The View from Abroad

Hard hitting commentary from an American living overseas

Kenn Jacobine

Kenn Jacobine
Birthday
June 03
Bio
Kenn Jacobine is an international educator currently teaching History and Economics for the American School of Doha, Qatar. He has also taught at international schools in Ecuador, Mali, and Zambia. His political transformation took place over the course of many years. Starting out naively as a big state liberal, he became a Reagan Republican in 1982. Disillusionment set in with the realization that small government rhetoric rarely translated into limited government actions. On Christmas day 1992, he became a libertarian. In 1994, Kenn ran for the State Senate in Pennsylvania on the Libertarian Party ticket garnering 5 percent of the vote. He has been active in freedom causes ever since.

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Salon.com
SEPTEMBER 21, 2011 12:06PM

A Return to the Gold Standard is a Must

Rate: 4 Flag

Money printer extraordinaire and Federal Reserve Chairman Ben Bernanke is at it again.  He and several of his central banking buddies in Europe and Asia are going to lend dollars to non-U.S. banks that lack adequate liquidity to operate.  Many of the recipient banks are feeling the pinch because of their exposure to the Greek debt crisis.

Of course this isn’t the first time the Fed has lent our money to foreign banks to stave off their insolvency.  In July of 2009, Bernanke
testified in front of Congress that the Fed had loaned over $550 billion to foreign banks during the height of the financial crisis in 2008.  And thanks to the Dodd-Frank Wall Street Reform and Consumer Protection Act a one-time General Accounting Office audit uncovered a remarkable $16.1 trillion in Fed loans to various banks including non-U.S. ones during the same time frame. 

Now, it’s bad enough the Fed has and will again use our money to bailout foreign banks that were irresponsible.  But, the latest round of foreign bailouts comes at a time when it is being reported that
tent cities filled with homeless folks are becoming commonplace across America and some Americans are resorting to dumpster diving to feed their families.  Is this what America is coming to?  Our central bank helps Greek citizens retire at fifty while our citizens live in nylon igloos while wallowing in trash dumpsters for their next meal?  Worse yet, besides Ron Paul, no member of Congress or the Obama Administration has expressed any outrage over the foreign bailouts.

The whole sordid affair is yet another reason why we need to return to a gold standard to protect the integrity of the dollar.  As Congressman Paul has stated many times, we must return to the constitutional mandate requiring gold and silver be used as money.  Article 1, Section 10, Clause 1 of the Constitution states in part, “No State shall…emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts…”

Many anti-constitutionalists will argue that the clause only applies to the states and the federal government can use what it wants for money.  Thus the current fiat dollar system is legal.

But upon closer examination of history the anti-constitutionalists are proven wrong once again.  D
uring the colonial period of our country’s history, the Spanish milled (silver) dollar was the predominant medium of exchange in the original Thirteen Colonies.  .  In July of 1785, Congress voted unanimously to make the dollar the monetary unit of the United States to emulate the Spanish milled (silver) dollar.  On August 8, 1787, Congress resolved that the new American dollar would contain three hundred and seventy-five grains and sixty-four hundredths of a grain of fine silver.  This measure of silver made the new American dollar equal in value to the Spanish dollar.

At the same time in Philadelphia, the Constitution was being written by many of the same people who adopted the silver dollar standard for the country in the Continental Congress.  Thus, these men as well as their Constitutional Convention colleagues were well aware that the silver dollar had become and was the official monetary unit of the United States. As a matter of fact, the term “dollar” is referred to twice in the Constitution – Article 1, Section 9, Clause 1 and in the Seventh Amendment.

Where it is not mentioned is under Congress’ powers in Article 1 Section 8.  Additionally, gold and silver are not mentioned there either.  The only requirements for money in that section are that Congress has the power “…to coin money and regulate the value thereof…”  And a month before the Constitutional Convention adjourned Congress did just that by making the silver dollar with three hundred and seventy-five grains and sixty-four hundredths of a grain of fine silver the monetary unit of the country. 

Thus Ron Paul is correct when he says the Constitution calls for the federal government to use gold and silver money.  It was implied in Article 1 Section 8 Clause 5 because that is what existed at the time of the writing of the Constitution.  Article 1, Section 10, Clause 1 was a reaffirmation of that fact and a prohibition for states to use anything but gold and silver in payment of debts.  After all, what’s good for the goose is good for the gander.  Why would the states be prohibited from using non-gold and non-silver coins when the federal government isn’t?  That would make no sense.

So now that we have ascertained that the current fiat currency system in the U.S. is unconstitutional, so what?  The question is, how would a gold and/or silver backed dollar protect our currency from the Fed’s reckless lending overseas? 
With a gold standard the Fed would be prevented from doing this because every Tom, Dick, and Harry who holds dollars could redeem them for gold.  If enough money printing took place, U.S. gold reserves would run dry and the dollar would be backed by nothing -making it worthless.  No responsible leader would let this happen.  In fact, this system worked well at preventing high inflation and huge debt accumulation until 1971.  However, increased spending on the Vietnam War and Lyndon Johnson’s so-called “Great Society” caused the dollar to lose value.  Instead of cutting federal spending to remedy foreigners redeeming their dollars at an alarming rate for our gold, President Nixon ended dollar to gold convertibility altogether.  You be the judge, since that fateful event in 1971 our national debt has soared and general prices in the U.S. have skyrocketed by 435 percent!  It’s no wonder the poor are getting poorer and the rich are getting richer.

And Bernanke’s current lending to foreign banks will only exacerbate the situation.  The supply of dollars will continue to increase and at some point soon prices will go much higher.  The bankers who represent the rich will be okay while the poor will be devastated by inflation.  All because our dollar is not backed by gold.  Let’s hope that grocery stores continue to throw away expired food into dumpsters and the price of nylon tents do not increase. 

Article first published as A Return to the Gold Standard is a Must on Blogcritics.

Kenn Jacobine teaches internationally and maintains a summer residence in North Carolina

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I knew this was coming. The poor are getting poorer and the rich are getting richer for reasons that have nothing to do with whether or not we are on a gold standard.

In the age of the "robber barons" we were on the gold standard and all it meant is the rich hoarded more gold and controlled the gold market in addition to everything else. This is another example of libertarian overkill. I think of it as a way you try to entice the innocent to your "one theory" fits all ideological approach.
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At least, we don't have to take it seriously, because it isn't going to happen. The world economy and interdependence has rendered it an obsolete method of governing the world's money supply, which is why only crackpots like Ron Paul keep banging the drum. I'm not saying a crackpot can't offer solutions, but the solutions of the past are not necssarily the solutions that fit the present and that doesn't make one an "anti-constitutionalist."

Knowledge advances in every field, so why should economics be any different? I know it's a dirty word to you, but there is something called "progress" otherwise we'd all be eating raw meat and dieing from hangnails.

Did you know you can delete duplicate comments by the editing function on OS? I'm flattered that you see fit to repeat your comments to me but it isn't necessary.
I too am having some difficulty seeing just how a return to the gold standard would be good.

I must admit that I have a deep seated prejudice against such silliness as:

“''since that fateful event in 1971 our national debt has soared and general prices in the U.S. have skyrocketed by 435 percent!”"

I happen to know that the increase in prices had nothing at all to do with going off the gold standard. It was caused because on the day before that was done 3 geese were seen from the White House balcony, against the full moon at midnight, flying in a southern direction.

No, no, I don’t need to connect the two incidents - just as you didn’t.......(~grin~)

I lived for 30 years before 1971. I can assure you that inflation was taking place looooong before Nixon did his thing. It’ll probably continue on long after we went back on the gold standard, if we did that. Inflation is built in to capitalism. All that is in question is "how much and at what time.”

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Anti-constitutionalists my arse. Please, tell me that was for comedic effect. I'll lay claim to anti-illiteracy and anti-illogical conflation and respond.

Perhaps if re-read more carefully, you'll note sec 10 does not say the states must USE (your word) gold or silver coin to pay debts.
It says states cannot MAKE any tender (something authorized as acceptable payment) out of anything but gold or silver coin.
This was because the federal government, not the states, was authorized to coin money (out of any alloy they chose) and set its value. One standard instead of many state standards.
If a state DID wish to create a tender, it would have to be gold or silver coin because those have an inherent value (expressed in federal money) that the state could not diminish by over-issuance, as can happen with credit. This means it is pointless for the states to create their own money and set its value, which is the intent.

Which means this is wrong:
"Article 1, Section 10, Clause 1 was a reaffirmation of that fact and a prohibition for states to use anything but gold and silver in payment of debts."

Substituting 'use" for "make" makes your case, but that's not what the Constitution says or what was intended. The states could and did pay debts using the money the federal government issued, but not their own.

What the Continental Congress did before is meaningless to your argument. That there was a silver dollar when art 1 sec 8 cl 5 was written doesn't magically insert "gold or silver" into the clause. That's another one of those "Illiterate Founders" arguments that assumes they merely overlooked or couldn't find the words to express what *you* like to think they should have.

That, under art 1 sec 9, the states *may* impose a 10 dollar tax or duty upon immigrants is so far removed from the point you're trying to make it should cause embarrassment. It's irrelevant fluff.

You should argue for a gold standard on its merits, if it has any functional merits that aren't negated by demerits.

You did not prove the Constitution mandates gold or silver be used. If the above train wreck is the Ron Paul argument, then I can add that to his pure BS ideas about the Constitution. He is a poser on a grand scale, but he confuses people because his constant harping about it makes it seem he knows a great deal about it and its intent. Instead, he offers whack-a-doodle revisionist/negationist prattle that some, who are unable to tell the difference, believe without even superficial examination.

If the actual language isn't enough, Madison, in Federalist 44, explains it well enough. He doesn't say anything about the states having to pay their debts in gold or silver.

But hell, after all, Madison ain't no Ron Paul.
You're getting an education here, Mr. Jacobine, and I hope you have the simple dignity to appreciate it. You should know by now if your responses are no more than dismissive, you will be called for it. I don't know what grade you teach, but I'm getting more suspicious it's high school in nations where English is a second language or third language. Bring it on!
For you progressives coming up with arguments against the “Gold Standard”, think long and hard about how much your dollar is worth today. I can say that it is much less than yesterday. The dollar has been tanking in value since we came off the Gold Standard.

By returning our nation to the Gold standard, our dollar would be backed once again and Congress could not spend our way into oblivion with whatever pork barrel projects they want. This would also stop the many Lobbyists groups from bribing Congress to spend money they don't have on their pet projects, because our Federal Reserve would not be able to print money out of thin air without the money being backed. If our money was backed by gold, it would revalue our money and help stabilize our Economy. Gold, unlike paper money has never lost value, while paper money always loses value with overprinting. The only reason Gold goes up and down so wildly, is due to the devaluation and volatility of the dollar, and that is due to the Federal Reserve printing more and more money. It is not the Gold that is changing value; it is the amount of dollars now needed to buy an oz. of Gold.

Do QE1 and QE2 register in the Frontal Lobe of your brains? Printing twice as many dollars for the entitlement hand outs causes the dollars to be worth half as much. That is why Precious Metal owners love it, Gold and Silver values go through the roof due to the devaluation of the dollar.

What also should be done is abolish the Federal Reserve altogether, return to the gold standard , and return to our Treasury Department the power to print our money so we don't have to borrow our own money from Private for Profit Central Banks at Interest like the Federal Reserve.

The Gold Standard stops the Fed from printing money whenever it needs it, but you progressives hate that idea due to the spend, spend and spend more ideology of Obama and the progressive party. The Gold Standard would cap government spending, due to not being able to magically make funds appear. The Gold Standard would be a built in Financial Advisor only allowing you to spend money that you have. The world is close to complete bankruptcy due to printing excessive amounts of money and then spending excessively until the National Currency is worthless. Obama would not have been able to spend trillions of dollars in his first two years alone, because the Gold Reserve would not have been there.

“Have you ever heard of the “Debt Wall”? The definition of a Debt Wall is the point at which total world government deficit spending exceeds 9%, and thereby forces interest rates to rise above the point of affordability for sovereign government borrowing. Applying this formula to 2009 world spending illustrates why the United States Federal Reserve implemented QE1. Their purported reason was to keep interest rates down, and that’s exactly what they did. As the Debt Wall Index approached zero, it was necessary to print money rather than borrow it. QE2 was an extension of QE1 and part of the same process. What is alarming now is that the projection of world government deficit spending for 2012 again approaches the ceiling of world liquidity and the Debt Wall. The only difference is that now, deficit spending is not extraordinary, it is structural. This means that it goes on forever unless the economy grows faster than the percent of deficit spending to the overall GDP. Given the fact that total government and world debt is approaching 100% of GDP, the world cannot afford higher interest rates, even for a short period of time.

The projected GDP of the world in 2012 is approximately $60.25 trillion. The amount of cash available to fund government deficit spending on a world basis is approximately $5.4 trillion. As the world’s governments continue to borrow and spend, we are on a collision course with the Debt Wall. The Debt Wall Index is a countdown to this collision. If the economy grows faster than we have projected, the Debt Wall Index will be adjusted to reflect that. On current projections of economic growth and government spending, the Debt Wall will be hit by July 31, 2012.”

The realities of such a financial crisis can be seen on the streets of Greece. Other countries including the United States are only steps away from this dire financial situation. The debt wall is real.

Let us hope is not too late to get back to the Gold Standard.
So, according to Ben Sen, sound money advocates have not "progressed" enough to truly see why governmental inflation is a good thing. I guess savers, pensioners, widows and orphans be damned; your money is to be debased by your overlords for your own good. For "progressive" purposes.

Paul J. O'Rourke, again, shows that he is unfamiliar with both constitutional history and long accepted rules of legal interpretation.

At the time of the adoption of the Constitution, the term "dollar" had a well understood meaning. It was a silver coin, commonly circulated, of a certain weight. The Confederation Congress recognized this.

According to long established rules of interpretation, if lawmakers use a term with an accepted meaning in the text of law, we must assume that they are using the word in that understood meaning.

Echoing Matthew Bacon's Abridgment, Justice Story stated: When lawmakers use common law terms, the accepted common law "definitions" are of course "necessarily included as much as if they stood in the text" of the law. U.S. v. Smith (1820) This applies to the term "dollar."

And as Chief Justice Marshall stated, if a word was understood to have a certain meaning "when the Constitution was framed. . .the Convention must have used the word in that sense." Gibbons v. Ogden (1824) This, too, applies to the term "dollar."

So, the clear intention and original understanding of a specie dollar governs: "A thing may be within the letter of a statute and not within it meaning, and within its meaning though not within its letter. The intention of the lawmaker is the law." Hawaii v. Mankichi (1903)

The framers and ratifiers would not have approved of a constitutional "dollar" that had no fixed definition; no state, with the memory of the inflated continentals, would have accepted that. Civil trials in the Seventh Amendment could be totally priced away, and slaves states would have recognized that the importation of slaves could be made essentially impossible (Article I, Sec 9), by defining the dollar higher than the accepted definition. No, the Coinage Act of 1792 reflects the original understanding of the dollar.

So of course Kenn is correct and Paul J. O'Rourke, as usual, is wrong on the Constitution. The dollar is supposed to have a definite, constitutional meaning. The current fiat dollar is unconstitutional. But, because the dollar has been so massively debased, returning to the constitutional definition is not feasible.

Now, Ron Paul has indeed referred to the fact that Congress has no authority to adopt a fiat money, but his solution is not necessarily returning to a gold standard (defining the dollar as a fixed weight in gold). He advocates currency competition, allowing people to freely exchange gold, silver, Fed notes, yen, euros, etc. Keep using Fed notes if you want, or use whatever else. I see nothing offensive or kooky about his idea at all. It is a victimless crime to punish two parties for freely and voluntarily transacting in gold coins. Let's have a free country already.
Well said Tommy and Larry. The thing that is incredible for me is that so called progressives want to ignore the fact that Fed policy hurts those specifically that they allegedly want to help the most - the poor. Perhaps they are more interested in social engineering schemes than actually helping people. They clearly understand that you bring back the gold standard and you have to eliminate leviathon. FDR knew this and one of his first acts was to steal the people's gold. Look at how the state has grown since.
Larry,
Thanks for interjecting the "Meth Method" interpretation of the Constitution. Speed kills. Seek help.

The meaning of "dollar" is tied to the use of the word, not by the use of words that are not d-o-l-l-a-r. The meaning of dollar has no legal or logical force in the art 1 sec 10 clause. It's not about the dollar or the value of the dollar, it's about preventing states from issuing their own money. The economy of language is impressive, as instead of trying to describe the many methods of circumventing a rule, it applies a barrier that cannot be explained away. If a state issues a tender it has to be gold or silver which, as explained above, makes the issuance of state money a pointless venture.

If you argue that a US dollar must meet the standards applied to it in 1787, you are by inference making a highly illogical argument that the art 1 sec 8 power of Congress...

"To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures;"

...is null and void, as the value of the money had already been set because when the Constitution was being drafted, the dollar's value was forever set. Forever set by a legislative body whose functions and contract was eclipsed by the Constitution.

Don't quit the day job, Larry.

It's really a stupid argument dressed up with irrelevant citations. That's as obvious as the nose on your face, just as it is obvious the brown dot at its tip reeks of Tom Wood's specious poop.

This is funny on its own:
"The framers and ratifiers would not have approved of a constitutional "dollar" that had no fixed definition; no state, with the memory of the inflated continentals, would have accepted that."

Yet the definition was fixed -- Congress decides the value. The states ratified this clear, unambiguous language, so you are instantly wrong on that as well.

Please, quit shooting yourself in the foot. Oh, the carnage! Oh, the horror! Oh, the Blatant Contradictions!

Because your limp argument cannot delete the relevant clause, the following arguments are senseless and stupid.

That when a state demands a tax or duty upon immigrants, it must be paid in silver dollars that meet the 1787 weight standard.

That common law suits concerning a value of over 20 dollars has the dollar value set at the 1787 standard.

Those are tragically weak arguments against the monolithic fact that Congress can set the value of money, and that no mention was ever made of pinning the dollar's value to the 1787 standard.

Durrrr, your honor, dey forgot!

I doubt the judge would throw you out of court, though. More likely, he'd call in 2 doctors and begin the non compos mentis hearing.

Those interpretive doctrines you cite can only have force if the words you attempt to interpret lack clear meaning. They cannot serve as a substitute for what is clearly expressed. That Congress has the power to "To coin money, regulate the value thereof" is not in the least little bit lacking clear meaning. It plainly means your argument is laughable.

PS--This is the Constitution, not statutory law. Just thought I needed to mention that.

The idea that those who drafted the Constitution would both dictate a definite value of a dollar while also giving Congress the power to set the value is blunt force head trauma freaking stupid-on-wheels. The Illiterate and Terminally Stupid Founders Theory. They wuz jest sum dum cowpokes who dinna know from Shinola 'bout no English language.

You really don't think these things through, Larry, and your ability to use logic is only exceeded by your inability to express a coherent thought.

The definition of a 1787 dollar means the Founders and the Constitution intended that only gold and silver could be used to set the value of money is prima facia dumb. When held against the clear language and meaning if the art 1 sec 8 clause, it gains a far deeper level of sheer stupidity.

Kenn is wrong, you are wrong. I am right, Madison is right.

Larry, you're just not up to this, whether using your own unstudied thoughts or the watery substance Tom Woods excretes into your Porta-Cranium.
Yeah, Kenn,
That's a duo of real geniuses there.
The arguments against a gold standard are numerous. Tying gold to the value of all other things instantly prices gold out of use, effectively, by inflating its value far beyond practicality, which diminishes its use to set value. The attempt would have to be ignored. The object being to avoid issuing credit in excess of value, which is what that's all about, can and was handled well enough by regulation. How many credit bubbles between the New Deal and the rise of neoliberalism and deregulation? Nothing but credit bubbles after.
It's the same thing, but it's easier to apply regulation to meet the money supply than it is to wait for there to be enough gold to to expand the economy.
Besides, even under a gold standard we had speculation bubbles. The reason we did was because regulation was voided, and gold did nothing to prevent speculation.
It seems that regulation is whipping gold's ass in that department.
Does gold set the value of money or does money set the value of gold? That that is a valid question tends to diminish the argument for a gold standard.

The problem is ideological, as you want to prevent regulation as a liberty matter, thus tossing out what has proven to be more effective. The answer is to clamp down on the Fed, not to apply a palliative 'cure."

But y'all can haggle gold all you want. It's not "my issue" anyway.

My issue here is that you and Larry, Larry, arguments self-contrary should argue it on its merits, as your constitutional argument is lacking a most important aspect -- an argument.
Progressives

To make a long story short, how well is the monetary system of today doing? I would say the "Proof is in the Pudding". Want to spend more, print more.
To say Obama has spent "trillions" since becoming President, and that is the primary cause for inflation, indicating it is a sort of socialist plot when by far the largest expense during that time has been for war, one of which was totally under false pretenses, is another example of ideological blinders.

To say returning to the gold standard will not only prevent the rich from getting richer, the poor from getting poorer, and for there to be "less pork" in the budget, again equating "pork" with so-called "entitlement" programs, is an assertion for which there is no proof whatsoever, and makes one more suspicious.

What I can't figure out is what you really expect to gain at this time when the truck left the station so long ago, and ain't comin' back boys.

I'll give you your argument: you fear the "regulations" that thus become necessary in a global economy, and to some extent I agree with that--there is a limit to how much power should be in any one institutions hands--but turning back the clock with a "one size" fits all solution like the "gold standard" reeks of ideological subterfuge.
But you don't make that point; you are too busy defending the party line.

Paul's idea of "competing currencies" appears to be nothing more than a return to the chaos that existed before a national currency was introduced, and the Federal Reserve, whose primary job, after all is to keep track of that currency, which is just one more reason to believe that at its root the goal of your movement is no more than an attempt to dismantle our current system of government, which was arrived at after 235 years of trial and error.

It appears more polemical than anything else--the analysis is only there to support the ideology, not define the problem or seek a fair solution for the nation as a whole. It leads to a greater mistrust of your ideology than before. It's like smelling a dead rat before you see him--and you know what fellas--I don't think I'm the only one who smells it.
Progressives

I reiterate.

To make a long story short, how well is the monetary system of today doing?

You progressives seem to do a pretty good job yourselves, of trying to defend a socialistic system that just is not working. Europe, your precursor to America, is crashing and burning. Progressives are going to go hog wild against the Gold Standard, because the Gold Standard places your spending in checkmate. You progressives just hate not being able to spend more money that America does not have.

Face it Ben Sen, it is the accountability issue that Gold provides that drives socialists completely crazy. Ben Sen, your arguments are weak at best, just like the socialist ideology.

On Feb 05, 1976, 35 years ago, Margaret Thatcher said, “I would much prefer to bring them down as soon as possible. I think they've made the biggest financial mess that any governments ever made in this country for a very long time, and Socialist governments traditionally do make a financial mess. They always run out of other people's money. It's quite a characteristic of them. They then start to nationalize everything, and people just do not like more and more nationalization, and they're now trying to control everything by other means. They're progressively reducing the choice available to ordinary people. Look at the trouble now we're having with choice of schools. Of course parents want a say in the kind of education their children have. Look at the William Tyndall School—an example where the parents finally rebelled. Of course they did. These schools are financed by taxpayers' money, but the choice to parents is being reduced.

Ben Sen, this was 35 YEARS AGO!!!! GET A CLUE!!!!! THE ONLY RATS WE SMELL, REEK OF SOCIALISM!!!!
Tommy, me lad, if you're calling Obama's govt. socialist you're still smellin' ole Maggie's farts.

As Eric Severied said in his last broadcast: "The hope for the future is whether the center will hold." And going on the gold standard and libertarianism is fringe.