If a time machine whisked America’s Founding Fathers from Philadelphia on July 4, 1776 to Washington, D.C.’s Bureau of Engraving and Printing on Independence Day, 2011, what might they think? Watching high-speed presses spew giant sheets of greenbacks would dazzle the eyes of even Benjamin Franklin, a professional printer. Beyond that, though, they would be disgusted.
“They would be appalled,” says Dr. Judy Shelton, co-director of the Sound Money Project at the Atlas Economic Research Foundation, with which I am a senior fellow. “The integrity of the dollar has been utterly compromised by fiscal malfeasance. Monetary policy has become the default mechanism for budgetary irresponsibility.”
Shelton echoes the framers’ words:
n As George Washington wrote Thomas Jefferson on Aug. 1, 1786, “Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”
n “Paper is poverty,” Jefferson, in turn, observed in 1788. “It is only the ghost of money, and not money itself.” In 1817, the author of the Declaration of Independence wrote that paper money’s “abuses also are inevitable and, by breaking up the measure of value, make a lottery of all private property.”
n “Paper money is unjust,” declared James Madison, chief architect of the Constitution. “It is unconstitutional, for it affects the rights of property as much as taking away equal value in land.”
“The founders recognized the perils of legal-tender paper money, which coerces people to accept something that may be inherently worthless — as is the case with our paper money today,” says Lawrence Parks, executive director of the Foundation for the Advancement of Monetary Education in New York City.
Why did the men who launched this nation disdain paper money? They had watched British-colonial governments debauch their currencies and, consequently, impoverish their citizens — including some founders.
During the American Revolution, Virginia also issued paper money. Its unbearable lightness eventually made Madison and Washington wince as their tenants paid for leased land with worthless currency. For his part, Virginia’s devaluation left Jefferson on the losing end of a large bond transaction. He then lived impecuniously and died broke.
Jefferson’s experience with fiat currency surely influenced his views. “If we determine that a dollar shall be our Unit,” he wrote in 1784, “we must then say with precision what a dollar is.” Indeed, the Coinage Act of 1792 declared each dollar worth 371.25 grains of pure silver or 24.75 grains of pure gold.
For 179 years, the dollar and gold remained linked. But on Aug. 15, 1971, President Richard Nixon ordered the Treasury “to suspend temporarily” the dollar-gold connection. Since then, Washington has created cash as easily as saying, “Shazam!” The “M3” money-supply measure soared from $688.4 billion in 1971 to $10.3 trillion in March 13, 2006, whereupon the Fed suddenly stopped publishing these inconvenient truths. This loose cash has helped Washington boost the national debt, from $398.13 billion in 1971 to $14.34 trillion today. The dollar’s purchasing power has slid, meanwhile, even as gold has climbed from $35 per ounce in 1971 to $1,511 on Thursday.
Federal Reserve Chairman Ben Bernanke once marveled at the Fed’s nearly supernatural powers. It “has a technology called a printing press (or, today) its electronic equivalent) that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
From his lair high above Manhattan’s Midtown East, Parks monitors all of this with a single-mindedness that skirts obsession. As the repercussions of letting politicians invent money simmer in Washington and boil in Athens, Parks sees the path to economic sanity as clearly in 2011 as the founders did in 1776.
“All we need to do is reassert the monetary powers and disabilities of the Constitution,” Parks says, “which require that America re-monetize gold and silver as money.”
Deroy Murdock is a columnist with Scripps Howard News Service and a media fellow with the Hoover Institution at Stanford University.