Sound Money:
Key to Prosperity
Monday, April 14, 2008
By John F. McManus
In addition to many other praiseworthy features, our nation has always been known as a productive marvel. People don’t come here to starve; they come to enjoy what could be called “the good life.” One key reason why prosperity has always been found in America is the existence of sound money. Its importance should not only never be taken for granted; it should never be allowed to disappear.
More than 50 years ago, economist Dr. Murray Rothbard stated the following very important fact about money: “Money is not an abstract unit of account, divorceable from a concrete good; it is not a useless token only good for exchanging; it is not a ‘claim on society’; it is not a guarantee of a fixed price level. It is simply a commodity. It differs from other commodities in being demanded mainly as a medium of exchange.”
Medium of Exchange
The important word here is commodity, something possessing recognizable value unto itself. When a commodity is chosen to be money, it is selected because of its universally accepted value. Experience also shows that whatever is chosen as money should be durable, divisible, transportable, and relatively scarce. As soon as a commodity becomes accepted as money, the cumbersome and frequently unworkable system known as barter loses favor. A medium for exchange now exists. Now, a person can exchange his labor for money and use that money to buy goods from someone who didn’t need his labor. A farmer can sell his cattle and use the money to buy a carpenter’s furniture, and both are completely satisfied.
When money exists, commerce is no longer inhibited, as it is when barter prevails, by what Dr. Rothbard called “the need for a double coincidence of wants.” Smith can use money to purchase goods from Jones when those goods had previously been unobtainable because Jones had been offered something he didn’t want.
Immediately, we see that sound money spurs commerce, stimulates a wide diversity of labor, and helps mightily to advance civilization. Sound money is not the product of advancing civilization; it is a cause. John Birch Society founder Robert Welch made this point many years ago when he wrote:
When Tacitus said of the German aborigines nearly two thousand years ago, “we have taught them to accept money,” he was boasting justifiably of this step towards bringing the benefits of civilization to some barbarian tribes.
Sound money makes it possible for some to study medicine, become teachers, create art, perform as clergymen, produce food, or undertake a wide array of professions. In a barter system, if a teacher needs shoes but a shoemaker has no desire to be taught, the hoped-for transaction doesn’t occur. The teacher might then seek someone else who wants his lessons and will pay for them with something the shoemaker desires. The teacher will, therefore, accept that something for his lessons, not because he wants it, but because the shoemaker does. This is indirect exchange, a step on the way to having money.
When money is introduced into a system, the teacher who becomes employed and earns money for his efforts will find no problem using his money to transact business with the shoemaker or with anyone else. So too will a doctor, a musician, a painter, a clergyman, and many others who produce no goods but who receive money for their services and contribute to the advancement of civilization. As mentioned above, money acting as a medium for exchange allows for a wide diversification of labor, a great leap forward in any society. The claim that sound money is the cause of advancing civilization needs no further explanation.
History confirms the use of a wide variety of items for money. Valuable substances such as salt, sugar, cattle, tobacco, and shells acted as a medium for exchange in bygone cultures. But when the need for the money to be durable, divisible, transportable, and relatively scarce was recognized, experience showed that gold and silver were the best commodities to use for money. No government mandated this, nor did any economic guru make the decision. The wisdom of mankind operating in the marketplace settled on these precious metals as the best commodities to use for money.
Another important point about money is that once a commodity has been freely chosen to act as money, there is no need for government management. Gold and silver are commodities whose value and availability will be determined in the market place, just as will the value of any other commodity. Government management of the value, amount, and particulars of automobiles, shovels, gloves, refrigerators, etc. — all commodities — is never considered in a free and open society. In like manner, commodities such as gold and silver should never be encumbered by government decision making.
History also tells us that there are three basic kinds of money: 1. Commodity money (gold and silver) that we have already described; 2. Fiduciary or trustworthy money substitutes such as paper receipts, tokens, checks, and other financial instruments; and 3. Fiat money — money that is not backed by any precious commodity — that is a valueless substitute for commodity money and is made to seem valuable only by government edict or “fiat.” While fiduciary money opens the door for counterfeiting, a constant concern that is relatively controllable, the third type of money — fiat money issued by government — invites mass production and distribution (inflation) and immense fraud.
Our Own Nation’s Experience
In the years before they separated from England, our colonial forefathers experimented with fiat money and paid dearly for doing so. With no limitation on the amount produced, they experienced lost credibility, a slowdown in productivity, civil disruption, and widespread personal animosity and hardship. Viewing this obvious destructiveness, the British Parliament outlawed irredeemable paper money for the colonies in 1764. Immediately, gold coins from Europe began circulating within the colonies. With economic stability restored, commerce again flourished and the other problems always accompanying fiat money faded away.
After the Declaration of Independence and the need to finance the ensuing struggle with Great Britain, the Continental Congress issued fiat money. Called “continentals,” the new currency was soon discovered to have no backing, but was given temporary credibility when the fledgling government enacted “legal tender laws” to enforce their use. Even though the war ended in triumph, the problems caused by fiat money — slowed commerce, unemployment, person-to-person animosity, fear of losing assets, and loss of confidence in government — threatened to tear the infant nation apart. Once the war ended and the Founders decided to revise the existing government, one of their main goals was to bar the issuance of paper fiat money.
During the debates leading to the creation of the U.S. Constitution, Connecticut’s Oliver Ellsworth declared that it was “a favorable time to shut and bar the door against paper money.” Pennsylvania’s James Wilson agreed and stated that doing so “will have a most salutary influence on the credit of the United States.” New Hampshire’s John Langdon said that he would rather reject the whole Constitution than allow the federal government the power to issue paper money.
The resulting Constitution incorporated the demand to avoid fiat money. Not only was the newly crafted federal government given no power to issue money, it was granted no authorization to manage it. The government was awarded authority to establish a mint to “coin money” and to establish standards for its size, weight, and purity. That’s all. There was no authorization to issue money and, certainly, no authorization to delegate a non-existing power to some private entity such as the Federal Reserve. Even the states, jealous guardians of their own prerogatives, agreed to the Constitution’s mandates never to “emit bills of credit” (paper money), or to “make any thing but gold and silver coin a tender in payment of debts.” And our infant nation prospered, becoming in a short time the world’s greatest producer.
There were other factors that contributed to America becoming the envy of the world. But sound money, unencumbered by government meddling, was among the most important. For 150 years, the American dollar was “good as gold.” And being labeled “sound as a dollar” was a welcome compliment.
During the 20th century, however, the dollar suffered transformation from being trustworthy fiduciary money to government-mandated fiat money. The result has brought on all of fiat money’s woeful consequences — slowed commerce, unemployment, person-to-person animosity, fear of losing assets, and loss of confidence in government. A return to sound money, the kind our nation once enjoyed and the kind our Founding Fathers mandated, must become one of the highest priorities for all who love America and cherish its freedom.
John F. McManus is President of The John Birch Society.
He was born in Brooklyn, New York, in 1935. At graduation from Holy Cross College in Worcester, Massachusetts, he received a bachelor's degree in physics and a commission in the United States Marine Corps. After serving three years of active duty, he entered the field of electronics engineering, where he won an award from the U.S. Air Force for designing a component used in fighter aircraft.
Jack left the engineering field in 1966 to accept a full-time position with our organization. Working closely with Founder Robert Welch for many years, he was named the Society's Public Relations Director and its official spokesman. In 1991, he was appointed President.
The author of several books and numerous articles, Jack has represented the Society in hundreds of media appearances, spoken from JBS platforms in all 50 states, and written and produced several JBS films and videos. With his wife, Mary, Jack resides in Wakefield, Massachusetts.
NOTE: In accordance with Title 17 U.S.C. section 107, any copyrighted material herein is distributed without profit or payment to those who have expressed prior interest in receiving this
information for non-profit research and educational purposes only. For further information please refer to:
http://www.law.cornell.edu/uscode/17/107.shtml
|
