Encyclopedia, II, 448; Del Mar, p. 258.

19. Del Mar, p. 258.

20. White.

21. Ibid.

22. Funk and Wagnalls New Encyclopedia, II, 448.

23. Ibid.

24. White.

25. Del Mar, p. 257.

26. Johnson, p. 312.

27. Thomas Coley Allen, Reconstruction of America’s Monetary and Banking System: A Return to Constitutional Money (Franklinton: TC Allen and Co., 2009), p. 93.

28. John MacKay, introduction to Fiat Money Inflation in France by Andrew Dickson White, (rev. ed., 1914), gildedopinion/assignats.html, July 8, 2009.

29. White.

30. Ibid.

31. Ibid.

32. Ibid.

Copyright © 2009 by Thomas Coley Allen.

More articles on money.