Chapter 24 - Sound Money

8/2/2019 Chapter 24 - Sound Money

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Liberty and Justice for All

Dr. Robinson is one of the mostgied scientists I have ever met. Martin Kamen Fermi Prizeand Discoverer of Carbon 14

Dr. Robinson is known to me as a careful, competent, and well-informed scientist Edward Teller Defense Scientist

Arthur Robinson has the respect of a very signicant portion of thescientic community. Frederic Seitz Former President of theU.S. National Academy of Sciences

I strongly endorse Art Robinson for election to the U.S. Congress. Inthe 15 years I have known Art, I have found him to be an outstandingscientist, a man of uncompromising integrity. Arts depth of knowledgeof the economic, scientic, energy, and industrial challenges that face

our nation is unparalleled. Men of his ability are urgently needed inWashington. Steve Forbes Publisher and Entrepreneur

In my experience with space ight, I have come to know many menof excellence. Art Robinson is the best can-do guy I know. Hes whatwe need in Washington, and I think Oregon voters should elect ArtRobinson. Hes a treasure. Scott Carpenter Mercury Astronaut

Art Robinsons philosophy is that the government is far too intrusive inour lives. He understands we have to stop the spending in Washington,the growth of the national debt, and allow the Constitution tofunction. I strongly recommend the 4th congressional district ofOregon put Art Robinson in the Congress of the United States. Harrison Schmitt Apollo Astronaut and former U.S. Senator

Robinson is a pathological nut-job. Peter DeFazio Career Politician and Arts Opponent

Our nation has a bright future, but the politicians in

Congress are doing a poor job, endangering our Jobs;the National Budget; Social Security; Education; the

Environment; Medical Care; and Economic Prosperity.

Lets replace them by electing citizens with common

sense. Art Robinson has the abilities we need in Congress.


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SOUND MONEY

Te Congress shall have Power . . . o coin Money,regulate the Value thereo, and o oreign Coin, andfx the Standard o Weights and Measures;

Article I, Section 8, Part 5

No State shall . . . make any Ting but gold and

silver Coin a ender in Payment o Debts;Article 1, Section 10, Part 1

The Constitution is clear that Congress has the authorityto coin money. Te Constitution mentions only gold

and silver coins. Te section in which the authorization to

While paper money is convenient, it has the dis-advantage that, unless it is secured by gold, silver, orsomething else o intrinsic value, it can be printed inunlimited amounts. Te Federal Reserve, authorizedby Congress, has printed too much o ours. One dol-lar buys today what 5 cents bought in 1940.

Infation o money discourages saving and dis-rupts commercial activity, which reduces prosperityand jobs. Our country should have sound money.


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coin money appears also mentions that Congress has theright to x the standard o weights and measures.

Te Founding Fathers did not call or paper money,because all o them had been through a disastrous periodo American history with respect to paper money infationduring the War or Independence.

Te war was partially nanced by the printing press.Te Continental government was unable to collect su-

cient taxes rom the states, so it printed money and, or atime, imposed price controls.So, the army had diculty buying supplies because

the paper money had declined rapidly in value, and pricecontrols made it dicult or armers and other suppliers todeliver goods to the Army. At a low point during the war,George Washington could not buy ood or his soldiers

because armers would not accept the printed money othe Continental Congress.

Our country is now repeating this experiment withpaper money and getting the same result. Infation hasdestroyed 95% o the value o the dollar since I was a boy.

Strictly interpreted, the Constitution does not permitpaper money, only gold and silver. Tis was rst violatedby allowing government paper money backed by gold.Ten the gold backing was removed. Capital gains taxesand special laws stopped the use o gold and silver.

Just repeal o these taxes and laws would permit goldand silver coins to circulate beside paper money. Ameri-cans could then choose, in each transaction, their preer-

ence. I this were done, either the coins would drive thepaper out o circulation, or infation o the paper moneywould stop. Tis is opposed by the Federal Reserve andCongress because they get a lot o political and economic


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power by printing money and infating the money supply.Tese people argue that they need to be able to print

money in case the economy has a dicult problem. Whynot just have Congress save money or a rainy day? Tisis what we ordinary people must do.

Te Power to Coin Money

In the early years o the Republic, Spanish coins, knownwidely aspieces o eight, were oen used.Tis coinage provided sound money. It was reliable,

and it could not be debased by government infationaryactions. Te price level stayed airly constant during thewhole period.

Te Constitution also made it illegal or any state to

pass a law requiring creditors to accept anything exceptgold and silver as a means o repaying debt. Te consti-tutional convention considered the problems caused bypaper money that was issued in Rhode Island. Te otherparticipants did not trust paper money, and the only re-erence to congressional authority in the Constitutionregarding money is to establish coinage.

Te United States government provided sound money,either gold or silver, rom 1788 until the Civil War. In 1862,the government began to issue paper money to pay or thewar. Te government decided it would not tax the peopledirectly or all o its revenue, so the people were taxedindirectly with rising prices. Te government stopped ol-

lowing the gold standard in 1861, and it was not restoreduntil 1879. Te result was price increases.

Te United States was part o the international goldstandard during the 19th century, except during the pe-


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riod o the Civil War and Reconstruction. From 1815 until1914, most o the Western world was on a gold coin stan-dard. During that hundred-year period, prices remainedremarkably constant. People did not have to worry aboutprices going up.

Prices remained very stable. People could make plansor the uture, knowing that the prices they would pay orgoods and services later would be similar to the prices

they were paying when they made their plans. Tis is oneimportant reason that Western civilization in the 19thCentury experienced the greatest period o economicgrowth in the history o mankind.

At the beginning o World War I in 1914, the countriesembroiled in the war went o the gold standard. Tey re-lied on the invisible tax o infation. Te consequent rise o

prices was visible, but the public didnt always understandthat the government was behind this rise.

In 1933, the United States went o the gold standardby calling in the publics gold coins and making it unlawulor American citizens to own gold. It was claimed that thiswould help end the Great Depression. It didnt.

Aer World War II, the United States had most o theworlds gold. So Congress, under congressional authorityit delegated to bankers and the President, convinced theworld to use U.S. paper dollars as the world reserve cur-rency. It was promised that these dollars would be goldbacked. At any time, dollars could be exchanged or gold,except by American citizens.

Tis promise was honored by our politicians withthe same orthright ethics that have gotten Congress itscurrent 10% approval rating. Tey broke it. In 1971, theyreused to honor the promise. President Nixon made the


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announcement.Since then Congress, through the bankers and agencies

Congress authorizes to do the job, has printed a blizzard opaper money and caused price increases all over the world.By getting to spend this printed money rst, congressmenhave purchased votes, power, and wealth or themselves atthe expense o savers.

Savings is the most important source o capital. Capital

is used to create jobs. Americans used to be savers. Eachmonth, responsible citizens spent somewhat less than theyearned and saved the rest, typically in a bank or savingsand loan. Te irresponsible printing o paper money un-der congressional authorization has greatly reduced thispractice. Money saved in a bank, regardless o interestearned, just deteriorates in value.

Te dollar is rapidly losing its value as a direct resulto the congressionally authorized printing press nowmade more convenient by money printing with FederalReserve computers.

So, still wanting to save or their utures, Americanshave looked to other places to save their earnings. Teyhave tried real estate, bonds, stocks, collectables literallyeverything with intrinsic value. Tese markets, however,are volatile and uncertain. Tey are speculative.

So, America has become a nation o speculators ratherthan savers. Since savings are stolen by Congress andits allies the bankers through infation, Americans havescrambled to nd alternatives. Many people no longer ol-

low rugal ways by saving their money in banks. As a resulto money printing and the price increases that it causes,their savings are not sae in the banks.

Almost everyone with wealth is gambling in the


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stock markets, in the bond markets, in real estate, andother markets. I ordinary workers do not themselves dothis, their pension unds are doing it or them.

It is widely realized that the U.S. Congress is corrupt,and that Congress cannot be trusted with the world reservecurrency. China may try to replace the dollar - with goldbacked Chinese money.

Consider the rally in the dollar value o U.S. stocks

over the past two and one hal years. Te rally is there onlybecause the government printed lots o paper money andcaused stocks priced in dollars to rise. Priced in gold, sil-

ver, oil, gasoline, or a basket o world commodities, therehas been no rally.

Te two gures below show you the price o the DowStock Average in units o the price o crude oil and in units

o an average o world commodities. Commodity pricesare a good comparison because their prices refect thediculty in producing them, which is a relatively stablemeasure o real value.

You can see that stock prices peaked near the year2000 and have been decreasing since then. Can you see thestock rally o the past two and one hal years? No? Tatsbecause it isnt there.

Te stock market has dropped 6-old in terms o crudeoil. Yet, in printed money the Dow price has risen. Tesecond graph uses a basket o commodities called theContinuous Commodities Index. By this measure, theDow has allen 3-old, and there is no rally.

Dividing the current paper money price o gasoline byjust 3-old, the price is about $1.25 per gallon. Does thattrigger a memory?

How could there be a stock market rally? Te value o


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American businesses has been alling or 10 years, eversince it peaked in about the year 2000. axation, regula-tion, litigation, and debt are destroying American industryand business.

Congress doesnt want you to know this. Te banks andstock brokers dont want you to know this. So, the govern-ment has printed a lot o money. Now, they are printingeven more money to make things look as good as possible

or the national elections in November 2012.But, you know because you realize that economic lieis becoming steadily more dicult and precarious eveni you still have a job. By authorizing the printing o lotsmore dollars trillions o more dollars Congress makesdollar prices go up, but real wealth goes down. Unless youare a congressman or in a niche group that receives special

avors rom Congress, your chances or a prosperous lieare steadily diminishing.

When money is unsound, people turn to specula-tion speculation in stocks, houses, land, and anythingelse o value that they hope will preserve their savings.Speculation drove the stock market up in the years beore2000. Te unwinding o speculation plus the destructiono American business and industry by over-taxation, over-regulation, and over-indebtedness drove the stock marketback down. As this occurred, the successive collapses oover-speculation in stocks and later in real estate added tothe downward trend.

Te blizzard o paper money being printed by the

government is increasing the dollarprice o stocks. Peopleare trying to use stocks as an infation hedge to protectthemselves rom unsound money. Historically, however, ithas been observed that stocks provide only about 30% pro-


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tection rom severe monetary infation. Tey are likely, onaverage, to lose 70% o their wealth to the printing presses.

I one looks at real prices o goods and services overlong periods o time, he nds that prices have tended tobe stable, with a downward trend. Te downward trend

results rom improvements in methods o production. Yet,during my lietime, prices in paper dollars o goods andservices have increased about 20-old.

Recent price increases have been masked in various

Dow Average Valued in Crude Oil

When the Dow stock average is graphed in crude oil, it is seen thatthe Dow has allen 6-old since 2000 and has not recovered. Tesame 6-old drop is seen or gold, silver, and copper. Tis is twicethe decline seen or a basket that includes agricultural items.


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ways, including the export o infation to other countriesbecause the dollar is used as the world reserve currency.Te world has begun to break ree o this restraint.

Americans have been badly hurt by the dishonest, un-backed at paper money that Congress has sponsored. As

the world exits the dollar, they are going to be hurt a lotmore. Can this still be stopped. Yes!

How? Elect honest citizens to Congress who will stopthe infationary money printing.

Dow Average Valued in a Basket of Commodities

When the Dow stock average is graphed in things o real valuethat cannot be infated by congressionally authorized moneyprinting, it is seen that the Dow has allen dramatically since 2000and has not recovered at all. Here the Continuous Commodity

Index reveals a 3-old collapse o the Dow.


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Te Federal Reserve System

In the nal days o 1913, when many in Congress hadreturned home or the Christmas vacation, the remainingHouse and Senate members passed the Federal ReserveAct, and President Wilson signed it into law within hours.Tat law delegated congressional control over Americanmoney to the Federal Reserve System, which is controlledby a committee o the Federal Reserve Bank.

As the American dollar has come to be used as cur-rency throughout the world, the Federal Reserve Bank hasbecome the most powerul bank in the world.

Te Federal Reserve Bank became so powerul thatCongress dared not even audit its activities. In principle,the Fed is supposed to supply Americans with honestand reliable money. Yet, there is not a single example in

history where men were given the power to print money ordebase coinage and did not abuse that power. Te Fed hasproved to be no exception.

Te Fed should be completely audited not justpartially and Congress should assert its constitutionalauthority to assure that Americans have a sound currencythat is not infated. I the Fed cannot do this a goal that ithas completely ailed to meet so ar and is unlikely ever toachieve the Fed should be ended.

Te Need or Sound Money

Money is a very important aspect o economic liberty.

It serves several crucial purposes.


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1. Money is a medium o exchange.Suppose that the Rough and Ready lumber mill in Jo-

sephine County paid its workers in lumber the productthey manuacture. Te workers would then need to tradethis lumber or ood, clothing, uel and other things thattheir amilies need. Imagine these workers hauling theirwages in trucks to Nelsons arm in Sauers fat in order totrade boards or tomatoes and corn.

Tis inconvenience and many similar barter transac-tions would interere with the division o labor throughoutthe economy. Tis would harm the economy and lead toless prosperity or the mill workers and the Nelsons.

Money solves this problem. Te workers are paid inmoney and Nelson accepts money or his produce. Tusmoney serves as a medium o exchange.

2. Money serves as a store o capital.Rough and Ready may decide to save some o its pro-

its or the workers at Rough and Ready may decide to savepart o their wages in the Evergreen Bank. Teir savingsthen become available as capital or other businesses andprovide jobs or other workers.

Here again, this use o money increases the eciencyo the economy and the prosperity o everyone.

Without using money, the mill workers could save parto their time and labor and then use that time to work orthe aylor Sausage company. Tis would cause, however,an economic loss because most o the mill workers dont

know much about making sausage.I they instead save money and put it in the bank, ay-

lor can borrow it rom the bank and hire more workers. Ithe new workers earn more or aylor than they are paid in


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wages, everyone benets. Tey have jobs, aylor makes aprot, and Evergreen can pay interest to the mill workers.aylor may decide to save his prots in the Evergreen Bank,too, or in the Sterling Bank or the South Valley Bank.

Capital, stored as money, makes possible the divisiono labor. Te mill workers are specialists in producingboards. Nelson is a specialist in producing ood. Everyoneis more prosperous when people are able to work to pro-

duce the things that they are especially skilled in making.Tus, savings and prots, made more convenient bymoney, serve as a source o capital real capital, which canbe used productively to create products and jobs. Capitalcannot, however, be aked by printing money. Fake capitalproduces no net products or jobs.

Suppose the Fed, authorized by Congress, just prints

up some new money and loans it to Evergreen. Cant Ev-ergreen then loan this money to aylor and thereby createmore jobs? No. Tis doesnt work.

By printing more money, the Fed causes prices to rise,thereby taking real capital away rom workers, businesses,and savers elsewhere in the economy. So, jobs elsewhereare lost. Money printing just moves capital rom one groupto another. It does not create new capital or additional jobs.

Moreover, since politicians and bureaucrats who didnot work to produce the capital spend this money lesswisely than would those who earned it, capital is actuallylost when seized rom the owners by infation or taxes andcycled through government. So, there are ewer jobs.

Te same holds true or borrowing or taxing by politi-cians. Net capital is not produced by these activities. It is

just moved around to less productive uses.


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3. Money serves as a measure o value.When Robinson decides to harvest some trees on hisland, he sends the logs over to Rough and Ready. Howdoes the mill decide on a price or the logs? How doesRough and Ready decide how much to pay its workers, itsuel suppliers, its equipment suppliers, and the many otherindustries upon which it depends?

When the mill workers buy produce rom Nelson, howdoes Nelson decide how much to charge, and how do themill workers decide whether Nelsons prices are air?

Tese decisions are all made easier by money. A millworker knows how long he must work to buy a dozen earso sweet corn rom Nelson. Everyone knows how mucheort it takes or him to earn money, so he knows its value.

4. Money Facilitates Long erm Economic Decisions.When Nelson buys additional arm equipment, he

needs to be able to make a good estimate o the uture priceo his produce. I the money is sound, Nelson can assumethat prices will be moderately stable subject, o course, to

weather and other actors that are the unavoidable risks ohis business. I the money is not sound, Nelson will havetrouble planning or the uture, and his business will beless productive providing ewer jobs and less products.

I a mill worker is waylaid by a criminal androbbed, capital is immediately lost and JosephineCounty becomes less prosperous. When governmentwaylays the mill worker at every opportunity and seizeshis capital through infation, taxation, and borrowing,

Josephine County becomes less prosperous, too.


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Consider the hundreds o millions o transactionsthroughout the American economy that take place simi-larly to those o the mill workers and Nelson. With soundmoney, all o these transactions are acilitated and allAmericans benet.

In our current situation, where Congress causes eco-nomic conusion by creating money o unreliable value,

jobs and prosperity are lost.

Congressional actions that have made our money un-sound have cost the American people millions o jobs andtragic losses in prosperity and economic reedom.

Prices Should Decrease

My mother was very rugal. She careully saved as

much o my athers wages as she could. She played a littlegame. She tried to see how long she could pay the amilyshopping expenses with a $20 bill.

What will $20 buy today?As prices rose as a result o infationary money print-

ing, however, her savings were taken rom her.Yet, prices should have decreased. echnological ad-

vance constantly makes things easier to make. With soundmoney, we could save part o our earnings or the uture,knowing that they would buy more then rather than less.

Money printing has stolen all o the productivity sav-ings that would have made saved money more valuable.When government reports the consumer price index, it

under-reports the rise or political reasons. And, the rise itdoes report hides the act that it should have gone down.

Our nation needs sound money. It is a duty o Congressto see that sound money is assured.


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Chapter 24 - Sound Money

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