The Constitutional Imperative
In Reform Of The
Monetary And Banking Systems
Of The United States
by Edwin Vieira, Jr.

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Foundation for the Advancement of Monetary Education

Fact Sheet

  1. Congress has improperly delegated to the U.S. banking system a power that Congress does not have under the Constitution: the power to create legal-tender-irredeemable-paper-ticket/electronic-fiat-token money out of nothing. This means that our monetary system is not in accordance with the Rule of Law.
  2. There is no possibility of limited government if government has easy access to unlimited money created out of nothing.
  3. There is no relationship between the dollar mentioned in our Constitution and Federal Reserve Notes (which are not notes) that are masquerading as "dollars."
  4. Since 1946, on a base of about $150 billion, the U.S. banking system has created $9.4 trillion. About $700 billion was created by the Federal Reserve, and the balance, about $8.7 trillion, was created by private companies, banks. Why should private companies be empowered to create money?
  5. Because there is no longer any market-based self-correcting mechanism, what in the sciences is called a negative feedback loop, on increasing financial leverage; our monetary system will absolutely blow up.
  6. According to the Bank for International Settlements, banks have entered into about $300 trillion in derivative bets, and increasing; the U.S. now has about $36 trillion in aggregate debt, and increasing. The counterparty for much of this is the so-called "lender of last resort" at the Federal Reserve. Mr. Greenspan has been explicit that the Federal Reserve stands ready to create money, in his exact words, "without limit," should the need arise, in the Federal Reserve's sole discretion. Creating money out of nothing depreciates "dollars" that exist and those that have been promised for future payment, e.g., pensions. This cheats savers, seniors, and ordinary people everywhere. Why should we have money that depreciates?
  7. As irredeemable-paper-ticket/electronic-fiat-token money out of nothing depreciates, the Bureau of Labor Statistics has camouflaged the result by manipulating the so-called "Consumer Price Index," an arbitrary figure of merit whose calculation Bill Gross, who runs PIMCO, the largest fixed asset management company on the planet, wrote, "is near fraudulent."
  8. Our monetary system is a fraud on the people. It continues because of material omissions, misrepresentations, and coercion (legal tender, about which Salmon Chase wrote, when he was the Chief Justice of the Supreme Court, "is only valuable for the purposes of dishonesty.").
  9. Congress has granted to the U.S. banking system what was referred to in the 19th century as "special privilege," the ability to employ the coercive power of government, a.k.a. the police power, to gain advantage over ordinary citizens. The notion of special privilege has always been repugnant to the American sense. Among other perversions, ordinary citizens guarantee the balance sheet of the U.S. banking system: its assets are protected systemically by the Federal Reserve's so-called "lender of last resort" facility, and its liabilities are protected at the micro level by so-called Federal Deposit Insurance, which is not insurance. Mr. Greenspan has properly referred to these protections as a "subsidy." Why should ordinary taxpayers subsidize banks?
  10. The Federal Reserve, as described by Paul Volcker, former Chairman of the Board of Governors, has engaged in prima facie fraud. No one in Congress (or anywhere) has called it to account.
  11. Military power depends on the strength of a nation's industrial base. As a direct result of our fraudulent monetary system, the U.S. has been exporting strategic capital goods in return for consumer goods. Millions of jobs, manufacturing infrastructure, and know-how have been lost. This weakens U.S. national security and is akin to national suicide.
  12. The financial sector has profited unfathomably from the above: As our banking system created $7.5 trillion flat out of nothing since 1980/1981, the market capitalization of the financial sector component of the S&P500 has grown from $50 billion to $2.3 trillion. Financial sector profits now comprise nearly 43% of all corporate profits, according to the National Income Product Accounts. U.S. banks and NYSE member firms now take out of the economy $600 billion per year, just for moving paper around. This represents massive wealth transfer from mostly ordinary working people to the financial sector. It would not be possible if we had an honest monetary system and adhered to the Constitution.
  13. The financial sector has a conflict of interests with everyone else. Manufacturers and ordinary people everywhere want interest rate and foreign exchange rate stability. Because so much of its profits come from "trading," the financial sector wants volatility. Tragically, the structure of our monetary system has been left to financial people, and they have rigged that structure to their own benefit to the detriment of everyone else.
  14. "Dollars," or anything denominated in "dollars," do not constitute wealth. They are merely a potential claim on wealth. Because of ongoing money creation by our banking system, "dollars" will continue to depreciate, at some point precipitously. Ongoing dilution, and eventual worthlessness, of "dollars" puts the lie to president Bush's "ownership society," "private accounts" of all genres, and will most likely cause a regime change that will destroy the party then in power for a generation or more.
  15. FAME calls for all of the monetary issues to be revisited, especially the role of gold. We want full disclosure of all material information, an end to the misrepresentations, and an end to coercion (repeal legal tender and the provision in the IMF's Articles of Agreement, Section 4-2b, which prohibits member nations from linking their currencies to gold and only to gold). This review should be done first by industrial companies and labor. Then, the financial sector can be heard from. Most important, the agenda should focus on morality, not that which has degenerated into what is called "economics."

The Constitutional Imperative In Reform Of The Monetary And Banking Systems Of The United States

by Edwin Vieira, Jr.


Dr. Edwin Vieira, Jr., presented the original version of The Constitutional Imperative in Reform of the Monetary and Banking Systems of the United States to the Ludwig von Mises Institute's Seminar Series in Public Policy, at the Heritage Foundation's Lehrman Auditorium, Washington, D.C., on the 8th of December, 1988. His purpose, then and now in this expanded monograph, was to explain that:

  • Monetary and banking reform in the United States must be appreciated and approached a matter of law, as well as a matter of economics.
  • The most important—indeed, the controlling—law in the United States is the Constitution.
  • The Constitution,rightly understood and applied, provides an unequivocal mandate for a particular monetary and banking system. And, therefore,
  • Debate over monetary and banking reform that does not begin with a clear statement and acceptance of this constitutional imperative is, not only uninformed, but also subversive of, the uniquely American system of political economy.1

As the inexorable events of the present banking crisis in the United States finally compel the political establishment to face the necessity of basic reform of the monetary and banking systems, the insights set out in The Constitutional Imperative will become ever more important, if real reform is to be achieved. For, as Dr. Vieira points out, the leading authorities on economic reform of these systems recognize that the key to correction of contemporary problems is the enforcement of a "monetary constitution" to confine the discretion of government within narrow limits.

These experts disagree among themselves, however, on exactly what the principles of this "monetary constitution" should be. In The Constitutional Imperative, Dr. Vieira argues that, if the experts would focus on what the Constitution prescribes now, they would largely have the solution to the problem of reform in their hands obviating further discussion, debate, and dissention; and placing the inestimable moral, political, and legal force of the Constitution squarely behind their efforts.

Hopefully, The Constitutional Imperative will cause people to comprehend that the Founding Fathers already foresaw the United States' obvious need for a "monetary constitution," and took the necessary steps to guarantee that "constitution" in the Constitution.

Richard L. Solyom, Chairman,
Sound Dollar Committee


The potentially key role of the Constitution of the United States in returning this country, and ultimately the entire free world, to a system of sound money and honest banking was but little perceived and almost never debated as few as ten years ago. To a very great degree still, the constitutional imperative in reform of America's monetary and banking arrangements remains largely unappreciated and certainly unarticulated. However, a growing awareness does exist today among free-market economists, political scientists, and particularly students of "public-choice" theory that

  • the Federal Reserve System—a domestic cartel of private banks specially licensed to emit legal-tender fiat paper currency and create "deposit-credit money"—is both intellectually indefensible and economically unworkable;
  • the increasingly unstable international monetary and banking system can no longer rely on the chronically depreciating Federal Reserve Note as the "world reserve currency,"
  • new domestic and international monetary and banking arrangements must soon be implemented, based on some set of enforceable political and legal restraints on governmental action—what public-choice theorists call a "monetary constitution"; and
  • in the United States, this "monetary constitution" can arise from the imposition of limitations on the government's powers that derive from either: (a) our domestic Constitution as it now exists or may be amended hereafter; or (b) a new supranational monetary and banking regime that effectively supersedes the Constitution and subordinates to a scheme of globalist controls America's national sovereignty over money and banking.

The rapidly increasing attention being paid in both academic and political circles to the necessity of some kind of monetary constitution" is encouraging, as far as it goes. More to the point in a country that prides itself on the "rule of law," however, would be for those promoting a purportedly "new" constitutional order in money and banking first to investigate what the monetary and banking powers and disabilities of the United States Constitution are now. For such an investigation would uncover how the proper interpretation and rigorous implementation of the present Constitution could largely solve America's contemporary monetary and banking crises, and secure her national sovereignty against inroads by new supranational institutions.


I. That most people concerned with establishing a "monetary constitution" in the abstract overlook the United States Constitution in particular as a possible solution to the problem is paradoxical. The United States, after all, is a legally constrained political economy. It is a political economy because the government exercises political power to affect economic interrelationships among individuals and groups. But it is also a legally constrained political economy because the Constitution grants only certain defined powers to the government, denies all other powers, and confines and qualifies the exercise of even the granted powers with various substantive and procedural limitations and requirements. Ours, then, is a political economy characterized by both governmental powers and disabilities, by both governmental authority to act and individual immunities (or rights to be free) from governmental action in the economic sphere.

The set of all governmental powers and disabilities in that sphere defines America's "economic constitution." The extensive sub-set of these powers and disabilities that deal with money, credit, legal tender, and banking defines America's "monetary constitution." The proper construction and application of these monetary powers and disabilities may be debatable. But that this country does have some kind of a "monetary constitution" de jure is unquestionable.

Also beyond serious dispute is the defective nature of the present de facto monetary and banking arrangements of the United States, and the undesirable political-economic outcomes that have emerged as consequences of those arrangements from the actions of the government, the markets, the banks, various interest-groups, individuals, and so on. The demerits of the present regime are distressingly manifest on every level of inquiry:

Intellectually, America suffers from the radically nominalistic conception that treats circulating "credit" as "money," that disconnects the creation of credit from the production or even the existence of any tangible medium of exchange, and that asserts the possibility of creating "new purchasing power out of nothing. "2 This currently fashionable monetary wisdom forgets that nothing can be created out of nothing, least of all credit—which rests on the belief by the lender that the borrower will in fact repay what he has borrowed. If the government (or a specially privileged bank) truly tries to fashion credit "out of nothing" that is, without a reasonable anticipation that its promises to pay can be fulfilled -, it generates only uncertainty and mistrust.

Legally, America suffers from the abusive procedure violently at odds with any rational conception of the obligation of contracts—that the government or its clients can discharge pre-existing debts merely by substituting for them new promises to pay and declaring the original promises "paid" thereby. This shell-game disguises the gradual real abrogation of all debts by calling a privileged category of bank-debts "money" and "legal tender" for all other debts.

Morally, America suffers from the elevation of deceit to the level of acceptable—indeed, routine—"public policy." The monetary and banking apparat of the Department of the Treasury and the Federal Reserve System systematically gulls individuals into a false sense of security, implementing policies the consequences of which the authorities know or expect to be quite different from what they announce to the general public—in particular, diminishing the objective exchange-value of currency while pretending to fight "inflation."

Socially, America suffers from massive redistributions of wealth—primarily from households to the national government—as a result of manipulations of legal-tender currency and credit by the government and its client-banks. 3

Economically, America suffers from hypervolatile markets in which recurrent speculative raids are the response to the realization that "the value [of American currency] has been separated to an unknown degree from market forces and is being influenced by government operations whose standards and objectives have never been made public and whose continuation for more than a few months at a time cannot be counted on."4

Politically, America suffers from a thoroughgoing default of the government on its responsibility to maintain a sound and honest monetary and banking order, and its decision instead to employ the old "money-illusion" of inflation as a hidden tax and to connive with special-interest groups to subvert monetary laws for their own predatory purposes.

And developmentally, America suffers from an historical devolution and degeneration in which the national medium of exchange has been radically primitivized and politicized, through the transformation from commodity money (silver and gold coins) to fictitious "credit money" (irredeemable Federal Reserve Notes). A true "credit" (or fiduciary) money functions as an honest surrogate for an ultimate, real medium of payment: typically, specie coinage which the holder of the fiduciary money can demand by legal right in redemption thereof. What is the " payment" the holder of contemporary fiat Federal Reserve Notes can (at least for the moment) demand by legal right "dollar" for "dollar"? Other than token, base-metallic ("clad") coinage, only the set-off of a nominally equal "dollar"-denominated tax liability he owes to the national government.5 And this set-off is possible only because Federal Reserve Notes are statutory "obligations of the United States."6 Thus, contemporary American currency amounts to a "credit" against governmental exactions, and that alone.

Contrast this to the situation when silver and gold coins were the legally mandated media of payment of debts and redemption of fiduciary currencies. At that time, money was distinct from, and superior to, "credit." "Credit" could not be money, because ultimately money gave credit to "credit." To be sure, a holder of specie money enjoyed no guarantee that market prices in that money would not fluctuate from day to day. However, he already had in his possession a real and valuable commodity—a known weight of precious metal—not a mere, perhaps unenforceable, promise to deliver.

Today, a holder of Federal Reserve Notes also remains uncertain about the course of market prices in that currency (although he may be fairly confident that they will continue to rise). But, unlike the holder of specie coinage, the holder of fiat paper currency possesses no valuable commodity and has no statutory right to obtain any known, fixed amount of any commodity in exchange for that currency—only a power to set off a liability the government unilaterally assesses against him in overt taxes. One must emphasize "overt" taxes, because the instrument of set-off (the Federal Reserve Note) is also—perhaps, even predominantly these days—an instrument of hidden taxation through managed depreciation of its purchasing power.7

Thus, by reducing money to central-bank "credit," and central-bank "credit" to the license to set off the substanceless "money units" against tax liabilities, money has been primitivized—in the sense of being stripped of much of its usefulness and value as a medium of exchange for all transactions within society. And money has been politicized in the sense of serving first and foremost as the means of locking the individual into a relationship with his government that smacks of economic serfdom.

However, simply cataloging these (or other) serious defects in America's present monetary and banking arrangements leaves unanswered the most important question: Do these defects reflect an institutional problem of inadequacy of the Constitution—namely, that the Constitution itself, correctly construed, allows, encourages, or even compels these outcomes? Or do they mirror an operational problem of failure of political personnel—namely, that legislators or judges are not implementing or enforcing the Constitution? The importance of determining whether the very design of the machinery, or simply the unreliability of the particular men temporarily at the controls, is at fault cannot be over-emphasized. For, as a practical political matter, analysis of the malfunction will dictate the likely repair.

Yet, notwithstanding the importance of ascertaining whether the United States is the victim of a basic institutional breakdown or merely adventitious operational errors, vanishingly few people exhibit any even apparent concern with ferreting out the answer by first—and logically foremost—establishing the true content of this country's "monetary constitution."

II. Certainly profound ignorance of the basic principles of money and banking among the general public and the political establishment explains, in part, this disinterest. Those academically trained in economics may flatter themselves that they understand, along with Professor James Buchanan, why no one can "intellectually defend" America's present monetary and banking systems, why "we could not conceivably have a worse regime," or why no one could "dream up a worse situation than we have now" in terms of monetary unpredictability. 8 But such people are a distinct minority.

A. The average man-in-the-street or in the public service—has no conception of the crucial difference between a "dollar bill" that is merely exchangeable in the marketplace for unpredictably varying amounts of goods and services (generally less and less, as time goes on), and a "dollar bill" that is redeemable by law for a fixed amount of precious metal (that is, in fact, a note that must be paid on demand with a dollar). Neither does he suspect that what he considers his money in his bank-"deposit" is, in contemplation of law, really a loan he has made to the bank and the bank's money.9

Nor does he fathom the operations and complexities, if he even realizes the existence, of the "fractional-reserve" system on the basis of which his misnamed "deposits" are manipulatively managed. 10 Rather than pondering such matters, or their economic and especially their political implications, the average man naively swallows the propaganda-line of the Treasury Department and the Federal Reserve that money and banking are "technical" areas "too complicated" for voters and politicians to understand, better left to the "experts" for management in accordance with the arcane theories of contemporary mathematical economics, and certainly "too important" to become issues in the superficiality and buffoonery of electoral campaigns.

The depth of popular ignorance in this field satisfactorily explains recent monetary history. The last fifty or so years have witnessed three major monetary and banking collapses in this country: in 1933, with the seizure of the people's gold and termination of redemption of Federal Reserve Notes in gold domestically; in 1968, with the termination of redemption of all United States paper currency in silver; and in 1971, with the termination of redemption of Federal Reserve Notes in gold internationally.

Yet notwithstanding how radically destructive of the monetary system each one of these events (and, certainly, their cumulative effect) has been, neither any one of them nor all of them together triggered a constitutional, or even a political, or electoral, crisis over money and banking comparable to those that occurred, with massive participation by the general public, in the late 1700s (over ratification of the Constitution and its "hard-money" provisions), in the 1830s (over the recharter of the Second Bank of the United States), in the 1870s (over resumption of specie payments for the Civil-War "greenbacks"), or in the 1880s and 1890s (over the so-called "gold standard" and "bimetallism"). But if few people now understand money and banking at all, the majority can hardly be faulted for not being conversant with and demanding enforcement of America's "monetary constitution."

B. In fairness to the general populus, one should recall that print-media pundits such as Alfred Malabre, author of the best-seller Beyond Our Means, show little-greater appreciation of the problem—not, to be sure, because they are ignorant of basic economics, but precisely because they know so much about the peculiarities of economic theory that they crowd out of consideration the special realities of America's uniquely political economy.

Although, by any competent evaluation, the United States now faces a monetary and banking crisis as serious as any that convulsed the polity to its constitutional roots in the 1800s, in the chapter of his book entitled, ominously, "Nothing Works," Malabre surveys every possible solution but the Constitution, in concluding that "today's -predicament is beyond the means of any economic theory'. 11 Malabre may be correct to dismiss Keynesianism, monetarism, and "supply-side" theory as solutions to contemporary problems. But he is hardly justified in despairing that "nothing works," without having first closely scrutinized the reforms that would arise out of consistent application of the monetary powers and disabilities of the Constitution.

C. If disinterest in "monetary constitutionalism" can be explained in the case of the general public by ignorance and in the case of pundits by tunnel vision, in the case of high level public officials a more sinister reason is not without evidentiary support. For a prime example, Professor Buchanan recounts how in 1980 President-elect Reagan's staff solicited suggestions as to what Reagan could do "to give an indication that [his] was going to be an administration with a policy thrust." Buchanan advised Reagan to appoint a presidential commission that would look into the whole structure of our monetary authority, the whole structure of the Federal Reserve authority * * * . And it seemed to me high time that that might be looked into.

What we have now is a monetary authority that essentially has a monopoly on the issue of fiat money, with no guidelines to amount to anything; an authority that never would have been legislatively approved, that never would have been constitutionally approved, on any kind of rational calculus, no matter what the political system. * * * So I thought it would be a good idea * * * to get a discussion going about the legitimacy of this authority.

In response to further inquiries from Reagan's staff, Professor Buchanan delivered "a short position paper" to Reagan. But, described Buchanan,

[n]othing happened. Absolutely nothing happened. I never heard a word, not one word, from them. I found out months later, that they did seriously consider the idea, but Arthur Burns shot it down. Arthur Burns totally and completely rejected it, and would not have anything to do with any proposal that would challenge the authority of the central banking structure—you don't even * * * raise it as an issue to be discussed.

From this experience, Buchanan concluded that "the barrier of bureaucratic interest in maintaining [the present monetary and banking system] * * * is * * * extremely strong."12 The perhaps more telling lesson on the state of the Republic is that, in the secrecy of the highest councils of an administration that openly prided itself on its commitment to the "original intent" of the Constitution, the filibustering of an agent of the Federal Reserve System stifled even a discussion "about the legitimacy" of the corporativistic central bank and its decaying fiat currency.

III. Those who do ponder this problem, however, are not (one can hope) the victims of economic ignorance, tunnel-vision, or narrow self-interest. Yet, for the most part, even such people have not been serious students, let alone zealous advocates, of America's special "monetary constitution," either. Not, of course, because they reject "monetary constitutionalism" in the abstract. They all generally concur that a "monetary constitution" is necessary, whatever their differences as to its precise content. They all agree that constitutionalism with respect to money and banking is as obviously important as—perhaps in the long run more important than—constitutionalism with respect to speech, criminal procedure, property-rights, and so on. And even those who propose a radical "de-governmentalization" of money and "free banking" as solutions to today's problems recognize the unavoidability of a controlling governmental role in the creation of such new arrangements, a role that must be constitutionally constrained if such changes are to achieve political permanence.13

Nevertheless, discussions of "monetary constitutionalism" among such people—be they economists, political scientists, historians, or even lawyers by training—almost invariably neglect any careful consideration of what the United States' "monetary constitution" specifically provides and how it can be implemented or enforced. This state of affairs would be generally acknowledged as peculiar, perverse—indeed, intellectually improper and indefensible were the debate on "constitutionalism" to focus on such matters as speech, criminal procedure, or property-rights. In those domains, no one would ever presume to address the question of "constitutionalism" in America without first or at least very quickly consulting the Constitution itself. Yet where "monetary constitutionalism" is the subject of inquiry, the Constitution is conspicuous by its absence.

Why?! The answer, apparently, is that far too many of the erstwhile friends of sound money and honest banking are unconsciously ruled by an unwarranted assumption engendered by the undesirable state of present-day monetary and banking arrangements and encouraged by their unfamiliarity with the particulars of constitutional law and history and their unwillingness to fight an unpleasant political battle on uncommon terrain. So, unthinkingly, they act as if no United States "monetary constitution" now exists.

IV. Baldly stated, the notion that no United States "monetary constitution" now exists contradicts itself—If there is no "monetary constitution"—that is, no ultimate source of legal power over money and banking—under exactly what authority are Congress, the Treasury, and the Federal Reserve System now operating? Can America's monetary and banking systems be the products of mere anarchy or blatant usurpation? No; the assumption that no "monetary constitution" rules this country today really implies that the Constitution affirmatively grants the government (or the private parties behind the Federal Reserve System) unlimited power over money and banking.

A. Certainly this is the consensus implicit in the contemporary literature. For one example, Brennan and Buchanan report that [m]ost national governments * * * possess monopoly franchises in the creation of money * * * . To our knowledge, no country allows a totally free market in money, and none limits the governmental role to the definition of value of a monetary unit in support of a pure commodity standard. * * * Almost universally, national governments hold the authority to issue paper or fiat currency, either directly through governmental treasuries * * * or indirectly through governmentally-controlled central banks.14

Murray Rothbard affirms that each nation-state, since 1933, and especially since the end of all gold redemption in 1971, has had the unlimited right and power to create paper currency that will be legal tender in its own geographic area.15

And, under the heading "the chaotic state of monetary law," James Dorn tells us that [p]resent U.S. monetary law incorporates neither the "convertibility theory" of monetary control nor the "responsibility theory" * * * there is no constitutional limit binding the central bank to a noninflationary path of money growth; there is no legislative mandate to achieve a stable value of money. * * * [T]here is no firm commitment to achieve long-run price stability.

Current law specifies no single objective for monetary policy and lacks an enforcement mechanism to achieve monetary stability * * * .

The lack of any effective constraint on the discretionary powers of the central bank reflects Congress's failure to safeguard the value of money, as intended in Article I, section 8 of the Constitution, and has led to a monetary system characterized by significant uncertainty about the future value of money.16

Observations of this kind—that the fundamental law of the United States permits no free market in money, does not confine the "governmental role [over money] to the definition of a monetary unit in support of a pure commodity standard," extends to the government "the unlimited right and power to create paper currency which will be legal tender," incorporates no intelligible principle of monetary control or responsibility, specifies no objective for monetary policy, leaves the Federal Reserve System unrestrained, and lacks "an enforcement mechanism to achieve monetary stability"—are shocking indictments. For, if true, they describe a literally totalitarian money monopoly exercised by a legally uncontrollable corporative-state banking cartel: a species of fascistic dictatorship over money run amok!

But should one seriously entertain the pernicious thesis implicit in these and similar statements that the ultimate collective effect of the numerous, precisely worded monetary provisions of the Constitution is simply to delegate all conceivable power to a "monetary soviet" of self-interested private bankers? And, if one is willing to suffer that strange supposition for purposes of argument, should he meekly accept it as fact, without the very clearest proof possible?

B. The current literature also abounds with descriptions of various hypothetical "monetary constitutions" to "discipline unconstrained monetary monopoly." For example, Brennan and Buchanan offer four possible regimes:

First, a totally free market in money, with no direct money-creating government role at all. * * * The government would not define the medium of exchange; it would not print money; it would not regulate private printing of money or bank notes; it would not regulate banking or credit. Money would emerge * * * with no government guarantees or repurchase arrangements. Government could choose to collect taxes in the money of its choice * * * .

Second, government may be empowered to issue domestic money, in whatever quantities it may choose. In this sense it would possess a monopoly franchise and it may be totally restrained in size of issue. The restraints present here, however, would emerge from the guarantee of free entry. The Constitution would guarantee that individuals could hold balances, make private contracts, including the incurring of debts, and conduct ordinary transactions in any money of their choosing. * * * The forces of competition would act as the restraint on the government money-issue monopoly * * * .

Third, [t]he government role is limited to the definition of the monetary value of a physical unit of a * * * commodity * * * . [The government] does not create money on its own account; and if there is paper money it is convertible at a fixed price into the base commodity at the governmental money window.

And fourth, [g]overnment may be empowered to issue money, and allowed a monopoly in it. But the Constitution may subject the grant of the monopoly to specially-defined rules that limit the powers of the money-creation authority.

All of these, say Brennan and Buchanan, are "monetary arrangements to meet constitutional tests"—"constitutional tests," impliedly, that are not being met now.17

Should one blithely assume, though, that the Framers of the Constitution were not concerned with and successful in meeting stringent "constitutional tests" of this kind through the painstakingly precise language in which they framed our country's "monetary arrangements"—language such as

  • "The Congress shall have Power * * * To coin Money, regulate the Value thereof, and of foreign Coin"18;
  • "No State shall * * * emit Bills of Credit; [or] make any Thing but gold and silver Coin a Payment in Tender of Debts "19;
  • "The Congress shall have Power to borrow Money on the credit of the United States"20, which deletes the power to "emit bills" (issue paper money) that appeared among the cognate powers of the Continental Congress under the Articles of Confederation21; and
  • the explicit references to the "dollar" as the unit of monetary valuation22?

Surely, such an assumption would be without legal historical support—indeed, would fly in the face of a proper construction of the Constitution's monetary powers and disabilities. For such a construction shows conclusively that the Founders did embrace the principles of Brennan and Buchanan that

"[t]he government would not define the medium of exchange," but would instead adopt "a physical unit of a designated commodity" as its monetary unit; "would not print money"; "would not regulate private printing of money or bank notes" and "would not regulate banking or credit" (except, presumably, to prohibit and punish fraud); and would allow individuals to "hold balances, make private contracts and conduct ordinary transactions in any money of their choosing."

And, even if one does entertain, for the purposes of argument, the hypothesis that the Founders might have failed in some respects to construct what contemporary economists argue is a proper set of constitutional boundaries to monetary and banking power, should he accept as fact, without the clearest proof possible, that the relevant constitutional provisions the Founders did enact exercise no meaningful constraint whatsoever on the alleged powers of today's government to define the medium of exchange, to emit redeemable or irredeemable paper currency, to prohibit competition in money, to delegate discretionary monetary authority to a private banking-cartel, and so on?

V. These questions, of course, are rhetorical only. The answers, self-evidently, are "No." Unfortunately, many people have never posed the questions to themselves, let alone thought about the answers. For that reason, a lack of basic knowledge about the "monetary constitution" and even about the monetary statutes and judicial decisions—of the United States is altogether too common. For pertinent examples:

Numberless are those, especially including economists and others among the noisy new claque touting "private money" as a panacea for all monetary ills, who erroneously believe that the legal-tender act requires individuals to use Federal Reserve Notes as their medium of exchange and, in conjunction with the Supreme Court's decision in Norman v. Baltimore & Ohio Railroad Company23, prohibits so-called "gold-clause contracts." Such, of course, is not the law.24

Equally large is the number of individuals who erroneously fear that disestablishment of the Federal Reserve System would be prohibitively costly, because of the purported requirement that the government "buy back" the System's gold certificates or otherwise compensate the private banks in the cartel for dispossession of their "vested property rights." People who frighten themselves with this hobgoblin are obviously unaware of Congress' sweeping reservation of power in section 30 of the original Federal Reserve Act of 1913, and how this obviates any serious problem with liquidating the Federal Reserve System.25

And again, essentially no one with whom the present author has discussed the matter was initially aware that, in Peny v. United States26, the Supreme Court held unconstitutional Congress' attempt to repudiate the promise of the United States to pay its obligations in gold coin or an amount of other currency equivalent in purchasing power to such coin. It remains to be seen how this highly significant, but generally unappreciated decision may apply to Federal Reserve Notes—which are "obligations of the United States"27 that on their faces at least implicitly (if duplicitously) promise to pay certain sums in "dollars," but have been repudiated in terms of redemption in gold or silver coin, and certainly provide to their holders purchasing power far lower than an equivalent nominal value of such coin.

But the most telling example of "lost knowledge" in the area of our "monetary constitution" is the definition of the "dollar"' itself. Everyone talks about the "dollar," usually referring to the Federal-Reserve-Note "dollar bill." But this very implicit reference proves that the speakers know not what they say. The Federal-Reserve-Note "dollar bill" is not, has never been, and could not be a "dollar." Historically it originated as, and even in its present fraudulent form continues to mimic, a promise to pay a "dollar," not the "dollar" that is the subject of the promise. And no statute of the United States has ever even purported to declare, in Orwellian fashion, that a Federal Reserve Note is a "dollar." But, then, precisely what is a "dollar"'.?

People sophisticated enough to recognize that a Federal Reserve Note statutorily redeemable "in lawful money"28 —that is, "dollars"—cannot be that money as well, generally describe the "dollar" as a fictional unit of account without any fixed content that, from time to time through American history, has been reified in silver, gold, base-metallic ("clad") coins, and paper United States Notes of widely varying purchasing powers.29 People with greater historical acumen, such as Richard Hofstadter, may describe the "dollar" as "[t]he original monetary unit" of the United States, authorized by the Coinage Act of 1792 and "circulated in a variety of pieces of both gold and silver. The dollar was defined as having a certain weight of silver and a certain weight of gold."30 But definitions of this kind are easily proven wrong.

The Constitution—which preceded the Coinage Act of 1792 and every other monetary statute of Congress—explicitly refers twice to the "dollar": in the so-called "slave tax provision" of Article 1, Section 9, Clause 1; and in the guarantee of jury trial in the Seventh Amendment.31 When the Constitution and the Bill of Rights were ratified (1788 and 1791, respectively), the word "dollar" had a single meaning: not a paper currency (and surely not an irredeemable note of a central bank!), not a fictional unit of monetary account, not a gold coin, not a base-metallic coin—but a silver coin, the "Spanish milled dollar," which the Continental Congress had earlier adopted as "the money unit of the United States" in 1785.32

In the Coinage Act of 1792, Congress statutorily implemented the constitutional adoption of the "dollar": (i) by finding as an historical fact that a Spanish milled dollar as the same is now current" contained 371-1/4 grains (troy) of fine silver; (ii) by fixing—or, perhaps more properly, recognizing—the constitutional "dollar" as of [that] value"; and (iii) by creating a new, theretofore unknown gold coin, called the "eagle," that was to have a "'value of ten dollars," which Congress "regulate[d] or computed on the basis of the coin's weight (247-1/4 grains troy of fine gold) and the then-prevailing market exchange ratio between silver and gold (15:1).33

In short, the silver "dollar" of 371-1/4 grains is the constitutional standard. The construction given the constitutional term "dollar" by the first Congress in 1792 fixed this definition of the "dollar" beyond the power of Congress to alter it thereafter by any statute.34 All gold coinage, base metallic coinage, and paper currency of any kind are, at best, mere statutory creations of Congress, the legitimacies of which as constitutional "Money" rests on their relationships to the "dollar." Furthermore, there can be no constitutional "gold dollars," no "base-metallic dollars," and least of all no "paper dollars," in the sense of a monetary unit different from the silver "dollar."

Consider now two further examples of "lost constitutional knowledge" that address very contemporary concerns.

First, the emerging cult of "private money," which has advanced into the public view as far as such magazines as Forbes.35 In the contemporary world in which money performs not only an economic but also a legal function in relation to government, advocacy of "private money" is of doubtful coherence—because it begs the painfully obvious question of whether a form of money can be truly "private" if a government adopts that money as its medium of taxation and spending (and, presumably therefore, its unit of account), which the exponents of "private money" assume not only will but must occur. (Indeed, this assumption alone would seem to render the "private-money" thesis self-contradictory.)

Advocates of "private money" also leave unaddressed the issue of whether any government adopting a "private money" would not impose some regulations on its character—such as, for instance, accepting for taxes a private money" only to the extent it consisted of coins containing known amounts of silver or gold, remained redeemable in so much specie, maintained a certain purchasing power as against a "basket of commodities," and so on. These and other glaring weaknesses of the theory of "private money" aside, the question here remains: "May Congress constitutionally adopt a 'private money' as the United States' unit of account?"

Article 1, Section 10, Clause 1 and Article I, Section 8, Clause 5 answer that question in the negative. In Article 1, Section 10, Clause 1, the States absolutely surrendered their pre-constitutional powers to "coin Money," to "emit Bills of Credit" (what Americans today would call "redeemable paper currency"), and to "make any Thing but gold and silver Coin a Tender in Payment of Debts." Thus, the States subjected themselves to a strict gold-and-silver-coin economy, in which they could not be the source of the only coinage that could function as "a Tender in Payment of Debts."

Article I. Section 8, Clause 5 transferred the coinage-power to Congress alone.36 The surrender of the States' primordial sovereign power to "coin Money," coupled with the exclusive grant of that power to Congress, implies a right on the part of the States to demand that Congress affirmatively exercise the coinage-power and a duty on the part of Congress to do so. This constitutional duty arising from a fundamental structural element in the federal separation of powers—may never be delegated, especially to private parties.37 For that reason, the adoption of a "private money" as the unit of account of the United States is unconstitutional.

The second example relates to budget deficits of the national government. The ease with which deficits accrue traces to the ability of Congress to "monetize debt"—that is, to borrow into existence through the Federal Reserve System repudiated "bills of credit" in the form of irredeemable, legal-tender Federal Reserve Notes or deposit-credits denominated therein. Now Article I, Section 8, Clause 2 empowers Congress to "borrow Money on the credit of the United States" only. However, when Congress borrows even a "bill of credit" fully redeemable in silver or gold money from some other entity (say, a bank), it "borrow[s] Money" not only on the "credit of the United States" (as to repayment of the loan itself) but also on the credit of the lender (as to redemption of the "bill of credit").

How is this to be constitutionally justified? Even more legally problematic is how Congress can borrow an already repudiated—and therefore discredited—"bill of credit" the issuer of which (as in the case of the Federal Reserve System) refuses to redeem it in precious metal, and has historically followed a policy of diminishing the purchasing power of the bill as against all commodities.

No: Congress can borrow solely "on the credit of the United States" only by borrowing "Money"—in the constitutional sense of coin, the medium of payment—and never by borrowing "credit instruments" of some other entity, even if those promise to pay "Money" on demand. This construction of Article I, Section 8, Clause 2, though, would as a practical matter strikingly circumscribe if not curtail altogether deficit-spending—by confining to silver and gold coin all borrowing, and therefore all repayment and the taxation necessary to generate the means of repayment.

VI. The loss of this and other knowledge of America's true "monetary constitution" has confused and corrupted contemporary discussion about monetary and banking reform. For examples,

Many people advocate that the "dollar"—by which they mean the Federal Reserve Note—be permanently tied to a fixed weight of gold, and redeemable at that weight. This wrongly assumes that the "dollar" is a monetary unit without historical definition, that it may exist as a gold coin or as a "bill of credit" (a paper currency redeemable in gold), and that the Federal Reserve Note is a legitimate form of this disembodied "dollar."

Other people contend that no legal or moral obligation supervenes in defining the "dollar" in whatever way best suits the monetary system reformers deem most desirable. This wrongly assumes that the "dollar" lacks a fixed legal definition, or at most is the empty name the statutes of the United States give to the medium of exchange that serves as the government's unit of account, whatever that may be from time to time.

With these and similar attitudes as widespread as they are warrantless, it is no wonder that the present-day debate over monetary and banking reform is a literal Tower of Babel, with no common linguistic ground even as to the supposed main subject of discussion: the "dollar." With alleged "dollars" of silver, gold, base-metal, paper, and even electronic computer-entries available for purposes of argument, all of supposedly equivalent legal status in the minds of the disputants, but of widely disparate economic values in the marketplace, it is also no wonder that there are as many mutually incompatible suggestions for reform as aspiring monetary gurus.

The basic problem here, of course, is that too many otherwise well-intentioned people are thinking empirically, not normatively. They are, perhaps naturally, tempted to ask: "What now functions as the monetary system?," "What do the people use as money?," or "Who in fact issues the money?"—uncritically assuming that what is, is right. They do not ask: "What should be," or "What ought to be," or "What by right is the monetary system of this country?" They fail to pose these questions—ultimately, the only ones worth answering—because they too-often forget that an "unconstitutional law" is a legal impossibility, not simply an inconvenience.

For "[a]n unconstitutional act is not a law; it confers no rights; it imposes no duties * * * ; it is, in legal contemplation, as inoperative as though it had never been passed.38 Thus, people may colloquially call a Federal Reserve Note a "dollar." But it has never been and cannot be legally such. And people may be unaware that a "dollar" is a coin containing 371-1/4 grains fine silver. But it has been so determined since 1792, and can never be anything else under the outstanding law.

In a similar vein, too many friends of sound money tend to think economically, and not legally. They tend to ask: "Is monetary system X better than monetary system Y?," without bothering to ask: "Does our legal system permit us to exchange monetary system X for monetary system Y.?" For they tend to assume—in harmony with Justice Holmes' fallacious quip in Lochner v. New York that "a constitution is not intended to embody a particular economic theory,"39 —that the Constitution is sufficiently "elastic" to tolerate any monetary arrangements with which a political elite may want to experiment.

This assumption forgets, however, that the Constitution embodies a highly structured legal system incorporating defined and limited powers, specific disabilities, guarantees for individual rights, a complex separation of powers, "checks and balances," and so on. This kind of system cannot plausibly be "neutral" with regard to competing economic theories, in the monetary field or any other at least insofar as the various legal powers, disabilities, and individual rights have economically operational consequences.

Certainly the Constitution is not effectively "neutral" with regard to money. To the contrary. It defines a monetary system that relies on market principles as much as any governmentally based system could. First, pursuant to Article 1, Section 8, Clause 5 and Article 1, Section 10, Clause 1, the Constitution adopted the type of money the world market historically favored in the late 1700s (and still ultimately favors today): commodity money, money capable of being "coin[ed]" or tendered as "Coin."

Second, as made clear in Article I, Section 10, Clause 1, the Constitution adopted as money the commodities the quality of which the international market historically recognized (and still recognizes today) as pre-eminent: silver and gold, with base metals such as copper in a strictly subsidiary role. Third, as explicitly indicated in Article 1, Section 9, Clause 1 and the Seventh Amendment, the Constitution adopted the very unit of money the American market had found most convenient during the 1700s: the dollar of 371-1/4 grains fine silver. And fourth, through the system of "free coinage" implicit in Article 1, Section 8, Clause 5, the Constitution left the ultimate supply of money to the market, too.40

Moreover, even while denying certain monetary powers to the States (in Article 1, Section 10, Clause 1), and investing such powers in Congress (in Article 1, Section 8, Clause 5), the Constitution left unchanged and guaranteed (in Amendments V, IX, and X) the traditional right of the people of the United States to adopt whatever media of exchange they desire in their own private commercial transactions. Thus, Congress may adopt a national money-system; but except when individuals come to the courts for redress of non-contractual injuries, or pay their taxes, or enter into contracts with the government, or receive "just compensation" for property taken through eminent domain, Congress may not require them to recognize or employ that money system in their private affairs. Or, in practical effect, the Constitution imposes on the people a governmental monetary system only to the extent that they interact with the government in the exercise of its other constitutional powers.

In short, to the extent compatible with the existence of any government at all, the Constitution "degovernmentalized" money in its most important particulars. Thus, one could without exaggeration describe the Constitution as profoundly Austrian in its necessary economic effect.41 However, this apparent constitutional support in practice for one economic theory over another—for Austrian monetary freedom as against a "state theory" of money—rests, not on the particular economic merits of the Austrian view (which, in any event, was unknown as such in the late 1700s), but on the Constitution's political presuppositions in favor of personal liberty and private property.

In sum, both the empirical and the economic approaches fail because they excise from consideration the centrality of law to monetary and banking reform. There can be no reform of the monetary and banking systems without enactment of new laws and the amendment and repeal of old laws and statutes. However, in this country, the Constitution controls all such enactments, and even the validity of existing statutes, regulations, and judicial decisions. Therefore, the unavoidably first step in reform is to determine precisely what the Constitution commands, allows, and prohibits in the fields of money and banking.

VII. Curious is the absence of any widespread realization among monetary reformers that, by first historically and legally defining the "dollar" and the other salient features of America's "monetary constitution," the debate over monetary and banking reform can be immensely simplified, in at least three ways:

First, by impressing on the academic and political communities that there is an uniquely American "monetary constitution" which constrains governmental authority in a very specific manner, particularly in terms of the unit of account (the "dollar") and the permissible governmental media of exchange and legal tender (silver and gold coin).

Second, the debate over reform can be simplified by invoking this "monetary constitution" to determine which monetary and banking statutes enacted since 1792, and which statutes proposed for enactment tomorrow, are lawful vel non. No rational change in the present monetary and banking systems is possible without changes in the nation's laws. But before they can be changed, the laws themselves must be identified strictissimi juris—and separated from mere congressional enactments (and judicial "precedents" that many people mistakenly identify as "laws") that fail the test of constitutionality.

Surely there are both profound intellectual and practical differences between reforms based on the assumed constitutionality of the Federal Reserve System and reforms based on its proven unconstitutionality ab initio—in terms, for example, of the status of Federal Reserve Notes as "obligations of the United States" subject to redemption "in lawful money," of the legal-tender character of Federal Reserve Notes, of the ownership of the gold title to which is evidenced by the gold certificates held by the Federal Reserve, of the enforceability of loans based on the monetization of governmental debt, and so on.

Third, recourse to America's "monetary constitution" can narrow the debate over monetary and banking reform by immediately ruling out of order the vast majority of proposals that are themselves unconstitutional—such as schemes to generate fiat United States Notes to replace Federal Reserve Notes.

Indeed, systematic constitutional analysis of the present monetary and banking systems results in two specific agendas for action. Under destructive reformation, the Constitution requires that the government:

  • declare unconstitutional the Federal Reserve Act of 1913, the seizure of gold coin and outlawry of "gold clause contracts" in 1933, and such parts of decisions of the Supreme Court that erroneously license Congress to emit legal-tender paper currency and otherwise depart from its true constitutional powers and disabilities;
  • disestablish the Federal Reserve System and "privatize" its legitimate functions under section 30 of the Federal Reserve Act of 1913;
  • decry Federal Reserve Notes as "obligations of the United States" under 12 U.S.C. section 411;
  • terminate the "legal-tender" status of Federal Reserve Notes and base-metallic ("clad") coinage under 31 U.S.C. section 5103;42
  • cancel all gold certificates held by the Federal Reserve System, in favor of a trusteeship over the gold to be executed by the United States on behalf of the people;
  • hypothecate to restoration of—the constitutional money system all unclaimed gold unconstitutionally seized in 1933 and now in the custody of the United States;
  • declare voidable all contracts between member banks of the Federal Reserve System and any other parties, where the consideration for the contracts on the part of the banks was unconstitutional "monetization" of debt;43
  • revalue all innocent private contracts denominated in Federal-Reserve-Note "dollars" and not involving member-banks of the Federal Reserve System under the rule of the Confederate Note Cases;44 and
  • conduct searching and scrupulously impartial civil and criminal investigations and prosecutions of the Federal Reserve System and its operations, domestic and international.

Under constructive reformation the Constitution requires that the government:

  • begin the coinage of silver "dollars" and fractional "dollar" coins, with a unit of 371-1/4 grains (troy) fine silver;
  • begin the coinage of gold "eagles" and fractional eagle" coins, denominated only in troy ounces of fine gold;
  • establish a system of "free coinage" for "dollars," "eagles," and fractional silver and gold coins;
  • adopt all monetarily viable foreign silver and gold coins as "Money" of the United States;
  • "regulate the Value" of domestic and foreign silver and gold coins relative to the "dollar," with the silver-to-gold exchange-ratio set by the free market;
  • redeem outstanding United States token coinage "dollar" for "dollar"; and,
  • outlaw undisclosed or otherwise fraudulent "fractional-reserve" banking and cognate improper commercial practices.

The Constitutional Guarantee of the Value of our Money & Wealth The Dollar

What may be a "Dollar"

See the Coinage Act of 1862

Edwin Vieira, Jr.: What Is A "Dollar"?

NOTICE: Edwin Vieira, Jr., Richard L. Solyom, [the] Sound Dollar Committee, and others presented are not affiliated with Freedom School.
NOTICE: If anything in this presentation is found to be in error a good faith effort will be made to correct it in timely fashion upon notification.
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