Gold and Monetary Freedom

Even though the price of gold has just hit an all-time high, the elites, collectivists, and statists persist in deprecating the precious metal as a store of value and a hedge against the rampant inflation they have wreaked on the rest of the world and soon will have loosed upon the United States.

They will never learn!

The following is testimony I delivered to the United States Gold Commission (of which Ron Paul was a member), created by Congress purportedly to investigate whether America should return to the gold standard. [Bracketed material has been inserted for clarification.]

Good morning Dr. Schwartz [Executive Director of the Commission, and a colleague of Milton Friedman] 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. [Both are now available from Amazon]).

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 [before he changed his mind] ". . . 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 of 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 Ling 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 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's 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, Ling 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.

I delivered this testimony to the United States Gold Commission on November 12, 1981.