"What is Constitutional Money?" with Edwin Vieira -- Ron Paul Money Lecture Series, Pt 2/3

I'm William Ashburn policy director for Chairman Ron Paul's Subcommittee on domestic monetary policy on behalf of congressman Ron Paul and his office welcome to the second in our three-part afternoon to lecture series on the basic principles of money today's question is going to be what is constitutional money this is following up on our first lecture which was what is money at that lecture if you missed it we had Professor Joe Salerno come and talk about money essentially money is a market a natural market driven phenomenon that satisfies fulfill the properties of indirect exchange so money is a commodity throughout history various entities or various things have served fulfilled the role of money things salt whether cattle and of course silver and gold so if money is this naturally occurring market phenomenon why is it that governments are so involved in money which brings us to today's question what is constitutionally the founders were very they had a very particular understanding of money based on their own historical circumstances and some rather disastrous your experiments with money that governments did based on this understanding they put in some provisions in the Constitution to help ensure sound money existed throughout our great nation unfortunately those provisions have been either misinterpreted misunderstood or completely forgotten and I'd say today it's pretty much we've completely forgotten why the founders put in certain provisions or their understanding of all of those provisions was so I am delighted to say that we have to talk to us about constitutional money we have dr. Edwin Vieira jr. dr. Vieira holds four degrees from Harvard including his JD as well as his PhD he's also the author of this lovely work Pieces of Eight this is two volumes more than 1,700 pages unconstitutional money it's full Titleist pieces of a the monetary powers and disabilities of the US Constitution so to give us sort of a Cliff Notes version of this magnum opus he will be answering the question what is constitutionally so please join me in welcoming dr. ed Vieira [Applause] Thank You Olivia thank you ladies and gentlemen what is constitutional money covers essentially three centuries of American history so put your seatbelts on because I've been a very fast flight and as Libya pointed out government's have historically become involved in monetary questions and the reason for that basically is redistribution of wealth whoever controls the substance and the supply of money at the source can do a great deal of redistributing wealth either directly through government expenditures or indirectly through government involvement with the private sector so keep that in mind as we go through some of these historical principles now to understand the Constitution one has to really do more than simply read it you have to put yourself in historical context of We the People the framers the founders you have to put yourself in the political context in the legal context and in the linguistic context as well because there's some pieces of terms of art terminology legal terminology used at that time which don't quite correspond to the terminology we use today or at least the original meaning has been lost now historically if you go back to the colonial period pre-constitutional period the colonies generally speaking had no power and did not claim a power to coin money there were some desultory attempts in Massachusetts and Virginia but they mostly fizzled out because that Powell was one of the prerogatives of the king and was jealously guarded and if you read Blackstone's commentaries on the laws of England which anyone who wants to study the Constitution should start with because it puts you into that historical legal context of anglo-american law at the time Blackstone discusses this prerogative of the king which was essentially to take a standard the pound sterling was the one that England adopted and then arithmetic 'le regulate the values all of the coinage with respect to that standard pretty simple process now some of the English kings Henry the eighth especially Edward the sixth the lender the six was a minor so the people around him engaged in the basement of the currency and Blackstone went out of his way to point out that if this wasn't a usurpation it was certainly aberration under the English Constitution so that was the basic principle of coinage but didn't have much to do with the colonies per se because they weren't in position to coin money so the colonies were using two sources of coinage one english coinage of course their english colonies and secondly foreign coinage which was coming in through foreign trade and in fact the major foreign coinage that was used was coming from Central and South America and that's why in 1704 and a proclamation of Queen Anne and 1707 statute of Parliament the Spanish mil dollar was established as the standard for all foreign coins within the colonies I emphasized the Spanish military's gonna hear about this again the Spanish mil Gaya with silver coin actually the Spanish unit was the Rio and there were eight reales in a silver dollar and in those days there wasn't a tremendous amount of coinage and people would literally cut Spanish mil dollars into little wedges and there were eight potential wedges and they were called bits colloquially and two of those bits made up a quarter and four of those bits made up a half you following this now all right and this is why Wall Street until a few years ago quoted stocks in eight quarters and three quarters they were referring back to this original monetary system I say here were the colonies using the coinage that was supplied from England and supplied through essentially the Spanish trade and one part of that of course was the infamous triangle trade the slave trade between doing Africa and the West Indies right but that wasn't really sufficient or at least they didn't believe that it was sufficient for their economy so the colony started generating paper money and the emphasize those two words because money was always considered to be coinage gold or silver and then there was this other thing this paper money which was a different concept entirely and it's interesting to see how those statutes come out typically speaking you'll see first a statute that deals with raising troops to engage in some kind of military adventure especially in New England whether going after the French and the Indians in Canada and he'll be the statute raising so many troops and so much equipment all the logistics that are involved and then there's part of that statute or as the next statute in the in the line is a statute for omitting Bills of credit that's the special term of art a bill of credit that's what they call paper money in those days because it was a bill a note they promised and that in essence to pay some kind of a debt instrument based on somebody's credit back there and it was typically the credit of the colonial administration and it might have been paid off in terms of taxes so you could take you a bill of credit and pay your taxes or other public dues with it or it might have been a renewal bill of credit at some point in the future that colonial administration would pay in silver or gold supposedly the face value of those notes so these were the two forms that the colonial governments used Parliament however did not like the omission of bills of credit English merchants did not like to be paid with bills of credit especially colonial Bills of credit that were made legal tender that could be forced on a creditor so parliament passed two statutes in the middle 1600s extremely limiting the ability of the colonies to omit these things especially with legal tender character all right so there's the background now we come to the period of the War of Independence the thirteen colonies become thirteen independent states and now start asserting for themselves the full panoply of governmental authority with respect to essentially everything from potentially coining money all or none of them really did all the way to raising troops in fighting a war the first document of consequence that you need to think about is the Articles of Confederation because that's the precursor to the Constitution the Articles of Confederation created a congress which had both legislative and executive authority and it granted to that Congress the power to coin money and to regulate the value of money that was coined by the states because the states were still claiming that they had this authority secondly it granted to Congress the power to borrow money or emit bills on the credit of the United States and notice they were treated as two separate powers power to borrow or power to remit bills to create this kind of paper money paper currency and in fact Congress used the second of those powers didn't do any coinage of consequence if we point out a couple of base metallic coins but they certainly used the power to emit bills and they generated a paper money paper currency called the Continental and I think everybody knows the economic history of the Continental in the phrase not worth a continental for one reason or another especially over issue and the fact that Congress had no power to tax so that it really didn't have a credible way to say that was going to redeem these things the purchasing power of Continental has dropped terrifically and eventually they want to think about two hundred two hundred twelve to one when they were finally paid off now the states also engaged in the printing of bills of credit of their own so you had bills of credit coming out of Congress you had builder credit coming out of the states and you had essentially a near hyperinflationary event that went on that period of time stagflation Wars one kept safe Latian appreciation of all of these paper currencies during the war Congress had asked the states to make the Continentals legal tender so they could be forced on merchants about they could buy materials for the war and eventually that didn't work out too well even with price controls and all sorts of typical government intervention they had to give that up and legal tender provisions were repealed so now we're in a position of essentially economic chaos and what's interesting is that the same people who had fomented this economic chaos the same people who had been in the Continental Congress the same people who had been in the state legislatures many of them now repair to Philadelphia for the federal convention to deal with the drafting well actually they was supposed to be the amendment of the Articles of Confederation they end up drafting a new constitution and this has always struck me as a fascinating thing because it's one of the few instances maybe the only instance that I know of in world history with the politicians who had made these blunders turned around and said to themselves we made a mistake and then corrected it and how did they correct this well let's take a look at the provisions of the Constitution dealing with Monetary Affairs first one article 1 section 10 clause 1 article 1 section 10 contains three clauses and a whole slew of limitations on the powers of the states with respect to money all right the one section 10 clause 1 no State shall coin money and remove that power from the states primarily because they didn't want 13 different types of coinage circulate article 1 section 10 clause 1 no State shall omit bills of credit period any kind of bill of credit whether it's a legal tender bill a credit or not they didn't want state paper money anymore no State shall make anything but gold and silver coin of tender and payment of debts interesting way to phrase it no State shall make anything but gold and silver coin a tender in payment death meaning a there's a reserve power actually a duty to make gold in coin a tender in payment of debts and why were they concerned about that well what our debts typically debts are some kind of obligation and a rising commercial realm at least the most important of them do so dealing with commercial transactions where were most commercial transactions if they came to litigation going to be settled at that time when the state courts there were no federal courts so what they were looking at was a situation where the merchant class was going to go into the state courts and the state courts were being told by the Constitution that when you issued a judgment on this debt it had to be payable in gold and silver coins could not be made payable in something else as a matter of state law so now if you look at the state level you have a gold and silver economy absolutely where is this gold and silver coin going to come from well we'll get to that in a moment well off the Congressional side Congress on article 1 section 8 article 1 section 8 Clause 5 Congress has delegated the power to coin money regulate the value thereof and a foreign coin all right so we have coinage taken away from the state's coinage given to Congress pretty clear that Congress's power at least as a government to coin money is exclusive because the state's power has been completely removed there's this interesting language regulate the value thereof and that takes you back to Blackstone Blackstone told us how to do that if you have a unit of silver and this coin has twice as much silver in it then it's worth 2 units if it has half as much silver it's worth half a unit whatever that unit may be when you factor gold into the equation you have another element to look at because the exchange rate between gold and silver in the marketplace is never one to one it's never been one to one it probably never will be one to one goal has always been more valuable in the marketplace and silver so you have to factor in that market ratio so if a gold coin has the same weight as a silver unit and the ratio in the mark ten-to-one that gold coin is worth ten units again it's simply arithmetic that's regulation of value and a foreign coin now I'm not interested in that well because they wanted to monetize the entire gold and silver coin in the world as part of the American monetary system and if you look at what happened early on in the area of tariffs customs duties you'll see exactly how that works foreign merchants come into the United States bringing their goods they have to pay some customs duty paid in what well typically they would pay in some kind of foreign money that's what they would have right so Congress passed a series of statutes right away setting out the various foreign monies that would be acceptable and what they were worth the regulated value of those foreign monies in terms of the United States standard of course this brings you to that question what is the United States standard well the Constitution talks in two places about dollars mark 1 section 9 Clause 1 the slave tax Clause so called a tax of ten dollars on every person imported into the United States some of those persons might have been indentured servants well possibly they might have been free people who were being brought in in some way but that was directed to the slave trade and then of course the 7th amendment jury trial in any case in which the issue is of greater value than $25 or more $25 or more does the Constitution define the word dollars now well they're quite a few words in the Constitution doesn't define one of the few of the two that it does is treason we look at that this is a good example because they wanted to narrow the definition the English definition of treason was extremely broad it was a political crime essentially but most terms in the Constitution are not defined you're supposed to know what they mean and at that time people didn't know what they meant the dollars that they were talking about were what dollars from 1704 and 17 and what dollars the spanish mil dollars and how do we know they were talking about this big the Continental Congress of the Articles of Confederation adopted the Spanish milk dollar as the American dollar was Thomas Jefferson who proposed that so when the Constitution is written and refers to dollars they're thinking back to what was done under the Articles of Confederation and proposed by Jefferson and adopted they're thinking back to this Spanish mill dollar as because if you go historically try and find anything else it was called a dollar in those days you will become frustrated very quickly so it's fairly clear that the standard in this system is to be the dollar what is a dollar again we come to mr. Jefferson and mr. Hamilton this is one of the few things on which they agreed during the first Washington administration Jefferson's Secretary of the state and Hamilton was secretary the Treasury and the question is alright the dollar is the standard what is a dollar these were pretty practical men they went out and they got some merchants and they said go onto the marketplace and do what we would call today a statistical sampling or analysis and debt what appears to you to be a good sample of Spanish mill dollars that are circulating by tale in the economy TLE and that means they've taken its site because obviously when a coin is worn sufficiently people don't take them in sight then they have to go in to be remelted somewhere some of these would be pristine and some of them were worn almost to the point at which they no longer be taken they went out they did this analysis melted them down divided by the number of coins and they said the average Spanish mill dollar that's now circulating in the economy contains 371 and one-quarter grains of silver and they put that into the coinage act the mint act of 1792 which says that the unit dollar or unit shall be of the value of the Spanish Miller is the same as now current and it contains three hundred seventy one of the quarter brain still we notice the language shall be of the value of the Spanish mill dollar what are they talking about value is weight of silver that it contains not purchasing power as we think of today but the actual weight of the coin as the same is now current current latin por el Carrera 2 run right running in the marketplace accepted in the marketplace so what they were doing in that statute was determining an historical fact they were determining as a historical fact what that word of the Constitution meant because it was out there in the marketplace now I suppose today we could come back if we could find that bar of melted silver that they had somewhere off with the Ark of the Covenant they would hidden away right in the archives and we gave that to some top-flight analytical chemist we might be able to come up with a more accurate number right three hundred and seventy one point thirty two three hundred and seventy point ninety now whatever it would be it's essentially an irrelevant because whatever the unit is it's arbitrary but it's fixed or it was fixed in 1792 that's the unit well what do they do with the gold coinage in that same statute they create a gold coin so they call those dollars well of course not you can't call something by a name that doesn't apply they call them Eagles and they gave them values in dollars by looking at what their weight and what was the exchange value in the marketplace of the time it's about fifteen to one so there was the system and there's absolutely no other way to interpret what was done there because actually there's a hundred and something years of history to ties it all together so there you have the coinage system now the problem in that coinage system was the gold silver ratio because I said the gold silver ratio is not fixed never has been typically for several hundred years before American War of Independence it fluctuated a little between fourteen and a half and fifteen so it was relatively stable and given the lack of ability for information to be transferred from one place to another it worked fairly well and so they adopted that principle so-called bimetallic standard a fixed exchange ratio between silver and gold in that statute and that was their mistake they're practical mistake I'll tell you about that a little later now what about paper currency well go back to article 1 section 10 clause 1 no state shall they made Bills of credit and the discussion that was their word for paper currency there shall be no official paper currency coming out of the states what about Congress remember the Articles of Confederation had the power of Congress to borrow money or emit bills on the part of the United States and the first draft of the Constitution in the federal convention essentially borrowed that language directly from the our Confederation in fact you'll find a lot of language in the original draft of the Constitution and even in the final draft of the Constitution that you can trace right back to the article Federation so it was proposed initially that Congress should have the power to borrow money and emit bills and for those who are interested in reading legislative history device know you are being connected with the legislature if you read Madison's notes on the debate with respect to that provision of the Constitution article 1 section 8 Clause 2 you will see that there was a tremendous dispute over those three words and omit bills some people wanted them left in because they thought Congress should be able to omit paper currency in an emergency at least some of them wanted them absolutely to be ruled there were two delegates who said they would vote against the whole Constitution if those three words were not removed and they were removed and if you read furans notes on the Constitutional Convention he has Luther Martin's report to the Maryland legislature Luther Martin was one of Maryland's delegates and Martin makes it very clear because by the removal of those three words you've absolutely disabled Congress from omitting paper money why because Congress has only the power that's granted to it Congress this Congress especially did not exist prior to the Constitution United States so there's absolutely no way that you can find an implied power in this entity when it was proposed to give it that power and those three words were removed so 1788 1791 bill is a Bill of Rights that period of time what do we have we have a system that's running in principle entirely on a gold and silver coin basis as official money and I say as official money because nothing in the Constitution would preclude private parties from engaging in banking and typically what banks did then and they do now at least through the federal reserve cartel but individual banks did then was to emit their own bills of credit private bills of credit bank notes which typically they promise to redeem in gold or silver usually on demand so they push the circulation but there's nothing in the Constitution that would prevent that kind of activity except insofar as it was fraudulent than the commerce clause which would come into play well the state police powers could come into play so you had a private sector monetary system that would depend upon honest bankers and then you had an official system that was based entirely on gold and silver why because that's the one system that prevents the government from redistributing wealth unless the government happens to have gold and silver mines where does the coinage come from it comes from the free market through some Minter and the system of minting that you find in the mid-to act of 1792 is what was called free coinage the mint was open to all the gold and silver that might be brought from the marketplace and it would cost the individual who brought that gold and so were nothing to have it converted into coinage they essentially treating coinage as a public utility or if the individual want to take his coinage immediately then he had to pay a premium for that but basically the government's role was to mint gold and silver and by putting a stamp on those coins defined in the statute certify what the weight of gold and silver was in the c'mon official coins that were coming out of the mint period end of discussion now go back to why I was discussing a little bit earlier the the gold silver ratio of course the gold silver ratio changed fairly quickly after the 1792 mint moved up one from the 15 to 16 level so comes the statute of 1834 coinage act of 1834 Congress now recognized this problem and they engaged in regulation of the older coinage changed its gold value of the older gold coinage and they came up with a new gold coinage that would reflect this new 16 to one ratio now what was interesting that at that time there was a Senate committee coinage committee that recommended well I think everybody would recognize is the right thing to do they said look let the gold coins float that's what Archer it's not theirs don't give them a dollar denomination there we call it the calling of Eagles anyway simply put a weight denomination on them and let the marketplace determine from day to day what these gold coins are valued in terms of the silver dollar but apparently traditionalism overcame innovation as it were and so they stuck with the bimetallic ratio and apparently that was also lurking in the background the idea that if they were you if they used that fixed ratio they'd be able to put pressure on the Bank of the United States so there was a political so there was a point at which a great deal of future difficulties could have been avoided but weren't the next example of that is 1849 a gold dollar was coined very small coin and in principle I suppose one could say well if what you're talking about there is a gold Donald has the gold coin has the you of a dollar that's alright but in fact it began people began to have people think of a gold dollar as opposed to a silver dollar so with all the redundancies in a gold dollar so now this is the beginning of the gold silver political controversy which eventually breaks out in a large scale and after the civil war 1873 alright now let's go back to paper money no paper money being generated out of the Treasury no baby money being generated in the States paper money being generated thanks but there was this what we called an incestuous relationship between Congress and the banking system Alexander Hamilton said it very well said well we need to have we need to have the merchants on the side of the government and to have the merchants on the side of the government we have to give him a certain amount of of special interest legislation he didn't put it quite that way but that's what he meant and the bank of the United States was one of those pieces of special interest legislation it was a private entity the government of the United States had some influence over the selection of the directors and it was generating its own bank notes we had the first bank in the United States that wasn't really yeah the second bank of the United States famous Bank fight with Jackson and the Charter was not renewed and by the time you get to the Civil War you don't even have a connection between the government of the United States and private banking we had these tools so if you had these two episodes and they go on at the state level there were a lot of state banks private state banks chartered by the state governments so the system is pretty much the same as it was at the beginning now comes the Civil War Union government had a problem it was unpopular war there were a lot of Southern sympathizers even to the extent of being the so-called copperheads really sympathized sympathizers of the south great difficulty in raising taxation to the level necessary to pay for this war the banks were charging astronomical rates of interest so now the Union Congress found itself in a fiscal squeeze so what well salmon P chase secretary the Treasury comes forward says AHA we're going to do the same thing that I told you they did in the Gulf eel period right whenever they had a war what was the first was the first thing they did after they raised the troops they printed paper money so 1862 February of 1862 the first paper money under the government of the United States and the Constitution reportedly out of the Constitution is emitted the so-called greenbacks because on one side they were printed with green ink and these were made legal tender and lawful money legal tender for payment of all deaths in lawful money and supposedly they were going to be redeemed but they were redeemed during the war because the government was not redeeming anything else but called suspension of specie payments during the war so now we have gold and silver coinage and these irredeemable legal tender paper notes comes the end of the war you had two political parties if you will get a greenback party a greenback movement that wanted to expand the paper money they thought this was a great idea and then you had the sound money movement that wanted to redeem and then remove the paper money entirely so they compromised and the compromise was that the paper money would be redeemed as it came into the Treasury for gold and silver coin but then the Treasury could readmit that paper money and here's where the Supreme Court comes into play because there were two interesting cases dealing with the constitutionality of paper money person the Knox case in 1871 and there's a Juilliard case in 1884 I guess and the Knox the question of the Knox case was is this stuff constitutional and were fired to for decision interesting enough salmon P chase had become the Chief Justice of the Supreme Court in the interim and he was in the minority said oh no I was wrong this is unconstitutional I should never have done this but didn't matter the bunch of railroad lawyers on the court by then republicanism knock-knock-knock the Republicans was a political political point of view this and they said look this was necessary to win the war this was an emergency feat merged legislators necessary to win the war and besides we can't go back now and declare it unconstitutional and unwind all of these contracts that were made in it now that was false because in fact there were a whole series of cases in which they unwound contracts that remain in Confederate money and they'd come up through the court system to determine whether those contracts would be enforced so but that was the basis an emergency piece of legislation well now comes the rien of the Treasury notes and somebody noticed wait a minute we're not an emergency any wasn't a war going on here there was another challenge Julia adverse agreement case and the Supreme Court said well yeah we said that about an emergency then but actually it's for Congress to decide why don't you do this and see this is the incremental way the Constitution has been subverted really and I lay it all at the doorstep of the Supreme Court they don't operate properly in dealing with this with the Constitution they treat the Constitution so we have a common law document which it is but in any event there we had it so now we have paper money as a permanent fixture in the system but it's paper money that is redeemable in gold or silver even the earlier decision had pointed that out and it's paper money that issues from where from the United States Treasury not from a private institution of some kind now meanwhile the banks are coming into closer involvement with the government Civil War you have the national currency activation of the national banking system we still have those banks say the national banks Chase Manhattan Bank National Bank Wachovia National Bank whatever okay National Bank comes from the Civil War 1863 and 1864 two statutes were passed that system was a kind of a cartel because you had these rural banks and you had the small city banks and the big city banks and the rural banks are supposed to deposit their money in the larger banks and the larger banks deposit the big city bank you through New York and Chicago so it was a way to essentially focus financial resources behind the big players essentially in Wall Street in Chicago but it was limited because the currency depended upon the banks buying US bonds and depositing the bonds with the Treasury and then they could omit currency 90 percent of the value of their bonds and this was a period in time when the United States government and the people were not particularly interested in extending public indebtedness they have huge public antennas from the Civil War so there was a restriction on the Banco banks don't like restrictions on the omission of currency because how do they make their money they omit currency at interest right so the more they can emit the more return they make they didn't like that well fractional reserve banking you probably heard here Joe Salerno he'll tell you fractional reserve bank to inherent lis unstable process and so we had a series of Bank crises from the Civil War through the turn of the 20th century and eventually the big one 1907 and during this period of time the bankers came up with the idea well we need a central bank this cartel structure we have is too loose we need to bring it together with a lender of last resort a capstone and this is the basis of the Federal Reserve System now the Federal Reserve System is interesting because Federal Reserve notes are not simply notes of a private banking system of Bank cartel of private individual banks although all the Federal Reserve regional banks and all the commercial banks are all private institutions thank you very much Federal Reserve notes were made obligations of the United States so now you have the American people on the hook for this banking system now they were also originally to be redeemed in lawful money or gold but the banks actually didn't have to redeem in gold the Treasury had to redeem in gold so once again you had the US Treasury on the hook as the ultimate surety of this system well the system was sold on the basis that this was scientific management of currency we would no longer have depressions we would no longer have stringencies we would no longer have inflation all that stuff that we had had in the 19th century would be gone 20 years later greatest depression the world had ever seen now what's fascinating here is I'm gonna have to stop in the most I just been tell you about Franklin Roosevelt here Franklin Roosevelt comes in and what he wanted to do was to raise prices that was the theory of the New Deal right prices are being driven down by the depression and we need to raise prices so we're gonna kill pigs and pour milk in the street and do all this other stuff to raise prices and one of the ways he wanted to raise prices was to depreciate the value of the gold currency the gold dollar the dollar of that actually the coinage act of 1900 which it finally settled on this gold unit he wanted to appreciate that value and he did that how he did that like ceasing all the gold from the American people and then simply putting an arbitrary value on on gold from day to day to leaking up to $35 an ounce and you ought to read how he did that I mean his Morgenthau's ahem Henry Morgenthau secretary of treasury sometimes coming into to Roosevelt level Roosevelt's lying in bed and they just say well how much we gotta put it up today Henry how about 25 cents more okay just do it completely arbitrary right well remember I told you the hell's the value of currency was money was supposed to be set right well the ratio between gold and silver in the 30s never went below 50 to 1 so if Roosevelt had simply come in if I had been Roosevelt's advisor I would have said Franklin here's all we have to do we have the wrong ratio between silver and gold at 16 to 1 if we put in the correct ratio of let's say a 50 51 51 to 1 that will effectively depreciate the value of the gold coinage versus silver and we'll get what you want constitutionally and we won't have to seize the gold from the American people and we won't have to prohibit gold clause contracts we won't have to have this huge political bra if we would just follow the Constitution by the way we can depreciate it far more than Congress is willing to let you depreciate it now they're only willing to let you depreciate at 60% we can depreciate at 76% so it really would have been valuable if Franklin Roosevelt and Henry Morgenthau and people around them had known a little bit just a little bit about the constitutional principles of money so where are we today well the answer where we are today is we have an irredeemable paper currency actually electronic currency because most has just generated on account books electronic councils write an irredeemable paper currency coming out of a private banking cartel for which the American people are on the hook in some kind of bailouts because of both the Bank cartel comes to us and says oh we've made terrible mistakes we'll admit that and now they may be fatal to the economy who don't bail us out of course they'll be worse next year and you can bail us out next year and they'll write this thing just perpetuates so this is the system we have now and I would suggest that this is even worse than the worst events that occurred under the colonial and state systems prior to the Constitution because there is absolutely no control on this system whatsoever except for one actually there are two because the states can take action you're going to see I think in the next couple of years actually being taken on by the states to deal with alternative currencies section 30 of the Federal Reserve Act you know what section 30 of the Federal Reserve Act does section 3 of the Federal Reserve Act Congress retains the right to alter amend or repeal the legislation at any time and why is that even there I mean most of the statutes you people see there's no provision like that says Congress retains the right to repeal this of course has the right to repeal because they recognize that those banks were private entities and by creating this charter and giving them these powers so smart lawyer in the future might come along you can't take these away because you've made a contract with us and actually the Supreme Court said that a long time ago that the legislature makes this kind of an arrangement it may be a contractual arrangement and it cannot be rescinded so Congress put this it's also putting the Social Security Act by the way railroad retirement Act there are a number of these provisions where Congress recognized it might have a problem in changing the terms of the deal and so we put that kind of language in there well that means the federal reserve system the Federal Reserve Note is what John exort now deceased pretty famous banker called it it's an IOU nothing currency in the truest sense of the word the banks don't owe you anything and Congress can turn around and tell you it Oh should nothing to so I would suggest that you people and the people you talk to should begin thinking about just what we're going to do to correct this situation before the roof falls in now I will I'll take whatever questions you have Oh what's the first question of course is how long right how long we got the roof walls it well I don't put it such things but I'm willing to predict this it will not be a depression-era phenomenon it will be a hyperinflationary phenomena we won't necessarily start in this country let's start in Europe but I'll be a hyperinflationary phenomenon what that I mean by that is 50% depreciation per month minimum you always come out of every hyperinflationary phenomenon in this is my knowledge in the world except for one because we had one of course in the time the War of Independence except for that one some kind of police state dictatorial system always because the chaos is generated by that event especially at this time you have the most complicated price structure in the history of the world it depends entirely on essentially a stable monetary unit of some kind when you blow that monetary unit out what happens the price structure collapses you go to barter how do you go to barter one of the number of products out there how do you settle on a product or a series of product a small number of products to be used as the bartering medium essentially impossibility so we're looking at unprecedented situation if this currency system goes into hyperinflation you're gonna have an economic collapse the world just can't contemplate what's gonna be light that's why I say somebody has got to begin to think about what will be the alternative currency if this one goes down and don't tell me this will won't go down it's already going down once 1932 well 1932 1932 million tax it's already going down once and that was when it was on a 40 percent gold reserve thank you very much 40% be humming the notes and 35% behind the demand deposits at the Federal Reserve regional banks and that wasn't enough now you have no reserve so this is like the Titanic all right in the Titanic had the one possibility that someone might have gotten they're enjoying there's nobody coming to help us it's going to have to be done sorry to say right here because the system is now essentially out of control and I think you see this especially in Europe now I've been watching the Italian situation now and you can you can smell the panic coming over the internet from this now I know Italians these are not Italians that don't want to a panic there's most mature that's what but you can just really you can smell it coming out of Europe and who's going to bail them out do we have a we have a guess as to who's going to do that that's gonna be mr. Bernanke because they cannot face and I think correctly so they cannot face the consequences of a depression he imagined what a 1930s style depression in this country would be like that's what they don't want to have to have happen and the one tool that they have that they think can prevent that in the short term is what quantitative easing inflation modern generating money paper currency Bills of credit builds it well builds up discredit because they're not gonna be paid a build up distress we keep generating this stuff and we hope that something will happen right we're playing for time financially I think with Machiavelli who said that's a fallacy because time brings all things bad as well as good and the only solution here I think is to come up with an alternative currency a lot of people have proposed exactly how to do this this isn't something that's difficult on the shelf technology we could set this thing up in 30 60 days after the statute was passed an alternative sound currency based on silver and gold start using that in the marketplace start transitioning the government's into using it purposes of Taxation and spending and let the banks figure out how to solve their own problem because we can't figure it out there's a problem of what's called rational economic calculation which is the problem of all central planning there is no way to figure out from the top down how to reform this system it has to be figured out from the bottom up through the marketplace and to do that you have to give the marketplace an alternative sound currency to be able to generate a price structure that works which is what we're going to discover very shortly we do not have interesting problem I've been doing this for a long time now I never thought it would get to this all right I thought I'd miss I thought I'd miss out I'm watching but no so I would want to be anywhere else this should be fascinating to see how this plays out yes sir perhaps a new way to do what you suggested well yeah I know about these things - I've been in a lot of them going back to several years New Hampshire to begin with in Montana Virginia were trying to get them to Virginia legislators off with a commission to study this problem primarily educating the legislators and most state legislators that never thought about this they treat it as a some kind of federal problem it doesn't relate to them but basically the idea is exactly what I said the state adopts an alternative currency unit which is actual silver actual gold I'd like to see that done on the electronic basis because that has already been tested on the marketplace those systems are there they work you can funnel any kind of gold and silver into them doesn't have to be particular kind of coinage can be bullion and they're capable of working not a very small amounts one of them one of the private companies out there gold money.com founded by fellow by name of James Turk might have known for a long time they're down now do I think that thousandth of a gram of gold and a thousandth of a gram of silver that they'll use in transactions when are you making small change in gold and that was always the problem the coinage era you had coins of certain sizes and then what would worked out in between what do you have there some kind of token coinage reiative says I've got a paper credit or whatever it was rather cumbersome and if you look at it today it's even worse because what's the value of a American Liberty silver dollar one ounce the coins are now coming out of the mint under the 1985 act well let's watch somewhere between 35 and 40 Federal Reserve notes right so your one dollar silver piece is worth thirty five of these other things in the market well it's not going to be too useful in the supermarket but will be later I mean we like equations that didn't be very right now it isn't so would be a little American Eagle gold coin one of those they'd probably close to 2000 now what I was a gold coin form so if you look at the coinage system that we have once again because Congress because they're the ones between the coinage here because Congress has not kept up to date with our problem we have a coinage system that really is not workable the states can't coin money so we couldn't see any reform there but the states can make gold and silver tender and payment of debts and they can certainly use these electronic systems Supreme Court ruled on that twice not electronically but they ruled on the right of the state to have an alternative currency of its own so we have to worry about the legalities of the thing and if that were done let's say we've done in Virginia I wouldn't want to take so many Montana's kind of a backwater people might not pay attention to it is Virginia is right next to DC right but Virginia does this what do you think the influx of capital into Virginia is going to be Virginia will be the only polity in the entire world that has a sound money system and you don't think that other states that border Virginia might say oh my goodness it'll be to our advantage to pick on this pick this up too because we have cross border train right and on and on it goes and it goes this particular system if you use the electronic system international trade because everybody can be tied in through the internet to them right that's the way it runs so like tell these legislators they listen 30 60 90 days after the statute you tell me how fast you want it done we can have this up and running and what it would mean is that the average Virginian because you have to tell them to do that Virginia would get a debit card and he'd be told how he goes on the internet and signs up for this thing how we transfer his funds from his regular bank account into this all very simple you don't force him he wants to do it finds not but he has to have the capability and then the state simply starts taxing in the alternative currency and paying out from that tax fund to creditors of the state first-come first-serve who asked for it what do you think is going to happen those creditors are going to deplete that fund as fast as it is built up and then the treasurer is going to come back to the General Assembly in Virginia say I need to expand the tax base here and pretty soon you're going to have the Commonwealth of Virginia auto gold our basis treating Federal Reserve notes as a foreign currency because they mean he reserved off to something right and you have the economy of Virginia cause following along with this because the state has given them the mechanism and the state of cost a big player in the economy a lot of money passed through in a fan dance and now you're shown how it could work and my view of the thing is if people have two choices a sound relatively sound currency here and a rotting vegetable currency over here which one are they going to choose well they will choose this one of course that's the reversal of Gresham's law Gresham's law says one bad money drives good out of circulation that's the way is usually formulated it's actually how it stopping these law I think it's in the play the frogs it goes back to the ancient Greeks question didn't but any of that why is that true because if I have bad money in one pocket and good money in the other you're willing to take the bad money what am I going to give you the bad money right think of mommy with Jimmy and there's Jimmy and Billy playing in the sandbox and Billy's crying because Jimmy will not let Billy use one of his toy soldiers and mommy says be fair Jim didn't use one of these which one of the toy soldiers are you going to give to the other child the nice one that's beautifully painted or the one with one arm that's broken off and ahead that's twist but you tell me that's questions well it's at the kindergarten level of intelligence here but it works the other way too if I'm going to you to make a contract I'm going to demand what the bad money or the good money I'm going to demand the good money right so we can reverse this whole system if you once put into play some winger a significant player in the marketplace has to be a fairly large size that's using this good money and we can force that through taxation start off with a certain amount of state taxation now Congress could do this to Hill maybe I be facetious but in principle Congress could do this too and I should think Congress would have more understanding of this it's their power that we're talking about it is monetary power the difficulty I have with state legislature is only talking to them is well you know we can't do that the state states can't do that and I said women article 1 section 10 we go through this little litany of constitutional principles then eventually the little white ball comes out oh yeah I guess we can do that and then there's a problem what was the six o'clock news going to say about me you know I'm a gold-bug they're going to be fun of me in that type of thing getting to the political but as a practical solution not sure that's a solution direction there is no solution this thing is going to happen we can't stop it from happening there's a practical direction for putting a floor under mitigating the damage I'm willing to bet a stack of programs out high this was the only way it could be done if somebody can think of another way that doesn't involve Congress passing the hook I keep in wrack my brain I say if someone came to me and offered me some huge fee to write a statute to correct the Federal Reserve problem through the Federal Reserve could I do it no think that was insurance I can't take the money I can't do that it won't work there's no way we can correct that the market has to correct it and the market will not correct it less it has an alternative to work with it as Archimedes right didn't need the one who said I have to have a give me a place to stand and I can move the earth with my lever we need a place to stand monetarily we need the alternative currency and the example go back to buy more German everyone remembers buy more Germany right six months June July to the end of November they blew the currency out an egg that cost eighty thousand marks and June's they had a lot of inflation during the war immediately after the war 80,000 approximately 80,000 marks was like a trillion marks the end of November and the first week of December the currency was gone how did they survive because they had a whole slew of alternative currencies circulating in Germany from other European countries from the United States from England England wasn't considered being underneath and people were using these innovating contracts in them so they had a kind of black price structure in alternative currencies so when that mark collapsed the entire economy didn't go well there would be a state depository to deal with this alternative currency because the alternative currency system is not really banking it's warehousing all right and what I anticipate what happened is that if I were writing it the complete statute for a state I'd say well look we need to set up some private institutions that would deal in what used to be called real bills 30 60 90 day banknotes based on real commodities because that kind of puts it under underpinning to the use of gold and silver with a lot of transaction you don't need to use the golden so if you have real bills and those private institutions I would imagine at some stage they might also come into the depository oh that could be the loan function see the depository function is a warehousing function the loan functions different situation and you can't have a loan bank which is paying on demand the depository is obviously paying on demand pay immediately electronically so you'd set up banks that we're dealing with the 30-60-90 day real bills and then you saw the banks that would be told that maybe those same banks and set up accounts would be longer-term but you'd have to cut the fraction the fractional reserve aspect of the thing has to be cut out entirely that's the devil of the details you cannot you cannot blend short and borrow long for very long and that's what fractional reserve system banks have always failed because their notes are out there to be paid on demand they don't have 100% reserve to pay those notes leaving aside whether that's inherently it wouldn't be if people were completely told about it but the other assets that might be fed into that pool they're not on demand who knows how long those assets may be until they're paid and then the banks invariably get into these squeezes because they extend themselves too much and there's only one way to get around that and that's to prevent in the beginning our problem is we've painted ourselves in I'll say we I want to include myself somebody out there has painted me into a corner and you was well worth painted it to this corner and either we're going to go down with a Titanic or we're going to get in a lifeboat and row away and that's the difference between the Titanic situation in our situation on the Titanic they didn't have enough lifeboats and they didn't have a way to build anymore we don't have enough lifeboats now but we have 50 ways to build them this can be done at the state level and I don't say there won't be a lot of wailing and gnashing of teeth economically and a lot of people won't be very very sorry that we put up this system and ran it as long as we did ran into the ground but that's not my problem my problem the kind of the salvage yard guy here right you brought me this mess and you say clean as a mousse the most I can do all right so let me trauma surgery you got to lose the leg don't blame me you shouldn't have been driving drunk oh look I know this sounds so pessimistic but you know what the definition of a pessimist is he's an optimist who knows the facts [Applause] I'd like to thank you all again for coming today we have a third and final lecture will be on in December details coming shortly and just for one one quick exposition this is an eighth realice this is a federal well there went a Federal Reserve Note which one do you want I don't know so please give one more round of applause for dr. Viera [Applause]

Channel: CongressmanRonPaul

Views: 40,834

Rating: 4.9408503 out of 5

Keywords: ron, paul, congressional, financial, services, sound, money, constitutional, gold, pieces, of, eight, silver, standard, dollar, cent, mil, federal, reserve, fed, system, bernanke, congress, economics, hyperinflation, economy, ed, viera, monetary, policy, fomc

Id: k6gMkKmQSW4

Length: 61min 56sec (3716 seconds)

Published: Fri Nov 18 2011