The End of Honest Money

Submitted by William Bonner, Chairman – Bonner & Partners


The season of fasting is upon us. No more high living. It’s time to cinch up our belts … to put on a gaunt face and a smug look. Alone among friends and associates, we will keep Lent.

So neglected is Lent that even Google has forgotten about it. When we did a search it proposed “lentil soup.” Lent is meant to rehearse the 40 days and nights that Jesus spent fasting in the desert before going public.

We remember the lean days with prayer, meditation and self-denial. No alcohol will cross our lips from Ash Wednesday till Easter Sunday. (Except on Sundays. And saints’ days. And national holidays. And days that begin with the letter “T” or that have a date that is a prime number.)

Yes, dear reader, we will be true to the church calendar, with a few emendations of our own.


Photo credit: Tao Zhyn

Yin and Yang

Why? Because we wish to remember that periods of gluttony and wantonness must be followed by periods of fasting and correction.

Yin and yang must be kept in balance. Pain and pleasure… good and bad… right and wrong – all must get what is coming to them. Otherwise, the entire world gets out of whack.

We fast to remind ourselves that there are hardships… there are lean periods in life. Not just in our drinking lives… but in our economic lives… and in our emotional lives too.

There is adversity. There is pain and penance. We fall in line, observing church rituals, so that we don’t fall apart when real adversity hits us in the face. We endure Lent so we can enjoy Easter.

Yes: Corrections are a part of life. You correct your mistakes. Or they correct you. No other outcome is possible. But along comes the doctrine and practice of modern central banking. All these MIT-educated central bankers have a different idea.

They work tirelessly to avoid correction… to prevent pain… and to bring back the good times of free-spending revelry. Now they have a program – “QE to Eternity.” It promises to keep the economy pain-free forever.


 A “Wicked Project”

To fully understand how this came about, we step back to the founding of the United States of America, in whose Constitution today’s central bank money was specifically prohibited.

Recall that the states – which had the power to mint their own money – were not to “make any thing but gold and silver coin legal tender in payment of debts.” In The Federalist Papers, James Madison described allowing paper money as an “improper or wicked project.”

And in his 1819 Dartmouth College v. Woodward decision, Chief Justice John Marshall explained that paper money had “weakened the confidence of man in man and embarrassed all transactions between individuals by dispensing with a faithful performance of engagements.”

Not that paper money was necessarily the work of the devil. But Satan had a hand in it. When you can counterfeit money – and get away with it – it’s a hard habit to quit. You are soon hooked.

Congress resorted to paper money – called “greenbacks” because the notes were printed in green on one side – during the War Between the States. Five hundred million paper dollars were issued. This led to higher prices, which pleased debtors. They borrowed in expensive money; they repaid in cheap greenbacks. Prices in the North rose 75% from 1860 to 1865.

john-marshall-paintingChief Justice John Marshall (September 24, 1755 – July 6, 1835) – not a fan of paper money.

Painting by Henry Inman, 1832

A Cross of Gold?

After the war, the greenbacks went away. But the desire for cheap money continued. Farming was the largest sector of the economy in the 19th century. Typically, farmers borrowed to expand their farms during booms, when prices were high. Then, in the correction, they cursed the bankers who had lent them money and railed against the gold standard.

Late in the century, William Jennings Bryan took up their cause as his own. The rural proletariat had gone bust in the farm crash of the 1880s… and now found itself so deep in debt it was willing to take up with a fool like Bryan, if he promised relief.

The roads choked up with dust when Bryan came to a cow town in the Midwest. He ranted and raved against all that the farm folk detested – often sweating like a hot shower in the summer heat.

“You shall not crucify mankind upon a cross of gold,” he roared to the approving hallelujahs of the yokels. The speech had a ring to it. It was a rhetorical flourish with great power. Remembered and repeated, it is still today probably more readily recognized than Lent. But it was empty – nothing more than bombast and fraud.

There is some liturgical disagreement about it. But Lent generally ends on Good Friday, when Jesus was crucified on a cross of wood. Since then, millions have been crucified financially by paper money (a wood product). No one has ever been nailed to a cross of gold.

What Bryan had against gold was the same thing that all paper money pushers – including modern central bankers – have against it. Gold is uncooperative and stiff-necked. You borrow it and you have to pay it back. The lender expects to get his money back in real money.

And since the supply of gold rarely grows faster than the supply of goods and services for which it is exchanged, prices remain more or less stable. Debtors are not let off the hook.

Consumer prices rose from 1800 to 1913, when America’s central bank was founded, by 176%. New discoveries of gold in Alaska, South Africa and Australia had increased the money supply significantly. But that was nothing. In the 100 years since – when paper money was the stuff most often issued by the US Treasury – prices have gone up 448%.

Bryan got his way after all. Nobody in America suffers from an honest currency. Nobody pays back as much as he has borrowed. Even contracts with “CPI adjustment” clauses fail to make the lender whole. The feds have seen to that too.

william-jennings-bryan1Photo via Library of Congress

William Jennings Bryan delivering a speech during his 1896 presidential campaign – one of a long list of inflationist charlatans that have plagued the world. His three bids for the presidency all bombed – but the takeover of the Democratic party through his pietist faction (which was enabled by Grover Cleveland being blamed for the 1893 panic) forever transformed the Democratic Party. It was the beginning of the move toward statism in America and the decline of voter interest in politics (see Murray Rothbard’s A History of Money and Banking in the United States, part 1 for details on this).

Image captions by PT.