 I'm Lydia Mashburn, policy director for Chairman Ron Paul's Subcommittee on Domestic Monetary Policy. On behalf of Congressman Ron Paul and his office, welcome to the second in our three-part afternoon tea lecture series on the basic principles of money. Today's question is going to be, what is constitutional money? This is following up on our first lecture, which was, what is money? At that lecture, if you missed it, we had Professor Joe Salerno come and talk about money. Essentially, money is a market, a natural market-driven phenomenon that satisfies, fulfills the properties of indirect exchange. So money is a commodity throughout history. Various entities or various things have served, fulfilled the role of money. Things like salt, leather, cattle, and of course, silver and gold. So if money is this naturally occurring market phenomenon, why is it that governments are so involved in money? Which brings us to today's question, what is constitutional money? The founders had a very particular understanding of money based on their own historical circumstances and some rather disastrous experiments with money that governments did. Based on this understanding, they put in some provisions in the Constitution to help ensure sound money existed throughout our great nation. Unfortunately, those provisions have been either misinterpreted, misunderstood, or completely forgotten. And I'd say today, it's pretty much we've completely forgotten why the founders put in certain provisions or what their understanding of those provisions was. So I am delighted to say that we have to talk to us about constitutional money. We have Dr. Edwin Vieira, Jr. Dr. Vieira holds four degrees from Harvard, including his JD as well as his PhD. He's also the author of this lovely work, Pieces of Eight. This is two volumes, more than 1,700 pages, on constitutional money. Its full title is Pieces of Eight, the Monetary Powers and Disabilities of the US Constitution. So to give us sort of a cliff notes version of this magnum opus, he will be answering the question, what is constitutional money? So please join me in welcoming Dr. Ed Vieira. Thank you, Olivia. Thank you, ladies and gentlemen. What is constitutional money covers essentially three centuries of American history? So put your seatbelts on, because it has been a very fast flight. And as Olivia pointed out, governments have historically become involved in monetary questions. And the reason for that, basically, is redistribution of wealth. Whoever controls the substance and the supply of money at the source can do a great deal of redistributing wealth, either directly through government expenditures or indirectly through government involvement with the private sector. So keep that in mind as we go through some of these historical principles. Now to understand the Constitution, one has to really do more than simply read it. You have to put yourself in the historical context of we, the people, the framers, the founders. You have to put yourself in the political context, in the legal context, and in the linguistic context as well, because there are some pieces of terms of art, terminology, legal terminology used at that time, which don't quite correspond to the terminology we used today, or at least the original meaning has been lost. Now historically, if you go back to the colonial period, pre-constitutional period, the colonies, generally speaking, had no power and did not claim a power to coin money. There were some desultory attempts in Massachusetts and Virginia, but they mostly fizzled out because that power was one of the prerogatives of the king and was jealously guarded. And if you read Blackstone's commentaries on the laws of England, which anyone who wants to study the Constitution should start with, because it puts you into that historical legal context of Anglo-American law at the time, Blackstone discusses this prerogative of the king, which was essentially to take a standard, the pound sterling was the one that England adopted, and then arithmetically regulate the values of all of the coinage with respect to that standard. Pretty simple process. Now some of the English kings, Henry VIII especially, Edward VI, well Edward VI was a miner, so the people around him engaged in debasement of the currency, and Blackstone went out of his way to point out that if this wasn't a use of patience, it was certainly an aberration under the English Constitution. So that was the basic principle of coinage, but it didn't have much to do with the colonies per se, because they weren't in a position to coin money. So the colonies were using two sources of coinage, one, English coinage, of course, they were English colonies, and secondly, foreign coinage, which was coming in through foreign trade. And in fact, the major foreign coinage that was used was coming from Central and South America. And that's why in 1704, in a proclamation of Queen Anne in 1707, statute of parliament, the Spanish mill dollar was established as the standard for all foreign coins within the colonies. Now I emphasize this Spanish mill dollar because you're gonna hear about this again. The Spanish mill dollar was silver coin, actually the Spanish unit was the real, and there were eight reals in a silver dollar. And in those days, there wasn't a tremendous amount of coinage, and people would cut, literally cut Spanish mill dollars into little wedges, and there were eight potential wedges, and they were called bits colloquially. And two of those bits made up a quarter, and four of those bits made up a half. Are you following this now, all right? And this is why Wall Street, until a few years ago, quoted stocks in eighths, quarters, and three quarters. They were referring back to this original monetary system. All right, so here were the colonies using the coinage that was supplied from England and supplied through, especially the Spanish trade, and one part of that, of course, was the infamous triangle trade, the slave trade between New England, Africa, and the West Indies, right? But that wasn't really sufficient, or at least they didn't believe that it was sufficient for their economy. So the colonies started generating paper money, and he emphasized those two words, because money was always considered to be coinage, gold or silver, and then there was this other thing, this paper money, which was a different concept entirely. And it's interesting to see how those statutes come out. Typically speaking, you'll see first a statute that deals with raising troops to engage in some kind of military adventure, especially in New England where they're going after the French and the Indians in Canada. And he'll be the statute raising so many troops and so much equipment, all the logistics that are involved, and then as part of that statute, or as the next statute in the line, is a statute for emitting bills of credit. That's the special term of art, a bill of credit. That's what they call paper money in those days, because it was a bill, a note, a promise in essence to pay, some kind of a dead instrument, based on somebody's credit back there. And it was typically the credit of the colonial administration, and it might have been paid off in terms of taxes, so you could take your bill of credit and pay your taxes or other public dues with it. Or it might have been a redeemable bill of credit at some point in the future that colonial administration would pay in silver or gold, supposedly the face value of those notes. So these were the two forms that the colonial government used. Parliament, however, did not like the emission of bills of credit. English merchants did not like to be paid with bills of credit, especially colonial bills of credit that were made legal tender that could be forced on a creditor. So Parliament passed two statutes in the middle 1600s, extremely limiting the ability of the colonies to emit these things, especially with legal tender character. All right, so there's the background. Now we come to the period of the War of Independence. The 13 colonies become 13 independent states and now start asserting for themselves the full panoply of governmental authority with respect to essentially everything. From potentially coining money although none of them really did, all the way to raising troops and fighting a war. The first document of consequence that you need to think about is the Articles of Confederation because that's the precursor to the Constitution. The Articles of Confederation created a Congress which had both legislative and executive authority. And it granted to that Congress the power to coin money and to regulate the value of money that was coined by the states because the states were still claiming that they had this authority. Secondly, it granted to Congress the power to borrow money or emit bills on the credit of the United States. And notice they were treated as two separate powers, power to borrow or power to emit bills to create this kind of paper, money, paper currency. And in fact, Congress used the second of those powers, didn't do any coinage of consequence, let me put out a couple of basement out coins. But they certainly used the power to emit bills and they generated a paper, money, paper currency called the Continental. And I think everybody knows the economic history of the Continental in the phrase, not worth a Continental. For one reason or another, especially over issue in the fact that Congress had no power to tax so that it really didn't have a credible way to say that it was going to redeem these things. The purchasing power of Continental's dropped terrifically and eventually they went to think about 200, 212 to one when they were finally paid off. Now the states also engaged in the printing of bills of credit of their own. So you had bills of credit coming out of Congress, you had bills of credit coming out of the states and you had essentially a near hyperinflationary event that went on that period of time. Sayflation, wars won, you have sayflation, appreciation of all of these paper currencies. During the war, Congress had asked the states to make the Continental's legal tender so that they could be forced on merchants, especially as they could buy materials for the war. And eventually that didn't work out too well even with price controls and all sorts of typical government intervention, they had to give that up and legal tender provisions were repealed. So now we're in a position of essentially economic chaos. And what's interesting is that the same people who had fomented this economic chaos, the same people who had been in the Continental Congress, the same people who had been in the state legislatures, many of them now repair to Philadelphia for the Federal Convention to deal with the drafting, well actually it was supposed to be the amendment of the Articles of Confederation, they end up drafting a new constitution. And this has always struck me as a fascinating thing because it's one of the few instances, maybe the only instance that I know of in world history where the politicians who had made these blunders turned around and said to themselves we made a mistake and then corrected it. And how did they correct this? Well, let's take a look at the provisions of the Constitution dealing with monetary affairs. First one, Article I, Section 10, Clause 1. Article I, Section 10 contains three clauses and a whole slew of limitations on the powers of the states. With respect to money, Article I, Section 10, Clause 1, no state shall coin money. I'm gonna remove that power from the states, primarily because they didn't want 13 different types of coinage circulated. Article I, Section 10, Clause 1, no state shall emit bills of credit, period. Any kind of bill of credit, whether it's a legal tender bill of credit or not, they didn't want state paper money anymore. No state shall make anything but gold and silver coin of tender and payment of debts. It's an interesting way to phrase it. No state shall make anything but gold and silver coin of tender and payment of debts, meaning there's a reserve power and actually a duty to make gold and silver coin of tender in payment of debts. And why were they concerned about that? Well, what are debts? Typically, debts are some kind of obligation that arises in commercial realm, at least the most important of them do. So dealing with commercial transactions, where were the most commercial transactions if they came to litigation, going to be settled at that time? When the state courts, there were no federal courts. So what they were looking at was a situation where the merchant class was going to go into the state courts, and the state courts were being told by the Constitution that when you issued a judgment on this debt, it had to be payable in gold and silver coin, it could not be made payable in something else as a matter of state law. So now if you look at the state level, you have a gold and silver economy, absolutely. Where is this gold and silver coin going to come from? Well, we'll get to that in a moment. What about the congressional side, Congress side? Article one, section eight. Article one, section eight, clause five. Congress has delegated the power to coin money, regulate the value thereof, and a foreign coin, all right? So we have coinage taken away from the states, coinage given to Congress. Pretty clear that Congress's power, at least as a government to coin money is exclusive because the state's power has been completely removed. There's this interesting language, regulate the value thereof. And that takes you back to Blackstone. Blackstone told us how to do that. If you have a unit of silver, and this coin has twice as much silver in it, then it's worth two units. If it has half as much silver, it's worth half a unit, whatever that unit may be. When you factor gold into the equation, you have another element to look at because the exchange rate between gold and silver in the marketplace is never one-to-one. It's never been one-to-one. It probably never will be one-to-one. Gold has always been more valuable in the marketplace than silver. So you have to factor in that market ratio. So if a gold coin has the same weight as a silver unit and the ratio in the market is 10 to one, that gold coin is worth 10 units. Again, it's simply arithmetic. That's regulation of the value. And a foreign coin. Now, why were they interested in that? Well, because they wanted to monetize the entire gold and silver coin of the world as part of the American monetary system. And if you look at what happened early on in the area of tariffs, customs duties, you'll see exactly how that worked. Foreign merchants come into the United States, bringing their goods, they have to pay some customs duty, paid in what? Well, typically they would pay in some kind of foreign money. That's what they would have. So Congress passed a series of statutes right away setting out the various foreign monies that would be acceptable and what they were worth. The regulated value of those foreign monies in terms of the United States standard. Of course, this brings you to that question. What is the United States standard? Well, the Constitution talks in two places about dollars. Article one, section nine, clause one, the slave tax clause, so-called, a tax of $10 on every person imported into the United States. Some of those persons might have been indentured servants. Well, possibly they might have been free people who were being brought in in some way, but that was directed to the slave trade. And then, of course, the Seventh Amendment, jury trial in any case in which the issue is of greater value than $25 or more, $25 or more. Does the Constitution define the word dollars? No. Well, there are quite a few words in the Constitution that doesn't define. One of the few that it does is treason. I mean, look at that. That's a good example because they wanted to narrow the definition. The English definition of treason was extremely broad. It was a political crime, essentially. But most terms in the Constitution are not defined. You're supposed to know what they mean. And at that time, people didn't know what they meant. The dollars that they were talking about were what dollars? From 1704 and 1701 dollars. The Spanish mill dollars. And how do we know they were talking about this? Because the Continental Congress and the Articles of Confederation adopted the Spanish mill dollar as the American dollar. It was Thomas Jefferson who proposed that. So when the Constitution is written and refers to dollars, they're thinking back to what was done under the Articles of Confederation and proposed by Jefferson and adopted the thinking back to this Spanish mill dollar. And of course, if you go historically and try and find anything else that was called a dollar in those days, you will become frustrated very quickly. So it's fairly clear that the standard in this system is to be the dollar. What is a dollar? Again, we come to Mr. Jefferson and Mr. Hamilton. This is one of the few things on which they agreed. During the first Washington administration, Jefferson was Secretary of the State and Hamilton was Secretary of the Treasury and the question is, all right, the dollar is the standard, what is a dollar? These were pretty practical men. They went out and they got some merchants and they said, go on to the marketplace and do what we would call today a statistical sampling or analysis. And get what appears to you to be a good sample of Spanish mill dollars that are circulating by tail in the economy, TLE. And that means they're taken at sight because obviously when a coin is worn sufficiently, people don't take them at sight. Then they have to go in to be remelted somewhere. Some of these would be pristine and some of them were worn almost to the point at which they no longer be taken. They went out and they did this analysis, melted them down, divided by the number of coins and they said the average Spanish mill dollar that's now circulating in the economy contains 371 and one quarter grains of silver. And they put that into the Coinage Act, the Mint Act of 1792, which says that the unit, dollar or unit, shall be of the value of the Spanish mill dollar as the same as now current and it contains 371 and a quarter grains of silver. Notice the language, shall be of the value of the Spanish mill dollar. What are they talking about? Value is weight of silver that it contains, not purchasing power as we think of today, but the actual weight of the coin as the same as now current, current Latin coro coreri to run, running in the marketplace, accepted in the marketplace. So what they were doing in that statute was determining an historical fact. They were determining as a historical fact what that word in the Constitution meant because it was out there in the marketplace. Now I suppose today we could come back and we could find that bar of melted silver that they had somewhere off with the Ark of the Covenant there hidden away right in the archives. And we gave that to some top-flight analytical chemists. We might be able to come up with a more accurate number. All right, 371.32, 370.90. Now whatever it would be, it's essentially irrelevant because whatever the unit is, it's arbitrary. But it's fixed, or it was fixed in 1792. That's the unit. What do they do with the gold coinage? In that same statute, they create a gold coinage. They call those dollars, well of course not. You can't call something by a name that doesn't apply. They call them eagles. And they gave them values in dollars by looking at what? Their weight and what was the exchange value in the marketplace at the time? It's about 15 to one. So there was the system. And there's absolutely no other way to interpret what was done there. Because actually there's a hundred and something years of history that ties it all together. So there you have the coinage system. Now the problem in that coinage system was the gold-silver ratio. Because I said the gold-silver ratio is not fixed. Never has been. Typically for several hundred years before American War of Independence, it fluctuated a little between 14 and a half and 15 and so forth. And it was relatively stable. And given the lack of ability for information to be transferred from one place to another, it works fairly well. And so they adopted that principle, the so-called bi-metallic standard, a fixed exchange ratio between silver and gold in that statute. And that was their mistake, their practical mistake. I'll tell you about that a little later. Now what about paper currency? Well I'll go back to Article 1, Section 10, Clause 1. No state shall emit bills of credit. End of discussion. That was their word for paper currency. There shall be no official paper currency coming out of the states. What about Congress? Remember the Articles of Confederation had the power of Congress to borrow money or emit bills on the credit of the United States. And the first draft of the Constitution in the Federal Convention essentially borrowed that language directly from the Articles of Confederation. In fact, you'll find a lot of language in the original draft of the Constitution and even in the final draft of the Constitution that you can trace right back to the Articles of Confederation. So it was proposed initially that Congress should have the power to borrow money and emit bills. And for those who are interested in reading legislative history, as I assume you are, being connected with the legislature, if you read Madison's notes on the debate with respect to that provision of the Constitution, Article I, Section 8, Clause 2, you'll see that there was a tremendous dispute over those three words and emit bills. Some people wanted them left in because they thought Congress should be able to emit paper currency in an emergency, at least. Some of them wanted them absolutely to be removed. There were two delegates who said they would vote against the whole Constitution if those three words were not removed. And they were removed. And if you read Faran's notes on the Constitutional Convention, he has Luther Martin's report to the Maryland legislature. Luther Martin was one of Maryland's delegates. And Martin makes it very clear that by the removal of those three words, you've absolutely disabled Congress from emitting paper money. Why? Because Congress has only the power that's granted to it. Congress, this Congress especially, did not exist prior to the Constitution of the United States. So there's absolutely no way that you can find an implied authority in this entity when it was proposed to give it that power and those three words were removed. So 1788, 1791, Bill of Rights, that period of time, what do we have? We have a system that's running in principle entirely on a gold and silver coin basis as official money. Now I say as official money because nothing in the Constitution would preclude private parties from engaging in banking. And typically what banks did then, and they do now, at least through the Federal Reserve Cartel, but individual banks did then, was to emit their own bills of credit, private bills of credit, bank notes, which typically they promised to redeem in gold or silver, usually on demand so that they'd push the circulation. But there's nothing in the Constitution that would prevent that kind of activity, except in so far as it was fraudulent and then the Commerce Clause was coming to play or the state police powers could come into play. So you had a private sector monetary system that would depend upon honest bankers. And then you had an official system that was based entirely on gold and silver. Why? Because that's the one system that prevents the government from redistributing wealth. Unless the government happens to have gold and silver mines, where does the coinage come from? It comes from the free market through some mentor and the system of minting that you find in the Mint Act of 1792 is what was called free coinage. The mint was open to all the gold and silver that might be brought from the marketplace. And it would cost the individual who brought that gold and silver nothing to have it converted into coinage. They were essentially treating coinage as a public utility. Or if the individual wanted to take his coinage immediately then he had to pay a premium for that. But basically the government's role was to mint gold and silver and by putting a stamp on those coins defined in the statute to certify what the weight of gold and silver was in the official coins that were coming out of the Mint. Period, end of discussion. Now to go back to why I was discussing a little bit earlier the gold-silver ratio. Of course the gold-silver ratio changed fairly quickly after the 1792 mint moved up. Went from the 15 to 16 level. So it comes the statute of 1834, Coinage Act of 1834. Congress now recognizes this problem. And they engaged in regulation of the older coinage changed its value of the older gold coinage and they came up with a new gold coinage that would reflect this new 16 to one ratio. Now it was interesting that at that time there was a Senate committee, coinage committee that recommended, well I think everybody today would recognize this is the right thing to do. They said, look, let the gold coins float. That's our term, not theirs. Don't give them a dollar denomination. We're calling them eagles anyway. Simply put a weight denomination on them. And let the marketplace determine from day to day what these gold coins are valued in terms of the silver dollar. But apparently traditionalism overcame innovation as it were. And so they stuck with the bimetallic ratio. And apparently there was also lurking in the background the idea that if they used that fixed ratio they'd be able to put pressure on the bank of the United States. So there was a political brouhaha in the background. So there was a point at which a great deal of future difficulties could have been avoided, but weren't. The next example of that is 1849. A gold dollar was coined, very small coin. I don't have a button. And in principle I suppose one could say, well, if what you're talking about there is a gold coin that has the value of a dollar, that's all right. But in fact, it began to have people think of a gold dollar as opposed to a silver dollar. Well silver dollar, redundancy, a gold dollar. So now this is the beginning of the gold, silver political controversy, which eventually breaks out in a large scale in after the Civil War, 1873. All right, now let's go back to paper money. No paper money being generated out of the treasury, no paper money being generated out of the states, paper money being generated out of banks. But there was this, let me call it an incestuous relationship between Congress and the banking system. Alexander Hamilton said it very well. He said, well we need to have the merchants on the side of the government and to have the merchants on the side of the government. We have to give them a certain amount of special interest legislation. He didn't put it quite that way, but that's what he meant. And the Bank of the United States was one of those pieces of special interest legislation. It was a private entity. The government of the United States had some influence over the selection of the directors. And it was generating its own bank notes. You had the first Bank of the United States, that wasn't renewed yet. The second Bank of the United States, famous bank fight with Jackson and the charter was not renewed. And by the time you get to the Civil War, you don't even have a connection between the government of the United States and private banking. We had these two episodes and they're gone. At the state level, there were a lot of state banks, private state banks chartered by the state governments. So the system is pretty much the same as it was at the beginning. Now comes the Civil War. Union government had a problem. It was an unpopular war. There were a lot of Southern sympathizers, even to the extent of being the so-called copperheads, really sympathizers of the South. It was great difficulty in raising taxation to the level necessary to pay for this war. The banks were charging astronomical rates of interest. So now the Union Congress found itself in a fiscal squeeze. So what did they do? Well, Salmon P. Chase. It's actually the Treasury comes forward and says, aha, we're going to do the same thing that I told you they did in the colonial period, right? When after they had a war, what was the first thing they did after they raised the troops? They printed paper money. So 1862, February of 1862, the first paper money under the government of the United States under the Constitution, reportedly under the Constitution, is emitted. The so-called greenbacks because on one side they were printed with green ink. And these were made legal tender and lawful money, legal tender for payment of all debts and lawful money. And supposedly they were going to be redeemed, but they weren't redeemed during the war because the government was not redeeming anything. They were just, of course, suspension of speech payments during the war. So now we have gold and silver coinage and these irredeemable legal tender paper notes. Comes the end of the war. You had two political parties, if you will. You had a greenback party, a greenback movement that wanted to expand the paper money. They thought this was a great idea. And then you had the sound money movement that wanted to redeem and then remove the paper money entirely. So they compromised. And the compromise was that the paper money would be redeemed as it came into the treasury for gold and silver coin, but then the treasury could re-emit that paper money. And here's where the Supreme Court comes into play because there were two interesting cases dealing with the constitutionality of paper money, versus the Knox case, 1871. And there's a Juilliard case in 1884, I guess. And the question in the Knox case was, is this stuff constitutional? And it was a five to four decision. Interestingly enough, Salmon P. Chase had become the Chief Justice of the Supreme Court in the interim, and he was in the minority. He said, oh no, I was wrong. This is unconstitutional, I should never have done this. But it didn't matter, there were a bunch of railroad lawyers on the court by then, Republicans, not the Republicans, but it was a political point of view in this. And they said, look, this was necessary to win the war. This was an emergency, legislation was necessary to win the war. And besides, we can't go back now and declare it unconstitutional and unwind all of these contracts that had been made in it. Now that was false, because in fact, there were a whole series of cases in which they unwound contracts that had been made in Confederate money. And it had come up through the court system to determine whether those contracts could be enforced. So, but that was the basis, an emergency piece of legislation. Well now comes the re-emission of the treasury notes. And somebody noticed, wait a minute, we're not in an emergency anymore, there's no war going on here. There was another challenge, Julianne versus Greenman case, and the Supreme Court said, well, yeah, we said that about an emergency then, but actually it's for Congress to decide when it should do this. And see, this is the incremental way the Constitution has been subverted, really. And I lay it all at the doorstep of the Supreme Court. They don't operate properly in dealing with this, with the Constitution. I think they treat the Constitution as some kind of common law document, which it isn't. But many of them, there we had it. So now we have paper money as a permanent fixture in the system, but it's paper money that is redeemable in gold or silver. Even the earlier decision had pointed that out. And it's paper money that issues from where? From the United States, treasury. Not from a private institution of some kind. Now meanwhile, the banks are coming into closer involvement with the government. Civil War, you have the National Currency Act, creation of the National Banking System. We still have those banks, say the National Banks, Chase Manhattan Bank, National Bank, McCovey, a National Bank, right? Is it still around McCovey? Well, whatever, okay. National Banks comes from the Civil War, 1863 and 1864, two statutes would pass. That system was kind of a cartel because you had the rural banks and you had the small city banks and the big city banks. And the rural banks were supposed to deposit their money in the larger banks and the larger banks would deposit in the big city banks in New York and Chicago. So it was a way to essentially focus financial resources behind the big players, essentially in Wall Street and Chicago. But it was limited because the currency depended upon the banks buying US bonds and depositing the bonds with the treasury and then they could emit currency, 90% of the value of their bonds. And this was a period in time when the United States government and the people were not particularly interested in extending public indebtedness. They had huge public indebtedness from the Civil War. So there was a restriction on the banks. Well, banks don't like restrictions on the emission of currency because how do they make their money? They emit currency at interest, right? So the more they can emit, the more in return they make. They didn't like that. Well, Fraction Reserve Banking, you've probably heard of here, Joe Salerno, he'll tell you Fraction Reserve Banked inherently unstable process. And so we had a series of bank crises from the Civil War through the turn of the 20th century. And eventually the big one, 1907. And during this period of time, the bankers came up with the idea well, we need a central bank. This cartel structure we have is too loose. We need to bring it together with a lender of last resort, a capstone. And this is the basis of the Federal Reserve system. Now the Federal Reserve system is interesting because Federal Reserve notes are not simply notes of a private banking system or a bank cartel or private individual banks. Although all the Federal Reserve regional banks and all the commercial banks are all private institutions, thank you very much. Federal Reserve notes were made obligations of the United States. So now you have the American people on the hook for this banking system. Now they were also originally to be redeemed in lawful money or gold. But the banks actually didn't have to redeem in gold. The Treasury had to redeem in gold. So once again you had the U.S. Treasury on the hook as the ultimate surety of this system. Well, the system was sold on the basis that this was scientific management of currency. We would no longer have depressions. We would no longer have stringencies. We would no longer have inflation. All that stuff that we had in the 19th century would be gone. 20 years later, the greatest depression in the world that I've ever seen. Now what's fascinating here is, I'm gonna have to stop in a moment. I'm just gonna tell you about Franklin Roosevelt. Here, Franklin Roosevelt comes in. And what he wanted to do was to raise prices. That was the theory of the New Deal, right? Prices are being driven down by the depression. And we need to raise prices so we're gonna kill pigs and pour milk in the street and do all this other stuff, to raise prices. And one of the ways he wanted to raise prices was to depreciate the value of the gold currency, the gold dollar, the dollar of actually the Coinage Act of 1900, which had finally settled on this gold unit. He wanted to depreciate that value. And he did that how? He did that by ceasing all the gold from the American people. And then simply putting an arbitrary value on gold from day to day until he came up to $35 an ounce. And you ought to read how he did that. I mean, his Morgenthouse, the Henry Morgenthouse, Secretary of Treasury, sometimes coming into Roosevelt while Roosevelt's lying in bed and they just say, well, how much are we gonna put it up today, Henry? How about 25 cents more? Okay, we'll just do that. It's completely arbitrary, right? Well, remember how I told you how the value of currency was, money was supposed to be set, right? Well, the ratio between gold and silver in the 30s never went below 50 to one. So if Roosevelt had simply come in, if I had been Roosevelt's advisor, I would have said, frankly, here's all we have to do. We have the wrong ratio between silver and gold. It's 16 to one. If we put in the correct ratio, let's say it's 51, 51 to one, that will effectively depreciate the value of the gold coinage versus silver and we'll get what you want constitutionally and we won't have to seize the gold from the American people and we won't have to prohibit gold clause contracts and we won't have to have this huge political brah. If we would just follow the constitution. Oh, and by the way, we can depreciate it far more than Congress is willing to let you depreciate it now. They're only willing to let you depreciate it 60%. We can depreciate it 76%. So it really would have been valuable if Franklin Roosevelt and Henry Morgenthau and the people around them had known a little bit, just a little bit, about the constitutional principles of money. So where are we today? Well, the answer where we are today is we have an irredeemable paper currency, actually electronic currency because most of it is just generated on account books, electronic account books, right? An irredeemable paper currency coming out of a private banking cartel for which the American people are on the hook in some kind of bailouts because of course the bank cartel comes to us and says, oh, we've made terrible mistakes, we'll admit that and now they may be fatal to the economy if you don't bail us out. And of course, there'll be worse next year and you can bail us out next year and then we'll write this thing just perpetuates. So this is the system we have now and I would suggest that this is even worse than the worst events that occurred under the colonial and state systems prior to the Constitution because there is absolutely no control on this system whatsoever except for one. Actually there are two because the states can take action, you're gonna see I think in the next couple of years, action being taken by the states to deal with the alternative currencies. Section 30 of the Federal Reserve Act, you know what section 30 of the Federal Reserve Act does? Section 30 of the Federal Reserve Act, Congress retains the right to alter, amend, or repeal the legislation at any time. And why is that even there? I mean, most of the statute you people see, there's no provision like this as Congress retains the right to repeal this. Well, of course Congress has the right to repeal because they recognize that those banks were private entities and by creating this charter and giving them these powers, some smart lawyer in the future might come along and say, wait a minute, you can't take these away because you've made a contract with us. And actually the Supreme Court said that a long time ago, that the legislature makes this kind of an arrangement, maybe a contractual arrangement, and it cannot be rescinded. So Congress put this in, it's also put in the Social Security Act by the way, Railroad Retirement Act, there are a number of these provisions where Congress recognized they might have a problem in changing the terms of the deal and so it put that kind of language in there. Well, that means the Federal Reserve System, the Federal Reserve Note is what John Excerpt, now deceased, pretty famous banker called it. It's an IOU nothing currency in the truest sense of the word. The banks don't owe you anything and Congress can turn around and tell you it owes you nothing too. So I would suggest that you people and the people you talk to should begin thinking about just what we're going to do to correct this situation before the roof falls in. Now, I'll take whatever questions you have. Oh, the first question of course is how long, right? How long before the roof falls in? Well, I don't predict such things, but I'm willing to predict this. It will not be a depressionary phenomenon, it will be a hyperinflationary phenomenon. Won't necessarily start in this country cause it's not in Europe, but it'll be a hyperinflationary phenomenon, what I mean by that is 50% depreciation per month, minimum. You know it's come out of every hyperinflationary phenomenon at least in my knowledge in the world, except for one, cause we had one of course in the time of the War of Independence. Except for that one, some kind of police state dictatorial system always because the chaos that's generated by that event, especially at this time, you have the most complicated price structure in the history of the world. It depends entirely on essentially a stable monetary unit of some kind. When you blow that monetary unit out, what happens? The price structure collapses. You go to barter, how do you go to barter? What are the number of products out there? How do you settle on a product or a series of products, a small number of products to be used as the bartering medium? Essentially impossibility. So we're looking at an unprecedented situation. If this currency system goes into hyperinflation, you're gonna have an economic collapse, you can't contemplate what it's gonna be like. That's why I say somebody has got to begin to think about what will be the alternative currency if this one goes down. And don't tell me this one won't go down. It's already gone down once. 1932. Well, 1930 to 1932, period of time. It's already gone down once. And that was when it was on a 40% gold reserve. Thank you very much. 40% behind the notes and 35% behind the demand deposits at the Federal Reserve Regional Banks. And that wasn't enough. Now you have no reserve. So this is like the Titanic. All right? And the Titanic had the one possibility that someone might have gotten there in time. There's nobody coming to help us. It's going to have to be done, sorry to say, right here because the system is now essentially out of control. And I think you see this, especially in Europe now. I've been watching the Italian situation now you can smell the panic coming over the internet from this. Now I know Italians, you know, they're kind of valuable and so forth. These are not Italians that are the ones who are panicking. They're most of the majority of them, actually. But you can just, really, you can smell it coming out of Europe. And who's going to bail them out? Do we have a guess as to who's going to do that? That's going to be Mr. Bernanke. Because they cannot face, and I think correctly so, they cannot face the consequences of a depression. Can you imagine what a 1930s-style depression in this country would be like? That's what they don't want to have happen. And the one tool that they have, that they think can prevent that in the short term is what? Quantitative easing, inflation, generating money, generating paper currency, bills of credit, bills of, well, bills of discredit because they're not going to be paid, right? Bills of discredit. We keep generating this stuff and we hope that something will happen, right? We're playing for time financially. But I think with Machiavelli who said that's a fallacy because time brings all things bad as well as good. And the only solution here, I think, is to come up with an alternative currency and a lot of people have proposed exactly how to do this. This isn't something that's difficult. It's on the shelf technology. We could set this thing up in 30, 60 days after the statue was passed. An alternative sound currency based on silver and gold start using that in the marketplace, start transitioning the governments into using it purposes of taxation and spending and let the banks figure out how to solve their own problem. Because we can't figure it out. There's a problem of what's called rational economic calculation which is the problem of all central planning. There is no way to figure out from the top down how to reform this system. It has to be figured out from the bottom up through the marketplace. And to do that you have to give the marketplace an alternative sound currency to be able to generate a price structure that works which is what we're gonna discover very shortly we do not have. Interesting problem. I've been doing this for a long time and I never thought I would get to this. All right? I thought I'd miss out on watching it. But no. So I wouldn't wanna be anywhere else. This should be fascinating to see how this plays out. Yes, sir. I'm just curious whether you have any view with regard to the sort of little baby steps we're gonna come to the state's take. I believe you talk perhaps Virginia as well to perhaps protect themselves from federal government, give themselves a leeway to do what you suggested for themselves in the event that the US dollar becomes so unstable that they need to protect sort of their own folks or their own economies. Well, yeah, I know about these things because I've been involved in a lot of them going back for several years. New Hampshire to begin with and then Montana, Virginia we're trying to get them to, Virginia legislature to come up with a commission to study this problem. Primarily educate the legislators. And most state legislators they never thought about this. They treat it as some kind of federal problem that doesn't relate to them. But basically the idea is exactly what I said. The state adopts an alternative currency unit which is actual silver, actual gold. I'd like to see that done on the electronic basis because that has already been tested out in the marketplace. Those systems are there, they work. You can funnel any kind of gold and silver into them. Doesn't have to be a particular kind of coinage can be bullion. And they're capable of working down to very small amounts. One of them, one of the private companies out there, goldmoney.com founded by a fellow by the name of James Turk might have known for a long time. They're down now to I think a thousandth of a gram of gold and a thousandth of a gram of silver that they'll use in transactions. Well now you're making small change in gold. And that was always the problem in the coinage era. You had coins of certain sizes and then what worked out in between. What you had to have some kind of token coinage or you had to have some kind of paper credit or whatever. It was rather cumbersome. And if you look at it today, it's even worse because what's the value of American liberty? Silver dollar, one ounce. The coins are now coming out of the mint under the 1985 Act. Well it's what, somewhere between 35 and 40 Federal Reserve notes, right? So your $1 silver pieces were 35 of these other things in the market. Well that's not gonna be too useful in the supermarket. Well we'll be later. I mean when the hyperinflation sets in it'll be very easy. But right now it isn't. So it'd be a little American eagle gold coin. One of those, they're probably close to 2000 now. One ounce of gold in a coin form. So if you look at the coinage system that we have, once again because Congress, because they're the ones supposed to be doing the coinage here, because Congress has not kept up to date with our problem. We have a coinage system that really is not workable. The states can't coin money. So we couldn't see any reform there. But the states can make gold in silver, tender and payment of debts and they can certainly use these electronic systems. Supreme Court already ruled on that twice, not electronically, but they ruled on the right of the state to have an alternative currency of its own. So we don't have to worry about the legalities of the thing. And if that were done, let's say we're done in Virginia. I wouldn't want to take some, I mean Montana's kind of a backwater. People might not pay attention to it. Here's Virginia's right next to DC, right? But Virginia does this. What do you think the influx of capital into Virginia is going to be? Virginia will be the only polity in the entire world that has a sound money system. And you don't think that other states, that border of Virginia might say, oh my goodness, it would be to our advantage to pick this up too, because we have cross-border trade, right? And on and on it goes. And of course, this particular system, if you use the electronic system, international trade. Because everybody can be tied in through the internet to it. That's the way it runs. So as I tell these legislators, I say, listen, 30, 60, 90 days after the statute, you tell me how fast you want it done. We can have this up and running. And what it would mean is that the average Virginia, because you'd have to tell them to do this, every Virginia would get a debit card. And he'd be told how he goes on the internet and signs up for this thing and how he transfers funds from his regular bank account into this. All very simple. You don't force him. He wants to do it, fine, if not. But he has to have the capability. And then the state simply starts taxing in the alternative currency. And paying out from that tax fund to creditors of the state, first come, first served, who ask for it. What do you think is going to happen? Those creditors are going to deplete that fund as fast as it is built up. And then the treasurer is going to come back to the General Assembly in Virginia and say, I need to expand the tax base here. And pretty soon, you're going to have the Commonwealth of Virginia on a gold, silver basis, treating Federal Reserve notes as a foreign currency. Because they may need Federal Reserve notes for something, all right? And you'll have the economy of Virginia because following along with this, because the state has given them the mechanism. And the state, of course, is a big player in the economy. A lot of money passed through in safe finance. And now you've shown how it could work. And my view of the thing is, if people have two choices, a sound, relatively sound currency here and a rotting vegetable currency over here, which one are they going to choose? Well, they're going to choose this one, of course. That's the reversal of Gresham's law, all right? Gresham's law says what? Bad money drives good out of circulation. That's the way it's usually formulated. It's actually Aristophanes law. I think it's in the play of frogs. It goes back to the ancient Greeks, Gresham didn't invent it. But anyway, why is that true? Because if I have bad money in one pocket and good money in the other and you're willing to take the bad money, what am I going to give you? The bad money, right? Think of mommy with Jimmy. And there's Jimmy and Billy playing in the sandbox. And Billy's crying because Jimmy will not let Billy use one of his toy soldiers and mommy says, be fair Jimmy, let him use one of your toy soldiers. Which one of the toy soldiers are you going to give to the other child? The nice one that's beautifully painted or the one with one arm that's broken off in the head that's twisted, what do you tell me? That's Gresham's law, right? It's at the kindergarten level of intelligence here. But it works the other way too. If I'm going to you to make a contract, I'm going to demand what? The bad money or the good money? I'm going to demand the good money, right? So we can reverse this whole system if you once put into play somewhere. A significant player in the marketplace has to be a fairly large size that's using this good money and we can force that through taxation. Start off with a certain amount of state taxation. Now Congress could do this too. You know, maybe I'd be facetious but in principle, Congress could do this too. And I should think Congress would have more understanding of this problem, it's their power that we're talking about, it's monetary power. The difficulty I have with state legislators always talking to them is, well, you know, we can't do that, states can't do that. And I say, wait a minute, article one, section 10, we go through this little litany of constitutional principles and then eventually the little light bulb comes out in the head, oh yeah, I guess we can do that. And then there's a problem, what's the six o'clock news going to say about me? You know, I'm a gold bug and they're going to make fun of me and get into the political problem there. But as a practical solution, I shouldn't say solution, direction, there is no solution, this thing is going to happen, we can't stop it from happening, right? But as a practical direction for putting a floor under mitigating the damage, I'm willing to bet a stack of cougarans out high, this is the only way it could be done. Because if somebody can think of another way that doesn't involve Congress passing, you know, I keep the rack my brain. I say, if someone came to me and offered me some huge fee to write a statute to correct the Federal Reserve problem through the Federal Reserve, could I do it? No, I think that would be the short answer, I can't take the money, I can't do that. It won't work. There's no way we can correct that. The market has to correct it. And the market will not correct it unless it has an alternative to work with it. I mean, Archimedes, right, didn't need the one that said I have to have, give me a place to stand and I can move the earth with my lever. We need a place to stand monetarily. We need the alternative currency. And the example, go back to Weimar Germany, everyone remembers Weimar Germany, right? Six months, June, July, to the end of November, they blew the currency out. An egg that cost 80,000 marks in June, because they had a lot of inflation during the war. Immediately after the war, 80,000 marks was like a trillion marks the end of November. And the first week of December, the currency was gone. How did they survive? Because they had a whole slew of alternative currencies circulating in Germany from other European countries from the United States, from England, England wasn't considered a European country. And people were using these and making contracts in them. So they had a kind of black price structure in alternative currencies. So when that mark collapsed, the entire economy didn't go with it. You're assuming that we still keep the Federal Reserve that states can create their own currency. But then how about the banks themselves, don't they stop being a member? Either the state's gonna have to create their own like state bank or won't they have to be a member of the Federal Reserve? Well, there would be a state depository to deal with this alternative currency because the alternative currency system is not really banking, it's warehousing. And what I anticipate would happen is if I were writing a complete statue for a state, I'd say, well, look, we need to set up some private institutions that would deal in what used to be called real bills, 30, 60, 90 day bank notes based on real commodities. Because that kind of puts an underpinning to the use of gold and silver. A lot of transactions you don't need to use the gold and silver, you have real bills. And those private institutions I would imagine at some stage, they might also come into the depository, or actually the loan function. See, the depository function is a warehousing function. The loan function is a different situation. And you can't have a loan bank which is paying on demand. The depository is obviously paying on demand, paying immediately, electronically. So you'd set up banks that were dealing with the 30, 60, 90 day real bills and then you'd set up banks that would be, oh, maybe those same banks would set up accounts that would be longer term. But you'd have to cut, the fractional reserve aspect of the thing has to be cut out entirely. That's the devil in the details, as it were in the, you cannot lend short and borrow long for very long. And that's what fractional reserve system banks have always failed because their notes are out there to be paid on demand. They don't have 100% reserve to pay those notes, leaving aside whether that's inherently fraudulent or not, I guess it wouldn't be if people were completely told about it. But the other assets that might be fed into that pool, they're not on demand. Who knows how long those assets may be until they're paid. And then the banks invariably get into these squeezes because they extend themselves too much. And there's only one way to get around that and that's to prevent it in the beginning. Our problem is we've painted ourselves in the, and I'll say we, I don't want to include myself. Somebody out there has painted me into a corner and you as well, we painted it to this corner. And either we're going to go down with a Titanic or we're going to get in a lifeboat and row away. And that's the difference between the Titanic situation and our situation. On the Titanic, they didn't have enough lifeboats and they didn't have a way to build anymore. We don't have enough lifeboats now but we have 50 ways to build them. This can be done at the state level. And I don't say there won't be a lot of wailing and gnashing of teeth economically and a lot of people won't be very, very sorry that we put up this system and ran it as long as we did run into the ground. But that's not my problem. My problem, I'm the kind of the salvage yard guy here, right? You've brought me this mess and you say clean this up, this is the most I can do. It's going to be trauma surgery. You got to lose the leg. Don't blame me. You shouldn't have been driving drunk. Oh, look, I know this, you know, it sounds so pessimistic but you know what the definition of a pessimist is? He's an optimist who knows the facts. Thank you. I'd like to thank you all again for coming today. We have a, our third and final lecture will be on in December, details coming shortly. And just for one quick exposition. This is an eight realis. This is a federal, well, there went a federal reserve note. Which one do you want? I don't know. So please give one more round of applause for Dr. Vieira.