American Principles Project
Friday, February 18, 2011
Why are so many state legislators beginning to call for issuance of a form of gold money?
The Constitution prohibits states from coining money but allows them make “gold and silver Coin a Tender in Payment of Debts….” By prohibiting everything except “gold and silver Coin” the Constitution clearly contemplates this as legitimate.
Legislators in a dozen states are looking at legislation about gold or silver-based currency, including, right now, Utah, South Carolina, Virginia and New Hampshire. States haven’t issued money for over a hundred years. So … why now? There is disgust by state legislators with the federal government’s promiscuously printing money. This reflects the views of those who wrote and adopted the United States Constitution.
The transcript of the debates in the original Constitutional Convention shows the attitude of the Founders toward paper money was one of disgust. In debate one delegate, Roger Sherman, called for the insertion of an absolute prohibition against states issuing their own paper money.
Mr. Wilson and Mr. Sherman moved to insert after the words 'coin money' the words 'nor emit bills of credit, nor make any thing but gold and silver coin a tender in payment of debts' making these prohibitions absolute…
Mr. Sherman thought this a "favourable" crisis for crushing paper money.
The Founders voted to adopt Sherman’s “crushing” of state-based paper money.
As for the federal government, the original draft of the Constitution included language permitting the federal government to issue unbacked paper money. The Founders objected strongly to this power. The objections were summed up by delegate Oliver Ellsworth:
Mr. Elsesworth thought this a favorable moment to shut and bar the door against paper money. The mischiefs of the various experiments which had been made, were now fresh in the public mind and had excited the disgust of all the respectable part of America. By withholding the power from the new Government more friends of influence would be gained to it than by almost any thing else. Paper money can in no case be necessary. Give the Government credit, and other resources will offer. The power may do harm, never good.
Those who wrote the Constitution decisively stripped the federal government of the power to issue inconvertible paper money. And stripped it stayed… until, temporarily, during the Civil War. Saving the Union was of transcendent importance. A strong constitutional argument exists for the legitimacy of paper money as an expedient. But it set a bad precedent.
For most of American history dollars were convertible into gold or sometimes silver. It is a 20th century innovation to have inconvertible money. FDR suspended domestic convertibility. And then… Richard Nixon’s 1971 suspension of the convertibility of the dollar into gold put the final nail into the dollar’s coffin. President Nixon announced this as a temporary suspension.
Ralph Benko, a member of the bar of the State of New York, is Senior Advisor, Economics, of the American Principles Project, and was called by the United States Department of the Treasury to testify before the U.S. Gold Commission on the constitutional history of American monetary policy.For further reading:
"A Comeback for Gold-Backed Money?", Andrey Dashkov, Casey Research, March 11, 2011
"Utah Signals Dollar Distress", Rich Danker, Forbes, March 11, 2011
"Utah lawmakers recognize gold as legal tender", Bob Unruh, March 10, 2011
"Phases of Secret Gold Policy", Dimitri Speck, March 1, 2011
"Gold and Money", Warren C. Gibson, The Freeman, March 2011
"What is a Gold Dollar?", Ralph J. Benko, February 17, 2011
"Not Just Another Article Espousing The Gold Standard", Bill Flax, Forbes, February 3, 2011
"The State Electronic Gold Currency Plan", Edwin Vieira, Jr., April 20, 2005