PART 1 OF 7
(Editor’s note: I do not agree with Dr. Viera’s interpretation of the US Constitution, since I believe it is a constitution without authority. But his remaining scholarship should be read by all.)
No careful student of history can fail to be impressed by the interconnectedness of ideas and events in every civilization’s rise and fall–especially that bad ideas inevitably engender worse consequences. That may soon become painfully apparent once again.
Foremost among the bad ideas that should come to the mind of every patriot are the unconstitutional and dishonest monetary and banking systems that today beset the United States, as well as the entire Western world, in the form of the Federal Reserve System and other central banks that emit legal-tender fiat currency and “monetize” public and private debt. The worse consequences that few people foresee are the destruction of these systems–and the ensuing economic, political, and social chaos that will engulf America and all other Western countries–if any one of a number of quite predictable events occurs.
This Commentary addresses the possibility that Muslims throughout the world will turn from fiat currency and electronic bank credit to gold dinar and silver dirham coins as their media of exchange, thereby employing the full force of economics in a decisive counterattack in the global war that the West’s Establishment has so imprudently launched against “Islamic fundamentalism”. And leading to fulfillment of the prophecy in the Musnad of Imam Ahmad ibn Hanbal that “[a] time is certainly coming over mankind when nothing will be of use except a dinar and a dirham.”
A. Consider first the bad ideas and their consequences in the United States.
1. By refusing to use silver and gold coin as this country’s official media of exchange, although the Constitution requires it, and by creating a corrupt connection between the General Government and private fractional-reserve banks, although the Constitution prohibits it, the Establishment has rendered America hostage to:
economic mismanagement and political manipulation of her monetary and banking systems–in particular, the Federal Reserve System–and of the supposedly free markets for securities and commodities that the System’s operations so strongly, and often perversely, influence;
banking, monetary, financial, and other economic crises–and the social and political disruption, destabilization, and destruction they bring in train;
the imposition of an intrusive, abusive, and oppressive financial police state, subversive of Americans’ fundamental constitutional liberties; and now even
world war, waged through both military and nonmilitary means in every corner of the globe in which prices of goods and services are measured in money.
2. This last concern is no exaggeration. But realizing why requires returning to basic principles.
Constitutional money and banking require:
the silver dollar of 371.25 grains (Troy) as the monetary standard, no less invariant than any other standard of weights and measures;
gold coinage regulated in value in units of (silver) dollars, according to the rate of exchange the free market sets between silver and gold;
free coinage of silver and gold by the Treasury for all holders of specie;
unimpeded circulation of silver and gold coins as Americans’ normal media of exchange in truly free markets;
the General Government’s and the States’ use of only silver and gold coins (or private electronic gold or silver currencies absolutely convertible into such coins) as their official media of exchange;
no emissions of paper currency (or its account-book or electronic surrogates), whether designated “legal tender” or not, by the General Government, the States, or private banks acting as alter egos, agents, or accessories thereof; and
statutory controls on all fractional-reserve practices of private banks and other financial institutions, including: (i) prohibition of all fraudulent fractional-reserve practices, (ii) mandatory complete disclosure (i.e., beyond what would be necessary simply to obviate charges of common-law fraud and misrepresentation) to the banks’ customers of the existence, operations, and risks involved in all permissible fractional-reserve practices, (iii) proscription of any form of what used to be called “suspension of specie payments” (whereby banks refuse to perform their contracts to depositors and noteholders, but otherwise remain in business collecting from their debtors), so that any bank that fails to redeem its notes or pay its depositors will be put immediately into receivership; and (iv) the imposition of personal liability for compensatory and punitive damages on all partners, directors, officers, trustees, and shareholders of any fractional-reserve bank that violates the law to its depositors’ or other creditors’ loss.
These changes cannot be expected to come through the courts. First, the judicial process is too slow to effect meaningful reforms before serious economic crises break out. Second, the judicial process is not given to broad, prospective legal restructuring, only to sequential, retrospective tinkering, one case at a time–in fact, the courts of the General Government (the so-called “federal courts”) lack jurisdiction to give “advisory opinions” about sets of circumstances not actually before them. Whereas, legislatures can draft comprehensive statutes, taking into consideration a myriad of possible future situations and scenarios that cover the entire field. Third, the courts have no body of precedents on which to rely for the necessary reforms, because fractional-reserve banking has long been treated as an exception to the traditional common law of contracts and torts applicable to every other business. So, even if the most that were desired would be to compel fractional-reserve banks simply to abide by the traditional principles of common law in those areas, statutes would still be necessary to instruct the courts to enforce that requirement, and in how to do it. Fourth, fractional-reserve banking is already regulated all too favorably by numerous complex statutes that would have to be repealed or carefully amended, each in relation to the others, for a comprehensive reform to work. The courts, of course, have no authority to make such changes in statutory law.
3. America needs constitutional money and banking for two primary reasons:
First, because a specific rule of law requires it: the monetary powers and disabilities of Congress and the States as delineated in the Constitution.
Second, because the goals set out in the Preamble to the Constitution require it. In any era, “the general Welfare” requires it: Americans would be better off, politically and economically, with constitutional money and banking. Constitutional money and banking are honest money and banking, and therefore contribute significantly to “establish[ing] Justice”. And particularly in this era of “the war on terrorism”, “the war on drugs”, and other occasions and excuses for creation of a pervasive police state in America, “provid[ing] for the common defense”, “insur[ing] domestic Tranquility”, and especially “securing the Blessings of Liberty to ourselves and our Posterity” require constitutional money and banking to protect Americans from the untoward economic and political consequences of unconstitutional money and banking.
4. All this being so, the question nevertheless remains: Why does America not have constitutional money and banking here and now?
a. It is not because the Establishment cannot put the Constitution into practice.
The Establishment can mint proper specie coinage. Indeed, the Treasury of the United States is even now striking silver Liberty and gold American Eagle coins in amounts supposedly sufficient to meet public demand. These coins, however, do not contain the weights of precious metals, or carry the denominations of “Value,” that the Constitution requires. Yet those defects the Establishment could easily cure, either by Congressional statute or administrative action by the Secretary of the Treasury.
The Establishment can remove all legalistic impediments–particularly “sales” and “capital-gains” taxes–to the exchange of Federal Reserve Notes and base-metallic (“clad”) coinage for silver and gold coin, and to the general circulation of silver and gold coinage as Americans’ ordinary currency.
The Establishment can repeal existing statutory legal-tender privileges for fiat paper currency and base-metallic coinage, and make the legal-tender power of silver and gold coins contingent upon their compliance with constitutional standards. (E.g., a coin stamped “One Dollar” need not be accepted as such unless it actually contains 371.25 grains of fine silver; and a coin containing less by dint of honest wear and tear may be exchanged for a coin of full weight at the Treasury on demand.)
The Establishment can separate bank and state by disestablishing (that is, completely privatizing) the Federal Reserve System, and allowing it to sink or swim in the free market on its own. As part of this disentanglement, Federal Reserve banks would be prohibited from labelling their paper currency “dollars”, or even calling that currency “notes” payable in dollars, unless the currency were redeemable on demand out of 100% reserve funds maintained for that purpose (that is, in effect were warehouse receipts for coin). And,
The Establishment can prohibit all forms of fraudulent fractional-reserve banking, and require bankers who employ legitimate fractional-reserve operations to provide the public with full disclosure of their policies and practices, the pitfalls these contain, the protections against those dangers the banks provide, and the penalties imposed by law in favor of the public when bankers fail to make such protections available.
So, if the Establishment wanted constitutional money and banking, America could, and would, have them tomorrow.
1, Ibn Hanbal founded the Hanbali school of law, and is one of four individuals whose interpretations of the Qu’ran and the hadith (the sayings of Muhammad and reports about his actions) the majority of Sunni Muslims follows.
2, To put this into the most obvious practical terms, even modern politicians do not propose steadily to “depreciate” the ounce, or the foot, or the minute as a matter of legislative policy for the purpose of redistributing wealth or “stimulating the economy”. Why, then, should anyone tolerate a policy of systematically “depreciating” the dollar?
3, See my three-part Commentary, The State Electronic Gold Currency Plan. In effect, electronic gold currency units constitute physical, and thus fully secured, “checks” or “orders” payable in gold or silver coin. As long as electronic gold currency units must be convertible into their free-market value in gold and silver coin, as a condition of their use by the government in any transaction, the overall transaction can be deemed to occur in such coin, and thus to conform to the command of Article I, Section 10, Clause 1 that “[n]o State shall * * * make any Thing but gold and silver Coin a Tender in Payment of Debts”. This would never be true for redeemable paper currency, however. For such currency always amounts to “Bills of Credit”, which no State may emit under Article I, Section 10, Clause 1, and Congress has no power to emit under Article I, Section 8, Clause 2.
4, See generally, Edwin Vieira, Jr., Pieces of Eight: The Monetary Powers and Disabilities of the United States Constitution (2d rev. ed. 2002).
5, See my earlier Commentaries: (i) “Homeland Security”–for what and for whom?, (ii) Are monetary and banking crises inevitable in the foreseeable future?, (iii) Will a monetary and banking crisis be the cloud with a silver lining that will provide America with a golden opportunity for real reform?, (iv) Americans cannot depend on Washington, D.C., to protect them from monetary and banking crises, and (v) Is self-help the best way for Americans to solve this country’s monetary and banking problems?
© 2006 Edwin Vieira, Jr. – All Rights Reserved