Thursday, March 31, 2016

Can Congress Create Money?


Every now and then we get into “one of those” arguments.  You know what we mean.  The person who starts the argument or inserts him- or herself into it knows why everything you’re saying, have said, or ever will say is totally and completely wrong, wrong, wrong.  Why?  Because it doesn’t agree with whatever preconceived notion he or she came into the fight, er, discussion with.

This is us getting a blog posting we don't have to write.
Now, the good thing about this is that responding to such people gives us a “free” blog posting.  It doesn’t matter whether the interloper/kvetcher/troll reads our response.  Usually they don’t because they already know what you’re going to say before you’ve said it . . . especially when they don’t have the vaguest idea what you’re talking about. . . .
(Did we ever tell you about the time somebody-with-a-name started lecturing us on everything that was wrong with one of our books, and we asked if the guy had read it?  He said, “I don’t have to read your book to know what you wrote.”  Uh, huh.)
Recently we got a series of statements — not questions — from one such mind reader.  It starts off by declaring —
1) Guys, you're not really listening to what I'm saying.
On the contrary.  It appears that he is not listening to us.  This is understandable, as he seems to be operating within a different frame of reference — the “past savings” or “Currency Principle” paradigm.
Responding to the individual is, therefore, impossible in a sense, as he automatically takes terms we mean in one sense, and translates them into his own frame of reference, rendering them meaningless.  Essentially he is insisting on applying the principles and terms of the system he accepts to another system that he does not accept.  He is, as one high school algebra teacher put it, insisting on comparing apples and oranges.
We will, of necessity, use the Just Third Way, “Banking Principle” framework in responding, but we will try to define the terms as they apply in our framework so that he can see where his definitions and our definitions differ, and make the appropriate adjustment.
This is us having to listen to some of these comments.
2) Only Congress can create debt-free interest-free money.
On the contrary.  Congress is not empowered under the Constitution to create money of any kind, interest-bearing or otherwise.  We believe he is referring to Article I, Section 8 under the enumerated powers of Congress, which reads in relevant part,
“The Congress shall have Power To . . . To borrow Money on the credit of the United States; . . . To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.”
It is important to compare Article I, Section 8 of the Constitution as adopted with the original draft of the document.  Initially under Section 7, these enumerated powers were given as,
“The Legislature of the United States shall have the power to . . . To coin money; To regulate the value of foreign coin; To fix the standard of weights and measures; . . . To borrow money, and emit bills on the credit of the United States.”
We need to compare the first draft of what became Article I, Section 8, with what became Article I, Section 10 (Article I, Section 13 in the first draft):
“No State, without the consent of the Legislature of the United States, shall emit bills of credit, or make any thing but specie a tender in payment of debts.”
Article I, Section 10 of the Constitution as adopted reads,
This is us listening to more of this stuff.
“No State shall . . . coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts.”
A careful reading of the first draft and comparison with the final draft reveals that the only substantive change in these sections is with respect to “bills of credit.”  The power of Congress to emit bills of credit was deleted, and the provision permitting the states to emit bills of credit only with the consent of Congress was changed to an absolute prohibition.  Clearly, the framers of the Constitution intended that neither the federal government nor the states should have the power to emit bills of credit.
What, however, is a “bill of credit,” and what is the significance of this prohibition?
In Black’s Law Dictionary a bill of credit is defined as following:
“— Bill of credit.  In constitutional law.  A bill or promissory note issued by the government of a state or nation, upon its faith and credit, designed to circulate in the community as money, and redeemable at a future day.”
Given, then, that the framers of the Constitution clearly intended to prohibit both the federal government and the state governments from emitting bills of credit, and that “emitting bills of credit” is a constitutional term for issuing or creating money, we necessarily conclude that Congress has no power under the Constitution to create debt-free interest-free money — or any other kind.
What power does Congress have under the Constitution with respect to money?  It has the power (and the duty) to set and maintain the standard of the currency, to borrow existing money, and to coin money, that is, manufacture coin out of the metal it purchases for that purpose to the standard it has established.
That, however, is not all that he said, but that’s enough for now.  We’ll finish him . . . that is, finish off this topic, next week.
#30#

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