Monday, June 23, 2008

Abandoning our Gold Standard=Abandoning our Morals?

According to history, does the Gold Standard provide more than just a sound monetary system? Does the economy affect the morals of a society?

These are questions I find myself asking as I have learned more about the history of money, particularly the use of fiat currency in history in lieu of gold and silver.

What is the evidence?

In 1935, there were three Gold Clause cases brought before the Supreme Court where all three plaintiffs were disputing the confiscation of gold during the Roosevelt administration and the abandonment of the gold standard. In effect, these case were testing the constitutionality of the U.S. government casting aside the gold standard in a Joint Resolution of Congress in 1933.

Publius This resolution effectively amended the Constitution (contrary to the Amendment process in Article V) voiding Article I, Sec. 10, Cl. 1 wherein it states "[No State shall ...] make any Thing but gold and silver Coin a Tender in Payment of Debts...".

No big deal, right? All is well in America because a gold standard, a fixed monetary standard with specific weights and measures, is not necessary anymore, right? We need to put our trust and faith in the Federal Reserve and the direction it most assuredly gave the FDR Administration, right? Regarding the allowing of money issuance to be given to a private bank, Jefferson said:

"I believe that banking institutions are more dangerous to our liberties than standing armies . . . If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs." -- Thomas Jefferson -- The Debate Over The Recharter Of The Bank Bill, (1809)

Jefferson, as well as many of wise and history-learned men and women, warned us about amending the Constitution and putting the power to control the issue of currency in the hands of private banks. Abandoning the gold standard was the next logical choice, right?

Were there any warnings, even prophesies, made at the time of this Supreme Court decision? Did anyone see something wrong with the above-mentioned resolution?

The simple answer is yes. Justice James C. McReynolds was one of the four judges that disagreed with this resolution and voted against it. The speech he gave was considered to drastic to be printed in the court records so a spoken version was printed in the Wall Street Journal on February 23, 1935. As you read excerpts from his comments, think about the questions I posed at the beginning of this blog piece.

"Mr. Justice Van Devanter, Mr. Justice Sutherland, Mr. Justice Butler and I do not accept the conclusions announced by the court. The record reveals clear purpose to bring about confiscation of private rights and the repudiation of national obligations. To us these things are abhorrent and we cannot believe the wise men who framed the Constitution intended they should find shelter there. On the contrary, words that ought not to be mistaken strictly inhibit them."

"It is impossible to estimate the result of what has been done this day. The Constitution as many of us have understood it, the Constitution that has meant so much, has gone. The guarantees which men and women heretofore have supposed protected them against arbitrary action have been swept away. The powers of Congress have been enlarged to such an extent that no man can foresee their limitations. We stand today stripped of the fundamental guarantees we heretofore supposed stood between us and arbitrary action."

"No one denies the power of Congress to adopt a monetary system, but is does not follow that because Congress may adopt some monetary system that it may adopt any system. I must adopt a reasonable and proper one to carry out the purpose for which the power was given. What was the purpose? It was to fix standards, to permit Congress to provide a circulating medium. It was not intended to enable Congress, under the guise of law, to repudiate. It was intended to give Congress the power to meet its honest obligations. That was the effort in the Legal Tender cases. But here we have the monetary system---the intent, I almost said the wickedness, of which is almost beyond comprehension."

"We protest. That never was, it never ought to be law. Shame and humiliation are upon us."

"...anarchy and despotism are at the door. Moral and financial chaos may confidently be expected..."

What is all the fuss? Was Jefferson right? Was Justice McReynolds right?

Any thoughts?

1 comment:

  1. I'm just now starting to learn about gold and precious metals. I had an opportunity today to interview Eric Malachowski, one of the PL advisors, about gold and silver. You can listen to the interview at:



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