CHAPTER
3
The
Separation of Money and State
As
has been stated, money operates in circles from birth by the issuer
to death by the issuer. In other words, money circulation is a credit
chain in which the issuer is the first and last link. The
intermediate links accept it and pass it on, in the expectation that
its implied promise of value will be redeemed by the issuer, who was
the first to receive value therefor—though his identity is unknown.
There is no way of determining when the issuer will redeem a sum
equivalent to his issue, but since his credit, i.e. his power to
issue money, is limited in both time and amount, he is obliged to bid
for money by offering his goods or services on the market at
competitive prices. Two factors are therefore indispensable to a
monetary system—limitation of issue power, and competition.
Under
the prevailing political monetary system, neither of these two
factors is present in the so-called money issues of the state. Hence,
they are not money. The state dominates the monetary system and
authorizes itself to emit issues to any extent it chooses. Yet on the
other hand, it offers nothing on the market with which to redeem
them. Though legal by statutory law, such issues are illegal by
natural law.
The
state's legal counterfeit acts upon the money circulation precisely
the same as illegal counterfeit issues of private criminals. But it
is much more serious, because the latter, when detected, can be
extracted from the circulation, whereas state issues are
indistinguishable from real money and, because legalized and
unlimited, do infinitely more damage.
The
effect of counterfeit in the money circulation is to water it, or
inflate it, thus reducing the power of each unit. This is reflected
in a higher price level for goods and services. Just as water in milk
increases the volume of liquid, thus requiring a larger volume for a
given amount of food value, so injection of counterfeit in the money
circulation reduces the power of each unit. It is a mistake,
therefore, to say that the state has increased the money supply or
increased purchasing power. It has merely devalued the unit and
increased the number of units, without affecting the total money
supply. With a greater number of monetary units bidding for a given
supply of goods, the power of each unit must decline, i.e. prices
must rise. This is the law of competition working its inevitable
result.
While
the whole money supply includes all the units accounted for in
commercial bank and savings bank accounts and currency in
circulation, it is only that sum that comes into the market that
invokes the influence of competition. Money in the market, and goods
in the market, determine the power of the unit or the price of goods.
Therefore, the effect of false issues is not fully manifested while
there are idle reserves and government securities outstanding that
promise further units on conversion. If buyer panic should ensue and
these reserves should suddenly be brought into the market, havoc
would result.
When
the state issues a large amount of professed money, it defers the
reaction thereto by inducing the people to "save," that is,
to keep from testing the power of the diluted unit in the market.
Thus it puts off the day of reckoning, but creates the hazard of
later sudden and cataclysmic results of its spurious money issues.
The
state, having no power to issue money, cannot establish a money
circulation by itself. It can only gain power for its issues by
mingling them with the genuine money issued by traders. The state
must therefore set up a system whereunder true money is issued by
personal enterprisers, as a basis for exploiting the economy with its
own issues. This is the political monetary system. It will continue
to plague society until the people learn to separate money and state.
Through
mock money issues, the state not only taxes the people covertly by
extracting goods and services through the process of "purchasing"
with worthless paper, but it also disturbs exchange by causing the
power of the unit to undergo frequent changes in value, thus making
it impossible for tradesmen to enter into advance commitments without
great hazard or to determine accurately their costs and income. It
would be deemed intolerable if the state could and did proclaim a
changed power of the unit frequently and without notice, yet this
effect is actually what it does covertly bring about through issuing
its professed money into the circulation.
DEMOCRACY
DEFEATED
This
ability of governments to inject counterfeit issues into the
circulation is the basis of their power to deliver wealth to pressure
groups at the expense of the rest of the community. This insidious
taxation underlies the whole trend toward the confiscation of wealth
and the governmentalization of personal enterprise. It robs Peter,
all unknown to him, to subsidize Paul, who is gratefully conscious of
government largess. There comes now socialists, communists, fascists
and sundry other schemers to confuse Peter who, regardless of which
ism he chooses as a remedy is sure to blame business for his ills.
Since government always poses before the people as their protector,
obviously the thing to do is to give it more power to guard the
public against "chislers," "profiteers," "black
marketeers," and other wolves of business. Thus business
prestige declines as political propaganda deflects upon it the blame
that should fall upon government.
There
is no war of ideologies. There is but an epidemic of pressure-group
larcenies perpetrated against the bewildered public by means of
counterfeit money. The beneficiaries of these raids would fear to
issue counterfeit by their own hands, but when government does it for
them, they readily join pressure groups to tap the seemingly
inexhaustible fountain. Collectivist propaganda is but a collateral
force in promoting seizures and controls. The influence that brings
it about is the enticement offered by government of getting something
for nothing. As citizens are too weak to resist this enticement, so
politicians are too weak not to offer it, for to refuse "benefits"
is to risk loss of office. The corrupting power of government largess
cannot be allowed to continue if the social order is to avert
complete demoralization.
To
obscure the logical consequence of injecting into the money stream
billions of counterfeit units, governments resort to suppressive
price controls. With the operation of the law of supply and demand,
which is cardinal to free exchange, thus impeded, industry becomes
atrophied, thereby developing a public demand for government
operation. The sin of counterfeiting leads government to one vice
after another in an effort to escape the consequences of the original
sin. It is this fleeing from the consequences of past errors, rather
than consciously pursuing a goal, that is bringing dictatorship upon
us. Government is being transformed by escapism into a tyranny of
expediency. This explains the seeming paradox of the constant trend
toward dictatorship in the face of official declarations espousing
liberty.
The
first act of the ambitious politician is to grasp the "money"
issuing power of government. By this means he literally buys his way
to his objectives. Its value to him lies in the fact that through it
he can escape public resistance to taxation. To balance the budget
requires that the cost of each project be immediately revealed to the
electorate through obvious taxation. By counterfeiting money, he not
only escapes the sales resistance to his projects, but he even
creates the illusion of prosperity by the temporary stimulus given to
business by spending. Of course, an unbalanced budget means merely
deferred taxation, through inflated prices, but it can be deferred
until the objective is attained, and, even then, blame can be escaped
by crying "stop thief" at private business.
Examine
the methods of any and every dictator or would-be dictator or
blundering escapist, and we find that his essential tool is money
counterfeiting. All else is propaganda and stage property. Without
this tool, government would be compelled to be honest and frugal,
because every citizen resists taxation if it does not fool him.
Without
the money-counterfeiting tool of government, there could be no war
except by popular mandate, because the price would have to be
consciously and immediately paid. The would-be war maker first of all
conquers and subdues his own people by the narcotic of counterfeit
money. If the people would hold the veto power of war, they must deny
to their government the power to counterfeit money.
Nor
does communism necessarily come upon a people through a political
coup or revolution. Its most insidious and dangerous process is
evolutionary by means of counterfeit money, in spite of lip service
sincerely rendered by politicians and reassuringly accepted by the
people. To issue counterfeit dollars into the money stream is to
reduce the power of all other dollars, and thus the frugal elements
of the community are continuously drained and the communistic aim of
leveling wealth is accomplished. As this process of robbing the
productive proceeds, it destroys the incentive to production and thus
sabotages personal enterprise.
The
resultant impoverization and demoralization is not attributed by the
public to the government issue of mock money. The blame falls upon
the personal enterprise system. Thus the public mind becomes
conditioned to turn from personal enterprise and to look to
government for salvation, and this produces the popular support for
the assumption by government of the means of production and
distribution. Under the confusing and confounding term inflation,
which is caused by government counterfeit in the money circulation,
communization is actually proceeding and being blindly supported by
personal enterprisers who think they are operating under a free
economy. Under the mock money process, our so-called free economy is
but a transmission belt to communism.
Monetary
power is man's sovereign power. He must exert it and protect it if he
would govern government and commerce and gain mastery of life.
Without such mastery, we cannot have democracy, we cannot have
prosperity, we cannot have peace.
THE
SEPARATION OF MONEY AND STATE
Due
to the general ignorance of the laws of money, men have not been
alerted to the danger to both the economy and the state in admitting
the latter to participation in the monetary system. In America there
had been, in the experience of both the Colonies and the Continental
Government, the evil of government currency issues, and for that
reason the Constitutional Convention deliberately voted down the
proposition to permit the Government to issue currency, or what was
then called "bills of credit".*
*
Max Ferrand, Records of The Constitution, Volume 2; E. H. Scott,
Madison’’s Journal of the Constitution, Charles Morris, Making of
the Constitution.
But
it was not clear and is not clear to most people today, that the
power to "borrow" money from a commercial bank is actually
the power to create money. Therefore striking from:
Art.
1, Sec. 8, Par 5. "Congress shall have power to coin money,
regulate the value thereof and of foreign coin, and fix the standard
of weights and measures."
the
words, "and emit bills of credit," did not, as was
intended, deny the Government the right to exert the issue power,
because of the insertion of the following clause:
Art.
1, Sec. 8, Par 2. "Congress shall have power to borrow money on
the credit of the United States."
This
latter clause, if interpreted as the power to borrow already created
money from the people, and not from commercial banks, would be
consistent with the intent of the Constitution makers to deny the
Government the power to create "money," or, speaking more
clearly, the power to counterfeit, since, as we have seen, no
statutory law can empower a government to issue money in
contravention of the natural law that only a competitive trader can
be a money issuer. But this clause did not limit the Government to
borrowing actually existing money, but authorized "borrowing"
from commercial banks. This power, when exerted by a competitive
trader, is the power to create money; on the part of government, it
is the power to counterfeit money.
Article
I, Section 8, Paragraph 5, quoted above, is popularly misinterpreted
as a grant of power to issue. But the debates over the clause, as
evidenced by the decision to strike the words, "emit bills of
credit," show that the clause was intended merely to grant power
to stipulate what should be the coin of the realm, and to mint (but
not emit) coins from metal brought to the mint by private owners.
Congress has never interpreted this clause otherwise, and
consequently no malpractice has resulted therefrom.
Prior
to the Civil War, the Government borrowed very little money, and if
any portion thereof was "borrowed" from banks, it was
trivial. But with the coming of the Civil War, a step was taken that
its proponent, Salmon P. Chase, Secretary of the Treasury, admitted
was unconstitutional, though he justified it on the grounds of great
emergency. The Government, for the first time, emitted "bills of
credit," commonly called "greenbacks." However, these
were in modest amounts, and even presently the total issue of
currency by the Government is a modest amount compared to its loading
the circulation with "borrowed" money through checks drawn
on banks which go to inflate bank deposits and the circulation.
We
cannot, however, be precise as to the authorship of our 28 billions
of currency, for as previously stated, the identity of the issuer of
currency is lost in the process of transforming a check draft into
currency. We cannot know what part sprang from checks that were drawn
against deposits created by Government "borrowings" from
banks, but we do know that the part that bears only the Government's
name (mostly silver certificates) is only about four billion dollars.
The balance are Federal Reserve notes which, though bearing the
Government's "guarantee," are nevertheless the liability of
the Federal Reserve banks whose name they bear. The common mistake is
to count only currency bills and coins as money, whereas the total
money supply includes all bank deposits, commercial and savings.
Money springs from a ledger account on the books of a central
bookkeeper under the present system, a commercial bank, and its
initial form is a check, from which currency springs. Because only
the lesser portion of business is transacted by currency, the greater
amount of the money supply remains in bank deposits and is
transferred by means of checks.
At
the beginning of this chapter, we stated that the two essentials for
a money issuer are limitation of issue and competitive trading, and
we also stated that governments give nothing in exchange for their
issue. That there is no limitation to government issues, and that it
does not bid in the market for the redemption of money, is patent.
But the reader may take exception to the statement that it gives
nothing in exchange for the money (taxes) it collects. Government
"service" consists mostly of disservice, but whatever its
actual service may or may not be, it does not offer it in exchange,
i.e. the citizen has no option to take it or leave it. Since there is
no way to determine what constitutes service except by voluntary,
competitive exchange, and since governments are not subject, in their
performance, to such a test, we have no way of separating government
service from government disservice.
Therefore
the relation between a government and its citizen is not an exchange,
but an exaction, and exaction or confiscation is no substitute for
competitive bidding. The latter is an absolute essential to qualify a
money issuer, because competition is a process of valuation, and it
is only in this way that equivalent value can be assured in the
redemption or recapture of money equal to that received in its issue,
and hence assure the stability of the monetary unit.
Nevertheless,
the evil of government "money" issue would not be so bad if
the state recovered in taxes a sum equivalent to its issue, i.e.
balanced its budget. But the practice of issuing is so seductive as
to virtually rule out such a possibility. It is a disguised and
secret method of taxation that is a great danger to both the economy
and the state. Instead of being obliged to tax the citizenry by the
obvious method of extracting money sufficient to meet its expenses
and thereby encountering a wholesome resistance, the state appears
before the electorate not as an extractor of money, but as a
supplier. Thus has come about the idea that by spending on any
project, worthy or otherwise, the government "increases the
money supply" and benefits the economy.
In
the absence of citizen resistance, there is an Open Sesame to all
manner of spending, lending and subsidizing schemes, leading to the
subversion not only of democratic government, but of that greater and
more vital democracy, the personal enterprise system. Neither can
survive if the state employs a surreptitious system of taxation such
as "money" issuance and, thus, confounds the electorate on
the actual cost and abuses of government.
The
history of money is a record of miscarriage resulting from the
sometimes perfidious and often naive cooperation between bankers and
politicians. Invariably, it has produced economic disaster. As long
as political monetary systems exist, such alliances will continue and
the evil fruit thereof prevail. The separation of money and state
will render impossible any coalition of political planners and
financial schemers, national or international. The clear stream of
wholesome monetary practice will no longer be clouded by fallacy and
intrigue. Instead of basing money upon political laws and license,
the nonpolitical monetary system will rest upon principle, governed
by natural law, in which no delegated powers will be subject to
capture by either fools or knaves, leaving to the people the full and
free exercise of their inherent powers of production and exchange.
THE
MONETARY UNION OF PEOPLES
The
spirit of brotherhood among all men keeps pressing for union. This
aspiration, with its ideal of peace and prosperity for all, seeks its
realization through universal political government which, however,
cannot be accomplished without diminishing the sovereign powers of
existing national states. As previously pointed out, the state,
regardless of the ideals of its founding and the belief in its
protective function which lies deep in the minds of all peoples, is
nevertheless the agent of exploitative groups who invoke it to thwart
the operation of natural laws. It is not, as now operating, the
upholder of law and the protector of society, but the breaker of law
and the enemy of the social order. Yet this has not come about by the
conscious design of any evil geniuses. The state is itself the victim
of a maladjustment as a result of the general ignorance of money.
If
it were possible to federalize the existing nations, nothing would be
accomplished if the present political monetary system continued to be
operated by the constituent states or even exclusively by the
federated state. The new structure would still be an instrument for
special interests against the public interest, since it could and
would still exert its power to counterfeit money and, thus,
demoralize the industry of the people, leading to civil wars perhaps
more destructive than wars between nations.
If,
as all advocates of world union realize, federalization cannot be
accomplished unless the several nations surrender powers believed to
be provocative, it is pertinent to inquire whether the present
states' provocative and pervasive power could not be taken from them
without transferring such power to a federated state. We believe that
this can and must be done, and when done, will accomplish far more
than world political government. It involves merely the recognition
that world government already exists on the economic plane, and that
all political governments are arrayed in attack upon it far more
serious than their interstate wars. In fact, the latter are but the
result of the former.
Everyone
in the world is interested in exchange and eager to participate
therein. There is no conflict of ideologies here, nor any difference
in motives. But there is a confusion of tongues, in that the
government of each people compels its citizens to use a national
monetary language which not only necessitates translation one into
another, but requires constant changes in the interpretation of each
internally as the state destabilizes the monetary unit through
counterfeit issues. Thus the states effect both international
separation and internal confusion.
When
the people of the world have a common monetary language, completely
freed from every government, it will so facilitate and stabilize
exchange that peace and prosperity will ensue even without world
government. With the state denied its money diluting power, the ills
that lead to strife and war will be removed. A union of peoples
rather than a union of political governments is what this world
needs.
The
natural government that tends to unite rather than separate exists
under the natural laws of the personal enterprise system, namely,
specialization of labor, exchange, and competition. It is operative
without any enactment. It becomes mal-operative only when governments
intervene to bias it. Hence we need no man-made laws to establish it
or control it; we need only the absence of such laws to give it full
sway. It happens that there are no political statutes prohibiting the
liberation of the natural government of man. Therefore, we may
proceed with this act of liberation without asking political action
for either the repeal or the enactment of statutes.
To
implement the natural government of man, we need but establish a
potentially universal monetary language that has no national or
political complexion, and that is available to enterprisers in all
parts of the world. Once such a nonpolitical monetary system is in
existence, it can depend upon the appeal to self-interest to attract
participants everywhere. Just to the extent that traders do business
through the nonpolitical system, will they diminish their
transactions in the political monetary system. By this process will
political moneys be abolished and the nonpolitical system triumph and
society be united on the economic plane. In other words, we need only
invoke the law of competition by giving enterprisers the opportunity
to choose between a national money and a universal one, between
instability and stability, between infidelity and fidelity, between
hazard and surety, between impediment and facility of exchange.
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