Wednesday, January 18, 2012

Toward a Constitutional Monetary System

Chuck Morse Speaks 

With a 16 Trillion dollar national debt, a high level of joblessness, a looming threat of inflation, and with Europe teetering on bankruptcy, it is entirely appropriate in these times to question the fundamentals of our monetary system. It should be noted that the present system in the US and in most of the western democracies is one that is run by consortiums of private banks, known as central banks, which have monopoly power over the issuance of currency. The American central bank is called the Federal Reserve Bank. While private banks ought to play a significant role in public finance, the salient question is whether or not it is appropriate for these private institutions to issue currency and to then charge interest for the privilege.

This is not to say that central banks have not played an important and historic role in terms of marshaling capital for great historic projects that have advanced civilization. Indeed, President George Washington, at the urging of his Treasury Secretary Alexander Hamilton, authorized the chartering of the first national Bank of America. At the founding of the American Republic the central bank played a key role in terms of consolidating the debts incurred by the individual states during the American war for independence. This consolidation of debt contributed to national economic unity. The central bank also provided the capital needed for the internal improvements that advanced America.

Yet the central bank was, and remains, essentially a consortium of private banks and investors and this places the value of the currency at risk which potentially hurts the saver, the investor, and the economy. The question posed here is whether it is appropriate in these times for this private institution to be issuing legal tender in the name of the US Government while charging the government and its citizens interest. The central bank decides the level of currency to be issued into the economy. As such the central bank is free to manipulate the currency to suit the purposes of its owners and investors. Thus the central bank is free to inflate or to deflate the dollar at will. Congress goes along because it is easier for congressman to borrow money from the Fed to increase spending while putting off the debt to future generations as opposed to raising taxes and trying to explain to their constituents what they are doing with the money. That debt is now becoming due here in the US and in Europe as the Europeans operate under the same system. Is there an alternative?

The US Constitution answers that question. Article I, Section eight, clause five reads as follows:

The Congress shall have the power to coin Money, regulate the Value thereof, and of foreign coin, and fix the Standards of Weights and Measures.

This means that the Congress, elected to represent the people, holds the constitutionally enumerated power to issue coin. This means that the Congress can directly issue currency. By regulating the value of currency, Congress holds the constitutional power to decide how much currency is issued into the economy. The amount of currency available in the economy is what determines the value of the dollar. Too many dollars in circulation causes inflation which causes the dollar to lose its worth as a storage of value and as a means of saving. The inflated dollar thus loses its purchasing power which causes prices for goods and services to go up in order to keep up with their actual cost and value of those goods and services. Conversely, too few dollars in circulation means deflation which means that there is not enough money in the economy to enable banks to offer loans and credit. The result of deflation is foreclosures, stagnation, and bankruptcies.

The Federal Reserve and the central banks of Europe have manipulated the currency over centuries, causing inflation and deflation, booms and busts, and they have done so in a calculated way so as to advantage themselves and their investors often at the expense of their nations and working people. The international banking structures, the World Bank and the International Monetary Fund among others, are also private banking consortiums and they have served to hook third world nations on debt. Thus the American people, and indeed people in many other nations have no actual control over the value of their own money.

Would a constitutional money system work in the US and what would it look like? This author suggests that currency issued directly by the US Treasury, currency issued to pay public debts and obligations, would be better and more solid than currency issued by the Federal Reserve at interest. US issued currency would be interest free and would be backed by the full faith and credit of the American people. US currency could be issued to pay for such present obligations as Social Security and Medicare. US currency, backed by a ratio of gold and perhaps other metals and certain public properties and resources, could be issued by the US government in a slow and gradual way so as to not cause inflation. By this means the government could begin to pay down the national debt while consolidating and eliminating non-productive costs.

A permanent congressional committee should be established to draft a series of simple laws that would determine how much currency would be  needed in a given fiscal year. The committee should oversee the issuance of that treasury currency in an open process involving open debate and testimony. The amount of currency that would be issued should  depend upon objective indices such as the Gross National Product. The question before this committee would be how much money would be needed for the economy to cover production and exchanges. Private banks should be required to issue a monthly report on their total outstanding credit and this credit would have to be regulated match a set ratio in terms of capital at hand. By this means our nation would benefit from honest money and the result would be greater capital accumulation at all levels, lower taxes, and more creativity and economic opportunity.

The American people deserve to know that their dollar is worth a dollar. If the government wants to spend then the government would have to raise taxes and thus be held accountable. The economy would be based upon a model of savings as opposed to the present system which is based upon debt. The American people should have honest money. This was the intent of the founding fathers when they wrote the currency clause into the US Constitution. This would be the best monetary policy today especially in these economically uncertain times. 

1 comment:

Ollie Grande said...

If this were done and actually adhered to, it would work very well I have no doubt,