Saturday, November 28, 2009

A Monopoly on Monopoly™ Money

Once upon a time in a land that was not far away...

Almost anyone could make a dollar bill. That's right. All the bill was was a certificate of ownership, a receipt. You still get them now - the difference is that with the common green Federal Reserve Note so common, no one remembers that we used to pass the receipts back and forth. The dollar was not the green piece of paper. The dollar was a round piece of 90% silver weighing 0.77344 troy ounces. Under the US Constitution, the US Congress had the sole power to coin money, regulate the value thereof, and of foreign coin... But the certificates, that was a different story. States, banks, companies, cities could and did circulate specie that could be exchanged for lawful money. It wasn't until the Progressive Government became greedy, coveted it all and formed the Federal Reserve, created Income Taxes, and taxed competing currencies, that the government felt the need to channel all our wealth through their hands in Washington.

Just prior to the Great Depression of 1929, there was somewhat of a standardization of currencies with new smaller bills - the ones that we use today. There were six major types, three of which survived the Depression. The ones that didn't make it were:

The Gold Certificate. Circulated in ten and twenty dollar certificates, each one represented a coin of gold of its nominal value. Private ownership of Gold and Gold Certificates became illegal under President Franklin Delano Roosevelt in 1932.¹

There were two types of National Currency:

The National Bank National Currency, backed by Treasury Securities that your local National Bank of Hometown had purchased with "lawful money" from and then deposited with the Federal Government's Treasury Department in an amount equal to the currency in circulation. This effectively doubled the amount of money in existence. The following quote from a publication of the Friesian School.
If the problem during the Great Depression had really been that there was "not enough money," then it would be surprising that National Bank Notes were suppressed in 1935 -- the bonds that had been issued to secure banknotes were all discontinued. If, however, it is understood that the political answer to the Great Depression was that only the federal government can be trusted with power over the economy, banking, and money, then the move is self-evident. (emphasis theirs)

And The Federal Reserve Bank National Currency, issued by the Federal Reserve bank, this bill was backed by Treasury Securities similarly purchased from and deposited with the Treasury Department. Aside from no longer differentiating the currency and note, this is not materially different than recent Federal Reserve Bank actions. These continued to be in marginal circulation until 1945.

The ones that survived until more recent times were:

As with the Gold Certificate,The Silver Certificate. the Silver Certificate is a receipt for metal on deposit with the Treasury Department. No more certificates could be in circulation than silver coin in circulation and in reserve. It was a natural limit on inflation. C. Douglas Dillon, Lyndon Johnson's Secretary of the Treasury ordered silver coin to cease being minted in March of 1964,several months after President Kennedy's assassination. The bills ceased being redeemed for silver in 1968.²

The United States Note,
the Federal Government's own fiat currency. Originally issued under President Lincoln, they became bound to an existing quantity in 1878 that continued until 1990s, although in the later years they existed in captivity and were not issued out to the banks and public.

And finally, the monopoly on Monopoly™ money. The only currency now in circulation. The one that (with the United States Note aforementioned) purports itself to be a dollar and not redeemable for one, the Federal Reserve Note. Between the Federal Government borrowing money to back them and the Bureau of Engraving and Printing printing them to belong to and be issued by the Federal Reserve Bank, a quasi-independent corporation, the current currency is a Gordian Knot of evasion of responsibility while retaining the benefit of wealth. Unfortunately, it is ultimately redeemable only in itself.

So was this one:

The advantage of having multiple currencies, was the same as the advantage of the backed currencies, stability to prevent runaway inflation, while still allowing the advantage of the fiat currencies, liquidity (ready availability without hoarding) to match the real wealth of the Gross National Product.

Having a monopoly of merely one currency, and a non-government fiat one at that, is that there is no balance on their checks. There is nothing to moderate the ease of debasing the currency. We will all be the poorer for it.

¹’² Gold nominally backed the US currency internationally under the Bretton Woods system until 1971, when President Nixon ceased honoring a run on the US gold reserves by Charles de Gaulle when the pegged price was less than the international price.

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