Copyright - Robert K. Landis - 2005


After Monetary Collapse:
Strict Reconstruction or More Bork?

by Bob Landis


The ghastly images of destruction and chaos streaming out of areas hit by Hurricanes Katrina and Rita held a grim fascination for gold bugs. And why not: what a mother lode of potent metaphor. The hurricanes as a black swan, the long-feared non-linear event that may have set in motion the cascading series of financial crises that will ultimately bring down the global monetary system. The levees as symbols of the manipulations of the central banks, doomed to fail before the full fury of a financial panic. The breakdown of authority as a graphic reminder that for all the propaganda of the Welfare State, when the chips are down we’re on our own.

But there’s another aspect of the hurricanes’ power as metaphor that we find especially disturbing. It’s about the reconstruction. There are lots of things not to like, we suppose, but what really sticks in our craw is the no-bid contracts to cronies. Looking ahead to the aftermath of the monetary collapse, we can’t help gagging at the prospect of Goldman Sachs and JPMorgan Chase, those darlings of the financial world that best exemplify the seamless connection between bank and state, getting the mandate for reconstruction. That’s like tapping Ken Lay to restructure Enron.

It’s no less disturbing to have to concede, on reflection, that it probably won’t matter who’s in charge of monetary reconstruction. The sad fact is, a century of inflationist propaganda, institutional changes and adaptive market practices have done their work. Monetary economics is an all but lost art, monetary history has been effectively extinguished, and we are without living memory of a proper monetary system. So gold bugs might be forgiven a recurring nightmare in which the United States is condemned to a painful reeducation, as increasingly bad and desperate solutions are sequentially imposed on a numb and passive populace.

Ark or Bunker?

We generally punt on the subject of monetary reform, content to observe hopefully that the market will demand a return of honest money once the fiat system blows up, just as it always has before. After all, it’s more fun to talk about gold wars and monetary collapse than the nitty-gritty of monetary reform. And it’s comforting to view the catastrophe of a monetary collapse as a kind of forest fire that for all its destruction will trigger a long overdue regeneration.

But it’s time to confront a stubborn fact: today’s “market”, unlike the “market” in earlier fiat monetary collapses, has lost the hard won understanding of the vital linkage between natural and official money. So it’s unrealistic to expect an immediate return to sanity when our turn comes. While it remains true, we believe, that at the end of the day people will demand honest money, it may be a long day -- a day filled with all manner of interesting expedients and innovative monetary swindles.

So what are gold bugs to do? Give in to despair, hunker down and look only to their own survival?

Well, maybe. Engineering a massive cultural shift is a tall order. It takes a lot of time and a lot of money to endow university chairs, buy networks and set up think tanks. It’s not clear how much time we have, and, after years of playing the wrong side of a rigged market, gold bugs make poor philanthropists.

But that said, how meaningful is an existence that consists simply of hunkering down? After all, a refugee from New Orleans who drove out timely with a full tank of gas, a satellite phone, food and ready cash, was still, when all was said and done, a refugee. Surely it’s better to try to do something to shorten the Nightmare of the Bad Solutions.

Wanted: Bloggers with Attitude

The United States has had four important public discussions of its monetary system, all but one a direct outgrowth of domestic crisis and upheaval.

The first was the Constitutional Convention of 1787, held in the wake of the hyperinflations that accompanied and followed the Revolutionary War. This was the remarkable conclave of the Founders that spawned our Constitution. That hallowed document, justly regarded as the greatest political achievement in history, also happens to be the greatest hard money charter ever adopted by a sovereign people.

The middle two discussions took place in court. The Legal Tender Cases, upholding the Lincoln administration’s monetary expedients in the Civil War, and the Gold Clause Cases, upholding the Roosevelt administration’s monetary expedients in the Great Depression, gravely undermined the work of the Founders. Politically charged, poorly reasoned, and legally unsound, these decisions helped set the stage for the coming collapse.[1]

The most recent discussion took place in hearings held by the U.S. Gold Commission in 1981-1982. This was a Congressional task force set up in the wake of the inflation that followed the Nixon administration’s abrogation of Bretton Woods in 1971, the act which severed the last remaining link between official and natural money. The Gold Commission spawned nothing, other than a perfunctory endorsement of the status quo and an eloquent dissent in a Minority Report. It was little more than a steam valve, placating the closet gold bug who then happened to be President, and harmlessly venting some disorganized external pressure regarding the developing financial crisis.

These four precedents pretty well define the range of possibilities for the next discussion of monetary reform. The context will be an actual monetary collapse, perhaps as severe as that which confronted the Founders. So perhaps there will be a stormy political convention. Or perhaps the monetary question will become so fashionable that the judiciary will be moved to weigh in. But if we had to bet, we’d put our Federal Reserve Notes on an attempt by the authorities to pull a replay of the Gold Commission, some sort of council of insiders and “experts” in Keynesian or related inflationist economic theories.

Whatever the format, sound money advocates are unlikely to figure prominently in the guest list.

But in the age of the Internet, that needn’t keep them from crashing the party. To be effective, though, they’ll need to know what they want and unite around a single set of demands. They’ll also need to be willing to make a nuisance of themselves. Big time.[2]

E Pluribus Unum

The prospects for a united front are admittedly dim. The natural condition of a fractious community of libertarians is hardly a high level of organization or consensus. It will be easier for individual sound money advocates to remain indifferent and divided, each with his own private vision. But if they can’t ultimately get behind a shared concept of monetary reform, they stand no chance of having any impact on reconstruction. There will be, at best, a replay of the cacophony of independent recommendations made to the Gold Commission, many well reasoned, all, in aggregate, easily ignored.[3] This would be sadly ironic, because things will have turned out just as the hard money crowd had predicted, and the correct solutions will be found among those they are severally putting forward. Gold bugs will find themselves divided and ineffective, once more watching helplessly from the fringe as ignorant people hatch bad policies. Worse yet, they could find themselves on the defensive, scapegoated by demagogues.

So what would a useful consensus on monetary reform look like?

First prize would go to a bullet point outline, no longer than two pages, like the individual submissions to the Gold Commission. The outline should satisfy two main criteria. One is what we’ll call, with a nod to the Texas White House, the Crawford Simplicity Criterion: the proposed monetary system must be so simple that it can be readily articulated by politicians of the caliber now favored in the United States.

Better yet, make it rhyme.

Simplicity is important for several reasons. First, getting any sort of reform adopted in the context of a financial panic will be, at best, an intensely political process, not an intellectual exercise. Complicated won’t hunt. Second, the system needs to be accessible to ordinary people, not just clever financial types. The more complicated the system, the more easily the smart guys will scam it, and the sooner we’ll end up with another crisis on our hands. Third, the historical record suggests that any reform will at best be temporary. Over time, judges and politicians will sell us out. The simpler and the more transparent the system, the more difficult their task, and the longer it should take them.

Simplicity can’t be the only criterion, however. We need to keep it legal. The other main criterion must be consistency with the Constitution of the United States, properly construed.

Return of the Prodigals

Like other fiat monetary collapses, ours will be a morality tale. We strayed from the true way. In our case, uniquely, the true way was actually set down in writing, in our Constitution, the foundational law of the United States.

Although the Constitution is still on the books, it has for many years been sanctimoniously ignored and deliberately misread by judges and politicians. Our distress will derive from this willful disregard. Our salvation will lie in a return to those first principles, back toward the rule of law, and away from the rule of men.

In the panic and the chaos that will attend a monetary collapse, especially in a society cowed by incessant scaremongering and coarsened by incessant war, the Constitution will offer the best hope -- perhaps the only hope -- of delivering us from tyranny and guiding us back toward the freedom that once made us the envy of the world. We will need a secular Reformation, in which we take back our Constitution from the judges and politicians who have defrauded us.

So what does the Constitution say about money?[4]

Dude, Where’s My Constitution?

We often hear pundits and politicians talk about “strict construction.” This is a phrase introduced as a campaign slogan by Richard Nixon. It’s a sort of code, signifying a “conservative” -- as opposed to an “activist” -- judicial philosophy. It has no real legal meaning, but is popularly understood to refer to interpreting and applying the Constitution according to the plain meaning of the words and the original intent of the Founders.[5]

The reality is, particularly with respect to its monetary provisions, the Constitution is a dead letter. There is not a “strict constructionist” anywhere near a position of real power and influence in Washington. In the words of Rep. Ron Paul, a tireless champion of sound money and one of the authors of the Minority Report[6]:

Perhaps no important document is held in less regard in Washington, D.C., than the United States Constitution. In fact, the attitude of many Congressmen and government officials toward the Constitution consists of giving lip service to it by refusing to take it seriously. It is considered obsolete, written for agrarian economies; and our highly technological society has supposedly moved far beyond its limits. It is to be referred to only when convenient and ignored when inconvenient.

This official disregard goes with the institutional territory. As the Minority Report observed (p.243):

The present monetary arrangements of the United States are unconstitutional-even anti-constitutional-from top to bottom. / The Constitution actually says very little about what sort of monetary system the United States ought to have, but what it does say is unmistakably clear.

They got that right. Consider, for example, what the Constitution says about federal power to issue paper money and establish a central bank:

ARTICLE I, Section 8. The Congress shall have Power * * *

Clause 2: To borrow Money on the credit of the United States * * * .

ARTICLE I, Section 9.

Clause 7: No Money shall be drawn from the Treasury, but in Consequence of Appropriations made by Law * * *.

Notice anything odd here?

That’s right, it doesn’t say anything about paper money, let alone central banking.

With respect to central banking, the Minority Report observed (pp. 261-262):

By a strict interpretation of the Constitution, one of the most unconstitutional (if there are degrees of unconstitutionality) of federal agencies is the Federal Reserve. The Constitution grants no power to the Congress to set up such an institution, and the Fed is the major cause of our present monetary problems. The alleged constitutional authority stems from a loose and imaginative interpretation of the implied powers clause.

This raises a point that is critical to interpreting the Constitution, strictly or otherwise: what the Constitution doesn’t say is just as important as what it does say. That’s because every power exercised by government has to have a root authorization in the Constitution. Any power that is not delegated is withheld. That’s the genius of the limited state conceived by the Founders.[7]

Strict construction, anyone?

What Part of “No Authority” Don’t They Get?

With respect to the issuance of paper money, the lack of authority is even more egregious, because this was something the Founders specifically considered, and knowingly rejected.

Here it’s helpful to recall that the Constitution did not spring whole from the Founders’ foreheads at the Philadelphia Convention in 1787. It was a carefully studied -- and extensively debated -- successor to an original charter known as the Articles of Confederation.

The Articles had been adopted ten years earlier, shortly after the outbreak of the Revolution, and had formally governed relations among the states since 1781. In today’s terms, the Articles were something of a cross between a customs union and a multilateral treaty of friendship, navigation and commerce among sovereign states. They provided for a rather weak central governance committee known as Congress.

This earlier charter had proved inadequate in a number of respects. The Constitution was intended to correct its deficiencies. So if we’re interested in understanding the Founders’ intent with respect to particular provisions of the Constitution, it is relevant to consider what it was they were trying to fix.

Have a look at the predecessor version of the language quoted above relating to paper money, as set forth in the original Articles (emphasis supplied):

IX. * * * The United States in Congress assembled shall have authority * * * to borrow money, or emit bills on the credit of the United States * * * .

Although the words used in these old documents carry slightly different meanings today, their original meaning should be clear enough to a “strict constructionist.” We see here that the Articles had given Congress the explicit power to issue paper money, so-called “bills of credit.”[8] The states also had that power, by virtue of the fact that the Articles nowhere said they didn’t: the Articles were emphatic that any power not specifically delegated to the Congress was retained by the sovereign states.

During the American Revolution, both Congress in the notorious Continental currency[9], and the several states in a profusion of paper currency and debt certificates[10], had duly exercised this power. The result was a monetary disaster.[11] The delegates, who had come to Philadelphia from their home states that were suffering varying degrees of financial and economic distress, were determined to implement a lasting monetary reform.[12]

And one of the first things they did in this reform document, right there in Article I, was take away from Congress the power to issue paper money, by deleting the language “or emit bills.”[13]

Strict construction, anyone?

A Money Measured by Weight

There’s more.

Have a look at what the Constitution says about what money is permissible.

ARTICLE I, Section 8. The Congress shall have Power * * *

Clause 5: To coin Money, regulate the Value thereof, and of foreign Coin, and fix the standard of Weights and Measures * * *

ARTICLE I, Section 10.

Clause 1: No State shall * * * coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts * * * .

Here we see the heart of the monetary provisions in the Constitution.

In clause 1 of Section 10, it’s pretty clear what’s going on, to judicial activist and strict constructionist alike.

First, we see that the states lost their power to coin money.

Second, we see that the states were explicitly denied the power to issue paper money.

Third, we see that the states were denied the power to make anything but gold and silver coin a legal tender -- which would include, by the way, anything issued by the federal government.[14]

It’s clause 5 of Article I that seems to offer some wiggle room to the champions of paper money. We see that money is something that’s coined, not printed, and that, as such, it is properly lumped in with weights and measures. But doesn’t the power to coin money suggest some sort of “implied power” to print paper as well?

No. Not, at any rate, to anyone concerned with the plain meaning of the words:[15]

Coins are pieces of metal, of definite weight and value, thus stamped by national authority. Such is the natural import of the terms “to coin money” and “coin;” and if there were any doubt that this is their meaning in the Constitution, it would be removed by the language which immediately follows the grant of the “power to coin” authorizing Congress to regulate the value of the money thus coined, and also “of foreign coin,” and by the distinction made in other clauses between coin and the obligations of the general government and of the several states.

What about that language, “regulate the value thereof”? Doesn’t that give Congress carte blanche to do whatever it wants regarding our money?

No. Not, at any rate, to anyone viewing money as metal with weight and fineness, which is to say, anyone present at the Constitutional Convention, or anyone who now fancies himself a “strict constructionist.”[16]

The power of regulation conferred is the power to determine the weight and purity of the several coins struck, and their consequent relation to the monetary unit which might be established by the authority of the government - a power which can be exercised with reference to the metallic coins of foreign countries, but which is incapable of execution with reference to their obligations or securities.

And that’s all there is. That’s the sum total of the core monetary provisions of the Constitution.[17] In these few words, men of courage and genius gave us a charter of monetary freedom never equaled before or since.[18]

Strict construction, anyone?

So How Did We Get Here from There?

Now, in a legal system in which all powers exercised by or on behalf of the state must derive from a delegated power in the Constitution, the absence of authority to issue fiat money or to establish a central bank should have been enough to keep these things from becoming the defining features of our monetary system. Instead, over the years, politicians and judges turned the Constitution upside down, either by pretending that it authorized anything not expressly proscribed[19], or, more commonly in the case of judges, by ducking monetary issues altogether.

Which brings us to an important point about how the separation of powers among the executive, legislative and judicial branches, so carefully crafted by the Founders, actually works in practice. Thanks to an early power grab by the Supreme Court under Chief Justice John Marshall, the Court deftly established itself as first among equals when it comes to declaring what is and what is not constitutional. [20]

The consequences of this doctrine, known as judicial review, are closely monitored, and widely critiqued, in the social and political spheres. In the monetary sphere, nobody’s watching anymore. Since the Supreme Court controls its own docket, it has been free to do -- and equally important, not to do -- as it sees fit. This has created a giant legal blind spot. It’s the inverse of the effect of selective reporting in the news media before the Internet. There a story not reported was a story that didn’t exist. In the Supreme Court, a monetary challenge not heard was a bad law or institution that survived.

Thus it has come to pass that the Court has consistently refused to hear any challenge to the constitutionality of the post-Bretton Woods monetary system, and, as a consequence, we have been left saddled with a monster that defiles the memory of the Founders.[21]

In this connection, it is interesting to observe the elaborate hypocrisy that now attends the consideration of nominees for seats on the Supreme Court.

Memo to Senator Schumer

Sir: If you want to determine whether a candidate for the Court is a true judicial conservative, why not question him regarding his reading of the monetary provisions of the Constitution? No need to ask him how he’d vote on a reconsideration of Roe v. Wade; ask him instead whether he’d vote to grant certiorari, that is, accept for consideration by the Court, a monetary case. Maybe you’ll flush out a real wacko, a jurist actually prepared to support and defend the Constitution in all its parts.

Pin him down; ask him about his position on the Legal Tender Cases. You may find you’re dealing with a jurist to the “right” of Judge Bork, whose confirmation hearings produced this gem:[22]

The Chairman [Senator Biden]: ... Would you be willing for this committee to identify the “dozens of cases” that you think should be reconsidered?

Judge Bork: ... So there is, in fact, a recognition on my part that stare decisis or the theory of precedent is important. In fact, I would say to you that anybody who believes in original intention as the means of interpreting the Constitution has to have a theory of precedent, because this Nation has grown in ways that do not comport with the intentions of the people who wrote the Constitution -- the commerce clause is one example -- and it is simply too late to go back and tear that up.

I cite to you the Legal Tender cases. These are extreme examples admittedly. Scholarship suggests that the framers intended to prohibit paper money. Any judge who today thought he would go back to the original intent really ought to be accompanied by a guardian rather than be sitting on the bench. [Emphasis supplied.]

The Chairman: I couldn't agree with you more, Judge ... .

Scholarship? Judge Bork was too kind. More like plain reading of clear words, of the type we’ve just essayed. Accompanied by a guardian? That hurts. That really hurts. But we can take it.

In any event, Senator, if you can link a nominee to a secret sympathy for honest, constitutional money, he’ll be seen by “left” and “right” alike as a freak from Weird City. He’ll be lucky to get ten votes, and you’ll have naming rights to a new verb, an extremely prejudicial variant of “to Bork.”

More Cowbell

So much for our constitutional excursus. We have now identified the mandatory elements of monetary reform, those central principles of a national monetary system that are required as a constitutional matter:

1. A national money consisting of coined metal, of which only specie -- gold and silver -- may be legal tender

2. No government issued paper money

3. No central bank

If we had to stop there, and could succeed only in ensuring that any plan coming out of the reconstruction process would be consistent with these constitutional requirements, we would still be vastly better off than we have been for the last 100 years.

But we don’t need to stop there, and we shouldn’t. There are a number of other important issues, as well as issues arising from these first principles, that need discussion and debate. The devil, as they say, is in the details.

Those other issues haven’t changed much since the time of the Minority Report.

Whither the Dollar?

In the wake of the monetary collapse, it may turn out as a practical matter that we have so abused the term “dollar” in referring to the Fed’s paper notes and digital entries that people will be unwilling to accept a successor monetary instrument so named. In any event, there is a strong argument for avoiding official names altogether, and just using weights for the new coins: the gram, the ounce, etc. That’s because the use of weights will make it more difficult for future politicians to play the dictionary game, continuing the use of the names, but incrementally changing their meanings by eliminating the precious metal content in a gradual process of debasement.[23]

But we may not have the flexibility to go straight to weight, even if we want to. Edwin Vieira argues persuasively in his brilliant and authoritative study, Pieces of Eight,[24] that although we’re free to use both gold and silver coins, we must use the silver dollar referenced in the Constitution as our national unit of account. In other words, to the three bullet points set out above we need to add a fourth, the constitutional silver dollar. This is a fascinating and provocative position. If the Constitution says we have to do it, so be it. But given the Crawford Simplicity Criterion, it’s not clear that we would otherwise choose silver as our money of account.[25]

For what it’s worth, it seems to us the argument that we have to use silver is a bit of a stretch. For one thing, the Constitution doesn’t say so. It uses the term “dollar” in two places, outside the core monetary provisions, but it doesn’t define the term, or state that it must be the money of account.[26] The references were clearly to the Spanish milled dollar of 371¼ grains of silver then in common use in North America. But referring to the dollar is not the same as establishing it as the money of account.[27]

For another, if the Founders had wanted to establish it as a money of account, the Constitution of Massachusetts provided a contemporary model. That charter, drafted almost entirely by John Adams himself, was adopted in 1780, a full seven years before the Constitutional Convention, and remains in force today. The Massachusetts Constitution explicitly provides: “[i]n all cases where sums of money are mentioned in this constitution, the value thereof shall be computed in silver at six shillings and eight pence per ounce….”[28] No such language appears in the federal Constitution.

Finally, as Mr. Vieira notes, in 1785 the Continental Congress had declared the dollar to be the money unit for the Confederation, by resolution.[29] Similarly, just five years after the Constitutional Convention, Congress explicitly declared it to be the money of account for the United States, by statute. The Coinage Act of 1792 provided:

Sec. 20. And be it further enacted, That the money of account of the United States shall be expressed in dollars, or units, dimes or tenths, cents or hundredths, and milles or thousandths, a dime being the tenth part of a dollar, a cent the hundredth part of a dollar, a mille the thousandth part of a dollar, and that all accounts in the public offices and all proceedings in the courts of the United States shall be kept and had in conformity to this regulation.

So they knew how to do it directly, and indeed they did do it directly, but by resolution and by statute -- things Congress can adopt, change or repeal at will -- not, it would seem, by constitutional provision.

Accordingly, it seems to us there is at least a reasonable argument that the concept of the silver dollar as unit of account is of a lesser order than a constitutional requirement, and that we are therefore free to base our money on gold.

But what do we know?

More cowbell.

Whither the Fed and Its Notes?

It’s not enough to agree that there is no authority in the Constitution for the existence of a central bank. We have one. Or that there is no constitutional warrant to use its unbacked promissory notes as legal tender. We do, and not only that, central banks throughout the world use them as reserves for their currencies.

A monetary collapse won’t change these awkward facts, at least right away. So the question arises, what should be done with the Fed and its notes?

There are two main schools of thought in the sound money literature. The first is what we might term the “Strangle It” school. It is found principally in the writings of Murray Rothbard.[30] The notion is, the Fed should be wound up and liquidated in some sort of receivership process, and its notes explicitly paid off on some basis.

The second is what we might term the “Neuter It” school. This is most fully elaborated in the writings of Mr. Vieira. The notion is, once you eliminate the Fed’s monopoly, its notes will sink or swim as the market prefers, and the Fed itself will either adapt or perish.[31]

The Minority Report staked out a middle ground [the “Screw It” school?]. It envisioned a continuing Fed, stripped of its monopoly and denied the power to conduct open market operations, but it also called, somewhat vaguely, for the redemption and/or redeemability of the Fed’s outstanding notes (p. 262):

… the present Federal Reserve notes would be retired and replaced by notes redeemable in gold or silver or some other commodity. ... [S]uch notes would not be legal tender and no one would be forced to accept them in payment. … / As for the present circulating Federal Reserve notes, they could be made redeemable for gold once a “dollar” is defined as a weight of gold. Anyone who wishes to redeem them could simply do so by exchanging them for gold coins at his bank.

Each of these approaches assumes a top-down reform in a pre-collapse environment. They need a fresh look from a post-collapse perspective. What say you, sages of cyberspace? How shall we separate bank and state? How shall we restore the distinction between money and credit?

Whither Fractional Reserve Banking?

Over the course of the last nine months, denizens of the gold community have been treated to a bitter online dispute over something called the Real Bills Doctrine.[32] For all its apparent vitriol, the debate actually presupposes agreement on the critical constitutional principles. Indeed, the very reason why the debate is so sharp is that it is so narrow.

The question, restated for our purposes, is whether, in a properly ordered monetary system, banks can issue paper claims that exceed what they actually hold as reserves, and if so, how so. Although the Constitution is clear on state and federal paper money, it doesn’t say anything about the reserves that private banks must hold against notes they issue, so the matter is left to discussion and debate.

The “orthodox” sound money position is the 100% reserve standard championed by Murray Rothbard[33] and summarized pretty readably in the Minority Report (p. 263):

In chapters two and three, we demonstrated the disruptive effects fractional reserve banking has caused in the United States. Since we still suffer with that system, it is imperative that a fundamental reform of it be made. That reform is simply that all promises to pay on demand, whether made in the form of notes or deposits, be backed 100% by whatever is promised, be it silver, gold or watermelons. If there is any failure to carry 100% reserves or to make delivery when demanded, such persons or institutions would be subject to severe penalties. The fractional reserve system has created the business cycle, and if that is to be eliminated, its cause must be also.

In other words, the only good fractional reserve system is a dead fractional reserve system. You can’t issue notes for 100 watermelons when you only have 25 in your vault.[34]

This position is echoed by contemporary Austrian economists, who look to “…the protections which would be afforded by the institution of a free banking system, securely bound by the ordinary laws of contract and girded tightly about with a 100% gold coin reserve standard.”[35]

Enter Antal Fekete, Professor of Mathematics Emeritus, University of Newfoundland, together with his band of merry heretics. At the risk of oversimplifying, to the point of annihilation, nine months worth of detailed and learned postings, we will hazard a summary of the essential issue.

The Feketians argue that there needs to be an exception to the 100% reserve rule, specifically for instruments known as “Real Bills.” Real Bills are short term, self-liquidating commercial paper tied to the production cycle of fast moving goods. In watermelon terms, they are interim promises to deliver fruit that is still growing and thus does not yet exist in deliverable form. They are claims on production in progress rather than savings. The notion is there needs to be some elasticity in the money supply to address the fluctuating needs of the market while products are still in the pipeline, and Real Bills are just the thing: let banks use them as reserve assets.[36]

The Austrians retort that a Real Bill, even though it’s short term, even though it’s generated by private parties in the market not by government, and even though its use as a reserve asset is disclosed to one and all, is still credit. And we mustn’t use credit as a reserve asset. Any credit. Ever. That way lies inflation. As a tool in production finance, and as a clearing mechanism, Real Bills are fine and dandy, just don’t monetize them. Don’t let banks use them as a reserve asset backing notes that circulate as a medium of exchange.

Whatever else they may have proved, the disputants have conclusively demonstrated that monetary arcana can be roped and branded out on the open range. In that sense, this debate is a valuable public service. But they’ve also demonstrated how easy it will be for unresolved disagreements at the margin to create a sense of division within the sound money camp when the time comes to present a united front.

As to the merits of the Real Bills dispute, we should observe that we know and respect the protagonists on both sides, that it’s not our call, and that we hope the better theory wins.

But how lame would that be?

For what it’s worth, we favor the orthodox position. It’s still not clear to us why any liability, however compelling the story, should find its way into monetary reserves. In our view, these should reflect savings, not prospects.

But our principal objection is more prosaic. For purposes of generating our starting position, the Crawford Simplicity Criterion is unequivocal. It’s simply not possible to imagine a contemporary politician or his constituents ever understanding the Real Bills Doctrine. We’ve read everything twice, and we’re not sure we get it. But we can easily imagine clever bankers gaming it, securitizing it, driving Hummers through the loophole in such a destabilizing way that the system once more ends up collapsing in a heap with a cry heard near and far to reintroduce a central bank. So we would lead with the simple, bright line rule of 100% reserves, and maybe hold the Real Bills exception in reserve, as it were, as a possible fallback position in the struggles ahead if we have to accept some sort of monetized credit as an additional reserve asset.

But what do we know? Head ‘em up and move ‘em out.

What Else Do We Need to Worry About?

The Minority Report identified a number of other issues that need to be addressed in any comprehensive reform. There should be no real dispute on these, but it will require considerable work to update the list of offending provisions and identify the changes needed.

They include:

Legal Tender Laws

Legal tender laws are the button men for fiat money, the coercive mechanism by which people are forced to accept paper promises over real money.[37] They are always passed shortly after paper money is issued.[38] This is because the market quickly learns to discount the paper as against real money if both are in circulation, frustrating the forced loan that is the underlying point of the fiat issue.

The Minority Report called for the repeal of all legal tender laws (p. 258):

As we have seen, the Constitution forbids the states to make anything but gold and silver coin a tender in payment of debt, nor does it permit the federal government to make anything a legal tender. One of the most important pieces of legislation that could be enacted would be the repeal of all federal legal tender laws. Such laws, which have the effect of forcing creditors to accept something in payment for the debts due them that they do not wish to accept, are one of the most tyrannical devices of the present monetary authorities.

This is not an item for discussion or debate, as it is joined at the hip with the constitutional prohibition on paper money. But it will take some work to identify and catalogue offending legislation, marking it for elimination.

Public and Private Gold Holdings

With respect to public gold, the Minority Report recommended a periodic assay, audit and inventory of the gold reserves of the United States. This begs a larger question, which is what should be done with these reserves, assuming they still exist. Should they be turned into coin and introduced into the market through government expenditures or redemptions of outstanding Federal Reserve Notes? Or should some other arrangement be made?

With respect to private gold, the Minority Report noted that there is still ample authority on the books for the government to confiscate private gold holdings, and observed that (p. 264): “[t]here can be no monetary freedom when the possibility of such a confiscation exists.” That this is a live issue needing serious attention is underscored by the Treasury Department’s aggressive interpretation of its power as reflected in its recent exchange with GATA’s Chris Powell.[39]


Gold and silver are constitutional money. By what right, and on what theory, are they subject to tax? As the Minority Report noted (p. 266):

…since gold is money, there should be no taxation of any sort on either gold coins or bullion. … We…urge that all taxation of whatever sort be eliminated on all gold and silver coins and bullion. That would mean the elimination of not only capital gains and sales taxes, but also the discriminatory treatment of gold coins in Individual Retirement Accounts, for example.

Like the legal tender issue, this one is more a search and destroy exercise than an item for discussion and debate.

Other Regulations

A number of other regulatory barnacles need to be identified and eliminated.

The Minority Report observed (p. 267):

For example, mining regulations which make it difficult and expensive to open or operate gold and silver mines would have to be eliminated. All regulations on the export, import, melting, minting and hoarding of gold coins would also have to be repealed. / But the major reforms needed are in our banking laws. Under present law, there is no free entry into the banking industry: it is largely cartelized by the Federal Reserve and other federal and state regulatory agencies. Deregulation of banking, including free entry by simply filing the legal documents with the proper government clerk, is a must for monetary freedom. All discretion on the part of the regulators must be ended.

But the authors stopped there. The list needs to be updated and fleshed out.

Back to the Hortatory Subjunctive

As will be clear to anyone who’s made it this far, these musings represent little more than a crude first pass at a framework for discussion that can and should take place among the natural friends of sound money. This list is tentative and preliminary; it needs expansion, correction and improvement.

What’s critical is that we begin work on the reform before the monetary collapse occurs. Because once the dikes break, we’ll be spending intellectual capital, not creating it. Crises rarely facilitate dispassionate evaluations. Of course it’s possible, given the authoritarian drift in contemporary politics, that we won’t have a say in the reconstruction no matter how well prepared we are. It’s even possible we’ll be scapegoated or otherwise punished for having been right. But it would be more than a pity to blow an opportunity to make a contribution, should we get one, just because we couldn’t be bothered to get our act together. And if things turn ugly, we may well find that our best defense is a good offense.

November 11, 2005



1. As discussed in Note 19 below, the Legal Tender Cases were not Great Moments in American Jurisprudence. For extended discussions of both the Legal Tender Cases and the Gold Clause Cases, see Edwin Vieira, Jr., Pieces of Eight (Sheridan Books, 2002), pp. 599-670, 1127-1211, and Henry Mark Holzer, Government’s Money Monopoly (Books in Focus, 1981), pp. 103-193.

2. A prime example of what can now be achieved online by motivated outsiders is none other than GATA, the scourge of polite Establishment spin on the gold market. Starting as two guys, a grievance and a website, GATA quickly morphed into an irregular -- we use that term advisedly -- army of activists pooling their talents to shine a light on manipulative practices of central banks and their agents. Their success in raising awareness in such an arcane area shows that the power of truth is such that even when shouted by a gang of nutcases, it will gradually break though the pavement like the storied blade of grass.

3. Just how difficult it is to forge consensus among gold bugs is demonstrated by the fact that, according to Dr. Anna J. Schwartz, Reporter for the Gold Commission, even the three co-authors of the Minority Report were divided among themselves:

By the time the Commission had concluded its sessions, it was clear that the pro-gold group consisted of an awkward coalition of Congressman Ron Paul and two of the public members, Lehrman and Costamanga. It was awkward because neither of the latter supported the conception of the monetary system that Paul advocated. Lehrman had in mind a traditional gold standard, restoring dollar convertibility into gold, although he also proposed changing Federal Reserve institutional arrangements, prohibiting open market operations and making the discount rate a penalty rate. As for Costamanga, his sole concern for the present was to provide the market with U.S.-minted bullion coins.

Anna J. Schwartz, Reflections on the Gold Commission Report, Journal of Money, Credit, and Banking, vol. 14, no. 4 (November 1982, Part 1), p. 544.

4. Any reader wishing to explore, in any depth, the issues touched on in this essay, is referred to Vieira, op. cit. This comprehensive but quite lengthy study expands on work he originally submitted to the Gold Commission in 1982. In so doing, the author was “appealing to a higher tribunal than the Gold Commission or even the Congress: the American people.”

5. See, e.g., Michael Kinsley, Two Little Words. A useful discussion may be found in a law school blog.

6. Forward to the First Edition, Vieria, op. cit., p. xv.

7. Compare the American tradition with that of Europe. In Europe, the starting point was the existence of princes. Individual liberties had to be carved out of their sovereign power. In Revolutionary America, the starting point was the absence of central government. It was the government that had to be carved out of the sovereign power of the former colonies and their citizens. The Articles of Confederation created one from scratch, by express delegation of authority.

This pattern extended through to the Constitution that replaced the Articles. The central government was given only those powers that were delegated to it. The rest stayed behind, reserved to the original source of sovereign power in the United States: the states themselves, and the people.

AMENDMENT X. The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The history of the monetary provisions of the Constitution, as construed by judges and politicians, is that of deliberate conflation of the two traditions, improperly ascribing sovereignty to the government rather than to the people. See Note 19.

For extended discussion of this issue, see Vieira, op. cit., pp. 161-164 and passim.

8. The meaning of the phrase is indisputable. In the words of Chief Justice John Marshall in Craig v. Missouri, 29 U.S. (4 Pet.) 410, 432 (1830):

To “emit bills of credit,” conveys to the mind the idea of issuing paper intended to circulate through the community for its ordinary purposes, as money, which paper is redeemable at a future day. This is the sense in which the terms have been always understood.

Bills of credit already had an extensive history in North America by the time of the Revolution. Massachusetts first issued bills in 1690 to meet a payroll for soldiers engaged in a failed expedition to Quebec. It made them legal tender in 1692. Bills proved popular throughout the colonies, and became a problem from the standpoint of British creditors. Parliament restricted their use in 1751, disallowing their use as legal tender, but “the exemptions provided by the Parliamentary Acts were utilized on a large scale so that, in 1774, between one-half and three-fifths of the circulating currency, estimated in face value at 12 million dollars, or in silver value, at 10 million dollars, consisted of paper money.” Holzer, op. cit., pp. 32-33. Ironically, British interference with the use of this colonial paper money was “one of the causes of discontent which finally culminated in the Revolution.” Bradley, J., concurring opinion, Legal Tender Cases, 79 U.S. (12 Wall) 457, 557 (1871), excerpted in Holzer, op. cit., p. 143. No less an authority than Adam Smith took Parliament’s side in The Wealth of Nations (first published in 1776, Random House ed., 1937), p. 311):

No law, therefore, could be more equitable than the act of parliament, so unjustly complained of in the colonies, which declared that no paper currency to be emitted there in time coming, should be a legal tender of payment.

9. From the May 1775 session first authorizing emissions of paper currency, through 1780, when the presses stopped and the outstanding bills were repudiated in a 1-for-40 exchange, Congress issued $241,550,000 in aggregate face amount. William G. Anderson, The Price of Liberty (University of Virginia Press, 1983), p. 3. Continentals were denominated in dollars and backed only by the "anticipation" of future tax revenues, as Congress had no power to tax the states’ inhabitants.

10. No accurate record of total state emissions appears to exist. See Anderson, op. cit., passim.

11. The hyperinflation is described in Anderson, op. cit., p. 24, as follows:

In 1779 butter sold in Boston for $12 a pound, a barrel of flour cost $1,575, and Sam Adams was compelled to pay $2,000 for a suit of clothes. In 1781 in North Carolina a single horse sold for $12,000. By 1781 paper currency had depreciated so greatly that it ceased to circulate in most states. Taxes were made payable “in kind.”

12. As Justice Field put it in his dissent in the Legal Tender Cases, 79 U.S. (12 Wall.) at 652-653, discussed in Note 19:

They had seen in the experience of the Revolutionary period the demoralizing tendency, the cruel injustice, and the intolerable oppression of a paper currency not convertible on demand into money, and forced into circulation by legal tender provisions and penal enactments.

From the Minority Report, pp. 243-244:

[W]hen the Constitutional Convention met in 1787, the opposition to paper money was strong. George Mason, a delegate from Virginia, stated that he had a mortal hatred to paper money. Delegate Oliver Ellsworth from Connecticut thought the Convention a favorable moment to shut and bar the door against paper money. James Wilson, a delegate from Pennsylvania, argued that It will have a more salutary influence on the credit of the United States to remove the possibility of paper money. Delegate Pierce Butler from South Carolina pointed out that paper was not a legal tender in any country of Europe and that it ought not be made one in the United States. Mr. John Langdon of New Hampshire said that he would rather reject the whole Constitution than allow the federal government he power to issue paper money. On the final vote on the issue, nine states opposed granting the federal government power to issue paper money, and only two favored granting such power.

See also

13. The power to emit bills was deleted from the original draft by a nine to two vote. See Note 12. The full text of the debate as reported by James Madison is reprinted in Holzer, op. cit., pp. 37-38, and in Vieira, op. cit., pp. 145-146.

14. See Vieira, op. cit., pp. 106-112.

15. Justice Field, dissenting in the Legal Tender Cases, 79 U.S. (12 Wall.) at 649-650, discussed in Note 19.

16. Id. at 650. Some constitutional power to regulate is better left unexercised. In The Coinage Act of 1792, styled “An Act establishing a Mint, and regulating the Coins of the United States,” Congress regulated the value ratio between gold and silver coins:

Sec. 11. And be it further enacted, That the proportional value of gold to silver in all coins which shall by law be current as money within the United States, shall be as fifteen to one, according to quantity in weight, of pure gold or pure silver; that is to say, every fifteen pounds weight of pure silver shall be of equal value in all payments, with one pound weight of pure gold, and so in proportion as to any greater or less quantities of the respective metals.

This provision, disastrous on its face to anyone familiar with Gresham’s Law, had its origins in a recommendation made by Alexander Hamilton, described by Vieira, op. cit. (p. 187):

Interestingly, although Hamilton recognized that the market ratio should be the legal ratio, he did not recommend that Congress simply fix the statutory ratio as the market ratio, whatever that might be from time to time, but without statutorily declaring what that ratio was at any time. This proved most unfortunate. For, although the statutory ratio of 15 to 1 approximated the free-market ratio in Hamilton’s day, the latter soon rose to meet the legal ratio in France, which was 15.5 to 1. Congress did not respond until 1834, when it altered the American legal ratio to 16 to 1. At that time, the idea of allowing the statutory ratio to “float” with the free-market ratio came to the fore, but still not into the Coinage Acts. And Congress’s failure in this regard ultimately doomed the bimetallic system.

Aside from this grave, if innocent, error, the Coinage Act did a number of things right. For example, it regulated the weight and fineness of a series of gold, silver and copper coins, consistent with Congressional authority under Clause 5. And, consistent with the Constitution’s market oriented philosophy, it opened up the new mint to all comers, leaving determination of the money supply to the market. In fact, the Coinage Act, properly corrected, provides a good starting point for discussion of monetary reform.

17. The non-core monetary provisions, for our purposes, are three, of which two, Article I, Section 9, Clause 1 and Amendment VII, are reproduced below in Note 26. Both refer to the “dollar” as a value threshold in unrelated contexts. The third, Article I, Section 8, Clause 6, confers on Congress the power to punish counterfeiting.

18. Compare the elegance and brevity of these provisions with the bureaucratic, centralizing detail of their counterparts in the draft European Union charter, Part I, Title IV, Chapter II, Article 29, and Part II, Title II, Chapter II, Section 2, Articles III-77-87.

19. The erosion of the monetary provisions of the Constitution occurred in several stages over many years. The process began almost immediately after ratification with Hamilton’s success in chartering the first Bank of the United States in 1791. After the lapse of the first Bank’s charter, Congress authorized the incorporation of a second Bank. Its constitutionality was upheld in McCulloch v. Maryland, 17 U.S. (4 Wheat.) 316 (1819) (opinion by Marshall, C.J.). However, neither Bank was a central bank, and, as Vieira observes (p. 351):

In sum, the creation of the Banks of the United States, and the declaration of the second Bank’s constitutionality in McCulloch ... constituted no legislative or judicial precedent adverse to the interpretation of the monetary powers.

However, Marshall's opinion (at 421) provided powerful ammunition to those wishing to invest the government with sovereign power:

Let the end be legitimate; let it be within the scope of the Constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the Constitution, are constitutional.

A little more than 50 years later, Justice Strong relied directly on this language in delivering the majority opinion in the Legal Tender Cases, 79 U.S. (12 Wall.) 457 (1870). This decision must be the nadir of American jurisprudence: the most nakedly political, and most institutionally embarrassing, decision ever handed down by that august body. Small wonder then that the Legal Tender Cases, together with McCulloch, form what passes for the legal foundation of our fiat monetary system.

What happened in the Legal Tender Cases, in brief, was this. By a vote of five to three in Hepburn v. Griswold, 75 U.S. (12 Wall.) 603 (1869), the Court had declared unconstitutional the fiat monetary scheme that the United States had adopted as an expedient to finance the Civil War. A compelling human interest aspect of Hepburn consisted in the fact that the Chief Justice who rendered the opinion was none other than Salmon Chase, formerly Lincoln's Secretary of the Treasury, the very executive who had advocated and administered the fiat system. Just over a year later in the Legal Tender Cases, the Court overruled itself and declared the system constitutional after all. What had changed? The composition of the Court. Two new Justices (Strong and Bradley) had been appointed by President Grant, one to fill a vacancy created by the enlargement of the Court from eight to nine Justices, and the other to replace a retiring Justice who had been in the Hepburn majority. The two new Justices voted with the Hepburn minority, reversing that decision by a five to four vote.

In rendering his concurring opinion in the Legal Tender Cases, Justice Bradley plainly showed what was happening as he stood the Constitution on its head, decreeing that the State could do whatever the Constitution did not expressly deny it (at 560, emphasis supplied):

I hold it to be the prerogative of every government not restrained by its Constitution to anticipate its resources by the issue of exchequer bills, bills of credit, bonds, stock, or a banking apparatus. Whether those issues shall or shall not be receivable in payment of private debts is an incidental matter in the discretion of such government unless restrained by constitutional prohibition.

Thus was sapped the legal foundation of our money by a reading of the Constitution that was diametrically opposed to its original intent. And thus was a government originally intended to be limited, a creature of express delegation of power, made omnipotent. As Justice Clifford put it in his dissent (at 633), which just one year earlier had been the majority view:

Delegated power ought never to be enlarged beyond the fair scope of its terms, and that rule is emphatically applicable in the construction of the Constitution. ... [I]t should never be forgotten that the government ordained and established by the Constitution is a government “of limited and enumerated powers,” and that to depart from the true import and meaning of those powers is to establish a new Constitution or to do for the people what they have not chosen to do for themselves, and to usurp the functions of a legislator and desert those of an expounder of the law.

As bad as the decision in the Legal Tender Cases was, however, it had little practical impact in its day, as greenbacks would in any event be restored to convertibility into gold pursuant to the Specie Resumption Act of 1875. Rather, it lay dormant, awaiting application in the Gold Clause Cases some 60 years later. Moreover, it is important to remember that the holding in the Legal Tender Cases was limited; it did not uphold the constitutionality of irredeemable paper money of the post-Bretton Woods stripe. As the majority opinion put it (at 553):

It is said there can be no uniform standard of weights without weight, or of measure without length or space, and we are asked how anything can be made a uniform standard of value which has itself no value? This is a question foreign to the subject before us. The legal tender acts do not attempt to make paper a standard of value. We do not rest their validity upon the assertion that their emission is coinage, or any regulation of the value of money; nor do we assert that Congress may make anything which has no value money.

20. In Marbury v. Madison, 1 Cranch 137, 177 (1803), Chief Justice Marshall established the preeminence of the judiciary in explicating the Constitution:

It is emphatically the province and duty of the judicial department to say what the law is. Those who apply the rule to particular cases, must of necessity expound and interpret that rule. If two laws conflict with each other, the courts must decide on the operation of each.

The rest, as they say, is history.

21. Note that every Supreme Court decision relating to the monetary provisions of the Constitution has dealt with a system in which the national currency continued to have some connection to constitutional money, gold and silver. There have been no decisions since the Nixon Administration severed the last remaining link in 1971, shifting the monetary system to an unlimited fiat model. As Vieira, op. cit., reminds us (pp. 38-39), the Court has declined to address the following issues:

o what is the “dollar” to which the Constitution refers in Article I, Section 9, Clause 1 and the Seventh Amendment;

o whether the government has authority to emit a legal-tender paper currency irredeemable in silver or gold coin;

o whether the government had authority to seize the people’s gold in 1933-1934;

o whether the government has authority to make the notes of private banks “obligations of the United States” and “legal tender”;

o whether the government has the authority to allow private banks, through an administrative agency exercising unlimited discretion, to draw money from the Treasury without specific “Appropriations made by Law”; and

o whether the corporative-state structure of the Federal Reserve System is within the powers of Congress to create.

A good example of the Court’s propensity to duck the monetary issues is Walter W. Fischer v. City of Dover, N.H., et al. When the history is finally written of the sequence of sins of omission and commission leading up to the monetary collapse, query which will be held the more damaging.

22. Hearings before the Senate Judiciary Committee on the Nomination of Robert H. Bork to be Associate Justice of the Supreme Court, 100th Cong., First Session, Part 1, Serial No. J-100-64, pp. 112-113; reprinted in R.M. Mersky et al., The Supreme Court of the United States: Hearing and Reports on Successful and Unsuccessful Nominations, Vol. 14, pp. 292-293.

Senator Schumer is no stranger to monetary issues. As a 1982 Member of the House Committee on Banking, Finance and Urban Affairs, he signed a Statement to the Gold Commission decrying its recommendation that the United States issue a series of gold coins, without dollar denomination or legal tender status (Gold Commission Report at 305):

We oppose the Gold Commission’s recommendation. No purpose is served by it other than to appease the gold lobby.

The gold lobby!?! Imagine. Were those the days or what?

23. In A Treatise on Money (Macmillan, 1958), John Maynard Keynes, the British apologist for inflation who contributed so effectively to the further unraveling of the monetary provisions of the American Constitution, described the process as follows (at vol. I, p. 4):

The State, therefore, comes in first of all as the authority of law which enforces the payment of the thing which corresponds to the name or description in the contract. But it comes in doubly when, in addition, it claims the right to determine and declare what thing corresponds to the name, and to vary its declaration from time to time-when, that is to say, it claims the right to re-edit the dictionary.

A less euphemistic description of the dictionary game is found in a passage of a French manuscript translated by Thomas Jefferson and shared in his correspondence with John Adams (Works of John Adams (Little and Brown, C.F. Adams, ed., 1856), p. 376):

It is to be desired, that coins had never borne other names than those of their weight, and that the arbitrary denominations, called moneys of account had never been used. But when these denominations are admitted and employed in transactions, to diminish the quantity of metal to which they answer, by an alteration of the real coins, is to steal; and it is a theft which even injures him who commits it. A theft of greater magnitude and still more ruinous, is the making of paper money; it is greater, because in this money there is absolutely no real value; it is more ruinous, because, by its gradual depreciation during all the time of its existence, it produces the effect which would be produced by an infinity of successive deteriorations of the coins. All these iniquities are founded on the false idea, that money is but a sign.

24. Edwin Vieira, Pieces of Eight (Sheridan Books, 2002).

25. From the standpoint of commercial usage, its complexity should not be overstated, particularly given today’s technology. Nor would a silver dollar money of account be incompatible with gold coinage. As Mr. Vieira notes (p. 177):

....even though the unit is silver, the constitution establishes a duometallic system. Under the constitution properly applied, therefore, differentiation between a silver standard and a gold standard lacks economic validity. Silver and gold are economically parallel monies, although one might expect that silver would come to be more useful for transactions of lesser value, and gold for transactions of greater value (and perhaps in international trade).

Actually, if, as some silver bulls now maintain, there is much less silver left in the world than gold, the traditional relationship might at some point invert.

In fact, there would in theory not even need to be any silver coins in circulation under a silver standard. There is ample precedent for a money of account that does not have corresponding coins. The colonial pound, for example, had no circulating equivalents but “was merely determined by the rating of foreign coins and of ‘commodity money.’” Holzer, op. cit., p. 31. An even better example is the money of account used in Europe before the French Revolution (Antoine Murphy, John Law (Oxford, 1997), p. 150):

The money of account, also referred to as imaginary money, produced a common set of prices through which coins of different metals and of different weight, fineness, and size could be evaluated. In Britain the pound sterling served as a unit of account even though there was no coin corresponding to it, the nearest equivalent being the golden guinea worth 21 shillings. In France the unit of account was the livre tournois, worth twenty sous, each sou worth in turn 12 deniers, while the circulating media of exchange were the louis-d’or and the silver ecu. The livre tournois would slowly metamorphose, as the eighteenth century advanced, into the franc.

26. The Constitution refers to the “dollar” in the following two provisions:

ARTICLE I, Section 9. The Migration or Importation of such Persons as any of the States now existing shall think proper to admit, shall not be prohibited by the Congress prior to the Year one thousand eight hundred and eight, but a Tax or duty may be imposed on such Importation, not exceeding ten dollars for each Person.

AMENDMENT VII. In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved * * *.

27. It is perhaps worth noting that the Minority Report did not adopt the position that the Constitution had settled the issue. While conceding that the Spanish milled dollar is what the Founders had in mind when they used the term, the authors concluded that it nevertheless needs to be defined (p. 259):

A second major reform needed is a legal definition of the term “dollar.” The Constitution uses the word “dollar” at least twice, and it is quite clear that by it the framers meant the Spanish milled dollar of 371 ¼ grains of silver. Since 1968, however, there has been no domestic definition of “dollar,” for in that year redemption of silver certificates and delivery of silver in exchange for the notes ended, and silver coins were removed from circulation.

28. Massachusetts Constitution, Part 2, Chapter 6, Article III.

29. Vieira, op. cit., p. 140.

30. See Murray N. Rothbard, The Case Against the Fed (Ludwig Von Mises Institute 1994), pp. 146-152. Rothbard sketched the broad outline (p. 146):

The Federal Reserve is officially a “corporation,” and the way to abolish it is the way any corporation, certainly any inherently insolvent corporation such as the Fed, is abolished. Any corporation is eliminated by liquidating its assets and parceling them out pro rata to the corporation’s creditors.

31. See Vieira, op. cit., pp. 1539-1576. This concept of parallel currencies underlies various contemporary reform proposals other than Mr. Vieira’s, including that of Professor Fekete, as well as James Turk's and Hugo Salinas-Price's How to Introduce a Silver Coin into Circulation in Mexico: The Hybrid Coin.

32. The debate was kicked off by a January 2005 essay by Nelson Hultberg entitled The Future of Gold As Money. This essay summarized the discussion on monetary reform in his Breaking the Demopublican Monopoly (Americans for a Free Republic, 2004), a call for a third party political campaign to unite the right and educate the public on an attractive - and simple - platform of flat tax and sound money. This essay was followed in February by an elaboration in Gold’s Future as Money - Q&A. These essays triggered a June 8 rejoinder from Robert Blumen of the Mises Institute, entitled Real Bills, Phony Wealth. Hultberg fired back in July with Cranks in the Gold Community, and Blumen countered that same month with Real Bills, Phony Wealth - Tastes Great, Less Filling. Sean Corrigan was stirred to weigh in on behalf of orthodox Austrianism in early August with Fool’s Gold. Several months and numerous, increasingly testy, postings later, the latest in the series as of this writing appears to be an October bullet fired by Blumen, entitled Real Bills, Phony Wealth - An Error in Fekethmetic. Stay tuned.

33. See Murray N. Rothbard, The Case for A 100% Gold Dollar, originally published in 1962 (Ludwig Von Mises Institute, 2001), p. 44:

In my view, issuing promises to pay on demand in excess of the amount of goods on hand is simply fraud, and should be so considered by the legal system. For this means that a bank issues “fake” warehouse receipts -- warehouse receipts, for example, for ounces of gold that do not actually exist in the vaults. This is legalized counterfeiting; this is the creation of money without the necessity for production, to compete for resources against those who have produced. In short, I believe that fractional-reserve banking is disastrous both for the morality and for the fundamental bases and institutions of the market economy.

Later, in The Case Against the Fed, Rothbard entertained the possibility of leaving fractional reserve banking alone, at least temporarily, following the winding up of the Fed (p. 150):

Even though the Fed would be abolished and the gold coin standard restored, there would, at this point, be no outlawry of fractional-reserve banking. The banks would therefore be left intact, but, with the Federal Reserve, and its junior partner, federal deposit insurance, abolished, the banks would, at last, be on their own, each bank responsible for its own actions.

34. Note that by using watermelons in this context, the Minority Report reminds us that as a constitutional matter, bank reserves don’t have to be gold and silver; under ordinary laws of contract and fraud, they just have to be whatever is advertised. This brings up a discerning point: people are free to use whatever they want as a medium of exchange in their consensual private dealings that don’t involve the state. (This should be good for some bizarre experiments as people struggle to cope in the immediate aftermath of a monetary collapse.) So if a bank can persuade people to accept its watermelon certificates, more power to it, so long as it actually holds the watermelons.

35. Sean Corrigan, Fool's Gold.

36. The concept is set forth in Section 2 of Professor Fekete’s monetary reform proposal, appended to Hultberg, op. cit., summarized in Nelson Hultberg, The Future of Gold as Money, and modified in Gold's Future as Money - Q&A. Fekete describes monetary reserve requirements as follows:

(c) The Credit Unions shall have reserves of gold for no less than forty percent of their note and deposit liabilities.

(d) The remainder of the Credit Unions’ note and deposit liability shall be covered by reserves in the form of gold-based short-term commercial credit, that is to say, self-liquidating bills of exchange drawn on marketable merchandise moving fast enough to the ultimate gold-paying consumer so that it will be sold in 91 days or less.

(e) Other types of securities, including U.S. Treasury bonds, notes and bills, or agency debt shall not be eligible as reserves for the note and deposit liabilities of the Credit Unions.

37. Even during the American Revolution, at a time when Congress lacked the power to make its paper legal tender, it found a way to enforce acceptance of its Continentals. In January 1777, Congress passed a resolution requesting the states to pass the necessary legislation, known as “tender laws.” A number complied. In 1780, Pelatiah Webster, an “able but not conspicuous citizen” of Pennsylvania, published a remarkable essay in which he described the coercion:

Congress ... resolved that “whoever should refuse to receive in payment Continental bills, etc., should be deemed and treated as an enemy of his country, and be precluded from all trade and intercourse with the inhabitants ...” -- that is, should be outlawed, which is the severest penalty, except of life and limb, known in our laws.


This ruinous principle was continued in practice for five successive years, and appeared in all shapes and forms - in tender acts, in limitations of prices, in awful and threatening declarations, in penal laws with dreadful and ruinous punishments, and in every other way that could be devised. And all were executed with a relentless severity by the highest authorities then in being, namely, by Congress, assemblies and conventions of the states, by committees of inspection (whose powers in those days were nearly sovereign) and even by military force. Men of all descriptions stood trembling before this monster of force without daring to lift a hand against it during all this period. Its unrestrained energy ever proved ineffectual to its purposes, but in every instance increased the evils it was designed to remedy, and destroyed the benefits it was intended to promote. ... Many thousand families of full and comfortable fortune were ruined by these fatal measures, and lie in ruins to this day, without the least benefit to the country or to the great and noble cause in which we were then engaged.

Pelatiah Webster, Strictures On Tender Acts, Philadelphia, December 13, 1780, reprinted as Not Worth a Continental (The Foundation for Economic Education, Inc., 1950), pp. 5-6.

38. In American experience, for example, Massachusetts issued bills of credit in 1690, and made them legal tender in 1692; the Continental Congress authorized paper currency in May 1775, and called for legal tender laws in January 1777; and the United States issued notes from the outset of the Civil War in 1861, and passed legal tender legislation in February 1862.

39. See Treasury Department Claims Power to Seize Gold, Silver -- and Everything Else, GATA Press Release, August 22, 2005.