There is a difference between property or wealth as we have defined it and property rights, which must be recognized if we are to have a correct understanding of the function of government in the protection of the right of private property. Whereas property consists of tangible organized raw materials and energy, a property right is always intangible and relates to one’s rights against other people.
Property arises from the organizing efforts of individuals and its ownership is vested in the one who expended the necessary physical and mental energy to bring it into existence or obtained title to it otherwise. But what rights does this title give? The only rights one can possibly have as a result of ownership are against people rather than against the property. A property right is the right to use the police power to compel another to do something about property — either to leave it alone or take some affirmative action concerning it.
When a person asserts a property right he goes to court and induces the judge to issue a decree or a judgment against other individuals. The police power is then used to compel those named in the judgment (which may be everyone) either to refrain from some activity which affects the property in question or to take some positive action with respect thereto such as delivering possession of it. A property right is meaningless unless it enables its owner to use force against other people.
The right of a person to be left undisturbed in the possession and control of his property is protected by the criminal laws which provide for the punishment of any who cause intentional damage, and also by the tort laws which permit recovery from those who cause injury either intentionally or negligently. The right here protected is in the nature of a negative right — the right to be left alone in the possession and use of property. It is accompanied by a corresponding [p. 122] duty to leave others undisturbed in the ownership of their property.
But the affirmative right to compel others to take some positive action concerning property is ordinarily acquired by means of a voluntary agreement and is protected under contract law. When a person enters into a binding agreement he acquires the right to receive the payment of money, the delivery of goods or the rendering of service. The subject of business law is concerned with the acquisition and enforcement of such property rights.
In a society where labor is highly specialized and a person consumes very little or none of what he produces, property rights are of great importance. In such a society, the great majority of those who produce goods and services are employees. Before they are paid each pay day, their entire income is in the form of a property right against their employer. It is the right to receive the money from him. But even those who are in business for themselves sell practically all they produce in exchange for property rights against their buyers. These buyers may sell to others who may in turn sell once again.
Thus it is seen that almost all goods and services are exchanged for property rights at least once, and usually several times, before they are eventually consumed. Almost everything a person owns has been acquired pursuant to a contract which gave rise to the right to receive that property. In an industrialized nation, a substantial portion of those possessions which have value consist of claims or property rights emanating from agreements.
Nearly every person is both a debtor and a creditor under a number of contracts all the time. We are continually striving to discharge business obligations to others and to induce others to fulfill their obligations to us. Most of what we do in the economic field is done to satisfy or discharge a property right owned by someone else against us and almost everything we receive is in satisfaction of a property right due us. We rely upon the fulfillment of obligations due us to live and to achieve our goals. Thus it is seen that property rights are of the greatest importance in an economically developed nation where there is a marked division of labor. [p. 123]
In nearly every instance a property right is the right to receive money. When an employee enters a contract to work, his wages usually are paid in money. In contracts for the sale of merchandise, land, machinery, professional services, etc., the payment of money is bargained for in almost every instance.
But even where the property right which one obtains by contract is to receive other goods or services, if there is a default and the defaulting party is sued in court for damages, the award is almost always in terms of money. There are a few cases in which the courts give specific performance and order delivery of the thing bargained for. But this is relatively rare. Therefore, in the great majority of instances, when a person enforces a property right acquired under contract, his right turns out to be the right to receive a payment of money. This is generally true in the enforcement of tort claims also. This means that money is, for all practical purposes as important in our economic affairs as property rights. In most instances they are one and the same. To understand the nature of property rights then, it is necessary to understand the nature of money. Let us briefly examine this subject.
There is a great deal of dispute (and therefore misunderstanding) about the subject of money and this extends to a correct definition of the term. Money has been variously defined as “a medium of exchange”; “a common measure of value”; “a store of value;” and as “a tender in payment of debts” among other things. It is not our purpose here to analyze or even criticize these various definitions except to point out that nothing can serve as money in a nation unless the government of that nation has decreed that it must be accepted in satisfaction of a debt. This is the critical test. Money amounts to nothing more and nothing less than that which the law declares will discharge a legal obligation which is payable in terms of money. If it does not do this, it cannot constitute money even [p. 124] though it may serve as a medium of exchange or a common measure of value, etc.
This point is of the utmost importance in the study of property rights because as we have seen a property right is in nearly every instance the right to use the police power to compel the payment of money in satisfaction of a debt. Money then is usually that which a person is forced to accept in discharge of his property rights. It is that which government decrees will fulfill contract obligations. It is also that which satisfies most obligations which arise under tort laws.
If the money used in a nation is a commodity such as gold or silver, the value of which does not diminish in relation to the value of other commodities, then the property rights which it satisfies will remain equally valuable. If, however, the money used is an irredeemable piece of paper which is worthless except as government invests it with the power to discharge debts, then the property rights which it satisfies are worthless to the same extent.
A government may decree that several different commodities shall serve as money for the payment of debts in the area under its jurisdiction. However, only one of those commodities can be used as a standard of value for the monetary system. As an illustration of this fact let us assume that the three commodities, gold, silver, and copper are all declared to constitute a tender in payment of debts. Now before the size of a debt or the value of property right can be stated in terms of money, one of these three metals must be selected as a standard or measure of value. It would be just as impossible to state the size of a debt or the amount of a property right without a standard of value, as it would be to state the weight and size of an object without a standard of weights and measures.
Let us assume that silver is chosen as the standard and that so many grains of that metal (a grain is a measure of weight equal to the weight of a grain of wheat) are set equal to the unit value of money such as the dollar, the franc, the peso, etc. The value of every other item in the nation is then measured in terms of the value set for that quantity of silver. Even the value of the other commodities used as money — gold and copper — must be measured by this standard and before a debtor can pay a debt with these other metals, the government must decree how many grains of each are equal in value to the value of the number of grains of silver chosen as the standard. Only when this is done can the debtor know the quantity necessary [p. 125] to discharge his money obligation.
It is observed that unless the values decreed for gold and copper are very near their actual market value, the people will be selective in which metal they use for the payment of debts. If they have a choice and there is a disparity between the market and the declared value, they will choose that metal which is the cheapest in terms of the other metals. It is seen that government must use great care to value the metals accurately otherwise the cheaper metal will drive the others out of circulation. Furthermore, as the supply and demand of the three metals varies relative to one another, government must recognize this by changing the money values of the two non-standard metals. Of course, the value of the number of grains of silver used as the standard will never be changed. This is fixed for all time just as the distance represented by a meter, a foot, or an inch remains constant. When a government “coins” money it takes so many grains of the money metal and alloys, shapes, and stamps it with markings so that one may see at a glance the value it has been declared to possess. That value will always be in terms of the standard chosen.
Now these are the names of the different pieces of their gold, and of their silver, according to their value. And the names are given by the Nephites, for they did not reckon after the manner of the Jews who were at Jerusalem; neither did they measure after the manner of the Jews; but they altered their reckoning and their measure, according to the minds and the circumstances of the people, in every generation, until the reign of the judges, they having been established by king Mosiah.
Now the reckoning is thus—a senine of gold, a seon of gold, a shum of gold, and a limnah of gold. (Alma 11:4-5)
When the framers of the U.S. Constitution made provision therein for a monetary system, they decreed that only “gold and silver coin” could be used as money. During their deliberations in the convention a proposal was made to allow the states to use either gold, or silver, or copper as money at their discretion. (Madison’s Debates May 29, 1787) This idea was rejected. Later on, another proposal was made to permit the states to use either gold or silver as money and this was also turned down. The provision finally adopted remains unaltered in the Constitution today and reads as follows: [p. 126]
No State shall ... make anything but gold and silver coin a tender in payment of debts. (Art. 1, Sec. 10)
This provision requires the states to use both gold and silver coin as money and nothing else. They were permitted no discretion in the matter whatsoever. They could not use gold alone or silver alone. Both must be recognized as money with the power to discharge debts.
To avoid the many problems which would have arisen had each state been permitted to coin its own money thereby setting up a variety of standards of value to impede and confuse the free flow of commerce across state lines, it was decided to give the Federal government the exclusive power to coin money. This would create a uniform system throughout the nation. To insure against diverse monetary systems, the states were specifically forbidden by the Constitution to “coin money”. (Art. 1, Sec. 10) The power of the Federal government to coin money was granted by the following clause:
The Congress shall have power ... to coin money, regulate the value thereof, and of foreign coin. (Art. 1, Sec. 8)
The power to regulate the value was necessary because, as we have seen, only one of the two metals used as money could be the standard of value, and the value of the metal not chosen would necessarily have to be regulated from time to time as the relative value of the two metals varied in the market place.
By the first Coinage Act passed in 1792, Congress chose silver rather than gold as the standard for money in the United States and made 371.25 grains of pure silver the basic unit of our entire monetary system. They called it the “dollar” or the “unit.” The value of gold was originally set at fifteen times the value of an equal weight of silver and the 1792 Act authorized the minting of both gold and silver coins and declared them 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 and the consequent disappearance of gold money in the United States, Congress regulated the value of gold as the Constitution authorized by decreeing that 23.4 grains of pure gold would henceforth (until further changed) be equal in value to the silver dollar standard of 371.25 grains of pure silver. According to this regulation, gold was declared to have a [p. 127] value almost 16 times that of silver rather than the 15 to 1 ratio originally established. It is not our purpose here to examine the various Acts of Congress which have had such a profound effect upon our monetary system since that date. Let us merely note that today because of such enactments, neither gold nor silver coin is used by the states as legal tender in payment of debts and the only money now in use consists of irredeemable paper and a debased coinage.
I have examined the Constitution upon this subject and find my doubts removed... The Constitution tells us what shall not be a lawful tender. The 10th section declares that nothing else except gold and silver shall be lawful tender ... (Joseph Smith, DHC Vol. V, p. 289)
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 coin as legal tender or to issue irredeemable paper money. (Ezra Taft Benson, An Enemy Hath Done This, Parliament Publishers, Salt Lake City, Utah, 1969, p. 145)
Since the Constitution specifically forbids the states to declare a debt paid unless paid in gold or silver coin, this clause alone should be sufficient to convince anyone that irredeemable paper money cannot constitute legal tender in the United States. But there is additional evidence of this fact both within the Constitution itself and also in the debates of the Convention which adopted it. In the following clause the Constitution forbids the States to issue paper money.
No State shall … emit bills of credit. (Art. 1, Sec. 100)
When the framers used the words “emit bills of credit” they were referring to the issue of paper money. The above provision denies the States this power.
A similar provision against the issue of paper money by the Federal government is not found in the Constitution but this fact [p. 128] cannot be construed to mean that it was ever intended that such a power be held. Since the national government holds only those powers delegated to it by the Constitution and this power was not granted, it cannot be assumed that it is possessed. In fact the very opposite of this conclusion must be reached because there was a proposal made in the Convention to invest the Federal government with this power and the proposal was rejected by a majority of 9 to 2.
The reasons for denying this power are perhaps best explained by the comments made by the members of the Convention as they debated the issue. Following is a record of those comments as made by James Madison: (The clause being debated read—“The legislature of the United States shall have the power ... to ... emit bills, on the credit of the United States.”)
MR. GOVERNEUR MORRIS moved to strike out “and emit bills on the credit of the United States”. If the United States had credit, such bills would be unnecessary; if they had not, unjust and useless.
MR. BUTLER seconds the motion.
MR. MADISON. Will it not be sufficient to prohibit the making them a tender? This will remove the temptation to emit them with unjust views; and promissory notes, in that shape, may in some emergencies be best.
MR. GOVERNEUR MORRIS. Striking out the words will leave room still for notes of a responsible minister, which will do all the good without the mischief, The moneyed interest will oppose the plan of government, if paper emissions be not prohibited.
MR. GORHAM was for striking out without inserting any prohibition. If the words stand, they may suggest and lead to the measure.
MR. MASON had doubts on the subject. Congress, he thought, would not have the power, unless it were expressed. Though he had a mortal hatred of paper money, yet, as he could not foresee all emergencies, he was unwilling to tie the hands of the legislature. He observed that the late war could not have been carried on, had such a prohibition existed.
MR. GORHAM. The power, as far as it will be necessary or safe is involved in that of borrowing.
MR. MERCER was a friend to paper money, though, in the present state and temper of America, he should neither propose nor approve of such a measure. He was consequently opposed to a prohibition [p. 129] of it altogether. It will stamp suspicion on the government, to deny it a discretion on this point. It was impolitic, also, to excite the opposition of all those who were friends to paper money. The people of property would be sure to be on the side of the plan, and it was impolitic to purchase their further attachment with the loss of the opposite class of citizens.
MR. ELLSWORTH thought this a favorable moment to shut and bar the door against paper money. The mischiefs of the various experiments which had been made were now fresh in the public mind, and had excited the disgust of all the respectable part of America. By withholding the power from the new government, more friends of influence would be gained to it than by almost anything else. Paper money can in no case be necessary. Give the government credit, and other resources will offer. The power may do harm, never good.
MR. RANDOLPH, notwithstanding his antipathy to paper money, could not agree to strike out the words, as he could not foresee all the occasions that might arise.
MR. WILSON. It will have a most salutary influence on the credit of the United States, to remove the possibility of paper money. This expedient can never succeed whilst its mischiefs are remembered; and, as long as it can be resorted to, it will be a bar to other resources.
MR. BUTLER remarked, that paper was a legal tender in no country in Europe. He was urgent for disarming the government of such a power.
MR. MASON was still averse to tying the hands of the legislature altogether. If there was no example in Europe, as just remarked, it might be observed, on other side, that there was none in which the government was restrained on this head.
MR. READ thought the words, if not struck out, would be as alarming as the mark of the beast in Revelation.
MR. LANGDON had rather reject the whole plan, than retain the three words, “and emit bills.”
On the motion for striking out, —New Hampshire, Mass., Conn., Penn., Dela., Va., No. Caro., So. Caro., Georgia, ay, 9: New Jersey, Maryland, no, 2. (Madison’s Notes, August 16, 1787)
In a footnote explaining his vote in favor of denying the power, Mr. Madison says: [p. 130]
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 August 16, 1787)
From the above nothing can be clearer than this: The power to issue paper money as legal tender was never given to the Federal government but on the other hand was specifically denied to it by the Founding Fathers.
Most unquestionably there is no legal tender, and there can be no legal tender in this country, under the authority of this government or any other, but gold and silver, either the coinage of our own mints, or foreign coins, at rates regulated by Congress. This is a constitutional principle, perfectly plain, and of the very highest importance. The States are expressly prohibited from making anything but gold and silver a tender in payment of debts; and, although no such express prohibition is applied to Congress, yet, as Congress has no power granted to it, in this respect, but to coin money, and to regulate the value of foreign coins, it clearly has no power to substitute paper, or anything else, for coin, as a tender in payment of debts and in discharge of contracts. (Daniel Webster, Great Debates In American History, Vol. 13, p. 113)
By our original Articles of Confederation, the Congress have power to borrow money and emit bills of credit on the credit of the United States; agreeable to which was the report on this system, as made by the committee of detail. When we came to this part of the report, a motion was made to strike out the words “to EMIT BILLS OF CREDIT.”...
But, sir, a majority of the Convention, being wise beyond every event, and being willing to risk any political evil rather than admit the idea of a paper emission in any possible case, refused to trust this authority to a government to which they were lavishing the most unlimited powers of taxation, and to the mercy of which they were willing blindly to trust the liberty and property of the citizens of every state in the Union; and they erased that clause from the system. (Luther Martin, delegate to the Constitutional [p. 131] Convention from Maryland, Elliot’s Debates, Vol. 1, pp. 369, 370)
It is apparent from the whole context of the Constitution as well as the history of the times which gave birth to it, that it was the purpose of the Convention to establish a currency consisting of the precious metals. These, from their peculiar properties which rendered them the standard of value in all other countries, were adopted in this as well to establish its commercial standard in reference to foreign countries by a permanent rule as to exclude the use of a mutable medium of exchange, such as of certain agricultural commodities recognized by the statutes of some states as tender for debts, or the still more pernicious expedient of a paper currency. The last, from the experience of the evils of the issues of paper during the Revolution, had become so justly obnoxious as not only to suggest the clause in the Constitution forbidding the emission of bills of credit by the States, but also to produce that vote in the Convention which negatived the proposition to grant power to Congress to charter corporations. (Andrew Jackson, Messages and Papers of the Presidents, Vol. 3, p. 246)
If creditors can demand that their property rights be paid with precious metals, it is impossible for a government to destroy the value of their claims through inflation. This conclusion does not deny the possibility of a fluctuation in the relative value of gold and wheat or of silver and steel. If the demand for wheat and steel suddenly increases and the supply diminishes this will tend to increase their value relative to other commodities including gold and silver. On the other hand the reverse of these same factors could operate to increase the value of the precious metals with respect to other products. But the important point is that gold and silver have retained their relative value throughout history and there is every reason to assume that they will not lose it in the future. On the other hand there has never been an issue of irredeemable paper money which has not suffered a loss in value. The only value such paper ever has is the power to pay debts and when this value is lost as always happens, it is utterly worthless except as a sad reminder of the foolishness of men. Since a property right is nearly always the right to receive money, when money loses its value, there is a corresponding loss in the value of the property right.
A great principle is involved in this money question. The Constitution of the United States undoubtedly contemplated the use of both gold and silver as coin and as tender in the payment of [p. 132] debts. The framers of that instrument held the views which were then current as to the necessity of having both metals in circulation as money ...
We have been led to expect that there would be attempts made to infringe upon the Constitution ... It is well for us who reside in these mountains to divest ourselves of prejudice and look upon these questions as free from passion as possible, and cultivate a conservative feeling. It certainly would be, in my opinion, a violation of the Constitution for silver advocates to attempt to strike down gold and to deprive it of its function as money and as a tender in payment of debts. So also is it a violation of the Constitution to attempt to make gold the only metal that possesses the function as a tender in payment of debts. Gold and silver should both be upheld and used, and any attempt to deprive either of these metals of its value as a tender in payment of debts seems to me a clear violation of the spirit of the Constitution. (George Q. Cannon, 1896, Juvenile Instructor, 31: 523-4)
Inflation inflicts the greatest harm on those who own property rights which take a long time to mature. Rights such as those represented by insurance policies, bonds, mortgage notes, pensions, and retirement benefits can be and are largely destroyed by inflation. But even more tragic than this is the loss of confidence between men and the destruction of the incentive to save. As men observe the destruction of property rights represented by long-term investments, they cease to make such investments. As inflation becomes more rapid, they cease to make any investments at all. To the extent that property rights become worthless merely by the passage of time, men refuse to enter into agreements which create such rights. No one will invest; no one will save; no one will loan, and no one will build. Thus all business comes to a standstill eventually and anarchy results. The late John Maynard Keynes regarded the corruption of the currency and inflation as the surest method of destroying the capitalistic system. Note his words:
Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens ... Lenin was certainly right. There is no subtler, no surer means of over-turning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. (Economic Consequences of the Peace, pp. 235, 236, [1920]) [p. 133]
The effect of inflation on property rights can be dramatically illustrated by comparing the buying power of the U.S. dollar before the nation went off the gold standard with its current buying power (1974) some 40 years later. The United States officially adopted the gold standard by “The Gold Standard Act” of March 14, 1900. That act declared the dollar containing 25.8 grains of gold, 0.900 fine to be “the standard unit of value.” (U. S. Stat. at L. Vol. 31, pp. 45-50)
In effect this established the price of gold in terms of dollars at $20.66 per ounce. In 1974 according to the newspapers gold was being traded on the London, England exchange at between $150.00 and $160.00 per ounce. (There was no gold market in the U.S. at that time, such trading being forbidden by law.) This represents a decline in the purchasing power of the dollar of more than eighty percent during this period. Or to state the matter another way, before the gold standard was abandoned the U.S. dollar would purchase approximately 23 grains of gold . Today it will purchase less than four. Assuming that the value of gold relative to other commodities remained about the same during that 40-year period, the overall purchasing power of the dollar decreased eighty percent. Thus a property right such as a $1,000 insurance policy which was paid for prior to 1933 and which matured today would be worth no more than $200 of the $1,000 paid for it.
It is noted that to the extent the policy holder suffered from inflation, the debtor insurance company benefited because eighty percent of the real value of the debt was cancelled during the time it remained outstanding. But while non-government debtors benefit only to the extent that inflation discharges the real value of their obligation during the time it remains unpaid the debts of a government whose paper becomes completely worthless is entirely discharged in this manner. As an instance of this let us observe what will happen to the approximately four trillion dollar debt the U.S. government now owes to banks, insurance companies, individuals and other investors if inflation continues until the dollar declines to zero value.
The Federal government today claims the right to print any amount of paper money it needs for the payment of its debts. In other words it now asserts the power to completely discharge its enormous obligation with printing press money and assumes it can never be required to give to its creditors (at least those under its jurisdiction) either gold, silver or any other commodity of value in [p. 134] payment of their loans. However, this does not mean that any single set of creditors will be required to suffer a 100% loss of their investment. The identity of government creditors changes from time to time all throughout the period during which the dollar is losing its value. But amongst all such creditors they will eventually suffer a combined loss of four trillion dollars in property rights if inflation continues until the currency is worthless.
It is easy to understand that when inflation becomes a way of life in a nation and the community perceives that it is destroying their property rights, they refuse to become creditors under contracts which take a long time to mature. Then as inflation becomes more rapid, the time period during which credit will be extended, or for which property rights will be allowed to remain unsatisfied, becomes shorter and shorter until virtually all business ceases. This causes extreme want and suffering until finally the people in their extremity come to a full realization of the fact that it was the debauchery of their currency by government officials which caused the disaster. At this point the overturning of the existing basis of society can be expected.
Other than returning to a sound money system, there is one alternative which a government can pursue to prevent the above described chain of events from running their full course and that is to pass laws which deny the people their freedom to express a loss of confidence in the currency. This is done by imposing wage and price controls. Such laws make it a criminal offense for people to evaluate the dollar in terms of goods and services. Of course such controls lead inevitably to rationing and when such measures are added to the licensing, regulatory, and welfare state laws which are already on the books, the combined effect is to destroy freedom of contract. But the destruction of freedom of contract is tantamount to the destruction of the right of private property and all of the other basic freedoms which are dependent thereon. However, the imposition of wage and price controls does tend to keep hidden from the majority of the people the fact that it was the corruption of the monetary system in the first instance which led to a destruction of private property rights. [p. 135]
| Previous page | Next Page |