Dear Friends:

I am enclosing a copy of my dissenting view on monetary policy for your information. There is some background explaining these views which I think you ought to know.

When the Banking Committee circulated the first draft of its semi-annual Report on Monetary Policy, it was reliably reported that the Report emanated from Representative Reuss's office, specifically from James Galbraith, son of John Kenneth Galbraith. The Report quoted the Constitution as authorizing Congress "to create money, regulate the value thereof." Mr. Reuss, Chairman of the Joint Economic Committee, also put a statement in the Congressional Record on March 22 containing this revealing misquotation of the Constitution.

After I submitted my dissenting views, several members of the Banking Committee majority staff telephoned my office to say that they had enjoyed reading my views and that I had really caught the majority in a major gaffe. No doubt that explains why all references to the Constitution were deleted from the final Committee Report, which was a major revision of the first draft of the Report. So major were the revisions that the publication of the Report was delayed a week. The dissenting views are my final version; I simply added a few paragraphs criticizing the Report in its final form.

I was astonished when I read the draft of the Committee's views, for their last paragraph quoted from the Constitution. It is a rare occasion when any Committee takes cognizance of the Constitution, and the majority deserves our commendation^*. But not our highest commendation. I would be more lavish with my praise were the Constitution quoted accurately. The Committee writes: "The Constitution (Article I, Section 8) entrusts to the Congress of the United States the power 'to create money, regulate the value thereof.' If the Federal Reserve should refuse, on its own initiative, to alter its present, dangerous policy, then Congress must exercise its constitutional mandate and its public responsibility."

I don't understand why Congress should defer to the Federal Reserve and postpone performing its "constitutional mandate," but more importantly, that mandate is to "coin" money, not "create" money as the Committee has it.

Article I, Section 8, clause 5 says: "The Congress shall have power ... to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures." Nothing is said about "creating" money. In fact it was the creation of paper money that caused the authors of the Constitution to use the language they did.

When the Founding Fathers wrote the Constitution, in the summer of 1787, they had, fresh in their minds, the debacle of the paper money printed and issued by the Continental Congress during the Revolutionary War. The paper notes, "Continentals" as they were called, eventually fell to virtually zero percent of their original value because they were not redeemed in either silver or gold. They were "greenbacks," and were the first of three major experiments with "greenbacks" that this nation has conducted^**. The Continental greenback failed miserably, giving rise to the popular phrase "not worth a Continental."

Consequently, when the Constitutional Convention met in 1787, the opposition to paper money was strong. George Mason, a delegate from Virginia, stated that he had a "mortal hatred to paper money." Delegate Oliver Ellsworth from Connecticut thought the Convention "a favorable moment to shut and bar the door against paper money." James Wilson, a delegate from Pennsylvania, argued that "It will have a more salutary influence on the credit of the United States to remove the possibility of paper money." Delegate Pierce Butler from South Carolina pointed out that paper was not a legal tender in any country of Europe and that it ought not be made one in the United States. Mr. John Langdon of New York said that he would rather reject the whole Constitution than allow the federal government the power to issue paper money. On the final vote on the issue nine States opposed granting the federal government power to issue paper money, and only two favored granting such power.

The framers of the Constitution made their intention clear by the use of the word "coin" rather than the word "print," or the phrase "emit bills of credit." Thomas M. Cooley's Principles of Constitutional Law elaborates on this point: "To coin money is to stamp pieces of metal for use as a medium of exchange in commerce according to fixed standards of value."

In his explanation of the Constitutional provisions on money, James Madison, in Fedearlist No. 44, referred to "the pestilent effects of paper money on the necessary confidence between man and man, on the necessary confidence in the public councils, on the industry and morals of the people, and on the character of republican government." His intention, and the intention of the other Founders, was to avoid precisely the sort of paper money system that has prevailed for the past ten years. This intention was well understood throughout the 19th century, and was denied only when the Supreme Court found it expedient to do so. For example, Daniel Webster wrote:

In 1832, the Select Committee on Coins of the House of Representatives reported to the Congress that "The enlightened founders of our Constitution obviously contemplated that our currency should be composed of gold and silver coin ... The obvious intent and meaning of these special grants and restrictions [in the Constitution] was to secure permanently to the people of the United States a gold or silver currency, and to delegate to Congress every necessary authority to accomplish or perpetuate that beneficial institution." The Select Committee stated its conclusions that "The losses and deprivations inflicted by experiments with paper currency, especially during the Revolution, the knowledge that similar attempts in other countries were equally delusive, unsuccessful, and injurious; had likely produced the conviction [in the minds of the framers of the Constitution] that gold and silver alone could be relied upon as safe and effective money." Twelve years later, in 1844, the House Committee on Ways and Means concluded that:

Later in the century, Justice Stephen Field presciently wrote in the case Julliard v. Greenman (1884):

Justice Field foresaw exactly what would happen in the 20th century when the federal government had used the printing press -- and the computer -- as the means of financing all sorts of "imaginary schemes of public improvement."

Under the Constitution, Congress has power to coin money, not print money substitutes. Such money is to be gold and silver coin, nothing else. It is significant that this power of coining money is mentioned in the same sentence in the Constitution as the power to "fix the standards of weights and measures," for the framers regarded money as a weight of metal and a measure of value. Roger Sherman, a delegate to the Constitutional Convention, wrote that "If what is used as a medium of exchange is fluctuating in its value, it is no better than unjust weights and measures .. which are condemned by the laws of God and man ..."

Rather than urging Congress to execute its "constitutional mandate" to "create" money, the Committee should urge Congress to "coin" money as the Constitution requires. But the Committee recommends instead that "The Federal Reserve should ease the monetary targets in effect for 1982 so as to permit interest rates to fall." The Committee is recommending, to be candid about it, the rapid creation of paper money this year in order to compensate for what the Committee views as its too slow creation last year.

After reading the Committee's Report it is obvious that inflation is and will continue to be a deliberate policy of the government. Inflation is not an accident, nor an Act of God; it is a man-made phenomenon, a deliberate policy of this government. The Committee thinks that "easing the monetary targets" will "permit interest rates to fall." The Committee ignores all the data which shows that the market has become so alert to fluctuations in the money supply that increases in the money supply cause interest rates to rise, not fall. In his testimony before the Domestic Monetary Policy Subcommittee, Undersecretary of the Treasury for Monetary Policy Beryl Sprinkel called the attention of the Subcommittee to this phenomenon. But his data have apparently been lost on the majority ...

Until confidence in our money is restored, interest rates will continue to fluctuate at high rates. The only practical way to restore that confidence permanently is to fulfill our constitutional mandate and institute a modern gold standard.

The Committee dimly recognized that the present interest rate problems are a-historical. The Report states:

The Committee fails to realize that "historically" the dollar was tied to gold, and even the most tenuous of gold-paper links such as that under the Bretton-Woods System seem to stabilize interest rates. Interest rates today are a-historical precisely because our present monetary system is a-historical.

It is time that the Committee examined its premises. There can be no proper monetary policy unless the system is changed. Managing a central bank -- and through it the entire economy -- is as impossible as squaring a circle.

THE AMERICAN PEOPLE NEED GOLD MONEY NOW
PAPER HAS FAILED; IT WILL ALWAYS FAIL