Too extreme for America... but not by much, and easily correctable. With just a bit of tweaking, we can restore enough orthodoxy to our monetary system to eliminate our unnecessary accumulation of debt.
Last month we cited facts and figures to show just how small a percentage of our money supply (“like a drop in a rainstorm”) would be required to close the FY 2014 federal deficit with the use of United States Notes – our longest-lasting currency, first issued in 1862 and on hand in the vaults of the Treasury by law until 1996. Debt-free United States Notes or “greenbacks” were the heir to the currencies of all great civilizations prior to that date, including their use as the Constitutionally–described currency of the United States far longer than our more recently-devised Federal Reserve Notes, which are another type of printed, fiat money. These two currencies, which circulated side-by-side for over 80 years, exhibited exactly no difference in use but only a difference in that United States Notes have been created debt-free by the U.S. Treasury, whereas every time the government uses Federal Reserve Notes to fund a deficit it creates unnecessary debt in like amount.
A panel “expert” at one of Washington’s leading think tanks made the statement, “I don’t know anything about greenbacks.” He was of an age to have carried them in his wallet 20 years ago, yet says he knows nothing of them. How short memories can be! Some readers of this newsletter have struggled and struggled to understand them as debt instruments, objecting to their inferiority as “investments” in the eyes of prospective investors, when all they ever were was a currency, given worth as are our Federal Reserve Notes by the fiat power of government to declare them “Legal tender for all debts, public and private”. There are those who object that Federal Reserve Notes are special because they are “backed” by the full faith and credit of the government of the United States. That’s language lifted from Treasury bonds. Take a Federal Reserve Note from your pocket and see if those words appear on it, or if there is any guarantee of its exchangeability for any alternate form of asset. It is printed, fiat money, period. Take a pocket full of United States Notes, if you still have them, and see if you cannot buy exactly the same amount in Treasury Notes, gold, silver or Popeye’s fried chicken with either of these issuances of the U.S. Dollar.
Sovereign currency “greenbacks” seem to be thought of, by some, as a sort counter-culture, “out of the box” throw-back to a quirk in history. Actually, they represent the established orthodoxy of civilizations since the dawn of time; the type of currency provided for and specifically described in the Constitution; and the norm of American history. It is, rather, the idea of 100% privatization of the monetary system…we object to that last, greedy one or two percent - that is radical, a departure from the norms of history, a relatively recent experiment that can now be seen to have failed. When the last of the greenbacks on hand in the Treasury were destroyed in 1996, we were making excellent progress toward eliminating the national debt. Since then the national debt has exploded, and for no good reason. What we have is the bad reason of big-money interests who want to tie all money creation to debt creation as a stratagem for keeping the commodities they dominate – money and credit – in tight supply optimal for them but not optimal for the economy.
There are those who say that re-introducing greenbacks would be little different than what we are doing now, by borrowing money from the Federal Reserve. After all, they say, the Fed just keeps rolling its Treasures over and over and pays back to the Treasury the interest paid on them each year. Without getting into the issue of whether debt owed to the Fed isn’t in fact real debt, we must point out that the Fed must buy Treasuries from third parties, and that many Treasuries remain in the hands of third parties who will not obligingly roll them over indefinitely and who will not sent back the interest at the end of the year. Those who worry about our grandchildren being buried in debt have a real and valid concern.
When the greenback question was raised at an “event” of one of the major think tanks in Washington, the moderator’s response was: “Good luck with that one.” Indeed, not one of the panel members was willing to hazard a reply, except the one who said he knew nothing about the subject. When the Executive Director of the same think tank was asked to match us 1 for 12 in ways to improve our economy with targeted investments, no increase in debt, no austerity and no forfeitures in tax revenues, his response was not, “wow, that’s a tall order.” It has not been difficult for us to come up with a dozen and more ways to do so…surely his organization could come up with one! His response was, rather, “We are not interested at this time.” He, the moderator referred to and the panel member who said he knew nothing about greenbacks made it very clear that they, institutionally, do not want to go fishing in that pond. What, if not the out-sized contributions at least unseemly received from Wall Street Banks (thank you, Google), could account for this “disinterest” in the most pressing economic issue of our time? This is a subject we need think tanks to honestly think about. (A few of their number are catching on).
If the problem could possibly still be confusion, let’s break it down as clearly as can be, using a parable about a family farm. Pa harvests the fields, producing enough income to meet or nearly meet the expenses of the household. Ma, who keeps track of the bookkeeping, notices that too often their annual income falls slightly short of their annual expenses. So she starts baking pies to sell up and down the valley. Like any business, she must decide how many pies to make. Flood the valley with them, and they will have no value. But as Ma does have an ounce of common sense, her pie-making ensures the household has enough income to meet its expenses, and in good years, some left over to put into savings and investments. Eventually, of course, the pie-making will become less important, as only one among several supplementary sources of the household’s income.
Who do these characters represent? Pa represents the government, collecting taxes (etc.). Ma represents the government doing something it does uniquely well: making money (literally). After all, is it not only the government that can print money and proclaim it to be “Legal tender for all debts, public and private”? (And is earnable, usable money not as useful a product as buyable pies?)
This story might seem too humble, until we remember that what it represents is the Jeffersonian ideal, and in more ways than one. Thomas Jefferson was one of those who labored for months to ensure the Constitution would provide for a sovereign currency, issued by the federal government, rather than a privatized monetary system. On this subject, he wrote: “I sincerely believe the banking institutions having the issuing power of money, are more dangerous to liberty than standing armies.” (See, http://info.fmotl.com/GreenbackPound.htm ). It is fitting that Jefferson is memorialized, in Washington, DC, within the architecture of a Roman pantheon. Those who did so wanted to remind us that our founding fathers stood on the shoulders of great leaders of civilizations past. The sovereign base-metal copper coins issued by the Caesars provided a way of paying their armies, but more importantly of facilitating trade and enabling Rome’s subjects to pay their taxes – unlike the economic strangulation of the British who raised taxes and then required they be paid in British currency rather than those of the American colonies. The sovereign currency of the Caesars is thus meaningfully sanctioned in a familiar teaching of Jesus: “Whose image is cast upon this coin?” (“Caesar’s”, they replied). “Then render unto Caesar what is Caesar’s, and unto God what is God’s.”
In the middle of the National Mall stands an Egyptian obelisk memorializing George Washington. Like the Pharaohs, whose image was cast upon their coins, Washington used a sovereign currency to pay his armies and establish our great commerce-based civilization. Without the Continentals (money) issued by the Continental Congress, there would be no United States of America today.
At the west end of the mall, Abraham Lincoln is fittingly memorialized within a Greek temple. The Greeks were very meticulous in their philosophy, as was Lincoln in his thoughts. Their sovereign currency took the form of iron coins which were pickled so they would crumble and be useless in
the event someone tried to melt them down for their intrinsic value. It was thus made clear that the
basis of Greek currency was nothing but the authority of the sovereign state. So it was with the
Republican Abraham Lincoln and his Republican congress, which issued the greenbacks having no basis of value other than the fiat power of the government to declare them legal tender. With the choice of the greenbacks over money borrowed from the banks, Lincoln and his successors funded the Civil War and the Reconstruction. As in the case of the Continentals, there would be no United States of America today without the greenbacks. Here is what Lincoln wrote, concerning them:
The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers…. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government’s greatest creative opportunity. By the adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power. (Senate document 23, page 91, 1865).
We could fill page upon page with quotations of great figures in public life and great economists who have argued for a restoration of our original constitutional currency. Some 235 of America’s foremost economists - Fed Chairman Marriner Eccles and scholars from 157 leading universities – backed the Chicago Plan to radically change the Federal Reserve and our privatized system of money creation. Great economists like John Kenneth Galbraith and Milton Friedman have argued the case, and even today there are bills before Congress to make these sweeping changes.
Yet, what we propose are not sweeping changes. We have focused on that miniscule portion of the total money supply (see our October newsletter) which would be involved if the government were simply to use its existing constitutional authority to issue debt-free United States Notes or greenbacks to close the budget gap.
What could we then do? We could start a national investment account with several bases, one of which was described in our September newsletter. Many a company has survived a bad year or two on account of having a strong balance sheet. If we want government to act in a more businesslike manner, here is an opportunity to let it do so. There are subsidies and tax write-off’s that need to be re-thought, because their effects are not always beneficial. Entitlement reforms can be examined, like treating Social Security as the insurance it was originally intended to be. There are many things the Administration and Congress could and would work on if not for such hysteria over the inevitable gap between revenues and expenses in near-future years…if we knew we could close a reasonable deficit by the issuance of greenbacks in such a quantity as to pose absolutely no danger of “hyperinflation” beyond the power of established monetary policies to control it.
Our argument is simply that a 100% privatization of the monetary system – denying government any opportunity whatsoever to use a sovereign currency as civilizations throughout history have - is simply too ideologically extreme.
A wise man once said, “The profound things in life are simple. Complicated things are just… complicated.” There was a context to these words. He did not mean that complicated things are never good. But, with all the things that have been considered and done lately, things truly have gotten unnecessarily complicated…and most definitely not in a good way.
_____________________________________________________________________________________________
PolicyWinners.org and The Commitment Group Economic Development Consultancy ∙ Keith L. Rodgers, Director
Marina Towers Suite 616, 501 Slaters Lane, Alexandria, VA 22314 ∙ Tel:703-203-1680 ∙ Direct E-mail: KLRodgers1@aol.com
Last month we cited facts and figures to show just how small a percentage of our money supply (“like a drop in a rainstorm”) would be required to close the FY 2014 federal deficit with the use of United States Notes – our longest-lasting currency, first issued in 1862 and on hand in the vaults of the Treasury by law until 1996. Debt-free United States Notes or “greenbacks” were the heir to the currencies of all great civilizations prior to that date, including their use as the Constitutionally–described currency of the United States far longer than our more recently-devised Federal Reserve Notes, which are another type of printed, fiat money. These two currencies, which circulated side-by-side for over 80 years, exhibited exactly no difference in use but only a difference in that United States Notes have been created debt-free by the U.S. Treasury, whereas every time the government uses Federal Reserve Notes to fund a deficit it creates unnecessary debt in like amount.
A panel “expert” at one of Washington’s leading think tanks made the statement, “I don’t know anything about greenbacks.” He was of an age to have carried them in his wallet 20 years ago, yet says he knows nothing of them. How short memories can be! Some readers of this newsletter have struggled and struggled to understand them as debt instruments, objecting to their inferiority as “investments” in the eyes of prospective investors, when all they ever were was a currency, given worth as are our Federal Reserve Notes by the fiat power of government to declare them “Legal tender for all debts, public and private”. There are those who object that Federal Reserve Notes are special because they are “backed” by the full faith and credit of the government of the United States. That’s language lifted from Treasury bonds. Take a Federal Reserve Note from your pocket and see if those words appear on it, or if there is any guarantee of its exchangeability for any alternate form of asset. It is printed, fiat money, period. Take a pocket full of United States Notes, if you still have them, and see if you cannot buy exactly the same amount in Treasury Notes, gold, silver or Popeye’s fried chicken with either of these issuances of the U.S. Dollar.
Sovereign currency “greenbacks” seem to be thought of, by some, as a sort counter-culture, “out of the box” throw-back to a quirk in history. Actually, they represent the established orthodoxy of civilizations since the dawn of time; the type of currency provided for and specifically described in the Constitution; and the norm of American history. It is, rather, the idea of 100% privatization of the monetary system…we object to that last, greedy one or two percent - that is radical, a departure from the norms of history, a relatively recent experiment that can now be seen to have failed. When the last of the greenbacks on hand in the Treasury were destroyed in 1996, we were making excellent progress toward eliminating the national debt. Since then the national debt has exploded, and for no good reason. What we have is the bad reason of big-money interests who want to tie all money creation to debt creation as a stratagem for keeping the commodities they dominate – money and credit – in tight supply optimal for them but not optimal for the economy.
There are those who say that re-introducing greenbacks would be little different than what we are doing now, by borrowing money from the Federal Reserve. After all, they say, the Fed just keeps rolling its Treasures over and over and pays back to the Treasury the interest paid on them each year. Without getting into the issue of whether debt owed to the Fed isn’t in fact real debt, we must point out that the Fed must buy Treasuries from third parties, and that many Treasuries remain in the hands of third parties who will not obligingly roll them over indefinitely and who will not sent back the interest at the end of the year. Those who worry about our grandchildren being buried in debt have a real and valid concern.
When the greenback question was raised at an “event” of one of the major think tanks in Washington, the moderator’s response was: “Good luck with that one.” Indeed, not one of the panel members was willing to hazard a reply, except the one who said he knew nothing about the subject. When the Executive Director of the same think tank was asked to match us 1 for 12 in ways to improve our economy with targeted investments, no increase in debt, no austerity and no forfeitures in tax revenues, his response was not, “wow, that’s a tall order.” It has not been difficult for us to come up with a dozen and more ways to do so…surely his organization could come up with one! His response was, rather, “We are not interested at this time.” He, the moderator referred to and the panel member who said he knew nothing about greenbacks made it very clear that they, institutionally, do not want to go fishing in that pond. What, if not the out-sized contributions at least unseemly received from Wall Street Banks (thank you, Google), could account for this “disinterest” in the most pressing economic issue of our time? This is a subject we need think tanks to honestly think about. (A few of their number are catching on).
If the problem could possibly still be confusion, let’s break it down as clearly as can be, using a parable about a family farm. Pa harvests the fields, producing enough income to meet or nearly meet the expenses of the household. Ma, who keeps track of the bookkeeping, notices that too often their annual income falls slightly short of their annual expenses. So she starts baking pies to sell up and down the valley. Like any business, she must decide how many pies to make. Flood the valley with them, and they will have no value. But as Ma does have an ounce of common sense, her pie-making ensures the household has enough income to meet its expenses, and in good years, some left over to put into savings and investments. Eventually, of course, the pie-making will become less important, as only one among several supplementary sources of the household’s income.
Who do these characters represent? Pa represents the government, collecting taxes (etc.). Ma represents the government doing something it does uniquely well: making money (literally). After all, is it not only the government that can print money and proclaim it to be “Legal tender for all debts, public and private”? (And is earnable, usable money not as useful a product as buyable pies?)
This story might seem too humble, until we remember that what it represents is the Jeffersonian ideal, and in more ways than one. Thomas Jefferson was one of those who labored for months to ensure the Constitution would provide for a sovereign currency, issued by the federal government, rather than a privatized monetary system. On this subject, he wrote: “I sincerely believe the banking institutions having the issuing power of money, are more dangerous to liberty than standing armies.” (See, http://info.fmotl.com/GreenbackPound.htm ). It is fitting that Jefferson is memorialized, in Washington, DC, within the architecture of a Roman pantheon. Those who did so wanted to remind us that our founding fathers stood on the shoulders of great leaders of civilizations past. The sovereign base-metal copper coins issued by the Caesars provided a way of paying their armies, but more importantly of facilitating trade and enabling Rome’s subjects to pay their taxes – unlike the economic strangulation of the British who raised taxes and then required they be paid in British currency rather than those of the American colonies. The sovereign currency of the Caesars is thus meaningfully sanctioned in a familiar teaching of Jesus: “Whose image is cast upon this coin?” (“Caesar’s”, they replied). “Then render unto Caesar what is Caesar’s, and unto God what is God’s.”
In the middle of the National Mall stands an Egyptian obelisk memorializing George Washington. Like the Pharaohs, whose image was cast upon their coins, Washington used a sovereign currency to pay his armies and establish our great commerce-based civilization. Without the Continentals (money) issued by the Continental Congress, there would be no United States of America today.
At the west end of the mall, Abraham Lincoln is fittingly memorialized within a Greek temple. The Greeks were very meticulous in their philosophy, as was Lincoln in his thoughts. Their sovereign currency took the form of iron coins which were pickled so they would crumble and be useless in
the event someone tried to melt them down for their intrinsic value. It was thus made clear that the
basis of Greek currency was nothing but the authority of the sovereign state. So it was with the
Republican Abraham Lincoln and his Republican congress, which issued the greenbacks having no basis of value other than the fiat power of the government to declare them legal tender. With the choice of the greenbacks over money borrowed from the banks, Lincoln and his successors funded the Civil War and the Reconstruction. As in the case of the Continentals, there would be no United States of America today without the greenbacks. Here is what Lincoln wrote, concerning them:
The government should create, issue and circulate all the currency and credit needed to satisfy the spending power of the government and the buying power of consumers…. The privilege of creating and issuing money is not only the supreme prerogative of Government, but it is the Government’s greatest creative opportunity. By the adoption of these principles, the long-felt want for a uniform medium will be satisfied. The taxpayers will be saved immense sums of interest, discounts and exchanges. The financing of all public enterprises, the maintenance of stable government and ordered progress, and the conduct of the Treasury will become matters of practical administration. The people can and will be furnished with a currency as safe as their own government. Money will cease to be the master and become the servant of humanity. Democracy will rise superior to the money power. (Senate document 23, page 91, 1865).
We could fill page upon page with quotations of great figures in public life and great economists who have argued for a restoration of our original constitutional currency. Some 235 of America’s foremost economists - Fed Chairman Marriner Eccles and scholars from 157 leading universities – backed the Chicago Plan to radically change the Federal Reserve and our privatized system of money creation. Great economists like John Kenneth Galbraith and Milton Friedman have argued the case, and even today there are bills before Congress to make these sweeping changes.
Yet, what we propose are not sweeping changes. We have focused on that miniscule portion of the total money supply (see our October newsletter) which would be involved if the government were simply to use its existing constitutional authority to issue debt-free United States Notes or greenbacks to close the budget gap.
What could we then do? We could start a national investment account with several bases, one of which was described in our September newsletter. Many a company has survived a bad year or two on account of having a strong balance sheet. If we want government to act in a more businesslike manner, here is an opportunity to let it do so. There are subsidies and tax write-off’s that need to be re-thought, because their effects are not always beneficial. Entitlement reforms can be examined, like treating Social Security as the insurance it was originally intended to be. There are many things the Administration and Congress could and would work on if not for such hysteria over the inevitable gap between revenues and expenses in near-future years…if we knew we could close a reasonable deficit by the issuance of greenbacks in such a quantity as to pose absolutely no danger of “hyperinflation” beyond the power of established monetary policies to control it.
Our argument is simply that a 100% privatization of the monetary system – denying government any opportunity whatsoever to use a sovereign currency as civilizations throughout history have - is simply too ideologically extreme.
A wise man once said, “The profound things in life are simple. Complicated things are just… complicated.” There was a context to these words. He did not mean that complicated things are never good. But, with all the things that have been considered and done lately, things truly have gotten unnecessarily complicated…and most definitely not in a good way.
_____________________________________________________________________________________________
PolicyWinners.org and The Commitment Group Economic Development Consultancy ∙ Keith L. Rodgers, Director
Marina Towers Suite 616, 501 Slaters Lane, Alexandria, VA 22314 ∙ Tel:703-203-1680 ∙ Direct E-mail: KLRodgers1@aol.com
