Protecting Against Inflation By Resuscitating The Gold Clause (Part VII: Conclusion)

Conclusion
With the executive and congressional branches of the United States government acting like drunken socialists on shore leave, spending everything they can beg, borrow and steal, the gold clause has come full circle.

Readers of Part I through VI, inclusive, of this series know that the gold clause creditor-protective provision in debt instruments was designed to protect against the very massive inflation Obama & Company are inviting with every collectivist/statist scheme they concoct: bailouts, takeovers, subsidies, pork, entitlements, nationalization, tax increases, and more—including, we have just learned, the creation of a Young Pioneer/Blackshirt paramilitary corps.

The background noise you hear is the sound of government presses relentlessly printing money.

Remember, well over a century ago, the gold clause was developed to protect the purchasing power of currency.

Today, as this series of essays amply shows, legitimate creditors who wish to protect their debt from the coming depreciation of currency and currency-denominated assets are well advised to employ the gold clause in debt instruments they lend against.

But giving this advice is by no means the end of the story because there is a more fundamental point to be made here: behind every currency-depreciating event in American history stood the puppet-master government, pulling the strings which caused the problems: for example, legal tender, illegalization of private gold ownership, nullification of the gold clause.

The treatment and fate of gold clauses reveals a much deeper problem. It is the role of government in this nation’s monetary affairs. If we are to free ourselves from the outrageous grip of government control over money, it is necessary for the citizens of the United States to rethink the government’s role in those affairs—and to understand the rationale for government’s animus toward gold.

I have been making this point for some fifty years!

On November 12, 1981, well after re-legalization of private gold ownership and of the gold clause, I testified in Washington, D.C. at the invitation of the United States Gold Commission, one of whose members was Representative Ron Paul.

As I look back on that testimony, it is a fitting conclusion to this series “Protecting Against Inflation By Resuscitating The Gold Clause. (My testimony appears below in Courier font).

Good morning Dr. Schwartz and members of the Commission. As you know, I am not an economist but rather a Professor of Law at Brooklyn Law School in New York City. My field is constitutional law, and I have lectured and written extensively on the legal aspects of gold and the nature and scope of government monetary power. For example, two of my books are entitled, respectively, The Gold Clause and Government’s Money Monopoly.

I must confess to a certain ambivalence this morning because, while I appreciate having been invited to testify before this Commission, at the same time I feel like the lawyer who must tell a court that it lacks jurisdiction.

I have come here to say that despite this Commission's good faith, it cannot discharge its Congressionally delegated task—to ". . . make recommendations with regard to the policy of the United States Government concerning the role of gold in domestic and international monetary systems . . . ." –without first understanding, and then admitting, some hard truths about our Nation. Let me explain.

Dr. Allan Greenspan has written ". . . that the gold standard is an instrument of laissez-faire and that each implies and requires the other." ("Gold and Economic Freedom," The Objectivist, Vol 5. No. 7, July 1966, p.1). Of course, he is correct: economic freedom—more specifically, for our purposes, monetary freedom—is an indispensable prerequisite to any meaningful financial use of gold.

However—and this is the core of the Commission's problem—today there is little economic freedom in America. And almost from our first day as a Nation, there was little monetary freedom; now, there is none.

As to economic freedom, tax laws have redistributed wealth on the basis of need and otherwise removed from productive use capital necessary for reinvestment, diverting it to countless ends disapproved by those from whom the money was taken.

Antitrust and fair trade laws have, contradictorily and impotently, attempted to compel competition and protect consumers from themselves. Instead, such laws have caused business decisions to be predicated, not on marketplace considerations, but on guesswork as to how bureaucrats and judges would interpret unintelligible laws.

Labor laws have created compulsory unionization, with its many attendant problems for unwilling employees and employers—and contributed greatly to America's steady decline as the world's preeminent industrial power.

Wage and hour laws have required private employers to establish pay scales and working conditions mandated, not by the free market and mutual agreement, but by government fiat.

Restraints on the use of private property are commonplace—in the name of zoning and so-called civil rights.

Liberty of contract is substantially restricted—in the name of equalizing bargaining power and the so-called public interest.

To understand our lack of monetary freedom, it is necessary to go back into history.

With the birth of our Nation at the Constitutional Convention of 1787, our Founding Fathers created a new government which possessed expressly delegated powers. Congress was the recipient of legislative power, and in the monetary realm it was authorized only to borrow money, to coin money and regulate its value, and to punish counterfeiting.

The Constitution also expressly barred the states from coining money, emitting bills of credit, and making anything but gold and silver a tender in payment of debts.

Clearly, when the work was finished in that hot Philadelphia summer of 1787, as to monetary affairs at least the delegates had substantially resisted the siren song coming from the unfree and semi-free statist European political systems.

But the resolve of America's leaders soon began to ebb. Less than four years after the Convention, the scope of our government's monetary power divided our Nation's leaders at the highest level.

Congress wanted to charter the first Bank of the United States. The question was whether the legislature possessed the power, and President Washington sought opinions from his Treasury Secretary, Alexander Hamilton, and his Secretary of State, Thomas Jefferson. It is popularly believed that the two disagreed. Actually, on the issue of government power, they were in complete agreement—in principle.

Hamilton held that Congress's few delegated monetary powers were sufficiently broad to encompass chartering the bank, especially if those powers were "loosely" interpreted, and that Congress even possessed extra-constitutional powers beyond those which had been specifically delegated.

Although Jefferson denied to Congress the bank- chartering power, he would have granted it to the states—thus sharing Hamilton's statist premise about the power of government over monetary affairs.

When the Bank Controversy was over, Hamilton's view prevailed. Washington signed the bank bill, and for nearly thirty years afterward few people noticed that the monetary power of Congress had grown considerably.

Congressional power expanded nearly thirty years later, when Hamilton's views about its extra-constitutionality became part of the bedrock of American constitutional law. In 1819 John Marshall's opinion for the Supreme Court in M'Culloch v. Maryland expressly held that in monetary affairs, the government of the United States was, like the monarchs of Europe, "sovereign."

That sovereignty was never more apparent than throughout the Civil War's "greenback" episode, a story too well known to the members of this Commission to recount here.

Suffice to say that in order to fight the war, the northern government of President Lincoln created legal tender and simply forced individuals to accept greenbacks, no matter what they thought the paper was worth.

As usual, the Supreme Court of the United States was a willing accomplice to Congress's usurping non-delegated, extra-constitutional monetary power.

In the first important legal tender case to reach the Court, Hepburn v. Griswold, while a bare majority held that the act could not be applied to a debt contracted before legal tender became law, every one of the justices (majority and dissent) nevertheless agreed on the underlying principle: that Congress possessed a broad monetary power whose outer boundaries were far from clear. Less than eighteen months later, Hepburn was overruled by Knox v. Lee, and legal tender was expressly held to be constitutional.

By the time of the last legal tender case some years later, nearly three centuries had passed since the 1604 English Case of Mixed Money had approved Queen Elizabeth's sovereign power to debase her coinage.

Yet despite the fact that in America we had created a different kind of political system, despite a written Constitution that narrowly circumscribed the power of our government, the foreign sovereign who had been repudiated by the colonists seemed to have been replaced by a domestic one—at least in monetary affairs.

The idea that monetary power belongs to the sovereign was conceived in Europe. If, despite the United States Constitution, that idea was born in America in John Marshall's M’Culloch decision (midwifed by Hamilton's opinion to Washington in the Bank Controversy) and reached its majority in the Legal Tender Cases, then its maturity came in three twentieth century cases.

In Linq Su Fan v. United States, the Supreme Court concluded that attached to one's ownership of silver coins were "limitations which public policy may require," and that the coins themselves "bear, therefore, the impress of sovereign power."

Two months later the Court went even further, at least in dicta. Noble State Bank v. Haskell held that a state bank could be forced to help insure its competitors' depositors against insolvency. In the course of his opinion for a unanimous Supreme Court, Justice Oliver Wendell Holmes actually went so far as to admit that government monetary power was indeed omnipotent: "We cannot say that the public interests to which we have adverted, and others, are not sufficient to warrant the State in taking the whole business of banking under its control."

Holmes' dictum very nearly became a reality in the early days of the "New Deal," when, in a statist orgy of rules, regulations, proclamations, executive orders, resolutions, decrees and manifestos, America's banks were ordered closed, her dollar was devalued, her gold standard abandoned, private ownership of gold was illegalized, and gold clauses were nullified.

Although only the gold clause issue reached the Supreme Court, when nullification of the clauses was upheld, it was crystal clear that the Court had de facto approved of all the New Deal's statist exercises of raw government power—based on a chain of precedents running back inexorably to Noble State Bank, Linq Su Fan, The Legal Tender Cases, M'Culloch, the Bank Controversy, and thence to the Elizabethan Case of Mixed Money.

Ironically, but not surprisingly, in little more than three hundred years, a round trip had been completed: from an English monarch's unlimited monetary power, to the reposing of identical power in the hands of a supposedly free representative democracy. When the smoke of the Gold Clause Cases had cleared—to the profound detriment of individual rights—the government of the United States unquestionably controlled every aspect of this Nation's monetary affairs: money, credit, banking, gold, the securities business, and more.
In the nearly fifty years since then, that control has both deepened and become considerably more sophisticated (as in the Bank Secrecy Act), emulating other contemporary societies which we rightly disparage for their lack of freedom.

Dr. Schwartz and members of the Commission, I have come to Washington today to say that the United States—its government and its people—can not have it both ways. Either we have monetary freedom and a gold standard, or no monetary freedom and no gold standard, Though mine may be a lonely voice crying in a wilderness of omnipotent government, I emphasize that there is no middle ground.

If this Commission wishes to recommend a gold standard, it must first understand the nature and scope of our Nation's lack of economic and monetary freedom, and then communicate that understanding to the American people. Only then, and in that context, can a gold standard recommendation from this Commission have any real meaning.

Indeed, should this Commission recommend that a gold standard be instituted, and should Congress and the President take the unlikely follow-up step of introducing one, even then, a gold standard resurrected under today's economic and monetary controls would not be worth the paper it was proclaimed on.

Until the government of the United States once and for all pulls out of the economic and monetary affairs of its citizens—whether there be a gold standard or
Not—we cannot have economic, or monetary, freedom.

Without it, what we have instead, as uncomfortable as this may be to admit, are revocable privileges—which are the antithesis of individual rights.

Thank you.

Sadly, my testimony (and others') to the Gold Commission in 1981 fell on deaf ears. After eight months of "study," the Commission, chaired by Anna Schwartz, long-time associate of Nobel Prize winner economist Milton Friedman, rejected a gold-based monetary system.

They did so, essentially, for one reason: Just as the gold clause holds debtor’s feet to the full-value-repayment fire, a gold standard restrains government from creating fiat (i.e. depreciated) currency, with its inevitable consequence: an invisible, but very real, tax which falls on savers and other productive citizens.

By the time enough Americans awake from their Messiah-induced trance and realize that the coming government-created inflation will rob them, and their children and their children’s children, of incalculable value through the depreciation of paper money, it may be too late.

Then they and many others may finally understand that government’s money monopoly is antithetical to monetary, economic and personal freedom—and that the price paid for allowing it is more than we can afford to pay.