Our Founding Fathers were astonishingly capable of predicting man’s weaknesses. Their understanding of man’s imbuement with the seven deadly sins (lust, pride, envy, anger, greed, gluttony and laziness) ensured that a tough contract would have to be developed to control man’s quest for power and wealth through government. They built into the Constitution safeguards to keep government from getting too big to prevent government from collecting enormous taxes and to keep man free from the shackles of government.
One of the most important safeguards involved was “honest money,” which they felt would be provided by Article 1, Section 8 of the Constitution “requiring all debts, public and private, to be settled in gold or silver specie.” Because debt had to be settled with something of real (as in real estate) value, such as gold and silver, when government ran up debts during war, it had to pay them back, under the terms that they were borrowed, after the war. Under this “new system” of ours today, government borrows whatever it wants and never repays a dime.
Gold and silver standard
Let’s see if we can cover 300 years of economic history briefly enough to understand how we got into this terrible economic predicament with a worthless currency and why we must return to a gold-and-silver standard before this country can be free again from the shackles of government.
At the Constitutional Convention, one of the big arguments was over whether there should be a central bank. It was decided to not provide for a central bank, because central banks had a history of destroying a country’s currency. Sir Isaac Newton set the price of gold at what became $20 an ounce in 1717, a value that lasted 200 years. His action was the result of the currency speculation that was occurring in France, which created the “Mississippi bubble.” France claimed the Mississippi Valley area in the early 1700s.
To raise money for crown misadventures, mostly wars and lavish spending by nobility, France sold parts of the Mississippi Valley area to speculators who, in turn, sold the first “stocks” on a street corner in Paris to the public so they could participate in the expected “large future returns.”
Investors had wild dreams about rich resources from fur trading, minerals, farming and other endeavors. Stock prices became so unrealistic that they crashed, ruining the value of the French currency, because it was backed by so much debt. This impressed upon our Founding Fathers the importance of limiting government’s economic powers by insisting that all government contracts be settled in gold or silver specie.
After the war between France and Great Britain over ownership of various parts of America in the 1750s and before The Revolutionary War with England, both France and Britain had gone broke fighting each other. George III, the English king, turned to the wealthiest people in his realm to tax — the colonists.
Hence, the tea tax and other taxes that led up to the Revolutionary War.
The signers of the Constitution were well aware of how government could destroy currency through war and debt unless government was mandated by law to pay back loans to the people from whom they borrowed money. Hence, “all debts will be settled in gold or silver specie.”
Finally, the Constitutional Convention came about as a result of the currency mess in the 13 colonies that existed after the Revolutionary War. The Continental dollar was worthless — “not worth a Continental.” With that in mind, the Currency Act of 1792 established the new nation’s money and defined that currency, the dollar, in grains of gold. The dollar fluctuated in a narrow range, unchanged as valued in gold, until 1933.
Damaging events of 1913
We now come to a year in our history that changed this country forever, provided for endless war, created capacity for bigger government and provided the vehicle for the destruction of our individual liberties. That year was 1913. One of the most damaging events was the 16th Amendment to the Constitution, which changed the language in the Constitution prohibiting a tax on income and, therefore, providing for the income tax. The second was the creation, on Dec. 23, 1913, of the Federal Reserve System.
The Federal Reserve Act provided for the issuing of currency, which, constitutionally, is the job of the House of Representatives. The Founding Fathers knew that if there were a tax on income, and if there were a central bank, we would end up like the countless European countries in history where the government controls everything and the people controlled little.
The income-tax amendment and Federal Reserve Act were sold to the people as “necessary.”
Congressmen went home to their districts and said that they themselves were happy to pay 2% or 3% of their income to support the federal government, and they assured the public that nobody would be taxed more than 5% (and then only the wealthiest people).
Bankers and politicians sold the Federal Reserve System as something that would level out our recessions and be good for us, and they promised the centralization of power would be dispersed among 12 Federal Reserve Districts around the country. What they didn’t tell everybody is that the government would control the process in concert with a handful of big private banks.
Remember that gold was $20 an ounce in 1913 and a dollar purchases 1/50 of the goods and services now than it could in 1913. Let’s see what has happened.
1. In 1917, gold could no longer be part of a bank’s legal reserves, but, rather, that gold had to be deposited with the Federal Reserve. This was the first big step in removing the public from the gold they had on deposit.
2. On March 12, 1933, Roosevelt, in his first fireside chat, assured the public that gold-and-silver coinage was not anymore important to own than a Federal Reserve note, because “the dollar was as good as gold.”
3. Later on in 1933, the Roosevelt administration raised the price of gold to $20.67 an ounce, a 3.4% increase over $20 per ounce, by making it mandatory for citizens to turn in all of their gold in return for Federal Reserve Notes equaling $20.67 an ounce for every one ounce of gold redeemed. What that really represented was a confiscation of privately owned specie wealth and the largest transfer of wealth to government from the private sector in history.
4. In 1934, the Roosevelt administration increased the value of gold to $35 an ounce. That was a good deal: Buy something for $20.67 and revalue it to $35 a year later. One catch is that it did not benefit the U.S. citizens — it only benefited the government, because at that time, government owned all of the gold through the Federal Reserve.
5. The Bretton Woods System of 1944 essentially replaced gold as a standard of value in world markets with the dollar. The U.S. had the power and the gold in our vaults, and the rest of the world was in severe crisis. By way of the Truman and Marshall plans after World War II, huge U.S. dollar currency reserves were built up by foreign countries. Soon, all international contracts and all contracts for the purchase and sale of fossil fuels were made in dollars. When France tried to redeem its surplus of dollars for gold in 1971, Nixon closed the “gold window” and allowed gold to float freely from $35 an ounce. With Nixon shutting down the need for the U.S. to settle its debts in gold, the only thing then left to settle international debts was with dollars.
There you have it. Government finally refused to settle debts in specie and was allowed to settle debts with paper. From 1971 on, our national debt soared to where it is today, totally out of control, and on cruise control. The power to make money by man, instead of through hard work, is a power men have sought for thousands of years. Instead of gold that people tried to make chemically for centuries, our politicians did it with paper. They have medical-and-retirement programs that are better than the ones that the government mandated for us. Can we not understand that the government is only serving itself?
An economy built by debt will soon be destroyed by debt, unless serious, mandatory measures are taken to quit further borrowing and invoke a plan to amortize the debt. It’s simple, and we do not have a lot of additional choices. We must get our act together, get our budget balanced, reduce the size of our government, get government out of our lives and take back our individual liberty, or this country will end up on a specie/barter system because the dollar will be totally worthless.
It is inconceivable that this could happen in the United States, but we are sitting right on top of the powder keg. If it doesn’t blow soon, it will within a few years down the road. Money control is people control.
Governments control people through central banks, taxes on income and confiscation of real wealth, such as gold and silver. We must wake up and get rid of a graduated income tax and dissolve the Federal Reserve System, if we’re serious about regaining our liberty and returning this country to greatness.
George Rauch, Longboat Key, is chief executive officer of Bradenton-based General Propeller and a former Wall Street investment banker.