Last Updated on September 7, 2021 by Constitutional Militia
The following is a transcript that addresses the subject, “How to Restore Constitutional Money: The Challenge”. It is from The Conservative Caucus Foundation at its Annual Meeting in Washington, D.C. on January 13, 1997.
DR. EDWIN VIEIRA: We’re coming, in this topic I guess, down to the bottom line. What makes the gears of government turn is the grease, money. And given that it has become more and more difficult to differentiate the government from a criminal family, I will quote from Don Corleone who asked the question: “What’s in it for my family?”.
Well, we have a mechanism in this country that has been set up to answer that question for certain groups that are in a privileged position, and that mechanism is known as the Federal Reserve System.
The major cross that I have to bear is dealing with the Federal Reserve System and attempting to explain the major problems that it poses with respect to Constitutional law, economics, and the fundamental moral climate of the country.
THE FED IS UNCONSTITUTIONAL
The bottom line of my presentation is very simple. The Federal Reserve System is unconstitutional. You start there and you know everything else that there is to know about it.
The Constitution established commodity monies, specifically, silver and gold coinage as the money of the United States.
REVOLUTIONARY INFLATION AND DEPRESSION LED TO REJECTION OF PAPER MONEY IN 1787
If you go back historically, in 1787 the founding fathers were considering structure of government at the Constitutional level. Who were these people? Well, as a practical matter, they were eyewitnesses to one of the worst economic situations that the country had ever faced—a raging inflation, a massive depression that had followed the emission of bills of credit and other forms of paper currency by both the Continental Congress in which they served, and many of the state legislatures in which they served, during the War of Independence.
So these were not people who were unacquainted with the economic problems of money. They were also not people who could foist off those problems, at least in terms of cause and effect, on somebody else. They had been responsible for putting these paper monies into circulation. What did they do? Well, they drafted the monetary powers of the Constitution to prevent repetition of that calamity by outlawing what James Madison in the Federalist papers denounced as “the fallacious medium and improper and wicked project of paper money”.
U.S. CONSTITUTION ESTABLISHES A BIMETALLIC STANDARD
Now the standard in this system is the dollar, and, if you know nothing else about the monetary system of the United States constitutionally, learn what a dollar is. A dollar is a silver coin containing 371-1/4 grains of silver. That word is mentioned twice in the Constitution: in Article I, Section 9 and in the Seventh Amendment, guaranteeing the right to jury trial.
In the system that the founding fathers devised, the legal value of all the silver coinage must be proportional to the weight of silver they contain, and the legal value of all the gold coinage must be proportional to the weight of gold that the coins contain in relationship to the exchange value between silver and gold at the prevailing free market exchange rate.
All silver and gold coins may be legal tender for the values of silver and gold they actually contain, and Congress has the authority to, as the Constitution says, regulate the value according to these principles.
FIAT MONEY PROHIBITED
In Article I, Section 8, Clause 2 and Article I, Section 10, Clause 1, the Constitution prohibits explicitly or implicitly the emission of any form of what was called in those days “bills of credit”. Today we would call that paper money.
Properly construed these provisions preclude any government at any level from granting special legal privileges to the notes, deposits, or currencies of private banks as well, or allowing private banks to use governmental debt as so-called reserves for the emission of bank notes.
GOLD AND SILVER COIN ONLY AS LEGAL TENDER
Article I, Section 10, Clause 1 also disables the states from imposing on unwilling creditors anything but gold and silver coin as a tender in payment of debts — which, of course, reflects the inherent disability of Congress to declare anything other than gold and silver coin a legal tender.
And Article I, Section 8, Clauses 1, 2, and 5; Section 10, Clause 1; and the Fifth, Ninth, Tenth, and Fourteenth Amendments, if properly construed, would deny Congress and the states any power to seize people’s gold or silver, except through taxation, or to prevent specific performance of private contracts payable in silver, gold, or any monetary medium—which, of course, was what happened in the 1930s when Roosevelt came in.
FREE MARKET IN MONEY AND BANKING IS GUARANTEED
And Article I, Section 8, Clause 3; Article IV, Section 2, and the Fifth, Ninth, Tenth, and Fourteenth Amendments would guarantee individuals free entry into private banking, ensure that private banks might issue their own non-fraudulent notes and securities, and deal in deposits of silver, gold, foreign currencies, or any other monetary medium—in other words, grant a complete free market to money.
Now, that is an important point, because the proposition that I would lay before you today is the Constitution really has two prongs—or an obverse and a reverse. One I call the integration of market and state. Only commodity money—by weight—is constitutionally recognized.
The Constitution defined money and banking system that relies on and embodies free market principles. It adopted the type of money the world had historically favored, that is: commodity money—money capable of being coin—gold and silver. It adopted as money the very commodities that the international markets had historically recognized.
It adopted the very unit of money that the American market at that time was using—the silver dollar—and it left the ultimate supply of money to the market too, by implicitly incorporating the system of free coinage that had been used throughout Anglo-American law—and, in fact, it first occurs in the first Coinage Act of 1792.
SEPARATION OF BANK AND STATE
So, it is fairly clear from that history that the Constitution integrated market and state with respect to official money—silver and gold coinage and it separated bank and state with respect to everything else. The government is not to be a player with respect to the private market in terms of privileging banks or other financial institutions.
Well, what’s happened since then?
LINCOLN’S WARTIME POLICIES UNDERMINED INDEPENDENCE OF PRIVATE ECONOMY
The government has radically diverged from these principles, starting with the Civil War, which was one of the those great divides in Constitutional theory, again because of a crisis situation. Interestingly enough, crisis situations also seem to have driven this country always in one direction, and not the other.
The Civil War was the beginning of the degeneration or the devolution of the American Constitutional monetary system. In 1862, the Congress submits the first legal tender paper currency, the greenbacks, and it maintained those as an irredeemable currency until the 1870s.
Of course, the Supreme Court was there to give all sorts of fallacious reasons as to why that was justifiable. Always be sure the Supreme Court will be there to give reasons when the cogs turn in one direction, but never to give reasons when the cogs turn in the other direction (and I have spent 25 years futzing around with the Supreme Court, so I speak from experience).
THE FED WAS CREATED TO DELINK CONTROL OF MONEY FROM CONSTITUTIONAL ACCOUNTABILITY
Now we come to 1913, which is another one of those wonderful years—we had the income tax and we had the Federal Reserve System put in.
The Federal Reserve System is a quasi-public, largely private cartel that asserts the kind of political independence from supervision by Congress, the President, the courts, and, especially, the electorate. The Federal Reserve is privileged to emit its own paper currency, Federal Reserve Notes.
FED HAS POWER TO DETERMINE THE AMOUNT OF DEBT OBLIGATIONS U.S. TAXPAYERS MUST GUARANTEE
Now what is interesting about those notes is they have been declared, or were from the beginning, declared to be obligations of the United States and to be redeemed in lawful money, and yet nevertheless, in complete disregard of Article I, Section 9, Clause 7 of the Constitution, Congress has never enacted a single statute authorizing the dollar amount of obligations that the Federal Reserve can generate out of nothing, and from which the treasury of the United States, and ultimately the taxpayers, are somehow liable as guarantors or sureties. Fantastic situation.
How much have they generated? Federal Reserve notes alone total $370 some billion now. There is not a single statute giving them authority to issue one dollar’s worth.
IN 1933, ASSURANCE OF REDEEMABILITY IN GOLD WAS ENDED
In 1933, of course, another wonderful year, Congress declared Federal Reserve Notes legal tender for all debts, public and private, and rescinded the requirement that those notes be redeemable in gold coin.
In 1933 and 1934, Roosevelt, and then Congress licensing Roosevelt, seized all the gold coin in circulation and nullified all public and private contracts that called for payment in gold.
SILVER COINAGE TERMINATED IN 1965, REDEEMABILITY IN 1968
In 1965, Congress terminated coinage of Constitutional, that is silver, dollars, and authorized the so-called clad coinage, that is, slugs.
In 1968, Congress terminated redemption of any form of United States currency in silver coin and, in 1971, [President Richard M.] Nixon and [Treasury Secretary John B.] Connally repudiated the redemption of Federal Reserve Notes internationally.
So 1971 is actually the year: the first time in American history that we had what amounts to a fiat currency—”fiat” from the Latin “let it be” money, because otherwise it wouldn’t be money. No one would treat it as money.
In 1973 and 1977, interestingly enough, there was some backsliding, in that Congress permitted Americans to own gold and to make private contracts payable in gold, although continuing to refuse to redeem any obligations of the government in gold.
The reason that was given for that was “Well it doesn’t matter. Gold has been demonetized. This will not cause anything bad to happen.” And you know they were right. Nothing “bad” happened—which is an interesting contrast between then and 1862.
In 1862, the greenbacks come out, they were irredeemable, immediately everybody and his brother starts making so-called “gold clause” contracts, demanding to be paid in gold instead of in greenbacks, one of the classic examples being Benjamin Butler, the corrupt senator from Massachusetts who later went down as the military governor of New Orleans. Go to New Orleans and talk to people about Benjamin Butler even today and they will tell you about that individual. He voted for the greenbacks and he would turn around and make gold clause contracts.
One of the most famous gold clause contract cases in the Supreme Court was the Butler case in which he was defending his own gold clause contract. So he was the man who knew. He really knew. It wasn’t a matter of should have known, might have known—he knew. He knew just what he was doing.
In 1985, Congress authorized the minting of new silver and gold coins (Ron Paul had something to do with that, as I recall), but, once again, although they are there, they do not function as a circulating medium because their nominal values are completely out of line with their market values and Gresham’s law takes hold. The real money is kept in the pocket and the bad money is tossed out into the marketplace.
OUR PRESENT MONETARY SYSTEM IS COMPREHENSIVELY UNCONSTITUTIONAL
So since 1968, the commonly circulating currency of the United States has consisted solely of paper chits and slugs — Federal Reserve Notes, and these so-called “clad coins”.
Clad coins contain no silver at all. Silver and gold coins have been withdrawn as the basis of the monetary system. Federal Reserve Notes are irredeemable, and the Federal Reserve System, which is composed of thousands of private banks, ultimately controls the supply and quality of America’s money, and none of this has any Constitutional justification whatsoever.
There are economic and political consequences. Economic harm occurs both in the public and in the private sectors. Go to the private sector first.
In a free market, interest rates fall because people’s time preferences change whether or not there is a change in the supply of money. Interest rates reflect the idea that an apple is worth more to me today than 100 years from now. It is a very simple concept. I live in time. I am concerned about values over time. It has nothing to do with Alan Greenspan or the Congress of the United States or anything else.
LOW INTEREST YIELDS RISE IN REAL INCOME
Now, when interest rates fall, people consume less, and they invest more. The prices of consumer goods fall. The price of capital goods increase. More resources flow into production, less into consumption. As increased investments and capital goods result in increased production, real incomes rise, everyone is better off.
And, if the supply of money has not increased while all that is going on, the purchasing power of the money unit increases, people become wealthier and their money becomes more valuable than before, and for people who are on salaries (wage earners, for instance) that’s a very consequential matter.
And you will find that, at the turn of the century, people such as Samuel Gompers, the old AFL (American Federation of Labor) president, was very, very concerned about inflation and how it cheated the working man.
Go to your average union leader today and talk to him about inflation and he will give you some kind of blank stare and tell you that the Federal Reserve is something that creates jobs. He has never read Keynes’s book that said, “inflation was a way to lower real wage rates and therefore defeat the power of trade unions.”
Okay, we live in an era of massive illiteracy, but that’s the way it is.
What about under a regime of inflation that is induced by banks or governments? Things are completely different then.
FRACTIONAL RESERVE BANKING RESULTS IN BOOM-BUST DISRUPTIONS
Assume private banks expand the supply of fiat paper currency through fractional reserve techniques. That’s the example, the way they do it today
The expanded supply of money enables the banks to offer loans to businesses at lower rates of interest than before.
Theoretically, they can drive the rate of interest down to zero. They just keep pushing it out. Eventually, somebody will take it. They just keep lowering that price.
The sudden availability of this low-cost credit induces businessmen to believe that there are real resources out there that are now available for projects that in the past weren’t available. So they have been deceived by the action of the banks. They then begin to take those loans and invest in capital goods as if there had been a change in society’s ratio of investment to consumption. Even though there has been no decrease in the level of consumption in society. This is all a paper trick that’s being promulgated by the banks.
The businessmen use this newly borrowed money to purchase capital goods and labor. Prices of those goods and that labor goes up. Resources are diverted from other areas of production.
Eventually, however, this money percolates down into the hands of the ordinary consumer, and the ordinary consumer spends it according to his own preferences between investment and consumption.
At that point, reality hits the fan, economically speaking. Now this takes years to occur, but it does occur. It has an inexorability about it.
This reasserts the original free market rate of interest, or at least it creates attention in the system between the bank’s rate of interest and the actual rate of interest.
It causes the prices of consumer goods to rise, the prices of capital goods to fall, and, at that point, the investment in these new capital goods—the investment with these new fictional loans—is recognized as over-investment, as mal-investment, which is unprofitable or maybe even completely wasted. And, at that point, you have what is called the bust, the depression, the recession, stagflation—we have all sorts of words for it—but it is the rug being pulled out from under the economy.
SEVEN STAGES OF BOOM AND BUST
Now this boom or bust, or the business cycle (I like to call it the fractional reserve banking cycle) has a number of stages.
The first stage is the inflation (money supply increases because the banks generate paper currency). The second stage is the expansion (the banks loan the new money to business). The third stage is the boom (the businessmen over-invest in capital goods). Everyone is feeling good about things.
Then there is the reaction, as consumption increases in accordance with original investment consumption ratios. Then there is the crisis (when the businessmen realize what is happening). Then there is the bust—at which point businessmen and workers lose money as the mal-investments have to be written off in some way. And the seventh, and the last stage, which is always the most important one: the political hysteria.
THE PROBLEM IS SEEN AS THE SOLUTION
At that point, people who have been hurt by the contraction, the system, the recession, the depression, the stagflation, or whatever you are going to call it, they come forward demanding what? Not that fractional reserve banking be limited, not that we go back to the Constitutional system, but that the government take action to get the country moving again. Right? John Kennedy is resurrected or whatever happens—get the country moving again through government action.
LOWERING OF INTEREST RATES BY INFLATION IS ILLUSORY AND TEMPORARY
So the short answer is that inflation can lower the rate of interest temporarily, but, in the long run, the market controls.
MOST PEOPLE LOSE MONEY, BUT BANKERS AND THEIR FRIENDS PROFIT
And the only lasting effects of all of this churning of the system is:
1) a decrease in the purchasing power of the unit of money (Federal Reserve Notes lost 90 percent of their purchasing power since World War II),
2) losses from over-investments and mal-investments in projects that have proven uneconomic,
3) transfer of wealth (I mean people do make money, banks make money, some businessmen make money. There is always money to be made by the churning of fractional reserve banking, but, in general, society loses. Overall, society loses.),
4) and then, that final bottom line, the political bottom line: agitation for new governmental intervention.
As Mises was wont to say “as each intervention proves catastrophic, the next step is to have some more and more catastrophic governmental intervention”. So we never learn anything, except that we know that no one ever learns anything from this.
Now, during the boom, what people call “inflation” may not necessarily occur, because there can be countervailing forces, such as increase in the supply of goods or services or the demand for money.
So right now, we could very well be suffering a catastrophic inflation in the sense of what is happening under the surface in this system, even though you do not see more than a 3 or 4 percent price rise. And, recall a 4 percent, 41⁄2 percent, price rise was what induced Nixon in 1971 to call for wage and price controls. He considered that catastrophic. Right now we live with it, no problem. Pretty soon we will have 20 percent, then Argentinean rates. These things have that kind of momentum behind them.
Booms can continue, putting off the day of reckoning, if the banks expand the money supply, and these, as it were, extraneous factors do not appear, so that people don’t realize what’s happening. That’s the beauty of this whole system. It is surreptitious. It is deceptive. It is kind of “stealth economics”, if you will. It comes up off the radar screen in many instances.
A SHELL GAME WITHOUT A PEA
Now, let’s take a look at the economic consequences on the public side. What goes on when the Federal Reserve, as they say in the trade, “monetizes public debt”, that is, generates money on the security of public debt in order to give the money to the government to spend for whatever, entitlement projects, or whatever?
FOUR ROADS TO RUIN
What’s going on there is that the board of governors of the Federal Reserve System is lending the public credit, on the security of the public credit. This is the ultimate of the shell game — where’s the pea? Except there is no pea in this game at all.
I want to give you an example of this. Assume the government wants to expend $100 billion on new programs. Let’s assume they are even Constitutional programs. That’s a shock, but let’s assume that.
How can it do this? Well, it essentially has four choices:
(1) PAY AS YOU GO — BY HIGHER TAXES
First, it can tax $100 billion from the public, and spend the tax receipts. That’s a redistribution of $100 billion from the taxpayers to the tax recipients and the bureaucrats in the middle, who do the collecting and the expending.
But no new money has been created. No one has received any interest payments, and the advantages of the system are that the present generation pays for its own expenditures, its own programs (which one would think is only fair), and that tends to limit those programs to what the present generation will accept, and the public tends to know who receives the benefits, who pays for them, what they cost, and so on. So it’s all on the table.
I suppose the disadvantage is that, of course, these schemes of taxation are all devised by bureaucrats and, therefore, economically they always tend to be harmful, but, in this imperfect world, where government is going to be spending something, that probably is the bottom line of harm—the direct “tax and spend” situation.
(2) BORROW AS YOU GO — WITH INTEREST PAID TO PRIVATE CREDITORS BY FUTURE TAXPAYERS
Well, the next level is the government can borrow $100 billion at what, let’s say 10 percent interest, from the public—not the banks—but from the public, and spend the loan receipts.
Now, of course, the government must collect $110 billion from the taxpayers sometime in the future to pay that off, so there is a redistribution of $110 billion instead of $100 billion, but, again, no new money has been created. Some taxpayers will eventually pay that extra $10 billion for the privilege of other taxpayers having had taxes deferred for the lifetime of the bonds.
Now the disadvantage of the system over the first alternative (that is direct taxation) is that the present generation may tend to overspend, hoping that it can push the burden onto a future generation.
(3) INFLATE AND SPEND — DEPRECIATION OF DOLLAR VALUE
What’s a third route? Well, here we come into the greenback route. This is the sequence that was followed actually in our history— taxation, borrowing, and, when they find themselves in a hole, they turn to the greenback route. The government simply emits $100 billion in irredeemable interest-free treasury notes, and spend these things directly into circulation, requiring you as a government creditor to take them, and then giving them legal tender power so that they will circulate.
Justice Field, who dissented in one of the famous legal tender cases, Juilliard v. Greenman, asked, “If Congress has the power to make treasury notes a legal tender and to pass as money, why should not a sufficient amount be issued to pay the bonds to the United States as they mature?”.
Why not pay interest on the millions of dollars of bonds now due, when Congress can, in one day, make the money to pay the principal? And why should there be any restraint upon unlimited appropriations by the government for all imaginary schemes of public improvement if the printing press can furnish the money that is needed for them? Well, why indeed? I mean that is a very good question. Why, indeed?
And under the theories that have been put forward by the Supreme Court in the legal tender cases, even the gold clause cases, following through, the borrowing power of the country is really supererogatory. The government can simply print this money. Never have to borrow it. Why? Why borrow? Why tax? Why borrow?
And an economic crisis recourse to that expedient may become politically compelling. I might point out that, in the Agricultural Adjustment Act of May of 1933, Roosevelt was given the authority to do exactly that—to expand the greenback base under the law of 1862. He didn’t do it, but he had it. So people have been thinking this way.
But you notice at this stage we still haven’t come to banks. There were no banks involved in this at all.
Now I don’t say that printing of money is Constitutional, but the Supreme Court said that. So it is lurking there in the background.
(4) BORROW AND INFLATE AS YOU GO — WITH INTEREST PAID TO THE FED BY FUTURE TAXPAYERS AND INFLATION SUFFERED BY YOU
Now we come to Number Four and this is the scheme whereby the government sells its $100 billion of bonds and again paying 10 percent interest to the member banks of the Federal Reserve System, which creates $100 billion in new demand deposits, so-called “money” created out of nothing, because they paid for those things simply with a checking account that they create and the government can now spend on its programs.
Well now, how does this occur? Say the commercial banks don’t have $100 billion. This is not the case in Number Two, where you go and borrow from people who actually have the money. They don’t have it.
The Federal Reserve goes into the marketplace and it buys say $25 billion worth of old government bonds. Now I am assuming that it has a reserve ratio of one to five. It does this simply by creating $25 billion out of nothing. It just goes and it buys $25 billion in bonds.
FRACTIONAL RESERVE BANKING MAGNIFIES FED’S INSIDIOUS INFLUENCE
The securities dealers who sold these bonds take the $25 billion back to their banks, that is now deposited, and, miraculously, through the system of fractional reserve banking, lo and behold, $125 billion in new money is generated on the basis of those notes.
And, in fact, they could do a lot more. I have a calculation down here in the notes that shows if it were done directly by the Federal Reserve regional banks they could generate $500 billion from $25 billion. So, there is a lot of leverage, as they say, in this system.
And then if the commercial banks needs Federal Reserve notes, they go to the Federal Reserve regional banks with these government bonds and say monetize these, give us the notes if we need actually to pay and the Board of Governors can do that for them.
FED BANKS ARE PAID INTEREST ON THE “MONEY” THEY CREATE
Notice what happens here though. The government ends up paying $110 billion. $10 billion in unnecessary interest to whom? To the banks. Interest for what? Not for having saved any money, not for having reduced consumption as in case Number Two, but for having exercised the privilege of creating money which was given to the bank by the government. They paid the banks for the exercise or the privilege that was given to those banks by the government.
U.S. GOVERNMENT BUYS “PROTECTION” FROM THE BANKERS — YOU AND YOUR POSTERITY PAY THE BILL
Well, this has to be the most obviously crooked scheme of all. And yet everyone looks at this and says, “Well now, this is obviously also the way to go.” As Don Corleone would say, “What’s in it for my family?”.
Now what’s the political harm of this. Well, the political harm is that, contrary to the Alan Greenspans of this world, there is no such thing as “politically neutral” or “politically independent” money.
Money is a medium for storing and exchanging wealth. It is a form of property and a means of implementing contracts that transfer property from one party to another.
So, even if you have a free market economy with a limited government, money has a political character, inasmuch as the degree to which the government protects the money system from private fraud and public looting, reflects the degree to which the government respects and protects private property.
AN IMMORAL MONEY SYSTEM PRODUCES POLITICAL AND CULTURAL IMMORALITY
So if you have a free market economy you will have one form of money. If you have a mixed or fascist economy, which is what we have, you have another form of money. If you have a socialist economy, you have a third form of money. But the money is really reflective, in the way suggested a moment before, as is the legal system and the moral system, of the underlying type of government that you are going to have.
WHEN THE FED TALKS “INDEPENDENCE” — THEY MEAN THEY WILL BE INDEPENDENT OF ACCOUNTABILITY TO CONGRESS AND TO YOU
So, if you look at the debate that sometimes you hear about the degree to which the Federal Reserve System must be politically independent, that is really a misdirected debate.
IT’S THE MONEY THAT SHOULD BE INDEPENDENT OF POLITICAL CONTROL AND MANIPULATION
The Constitution made money independent of electoral politics by fixing gold and silver as the basis of the system. And, of course, the Constitution is a political document. So rather than making money politically independent or politically neutral, the Constitution settled on one very specific political formula for money.
Creating the Federal Reserve in 1913 did not change that concept. It did not make money politically independent or politically neutral. It changed the political character of the money system.
IF THE “MONEY” IS CONTROLLED, THE MARKETS ARE NOT FREE
Now a small unelected group of experts, the board of governors, and the people that meet with them, the Federal Open Market Committee and the Federal Advisory Committee, and the Secretary of Treasury’s agents and so forth, are able to control the supply of money, interest rates, all the other monetary and banking phenomenon.
HOW CAN MONEY BE A “STORE OF VALUE” IF IT’S VALUE IS SUBJECT TO MANIPULATION?
So, as contrasted with the Constitutional system, the Federal Reserve System actually politicized money, because now the politicians, administrators, and bankers have a much greater degree of influence—some people would even say control—over the entire direction of the monetary system, and, therefore, the direction of the economy as a whole.
What is interesting today is that, although what I have said I should hope would be rather obvious, politically speaking nobody talks about the Federal Reserve System. There is no major political movement that is advocating disestablishment of the Federal Reserve, or reinstitution of Constitutional money.
Nobody attacks fractional reserve banking and all the economic problems it has. Nobody denounces the relationship between the banking system and the government. Nobody looks at the power of private parties here to regulate the economy and impose—really one aspect of this whole police state that is being set up—the banking surveillance of everyone that goes on—talk about medical records. Think about what they do with banking records. Read the Bank Privacy Act of 1980 (or whenever)— good example of precisely how that moves forward.
HOW HAS DEBATE OVER THE SUBSTANTIVE BEEN SUPPLANTED WITH FOCUS ON THE TRIVIAL?
What that tends to tell me is that the people behind this system must be one of the most politically powerful, if not the most politically powerful group in the entire country, because they have been able to suppress discussion of an issue that was of great political significance just at the turn of the century.
Let’s leave aside Jefferson. Let’s leave aside Jackson. Let’s leave aside the greenback debate. Let’s leave aside the question in the 1870s about return to specie payments. You just look at what happened at the turn of the century in this country.
William Jennings Bryan, everyone in this room remembers, if not the “Cross of Gold” speech, at least that there was such a speech, and he gave it and it had something to do with money. That was a major plank in a major political platform.
And then, of course, even before the Federal Reserve came in there was a major debate in the Wilson-Roosevelt-Taft election over the direction the country would or would not go in terms of central banking. So, as late as 1916, this country was seriously debating matters of banking and money.
WHAT IS TO BE DONE?
This brings you now in a sense to Lenin’s question, or it brings me in a sense to Lenin’s question, “What is to be done?”.
Well, we first have to realize what we have. We have essentially a fascistic banking cartel running this country. This is really nothing different from what Mussolini would have set up, except maybe the uniforms are not as nice and the parades are not as big, because they want to keep the level of public understanding down. But fundamentally this is the fascist system, and I use that word in the technical economic sense, without any pejoratives at all.
A SYSTEM OUT OF CONTROL
Now, it also is not simply a monetary control mechanism. It is one of the two most important mechanisms, (the other being, I think, the tax system and the graduated income tax) for economic regulation that has been set up in this country since the turn of the century. And that really explains why it demands political independence, because, if you do not have political independence, you are not in a position to regulate a free market system as well as you would if you were subject to electoral supervision by the people.
And that extreme political independence that they demand, and the fact that they have, tends to show precisely how far away they have gotten from any kind of control by the American people.
So, where are we? We have seven major consequences that I like to point to with the Federal Reserve System.
1. Our money lacks any intrinsic value, and, by intrinsic value, I mean it is not tied back into the commodity system or the market, so there is no rationality to it in an economic sense.
2. Because it has no intrinsic value, because it does not have an economic connection, the purchasing power is subject to political manipulation. It could go up, but politically speaking, you know it is always going to go down.
THE FED IMPOSES HIDDEN “TAXATION WITHOUT REPRESENTATION”
3. So that allows the system to be used as a mechanism of hidden taxation, taxation without representation. It’s worse than taxation without representation. I mean most people don’t even know about this. Not a question of they don’t get a vote in it — they know, but they don’t vote. They don’t even know about it. It is completely hidden from them.
FRACTIONAL RESERVE SYSTEM LETS BANKERS BESTOW MONETARY FAVORS ON THEIR POLITICAL ALLIES
4. The effect of that is redistribution of the nation’s wealth, not simply at the political level, by hidden taxation in the sense of governmental use, governmental monetization, but a lot of monetization is going on in the private sector as well with those groups that are particularly favored by the banks, using the method of fractional reserve banking to redistribute wealth to themselves from other segments of the society.
POLITICIANS WITH BANKER FRIENDS CAN GET THE MONEY THEY NEED
5. Well, what does this effectively do politically? It systematically corrupts the electoral process. The electoral process is now entirely dependent on these banks. You cannot find anyone who will question these banks because they know perfectly well that the whole superstructure of entitlements depends upon the ability of that banking system to bail them out, or to bail out Mexico, or to bail out whomever it is…
HOWARD PHILLIPS: Or, in the case of Bill Clinton’s election, for the Worthen Bank to give him a timely $2 or $3 million loan so that he could win in 1992.
DR. EDWIN VIEIRA: That’s right. At whatever level of corruption, from the lowest to the highest.
CONTROL OVER THE MONEY SUPPLY IS ARBITRARY
6. Well, that enables them ultimately to loot the public treasury. That’s why I was so insistent upon pointing out that there has never been a statute indicating how much the board of governors should or should not generate in Federal Reserve Notes. These people have complete discretion to generate as much paper money as they want, or as they dare, I should say.
CENTRAL ECONOMIC PLANNING IS ANTI-FREE MARKET
7. And then the seventh point is, of course, the Federal Reserve System is functionally a key element in a mechanism of central economic planning. That’s really what fascism is — the kind of central economic planning where the businessmen do the planning, as opposed to socialism and communism where the petit intelligentsia does the planning. Right.
So fascism at least works for a longer period of time than socialism does, but that’s what this thing is there to do.
FED FACILITATES REDISTRIBUTION OF WEALTH FROM THE PEOPLE TO THE FAVORED ELITES
Fundamentally, it is there to redistribute wealth so that the big business segment of society will be able to find capital when it needs and wants capital, and the payoff to the politicians is to say we will do the same for you. We will provide a mechanism of looting that will pay off your political constituents as long as you let us use this mechanism of looting to maintain capital flows to us.
Really very simple: What’s in it for my family? What’s in it for your family? Okay. Those are the seven points.
Well what we have to understand is that this is not a permanently viable policy. It may have a longer life than socialism and Communism, and, remember, they lasted 70 years.
Socialism is incapable of economic calculation. This system is capable to a certain degree of economic calculation. It just has a tremendous level of irrationality built into it. But it is not permanently viable.
HOW LONG WILL OTHER NATIONS AGREE TO SUSTAIN OUR DEBT?
It is not permanently viable domestically, and it’s certainly not permanently viable internationally because you have a system of international competition among currencies.
And it is not necessarily true that the Germans and the Japanese, and maybe even the Chinese or the Indonesians, will continue to support the level of debt that this country is willing to assert or assess upon itself in order to maintain the fiction that we are richer than we probably are.
IS HYPERINFLATION IN THE OFFING?
Eventually, the chickens are going to come home to roost. My own guess in this is, they are going to come home to roost through a massive inflation, because politicians understand that a depression is the most politically destabilizing of all events, and so they will try to keep that off as long as possible and the only way to do that is to keep pumping in money and credit, and you cannot keep the lid on prices indefinitely, so you are probably going to see a very, very large inflation over the years.
Very, very large—I am not talking big numbers. I am not talking 1,000 percent. I am not talking 1923. I am talking 20 percent, 30 percent, 40 percent inflation, and then there will be reaction, and then another one, and reaction, swing back and forth and up and down.
WILL FEDERAL RESERVE NOTES LOSE THEIR LEGITIMACY?
The interesting thing about this is, as the purchasing power of the currency falls, the social demand for the currency will fall, prices will start to rise faster than the rise of the supply of money and credit, and the thing begins to get a life of its own.
And this is what eventually happened in such countries as Germany in 1923. They could not print the money fast enough for the price rises. Prices were not rising because money was being printed. Money was being printed because prices were rising. People just simply started walking away from the currency into something else, anything else, and the system broke down.
So it gets out of control. And this system will get out of control with Alan Greenspan or whoever is in there. It will, at a certain stage, get out of control. And, in a sense, maybe that’s the solution. You let nature take its course.
If the politicians, the bankers, and those who fatten off this system refuse to respond to the problems, refuse to return to some level of rationality and Constitutionality in this system, then let the system implode. Let the people walk away from the system, because they will.
Everywhere in world history a system of this kind has been set up, it has either destroyed the country in the course of a war, I mean it breaks down, or, if the system has lasted long enough, people have walked away from it, economically speaking, and the system has imploded.
Hyperinflation: the end of, as Jackson said, the Establishment’s rag money.
CONSTITUTIONAL RESTORATION IS THE ONLY WAY TO FORESTALL CERTAIN CHAOS
That may be the only real solution. I don’t think it is the preferable solution because I think we understand what would happen politically if that were to occur. The demands would immediately be for even stricter and stricter governmental control over the system.
UNFAMILIARITY WITH COMMODITY MONEY MAKES CRISIS MORE LIKELY
So that leaves me with the question at our level of what is to be done. The real problem here is that we do not have an alternative that is, at the present time, functioning.
If you look at the Jacksonian period when they walked away from the Second Bank of the United States, if you look even at the period from the Civil War to the resumption of specie payments in 1879, people were, in fact, using gold and silver as currency.
During the period of the irredeemable greenbacks, they were not paying it out unless they had gold clause contracts, but there was a gold and silver price structure. In fact, there were parallel price structures at that time between the paper price and the gold and silver price. So people understood the use of gold and silver as an alternative currency. That does not exist today.
TO AVOID CHAOS, PARALLEL PRICE STRUCTURE NEEDED
So your first step in this process, which economically is to have essentially a parallel price structure, is not there.
Now that leaves me to conclude that maybe the only solution, if we had control of the government, would be for the government, slowly but surely to begin a phase over. I am talking about the necessity of developing these economic institutions, where you begin to demand payment or to give people the option of making payment in silver and gold, make gold and silver legal tender for public transactions, monetize foreign silver and gold coins as it did at the turn of the 19th century, so that this price structure would begin to develop, and that a competition would occur in the marketplace between the Federal Reserve System (which at that point would be disestablished, in the sense that the Federal Reserve System would be given no privileged position), and the gold and silver price structure.
GOOD MONEY WILL DRIVE OUT BAD
And I am convinced that, if that were to occur, the banks would be driven very, very quickly into moving towards a redeemable currency, or at least they would have to offer a redeemable currency as one of the options, and the banking system would have to clean up its own mess.
THE REAL COST OF THE UNCONSTITUTIONAL WELFARE STATE WILL BECOME EVIDENT
The grave difficulty is that, as soon as you begin to make a step in that direction, all the special interests come out of the woodwork, and begin to say, “Well, wait a minute, you are not only not going to be able to finance the expansion of our programs, but the continuation of our programs, because the taxpayer at that point will not accept paying taxes in gold and silver for these programs. I mean the real cost of the thing is going to be laid on the table.
And, at that stage, they say, and I have heard this over and over again from so-called free market economists, until you get the fiscal situation under control, you can never get the monetary situation under control, because they will always pervert the monetary situation to provide them with the resources to keep the fiscal situation above water.
I look at it the other way around. Until you get the monetary situation under control, you are always giving them the lever or the spigot or whatever it is to continue to fund, and, therefore, not to have to face the tax problem with respect to the entitlement programs.
INCREMENTALISM WAS REJECTED BY AMERICA’S FOUNDERS
And the interesting thing about the founding fathers of this country, they did not sit back and say, “Well, wait a minute, we have a tremendous inflation and a recession, depression, and all these other things. First, we have to get our fiscal house in order before we do any of these other things.” They did not say that. They enacted the Constitution so we can do it all at once. Here it is. Here is the Constitutional monetary system. Live with it for the government. One always has to remember that. The Constitutional monetary system only controls the government’s use of money.
GOLD AND SILVER WOULD FLOW INTO AMERICA
And I think if you had a President who was willing to execute the laws, if you had a Congress that would not impeach him for doing that…and you simply came up with a reform package that put the government back on the gold and silver system, with just a little bit of time, as they say in Russia (was it “perediska”, a breathing space?), if we just have a little breathing space to maneuver in, you would have the biggest influx of capital into this country the world has ever seen because all the gold and silver of the world that is now sitting idle in hoards because it cannot earn interest, would suddenly find a marketplace, which would be the United States, because, at a minimum, that gold and silver could be used to pay taxes into this system.
And, as soon as that happened, and that real capital appeared, jobs, productivity, investment, everybody would be better off at that point. Then you could turn around and say, “Well, you see what we did?” This is step Number One. You did not believe it, but here is step Number One.
RIDICULE YIELDS SILENCE
The difficulty I think is the psychology. People today, when you talk about gold and silver, they look at you as if, not as if you were someone from the 19th century. “This is extremism”. If you question the Federal Reserve System and central banking, they start asking whether you are questioning the influence of the Rothschilds—that’s the next thing you hear out of them.
They have generated in this country, on the one hand, a conspiracy of silence, and, on the other hand, they have generated a kind of conspiracy of ridicule that makes it extraordinarily difficult for anyone to put these kinds of ideas on the table without being laughed away or attacked by the ADL, if you know what I mean.
Anything else can be put on the table no matter how ridiculous, but talk about reforming the monetary system, use that dirty four letter word “gold”, imagine using “silver”, it is even worse, then you become a “bimetalist”, you become an “inflationist”, you become William Jennings Bryan, people think of “Inherit the Wind”. It is unbelievable what you see when this stuff comes out.
RE-EDUCATION OF THE ECONOMIC POPULARIZERS IS NEEDED
And there is our big problem. And I think that is not a problem that can be solved by going to people at the lowest level initially because nobody understands this. Absolutely nobody understands this.
SOUND MONEY IS GOOD FOR WORKERS
I think what has to be done is some middle-level in the intelligentsia has to be re-educated, and then has to pass this on to those institutions that will find out that it is in their interest (what’s in it for my family?). I mean look at the unions. The unions are the classic example in my mind of an institution that ought to be screaming for monetary reform—screaming for monetary reform—not simply because economically it is to their advantage, but also because politically it is to their advantage. They are going downhill. They are being extinguished.
And that would be a way to revitalize that movement politically. And, historically, they can look back at years, and years, and years of the greatest leaders, if you will, of the labor movement being solidly behind sound money.
SOUND MONEY IS GOOD FOR THE ELDERLY
If a group of intellectuals could reach the retired people in this country who are being looted by this system, if a group of intellectuals could reach the blacks in this country who cannot get jobs because meaningful investment is all going to the Chinese, and God knows where else, if a group of intellectuals could reach young people who could understand that after 40 or 50 years of work they are going to end up with nothing, because this system is designed systematically to loot them, what percentage of the voters would you have in this country? Sixty percent?
“CONSERVATIVE” THINK TANKS HAVE DUCKED THE ISSUES
But that middle-level intelligentsia, as far as I can tell, is not there. Now I am not going to name names of think tanks here in Washington that we all know that are right-wing or conservative or whatever.
I’ll give you a Krugerrand—but let me be patriotic—I’ll give you an American Eagle gold coin—for each symposium or meeting of those groups that you can bring me in the last ten years that dealt with money. And you can’t include the one I had at the Heritage Foundation through the Mises Institute because I did give a talk many years ago, and I was never invited to speak there again. So I consider that to be a negative one. I’m not paying for that one.
Any other—they don’t do it. Cato Institute is the only one that holds, as far as I know, a yearly monetary conference and they all sit around talking up the benefits of the Federal Reserve and monetary this and monetary that. This kind of stuff never gets in front of them.
So I think that is our major problem—is somehow translating this material or putting this material in a form that a middle-level intellectual group, the scribblers—what was Hayek’s phrase for them?—”the second-hand dealers in ideas”. The second-hand dealers in ideas can begin to market to those institutions that have an economic stake in this matter.
HOWARD PHILLIPS: History is the history of elites, and we now have a corrupt, ignorant elite. We have to build a new elite to replace it.
DR. EDWIN VIEIRA: [President Andrew] Jackson could give his campaign at the lowest level because people—if you read the newspapers from that period, it is incredible what the average person would read in them. It is incredible what they were talking about. They understood fractional reserve banks and they understood the difference between commodity money and paper money. It is absolutely incredible. Today, zero. Zilch.
BALANCED BUDGET AMENDMENT IS A THREAT TO CONSTITUTIONAL RESTORATION
HOWARD PHILLIPS: What are the implications for our long-range success if the Balanced Budget Amendment (BBA), in a form similar to that in which it was proposed last time, were to be added to the Constitution?
Let me say my concern is that it might limit our ability to rely on the plain text of the 1787 Constitution as presently amended, and that the Balanced Budget Amendment might implicitly provide a rationale, not simply for a Presidential role in the legislative process, but for the legitimatization of our present financial arrangements—everything from OMB to the Fed. What do you think?
DR. EDWIN VIEIRA: I agree with that. I am totally against the Balanced Budget Amendment.
EVOLUTION OF EURO COULD MAKE FRNs EXTINCT
HOWARD PHILLIPS: What implications do you believe there will be for our economy and for the dollar if, and when, the Euro comes on line as the common currency of the European Union?
DR. EDWIN VIEIRA: Well, the Federal Reserve Note, not the dollar, is now the premier world reserve currency as a result of the hangover from the Bretton Wood’s agreement. But, to a great extent, it is supported in its value by the Germans and the Japanese buying United States bonds. We are holding them hostage in a sense.
What happens when another currency that is superior to the Federal Reserve Note appears and can now be substituted as a reserve?
Well, the value of the Federal Reserve Note, its purchasing power, depends upon its uses. If one of its major uses is eliminated or seriously curtailed, its purchasing power will go down. To the extent that it stops being, or is less of, a world reserve currency, its purchasing power will go down. Those Federal Reserve Notes then will not be used overseas. They won’t be held overseas. They will come back here, and there will be a terrific price increase.
We export inflation. We don’t see the inflation here because the purchasing power and Federal Reserve Note-denominated debt is overseas and that is circulating around overseas. It is circulating around overseas because it is useful. So we can expect that to happen, and that “exported inflation” will now become “imported inflation”.
HOWARD PHILLIPS: So in other words, we have been insulated from our own profligacy by the status of the dollar, or the Federal Reserve Note, as the reserve currency of the world.
DR. EDWIN VIEIRA: That’s right.
HOWARD PHILLIPS: Foolishly, our government has been pushing the European nations to adopt a common currency — which is going to have the effect of leveling the U.S. economy. It is going to increase price inflation in the United States. It is going to cost us jobs. It is going to hasten the day of reckoning. Maybe that’s good, but a lot of people are going to suffer as this artificially high dollar sinks, and that is going to happen in the next several years. It could have a profound effect on the election of the year 2000. It could be the predicate for a hyper-inflationary depression. All kinds of things could happen.
DR. EDWIN VIEIRA: The great difficulty is all economic analysis is based upon the principle, all other things being equal. If you do A, all other things being equal, B will follow.
Unfortunately, in the real world all of the things are not equal. It is impossible to analyze at the present time. All you can look at is the rate of increase of the money supply—the M1s, the M2s, the M3s, and then you ask yourself, well why is it that you only have 4 percent price increases. Well, is that because actually the economy is expanding in production?
If the economy is becoming more efficient, prices should go down. If that’s happening at the same time that the banks are expanding the money supply, prices will not go up as fast as they otherwise would.
Now that’s all well and good except prices should, in fact, be going down. The redistribution of wealth is still occurring, but you have to do the arithmetic a slightly different way.
In terms of these being the highest interest rates in history, well, no, I imagine we must have had much higher interest rates—real interest rates—around the Civil War period. They were asking 20 percent.
DR. JANE ORIENT: I have heard the argument that actually prices should be going down rather dramatically because of improvements in technology and that that has been shielding us from seeing the effect of inflation.
DR. EDWIN VIEIRA: Well, you see that in electronics. They have gone down terrifically, but they should have gone down much more.
If you look at the non-constitutional gold standard that they had at the turn of the century, from 1879 to 1907, what happened with prices then, there was a gradual lowering of prices. At the same time, there was a tremendous economic boom, huge influx of immigrants, and so forth, and so on.
And that was because productivity was increasing, efficiency was increasing, jobs were going up, and you had no real equivalent increase in the money supply. So the purchasing power of money kept increasing, prices kept going down, and that’s what you would expect in a free market economy—purchasing power of the money would go up, prices of goods and services would go down, the lower level of society would become increasingly wealthy.
In a sense, it would be a slow transfer of wealth from the top to the bottom, but, of course, the top would be making it up through entrepreneurial profits so we are not talking about redistribution in that sense. And that is why I have not been able to understand why since World War II all the unions have been so quiet about this. It is something that is just so simple, and yet there they are, saying nothing about it.
MAN FROM AUDIENCE: What is going to be the effect when the ECU comes into effect, how do you see that affecting the trade balance and the exchange rates if they have the European currency come into effect, and suppose there is a, perhaps, better value as far as the oil nations are concerned as far as using ECU, or possibly even the Yen, instead of the dollar?
DR. EDWIN VIEIRA: Well, to the extent that they move their reserves from one to the other, the purchasing power of the Federal Reserve Note has to go down.
MAN FROM AUDIENCE: Do you see that as a possibility?
HOWARD PHILLIPS: Sure, all of these things go together. One of the reasons the dollar is the reserve currency is because America is the military leader of the world. But, as we emasculate our military, as we turn over more power to the United Nations, expand the U.N. police forces, as our own economy declines relative to other economies, there is less incentive for other countries to look to the United States for their reserve currency. And, if they can get a better deal in Deutschmarks, or Yen, or in the Euro, they will go to that.
History is full of examples of nations losing power and their currency ceasing to be the reserve, whether it was the Spanish currency, the French currency, or the British pound sterling.
The dollar has reigned, but, as God punishes us for our sins, and as we commit economic suicide, the dollar will pass, unless we turn around, and if the dollar sinks, our economic standard of living is going to go into the tank.