Comment: He does not favor gold backed currency, though you

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He does not favor gold backed currency, though you

might find him saying that from time to time if it is the "only" alternative to non-backed currency. Given the false dichotomy of having to use currency, backed or unbacked, he'll take backed any day. He also has vacillated somewhat on where exactly his feet might be planted on this issue.

Presently, this is not his premier solution. He thinks we should simply remove the legal tender laws and allow the market to determine what is best to use. He wrote "The Case For Gold" quite some time ago. he's come to realize now that a gold only system is not wise, and certainly, backing paper with it will only turn back the clock 100 years. It won't solve anything. We'll just repeat the same mistakes.

He knows that the market will at least for his lifetime and his great grandkid's lifetime, settle on gold and silver coin. Mind you, not currency backed with anything, but actually circulating coin.

Bi-metallism certainly is preferable to a gold only system. It fails when you try to use it to back currency. Just like a gold only system fails when you try to use it to back currency. What fails isn't the backing, it's the currency. That's the mistake. Remember, the original Federal Reserve Notes were demand notes where you could be paid gold or silver coin if you turned in the notes. After massive inflation - that is massive printing of notes, that finally became untenable and Roosevelt ordered the practice ended.

Bi-metallism as instituted by the Framers wasn't so bad. Certainly, it was preferable to a gold only coinage system. As well, technically, we were on a silver standard back then for they adopted a monetary system defined by silver, with gold being described in its relation to silver.

In 1873, that reversed, and instead, the dollar was defined by gold and the silver left to languish without re-adjustment. Also, Congress flubbed the issue by minting dollars for use in international trade that had a different silver content than domestic dollars. Then they lowered the silver content of the fractional coinage so that ten dimes, four quarters, or two halves didn't quite equal a whole dollar coin's worth of silver. This drove those whole dollars out of circulation per Gresham's Law. There precipitated a monetary deflation of sorts, leaving most money in the hands of the wealthy in the form of gold and very little circulating in the form of silver for everyone else. Combine this with a real estate speculation bubble and well, you have a recipe for disaster. That we only came out of that period with an income tax, an elected Senate and a Federal Reserve is nothing short of astonishing.

Remember, a dollar is not an abstract unit of account. It is a specific weight and measure of a particular substance, and that substance is NOT gold. It is silver. The "dollar" has ALWAYS been silver. It was created in response to gold only systems of the time (over 500 years ago) which worked well for the elite, but kept the working class in poverty. Silver is more convenient for every day cash purchases and can be made into convenient sizes for such transactions. Gold on the other hand has to be minute in size for such use and is therefore impractical for it. Silver is the currency of the working class.

The problem the Framers created was that they locked gold to a certain ratio of silver. Now mind you, they didn't do this willy nilly. They set it at the long accepted ratio that the two are found in the Earth. This average ratio held fairly steady for several hundred years. There was no thought to the fact that it would ever swing wildly out of whack. To be sure, they knew there would be SOME fluctuation, so they gave Congress the power to not only set standards of weights and measures (which was initially used to define the monetary unit as 371.25 grains .999 pure silver) but to regulate the value of the coinage. This allowed Congress to mint various sized coins as may be needed from time to time or seem more convenient, as well as adjust the relative size and thus value of gold coins as the ratio might fluctuate.

Note, the intention was NEVER for Congress to mint say a one ounce silver coin and stamp it with $5 or $10. But to change the amount of silver in the coin and THEREFORE change the value of it. The idea that the "dollar" was not tied to a specific amount of silver was to them not even contemplated because it was so self evident that a dollar WAS a specific amount of silver. It would be like someone telling us today that from henceforth we shall call all grass, trees and trees, grass. An absurdity to be sure, as it abstracts what in fact trees and grass really are to the point of silliness. When doing this to a monetary unit, the consequences are disastrous and without end, as we have experienced. Another analogy would be to say redefine a cup or a gallon to be some different quantity. It would appear to us to be entirely absurd. The Framers would have thought the same about the notion of the "dollar" being abstract.

The dollar, within a small range, was to always be 371.25 grains of .999 pure silver. If Congress wished to change the monetary unit, to say an ounce of silver, then they would have to give it a new name entirely. This is in fact what nations had been doing the world over with their gold coinage.

Likewise, the intention was never for Congress to mint a one ounce gold coin and stamp it with $50 UNLESS the ratio of silver to gold coming from the Earth, and more importantly existing above ground, was such that this was the new relative value of an ounce of gold. But the dollar - composed of silver, was the standard or yardstick by which gold would be measured.

This had an interesting effect. It removed the monetary system from the control of the elite bankers. It placed it in the hands of the law. And more importantly, it placed it in the hands of every day working consumers. THEIR daily interactions would therefore determine its purchasing power, and therefore the relative value of gold.

For the first time in history, the market would decide how much money was worth, and more importantly, would effectively value how much the elite's gold was worth, instead of the other way around. And it was done not with meddlesome central planning dictates, but by enshrining an already existing de facto standard into a framework of law. Recall, the Framers did not invent the dollar. It was already in use in the colonies. It was 300 years older than them. They merely adopted it.

Now, back to bi-metallism.

The problem was that the Framers stamped dollar amounts on the gold coins. They called them a different unit, but never stamped those units on them.

You see, Congress initially adopted the dollar as the unit of account. It then set the standard of weight and measure of that unit at 371.25 grains .999 pure silver. It then authorized the minting of coins in that unit (similar to the Spanish Milled dollar in circulation at the time) and subsidiary coinage.

But they also minted gold coins. They called these "Eagles" instead of dollars. An Eagle was defined as 247.5 grains .999 pure gold. (slightly over 1/2 ounce) They also authorized Half Eagles and Quarter Eagles respectively. The problem is that instead of stamping the coins with "Eagle" "Half Eagle" and "Quarter Eagle" they stamped them with $10, $5, and $2.50 respectively. (Later Congress would mint the Double Eagle and stamp it with $20. It had slightly more than 1 ounce of gold in it) This was based on the ratio they set in law of silver to gold at 15:1. (meaning it would take 15 ounces of silver to equal 1 ounce of gold in purchasing power, or relative value)

Certainly, I guess, they didn't think this was a problem because they thought Congress would just adjust the gold coinage if need be when the ratios changed in nature, which they likely didn't really expect to happen. I don't think they ever expected or contemplated that Congress would not remember or realize that the dollar was a standard of weight and measure and thus shouldn't be altered very much, less abstracted entirely.

The problem with this practice arose when one after the other silver and gold mines were found throughout the nation as we moved west. The result was that for a time, there was a glut of one or the other metal. Certainly, the finding of the loads meant increased economic activity, and a need for more coinage in general, but this also had the short term effect of driving up demand on limited goods and services and thus rising prices. (this is how inflation - an increase in the money supply has the EFFECT of higher prices)

For those who get the money first, this is a benefit and no problem. But for those who get the new money last, it really sucks big time. (as we know well now with FRNs)

Congress tried to address this issue by instead of creating new denominations, or adjusting the overall ratios, they simply abandoned silver, but didn't stop minting it, and changed us to a gold standard monetary unit. Then it all went to pot and you've read that already.

My answer or solution to this problem is in part 2 above.