Is there Enough Gold for a Monetary system?

Analysis of Thomas Allen’s There is enough Gold By Byron Dale

Thomas Allen’s writing is in black. Byron Dale’s comments are in red and red italics.

THERE IS ENOUGH GOLD Thomas C. Allen After I had finish writing Reconstruction of America’s Monetary and Banking System, I became acutely aware of an increasing number of people claiming that we cannot return to the gold standard because not enough gold exists. As a result I realized that a more detailed rebuttal was needed than the one in my book. The rebuttal needed to include a numeral demonstration of the adequacy of gold. Such a demonstration follows. It shows that enough gold exists for the classical gold-coin standard, the true gold standard, to work in a modern-day economy. (If the reader wants to skip the preliminary explanations, he can go to page 9 for the proof.) Keynesians, Friedmanites, and other gold-haters (Allen lumps everyone who knows that there is not enough gold to work as a general medium-of-exchange together as gold-haters, that simply is not true. This writer is not a gold-hater or a gold lover. He has simply done the math.) have convinced most people that not enough gold exists for gold to function as money. Therefore, an arbitrarily managed fiat monetary system is needed. The government or its central bank must issue the money and regulate its supply instead of allowing the markets to do so. (Again Allen misleads his readers here, because the markets did not regulate the gold supply. Miners of gold supplied the gold and they, for the most part mined all that they could find as fast as they could.) Even many ardent gold advocates hesitate to promote the true gold standard because they are convinced that not enough gold exists. Thus, they promote a fiat currency that incorporates gold. (When you get to pages 9 and 10 the reader will see that what Allen does is prove by the math that there is not enough gold for a workable gold money system, unless one incorporates a paper debt-based money into that system to give it more quantity.)

One of the favorites is the commodity basket approach. The commodity basket monetary system is a fiat currency managed such that a price index of a collection of commodities is kept within a certain range. Gold is a component of the basket. (For more details on the commodity basket currency, see the author’s book.) Another favorite is for the U.S. government or its central bank, the Federal Reserve, to issue paper money backed by gold. Many are unclear whether this currency is redeemable or irredeemable. If it is redeemable, it would function similar to the U.S. notes between 1879 and 1933. However, it would not be accompanied by the gold standard as were U.S. notes during this era. If it is irredeemable, it would function like U.S. notes and federal reserve notes between 1933 and 1968. Both are forms of fiat money as the US government or the Federal Reserve arbitrarily regulates the money supply. The true gold standard has the following attributes:

1.Gold does not back the money; gold is the money.

2.The price of gold is not fixed. The monetary unit is a specific weight of gold. (This shows that Allen truly does not understand what he is trying to teach. In the U.S. of A. the monetary unit is named the dollar. Let’s say that the monetary unit is specific weight of gold, one grain of gold. The price of gold is then one dollar per grain. Therefore one has fixed the price of gold or no one would know what a dollar is.)

3.Gold coins circulate as money. (This is proven if gold coins circulate as the money. How else would one know, how much gold to give a person for a ten-dollar purchase?)

4.The value of a coin is the value of its metal content.

5.There is the free coinage of gold: Anyone can bring any amount of gold to the mint, which does not have to be owned by the government, and get it coined. (How every the person at the mint must know how much gold and of what purity that gold must be to make a dollar coin or a 10 dollar coin or a 100 dollar coin.)

6. Anyone can melt coins without restriction and use the metal for nonmonetary purposes.

7.No restrictions are placed on exporting or importing gold. (Here one has to be very careful if gold is the money as Allen states at 1. If you exported too much gold you would export, and there by lose, most of the money of the nation and the people would have no money to trade with internally.)

8.All paper money is redeemable in gold on demand. (Here one must ask if gold is the money, what is the paper money he is talking about, where does it come from and how does it get into circulation?)

9.The supply of money is self-regulating and automatically adjusts to meet the demand for metallic money. (How would the supply of gold money be self-regulating? It seems to me the gold miners would regulate the supply of gold by how much gold they found and mined.) The government does not manage or otherwise manipulate the money supply. No monetary policy is necessary, and none is desirable. (This sounds good in theory but in reality if the monetary unit is set by a specific weight of gold isn’t that monetary policy?)

10. The government does not issue any paper money (If there is enough gold for a workable money system and the people choose to use that system why would there be any need for any paper money as Allen talked about in 8.) or buy gold and coin it on its own account. (No they would just tax it away from us and give it to some one else. This give away might be in the form of welfare, bailouts or doing some thing under special privileges granted by the government. But mostly to someone working for the government doing something, some one working for the government should not be doing. )

11. Gold coins are the property of the individual holding them; they are not the property of the government. No restrictions or controls are placed on the private ownership of gold. (Now that sounds good until the miners decided it would be a good idea to loan all the gold they mined into circulation as interest-bearing loans.)

12.Legal tender laws are unnecessary and undesirable.

13.The government’s monetary duties are limited to defining the monetary unit, coining all gold presented to it for coinage and guaranteeing the weight and fineness of such coins, punishing counterfeiters of such coins, (Here is a complete contradiction of what Mr. Allen said at 2. and 5.) punishing issuers of paper money who fail to redeem their paper money on demand, and punishing acts of fraud and enforcing contracts in monetary matters. (It makes no difference if it is redeemable or not if it is loaned to you at interest. You are still in debt and owe the interest.) The true silver standard has the same attributes. Before showing that the quantity of gold and silver available for money is adequate, an explanation of the quantity theory of money and the quality of money is needed. Also needed is a explanations of the two ways of regulating the issuance of money. To arrive at a proper understanding of money, one must think in terms of the quality of money instead of the quantity. (It is very easy to disagree with Mr. Allen, because to properly understand money one must think in both the terms of quality and quantity.) He must also think in terms of letting the markets automatically regulate the money supply (Mr. Allen and others like him never bother to explain just how the market would regulate the money supply) instead of letting the government or its central bank regulate the money supply arbitrarily. Most people focus on the quantity of money and ignore the quality of money. Quality is a more important determinant of money’s purchasing power than quantity. Stated in its simplest form, the quantity theory of monetary is that “the value of unit [of money] is inversely proportional to the quantity in circulation.

2. As the supply of money increases, general prices increase, and vice versa as the supply decrease’s. Under this theory, money supply is the independent variable, and prices are the dependent variable. Thus, general prices depend on the total quantity of money in the country. Regulating the money supply is necessary to maintain stable prices. Underlying the quantity theory of money is the notion that more monetary units mean more wealth. Monetary units never create more wealth, (Only the combination of knowledge, labor and raw resources can create wealth.) The quantity theory of money is seductive. It seems so simple and plausible that it tranquilizes most people into a false sense of security. It deceives people into believing that the government has the responsibility to manage the money supply. Whereas the quantity theory of money focuses on the number (quantity) of monetary units, the quality theory of money focuses on the purchasing power (quality) of the monetary units. The quality theory of money emphasizes the quantity of goods for which money can be exchanged. Under this theory, money supply is a dependent variable that adjusts to the demand for money and leaves prices unaffected. It places great importance on money’s function as a standard of value and as a store of value. Since fiat money lacks quality (Mr. Allen seems to be saying that no one can purchase things with fiat money yet everyone knows they can buy gold and almost everything else with it, including people in congress. Therefore, one must ask Mr. Allen the question, why does fiat money lack quality?) quantity becomes highly important to the determination of its value. An extremely high correlation of 0.99 exists between the growth rate of fiat money and inflation.

3 With commodity money, which has quality, only a moderately positive correlation of 0.41, 0.49, or 0.71 occurs depending on the measurement of money used.

4 (The authors did not distinguish between metallic money and credit money. (Herein lays the real problem with Mr. Allen’s discussion of money. He and almost everyone refuse to distinguish between metallic money and credit money. The difference is that metallic money for the most part has been put into circulation as wealth money and credit money is always put into circulation as debt and almost always as interest-bearing debt. Even worse almost no one deals with the effects of the interest on this debt.)

As changes in the quantity of specie have only a minor affect on general prices, the credit money that accompanies the metallic money probably causes most of the correlation with prices.) (And that is due to the effects of the interest on that debt.) The quantity theory of money probably has validity for fiat money. It may also have some validity for a 100-percent gold or silver standard (all paper money is merely a warehouse receipt for specie and all demand deposits are 100-percent backed by specie). (This is a totally false statement. Most all paper money has been connected in some way to debt owed almost never fully backed by specie, by the issuers.)

However, when fiat currency reaches the hyperinflationary stage, the quantity of money theory fails-at least it has historically. It does not explain the relationship among the quantity of money, prices, and the demand for money. (That is because almost no one deals with the interest rates in a hyperinflationary period.)

The quantity theory of money is a linear model trying to explain a nonlinear world. The real bills doctrine (commercial money principle), which is discussed below, refutes the quantity theory of money. When the real bills doctrine is employed, money supply in the form of commercial money (real bills) or bank money (bank notes and checkable deposits) into which real bills are converted can increase enormously without causing an increase in general prices. The quantity theory of money predicts that an enormous increase in money supply will cause a significant increase in prices. Under the real bills doctrine with redeemable bank money, the quantity theory of money is not true. The quality theory of money prevails. The supply of money responds automatically to market forces. (What market forces?)

It can increase enormously without causing a rise in general prices. Likewise, it can contract enormously without causing a decline in general prices. The quantity of money under the real bills doctrine depends on productivity. (For more details on the quantity theory of money and the quality theory of money, see the author’s book.)

Two means can be used to regulate money supply: automatic regulation and arbitrary regulation. The markets regulate the money supply automatically. The government or its central bank regulates the money supply arbitrarily. This gets very interesting. (Here Mr. Allen says the real bill doctrine based on bank created money loaned into circulation at interest is a good money system because it is based on production. But at the same time he says that the concepts proposed by Byron Dale which will create money and spend it to circulation in a way that would truly monetize the production of the people. Who want and need the things that are produced, without interest-bearing debt, and without the need for taxes is not a good money system and will not work.)

Should the decision on the amount of money needed to transact business and trade be left in the hands of the people directly, the U.S. government, or the banks? If one believes that the U.S. government or banks should decide the quantity of money, then he favors an arbitrarily managed system. If he believes that the people as a whole with each person acting in his individual capacity should decide the money supply, then he favors an automatically managed system. (That is what Dale is doing with his Minnesota Transportation Act and his Federal Monetary Reform Act.) The former believes that politics, ie., politicians and bureaucrats, can best manage the money supply. The latter believes that economics, ie., the markets, can best manage the money supply. When left to themselves, the people, with each person acting in his individual capacity, will arrive at and maintain an adequate supply of money. (This sounds like a nice theory but Allen and people like him never seem to be able to tell us just how a person acting in his individual capacity can produce any kind of money.)

Governments and their central banks have proven themselves incompetent at achieving and maintaining a proper supply of money for a smooth operating economy. The key distinction between fiat money that uses gold and the true gold standard is the way that the money supply is regulated. (What nonsense, the key distinction between fait money and gold is wealth based money vs. interest-bearing debt based money.)

With fiat money using gold, the government or its central bank arbitrarily regulates the money supply. With the true gold standard, the markets automatically regulate the money supply. (For a more detail description of fiat money and how it differs from the true gold standard, see the author’s book.)

Under the true gold standard, the people acting individually according to their economic contribution decide the quantity of gold coins needed. If they want more gold coins, they bring gold to the mint for coinage. (Not, if they have no gold to take to the mint.)

If they want fewer gold coins, they melt gold coins and use the gold for other purposes. (What nonsense, if life has taught me anything it has taught me that most people always want more money. In fact it is clear that most of the time the people with the most money people are the people who most badly want more of it.) Likewise, with the true silver standard, the people acting individually increase and decrease the number of silver coins. One must also abandon the notion of saving the federal reserve dollar by making it redeemable in gold. Such redemption is not only impractical; it is also unnecessary. (Why would any one in his right mind want to save the Federal Reserve money system)?

People cannot agree on what the redemption rate should be. Some argue that the redemption would be tens of thousands of dollars to the ounce of gold. Such high redemption rates are used to convince people of the impracticality and impossibility of returning to the gold standard. Returning to the gold standard does not require a specific exchange rate between gold and the federal reserve dollar. All that is needed is to strip the federal reserve dollar of its legal tender property, (The legal tender issue is really a non issue. Checkbook money is not legal tender money. Yet the United States Supreme Court and others will not accept Federal Reserve notes. They will tell you that you must use checkbook money.) to treat all money the same under the tax laws, and let them circulate together. Thus, gold coins; silver coins, and federal reserve dollar’s circulate parallel to each other with no fixed exchanged rate between any of them. (For more details on phasing out the federal reserve dollars and phasing in gold and silver coins, see the author’s book.)

Before showing that the quantity of gold and silver available for money is adequate, an explanation of real bills doctrine or the commercial money principal is needed. Under the real bills doctrine, only the productivity of the people limits the quantity of money created. The real bills doctrine rests on the premise of the real bill of exchange. A real bill of exchange represents real goods that are really being sold. A real bill of exchange is a self-liquidating, short-term credit instrument. It is self-liquidating in that when the consumer buys the product, the consumer provides the money for the seller to use to pay the bill. It is short term in that the bill has to be paid off in 90 days or less. The following example illustrates the real bills doctrine. When a producer sells his goods to a retailer, he draws a bill of exchange to give the retailer time to get the money (If there was enough money in the system the retailer would have the money to pay for the goods.) by selling the goods. Typically, he allows the retailer 90 days to pay the bill. When the retailer accepts the bill, commercial money has been created. The producer can now use this bill to pay his suppliers. He can sell it to an investor or a bank. (Where did the investor or the bank get the money and what kind of money was it and how did it get to circulation so that the investor or the bank had it? Yet, the retailer whose business was buying low and selling high to earn a profit does not have the money? This reminds me of a conversation I had with a banker from California. He said to me, “I just don’t understand it, it just doesn’t seem like any one can handle money, I have to loan the producer the money to produce. Then I have to loan the wholesaler the money to buy from the producer. I then have to loan the retailer the money to buy from the wholesaler. Then I have to loan the consumers so they can buy from the retailer.” 7 When I told him “That is because in our money system there is no money until it is borrowed from the bankers.” the shocked look on his face was almost unbelievable.)

If he sells it to a bank, the bank can convert it into bank notes or checkbook money (just like it can convert gold coins into checkbook money when a depositor deposits gold coins in a checking account). (The questions need to be asked just how does a bank convert gold into checkbook money if the bank did not create the checkbook money and if gold was the money and there was enough gold and if the people preferred to use gold, why would anyone want or need the checkbook money? Allen answers that question just a few lines later when he states gold is a cumbersome form of money and bank notes and checkbook money is more easily spent money) A bank never creates money; (This is a totally false statement. That is how checkbook money got started in the first place. When some one deposited gold the bank issued his promise to pay in newly created checkbook money form) it only converts one form of money (commercial money) to another form (bank notes and checkbook money). It is in effect dividing a cumbersome form of money into smaller units that can be more easily spent. (See the above comment by Dale)

When people buy the products represented by the bill, the retailer pays the holder of the bill. When the bill is paid off, it ceases to exist. If a bank has bought the bill and has converted it to bank notes or checkbook money, that bank money is removed from circulation and cancelled when the bill is paid. Thus, the money created when the retailer accepts the bill goes out of existence when the retailer pays off the bill. The real bills doctrine generates the money necessary to buy newly produced goods and retires that money when the goods are sold. (If there was enough gold money there would be no need for the real bills doctrine. Mr. Allen just destroyed his own argument before he starts. Plus he left out the fact that this commercially created money draws interest.) With their production, the people create money. (This statement would only be true if everyone bartered.) With their consumption, they destroy money. (I didn’t know that eggs, bananas, meat, bread, wine, houses and clothes etc. were money. I know for a fact that you can’t use any of them to pay your taxes or your loan at the bank or gas and most other things.) This creation and destruction occur without inflation or deflation. The supply of money always and automatically equals the demand for money. (Then why would you need gold? Why would gold work, it is not created by man or destroyed by man?) With their productivity the people, instead of the government or banks, decide how much commercial money (real bills) to create. (Whoa, real bills were created as credit/debt why would you want your money to be what you owed when your productivity is real wealth and not interest bearing debt?)

The people, instead of the government or the banks, decide how much commercial money to convert to bank money (bank notes and checkable deposits). (Under our debt by system the people themselves decide how much money is created by how much the people will borrow. The banks only decide how much money there is when they start refusing to make more loans that the people want or when they start pulling money out of circulation when they call loans due). The people have direct control of the money. Banks and the government play only a secondary role. (But the banks get all that ‘nice’ interest as profit for not really producing any thing.) Banks do not create any money. (While this statement is technically true, because banks only create credit, but bank credit is the only thing we use for money. So that statement gives a totally false impression. Bank do create all of the medium-of-exchange that we call money) Banks merely convert it from one form (real bills or commercial money) to another (bank notes and checkable deposits) (Then why don’t we all just write our own real bills and go deposit in our checking accounts. Mr. Allen must not live in the same world as the rest of us.) as they do when they put gold coins in their vaults and issue gold certificates in place of the coins.

All money creation is left directly in the hands of the people. Not only is a central bank not needed; it is detrimental to this monetary system. Also, although credit is involved, no borrowing or lending is involved in the creation of money. The government is reduced to the role of an umpire. Its primary duty is to enforce contracts and punish persons guilty of fraud. These two important tasks are properly the function of State governments. Although the Constitution authorizes the U.S. government to coin money, coinage is not a necessary function of government. Private mints may coin money. This system allows the money· supply to increase enormously as productivity adds new goods to the markets and to contract enormously as these goods are consumed-all with little or no effect on general prices. The real bills doctrine can only work with a precious metal standard. Like federal reserve notes, U.S. bills, and all forms of paper money, they are credit money. Like all credit moneys, they are promises and obligations. They must mature into a form of money that is no one’s obligation, such as gold or silver. Without the gold or silver standard, the real bills doctrine cannot function. (For more details on commercial money, real bills, and real bills doctrine, see the author’s book.) (In this paragraph Allen gets down to the real issue but he doesn’t seem to understand what he just stated. He states that real bills, Federal Reserve Notes, U.S. Bills and all forms of paper money, and at this time, are credit/debt money, which is true. However he leaves out the factt they are all interest-bearing debt and are not final payment. Where gold and/or silver coins under the 1792 Coinage Act were no one’s obligation and were final payment. He like almost all others missed the most important point. Interest-bearing debt money puts all of us in monetary slavery while wealth money (wealth money does not need to be metal money) spent into circulation makes free men. (The questions need to be asked just how does a bank convert gold into checkbook money if the bank did not create the checkbook money? If the banks did not create the checkbook money where did it come from? If gold was the money and there was enough gold, why would anyone want the interest bearing checkbook money?) An unpayable obligation make slaves not free men.

What is meant by the real bills doctrine? The term “real bills” goes back to the days before Adam Smith. It means loan instruments (promissory notes) which are secured by physical assets which are going to be sold therefore the loans are self liquidating. When the real goods are sold the money is automatically received to pay off the short-term debt obligation. Under the real bills theory the commercial banks could increase their reserves by selling, to a federal reserve bank, the notes given to them by farmers and business men, secured by real goods, to obtain loans. This was done so the bank could create more reserves so they could make more loans. This leads to a never-ending expansion of bank credit money and monetary slavery. All based on the theory that gold was the only real money, money that neither the farmers, nor the businessmen, nor the bankers had. The real bills doctrine was where the banks could finance industry based on commercial paper guarantees. Suppose businesses are trying to borrow from the banks and the banks are already loaned up, no excess reserves to lend. Under the commercial loan (real bills) theory, the newly-created Federal Reserve banks would invite the commercial banks to sell them (to rediscount) some of their promissory notes. That way the Fed banks could provide more reserves for the banks to lend. In the real bill doctrine, loans must be based on the short-term commercial paper connected with new production not on government bonds or brokers loans. It was argued that as new money creation brought new goods into existence it would not be inflationary. All commercial loans created as a deposit in a bank were to be backed 100% by commercial obligation based on new production, plus an additional 14% by gold. Problems with the Commercial Loan Theory The real bills doctrine called for the central bank to be a passive participant in the expansion and contraction of the nation’s money supply. In the early years, that is generally the way the Federal Reserve banks saw their role. Whenever businesses wanted to borrow more, the Fed would freely rediscount the bank’s promissory notes and provide additional reserves. Currency elasticity was assured. As long as out put was growing, the money supply could grow without inflation. So says the theory. Suppose businesses all over the country get the idea that this is a good time to borrow and build more inventories or input so that in the future they can expand production. And suppose wholesalers and retailers decide to stock up, too. The banks are quite willing to finance these “short-term self-liquidating” commercial loans, and the Fed Banks are quite willing to rediscount the promissory notes and provide more funds so that the lending can continue. Then what happens? Soon there’s too much demand for the available supplies of goods in the economy. Shortages develop. Inflationary pressures mount. In this case, the real bolls doctrine didn’t turn out to be an effective guideline. Source: Money Banking and the Financial System by E.V.Bowden) The gold and silver standard accompanied by the real bills doctrine is not new. Adam Smith described such a system. Although not perfectly followed, this system was the prevailing system between the end of the Napoleonic wars and he beginning of World War 1. The following shows that enough gold exist to function as money in today’s economy. Using four different approaches, Zurbuchen estimates the quantity of gold mined less the amount of gold lost between 3000 BC and 2004 AD to range between 4.06 billion ounces and 4.37 billion ounces. The average of his four estimates is 4.25 billion ounces 137,000 metric tones. His data show that the total amount of gold mined ranges between 4.30 billion ounces and 4.92 billion ounces with an average of 4.72 billion ounces 152,000 metric tons. according to Price, 82 percent of the world’s gold stock was privately owned in 2007. Zurbuchen estimates that about 11.25 percent of the gold mined has been lost. Probably, half the gold lost is not irrecoverably lost. It is lost because recovering it is not economically feasible. At $1000 per ounce 4.25 billion ounces of gold equals $4.45 trillion dollars in federal reserve notes. (There are several things that we should take note of, here Allen values the gold in terms of debt owed (federal reserve notes). While in the 1792 coinage act the dollar was value in wealth owned, a weight, 24.75 grains of pure gold. (And that value is only 4.45 trillions dollars.) When accompanied by the real bills doctrine this amount of gold could accommodate more that $425 trillion in trade quarterly or more than $1.7 quadrillion annually. (He then says if one fractionalizes enough on that gold, it will support a $1.7 quadrillion debt-based economy.) To give some perspective to the magnitude of $1.7 quadrillion, the gross world product in 2007 was estimated to be $65.61 trillion. Thus, enough gold was available in 2004 to accommodate 3.8 times the gross world product of 2007. The silver standard should always accompany the gold standard for two important reasons. First if provides day labors and migrant works with true full bodied money for pay, instead of token coins and paper money. Second, and more important, it protects the gold standard from degenerating into fiat money by providing true full-bodied money with which to buy and sell gold. (see author’s book for more details on the importance of the silver standard.) Using five different approaches, Zurbuchen estimates the quantity of silver mined between 3000 BC and 2004 AD to range between 42.62 billion ounces. The average of his five approaches is 44.552 billion ounces (1,385,400 metric tons). Based on more information, he revised his average to 45.38 billion ounces. If the value of silver equals $20 in federal reserve notes, (Here again Allen values the silver in debt dollars, not by the weight of pure silver as did the 1792 Coinage Act) then $908 billion have been mined. At $50, the value of silver mined equals $2269. Using three different approaches, Zurbuchen estimates between 20.66 and 21.33 billion ounces of silver exists as coins, bullion, jewelry, silverware, and art forms. The average of these three approaches is 20.99 billion ounces. He estimates that if the value of silver rose sufficiently 4 billion ounces could be recycled from existing industrial metals. This would make 24.99 billion ounces of silver available for use as coins. Probably, 85 to 90 percent of all silver ever mined is recoverable; currently, recovering it is not economically feasible. If the monetary value of silver were to rise, more silver would become available for monetary use. At $20 per ounce, 24.99 billion ounces could accommodate at least $50 trillion in trade quarterly or $200 trillion in trade annually under the real bills doctrine. At $50 per ounce the respective numbers are $125 trillion in trade quarterly and $500 trillion annually. To claim that not enough gold exists to serve as money for the modern day economy is absurd. Enough gold does exist. Furthermore, when the silver-coin standard and commercial money accompany the classical gold coin standard, as it usually has been, enough money can be automatically created without the involvement· of the government or banks to accommodate quadrillions, perhaps even nonillions, of euros, pounds, or dollars of trade. (Talk about being absurd, the above nonsense is like saying that 2 horses are enough to have a 50 horse race, if you add in 48 cows and call them horses.) Banks and the U.S. government need to be denied the power to create money. Money creation needs to be placed where the U.S. Constitution places it: directly in the hands of the people, with each person acting in his individual capacity according to his economic contribution. This is done when people acting individually coin gold and silver to expand the supply of coins and melt coins to contract the supply of coins. People can also create commercial money as they commonly did before World War 1. (Before one can have gold or silver stamped into coined money one must have the gold and silver, which seems to be something very hard for most people to get their hands on.) Gresham’s law explains why gold and silver are not seen circulating as money. According to Gresham’s law, lower quality money drives higher quality money out of circulation when the government declares that the low quality money is legal tender. For example, a person owes a $1000 debt. He can pay it with 20 $50 gold eagles (20 ounces of gold), 1000 $1 silver liberty dollars (1000 ounces of silver), 10 $100 U.S. notes, or 20 $50 federal reserve notes. Is he going to pay with the gold coins that he could exchange for $17,000 in U.S. notes or federal reserve notes? (Here again Allen values everything by the value printed on a piece of paper that represents what someone owes, debt not wealth.) Is he going to pay with silver coins that he can exchange for $11,500 in U.S. notes or federal reserve notes? Or is he going to pay in U.S. notes or federal reserve notes? (Here again Allen gets things all mixed up. If all the things he mentioned above where legal tender and the legal tender law were enforced, all those things would have the same purchasing power.) When the government allows debtors to cheat their creditors with irredeemable paper money, most debtors choose to cheat their creditors. The largest debtors, and therefore the biggest cheaters, are governments and banks. (This example also shows that the material of which the money is made is much more important than the government’s stamp in determining its real value. If the government’s stamp determines value, then no difference would exist among these monetary instruments.) (Here Allen admits to the facts that I just stated above. If all these things where legal tender, and the legal tender law were enforced, all these things would have the value stamped on their face.) Gold and silver are high quality money and do a good job of maintaining purchasing power over time. Irredeemable paper money whether issued by the government or banks is low quality money and does a poor job of retaining purchasing power over time. Silver and gold are the moneys of the Scriptures. Would God have given man silver and gold for money without providing enough? (This is like saying that if God wanted honest men all men would be honest. We know that all men are not honest.) Lawrence Reed wrote, “Old myths never die; they just keep showing up in economics and political science textbooks”. This is especially true of the myth that there is not enough gold to serve as money in the modern-day economy. (The myth is that there ever was enough gold for a good general medium-of-change.) Before the United States adopt a paper currency as lawful money, they must overcome the constitutional hurdle. Only gold and silver are constitutional money. The “dollar” as used in the Constitution is not any thing that Congress declares it to be. The dollar of the Constitution is the weight of silver in a Spanish milled dollar. (Here again Allen gets his facts all mixed up. The United States Constitution did not declare what was to be or what was not to be dollars. The Continental Congress adopted the most known coin at the time to be a dollar. Then the first congress in the 1792 Coinage Act declared that the dollar was to be a weight and purity of silver. But corrupt men sitting in courts refused to up hold the law. Allen, does not take into account that the founding fathers in 1791 passed a law that set up a central bank, that issued promises to pay as dollars. These dollars then became the most used and accepted dollars because there wasn’t enough gold to be used as a general medium-of-exchange.) Any other dollar like the U.S. note dollar is not a constitutional dollar though the U.S. government has printed and issued it. The writers of the Constitution discussed delegating Congress the authority to print and issue paper money and decided against giving Congress that power. So if one wants the U.S. government to issue paper money constitutionally, he needs to amend the Constitution to give it that power. The founding fathers never intended that the U.S. government should issue any kind of paper money. The Constitutional Convention discussed that issue, (The Constitutional Convention discussed not using bills of credit. Yet that was the first thing that the founding fathers did under the direction of Alexander Hamilton. They set up a bank and issued bills of credit.) and the Convention rejected granting the U.S. government the authority to print or issue paper money. That is why the States delegated Congress the power to “coin” and not to “print,” “emit,” or “issue” money. What they decided was to keep the government out of money creation and issuance and leave money creation and issuance directly in the hands of the people with each person acting in his individual capacity according to his economic contribution. Moreover, only gold and silver are constitutional money. The U.S. government has no authority to print or issue paper money. Thus, it can give no entity a monopoly to issue money. A return to constitution money will solve our monetary problems. (For more details on constitutional money, see the author’s book.) APPENDIX The paragraphs that follow are excerpted from Reconstruction of America’s Monetary and Banking System addressing the myth that not enough gold exists to function as money. The third major argument against the gold standard is that not enough gold exists to accommodate the ever growing population and volume of production and trade. Those who claim that not enough gold exists fail to realize that value (quality), and not volume, makes the monetary standard. When accompanied by the real bills doctrine, the world stock of gold is, and for centuries, has been adequate to accommodate world trade. Spahr remarks that “with efficient organization in the utilization of self liquidating credit instruments [i.e., real bills] perhaps no one could compute with accuracy the volume of transactions which could rest upon the gold and silver reserves of a nation. With a proper banking and credit system, one ounce of gold can do the work of 10,100, or more ounces of gold. The work done by an ounce of gold depends on the quantity of commercial money (real bills) generated whether converted into bank money (bank notes and checkable deposits) or not. Only the productivity of the country limits the quantity of commercial money. The important thing is not how much gold a country has; it is how much it can attract. Although the former is limited, the latter is not if the flow is fast enough. About the inadequacy of the gold supply, James Laughlin, one of the authors of the Federal Reserve Act, remarked: The fear of a scarcity of money is purely fictitious, because if immediate redemption of the media of exchange [in gold] is always preserved, there will always be perfect elasticity of the currency …. Hence, in a properly constituted monetary system, there can never be a place for a “managed currency,” since that means the currency is intentionally issued as a means controlling prices, and not to provide a legitimate medium of exchange. To which Larson added: A comparatively small amount of redeemable currency is ample because, first, almost 95% or even 99% of all transactions are consummated by means of checks or credit cards; and, second, because currency, whether in the form of specie or in notes redeemable in gold, will never be hoarded, since, in themselves, they are completely sterile, and will therefore be spent or invested quickly, and thus returned to the banks or the Treasury-that is, by all normal individuals. People who oppose the gold standard because not enough gold exists suffer from the fiat-money mentality of thinking in terms of quantity and not quality. They believe that the more units of money that a country has, the wealthier that country is. They have difficulty conceiving that the quality of money determines its value. Because gold is high quality money, a small amount can move a large amount of goods and services. Because fiat money is low quality money, much is needed to do the work of a small amount of gold. When the silver standard and the real bills doctrine accompany the gold standard, to claim that not enough gold exists is ludicrous. (Talk about being ludicrous, the above nonsense is like saying that 2 horses are enough to have a 50 horse race, if you add in 48 cows and call them horses.)