Monetary Sovereignty?

 

Monetary Sovereignty?

 June 26th, 2014  Peter Nolan

One of the most perverse phrases that we hear today in conservative, free market circles is this one: “monetary sovereignty.” Whenever you read or hear the words “monetary sovereignty,” think “Federal Reserve System.”

Every defense of monetary sovereignty today is a defense of either the Federal Reserve System or else a pure fiat money system run by the federal government: greenbacks. It’s either Janet Yellen or Ellen Brown. Either way, it’s Keynesianism.

I see no reason for ever proclaiming your commitment to monetary sovereignty, unless you are very specific in stating that monetary sovereignty means exclusive free market sovereignty, meaning no state licensing of banks — local, state, national, or international. This is not what most people mean by monetary sovereignty, nor is it what most people hear when they hear the words “monetary sovereignty.”

NO STATE MONETARY SOVEREIGNTY

There was a time in the history of this nation when there was no monetary sovereignty. This was prior to the American Revolution. Under the monopoly of the Bank of England, the colonial governments were not allowed to issue their own fiat currencies. Benjamin Franklin was a big promoter of fiat money, but he was never able to get his plan adopted, because in terms of the British Empire, this sovereignty was not transferred to colonial governments. This was a tremendous benefit for people living under British rule in North America. No state government could shove paper money down their throats. There was no legal tender at all in the British colonies.

The monetary system was completely in the hands of tiny local banks and the government of Spain. The primary currency in North America was the Spanish silver dollar. The article in Wikipedia is very good, and I recommend it. We have forgotten what monetary freedom was.

The real de a ocho, also known as the Spanish dollar, the eight-real coin, or the piece of eight (Spanish peso de ocho), is a silver coin, of approximately 38 mm diameter, worth eight reales, that was minted in the Spanish Empire after a Spanish currency reform in 1497. Its purpose was to correspond to the German thaler.The Spanish dollar was widely used by many countries as international currency because of its uniformity in standard and milling characteristics. Some countries countersigned the Spanish dollar so it could be used as their local currency.

The Spanish dollar was the coin upon which the original United States dollar was based, and it remained legal tender in the United States until the Coinage Act of 1857. Because it was widely used in Europe, the Americas, and the Far East, it became the first world currency by the late 18th century. Aside from the U.S. dollar, several other existing currencies, such as the Canadian dollar, the Japanese yen, the Chinese yuan, the Philippine peso, as well as several currencies in Latin America, were initially based on the Spanish dollar and other 8-real coins. Diverse theories link the origin of the “$” symbol to the columns and stripes that appear on one side of the Spanish dollar. . . .

Millions of Spanish dollars were minted over the course of several centuries. They were among the most widely circulating coins of the colonial period in the Americas, and were still in use in North America and in South-East Asia in the 19th century.

We also learn this: “The Coinage Act of 1792 created the United States Mint, but the first U.S. dollars were not as popular as the Spanish dollars, which were heavier and were made of finer silver.”

In other words, the economic foundation of this nation was based primarily on a foreign currency. There was no monetary sovereignty in North America until the Congress started printing money in 1777, which led to the first and only hyperinflation in American history. When Congress claimed monetary sovereignty in 1777, it was the preliminary step in destroying the currency system. It was the classic example of federal monetary sovereignty.

Almost immediately after the second Constitution was ratified — the first was ratified in 1781 — Alexander Hamilton promoted the Bank of the United States as a central bank with control from a national level. This was the second great experiment in monetary sovereignty in the history of the United States. The first was the fiat money system of the revolution. It lasted for 20 years: 1791-1811. The charter was not renewed in 1811. In 1816, the third experiment began, the Second Bank of the United States. That lasted until 1836, when President Jackson saw to it that the federal transfer of monetary sovereignty to a private banking organization ended. This great fight politically had taken place in 1832, and Jackson defeated the forces of Henry Clay when he vetoed the premature re-chartering of the second Bank of the United States. Not until 1913, when a German immigrant named Paul Warburg joined with the banking forces of the Morgan interests and the Rockefeller interests to get the Federal Reserve chartered did this country suffer from national monetary sovereignty. It was the greatest period of economic growth in American history. It was the greatest period of economic liberty in history. The heart, mind, and soul of this liberty were tied to this central fact:there was no national monetary sovereignty in the United States. There were banks. There was no central bank. There were gold and silver coins issued by the mint, but other coins could be used in exchange.

This was the era of the international gold standard. There was no international monetary sovereignty.

There was state monetary sovereignty, which was a huge mistake. If there had been no state monetary sovereignty, then we would have had a true free market in money, which is what Ludwig von Mises recommended in 1912 in his classic book, The Theory of Money and Credit. His great opponent was Irving Fisher, economist at Yale, who favored a fiat national currency. Fisher was a great defender of central banking. He won the debate, but he never got his stated goal: 100% reserve commercial banking. He was the academic shill for Warburg, the Rockefellers, and Morgan.

In 1913, in late December, the United States had federal monetary sovereignty shoved down its throat: the Federal Reserve System. Americans have never had liberty again in the field of money. The reason why is clear: federal monetary sovereignty.

MONETARY INTERNATIONALISM

The gold coin standard was international in the late nineteenth century. It was not controlled by national governments. It possessed monetary sovereignty. It was hated by all defenders of fiat money precisely because it possessed monetary sovereignty. It still is. Fiat money defenders seek national monetary sovereignty. They despise international monetary sovereignty: the gold coin standard. They regard it as a restraint against Keynesian manipulation of the economy. They are correct. That was why Nixon abolished its last dim traces on August 15, 1971. Nixon had announced on January 4, 1971: "I am now a Keynesian in economics." Indeed, he was -- especially in monetary affairs. He proved this on August 15.

We today see a fiat money version of monetary internationalism. It is trying to convert central bank sovereignty into international central bank sovereignty. There are central bankers who want to see an international cartel comparable to the national cartel, which is represented by the Federal Reserve System. There are 7,000 commercial banks in the United States, and the monetary centralists would prefer the Canadian model, which would bring the number of banks to maybe a dozen, with four or five major ones dominating. This can only be done by means of federal monetary sovereignty.

It began with state monetary sovereignty. It went to federal monetary sovereignty. Now it is supposed to wind up with international monetary sovereignty. At every step, it gets worse.

The solution theoretically and morally to state monetary sovereignty is free banking. This is what Mises recommended in 1912. This means that bankers, who do not trust each other, serve as economic agents of the public. Bankers produce runs on other banks. They demand payment in silver or gold coins for warehouse receipts issued by other commercial banks.

THE BANKING CARTELS

As long as the big banks cannot set up a cartel at the state level, which is what they always try to do, monetary sovereignty is lodged in the free market, not in the state. Always, commercial bankers want state monetary sovereignty, because they don't want bank runs against their banks' vast quantities of warehouse receipts against gold and silver that they do not possess. They want a state-licensed cartel to protect them from other bankers. First, there is the state licensing of banks. Second, there is the federal licensing of banks. Third, there is a transfer of federal monetary sovereignty to a private central bank, which is set up for the protection of the largest commercial banks. Finally, there is the attempt to transfer monetary sovereignty to an international banking cartel.

The problem with all of this nonsense is the concept of state sovereignty over money. There is nothing in morality or economic theory which would authorize state monetary sovereignty. State licensing of banks is always the attempt of commercial bankers, who seek a cartel, to keep out competitors, and to establish above-market rates of return for those who are inside the banking cartel. Always, the defense of state monetary sovereignty is presented by commercial bankers, who want to keep out new competitors, and who use the state to grant them an oligopoly over the general public.

Over and over and over, we find that well-intentioned conservatives promoting this system of state intervention in the monetary affairs. This is a demand for Keynesianism, pure and simple. It means central bank counterfeiting -- fiat money -- to buy the debt of the federal government, which is running deficits to direct the economy. This is defended as some sort of inherent right of civil government. There is no such inherent right. It is simply an intrusion of the state into the free market, always in the name of the consumer, and always governed by commercial bankers, especially large commercial bankers, who are attempting to establish a cartel for themselves, and who used state intervention to keep out competitors.

This has gone on for such a long time that it is inherent politically today in the thinking of the public, that when somebody hears the words "monetary sovereignty," he thinks of this as a defense against "international monetary sovereignty." What it really is, is an attack on the idea of a free market in banking. It is domestic Keynesianism against international Keynesianism.

American conservatives have been in the hip pocket of the Federal Reserve System for so long that they honestly believe that a defense of monetary sovereignty, which for a century has been a political defense of the Federal Reserve System, is some sort of patriotic duty of Americans. It is not.

CONCLUSION

Please do not use the words "monetary sovereignty" without also using the words "no state licensing of banks." If you do not do this, you will become a useful idiot for the Federal Reserve System. The Federal Reserve has all the useful idiots it needs in, the media, and the universities. Don't add to the number.