Opening the Mint to Gold and
Silver
A sequel to "The Double
Whammy of Geopolitical Global Gold Games"
Antal E. Fekete
Gold Standard University Live
aefekete@hotmail.com
Feb 6, 2008
In my last
article I suggested that the superpowers China, Russia, and
the United States may be, without they knowing it, racing towards
reopening their Mints to the monetary metals. The governments
of these countries are like the heroes of Greek tragedies: they
are drawn to their fate by destiny. There is no way for them
to avoid Kismet, regardless of what they do. Many readers have
asked me to explain what the term "opening the Mint to the
unlimited coinage of gold and silver free of seigniorage charges"
means.
I should start by stating that
the Mint is a monetary institution far more important than the
Central Bank. It is an ancient and venerable institution. The
Central Bank is a relatively new invention, hardly venerable.
It was conceived to make ordinary people absorb the unpaid and
unpayable debt of kings. The importance of the Mint is not to
be found in its altogether negligible role of coining small change,
the so-called subsidiary coinage which people use to make small
purchases. The Mint is all-important because it is designed to
produce real money. The origin of the Mint is intertwined
with religion. From the point of view of political economy, the
Mint is a reminder of the fact that, ultimately, real money is
created (and extinguished) by the people and not by the government,
or banks approved by the government. For example, the U.S. Constitution
reserves the power to create money directly to the people themselves
who convert gold and silver at the Mint into the coin of the
realm (and extinguish money by melting it down). This is a power
like habeas corpus that cannot be delegated, still less
usurped. If the government grabs it, then, in the admirable phrase
of Malcolm Muggeridge, it becomes the power of habeas cadaver.
The Mint is the symbol of Constitutional Money, the only kind
not subject to manipulation.
So much so, in fact, that the
Mint had to be closed to gold forcibly in order to deny people
access to constitutional money, and in the hope that the government
could usurp their power to create money. History had to be
falsified to conceal the fact of power-grab. According to the
official version the Mint was never closed down as it continued
to produce subsidiary coins. There were some housekeeping changes,
yes. But nothing major.
This lie was exposed by William
Jennings Bryan, the Democratic presidential candidate in 1896
when he denounced the power-grab in describing it as "the
Crime of 1873". He was referring to the closing of the U.S.
Mint to silver in 1873, the first major violation of the Constitution's
monetary provisions.
People fell for the obfuscation.
They were not interested in checking out the charges of Bryan.
What crime? What closing? What Mint? Lots of silver coins are
in circulation, can't you see? People didn't understand the difference
between the full-bodied silver coin, the constitutional standard
dollar, and subsidiary silver coins that were not full-bodied.
The nominal value of the full-bodied coin, produced on account
of anybody tendering the right quantity and quality of metal,
coincides with the market value of its metal content. By contrast,
subsidiary coins are produced on account of the Treasury and
their nominal value is always higher than the market value of
their metal content. The difference between the two is called
seigniorage, the profit going to the Treasury. There is no seigniorage
on coining the standard dollar, the coinage of which is unlimited,
in contrast with that of subsidiary coins with limited
coinage, which explains why people accept them in circulation
for the higher nominal value. (The cost of producing the standard
coin, like that of constructing and maintaining public roads,
is covered by taxes.)
The banks are supposed to be
a handmaiden to the Mint. After the closing of the Mint to gold
and silver the banks became the boss and the Mint was reduced
to the status of a handmaiden. This was a violent revolution,
the full meaning of which has never been explained by our institutes
of higher learning. Slavery works best if people don't think
of themselves as slaves. The Mint is the symbol of freedom. It
is the very antithesis of slavery. Yet imposing slavery on the
people is as simple as closing the Mint to gold and silver. People
are no longer free. They have lost their God-given right to create
and extinguish money. They have become slaves since the government
has extorted the right of first refusal on their produce and
savings. As Keynesians famously boast: "taxes for revenue
are obsolete". Once closed to gold and silver, the Mint
makes taxation for revenue superfluous. It is freed up for devious
purposes. Now, for the first time, taxation can be used to manipulate
the economy and to manipulate the people. The government can
stamp an entire industry out of existence by taxing it to death.
Less conspicuously, it can boost the income of one branch of
industry, or one group of citizens, at the expense of another.
The Mint, if people can keep it open to gold and silver in defiance
of the machinations of the government and banks, is both the
symbol and instrument of freedom. Once it is forcibly closed,
freedom is lost and the way to the pauperization of people is
thrown wide open.
I often come across the objection
that the government does make gold and silver coins available
to the people who care to have them. There are officially produced
eagle coins in the United States, maple leaf coins in Canada,
panda coins in China, and koala coins in Australia. This does
not look like the Mint being closed to gold and silver, does
it? People who use this argument only betray their ignorance
and prove how easy it is for the government to fool public opinion.
Gold and silver coins that governments currently produce are
meant to confuse the issue. They are an eyewash. These are souvenir
coins struck on Treasury account, sold at premium prices
including seigniorage charges. People may feel good about having
them, especially when gold and silver prices are buoyant. But
their right to constitutional money has not been restored. The
Mint is still closed to gold and silver. The people's right
to unlimited free coinage is still being usurped by the banks.
Rather than celebrating, people ought to be upset that their
government stoops so low as attempting to lead them by the nose.
As I said, the Mint is one
of the most ancient political institutions brought about by our
civilization. In the early history of Rome over twenty-five hundred
years ago the Mint where gold and silver pieces were struck was
a sacred and inviolable place. In fact, the Mint was housed in
the Temple of Juno (wife of the chief god Jupiter). Our linguistic
heritage shows this most clearly: the English word 'money' is
derived from the Latin word 'Moneta', the surname of Juno. Juno
Moneta, literally Juno the Vigilant, refers to the legend that
Juno's sacred geese on Capitolium saved the city from being sacked.
With their loud cackling they alerted the sleeping town that
enemy soldiers have scaled the walls under the cover of night
and are ready to slaughter the inhabitants. Thus the English
word money has connotation of vigilance. Vigilance,
that is, to preserve freedom which is inseparable from constitutional
money facing, as it is, constant threat from adventurers such
as John Law, Keynes, Friedman, to name only a few. Sad to say,
this connotation has worn off completely by now. People no longer
have any idea that their freedom is being destroyed little-by-little,
as their money has been corrupted.
Oh Juno Moneta, where art
thou? And where are thy sacred geese?
Oh sacred geese of Juno,
whither migrated thee? Why are thee not cackling now as a new
attempt is being prepared to murder innocent people in their
sleep?
Compare the Mint of Juno to
the Central Bank of the United States, the Fed, which is less
than one hundred years old. During its brief existence it has
done more monetary mischief than all the monetary mischief perpetrated
by governments during the twenty-five hundred year history of
the Mint, including the endless debasement of coinage through
the dilution of metal content. The most recent follies of the
Fed raise the question whether it will live to celebrate its
centenary, or whether pig-headed and ham-handed central bankers
will destroy the dollar that was entrusted to their care in 1913.
Already, the dollar has lost 99 percent of its purchasing power,
and is manifestly in danger of losing the remainder during the
next five years or so. Quite obviously this could have never
happened if the U.S. Mint had been kept open to gold and silver,
which is the reason why the Constitution demands it.
The oldest central bank in
Europe is the Riksbank of Sweden. It opened more than thirty
years before the Bank of England. The early central banks in
Europe were all established in order to fund the unpaid and unpayable
royal debt. The newly chartered banks were in turn given privileges
such as the monopoly of issuing bank notes, as well as immunity
from being sued in case of non-performance on contracts.
Milton Friedman and his monetarist
cohorts completely misrepresent the relationship between the
Mint and Central Bank. They allege, falsely, that a price-fixing
scheme is involved. In their topsy-turvy world the gold standard,
and the Mint, are institutions negating the free market. In fact,
however, the truth is that bank notes are not money; they
are merely promissory notes whereby the Central Bank promises
to pay bearer money on demand. Only the full-bodied coins into
which the Mint converts gold and silver on account of anybody
tendering the right quantity and quality of metal constitute
money. You cannot find price-fixing in this process with a magnifying
glass. The charge of price fixing was planted maliciously by
Milton Friedman in order to denigrate and discredit the gold
standard. His suggestion that the Central Bank is the creator
of money, and the Mint is merely an embellishment, wholly unnecessary
to boot, is a shameless lie. Friedman is celebrated as the father
of the floating dollar by the monetarists, who consider it as
a triumph in having set the gold price "free". In fact,
Friedman is the assassin of the dollar and will be remembered
as such.
The fact of the matter is that
the Central Bank is anxious to keep its notes competitive with
full-bodied gold coins. Therefore it promises to redeem its notes
by paying out gold at the statutory rate. So it is not the gold
price that is fixed. Just the opposite: it is the value of the
bank note that is fixed in terms of gold. The central bank that
does the fixing has no other way of maintaining the value of
its credit without coercion. The central bank, of course,
wants to get rid of this restraint. It can, through coercion.
The floating dollar implies coercion through legal tender laws.
Full-bodied gold and silver coins never need legal tender protection.
There is not one instance recorded in the monetary annals of
a creditor ever refusing to accept the full-bodied coin in repayment
of debt.
No doubt, for the Central Bank
to live up to its promise to pay gold to the bearer on
demand takes knowledge, expertise, and discipline. When adventurers
take over management backed by other adventurers at the Treasury,
they engineer a default on the promise to pay out gold and promote
the dishonored note as "money". How do they get away
with this highway robbery? They do because of the coercion of
legal tender.
The term "legal tender"
did not always indicate coercion. Originally it was a limited
obligation to ensure smooth circulation of the subsidiary coinage.
For example, the copper could be legal tender up to a dollar
and, the nickel, up to five dollars. When adventurers took over
the Treasury, the first thing they did was to torture the meaning
of the term. They made it an unlimited obligation to accept
irredeemable paper currency in discharge of debt.
After the default adventurers
at the Central Bank and the Treasury initiated an elaborate check-kiting
scheme whereby the latter issued irredeemable promises which
were accepted by the former, and vice versa. According to Milton
Friedman the depreciation of irredeemable currency can be avoided
by restricting the issue through a quantity rule, e.g., the note
circulation must be increased at a steady annual rate of, say,
three percent. However, his thesis amounts to saying that fraudulently
issued promises can be given permanent and enduring value, as
though people were too dumb to understand fraud when they see
it. In other words, Friedman confuses delayed exposure
of fraud with inability to expose it. But what kind of
a monetary system is it that so vitally depends on assuming that
people are inherently stupid? Historically, no monetary fraud
has ever succeeded. Every attempt to make the currency permanently
irredeemable has been exposed as fraudulent and consequently
collapsed. All irredeemable currencies, without exception, have
ended up in the garbage heap of history. The irredeemable dollar
is different only in so far as the unprecedented magnitude of
the fraud necessarily takes longer to expose. But longer is not
forever. After all, for the first time in history an attempt
is made to fool all the people all of the time. And we have it
on the authority of Abe Lincoln that this is not possible.
It is another matter if the
irredeemable currency is stabilized before the final collapse,
by opening the Mint to gold (or silver, or both). There are historical
precedents such as the greenback of Civil War vintage. In that
instance common sense and monetary science prevailed and came
to the rescue of the moribund dollar. Today, both common sense
and monetary science appear to be badly lacking. This would make
the outlook rather gloomy.
However, there is a ray of
hope: international competition in the monetary arena. Neither
the Chinese nor the Russian central bankers do at heart believe
in constitutional money any more than their American colleagues.
They certainly enjoy their unlimited power to issue the currency
in unlimited quantities. Nevertheless, they are not stupid. Both
the Russians and the Chinese want to put an end to American monetary
hegemony whereby the U.S. government can obtain real goods and
real services from all countries of the world in exchange for
irredeemable (read: fictitious) promises to pay. They realize
that the only road to defeating the American monopoly is the
Yellow Brick Road. They have quietly embarked upon an ambitious
program of remonetizing gold through the back door. They keep
a low profile about it as it is in their interest to acquire
as much gold as possible on the best terms possible.
No matter how you look at it,
there is a Gold War going on in the world. The alignment of the
antagonists is the same as it was in the Cold War. The name of
the game is: who will end up with the largest pile of the precious
yellow? Remember the adage: "He who has the gold makes the
rules."
The competition of the superpowers
to acquire gold will ultimately lead to an infinite escalation
of its price. As unlimited amounts of rubles and yuans are printed
to buy up the limited amount of gold that is available, the competitive
devaluation of currencies will reach a frenzied stage in destroying
the value of all currencies. Competitive devaluation is a destructive
process. American, Russian, and Chinese central bankers will
find that their hands are forced by events. After all the false
fits and starts they will hit upon the winning strategy: the
constructive process of opening their Mint to the unlimited
coinage of gold. This is the only logical thing they can do,
whether they like it or not, after the stage is reached whereby
cartloads of paper currencies fail to fetch even one grain of
gold.* Opening the Mint will be the only way
to attract all the available gold and silver in the world to
their shores, benefiting their prostrate banking system that
will be quick to issue gold instruments acceptable in global
trade.
The U.S. will be forced to
do the same, but it is questionable that being a follower rather
than the leader will save the American economy from further disintegration.
There is no reason why the
U.S. government could not retain monetary leadership in the face
of the Russian and Chinese challenge. All it has to do is to
open the U.S. Mint to both gold and silver before they
open theirs. To do this would take fine statesmanship such as
presidential candidate Ron Paul is offering to the American people.
Unfortunately, a great deal
of damage has been done mainly because the educational system
has been corrupted in exiling monetary science and sound economics
from the curriculum. Keynesian and Friedmanite economics rule
supreme in academia. Adventurers at the Treasury and the Federal
Reserve take full advantage of the prevailing ignorance. Bad-mouthing
of gold in the financial press continues unabated.
If the U.S. government fails
to act and misses this last opportunity to stabilize the dollar,
then the American people will be exposed to excruciating economic
pain. People of other lands will not fare much better. When their
dollar-denominated assets go up in smoke, they will blame America.
Anti-American feeling in the world will hit an all-time high.
America will lose all her allies in the face of an increasing
number of enemies. And, as famously stated by Alan Greenspan,
America will be unable to procure war matériel for its
military.
The only way to avoid catastrophe
is to open the U.S. Mint to gold and silver while it is not too
late, as advocated by presidential candidate Dr. Ron Paul.
* Note that
I am not prophesying that cartloads of paper currencies will
fail to fetch a loaf of bread. In fact it is perfectly feasible
that the price of bread, along with other prices of consumer
goods, will fall in the wake of deflation. The process herein
described is not one of hyperinflation. It is one of competitive
devaluation by the superpowers in order to corner gold.
GOLD STANDARD UNIVERSITY
LIVE
Session Three, will be held
in Dallas, Texas, February 11-17, 2008. For details, go to my website.
Feb 5, 2008
Professor
Emeritus
Memorial University of Newfoundland
email: aefekete@hotmail.com
  Professor Antal E. Fekete was born and educated
in Hungary. He immigrated to Canada in 1956. In addition to teaching
in Canada, he worked in the Washington DC office of Congressman
W. E. Dannemeyer for five years on monetary and fiscal reform
till 1990. He taught as visiting professor of economics at the
Francisco Marroquin University in Guatemala City in 1996. Since
2001 he has been consulting professor at Sapientia University,
Cluj-Napoca, Romania. In 1996 Professor Fekete won the first prize
in the International Currency Essay contest sponsored by Bank
Lips Ltd. of Switzerland. He also runs the Gold Standard
University.
Copyright ©2005-2010 by A. E. Fekete<
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