A “Missouri Plan” to Contract the Debt Bubble

So, all that the courts—or Congress—have to do now is to declare unconstitutional ab initio the Federal Reserve System’s emission of Federal Reserve Notes with the special legal privileges that attach to them. (Without those privileges, Federal Reserve Notes would arguably be, not the General Government’s “bills of credit”, but merely private “bills of credit” which, to the extent they are emitted nonfraudulently, the Constitution allows.) At that point, the bubble of unpayable debt will shrink, the people (in their capacities as borrowers from the banks) will be saved from financial destruction, and the bankers and their intimate allies throughout the world of paper speculations (in their capacities as lenders) will suffer the consequences of having run their own illegal money-and-credit racket into the ground.

Patriotic Americans should desire this result, because someone must pay the piper for the present financial mess into which the bankers, the low lives in the world of high finance, and their “public servants” (for the latter are not common Americans’ “public servants”) have thrown this country. And if America has to choose between saving her people and salvaging the bankers —and perhaps suffering the imposition of a paramilitarized police state on this country in order to bail out the bankers and their friends—she must always choose her people and their freedom and prosperity above all other considerations. True enough, the people may have been improvident—and they certainly were not sufficiently vigilant to forefend the debt- crisis as a properly self-governing people should have done. But the people, not the bankers, constitute the country. And if someone has to suffer significant financial hardship—as apparently someone must—it should be the ones who foisted this rotten monetary and banking scheme on the country in the first place, then exploited it for all it was worth, and finally tried to leave common Americans holding the empty bag of destitution when the faulty “funny-money” machinery began shaking itself to pieces.

Is this, though, merely a fanciful scenario in which justice and economic rationality finally triumph over political criminality and financial skullduggery? Not at all. To the contrary: In principle, this is just what happened (albeit on a lesser scale) as the result of the Supreme Court’s landmark decision in Craig v. Missouri, 29 U.S. (4 Peters) 410 (1830) (from which everything quoted below is drawn).

The issue in Craig centered around a paper currency emitted by “loan offices” the State of Missouri had erected. Missouri’s “‘auditor of public accounts and treasurer, under the direction of the governor,’” were authorized to issue interest-bearing “certificates” “‘of denominations not exceeding ten dollars, nor less than fifty cents.’” These “certificates” were made “‘receivable at the treasury of the state, and by all tax gatherers and other public officers, in payment of taxes or other moneys * * * due to the state or any county or town therein,’” and were also required to “‘be received by all officers civil and military in the state, in discharge of salaries and fees of office.’” The loan offices were empowered “‘to make loans of the * * * certificates to citizens of th[e] state, * * * secured by mortgage or personal security.’”

The purpose of these emissions was to supply the State with a circulating paper currency—in order “to relieve the citizens from an extraordinary pressure, produced by the failure of local banks, and the utter worthlessness of the currency. Without aid from the government, the citizens of Missouri could not have paid the taxes or debts which they owed to the state, in a medium of any value.” That is, the State allowed private fractional-reserve banks to overextend their issues of paper currency. Predictably, the banks collapsed. Then, rather than correcting the situation by passing legislation proscribing or severely circumscribing fractional-reserve banking, the politicians rushed to provide new governmental emissions of paper currency, and then denied in court that these were “Bills of Credit” within the ban of Article I, Section 10, Clause 1—the banks’ failure (or, really, the government’s refusal to police the banks) being used to extend the government’s power beyond its constitutional boundaries. It was the same old story: Abuses by economically powerful special interests coupled with politicians’ derelictions of their duties created social chaos, which then rationalized new usurpations of power

The case arose because Craig had borrowed from a loan office and failed to repay the loan. The courts of Missouri held Craig liable for damages. In the Supreme Court, the issue was whether Missouri’s “certificates” were unconstitutional “Bills of Credit.” “In its enlarged, and perhaps its literal sense,” wrote Chief Justice John Marshall,

the term “bill of credit” may comprehend any instrument by which a state engages to pay money at a future day; thus including a certificate given for money borrowed. But the language of the constitution itself, and the mischief to be prevented, which we know from the history of our country, equally limit the interpretation of the terms. The word “emit,” is never employed in describing those contracts by which a state binds itself to pay money at a future day for services actually received, or for money borrowed for present use; nor are instruments executed for such purposes, in common language, denominated “bills of credit.” 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 always been understood.

* * * The term has acquired an appropriate meaning; and “bills of credit” signify a paper medium, intended to circulate between individuals, and between government and individuals, for the ordinary purposes of society. Such a medium has always been liable to considerable fluctuation. Its value is continually changing; and these changes, often great and sudden, expose individuals to immense loss, are the source of ruinous speculations, and destroy all confidence between man and man. To cut up this mischief by the roots, * * * the people declared in their constitution, that no state should emit bills of credit. If the prohibition means any thing, if the words are not empty sounds, it must comprehend the emission of any paper medium, by a state government, for the purpose of common circulation.”

Here were very straightforward, interlocking definitions of “Bills of Credit:” “paper, intended to circulate through the community for its ordinary purposes, as money;” or “a paper medium, intended to circulate between individuals, and between government and individuals, for the ordinary purposes of society;” or “the emission of any paper medium, by a state government, for the purpose of common circulation.”

Marshall was certain that Missouri’s loan-office “certificates” were such “Bills:”

It seems impossible to doubt the intention of the legislature in passing this act, or to mistake the character of these certificates, or the office they were to perform. The denomination of the bills, from ten dollars to fifty cents, fitted them for the purpose of ordinary circulation; and their reception in payment of taxes, and debts to the government and to corporations, and of salaries and fees, would give them currency. They were to be put into circulation; that is, emitted, by the government. * * * Had they been termed “bills of credit,” instead of “certificates,” nothing would have been wanting to bring them within the prohibitory words of the constitution.

Again, note the straightforward nature of the evidence Marshall considered conclusive: “[t]he denomination of the bills * * * fitted them for * * * circulation;” “their reception in payment of taxes, and debts to the government * * * and of salaries and fees * * * g[a]ve them currency;” and “[t]hey were * * * put into circulation * * * by the government.”

To the contention that, “though these certificates should be deemed bills of credit, according to the common acceptation of the term, they are not so in the sense of the constitution; because they are not made a legal tender,” Marshall responded that

[t]he constitution itself furnishes no countenance to this distinction. The prohibition is general. It extends to all bills of credit, not to bills of a particular description. * * * [T]he same clause of the constitution contains a substantive prohibition to the enactment of tender laws. The constitution, therefore, considers the emission of bills of credit, and the enactment of tender laws, as distinct operations, independent of each other, which may be separately performed. Both are forbidden.

(In fact, the “certificates” were legal tender, albeit only for limited purposes: namely, “the payment of * * * moneys * * * due to the state, or any county or town”, the payment of salaries and fees owing to State officials, and in payment for salt. Craig could have availed himself of the legal-tender privilege in the first and last of these situations.) Even if, wrote Marshall,

the evils of paper money resulted solely from the quality of its being made a tender, this court would not feel itself authorised to disregard the plain meaning of words [in the Constitution], in search of

a conjectural intent to which we are not conducted by the language of any part of the instrument. * * * [The quality of legal tender] may, indeed, be the most pernicious [mischief resulting from “Bills of Credit”]; but that will not authorise a court to convert a general into a particular prohibition.

In any event, Marshall pointed out, the Colonies and the Continental Congress had often emitted “Bills of Credit” without legal-tender quality that circulated alongside those with that quality. The former “were in every sense of the word bills of credit * * * ; and were productive of all the consequences of paper money.”

Marshall then addressed the unenforceability of the note on which Craig had been held liable:

The certificates * * * being in truth “bills of credit”
in the sense of the constitution, we are brought the inquiry:
Is the note valid of which they form a consideration? * * * [A] promise made in consideration of an act which is forbidden by law is void. * * * [A]n act forbidden by the constitution * * * is against law. Now the constitution forbids a state to “emit bills of credit.” The loan of these certificates is the very act which is forbidden. * * * [T]he issuing of them, the putting them into circulation, * * * is the act of emission; the act that is forbidden by the constitution. The consideration of this note is the emission of bills of credit by the state * * * which act is prohibited by the constitution * * * .

And because “the consideration on which the note * * * was given, is against the highest law of the land, * * * the note itself is utterly void.”

Obviously, simply by substituting “Federal Reserve Notes” for “loan office certificates,” and Article I, § 8, cl. 2 for Article I, § 10, cl. 1, and consulting the statutes (quoted above) that specially privilege Federal Reserve Notes, any reader of these passages can understand the powerful effect this constitutional reasoning could have today, were constitutional reasoning applied in Congress and the courts. And if more were needed, more there is—because, unlike Missouri’s “certificates,” Federal Reserve Notes are a general “legal tender” which the force of contemporary economic circumstances compels most Americans to use in their day-to-day transactions, thus rendering the Notes constitutionally worse than the “certificates.”

In light of America’s desperate plight, why cannot this constitutional reasoning be applied here and now? Missouri is the “show me” State. Inadvertently, she has provided a “Missouri Plan” that shows all Americans one constitutionally sound course to follow. To be sure, the necessary reforms will require more than simply declaring specially privileged Federal Reserve Notes to be unconstitutional, and loan-contracts to be void when made by banks within and through the Federal Reserve System in those Notes or bank-credits payable therein. America will also need to employ an alternative sound and constitutional money, to put into operation new financial institutions, and especially to promulgate rules for revaluing outstanding contracts that should not in justice be held void. For example, common American who use Federal Reserve Notes or bank-credits payable therein to obtain certificates of deposit, savings accounts, and checking accounts in banks belonging to the Federal Reserve System should be entitled to receive the free-market value of those deposits or accounts from the banks in all events, albeit in a currency other than Federal Reserve Notes. This, because the typical depositor neither creates, nor participates in the creation of, the currency he is forced by circumstances to use in his ordinary financial transactions. So there is nothing unconstitutional in the bank’s merely holding his money for safekeeping, or in its merely transferring that money by check to his creditors. (A depositor might not be entitled to any interest on his deposit, however, insofar as that derived from the bank’s use of the deposit for its own, and the cartel’s, improper purposes. But, in the present crisis, the loss of a year’s worth of interest for most Americans would be a small price to pay for the reformation of America’s monetary and banking systems.) At the outset, though, two critical insights must be stressed above all others as the bases for future action: namely, that (i) specially privileged Federal Reserve Notes are unconstitutional; and (ii) those in or allied with the Federal Reserve System’s cartel must be required to absorb the lion’s share of the losses that will be incurred in shrinking the bubble of debt which the System has fostered and from the expansion of which the System’s members and partisans have exorbitantly profited.

Americans can do everything that is needful, and more, if they once set their heads, their hands, and especially their hearts to the task. “YES WE CAN!” some politician recently made into a mantra—not realizing how true that statement could be.

First, however, Americans must show themselves, and the world, that they are willing to tread the hard path to financial freedom. Yet not really so difficult, that—because it is, after all, simply a matter of Americans’ demanding their unalienable rights through the constitutional channels of their own representative government. Of course, to exert sufficient influence through those channels, We the People will have to take preliminary actions in keeping with the first principles of “the security of a free State.” But I have been writing about this matter at NewsWithViews.com for years, and see no purpose in repeating those admonitions here. Printing has been invented. Those whom the Declaration of Independence calls “the good People” of this country will read and heed what has been written by me and others—knowing that, if they do not, America’s load of debt will soon collapse on all of her people’s heads. For part one click below.