Chapter
4, Legal Counterfeit
Let
us imagine the formation of a political state calling itself
Pretense. and declaring the national monetary unit to be the
Pretensia ...
Everyone
knows that it is a crime to counterfeit bills and coins and that
governments, with the cooperation of banks, are constantly vigilant
against those who practice this nefarious art. What is not generally
known - even to the perpetrators - is that governments and banks
unconsciously cooperate in legal counterfeiting.
It
has been seen that, under the natural law of money issuance,
governments cannot qualify as issuers, because they are not in the
necessitous situation of personal enterprisers. They do not barter,
and therefore have no need to escape from barter. They do not bid for
money in the open market with goods or services. Their taxing power
relieves them entirely from selling; they take merely by taxing.
Hence, when they are admitted to the issue power, their issue cannot
be a genuine promise to deliver value in trade. It must of necessity
be counterfeit, regardless of any statutory laws intended to validate
it.
This
legal - illegal practice is innocently perpetrated, in the United
States, not by the issuance of bills and coins, but through the loans
made to the Government by commercial banks. As we have seen, to
borrow money from an individual, private corporation, savings bank,
building and loan association or any lender other than a commercial
bank, means to reduce, by the sum borrowed, the monetary resources of
the lender. Hence, no increase in the total money supply is produced.
To "borrow" from a commercial bank, however, implies
something quite different. When one borrows from such a source, no
reduction in the capital funds of the bank ensues, nor is anyone's
deposit reduced. The only effect is that the "borrower's"
balance is increased by the amount of the "loan." The total
money supply is increased the moment checks are drawn against this
higher balance and accepted in trade.
All
money is created through "borrowing" from commercial banks.
When carried out by personal enterprisers, this practice is
legitimate and essential. But when governments follow this practice,
it becomes illegitimate and is infinitely more destructive that is
counterfeiting by private individuals. The presence in the
circulation of these counterfeit units reduces proportionately, by a
blending process, the power of all units. No increase is produced in
the money supply; the increase is solely in the number of units. From
failure to discriminate between money issued through bank credit by
personal enterprisers and by governments, has come an inflationary
mixture of true and false money that threatens the social order.
Legal
counterfeiting is by no means a modern invention, though it is
practiced today on a much larger scale than ever before. Ever since
the beginning of money, governments have found various ways of
surreptitiously taxing their citizens and subjects through spurious
money issues. With the advent of paper money, the opportunity was
expanded and extensively utilized. Through the bank check, which is
the latest evolutionary step in monetary instruments, has come the
opportunity to practice legalized counterfeiting on the grandest
scale and in the most subtle manner - indeed so subtle that even
government officials are not conscious of it. This Open Sesame to
weaken the money in circulation through dilution by counterfeit
issues exists because of the popular belief that checks are not
money. In fact, however, they are the primary form of money in use in
the United States today. This becomes obvious when one stops to
consider that currency, which most people consider to be the
principal form of money, is usually obtained by cashing a check.
Lest
readers gain the impression that legal counterfeiting and the
introduction of various pieces of window dressing in our monetary
legislation to justify it indicate malicious intent on the part of
politicians, let it be clear that the practice arises from a
universal misconception of the source and essence of money, a
misconception which blinds legislators as well as the people they
undertake to serve. Money cannot be governed by man - made laws; it
operates solely by natural law. Under this natural law, governments
cannot be vested, either by usurpation or by delegation, with the
money issuing power. Efforts to legislate this power result in legal
counterfeit as distinguished from illegal (the one is amoral, while
the other is immoral.) It should also be understood that the practice
of legal counterfeiting is indulged in all over the world, and to a
greater degree abroad than at home. That is why the dollar is as yet
the strongest monetary unit in the world.
History
of American Legal Counterfeit
All
of the thirteen American Colonies legalized the issuance of 'money'
by government, and all thirteen units of account passed out into thin
air through total inflation - the inevitable result when
counterfeiting is carried to extremes. Following these Colonial
experiments came that of the Continental Congress, from which sprang
the continental, object of the reproachful phrase, "not worth a
continental."
It
is not surprising that, with these horrible examples of legalized
counterfeit before them, the delegates to the Constitutional
Convention resolved to withhold from the federal Government this
perverting power. The question arose when Article 1, Section 8,
Paragraph 5 was up for discussion. This provision, as adopted, reads:
Congress
shall have the power to coin money, regulate the value thereof and of
foreign coin, and fix the standard of weights and measures.
The
clause as first presented included the words, "emit bills of
credit." After debate, the delegates voted to strike out
these words, and thus the Government was denied the power to issue
currency. In those days currency was called bills of credit, and
these were the only instruments of legal counterfeit, the checking
system not yet having come into practice.
The
clause, as enacted in the Constitution, authorized the Government to
"coin money," but not to issue it. It meant that the
Government was empowered to set up a mint to stamp out coins from
metal brought to it by private owners. The coins minted were not
Government property; they remained the property of the citizen from
whose metal they had been coined. He was thereafter entitled to issue
these coins into circulation bearing the Government's guarantee of
weight and fineness. To "regulate the value thereof"
meant to define what constituted a dollar and its fractions. It did
not mean to regulate the power thereof, as this would involve price
fixing, an impossible task.
(For
authorities on the above report of the action of the constitutional
Convention, consult Max Farrand, Records of the Constitution, Volume
2; E. H. Scott, Madison’s Journal of the Constitution; Charles
Morris, Making the Constitution.)
For
the first seventy years of the Republic, the intent of the framers of
the Constitution was respected. During that time, no currency (bills
of credit) was issued by the Government; business was conducted with
private bank notes and with gold and silver coins minted by the
Government for private owners of the metal. The Civil War emergency,
however, induced Secretary of the Treasury Salmon P. Chase to
recommend to Congress the issuance of United States notes, popularly
called "greenbacks," and Congress obliged. This was the
first legalized counterfeit issued by the United States Government,
and it was frankly recognized as unconstitutional. It was justified
on the ground of national emergency by Chase, although later, as
Chief Justice of the Supreme Court, he condemned it in a majority
report as unconstitutional. By a still later decision, however, with
Chase this time in dissent, the Court sanctioned the practice and
thus read into the Constitution what the founders had deliberately
voted to keep out.
(See
Hepburn vs. Griswold (1870) Wallace 603; Know vs. Lee (1871) Wallace
457)
The
above quoted Article 1, Section 8, Paragraph 5 is the cause of
popular misunderstanding. It is generally believed that this is the
money enabling clause. However, except for the Civil War instance
cited and some minor issues of silver certificates issued since, the
great evil of legalized counterfeit has not sprung from this clause.
The power comes from another clause that is never suspected because
of its innocent wording. The enabling clause is Article 1, Section 8,
Paragraph 2:
Congress
shall have power to borrow money on the credit of the United States.
This
paragraph opened the way for the modern method of counterfeiting that
is far more insidious and dangerous than the "printing press"
method that Paragraph 5 (the first quoted paragraph) undertook to
exclude. That a government precluded from the issue power should, as
an alternative, be permitted to borrow, seems quite logical and
consistent, and no harm could come from the exercise of the borrowing
power but for the double meaning of the word, "borrow."
The
bank borrow-creating process is the modern form of "printing
press money" which the framers of the Constitution endeavored to
preclude. Under this modern method the Government has some bonds
printed which it delivers to commercial banks, receiving therefor a
deposit credit. Subsequently it writes checks against the credit thus
established and "buys" what it wishes. The checks, in turn,
are either cashed or deposited by the recipients, and in either case,
they increase the dollar supply. Since all bank deposits are subject
to conversion into currency, it may be seen that the public demand is
the gauge of the amount of deposits that are converted into currency.
In response to this demand, the banks call upon the Government to
supply the needed currency, and thus, by a roundabout method, we
reach the printing press again. If the Government resorted to the
printing press directly to print and circulate bills, there would be
a loud outcry against "greenbackism " and "printing
press money." But by circumvention the unlawful issue of
currency becomes lawful, and the legalized counterfeit permeates all
bank deposits and currency, with the people quite unaware.
A
strong case might be made against the Constitutionality of the
Government's practice of "borrow-creating" on the ground
that the Constitution makers could not have had this in mind when
they wrote the word borrow into the Constitution. The practice of
commercial bank borrow-creating had not come into use in their time.
Their complete unconsciousness of this modern method is borne out by
the debates in the Constitutional Convention. More fundamental,
however, is the fact that neither constitution nor legislation can
qualify a government to be a money issuer. As stated, money issuing
power springs only from natural law, and this law disqualifies
governments. Had the Constitution makers undertaken to invest
Government with the money-issuing power, it would have had the same
enabling power as if they had declared that it should have power to
regulate the movement of the planets.
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