Miracle on Main Street: The Gathering Tragedy/The Only Cause of Inflation
THE GATHERING TRAGEDY
Me
Boos running in the streets. Mobs of rioters and dem-
onstrators threatening banks and legislatures. Looting of shop and
home. Credit ruined. Strikes and unemployment. Trade and dis-
tribution paralyzed. Shortages of food. Bankruptcies everywhere.
Court dockets overloaded. Kidnappings for heavy ransom. Sexual
perversion, drunkenness, lawlessness rampant . . .
One distinguished politician writes to another: ‘The
wheels of government are clogged, and we are descending
into the vale of confusion and darkness. No day was ever
more clouded than the present. We are fast verging to
anarchy and confusion.”
Where, when and whom? Get ready for a shock:
_ America, 1786, ten years after the signing of the Declaration
of Independence. The correspondence was from George
Washington to James Madison. On February 3, 1787,
Washington wrote to Henry Knox: “If any person had told
me that there would have been such formidable rebellion
as exists, I would have thought him fit for a madhouse.”
What went wrong? What forced this noble new country
1. This and all Washington quotations: Harry Atwood: The Constitution Explained,
Destiny Publishers, Merrimac, Massachusetts, 1927, 1962.
li
12 THE MIRACLE ON MAIN STREET
into conditions far worse than the tyranny against which it
had declared its independence in the first place? The his-
tory books tell us it was a complicated variety of interre-
lated things, but reality tells us it was only one: the money
issued by the Continental Congress and the states’ bank-
ing houses was paper that could not be redeemed for gold
or silver coin. Inflation, that was what had sunk George
Washington to the depths of despair.
The paper currency of the Congress was printed in such
exorbitant amounts (in relation to the precious metals they
represented) that wages and prices skyrocketed, forcing |
the Legislature to enact harsh wage and price controls.
When these failed, moral-sounding laws reeking of piety
and patriotism were enacted in an attempt to chain the
people under penalty of violence to the government's ab-
surd money:
If any person shall hereafter be so lost to all virtue and regard
for his Country as to refuse to accept its notes, such person shall
be deemed an enemy of his Country."
This amounts to a law protecting bad-check artists, and
so the people naturally ignored it and others like it. The
depreciation of paper currency relative to coin followed the
same sickening course our paper currency follows today.
(At this writing, the 1980 paper dollar is redeemable for a
silver dollar at about 15 or 16 to 1.)
DEPRECIATION OF CONTINENTAL CURRENCY |
AGAINST THE SPANISH MILLED DOLLAR, 1779
January 14: octane lense teenies 8 to]
February 3.1.6... ccc eens 10 tol
POPE 2 ie Sets tearhaut aie bactaehg mane 2s 17 to 1
May 9% 22. tisecsttes ne Soden ied AGreaats 24 to 1
UTC Feed eos oktegsees eich e ances ect atte & 20 to 1
September 17.......... 0000 e cee ee eee 24 tol
October 14 2.00... cee ce eee eee 30 to 1
November 17 .......0..0.0 00000 e eee 38 to 1
1. Davis R. Dewey: Financial History of the United States, John Wilson & Son, Cam-
bridge, Mass. 12th Edition, 1934, pp 36 et seq.
2. Ibid.
a
THE GATHERING TRAGEDY 13
In January, 1781, these notes were redeemable 100 to 1; in
May, 1781, they ceased passing as currency and quietly
died in the hands of their owners. Repeatedly, new series
were issued, only to follow a similar pattern.*
A contemporary of the Revolution, Peletiah Webster, re-
cords it this way:
It ceased to pass as currency (in May, 1781), but was afterwards
bought and sold as an article of speculation, at very uncertain and
desultory prices, from 500 to one thousand to one. ?
Yet another contemporary writer, Breck, gives us this
ridiculous aspect of inflation’s ultimate achievement in the
1780's:
The annihilation was so complete that barber-shops were pa-
pered in jest with the bills; and the sailors, on returning from their
cruises, being paid off in bundles of this worthless money, had
suits of clothes made of it, and with characteristic lighthearted-
ness turned their loss into a frolic by parading through the streets
in decayed finery which in its better days had passed for
thousands of dollars. *
Again, Peletiah Webster writes:
Paper money polluted the equity of our laws, turned them into
engines of oppression, corrupted the justice of our public admin-
istration, destroyed the fortunes of thousands who had confi-
dence in it, enervated the trade, husbandry, and manufactures of
our country, and went far to destroy the morality of our people. 4
Describing inflation to someone who has never ex-
perienced it is like describing the pain of fire to someone
who has never been burned. You really have to live it to
know how terrible it is. More than one Biblical scholar who
has felt inflation concludes that the Beast in Revelation is
nothing less than inflation itself. The worst thing about
inflation is that there are so many apparent causes of it. The
1. Ibid.
2. Ibid.
3. Ibid.
4, Ibid.
14 THE MIRACLE ON MAIN STREET
long-winded debate over cause only gives inflation time to
spread and destroy more. The debate over cause is usually
conducted by the many people who benefit from inflation,
those who are first in line from the printing press, able to
buy goods at current prices with money that soon raises
the price of everything as it goes into circulation, increasing
the volume of the money supply. It doesn’t take much
digging to know who the first-in-liners are: they’re the
beneficiaries of government programs and, of course, the
beneficiaries of our bank system. Which is a whole lot of
people, very few of whom are going to want to put their
heart and soul into an effort to stop inflation. Why should
they, when inflation is the secret of their success? They're
not villains or conspirators. They’re ‘Friends of Paper
Money.” There have always been ‘Friends of Paper
Money,” and they really cannot be blamed for doing any-
thing wrong or evil.
AT. t is historically true that no order of society ever perishes
save by its own hand.”
—John Maynard Keynes,
The Economic Consequences of The
Peace, 1920
16
2
THE ONLY CAUSE
OF INFLATION
Me
There is only one cause of inflation. There can only be
one cause of inflation. That cause is artificial money. Artifi-
cial money gets its value from what it represents. Real
money gets its value from what it is, from its rarity, utility,
uniformity, and durability.
In a closed society artificial money is highly acceptable.
Polynesian tribesmen have used shells, beads, and stones
in the same way gamblers in the casinos of Las Vegas use
plastic poker chips: they’re fine within their specific circle,
- but when a gambler and a Polynesian do business to-
gether, the Polynesian won't take poker chips and the
gambler will have no use for shells, beads, and stones.
Something more “universal” will have to be used as their
medium of exchange.
The universal medium of exchange between differing
tribal systems since 3600 B.c. has been gold or gold and
silver. I saw a recent piece of economic research showing
that 99.6 per cent of the people on this planet esteem gold
higher than anything else as a medium of exchange. Inter-
national commerce has never been possible without gold
and silver and never will be.
17
18 THE MIRACLE ON MAIN STREET
How gold and silver gets into the monetary system of
countries is best expressed in the United States Coinage
Act of 1792, which is still in effect today:
SECTION 14. And be it further enacted, That it shall be lawful for any
person or persons! to bring to the mint gold and silver bullion, in
order to their being coined; and that the bullion so brought shall be
there assayed and coined as speedily as may be after the receipt
thereof, and that free of expense to the person or persons by whom
the same shall have been brought. And as soon as the said bullion
shall have been coined, the person or persons by whom the same
shall have been delivered, shall upon demand receive in lieu
thereof coins of the same species of bullion which shall have been
so delivered, weight for weight, of the pure gold or pure silver
therein contained: Provided nevertheless, That it shall be at the
mutual option of the party or parties bringing such bullion, and of
the director of the said mint, to make an immediate exchange of
coins for standard bullion, with a deduction of one half per cent.
from the weight of the pure gold, or pure silver contained in said
bullion, as an indemnification to the mint for the time which will
necessarily be required for coining the said bullion, and for the
advance which shall have been so made in coins.
Artificial money is introduced into gold-and-silver sys-
tems as bills of credit, certificates, notes, or I.O.U.s. Artifi-
cial money explains its usefulness this way: “Why lug
around all that gold and silver? Why not let your govern-
ment or your bank keep your gold and silver for you, and
in return we'll issue you these lovely paper certificates
which are much easier to transport? Of course it goes with-
out saying that if you ever want your gold and silver back,
all you need do is present the paper and we'll return your
money to you.”
Imagine the temptation of having a vault full of the
people’s gold and silver while the people are perfectly
happy to use paper! At some point, any thinking custodian
is going to say, “No one is asking for his gold and silver to
be redeemed. Everyone considers paper to be money now.
Paper is easier to print than gold is to dig out of the mine.
Hmmmm. By printing up paper notes, I can actually make
money!”
1. Of course, “‘person’’ means individual or corporation, such as a mining company.
THE ONLY CAUSE OF INFLATION 19
And so, gradually, you print up more bills of credit than
there is gold and silver to back them. A few people notice
that certain items are more expensive this year than last,
but that could be due to demand for the items, or a short-
age. No big worry. Nobody complains, except a few
prophets of doom who can be written off as crackpots.
You grow delirious with joy as time passes. You buy a
beautiful 10-acre lot and build a mansion on it, paying with
paper you printed that everyone’s delighted to accept.
How can you help but feel confident and somewhat self-
important? This is the life! You throw a lot of cocktail par-
ties.
Within a few years, there is so much paper in circulation
that gold and silver can now be denounced as old-
fashioned: who uses it anymore? People find gold and
silver money in coin shops and it’s way overpriced. Relics
of the past. (It’s interesting to note that gold and silver coin
are routinely called “relics of the past’ by friends of artifi-
cial money, and have been so called since . . . well, the
remotest past).
To explain rising prices and sudden layoffs, complicated
formulae appear from “institutes of economic studies,”
formulae that attempt to build a “value index” according to
“national energy” and the “gross national product.” These
formulae are understood only by their creators, and each
institute has a set of creators who feel their formulae are
superior to others. Doctorate degrees and lofty distinctions
are accorded these people, and they write textbooks that
train younger minds. You give a big grant to one of these
institutes for further studies and in the bargain get a nice
tax deduction.
Loss of the currency’s purchasing power is called “the
rising cost of living” rather than “embezzlement.” (What
does an embezzler do but increase his victim’s cost of liv-
ing?)
"AS individual fortunes dwindle and the people clamor
for relief and leadership, government and civilian spokes-
20 THE MIRACLE ON MAIN STREET
men condemn “government spending” as the chief cause
of inflation. (“Government,” as much a creature of the
ideasphere as “Uncle Sam,” makes an ideal whipping boy
because it can be whipped indefinitely and not break or
die. In fact, as the past 15 years testify, the more govern-
ment is whipped, the more brutishly powerful it grows.)
Constitutional amendments that would limit federal
spending are proposed and there is much verbiage and
correspondence on this. Relief and leadership are just over
the horizon, the people are led to believe. As you crank out
more paper, you ask the people to have a little hope and
faith, and while they’re at it, cut way back on their simplest
pleasures. Sacrifice, and rest assured that our most distin-
guished economists are working overtime with govern-
ment to try to hammer out a solution to this most pressing,
most intricate problem.
What our most brilliant economists and articulate
statesmen neglect to bring up is that the solution to infla-
tion is already clearly contained in the United States Con-
stitution.
Yes, it’s right there, just waiting to be acted upon.
What you won't hear on radio or TV (surely you know
how the banks and government regulations make the
media walk a thin line of fear) is that YOU, personally,
YOU have more power than your senators, your represen-
tatives, your state officials, even more power than the
President of the United States when it comes to restoring
economic well-being to your country. And you can do it
IMMEDIATELY, whenever you get ready to.
You won't have to send the first telegram to your con-
gressman. You won't have to march in protest. You won't
even have to organize. There'll be no long wait for a Su-
preme Court decision. The “right candidate” won’t have to
get elected. You won't really have to do anything, in fact,
THE ONLY CAUSE OF INFLATION 21
except decline to break a law. So you have nothing to risk,
either. Whoever got into trouble for declining to break a
law?
To use your power, you'll need to know a little about
where American money comes from. And where your
power comes from. And, of course, you'll need to know
about the law you’re going to decline to break. Some
people get fidgety when “law” is brought up in a discus-
sion of social action, so perhaps you’d enjoy being reas-
sured that your power is well-insulated, that you won't get
into any trouble when you wield it.
We'll start, then, with the reassurance.
WW. hold these Truths to be self-evident, that all Men are
created equal, that they are endowed by their Creator with certain
unalienable Rights, that among these are Life, Liberty, and the
Pursuit of Happiness—That to secure these Rights, Governments
are instituted among Men, deriving their just Powers from the
Consent of the Governed, that whenever any Form of Gov-
ernment becomes destructive of these Ends, it is the Right of
the People to alter or to abolish it...”
—A DECLARATION By the
REPRESENTATIVES of the
UNITED STATES OF
AMERICA,
In GENERAL CONGRESS
Assembled, July 4, 1776
22
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