Friday, May 17, 2013

The Constitution: Only Gold and Silver are Legal Tender

17 comments:

  1. This comment has been removed by the author.

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  2. A nice case of a little knowledge being a dangerous thing.

    First off, they start with Jefferson, who was not party to the drafting of the constitution.

    Article I, Section 10 of the Constitution explicitly forbids the states from issuing "bills of credit" (paper or "fiat" money) or making anything but gold and silver coin legal "tender", whereas there are no corresponding explicit prohibitions against the federal government.

    Article I, Section 8 of the Constitution specifically gives Congress power to "borrow money" and also power to "coin money and regulate the value" of both U.S. and foreign coins, and regulate interstate commerce.

    There was a series of United States Supreme Court cases in the latter part of the nineteenth century that affirmed the constitutionality of paper money called of all things--the Legal Tender Cases. These were about the constitutionality of the Legal Tender Act of 1862, 12 Stat. 345

    This set of cases begins with the 1870 case of Hepburn v. Griswold, the Court had held that legal tender in the form of paper money violated the United States Constitution. The Legal Tender Cases the first case was Hepburn v. Griswold, which was reversed by Knox v. Lee and Parker v. Davis in 1871, and expanded by Juilliard v. Greenman in 1884.

    Amusing piece of trivia: Hepburn said the Legal Tender Act was an unconstitutional violation of the Fifth Amendment. Ironically, Chief Justice Chase had played a role in formulating the Legal Tender Act of 1862, in his previous position as Secretary of the Treasury.

    Anyway, there are loads of problems with commodity money. And they are hardly a cure of market fluctuations and can cause crashes. Check out the Panic of 1873 for an example of how commodity prices can cause a crash.

    Although, Constitutionality is not an issue for paper currency.

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  3. I agree that the specified power to coin money given to the Federal government is broad enough to include paper currency, especially since no particular medium of exchange is named.

    In addition, an economy like ours--close to 16 trillion dollars--can't be sustained with gold and silver currency alone. And even if there were, gold and silver money are subject to inflation as well. Consider the effect of those on the Spanish economy when so much metal was pulled out of Central and South America.

    Besides, while Yukon Cornelius loves silver and gold, we have to recognize that those metals are only valuable mostly because we say they are. Yes, they have applications in modern electronics, but iron is more generally useful.

    Then there's the cautionary tale that Douglas Adams gave us about the B-ark survivors who come to Earth and declare leaves to be their currency, then go on a program of deforestation to reduce inflation...

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  4. Cute, but Black Friday of 1869 is a bit more relevant to the discussion. This crash was caused by Jay Gould's and James Fisk's attempt to corner the gold market on the New York Gold Exchange. In the late summer of 1869, Gould began buying large amounts of gold. He never sold this gold. This caused Gold prices to rise and stocks to plummet.

    Commodities have intrinsic problems when used as currencies.

    The main one being that they are subject to price fluctuations.

    Additionally, they are not a panacea for market fluctuations and can cause serious and long lasting depressions (e.g., the Panic of 1873).

    KInda like zeroing out the national debt did.

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    1. Can't you just say that for once we agree on something and leave it at that?

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  5. We had a MN GOP bi-metalist run for the Senate against our Democratic long-serving highly popular Senator Amy Klobuchar in MN.

    He also wanted to have states mint their own currency.

    Conservatives are stupid about BOTH economics AND the Constitution.

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    1. Conservatives? Seriously, Dog Gone? It was the quintessential progressive, William Jennings Bryan, who supported devaluing the currency, and people today who want to go back to the metal standard are on the fringes.

      Have you looked up what prejudice means? You'd benefit from trying to see beyond yours.

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  6. Funny thing. When I was stationed in Germany during the Seventies, the German currency, the Deutsche Marks, had a slip of silver embedded into the paper currency that was equivalent to the face value of the bill.

    That might have come about because of the hyper inflation that happened between WW1 and WW2 where a wheel barrow load of Deutsche Marks couldn't buy a loaf of bread.

    Paper money without a tangible asset to back up the currency is worthless.

    The main reason Gold and Silver are most used as the asset to back up paper currency is because they are fungible. These precious metals can be melted down and made into coins or used to make statuary, ect. Diamonds and other precious and semi-precious stones are not.

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    1. But really, those metals aren't worth much intrinsically. They're good at conducting electricity and heat, but it doesn't take much to do that job. We just agree that gold and silver are valuable. Paper money is the same. What gets us to agree is that the money is backed by the whole of the nation's economy.

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    2. Paper money is backed by the Full Faith and Credit of the United States of America. Which means the Full Faith and Credit of the United States Government. I have lost whatever Faith in the government I might have had (which was quite a bit when I was younger), so I do not trust the government to manage our money in the Country's best interest. Paper money gives them power. Do you truly believe they are worthy of that trust?

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    3. What I know is that the barter system doesn't work for an advanced economy, and basing the dollar on some commodity isn't as substantial as some would like to believe, when that commodity is only worth something because people agree that it is. I'll listen to suggestions about what would be a better system, though.

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    4. While I agree that the Gold Standard might not be the best solution, I cannot believe that the Federal Reserve is better. They operate in complete secrecy and have very little oversight.

      Power corrupts. Always. There is no exception.

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    5. Offer something better. If Congress voted on monetary policy, for example, we'd rapidly be in much deeper trouble than we're in at the moment.

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    6. A start would be to take care of that whole "operate in complete secrecy and have very little oversight" problem. No more secret meetings, make sure congress has the ability to provide the checks and balances they are supposed to provide. Shine some light on what these power hungry bastards are doing with our money. You know, the whole Transparency thing that we are promised every four years, and never get. While that is going on lets have the discussion on what could system could replace the Fed.

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    7. When it comes to government, transparency is just about always the answer to many problems.

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  7. Why is it that my 1900s $20 gold pieces are worth my $20 Federal Reserve Notes.

    Would you rather be paid with the gold pieces or FRNs. Why? Discuss.

    orlin sellers

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