Chapter 24: The Destruction of Rights by Use of Irredeemable Paper Money
Prefatory Comment
Our discussion of the preservation of rights under the United States Constitution would be incomplete if we did not mention the provision it contains prohibiting the government from destroying property rights through the use of irredeemable paper money. Today throughout the world, many governments finance themselves largely by the printing of irredeemable currency.
The Lord inspired the Founding Fathers to place in the Constitution a provision prohibiting this practice. In spite of this, laws have been adopted and upheld in the United States, permitting the federal government to print and circulate irredeemable paper money and make it a tender in payment of debts.
Does the Lord Recommend a Monetary System?
The Book of Mormon contains relatively few details regarding the functioning of the Nephite economy. But one thing it does provide is a careful description of their monetary system. This is found in Alma 11:3-19. In these few verses we learn that prior to the time of the reign of the judges, the people altered their monetary system from generation to generation, “according to the minds and the circumstances of the people.”
However when king Mosiah established a government subject to majority vote, laws were adopted which fixed a monetary system consisting of gold and silver coins of various denominations and specifically [p. 174] related values. Those laws also fixed an exchange rate between the coins, a measure of grain, and a days work for a judge.
Unless this information is valuable, why would Mormon have taken the trouble to engrave it upon the plates? Can it be that the Lord wants us to know that a monetary system consisting of gold and silver coins is the one He approves of, and that such a system is vital to our well- being? It is difficult to discern any other reason.
Certain it is that when the Founding Fathers, acting under the inspiration of the Almighty, established our constitutional system, they provided for a monetary system consisting of gold and silver corns. In doing so they forbade the use of anything else as a tender in payment of debts. The provision making this the constitutional law of the land follows:
No state shall . . . make anything but gold and silver coin a tender in payment of debts. (Art. 1, See. 1 O)
The states were not permitted to coin their own money because to have allowed this would have opened up the way for as many different denominations of gold and silver coins as there are states. A uniform monetary system which would circulate throughout all the states was desirable and so the power to coin the money was given to the federal government in this clause:
The congress shall have power . . . to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures. (Art. 1, See. 8)
The power here given to coin money, is nothing more than the power to weigh, alloy, shape and stamp coins in such a manner that one can see at a glance how many grains of the indicated metal the coin contains. (A grain is a small measure of weight equal to the weight of a gram of wheat.)
The power given to “regulate the value thereof,” was necessary because there was more than one metal chosen as legal tender. Since only a fixed number of grains of one of the metals could be used as a standard for the nation’s money, the number of grains of the other metal having a value equivalent thereto, would have to be regulated or changed from time to time as the relative values of the two metals varied in the open market. Had the relative values of the two metals been fixed, as [p. 175] appears to have been the case with the Nephite system, this power to regulate would not have been necessary. In modem times however, this power was essential because of the constant fluctuation between the two metals in the world market.
Or to explain the matter according to what actually occurred, by the first coinage act of 1792, Congress chose silver rather than gold as the standard metal, and made 371.25 grains of pure silver the basic unit of our entire monetary system. They called this unit the dollar, and regulated the value of gold at fifteen times that of silver. In other words they stated that one grain of gold was equivalent in value to 15 grains of silver.
The 1792 act also authorized the minting of gold and silver coins and declared both to be “a lawful tender in all payments whatsoever.” (1 Stat. at Large, P. 250) In 1834, due to an increase in the value of gold relative to silver, Congress changed the ratio between the two metals from 15 to 1, to almost 16 to 1.
The Gold and Silver Monetary System Has Been Abandoned
The Founding Fathers and those who understood the transcendent importance of a sound monetary system, maintained it until the time of the Civil War. However during that grave national crisis, the northern states commenced the alteration of the system. Congress adopted laws authorizing the printing of paper money and making it a tender in payment of debts. It also commenced regulating and controlling private banks. The supreme court in a series of split decisions, finally held these measures to be constitutional.
A number of years after the end of the Civil War, the nation reverted to a hard money standard, but used gold, rather than silver as the standard of value. This lasted until the great depression of the 1930's. During this second national crisis another series of laws were adopted resulting in the complete abandonment of a sound monetary system. In another series of split decisions, the supreme court held such laws to be constitutional. All of this occurred in spite of the fact that the original constitutional provision regarding gold and silver coin had never been changed. [p. 176]
Does the Constitution Permit Government to Print Paper Money?
Some may believe that the wording of the Constitution can be reasonably interpreted to allow for the use of irredeemable paper as money. Since in our opinion, the provision regarding money is of enormous importance and needs to be understood by all, we will briefly discuss this issue.
The only power the Constitution gave to the federal government regarding money was to coin it and borrow it. The power to print it is nowhere mentioned.
Furthermore we are faced with the fact that the Constitution forbids the states to make anything but gold and silver coin a tender in payment of debts. If we respect this mandate, how can we possibly believe that the federal government has the power to compel them to use anything else? To believe that the federal government has the right to compel the states to violate the Constitution is against all reason.
But if any further proof is needed that the Federal has no constitutional power to “emit bills of credit,” or print and circulate paper as money, it may be found in the debates of the Constitutional Convention. A proposal was made therein to give the Congress this very power and it was rejected by a vote of nine to two.
In a footnote explaining his vote in favor of denying the power, James Madison says:
This vote in the affirmative by Virginia was occasioned by the acquiescence of Mr. Madison, who became satisfied that striking out the words would not disable the government from the use of public notes, as far as they could be safe and proper; and would only cut off the pretext for a “paper currency,” and particularly for making the bills a “tender” either for public or private debts.” (Madison’s notes on the Federal Convention, Aug. 16, 1787)
Why Is a Monetary System of Gold and Silver Coins Important?
Those who believe the Constitution to be the handiwork of the Lord, need no other reason than this to favor the gold and silver monetary system for which it provides. It cannot be doubted that this is one of those [p. 177] provisions which is necessary to protect the rights which belong to all mankind, and therefore we are under commandment to leave it unchanged. Let us observe what rights are adversely affected by an irredeemable paper system.
The Federal Government Now Has Unlimited Power to Manufacture Money and to Spend it
The unlimited power of a government to print and circulate irredeemable paper as money is one of the most formidable and dangerous powers a government can possibly have. Who can imagine a device better calculated to give it control over the economy and the people? When a government can purchase goods and services and force the sellers to accept worthless paper as payment therefor, where is the restraint on its power to purchase?
When politicians, without risking their popularity by raising taxes, can conveniently and unobtrusively obtain the means by which to raid the public treasury to satisfy the demands of constituents whose favor they seek to purchase, where is the restraint on the power to corrupt?
A Corrupted Monetary System Grants’ an Unlimited Power to Tax
Those wise men who drafted the Constitution, carefully limited the power of the federal government to impose taxes. They denied it the power to impose direct taxes except when apportioned among the states on the basis of population. Since this is an extremely unpopular method of taxation, the restraint was most effective until the income tax amendment was adopted which made incomes subject to direct federal taxation without apportionment.
But the power to inflate the currency, which has been called the cruelest tax of all, has now been usurped by the federal government, and all of the carefully laid plans of those Founding Fathers to limit its taxing and spending powers have been brought to naught. The result has been most dramatic.
Back in the early 1930's when the nation was on the gold standard, [p. 178] the national annual budget was between four and five billion dollars. Today it is far more than a hundred times that amount and is growing by many billions more each year.
Corrupted Monetary System Grants an Unlimited Power to Incur Debt
When a government can pay its debts only with gold and silver coin or with goods and services of an equivalent value, and when it cannot obtain these except through taxation and borrowing, its credit is subject to close scrutiny and creditors will lend no more than they believe it can repay.
Thus a redeemable currency puts a definite limit on the power of a government to borrow. When it attempts to borrow in excess of its credit as the North did during the Civil War, the value of its obligations declines in the market place. If the decline continues, creditors cease to loan except at a discount which is so high, that the attempt to borrow is rendered futile.
But when a government has the power to print unlimited quantities of paper money with which to pay its debts, creditors have little fear of lending or collecting. This removes virtually all restraints on the power of government to borrow. Let us note what has happened to the United States national debt since the nation abandoned the gold standard during the great depression.
At the beginning of that period, the national debt was between twenty five and thirty billion dollars. Today it is over three trillion and it continues its upward spiral as the orgy of printing, spending, and borrowing continues. This trend threatens the very existence of our Republican form of government.
A Corrupted Monetary System Impairs the Obligation of Contract
Contained within the United States Constitution is this restraint on the powers of the states:
No state shall . . . pass any . . . law impairing the obligation of contracts. (Art 1, See. 10) [p. 179]
No device was ever invented which more cunningly and deceptively impairs the obligation of contract than a corrupted monetary system. The depreciation of the purchasing power of the money received by the creditor often goes unnoticed because he receives the same number of monetary units bargained for. However in the United States alone, creditors lose many billions of dollars in property rights each year because of the inflation caused by our irredeemable monetary system.
The government, being the largest debtor, benefits more than any others from this silent method of destroying property rights. It is a most disgraceful spectacle to see our government which was organized to establish justice, resort to injustice on such a gigantic scale.
A Corrupted Monetary System Discourages Investments
Another destructive consequence of an irredeemable paper monetary system is that it discourages and prevents the formation of investment capital. Mass production of goods and services is completely dependent upon the formation of investment capital with which the production facilities are acquired. But inflation destroys the incentive to save and, when rapid enough, makes saving virtually impossible for the great majority of the people.
Since the rate of inflation can never be accurately predicted, it is impossible for debtors and creditors to make contracts upon which they can depend. This destroys confidence between man and man, prevents the exercise of sound business judgment, discourages the very idea of investment, and subjects one’s economic future to the machinations of politicians.
A Corrupted Monetary System Centralizes Political Control
To the extent that local and state governments receive their funds from a centralized government, to this same extent the right of citizens to control the affairs of their counties and cities is denied. Local government officials become subject to direction from those who crank [p. 180] the printing presses and supply their funds, rather than from those who elect them to office. Furthermore the voters have lost control of the purse strings. Their control over those who furnish the funds is almost non-existent.
Therefore when the federal government has the unlimited power to print paper money, and when it uses that power to finance state and local programs, the power of the citizens over their local affairs is largely destroyed. Irredeemable paper money is one of the most dangerous threats to freedom which exists.
A Corrupted Monetary System Is Proposed by the Communists
It should be of grave concern to those who accept the words of the prophets regarding the dangers of secret combinations, to note that in abandoning the Lord’s monetary system, we have adopted the essential features of the system proposed by the adversary. Point number five of the Communist Manifesto provides for:
Centralization of credit in the hands of the state by means of a national bank with state capital and an exclusive monopoly.
Today the federal government has an exclusive monopoly on the printing and issuance of money. Existing laws make it prohibitive for private banks to issue notes redeemable in gold and silver coin as they were able to do prior to the Civil War. While in theory banks are privately owned, through licensing requirements and regulations, the controls exercised over them by governments are so extensive, that many of the incidents of private ownership are denied, and the aims of the Communists achieved.
In concluding this Chapter, from Ezra Taft Benson we read:
I believe in honest money, the gold and silver coinage of the Constitution, and a circulating medium convertible into such money without loss. I regard it as a flagrant violation of the explicit provisions of the Constitution for the federal government to make it a criminal offense to use gold or silver as legal tender or to issue irredeemable paper money. (Ezra Taft Benson, An Enemy Hath Done This, p. 145) [p. 181]
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