Lincoln’s Curses

Lincoln’s Curses

Thomas Allen

 

1. Lincoln’s worst curse was converting the United States from a federation of independent sovereign republics to a consolidated national empire with the States reduced to administrative districts. As a corollary to this curse, the States lost their republican form of government; their governments remain republican in appearance but not in substance. (See “Returning Republican Governments to the States" by Thomas Allen.) He effectively repealed the Tenth Amendment.

2. Lincoln cursed America and most of the world with the notion that once a territory (State, province, country, or whatever) becomes part of another country, union, or federation, whether voluntarily or by conquest, it cannot leave without the consent of the country, union, or federation of which it is part. 

3. Lincoln cursed the United States with the “unquestioned mystique of might-makes-right and the coercive unitary nation-state.” This notion is the foundation of American hegemony and globalism.

4. Not only did Lincoln curse the country with an imperial president, which has grown stronger over the years, but he also cursed the country with a kritarchy. Following Lincoln, the Supreme Court began converting the country into a kritarchy. This goal was fully achieved with the Warren Court. Because of Lincoln, the United States have become a kritarchy with an imperial president and an impotent Congress. The Constitution means whatever the Supreme Court declares it to mean. (Thanks to Lincoln, kakistocrats, ideocrats, and kleptocrats have ruled the United States at various times.)

5. Lincoln suppressed the freedom of the press. Wilson and Franklin Roosevelt followed his example. Biden did likewise during the COVID-19 plandemic. Now, censorship primarily applies to the internet, as the oligarchs who control the federal government also control the press outside of the internet.

6. Lincoln cursed the United States with the income tax. He gave the country its first income tax. Later, the Supreme Court ruled that the income tax was unconstitutional. This ruling was followed by the Sixteenth Amendment, which made the income tax permanent. His income tax also cursed the country with the Internal Revenue Service.

7. Lincoln normalized and made the corrupt and cartelized business-government partnerships permanent. As a result, the military-industrial complex, the security-industrial complex, Big Pharma, Big Ag, Big Tech, Big Oil, Big Finance, Big Insurance, and other Big Businesses work closely with the federal government. In exchange for special governmentally granted privileges and benefits, they aid the federal government in expanding its power. (The oligarchs that control the federal government also control the collaborating businesses.)

8. Protective tariffs of Lincoln’s Republican Party were the primary cause of the secession of the States of the Lower South. Between Lincoln’s War and World War II, protective tariffs were the primary way that the federal government subsidized Big Businesses. Following World War II, Big Businesses began turning against tariffs. They discovered that they could profit more from producing goods in foreign countries and importing them into the United States.

9. Lincoln gave the United States their first legal tender fiat currency, the U.S. note or greenback. Although the country returned to the gold-coin standard in 1879, the fiat U.S. notes remained in circulation and were issued until their issuance was discontinued in 1971. (Unlike gold certificates, people were not required to turn U.S. notes in. They remained in circulation until they wore out or the banking system redrew them. One may occasionally find them in circulation. The author received one about ten years ago.) Between 1879 and 1933, when Franklin Roosevelt ended the gold standard, U.S. notes were redeemable at par in gold. 

10. With the National Banking Acts of 1863 and 1864, Lincoln nationalized the American banking system. In 1913, the Federal Reserve System replaced the national banking system.

11.  Other curses of Lincoln include establishing a large standing national army, legitimizing martial law even in areas where civil courts are open, ignoring habeas corpus and jailing dissidents and others without trial or due process, and establishing mostly permanent conscription (currently, conscription is out of favor; however, it can be resurrected at anytime, especially since the leaders of the United States want to subdue everyone in the world to their will).

Although Lincoln is credited with freeing the slaves, he freed no slaves. If he and the abolitionists wanted to free the slaves, they could have started by buying slaves with their own money and setting them free. Since they did not, they proved that they loved their money more than freeing slaves.

Reference

Rothbard, Murray N. “The Nationalities Question.” Mises Daily. April 18, 2022.

Copyright © 2026 by Thomas Coley Allen.

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Three Thoughts About Money

Three Thoughts About Money

Thomas Allen

Discussed below are Executive Order 11110, cryptocurrency as a form of fiat money, and payment of interest on the national debt.

Executive Order 11110

Some people believe that President Kennedy was assassinated because he was planning to abolish the Federal Reserve System. Their proof is Executive Order 11110. Using this executive order as proof, some claim that Kennedy was planning to replace federal reserve notes with US notes, a.k.a. greenbacks. One wonders if these people have ever read Executive Order 11110.

The portended part of Executive Order 11110 reads:

(j) The authority vested in the President by paragraph (b) of section 43 of the Act of May 12, 1933, as amended (31 U.S.C. 821 (b)), to issue silver certificates against any silver bullion, silver, or standard silver dollars in the Treasury not then held for redemption of any outstanding silver certificates, to prescribe the denominations of such silver certificates, and to coin standard silver dollars and subsidiary silver currency for their redemption,  (https://www.presidency.ucsb.edu/documents/executive-order-11110-amendment-executive-order-no-10289-amended-relating-the-performance)

Executive Order 11110 had nothing to do with the Federal Reserve. It delegated the President's authority to issue silver certificates to the Secretary of the Treasury. In 1878, Congress authorized the President to issue silver certificates — long before the Federal Reserve existed. 

Moreover, Executive Order 11110  had nothing to do with US notes. By law, the Department of the Treasury had to maintain $346,681,016 of US notes in circulation from 1878 to 1971. 

When this executive order was issued, three types of paper money were circulating in the United States: silver certificates, US notes, and Federal Reserve notes. Although all had equivalent purchasing power, all were issued under different laws. (One may still find silver certificates and US notes in circulation. I have received one of each since 2000.)

Furthermore, the President cannot abolish the Federal Reserve. Only Congress can abolish it. Congress created it; Congress can abolish it.

        Moreover, a common misconception that some people have about US notes is that they are debt-free money. They are not. A note is a debt instrument. Therefore, a US note is a debt. However, it is a noninterest-bearing and nonmaturing debt that is legal tender.

This strange notion that President Kennedy was assassinated because of Executive Order 11110 and that this executive order replaced Federal Reserve notes with US notes, which would have led to abolishing the Federal Reserve, has been floating around for at least 40 years.

Cryptocurrency

Cryptocurrency like Bitcoin is not real money. It is a type of fiat money. Real money has quantity, measurement, and substance. Fiat paper money has only quantity. Likewise, cryptocurrency has only quantity.

An early illustration of these three attributes in real money is recorded in Genesis 23:16. Abraham bought a burial plot. He paid 400 (quantity) shekels (measurement of weight) of silver (substance). In pre-1933 money, if a person bought something with a $20 gold coin, he paid with money that had quantity (20), measurement (dollar, a unit of weight equal to 23.22 grains), and substance (gold).

Cryptocurrency lacks two of these three characteristics. For example, a Bitcoin has a quantity of one. It can be converted to fiat money, such as dollars or euros, which has quantity but, like Bitcoin, lacks measurement and substance. (Bitcoin averaged about $60,000 in 2024 and ranged between about $39,507 and $99,637.) Unlike fiat paper money like the dollar, which appears to have a measurement, cryptocurrency does not even seem to give the illusion of a measurement until it is converted to a fiat currency. However, even if cryptocurrency has a measurement, its measurement, like fiat currency, is an abstraction. It measures nothing of substance. A unit of measurement has to be something concrete and definable, like the meter, ounce, minute, or horsepower, so that things can be compared with it. It has to be something that instruments can determine. Also, it lacks substance as its monetary value exceeds the value of the material of which it is made, and it does not promise to deliver anything concrete. (See “What Is the Difference Between Commodity and Fiat Money” and “Differences Between Real Money and Fiat Money” by Thomas Allen.)

Another distinction between real money and fiat money is how the quantity of money in circulation is determined. With real money, the markets decide how much money is in circulation. The money supply adjusts automatically to meet monetary needs. Under a fiat monetary system, the money supply is regulated artificially; instead of the markets deciding, some entity decides. For paper fiat money, the government or its central bank regulates the quantity in circulation. With cryptocurrency, the programmer regulates it with the program that he wrote that creates the cryptocurrency. Like other fiat currencies, the quantity of cryptocurrency is independent of the market or economic needs or demand for money. (See “Gold and Silver as Fiat Money” by Thomas Allen.)

One advantage that the existing paper fiat monetary system has over cryptocurrency is that it has a mechanism for withdrawing excess money. Cryptocurrency lacks such a mechanism. Once cryptocurrency is issued, it remains in circulation forever unless it is lost.

Interest on the National Debt

Many people express concern about paying the ever-growing interest on the ever-growing US national debt. However, two legal methods can be used to eliminate paying the interest on the US debt.

First, Congress can require the Federal Reserve Bank to buy all US government’s debt securities. Under current law, all earnings of the Federal Reserve above its operational cost go to the US Treasury. Thus, nearly all the interest that the federal government pays on its debts would return to the US Treasury. If Congress thought that the Federal Reserve’s operating expenses were too high, it could limit those expenses.

Second, the federal government could pay the interest with government notes, a.k.a. US notes, also called greenbacks. Also, it could pay off or even buy back the US government’s debt securities with government notes. Government notes are notes issued directly by the government instead of indirectly through the central bank, as are Federal Reserve notes. Moreover, instead of issuing bonds, treasury bills, etc., the federal government could just issue government notes. From the government’s perspective, government notes have a great advantage over other governmental debt. Government notes pay no interest and never mature. (See “Difference Between Bank Notes and Government Notes” by Thomas Allen.)

Of course, if either of these two methods is used, the US dollar will go the way of the Zimbabwean dollar much quicker than it will under the current system. (At its peak, the Zimbabwean inflation was estimated at 79.6 billion percent month-on-month, 89.7 sextillion percent year-on-year in mid-November 2008.)

Copyright © 2025 by Thomas Coley Allen.

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Two Thoughts Related to Economics

Two Thoughts Related to Economics

Thomas Allen

The following discusses two errors related to money that Brandon Smith makes and protective tariffs and wages.

Brandon Smith’s Errors

Brandon Smith’s “Simple fixes to our economic problems that establishment elites won't allow” contains at least two errors.

1. “Basically, the Fed bankrolls the corruption through fiat money creation while government officials and corporations utilize the money to wreak havoc on our living standards. Ending the Fed would solve the fiat money problem” Eliminating the Fed would not eliminate the fiat money problem. The federal government can just print and issue government notes and their electronic equivalent. It did so during the Lincoln administration with the greenback, which was a fiat currency, that significantly reduced the purchasing power of the dollar. Merely cutting out the middleman, the Fed, does not solve the fiat money problem.

2. “[W]hile it is true that the Constitution explicitly states that the U.S. Treasury becomes the only issuer of U.S. currency, this was done at a time when our currency was backed by gold and silver and there was no corrupt middleman in the form of a central bank.” The Constitution does not make the US government the only issuer of US currency. It only delegates the federal government the power to coin gold and silver and to fix the weights and purity of the coins so minted. Also, the U.S. Treasury is not mentioned in the Constitution. Moreover, the federal government never issued paper money until the Lincoln administration. Before then, private banks issued all paper currency, and they continued to issue paper currency until Franklin Roosevelt’s administration. During that time the federal government issued several types of paper currency (US notes, gold certificates, silver certificates, and Treasury Notes of 1890). It continued to issue silver certificates until the 1960s and US notes until the 1970s. When the drafters of the Constitution removed the authority of the federal government to issue bills of credit, they thought that they had removed the authority for the federal government to issue paper currency. 

Protective Tariffs and Wages

Many people support protective tariffs because they believe that the tariffs will protect jobs and raise wages. If tariffs raise wages and protect jobs, it is only for those in the protected industries — and because of immigration, they may not even do that. However, they raise prices for everyone and, by that, they reduce the standard of living.

Historically, manufacturers have been the proponents of protective tariffs. They want protected markets for their inefficient companies. Also, they have been big supporters of large-scale immigration to suppress wages. Increasing the supply of workers suppresses wages and thwarts innovation.

Often, companies will use the argument of a lack of skilled workers so that they can import workers to work for less pay to suppress labor costs, i.e., wages. For example, companies may claim that a shortage of computer programmers exists because they have to pay computer programmers higher salaries than they want to pay. Consequently, these companies import foreign computer programmers who work for less pay. Importing foreign computer programmers to fill computer programmer jobs at lower wages prevents the market from signaling via higher wages that a shortage of computer programmers exists. Thus, fewer domestic workers learn computer programming skills. Allowing the markets to signal that a shortage of computer programmers exists encourages more people to learn the skills of computer programmers.

If people want to raise wages, they should severely restrict immigration. Fewer workers lead to higher wages and innovations that lower the cost of production. Moreover, immigration restrictions do so without increasing the cost of living.

Copyright © 2023 by Thomas Coley Allen.

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A Letter: Money and Conspiracy: Part 1 — Money

A Letter: Money and Conspiracy

Part 1 — Money

Thomas Allen

[Editor’s note: The following is a letter written in 2004 responding to an article by Mr. Rittenouse in Countryside. This letter has been divided into two parts: Part 1 — Money and Part 2 — Conspiracy.]


    The following are a few comments on Mr. Rittenhouse’s article “Commodities, Fiat, and Theories,” which appeared in the July/August issue.
    In defining money, Mr. Rittenhouse gives three components that an item must meet to be used as money. It is used as a medium of exchange, a store of value, and a unit of account. Federal reserve notes, which are what passes for money today, meet only two of these three criteria. It is not a store of value. Since the beginning of the Federal Reserve System in 1914, which has a governmentally protected monopoly on issuing (creating) money, the dollar has lost 95 percent of its value. Over this period, an ounce of gold is still worth an ounce of gold. In dollar terms, an ounce of gold equaled about $20 in 1914; today, it equals about $400 [at the beginning of 2019, it buys about $1280 in federal reserve notes]. Thus, gold has retained its value. It is far superior to federal reserve notes as a store of value.
    Furthermore, if federal reserve notes, which are instruments of debt, were the market’s first choice of money, the government would not have to make them legal tender. The legal tender law requires people to accept the governmentally declared money, federal reserve notes, in payment of debt or to forego payment of the debt.
    What made gold and silver money, along with the other items that Mr. Rittenhouse lists that have been used as money, is that they had other uses. Gold and silver are commodities that can be used for something other than money. That they can be used for other things gives them intrinsic value. Before we became so sophisticated, people would never have thought of voluntarily using paper for money because paper has such low intrinsic value. (The paper that was used for exchange was redeemable in gold or silver.) The intrinsic value of a $10 bill is the same as that of a $100 bill. They both use the same amount of paper and ink and cost the same to make. The lack of intrinsic value necessitates legal tender laws.
    Mr. Rittenhouse identifies problems with counterfeiting gold coins or stamping gold coins with a higher weight and purity than it actually has. Paper money has the same problems. There are licensed counterfeiters, which in the United States is the Federal Reserve System. There are unlicenced counterfeiters, who are the people that the Treasury Department goes after. In a society accustomed to a gold coin monetary system, detecting a counterfeit gold is easier for more people than detecting high-quality counterfeit money. (This is especially true when a situation like the one that occurred at the end of World War II. At the end of World War II, the United States gave the Soviet Union the plates and paper needed to print U.S. occupational currency.)
    What Mr. Rittenhouse writes about the Federal Reserve controlling the money supply as a matter of law is true. His claim that federal reserve notes are fiat currency and that people are required to accept them under the penalty of law is also true. The Federal Reserve may be doing a good job of controlling, i.e., increasing the money supply, but any good counterfeiter could do that. However, it has been an extremely poor steward of the dollar having destroyed 95 percent of its value.
    Mr. Rittenhouse goes on to describe the Kondratiev Wave. Like him, I am not sold on this theory. The stories that I read today arguing that we are in the trough the Kondratiev Wave are similar to those that I read in the 1970s. (When corrected for inflation, a bottom in real terms occurred in the 1970s, but was masked by inflation.) If the bottom occurred in the 1970s, then according to the timeline of this theory, the next bottom should not occur until circa 2020. Many of the current advocates of the Kondratiev Wave are predicting that gold like everything else, except the dollar, will decline in value.
    Paper money always loses value over time and eventually becomes worth no more than its Btu content or toilet paper. (In Zimbabwe, a roll of toilet paper has 720 squares and cost 10,000 Zimbabwean dollars. So, if one changes his $10,000-note in the one thousand $10-notes, he has 720 sheets for wiping and $280 left over for spending. [This was in 2004 before Zimbabwe's hyperinflation began really to accelerate.]) An ounce of gold remains an ounce of gold forever. Paper money loses value because the government, through its surrogate central bank, can print money easier than it can raise taxes.
    My outlook on the dollar is pessimistic. The dollar is going down and gold up. Debt is going to drive the dollar down. Before this run is over, which will last another five to ten years, gold is going to $5000 an ounce assuming things do not get really bad [my timing was off considerably for the dollar amount or for the years]. (The run is not over until the DJIA can be bought for an ounce of gold, which means stocks have a long way to fall and gold has a long way to rise.) If things get really bad, then gold is going beyond anyone’s wildest speculation. The wildest speculation that I have come across made by a person who follows the gold market is $111,000 per ounce. This should be a floor. If things get really bad, Mr. Rittenhouse is correct in that all our lives will be in great danger.
    Gold is probably the hardest market to trade or to invest in. In stock, bonds, real estate, and all other markets, the trader or investor has to fight his greed or his fear — never both together. In gold, he has to fight both at the same time. When gold is sky-high, greed enters as it does in other markets. Yet, when gold is sky-high, it is there because of fear.
    The bottom line is spend your federal reserve notes but save your gold. Use federal reserve notes as a purchasing medium, and use gold as a store of value.


Copyright © 2004, 2019 by Thomas Coley Allen.

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Part 2

Are the United States a Communist Country?

Are the United States a Communist Country?

Thomas Allen

[Editor’s note: This article was submitted in 1988 to the “Southern National Newsletter” of the Southern National Party.]

    The United States are well on their way to becoming a communist country. About 70 percent [revised to about 80 percent] of the trip has been completed as the following comparison with the ten planks of the Communist Manifesto illustrates.
    1. “Abolition of property in land and application of all rents of land to public purposes.” The U. S. government owns 32 percent of the land in the United States. Indian reservations own 2 percent. State and local governments own 7 percent. Zoning, land use, rent control, and similar laws control much of the remaining 59 percent. Thus, governments in effect control most of the land in the country, i.e., have the benefit of ownership, while leaving landowners the responsibility of ownership. Much of the income that one may earn from his land is taxed away, and most of the taxes that a landowner pays on his property have nothing to do with protecting his land. Plank No. 1 has been essentially implemented — 8 points. [When what the Bureau of Land Management has done in recent years, this score needs to be raised to 9 points.]
    2. “A heavy progressive or graduated income tax.” The Sixteenth Amendment gave the U. S. government the authority to levy a progressive income tax. The U.S. government and most States levy a progressive income tax. Plank No. 2 has been implemented — 10 points.
    3. “Abolition of all rights of inheritance.” People still retain the right to will property and to inherit property. However, inheritance is taxed heavily enough that property left often has to be sold, and is, therefore, lost by the inheritor, to raise money to pay inheritance and estate taxes. Plank No. 3 has been partially implemented — 3 points. [Although some tax relief has been given in recent years, this plank still deserves at least 3 points.]
    4. “Confiscation of the property of all emigrants and rebels.” Southerners, whom the conquering horde considers rebels, have had much of their property confiscated over the years. Also, investments in foreign countries, which is a form of emigration, is controlled and restricted by the U.S. government. The U.S. government claims the authority to limit the amount of property that a citizen may take out of the country. Plank No. 4 has been partially implemented — 4 points. [With all the security laws enacted in recent years, the score for this plank needs to be raised to 6 points.]
    5. “Centralization of credit in the hands of the State, by means of a national bank with State capital and exclusive monopoly.” The Federal Reserve Act centralized credit in the hands of the U.S. government. It along with various other federal banking laws has established an exclusive banking monopoly controlled by the U.S. government. Federal debt accounts for a significant part of the reserves of the banking system. They have implemented Plank No. 5 — 10 points.
    6. “Centralization of the means of communication and transport in the hands of the State.” The U.S. government has centralized the control of communication and transportation in its hands. Some of the agencies that have been used to implement this plank are the post office, FCC, FPC, CAB, FAA, FMB, FRA, and ICC. Plank No. 6 has been implemented — 10 points.
    7. “Extension of factories and instruments of production owned by the State; the bringing into cultivation waste lands, and the improvement of soil generally in accordance with a common plan.” The U.S. government has been implementing this plank over the years with such agencies as the Department of Agriculture, Bureau of Reclamation, the Corps of Engineers, and the Tennessee Valley Authority. Although the U.S. government and the States have usually refrained from taking over the ownership of factories, they have not hesitated to claim control of them. They tell employers whom they must hire, the kind of benefits to give employees, the minimum wage to pay employees, and a host of other items that are better left to negotiation between employers and employees because they are rightfully within their purview and not that of the government. Plank No. 7 has been substantially implemented — 8 points.
    8. “Equal liability of all to labor. Establishment of industrial armies, especially for agriculture.” This plank is one that the welfare state has managed to avoid. Plank No. 8 has barely been implemented — 1 point.
    9. “Combination of agriculture with manufacturing industries; A gradual abolition of distinction between town and country, by more equitable distribution of the population over the country.” Zoning, land use, and similar laws are removing the distinction between town and country. Agricultural and tax policies are forcing agricultural operations to resemble manufacturing industry.  Plank No. 9 is well on its way to being implemented — 8 points. [With the U.S. governments and State and local governments adopting laws to implement Agenda 21 and Agenda 2030 to greatly restrict the use of rural land and to force most people to live in cities, this plank has now been substantially implemented and deserves 10 points.]
    10. “Free education for all children in public schools. Abolition of children’s factory labour in its present form. Combination of education with industrial production, etc., etc.” Plank No. 10 has been completely implemented — 10 points.
    Out of a possible 100 points, the United States score 72 points [revised to 77 points]. That is, the United States have already implemented 72 percent [revised to 77 percent] of Marx’s planks. Therefore, judging by the ten planks that Marx presents in the Communist Manifesto, the United States have almost completed their journey of becoming a communist country.

Copyright © 1988, 2019 by Thomas C. Allen.

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Gold Confiscation

Gold Confiscation

Thomas Allen

    Many American buyers and potential buyers of gold express concern about the U.S. government confiscating gold. This fear is legitimate because rogue governments like the U.S. government can be highly unpredictable and destructive. It can steal not only gold but any thing else that the rulers want.
    Nevertheless, gold confiscation is not likely. Today’s monetary system differs greatly from that of 1933 when President Roosevelt’s great theft occurred. Then gold was the money. Gold coins actually circulated and were used for buying and selling. Federal reserve notes, U.S. government notes, and national bank notes were redeemable in gold coin on demand.
    Today governments officially shun gold and pooh-pooh it as money. Although their central banks hoard large quantities of gold, governments deny that it has any monetary value. It is a barbaric relic that used to interfere with their fiat monetary dreams and deserves to be banished forever from the monetary system. To confiscate gold today would be an admission that they have been wrong for the past eight decades. Moreover, today people who distrust government hold most of the gold outside investment houses, banks, and industry. They would not likely surrender it to the government.
    When Roosevelt stole the people’s gold, his theft was easy. The U.S. government and the Federal Reserve held 93 percent of the country’s monetary gold as trustees for backing gold certificates, federal reserve notes, and national bank notes. With the $100 exemption,[1] he did not have to take any gold coins held by individuals.
    The monetary statistics presented in this article are from Banking and Monetary Statistics, 1914-1941, published by the Board of Governors of the Federal Reserve System. Section 11, “Currency,” Table No. 110, “Currency in Circulation — By Kind, Monthly, 1860-1941,” page 412, gives the total currency in circulation for February 1933 as $6258 million. Of this amount, gold coins accounted for $284 million; gold certificates, $649 million; United States notes, $301 million; federal reserve notes, $3405 million; and national bank notes, $861 million.
    On page 506 of Section 13, “United States Government — Treasury Finance and Government Corporations and Credit Agencies,” the gold reserves for backing United States Notes are $156 million. Table No. 156, “Analysis of Changes in Gold Stock of the United States, Monthly, 1914-1941,” page 537, gives a monthly average gold stock of $4093 for February 1933.
    For February 1933, the U.S. government held $156 million in gold to back U.S. notes. It also held $649 million in gold to back gold certificates. Thus, the U.S. government held $805 million in gold. Federal Reserve Banks held $3004 million in gold, and $284 million in gold coins were in circulation. These give a total monetary gold stock of $4093.
    Of the $4093 million of the monetary gold, the U.S. government and Federal Reserve held $3809 million in gold or 93 percent of the country’s monetary gold. The people held $284 million in gold coins or about 7 percent of the monetary gold. If the coins were roughly evenly distributed among the population, each person would have had between $2 and $3 in gold coins (c. 123 million population). At this time the smallest gold coin in circulation was $2.50.
    As Roosevelt’s confiscation order allowed each person to keep $100 in gold coins, he did not have to steal any coins that the public held. Between the Treasury and the Federal Reserve, he already had nearly all the gold. All he needed to do, and what he did do, was to violate the U.S. government’s, the Federal Reserve’s, and national banks’ contracts with the people by voiding the redemption clauses in the law and on the paper money.
    Since the U.S. government made using gold coins and gold certificates as money illegal, if a person who held them wanted to spend them, he had to exchange them for federal reserve notes, U.S. notes, or silver coins. Consequently, gold ceased being a medium of exchange in the United States.

Endnote
1. Franklin D. Roosevelt, 34 ‒ Executive Order 6102 ‒ Requiring Gold Coin, Gold Bullion and Gold Certificates to Be Delivered to the Government, April 5, 1933,  http://www. presidency.ucsb.edu/ws/index.php?pid=14611&st=&st1=#axzz1Kq4ZdySU, April 28, 2011, from John T. Woolley and Gerhard Peters, The American Presidency Project [online], Santa Barbara, CA. Available from World Wide Web: http://www.presidency.ucsb.edu/ ws/?pid=14611.

Copyright © 2011 by Thomas Coley Allen.

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Gold-Backed Currencies

Gold-Backed Currencies

Thomas Allen

    Economic analysts, political analysts, and others are talking and writing about China, Russia, various Islamic countries and possibly other countries instituting a gold-backed currency. They believe that China, Russia, and other countries have been acquiring large quantities of gold in anticipation of going to a gold-backed currency. Some of these commentators imply that instituting a gold-backed currency is returning to the gold standard. Others admit that it is not. These latter commentators are correct. A gold-backed currency without redemption on demand, especially by the common people, is meaningless — except perhaps for propaganda purposes.
    I will use the United States as an example. When the United States ended the gold standard in 1933 and refused to redeem paper money in gold, they still had a gold-backed currency. From 1933 to 1945, Congress required 40 percent of the federal reserve notes to be backed by gold. In 1945, it changed the requirement to 25 percent backing. Then it ended the hypocrisy in 1968 by eliminating all gold backing. However, gold continued to back the U.S. currency and foreign governments and their central banks could redeem their dollars in gold. In 1971, the United States ceased redeeming dollars in gold. (From 1944 to 1971, the United States redeemed dollars under a gold exchanged standard. Under this gold exchanged standard, only foreign governments and their central banks could redeem U.S. dollars in gold.)
    Even after abandoning all pretenses of a gold-backed currency, the United States and the Federal Reserve System continued to back the U.S. dollar with gold.  To the extent that the gold held by them is considered an asset, this gold backs the U.S. dollar. Along with all the land owned by the U.S. government and, more important, the military might of the U.S. government, this gold is part of the “full faith and credit” backing the dollar. (Gold is not really credit as it is no one else’s liability.)
    Likewise, to the extent that a foreign government or its central bank holds gold, its currency is backed by gold. Although it has no statutory requirement to maintain a specific amount of gold to back its currency, its currency is still backed by gold. As shown with the United States, whenever a statutory limit is approached, the law is changed to reduce the requirement.
    Any kind of gold-backed currency is meaningless unless free coinage of gold is allowed and the common people can redeem paper money in gold on demand. Moreover, the country would have to define its monetary unit as a specific weight of gold; it would not be fixing the price of gold. (For example, the Gold Standard Act of 1900 defined the U.S. dollar as 23.80 grains of standard gold, which is 23.22 grains of fine gold. It did not fix the price of gold at $20.67 per ounce.) Furthermore, a country would not have to stockpile gold before returning to the gold standard. It would not need to possess any gold in order to return to the gold standard. All it needs to do is to define its monetary unit as a specific weight of gold, allow the free coinage of gold, and to require paper money to be redeemed in gold on demand by anyone.

Copyright © 2016 by Thomas Coley Allen.

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Returning to the Gold Standard

Returning to the Gold Standard

Thomas Allen

    The following is written for the United States. With minor modifications, it could be applied to most countries.
    Several recommendations have been proposed for returning to a gold standard or a monetary system that incorporates gold. One is returning to the true gold standard. Nearly all of these recommendations require fixing or defining gold at a specific price, generally between $1000 and $10,000 per ounce.
    Because of falsely perceived problems with returning to the true gold standard, several pseudo gold standards have been proposed. One is backing the currency by some arbitrary amount of gold, usually between 5 and 25 percent. Another is to use the price of gold as an index. The central bank expands and contracts the money supply to keep the price of gold within a specific, but arbitrary, range. Related is making gold part of a commodity basket index. Then the central bank expands and contracts the money supply to keep this arbitrary index within an arbitrary range.
    Although the gold exchange standard fell quickly the two times that it was tried, it is still popular in some circles. Presumably, its proponents will make it work this time.
    The following recommendations can return the country to the true gold and silver standards without the problems of the aforementioned recommendations. They take the control of the money from the government and its central banks, the Federal Reserve, and return it to the people where the U.S. constitution originally placed it. These recommendations call for phasing in the gold and silver standards. Many pertain to reforming banking as poor banking practices cause many of today’s economic problems.
    1. All U.S. debt securities held by the Federal Reserve are voided and the Federal Reserve is abolished. The Federal Reserve returns the gold certificates that it holds to the U.S. government. Federal reserve notes are no longer printed unless the U.S. government needs to print more federal reserve notes to pay its existing debts made in terms of federal reserve dollars.
    2. As part of abolishing the Federal Reserve, the U.S. government buys all the stock of the Federal Reserve banks owned by member banks and pays for the stock with federal reserve notes. All member banks receive in federal reserve notes all their reserves held by the Federal Reserve.
    3. All gold held by the U.S. government or the Federal Reserve is distributed equitably among the people who lived in the United States in 1933 or their descendants if they have died. The distribution is in gold coins minted in denominations 5, 10, and 20 pennyweights.
    4. The Federal Deposit Insurance Corporation (FDIC) is phased out. Its coverage could be reduced by one-fifth per year for five years after which it ceases to exist. Any bank could opt out of the FDIC earlier and cease being subject to its regulations.
    5. The U.S. government immediately opens the mint to gratuitous free coinage of gold and silver. Private mints may also coin gold and silver provided the minter and the content of gold and silver of the coin are identified on the coin.
    6. Gold and silver coins replace the federal reserve dollar. The coins are denominated in troy pennyweights of gold or silver. The pennyweight value is stamped on the coin. Also stamped on the coin are the grains of gold or silver that the coin contains. (Also, stamping on the coin the number of grams of gold and silver in the coin is desirable.)
    7. No fixed exchange rate or legal ratio exists between gold and silver. No fixed exchange rate exists between federal reserve dollars and gold or silver.
    8. Legal tender laws are repealed; people are required to accept the type of money (gold, silver, or federal reserve dollars) for which they have contracted.
    9. Sound banking needs to be restored as quickly as possible. Banks issuing banknotes for real bills of exchange need to be physically separated from other types of banking.
    10. Banks issue only gold and silver banknotes and checkbook money to buy real bills. Banks do not issue banknotes or create checkable deposits for any purpose but to buy real bills.
    11. Other banks do not issue banknotes and do not create checkable deposits. They make loans by transferring money from savings and bank capital. Borrowing short and lending long is prohibited.
    12. Banks and others may issue gold and silver certificates provided such certificates are fully backed by gold and silver. The government should not issue certificates.
    13. All banknotes and certificates clearly identify the issuer and whether it is in gold or silver.
    14. The smallest denomination of banknotes and certificates is 50 pennyweights of gold and 100 pennyweights of silver.
    15. The States penalize the issuer of banknotes and certificates that refuses or fails to redeem its banknotes or certificates on demand.
    16. Within 12 months, no new checkable deposits are created in federal reserve dollars; they are in silver or gold. Within 12 months, no new loans are made in federal reserve dollars; they are in silver or gold.
    17. Federal reserve dollars are withdrawn from circulations as debts made with federal reserve dollars are paid off. Debts contracted in federal reserve dollars are paid with federal reserve dollars although the debtor may pay with gold or silver if he so chooses and the creditor willingly accepts.
    18. Banks maintain 100-percent reserves in gold and silver for primary gold and silver demand deposits. Banks that buy real bills maintain 100-percent reserves for derivative demand deposits in real bills and maintain adequate reserves of gold and silver to redeem in gold and silver checks drawn on derivative demand deposits. All other banks maintain 100-percent reserves for derivative demand deposits by transferring money from savings or bank capital to them.
    19. Banks are prohibited from buying government securities, using government securities as reserves, lending money to buy government securities, or accepting government securities as collateral for loans.
    20. Banks do not pay out banknotes or certificates of other banks.
    21. No bank keeps any of its reserves in another bank.
    22. The U.S. government and States keep their money in their own vaults and write checks against money in their vaults. They do not deposit money in banks. The U.S. government and States belong to clearing houses to clear quickly checks, banknotes, and certificates that they receive and checks written on their accounts.
    23. Within 12 months, the U.S. government and States begin paying their employees in physical silver coins and continue to pay them in physical silver coins for at least five years. After five years, they may pay their employees with silver checks or silver transfers to the employees’ checking accounts.
    24. The U.S. governments and the States start collecting taxes in gold and silver within six months. They should continue to collect enough taxes in federal reserve notes to pay their debt obligations made with federal reserve dollars.
    25. Within 30 days, the U.S. government and States cease contracting and issuing securities in terms of federal reserve dollars and start contracting and issuing securities in terms of gold or silver.
    26. All capital gains taxes, sales taxes, and other taxes on the exchange, sell, or purchase of gold and silver in any form that is at least 18 carats or on any other currency are eliminated.
    27. People may make contracts in gold and silver or any other commodity, good, or service, that they choose. Contracts are paid as specified in the contract. If the value of the contract when completed has risen in terms of federal reserve dollars, no taxes are paid on the increase. Tax laws in general are revised so as not to penalize using gold or silver as money.

Copyright © 2014 by Thomas Coley Allen.

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Review of Daniel Carr’s “FDR’s 1933 Gold Confiscation was a Bailout of the Federal Reserve Bank”

Review of Daniel Carr’s “FDR’s 1933 Gold Confiscation was a Bailout of the Federal Reserve Bank”

Thomas Allen

    In his article, “FDR’s 1933 Gold Confiscation was a Bailout of the Federal Reserve Bank,” Mr. Daniel Carr argues that President Roosevelt stole the people’s gold primarily to bailout the Federal Reserve Banks. His article can be found at http://www.moonlightmint.com/bailout.htm. In presenting his argument, Mr. Carr makes some questionable assumptions. This article discusses errors in Mr. Carr’s article. Otherwise, Mr. Carr presents a good terse description of events leading up to the Great Depression and the cause of the Great Depression.

    Before discussing Mr. Carr’s article, three tables of monetary statistics are given. Data in these tables are used in analyzing Mr. Carr’s arguments and drawing different conclusions. These statistics are from Federal Reserve documents that can be found at http://fraser.stlouisfed.org/publications/bms.

    The monetary statistics presented below are from Banking and Monetary Statistics, 1914-1941. In Table 1, the monetary statistics are from Section 11, “Currency,” Table No. 110, “Currency in Circulation — By Kind, Monthly, 1860-1941,” page 412. The numbers in Table 1 are for currency outside the U.S. Treasury and the Federal Reserve Banks.

    Table 2 summaries the monetary gold. On page 506 of Section 13, “United States Government — Treasury Finance and Government Corporations and Credit Agencies,” the gold reserves for backing United States Notes are $156 million. Section 14, “Gold,” Table No. 156, “Analysis of Changes in Gold Stock of the United States, Monthly, 1914-1941,” page 537, gives a monthly average gold stock of $4,226 million for December 1932 and $4,093 for February 1933.  

    Part of the gold that the Federal Reserve Banks held was used to back federal reserve notes, and part was held for member banks as reserves. Section 10, “Member Bank Reserves, Reserve Bank Credit, and Related Items,” Table No. 102, “Member Bank Reserves, Reserve Bank Credit, and Related Items, End of Month Figures, 1914-1941,” page 376, shows that the Federal Reserve Banks held $2,509 million as member bank reserves on December 31, 1932 and $2,141 million on February 28, 1933.

    Table 3 gives the quantity of gold-clause paper currency.

     Although they were not gold-clause notes, the Gold Standard Act of 1900, which firmly placed it United States on the monometallic gold standard, made Treasury notes of 1890, silver dollars, silver certificates, and subsidiary silver redeemable in gold.

    For purposes of comparisons with Mr. Carr, the data for February 1933 are used except where February 1933 data are not available. Then December 1932 is used. February was the last full month before Roosevelt took office. He executed his great gold theft in March 1933.

    Mr. Carr estimates the quantity of gold-clause federal reserve notes in circulation in 1933 to be between $13,292 million (20,000 metric tons) and $26,916 million (40,500 metric tons). (He uses metric tons to weigh gold instead of dollars. At this time, a dollar was the weight of 23.22 grains of fine gold.) He uses The Standard Handbook of United States Paper Money by Chuck O’Donnell and The Comprehensive Catalog of U.S. Paper Money by Gene Hessler along with some assumptions that he explains to derive these numbers. As shown in the tables above, his estimate far exceeds the estimates of the Federal Reserve. Mr. Carr’s estimate for federal reserve notes in circulation is 3.9 to 7.9 times greater than the Federal Reserve’s estimate of $3,405 million. His estimate is 2.5 to 5.2 times greater than all gold-clause currency in circulation.

    Mr. Carr estimates the country’s monetary gold reserves in 1933 to be about $4,000 million, which he assumes that the U.S. government held to back gold certificates. As shown in Table 2, the Federal Reserve estimates $649 million were held to back gold certificates (assuming that the U.S. government fully backed its gold certificates). Its data show a total gold stock of $4,093 million, which is about the same as Mr. Carr’s estimate. However, unlike Mr. Carr’s assumption, the U.S. government did not hold all this gold. It was spread among the U.S. government ($805 million), the Federal Reserve Banks ($3,004 million), and the public ($284 million)

    By law, the Federal Reserve had to maintain a minimum of 40 percent in gold for outstanding federal reserve notes. Thus, it needed $1,362 million in gold to satisfy the statutory backing. It had $3,004 million in gold to back $3,405 in federal reserve notes.

    Mr. Carr estimates that between $13,292 million and $26,916 million in federal reserve notes were unbacked. He is correct in that the Federal Reserve lack enough gold to redeem all its notes. However, the shortage was not nearly as great as he estimates. Nevertheless, the situation was as dire as he declares.

    The $3,004 million in gold that the Federal Reserve held was not only for backing its notes. It was also for backing checkbook money issued by member banks. Moreover, member banks were liable for redeeming their bank notes in gold. Consequently, the problem was not a lack of gold held by the Federal Reserve to redeem federal reserve notes. The problem was that the Federal Reserve and commercial banks held insufficient gold to redeem the demand deposit accounts, checkbook money, held by the public.

    Most loans were in the form of demand deposits instead of paper money or coin. Funds in demand deposit accounts were available to the holder on demand and had to be redeemed in gold if so demanded. As the typical bank was using $1 in gold to back several dollars in demand deposits (it was allowing multiple parties to use the same gold simultaneously), it could not redeem all its deposits if a bank run occurred as happened in the early 1930s.

    Section 2, “Assets and Liabilities of all Member Banks,” Table No. 18, “All Member Banks — Principal Assets and Liabilities on Call Dates, 1914‒1941," gives $15,193 million in demand deposits (checking accounts or checkbook money) subject to reserves and vault cash of $423 million on December 31, 1932. Section 9, “Federal Reserve Banks,” Table No. 85, “Assets and Liabilities of Federal Reserve Banks, December 31, 1914-1915,” page 332, gives $2,509 million in reserves held by the Federal Reserve Banks for member banks on December 31, 1932.

    These statistics show that commercial banks that were members of the Federal Reserve System had $2,509 million in reserves plus $423 million in vault cash or $2,932 million that could be used to redeem $15,193 in checkbook money. Thus, on December 31, 1932, the Federal Reserve System held $3,288 million in gold to back $15,193 in demand deposits and $2,716 million in federal reserve notes. It was short $14,621 million in gold. Moreover, commercial banks were liable for $820 million in gold for redemption of national bank notes, which an equivalent amount of U.S. government bonds held by the U.S. Treasury secured. The problem was not too many unbacked federal reserve notes. It was too much unbacked checkbook money. This shortage of $14,621 million, plus an additional $820 million for national bank notes, falls within Mr. Carr’s estimate of $13,292 million to $26, 916 million.

    The above shows that the U.S. government held $805 million in gold to back gold certificates and U.S. notes. The Federal Reserve held $3,004 million in gold. Of the $4,093 million of the monetary gold, the U.S. government and Federal Reserve held 93 percent. The people held $284 million in gold coins or about 7 percent of the monetary gold. If the coins were roughly evenly distributed among the population, each person would have had between $2 and $3 in gold coins (c. 123 million population).

    As Roosevelt confiscation order allowed each person to keep $100 in gold coins, he did not have to steal any coins held by the public. Between the Treasury and the Federal Reserve, he already had nearly all the gold. All he needed to do, and what he did do, was to violate the U.S. government’s, the Federal Reserve’s, and national banks’ contracts with the people by voiding the redemption clauses in the law and on the paper money.

    Bailing out the Federal Reserve was not the primary reason that Roosevelt stole the people’s gold as Mr. Carr asserts. The primary reason was control. Roosevelt wanted to establish a fascist government. Gold prevented him from doing that. Gold protects the people from despotic governments and their central bank co-conspirators. Once he had stolen the people’s gold and outlawed their using it as money, he proceeded to convert the United States into a fascist state.

    However, Roosevelt did greatly aid the bankers to do what bankers like to do most — inflate. He did this in three ways. First, he stole the gold that the people had entrusted to the U.S. government and let the Federal Reserve use it as part of its official reserves. Second, he redefined the dollar from 23.22 grains of gold to 13.71 grains, i.e., he devalued the dollar about 41 percent. Third, and most important, he removed the restraint of gold redemption.

    Mr. Carr is correct about Roosevelt stealing the people’s gold to benefit the Federal Reserve by relieving it of its obligation to redeem its notes in gold. Roosevelt also relieved the U.S. government of its obligation to redeem its paper money. However, the biggest beneficiaries were the commercial banks, which were also relieved of their obligation to redeem their checkbook money in gold. They also received a slight benefit of not having to redeem their bank notes in gold.

    However, Mr. Carr’s claim that Roosevelt stole the people’s gold to bailout the Federal Reserve is questionable. At least, he fails to prove his point. The monetary data that he uses is highly questionable. He needs to reevaluate his claim or prove it using more reliable and acceptable data presented by the Federal Reserve and U.S. Treasury. These data may be rigged as governments, and by extension their central banks, are notorious liars. (The post Federal Reserve statistics appear to be in line with pre Federal Reserve statistics.) Moreover, once banks were relieved of the obligation to redeem their money in gold, most, and certainly the Federal Reserve, did not need bailing out.

    Mr. Carr is correct in identifying bank money as a major problem that led, at least in part, to Roosevelt’s theft of the people’s gold. However, he focuses on bank notes, federal reserve notes, instead of checkbook money. The latter was much more significant as it was 5.6 times greater than federal reserve notes in circulation.

    Perhaps Mr. Carr or someone else may be able to sift through the voluminous data in Banking and Monetary Statistics, 1914-1941 and derive more accurate conclusions than I have.

Copyright © 2011 by Thomas Coley Allen.

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Comparison of Three Monetary Systems

Comparison of Three Monetary Systems
Thomas Allen

The Foundation to Restore an Educated Electorate (F.R.E.E.) has put out a pamphlet titled “Time to End the Fraud.” It promotes the fiat monetary reforms of Theodore Thoren and Richard Warner. This pamphlet has a table taken from Thoren and Warner’s book The Truth in Money Book comparing Thoren and Warner’s “Treasury Credit Money System” to the current “Federal Reserve System.” I am comparing Thoren and Warner’s Treasury Credit Money System and their description of the current Federal Reserve System with the “People’s Money System.” Occasionally, I comment on the Treasury Credit Money System and the Federal Reserve System to identify misleading statements in the table. My comments are in parentheses.

First, I give a brief description of the People’s Money System. Under the People’s Money System, the people directly control the quantity of money in circulation. They do this in two ways. They control the quantity of gold and silver coins in circulation by the quantity of gold and silver bullion that they convert to coins and by the quantity of coins that they convert to bullion for nonmonetary uses. Also, they control the quantity of commercial money (real bills of exchanges) in circulation through their productivity. For a more detail description of commercial money see Reconstruction of America’s Monetary and Banking System, “There Is Enough Gold,” “Response to Dale’s Analysis of ‘There Is Enough Gold,’” “Analysis of Byron Dale’s Monetary Reforms as Presented in Bashed by the Bankers,” “Analysis of the American Monetary Institute’s American Monetary Act,” and “Analysis of Richard Cook’s Monetary Reforms as Presented in We Hold These Truths.” The People’s Money System does not require legal tender laws, banks, or governmental management of the monetary system.

Now for the comparison of the fifteen items in the pamphlet’s table.

1. Treasury Credit Money System: “Money created debt-free by the Treasury.” (But it is still debt.)
Federal Reserve System: “Money created as debt by private commercial banks (and Investment banks and Savings Banks since repeal of Glass-Steagall Act).”
People’s Money System: The people themselves create money debt-free as described above.

2. Treasury Credit Money System: “Money spent into circulation for Federal expenditures.”
Federal Reserve System: “Money spent into circulation only for expenses of Federal Reserve and commercial banks.”
People’s Money System: Money is spent into circulation by the people themselves for their own expenses.

3. Treasury Credit Money System: “Treasury never borrows.” (This statement is not true. With its notes the Treasury is forcing government loans on everyone. Unlike conventional government loans, these loans bear no interest. Moreover, the government never intends to pay them unless it pays them with more debt.)
Federal Reserve System: “Treasury collects insufficient taxes and borrows from private banks and others (individuals and foreign governments) to cover Federal deficit expenditures.” (This system does not force the Treasury to collect insufficient taxes and borrow the rest. Banks do not hold the weapons of coercion; the government does.)
People’s Money System: The government may borrow at interest from banks, private individuals, and perhaps other governments. However, it greatly restricts the size of the government and inhibits its expansion; borrowing is minimal.

4. Treasury Credit Money System: “Treasury lends money to banks.”
Federal Reserve System: “Treasury borrows money from private banks.” (The Treasury also borrows from individuals as noted under No. 3.)
People’s Money System: The people lend money to banks, mostly as savings deposits and certificates of deposits. The Treasury never lends to banks; it keeps the government’s money in government vaults.

5. Treasury Credit Money System: “Interest rates (mathematically) set by Treasury to balance interest receipts with Treasury expenditures.”
Federal Reserve System: “Interest rates set by New York banks according to secret policy decisions.”
People’s Money System: Interest rates are primarily set by savers and secondarily by investors, i.e., the markets set interest rates.

6. Treasury Credit Money System: “Banks operate as savings and loan associations (as they did before Glass-Steagall repeal) — lend from depositor’s savings and their own borrowings from Treasury.”
Federal Reserve System: “Banks create money through fractional reserve deposit expansion (commercial banks do not lend their depositor’s savings).”
People’s Money System: Banks do not create money. Fractional reserve banking does not exist. Two types of banks (or banking activities) exist: issuing banks and lending banks. Issuing banks convert commercial money (real bills of exchange) into bank money (bank notes and checkbook money) by buying real bills. Issuing banks do not lend. Money in checking accounts is fully backed by deposited gold or silver or real bills, which can quickly be converted into gold and silver coins. (Real bills always appreciate until they mature; then they are paid in specie.) Lending banks lend savings. No loans are made for periods greater than the time that the bank has complete control of the money being lent. That is, a depositor cannot demand the return of his savings during the time of the loan. Thus, lending banks do not borrow short and lend long. Checking accounts at lending banks are fully backed by gold or silver that the account holder has deposited or that the bank has transferred to the account from savings accounts via a loan.

7. Treasury Credit Money System: “Checks are cleared through a department of the Treasury.”
Federal Reserve System: “Banks clear their own checks.”
People’s Money System: Checks clear through clearing house associations, which member banks own.

8. Treasury Credit Money System: “System is inflation-proof and depression-proof.” (Like all fiat monetary reformers, Thoren and Warner claim that their system is inflation proof and depression proof. They are wrong. Money issuance under their system is not and cannot be based on economic needs. Because fiat money is a political creation, it is always based on politics and political needs. The supply of fiat money tends to grow, i.e., inflation. Inflation distorts the economy, which leads to economic contraction that can result in a depression.)
Federal Reserve System: “System causes inflation-depression cycles.”
People’s Money System: The business cycle is smoothed, and inflation and deflation are greatly mollified. Unlike fiat monetary systems, this system quickly and automatically increases and decreases the money supply as the demand and the economy’s need for money increase and decrease. Economics and not politics, as occurs with fiat monetary systems, drives the expansion and contraction of money supply.

9. Treasury Credit Money System: “Money maintains constant purchasing power.” (As discussed above, this statement is false. Money under this system will lose its purchasing power. Being irredeemable paper money, it is extremely low quality money. Low quality money cannot maintain a constant purchasing power. It always declines in value. History shows that money issued directly by government typically inflates, depreciates, faster than that issued by banks.)
Federal Reserve System: “Money loses purchasing power until it causes depression.”
People’s Money System: Being gold and silver, money is of the highest quality. Its purchasing power gradually increases over time. Unlike the other two systems, it results in the standard of living of the common man actually rising.

10. Treasury Credit Money System: “Money supply expands or contracts according to needs of society.” (Perhaps Thoren and Warner explain in their book how this is accomplished. However, I do not see how it is possible without saintly divine beings being in charge of the monetary system. I have yet encountered a fiat monetary system that, in spite of assurance of its proponents that it can, can manipulate the money supply to meet the needs of the economy. I guess that Thoren and Warner’s out is adjusting the money supply to meet the needs of “society” instead of the “economy.” Society includes both the political and economic. As fiat money is a political creation, it can be expanded and contracted to meet the political needs of society as those in power construe these needs.)
Federal Reserve System: “Money supply expands or contracts according to secret policies.”
People’s Money System: As discussed above, the money supply expands and contracts to meet the economic needs or needs of the economy. It accomplishes these adjustments automatically and quickly without any governmental intervention.

11. Treasury Credit Money System: “Taxes kept at a minimum.” (By substituting printing press money for taxation.)
Federal Reserve System: “Taxes kept at a maximum.”
People’s Money System: Taxes are kept at a minimum.

12. Treasury Credit Money System: “No personal income tax.”
Federal Reserve System: “Maximum politically acceptable income tax.”
People’s Money System: It does not necessarily eliminate personal income taxes. However, because it keeps the government small and lean, personal income taxes become unnecessary.

13. Treasury Credit Money System: “No national debt.” (This is another false statement. The U.S. government note, which is the form of money under this system, is a form of debt. It is a governmental debt forced on everyone. The national debt is not eliminated. It is merely transformed into noninterest bearing, nonpayable debt.)
Federal Reserve System: “National debt grows exponentially.”
People’s Money System: It does not necessarily eliminate national debt, but it keeps it small. To the extent that it encourages frugal government, it makes debt unnecessary.

14. Treasury Credit Money System: “All debts are totally payable.” (This statement is misleading and false. It is misleading when it claims that debts are totally payable. Debts paid with debt [government notes] may be discharged, but they can never be extinguished. Debt is paid by transferring it to another. This statement is false because government notes are debt, and the government never pays them off.)
Federal Reserve System: “Never enough money in the system to pay all debt (principal and interest).” (This is not quite accurate. Bankruptcy leaves money to pay the interest.)
People’s Money System: Unlike the other two systems, debt is not money. As all debts are eventually paid with that which is no one else’s obligation, gold and silver, this system truly does extinguish all debt.

15. Treasury Credit Money System: “Interest collections on treasury-held debt never exceed supply of debt-free money in circulation.”
Federal Reserve System: “Bank interest collections deplete the money supply forcing escalation of debt, interest and prices.” (If interest depletes the money supply, how can it force prices up? If people have less money to spend, merchants have to cut their prices if they want to sell their products.)
People’s Money System: As interest is paid in real money that remains in use as long as a need or demand for that money remains, this is a nonissue.

The following eight items are comparisons not in the pamphlet’s chart. Most likely, they were not considered because they show how much alike are the Treasury Credit Money System and Federal Reserve System.

1. Treasury Credit Money System: Produces low quality money.
Federal Reserve System: Produces low quality money.
People’s Money System: Produces high quality money.

2. Treasury Credit Money System: Leads to, or at least facilities, ever expanding, ever more powerful government; increases the government’s power over the people.
Federal Reserve System: Leads to, or at least facilities, ever expanding, ever more powerful government; increases the government’s power over the people.
People’s Money System: Leads to smaller, more limited government; decreases the power of the government over the people.

3. Treasury Credit Money System: Trusts politicians and bureaucrats; distrusts the people and bankers.
Federal Reserve System: Trusts politicians, bureaucrats, and bankers; distrusts the people.
People’s Money System: Trusts the people; distrusts politicians, bureaucrats, and bankers.

4. Treasury Credit Money System: Trusts promises and paper; distrusts that which is no one else’s obligation, especially gold.
Federal Reserve System: Trusts promises and paper; distrusts that which is no one else’s obligation, especially gold.
People’s Money System: Trusts that which is no one else’s obligation, including gold; distrusts promises and paper.

5. Treasury Credit Money System: Depends on legal tender laws, the military might of the government to force the people to accept the money. Its money cannot stand on its own merit.
Federal Reserve System: Depends on legal tender laws, the military might of the government to force the people to accept the money. Its money cannot stand on its own merit.
People’s Money System: Depends on the merit of the money to get the people to accept it. Legal tender laws are unnecessary.

6. Treasury Credit Money System: Money dies with the issuing government or sooner if the government abolishes it. Its type of money seldom survives a generation.
Federal Reserve System: Money dies with the issuing government or sooner if the government abolishes it. Its type of money seldom survives a generation.
People’s Money System: Money outlives the issuing government and even the country. It survives for millennia. Although the government may outlaw it, the government cannot kill or abolish it.

7. Treasury Credit Money System: Monetary unit is an intangible legal abstraction, which has no intrinsic value[1] that can store, measure, and transfer value and wealth.
Federal Reserve System: Monetary unit is an intangible legal abstraction, which has no intrinsic value that can store, measure, and transfer value and wealth.
People’s Money System: Monetary unit is a tangible specific measurable quantity of a commodity, e.g., as a specific weight of gold. As the monetary unit has intrinsic value, it can store, measure, and transfer value and wealth.

8. Treasury Credit Money System: Governmental policies are necessary to the management of the country’s money. Thus, the monetary system is politically managed.
Federal Reserve System: An “independent” central bank, the Federal Reserve, can best mange the country’s monetary system. As the creation and existence of the central bank is political, the central bank is guided by politics instead of economics in managing the country’s money. Besides, it is as ignorant as the government in knowing how much money is needed, when it is needed, and where it is needed. It is as incompetent as the government in getting the right quantity at the right time to the right place.
People’s Money System: The people through their market activities can best control the country’s money; monetary policies of the government and its central banks only hamper the management of the country’s money. The best monetary system is a market managed system. Thus, it is vastly superior to the government or its central bank at getting the right quantity of money to the right place at the right time.

Endnote
1. Intrinsic value is the value of the monetary material in its nonmonetary use. Commodity money such as gold has high value in its nonmonetary use. If the impressions were removed from a gold coin, the coin would still have the same value. Moreover, a double eagle is worth twice as much as an eagle even without any impression on it. A small piece of paper with the picture of a dead president on it has no more value than a square of stiff toilet paper — practically none. If the engraving were removed, a $100 bill would have no more value than a $1 bill.

A commodity’s utility in its nonmonetary use is what originally gave it value as money. With free coinage under the true gold standard, the monetary value and nonmonetary value of the commodity are kept in equilibrium. Originally, paper money obtained its value from the commodity money with which it was connected. As the distance from its connection with commodity money lengthens, its monetary value declines and eventually equals its nonmonetary value of nearly zero.


Copyright © 2010 by Thomas Coley Allen.

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Do We Really Need to Return to Hamilton?

Do We Really Need to Return to Hamilton?
Thomas Allen

[Editor's note: Footnotes in the original are omitted.]

Two contrasting articles appear in the December 2010 issue of Chronicles. They are “Back to Hamilton” by William J. Quirk and “Prosperity” by Clyde Wilson. Quirk’s article reviews Paul Craig Roberts’ book How the Economy Was Lost: The War of the Worlds. Quirk focuses on Roberts’ promotion of protective tariffs as the means to revitalize America’s economy and increase the standard of living standard of middle-class Americans. Quirk seems to agree with Roberts.

Quirk does observe that when the dollar was connected with gold, prices remained fairly stable over time. However, under the true gold standard, general prices should decline over time because productivity rises faster than the money supply. Quirk also notes that gold disciplines politicians and checks governmental expenditures much more effectively than the supposedly independent Federal Reserve. (Where Roberts stands on the gold standard, I do not know. Based on some comments that he has made in his columns and in radio interviews, he does not appear to be an adherent of the gold standard.)

Roberts blames “globalization” for America’s economic problem. He is probably right. However, globalization has nothing to do with free trade. Trade as administered through the World Trade Organization (WTO) and other trade agreements is managed trade. An international bureaucracy answerable to no government manages world trade, which extends to local trade, for the benefit of the international corporations.

That people call these agreements free trade is a travesty. They prevent free trade instead of allowing it. The Thought Police are living and operating. To call WTO, NAFTA, and the like free trade agreements is like calling war, peace; freedom, slavery; and ignorance, strength.

Based on his paraphrase of Pat Buchanan’s statement, Roberts is aware that these agreements are not trade agreements — much less free trade agreements. Their objective is to strip the American worker of his wealth and transfer it to the elite, who control the international corporations.

Quirk shows that the median income rose from 1947 to 1973 and declined from 1998 to 2008. Actually, median income has been declining since 1973. This decline has much more to do with severing gold’s last hold on the dollar in 1971 than with trade agreements.

The common myth that big industry and especially big banks (because they supposedly control the world’s gold) love the gold standard is false. They abhor it because it inhibits their unbridled greed. They love fiat money, especially paper fiat money and its electronic equivalent.

Bankers can create fiat paper money and its electronic equivalent out of nothing. They cannot create gold out of nothing. That is why the gold standard was abandoned.

Big business likes fiat money because they are first in line to get it. Thus, they are first to spend the new money, so they use it before it loses its value. Then they use it to repay their loans after it has lost its value and with that cheat their creditors.

Roberts does not object to managed trade. He objects to who is managing it and how they are managing it. Roberts does not want to replace the current system of managed trade with free trade. He wants to replace it with another system of managed trade.

Quirk (or Roberts, the article is not clear about whom) points to Hamilton’s arguments. Hamilton offered two arguments, which are still used, to promote protective tariffs. (1) They are necessary to build and maintain the industrial base for war. Hence, adherents of protective tariffs fear that the military-industrial complex will not develop and mature unless protective tariffs are imposed. (2) Capital used in industry produces more wealth than that used in agriculture. Today’s proponents also claim that it produces more wealth than that used in services.

If the proponents of protective tariffs want to impose tariffs to protect the military-industrial complex, they should prohibit the importation of strategic metals and rare earths. These materials are essential to modern warfare. Therefore, the country should not depend on foreign sources. The prohibition of their importation, which is the ultimate objective of a protective tariff, would force the extraction of these metals from the oceans and land sources where their concentrations may be as high as micrograms per megaton. Consumer goods that used these materials would no longer exist because no one could afford them. Inferior products would replace items that used these materials. The computer age in America except for the U.S. government, which can manufacture and steal all the money that it needs, and multinationals, which can move their computer work to other countries, may die. No sacrifice is too great for the benefit of the military-industrial complex.

If the purpose of tariffs is to build and maintain a war machine, wouldn’t it be better to subsidize these industries directly from the Defense Department’s budget? Unlike direct subsidies, tariffs do not guarantee that these industries will be built or maintained. Furthermore, direct subsidies reveal the real cost of building and maintaining these industries. Knowing the real cost, the people can then decide if these industries are worth the cost. (A major reason for using trade restrictions like protective tariffs instead of direct subsidies is to conceal the real cost.)

Hamilton was an agent of the bankers and major industrialists. He was himself a banker and helped to found the Bank of New York. He wanted protective tariffs to transfer wealth from the common American, most of whom were farmers at that time, to his rich northern friends.

Wilson reveals the truth of this objective in his article when he writes, “When tariffs were beneficial to the Northern rich and burdensome on everyone else, the United States had tariffs; when ‘free trade’ is beneficial to the Northern rich and a burden to everyone else, we have ‘free trade.’” (Wilson argues that when discussing issues, such as free trade versus protective tariffs, one must look beneath the surface. One must find out who benefits. One will usually find that the ruling elite, and not the people, is the primary beneficiary. Consequently, the power of government needs to be severely restricted to limit the ability of the ruling elite to use it for its benefit.)

According to Quirk, Hamilton intended tariffs to provide temporary protection for America’s manufacturing. How long is “temporary?” The country has had protective tariffs of some sort ever since Congress adopted Hamilton’s proposal. (Yes, the United States still have some protective tariffs and other import restrictions even today with all these so-called “free trade” agreements.)

Do Quirk, Roberts, and other promoters of protective tariffs really believe that Lincoln was right when he sent 600,000 men to their deaths to impose his protective tariff on the South? Protective tariffs, which enriched the North at the expense of the South, were the major reason for the Southern States seceding. If they do not believe that Lincoln was justified in his actions, why? If he were, why? Lincoln was merely doing what they advocated: imposing protective tariffs.

Quirk, Roberts, and other proponents of protective tariffs are victims of Bastiat’s broken window syndrome. They see people being paid to repair the broken window and people selling the material for the repair. They wrongly conclude that breaking the window is good for the economy. They see only the work and selling that it causes. (This mentality misleads people to believe that the massive destruction of capital and labor in war is good for the economy.)

What they fail to see is what Bastiat and any good economist see. A good economist sees the lost of revenue to the people who would have received the window’s owner’s money if he had not had to pay for the broken window. For example, if the owner had wanted a new pair of shoes, a shoe store and manufacturer have suffered a loss. The country as a whole has lost. If the window had not been broken, the owner and the country would have had both a window and a new pair of shoes. After the window is broken, the owner and the country have only a new window. A new pair of shoes has been lost.

Protective tariffs work the same way. They divert money from where the consumer prefers to spend it to pay the tariff or a higher price. Thus, consumers buy less. The economy and country have less wealth.

Hamiltonians like Roberts point to protective tariffs and the economic growth, primarily industrial growth, in America’s history. They conclude that this growth resulted from the tariffs. Without the tariffs, growth would have been much lower — or at least they imply this conclusion. Protective tariff promoters treat “sequences as consequences.”

Wilson notes that treating sequences as consequences is a flawed way of thinking. He writes, “If B follows A, then A was the cause of B. In fact, in understanding the wealth of nations, that is a bad assumption — because there are always multiple variables, some of them unknown, unpredictable, too deep to be observed, and even spirited and unmeasurable.” Because Congress imposed a tariff and the industrial economy of the country grew does not mean that the tariff caused this growth.

Historical examples exist that suggest that the imposition of protective tariffs causes or at least contributes to depressions. Congress enacted the McKinley Tariff Act in 1890. This tariff raised rates and made circumvention more difficult. The country suffered a severe panic in 1893 and a depression that lasted until 1896 or 1897, depending on whose criteria are considered. Did the tariff cause the depression? If everything else is ignored, which the Hamiltonians seem to want to do in promoting tariffs, the answer is yes. Most likely the tariffs were a contributing factor. However, the primary cause was the fiat silver dollar primarily as the Treasury note of 1890.

If protective tariffs really do invigorate the economy as a whole, then apparently it lacks to power to overcome the negative effects of fiat money. If true, then imposing protective tariffs without first eliminating fiat money will not solve the country’s economic problems. It may even make the problems worse.

Quirk begins his article with a discussion of Ben Bernanke and the Federal Reserve. Quirk fails to mention that the Federal Reserve is a child of Hamilton. Hamilton was an advocate of centralized banking. As the United States already have centralized banking, no need exists to go back to Hamilton for that.

Although Roberts disagrees with Bernanke on many issues, the two do agree on one thing. They agree that higher prices are preferable to lower prices. Gasoline at $5 per gallon is better than gasoline at $1 per gallon. Bernanke wants to achieve higher prices through currency depreciation. Roberts wants to achieve them through protective tariffs.

Roberts complains, and rightly so, about the United States “financing its trade and budget deficits by turning over the ownership of existing U.S. assets” and by getting foreigners to buy U.S. Treasury debt with their trade surplus dollars. He claims that dependency on foreigners to finance budget and trade deficits is “beyond the reach of monetary and fiscal policies.” This is not exactly true. If the U.S. government cuts its expenditures to match, or preferably to be below, its revenue, it would not need foreigners to buy its debt. Moreover, reducing the size of the government to match its income would lessen the burden that the economy is currently forced to carry. It would diminish the distortions of the economy that the government’s expenditures cause. It would eliminate agencies whose purpose is to interfere with and thwart economic activity. Or at least it would significantly decrease their intervention. Elimination of debt is a fiscal policy that the U.S. government can undertake to halt the adverse effects described by Roberts.

Once America’s number one export, federal debt, is eliminated, the trade balance becomes self-correcting. If Say’s Law is still valid, and it is, the concern about the trade deficit and the lack of industrial productivity vanishes. If Americans do not produce anything with which to buy imports, foreigners will cease trading with them. Imports will fade away until Americans begin to produce something with which to buy imports. Trade balances automatically correct without governmental intervention. Governmental intervention only leads to more distortion and imbalance.

Based on Quirk’s review of Roberts’ book, Roberts does an excellent job of describing America’s economic problems and much of what has caused these problems. Unfortunately, he offers a false solution.

On the other hand, Wilson identifies the primary cause of America’s economic problems: too much governmental intervention. To solve America’s economic problems, this intervention needs to be drastically reduced.

Wilson begins by giving a good description of a prosperous society. A prosperous society has minimal debt, and its debt is temporary. Only a few people are very rich or very poor. Nearly everyone falls around the middle. Society’s wealth distribution is a narrow bell-shaped curve: It has a small standard deviation. Almost everyone “has an abundance of necessities and access to some small luxuries and leisure.” It has small, unobtrusive governments with the local governments being the most noticeable and important, and the national government, the least. Private patronage supports religion, charity, education, and the arts. Cultural cohesion flourishes.

America has lost most of these aspects of prosperity. Protective tariffs will not bring them back. On the contrary, they concentrate more power in Washington. They concentrate more wealth in the bank accounts of the politically powerful.

Protective tariffs may drive wages up, but this is not a given. However, the increase in prices that protective tariffs cause will nullify much, if not all, of the wage increase. Americans may be worse off after the imposition of protective tariffs. Their real income may decline, and they can afford fewer luxuries and probably fewer necessities. (The gold and silver standards are what drove real wages up during the nineteenth century and not tariffs.)

Wilson asserts, and correctly so, that hard work and merit resulting in an appropriate reward has largely vanished in today’s America. Conniving, scheming, and, most importantly, political connections and being a member of a politically promoted group reward people today. (In turn, the rich and powerful, i.e., the ruling elite, globalists, control most of these people.) After the ruling elite, these are the people who will benefit most from protective tariffs. The ruling elite will use them to control the tariffs and direct the tariffs to protect their interest.
Wilson concludes his article with the following:

Nobody can understand or completely manage a large economy. Surely, there are not many “lessons of history” more obvious and certain than that. But economics is a matter of human thought and action. Human thought and action can be applied to such matters as trade, labor, the money supply, in ways that are better or worse. But better or worse for whom! We need to remember what prosperity is supposed to feel like. But first we must find out who “we” are.

Thus, if improving the prosperity of the people is the objective, America is obviously going in the wrong direction. Ever more government has improved the prosperity of the ruling elite. However, it has diminished it for everyone else. If the people want to regain their lost prosperity, they need to do something different. They need a massive dismantlement of government.

The first step to take toward solving America’s economic problems is to withdraw from WTO, NAFTA, and similar agreements and organizations. (Withdrawal from the United Nations and all its subordinate organizations would also be beneficial.) Next is ending subsidizing off-shoring and oversea relocating along with all other corporate welfare. Closely related to this action is the elimination of the military-industrial complex by immediately ending all undeclared wars and closing all bases in foreign countries. An armed force necessary to deter attacks on the United States is much smaller than that needed to maintain a world empire. The gold and silver coin standards need to be reintroduced to operate parallel with the current federal reserve note standard with the intention of ending the latter. Abolishing the Federal Reserve and centralized banking is one of the most important elements toward long-term recovery. Eliminating the overly burdensome regulatory environment in which businesses are forced to operate is another necessary component. (This highly regulated environment exists primarily for the benefit of big businesses as it greatly reduces their competition.) Regulatory agencies that have no constitutional foundation, such as the Environmental Protection Agency (the States are perfectly capable of taking care of their environmental problems), should be immediately eliminated. Most important is a return to constitutional government, which would reduce the size of the U.S. government by 90 percent.

Roberts’ and Quirk’s solution differs significantly from the above. They believe that the solution to the economic problems caused by governmental intervention is more governmental intervention. The correct solution is to remove the governmental intervention that caused the problems.

Jefferson was right when he “objected to using government to encourage manufacturing.” The government should leave the economy alone and let manufacturing develop in its own way and at its own pace. Jefferson said, “[It] can hardly be wise in a government to attempt to give a direction to the industry of its citizens.”

Does the county really need to return to Hamilton? Hamilton supported the concentration of political and economic power into the hands of a few. The country has been operating under his philosophy since 1860. His philosophy has led it to where it is today. Has not the time long past to abandon Hamilton’s philosophy? Has not the time come to adopt Jefferson’s philosophy of decentralizing and dispersing political and economic power?

Copyright © 2010 by Thomas Coley Allen.

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