The Founding Fathers Preferred Real Money – Gold and Silver

The following article was originally published at the Tenth Amendment Center.

The founding generation generally took a dim view of paper money. In a letter to Edward Carrington, Thomas Jefferson wrote, “Paper is poverty.  It is only the ghost of money, and not money itself.” Today, some investors are embracing the views of the Founders, recognizing the value of gold and silver as sound, stable money.

Investor and creator of Things that Make You Go Hmmm Grant Williams recently said he plans to buy gold regardless of what the Federal Reserve does or how its daily mechanizations impact the price. In fact, during an interview at the Mauldin Strategic Investment Conference, Williams said he doesn’t really pay attention to the price of the yellow metal:

I think what the Fed does could have short-term impact, but I don’t buy gold around it. I don’t buy gold at $1,100 because I think it’s going to $1,200, I buy it for what it does, not what the price is, the price is the last consideration for me.”

So what is it that gold does? It retains its inherent value, unlike paper money, which depreciates over time as central bankers print more and more of it. In a nutshell, Federal Reserve paper does not count as stable money.

In a letter to John Epps written in 1813, Thomas Jefferson declared gold and silver the best form of money.

Specie is the most perfect medium, because it will preserve its own level; because having intrinsic and universal value, it can never die in our hands.”

He went on to write:

The trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals… it is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted.”

Among James Madison’s papers were notes for a 1786 speech opposing paper money. He wrote, “Right of regulating coin given to Congs. for two reasons. 1. for sake of uniformity. 2. to prevent fraud in States towards each other or foreigners. Both these reasons hold equally as to paper money.”

Alexander Hamilton also warned us about unbacked paper money.

To emit an unfunded paper as the sign of value ought not to continue a formal part of the Constitution, nor ever hereafter to be employed; being, in its nature, pregnant with abuses, and liable to be made the engine of imposition and fraud; holding out temptations equally pernicious to the integrity of government and to the morals of the people.”

Interestingly, governments would like to do away with paper money and move to a completely electronic monetary system. This would prevent people from hoarding cash under their mattresses, and make it easier for central bankers and government officials to manipulate you into spending through negative interest rates. It also makes it possible for governments to confiscate money from your accounts to bail out banks or other institutions during an economic meltdown. Williams touches on this in his interview.

Having the ability, through digital cash, for a government to reach into your bank account and take 10%, 20%, whatever it may be is what they need. They can see this coming. At some point they are going to have to take money from the people who have it to fill the hole in the people who spent it.”

Sound money backed by gold or silver makes it much more difficult for government to manipulate the monetary system to its own ends.

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the United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” Of course, states have ignored this constitutional provision for decades. States can take a step back toward constitutional tender by undermining the monopoly of the Federal Reserve by introducing competition into the monetary system. Simply recognizing gold and silver specie and legal tender in a state takes a step in this direction. Another strategy is the creation of state gold bullion depositories like the one approved in Texas.

Professor William Greene, an expert on constitutional tender, said if people in multiple states actually start using gold and silver instead of Federal Reserve notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.

Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a “reverse Gresham’s Law” effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes). As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”

Once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people. Nullifying the Fed on a state by state level is what will get us there.

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