NOTE: A change in schedule for our open-borders conference. I will be presenting this coming Monday, October 7, at 7 p.m.- 8 p.m. Eastern time. I invite everyone to participate. I would welcome all questions and challenges regarding the concept of open borders! To receive your Zoom link, register here.
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In the midst of a presidential campaign, it’s easy to get sucked into such mundane discussions about which presidential candidate will be better at managing and running the welfare-warfare state and managed-economy way of life under which we live. We libertarians must instead keep our vision focused on the target — the prerequisites for a genuinely free society rather than a better-managed serfdom.
Consider monetary policy. It’s easy to get embroiled into a discussion regarding the Federal Reserve’s interest-rate policy. Did the Fed raise interest rates too rapidly. Did it cause a recession? Has a recession already occurred or is it still on the horizon” Did the Fed lower interest rates too soon? Should it have lowered rates by a quarter point rather than half a point? When should the Fed lower rates again?
All those questions, of course, assume the continued existence of the paper-money system and the Federal Reserve System, which is also known as a central bank. Its job is to manage the quantity of paper money in the economy. It is the Fed, through its decades-long policy of printing vast quantities of money to cover ever-increasing federal expenditures, that is responsible for the decades-long debasement of the U.S. currency.
Thus, a popular mantra among libertarians is “End the Fed.” But ending the Fed is not sufficient because it still leaves a paper-money system intact and the federal government in charge of monetary policy. A necessary prerequisite to achieving a free society is ending all government involvement in money. In other words, a total free-market monetary system. No central bank. No government-established paper money. No legal-tender laws. A complete separation of money and the state, just like the separation of church and state.
Obviously, that is not the type of monetary system we have today. We have a monetary system in which the federal government has designated, through its “legal-tender” laws, paper money to be the nation’s official money. It is also a system in which the Federal Reserve — a central bank — is in charge of managing this paper-money system. It is this system that has brought monetary chaos to the American people for all of our lives.
This is not the type of monetary system on which our nation was founded. The last thing the Framers and our American ancestors wanted was a paper-money system managed by a central bank. That’s because they knew that governments inevitably begin printing vast quantities of paper money that they use to cover their ever-growing governmental expenditures. That printing process then leads to a lower value of the currency, which is reflected by rising prices of the things that the paper money buys. Our ancestors knew both from history and from personal experience (i.e., the debased Revolutionary currency known as the “Continental”) that this process of inflating the money supply impoverishes the citizenry.
A 1907 St. Gaudens Double Eagle $20 U.S. gold coin.
Thus, when the Constitution called into existence a federal government with limited powers, it did not give the federal government the power to print paper money. It only gave the federal government the power to “coin” money. At the risk of belaboring the obvious, one cannot coin money out of paper. One can coin money out of commodities like gold and silver.
Thus, the official money of the American people from the inception of the federal government up until the 1930s was gold coins and silver coins. Note something important: It was not a system of “paper money backed by gold,” as we often hear. There was no paper money. Again, the Constitution did not permit the federal government to print paper money. Moreover, the Constitution expressly prohibited the states from printing paper money and from making anything but gold and silver coins legal tender or official money.
The federal government and the state governments were permitted to borrow money. But everyone understood that these instruments of indebtedness — e.g., bills, notes, and bonds — were simply instruments of indebtedness that promised to pay money (i.e., gold and silver coins), not money themselves. There was also no central bank from the start of the federal government to 1913, when the Federal Reserve was called into existence.
Under this gold-coin, silver-coin standard, the federal government became the issuer of the gold coins and silver coins that were the “legal tender” or official money of the country. While there have been governments throughout history that have defrauded people with gold coins that contained less gold than what they were represented to have, there was never any such scandal with respect to the federal government’s coins. The result was the soundest monetary system in history, which was one of the principal factors that contributed to the enormous rise in the standard of living of the American people, especially during the 30-year period from 1880 to 1910.
It all came to an end in the 1930s, when President Franklin Roosevelt used the Great Depression as a justification for converting America’s monetary system to a paper-money system. In one of the most shocking acts in U.S. history, FDR nationalized gold and ordered all Americans to deliver their gold coins to the federal government, on pain of a felony conviction for failure to do so. It was done without even the semblance of a constitutional amendment.
Ever since, America has had a paper-money system, one managed by a central bank. The result has been a constantly debased paper dollar, with periodic booms and busts caused by Federal Reserve monetary expansions and contractions.
Thus, the issue that Americans need to discuss is not whether one presidential candidate will be better than another or what the Federal Reserve’s interest-rate policy should be. The much more important issue is: What are the necessary prerequisites for a free and prosperous society, including with respect to money.
Should Americans keep the clearly unconstitutional paper-money, central-bank system under which we have all been born and raised, which has caused so much destruction of the wealth and prosperity of the American people?
Or should we restore the gold-coin/silver-coin monetary system called for in the Constitution, which resulted in the most solid money in history?
Or should we improve on the gold-coin/silver-coin system by adopting a totally free-market monetary system, one in which there is a separation of money and the state, one that relies on the virtues of the free market to determine what money people decide to use?