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.
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.