Is the Federal Reserve Unconstitutional?

Writing at the Library of Law and Liberty, George Mason University law professor Michael Greve has an interesting piece examining the constitutional foundations—or possible lack thereof—supporting the Federal Reserve:

Our fate hangs on the Fed; and yet, it is an independent institution, immunized from direct political pressures. In a democracy, operating under a Constitution that makes no explicit provision for a central bank and in many ways resists the creation of fourth or fifth branches of government, an independent Fed is an oddity. For what it’s worth, the Fed’s founders acknowledged the point: initially, the Secretary of the Treasury served as the institution’s ex officio chairman. That arrangement was changed in the 1930s, after the Supreme Court had cleared the way for “independent” agencies....

For present purposes, though, the point is this: there is no constitutional warrant for an independent Fed that acts as the economy’s master puppeteer; issues puts on the stock market; expropriates fixed-income recipients so that Congress can continue to borrow on the cheap; or targets the unemployment rate.

Read the whole thing here.

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  • Pro Libertate||

    I agree, but that ship has sailed.

  • ||

    I tend to file these type of posts under "masterbatory fantasy".

  • Pro Libertate||

    The idea of a national bank got through a long time ago, and the Fed is really just an extension of that. I do think something that big shouldn't be squeezed out of the Constitution (in other words, it should be explicit), but it's so well established that it would take a major political revolution to change it.

  • ||

    I was going to say, since when did constitutionality matter?

  • tarran||

    It's constitutional under the Necessary and Proper General Welfare Clause

  • Pro Libertate||

    It's a tax.

  • Almanian's Evil Twin||

    IT'S A COOKBOOK!

  • Pro Libertate||

    Certainly, not following its instructions is a recipe for disaster.

  • Tim||

    +1984

  • Dr. Frankenstein||

    Necessary and Proper

    From Wikipedia:

    Marshall addressed the scope of congressional powers under Article I. The Court broadly described Congress' authority before addressing the necessary and proper clause.[1] Marshall admitted that the Constitution does not enumerate a power to create a central Bank but said that this is not dispositive as to Congress's power to establish such an institution.[1] Chief Justice Marshall wrote, "In considering this question, then, we must never forget, that it is a constitution we are expounding."[4]

  • Ken Shultz||

    I think it's great that some people still think the Constitution matters.

  • Red Rocks Rockin||

    And from George Mason University, no less.

  • R C Dean||

    I know; its kind of cute, isn't it?

  • Pro Libertate||

    Quaint is the word. Like people who wear tophats.

  • T||

    A fedora just doesn't work with a monocle.

  • Paul.||

    Only originalists wear tophats. And racists... which are one in the same.

  • ||

    Your cynicism is fucking killing me!!!

  • The Late P Brooks||

    Full Employment for Keynesian Economists clause.

  • Almanian's Evil Twin||

    So Michael Greve is a butthurt Paultard whack job. Good to know.

    /sarc

  • fish||

    It's as though you were actually channeling Shriek there for a moment!

    Brilliant!

  • sarcasmic||

    I think that falls under the "Fuck you, that's why" clause.

  • ||

    That's the little known Amendment 0.

  • sarcasmic||

    "Awwwwww! Wook at him! He tinks dee constatoochin weely matters! Aint dat cute?"

  • Brandybuck||

    As much as I abhor the Fed, the idea of direct control of the money supply by Congress scares the shit out of me. Yet that's what a lot of End-The-Fed-ers. For all of their talk about the gold standard, do they really think Congress would adopt one? Do they really think inflation would decline under Congressional control? What the fuck are they smoking?

    The core problem is not the Fed, the core problem is centralized control of our money. We need a decentralized free banking system. The only job of the government is to define the dollar in terms of silver or gold (please, no bimetallism this time). Let the banks handle it from there. Oh, and no bailouts!

    Heck, I wouldn't even abolish the Fed, I would just take away their monopoly and make them compete in the marketplace.

  • Pro Libertate||

    Banks? You mean private sector CORPORASHUNS?

  • R C Dean||

    Direct control of the money supply by Congress is explicitly limited to hard money. That's why the Fed was created; the government can't have a fiat currency without a Constitutional amendment first.

    The Fed is a workaround; as a "quasi-private" corporation it isn't bound by the Constitution, and can issue a fiat currency that the government cannot. Those aren't "US Government Notes" in your wallet, they are "Federal Reserve Notes". Sure, its a form-over-substance sham, but there it is.

  • Brandybuck||

    I think you're reading too much into the Constitution. Congress has the authority to coin money, but there's no requirement it be hard money. The requirement for gold and silver are restrictions on the *states* not the federal government. They could coin plastic $20 coins and still be legal.

  • Tulpa Doom||

    The gold and silver thing is definitely only applicable to the states, I agree.

    However, the phrase "to coin money" at the time of ratification specifically meant the imprinting of seals on metal with an underlying value. They wouldn't have considered printing logos on worthless paper to be coining money.

  • ||

    I'm not sure that's supportable. The entire revolution was financed on the back of funny money. I don't think "coin money" is all that explicit.

  • Brandybuck||

    But regardless, there's no restriction whatsoever on private banks issuing their own notes. Which is where most of pre-Fed currency came from.

  • Tulpa Doom||

    The Constitution renounced a lot of the practices of the Confederation era. For instance, Loyalists had their property seized by the Confederation government without compensation.

  • Tulpa Doom||

    And there was no restriction to "coining money" in the Articles.

  • R C Dean||

    I don't think "coin money" is all that explicit.

    You don't think its pretty much limited to, you know, coining (as opposed to printing), you know, coins (as opposed to paper bills)?

  • Brandybuck||

    But what kind of coining? Are we allowed to use hydraulic presses? Laser etching? What about non-metallic coins?

  • OldMexican||

    Re: Brandybuck,

    What about non-metallic coins?


    Forbiden - Art 1 Sec 10.

  • Tulpa Doom||

    The technology used does not change the fact that you're producing an image on a disc of intrinsically valuable material.

    You could do nonmetallic coins in theory, but I don't know of any intrinsically valuable nonmetals that can have durable images produced on them.

  • The Derider||

    "To coin Money, regulate the Value thereof"

    Since metallic currency has innate market value, the only currency congress can regulate the value of is fiat currency.

  • ||

    Shut the fuck up you idiotic midget. Don't you have a tossing to go to?

  • The Derider||

    Oh Epicshart, you card!

  • ||

    Wow, joe, your vestigial sense of humor really came up with a great insult moniker. Did you think of that yourself or did you hire Dane Cook to think of it for you? Short people really don't have any reason to live.

  • ||

    Epicshart? That's retarded even for joe. You should be ashamed of how stupid you are, joe, you fucking idiotic little midget.

  • Pro Libertate||

    To be fair, Epicshat is taken.

  • fish||

    That bastard Shatner got there first again?

  • Pro Libertate||

    That's how he warps.

  • ||

    joe has shown he has no shame in exposing his epic stupidity for all the world to see.

  • Zeb||

    They can regulate how much gold equals a dollar.

  • Tulpa Doom||

    Excuse me, Zeb, you're interrupting Epi and Warty's ad hominem attacks with actual rational argument. That wasn't very nice.

  • Brandybuck||

    You can define the monetary unit as being (crazy example) 1/20th the ounce of gold. Or more realistically today, 1/200th an ounce of gold. They could even come up with some weird ass formula tying the value of a dollar to a basket of commodity goods.

  • Pro Libertate||

    Pegging it to precious metals might have its own issues. That's not an automatic solution to economic woes.

    Also, at some point, we're going to be bringing in gold and other commodities from space. Inflation can happen with gold, too. Ask the Spanish.

  • Tulpa Doom||

    Yes, but it's a much slower process.

  • OldMexican||

    Re: Pro Libertate,

    Pegging it to precious metals might have its own issues.


    The first one that comes to my mind is arbitrage stemming from too many greenbacks chasing too little gold, especially if Congress does not stop spending more than it receives.

    But besides that, the pitfalls from a fiat currency are far more dangerous than arbitrage opportunities from a currency pegged to gold or silver.

  • Pro Libertate||

    No argument here, just noting that nothing is a total panacea.

  • ||

    at some point, we're going to be bringing in gold and other commodities from space.

    Gold does dissolve, a little, in sea water.

    My guess we will be mining it from the ocean before we ever go into space for it.

    We already figured out how to do it with uranium:

    http://www.bbc.co.uk/news/scie.....t-19335708

    Only a matter of time before we do it with gold.

  • Pro Libertate||

    Okay, I'll buy that. Gold from the sea, gold from asteroids. Gold fever!

  • Brandybuck||

    The problem wasn't with the mining, the problem was with 100 year contracts. The Spanish Gold wiped out a lot of old money.

  • Trespassers W||

    innate market value

    HubbaWHAAAAA?

  • Red Rocks Rockin||

    Since metallic currency has innate market value, the only currency congress can regulate the value of is fiat currency.

    It's amazing how the country managed to survive the first 140 years of its history with money tied to metallic currency.

    Given the steadily eroding purchasing power of a dollar since the Fed was instituted, I'd think twice about defending its value in the marketplace.

  • R C Dean||

    Here's what the Constitution allows Congress (and thus the Federal government) to do:

    To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

    To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

    So, no paper currency allowed, yes? You're right, that the gold and silver requirement applies only to the states. But, a requirement for coins is a something of a bulwark against fiat money (or would be, in a country used to coins that have an inherent (melt) value. I don't know if its really possible to have a fiat currency that has to be coined.

    The reference to "regulate the value thereof" I think is meant to keep the states from trying to supplant the values assigned by the feds, and allow the feds to stamp out a coin that has a face value of $X and has to be accepted at (no less than) face value.

    Note that Congress is not authorized to outlaw the coutnerfeiting of paper currency; amusing, no? Only coins and "securities" (meaning T-bills).

  • Zeb||

    Oh, is that how they got around the "only gold and silver" thing in the constitution? I have often wondered about that.

  • Tulpa Doom||

    The specific "gold and silver" clause only applies to state govts, not the feds.

  • OldMexican||

    Shit, Tulpa - that's not even true.

    Here we go:

    It establishes what is MONEY. The prohibition on the states is on accepting anything else BESIDES gold and silver as legal tender, not that only the states get to use gold and silver. It clearly states that LEGAL TENDER shall be only GOLD and SILVER to pay all debts - ergo, MONEY. The ennumerated power of Congress in Sec 8 of Article I states that Congress is the only one that can coin MONEY. What is MONEY? It is clearly stated in Sect 10.

    I'll help you a little bit, because it looks like I will have to do a Mr. Rogers here:

    THink about a factory policy that states that only Maintenance is responsible of painting the buildings.

    Then, in the same policy, it states that Procurement can only purchase the approved pantone-color paint for all buildings and that such will be light green no. 5.

    Now, WHICH FUCKING PAINT can Maintenance use to paint the FUCKING building, children?

    That's how you read a policy/Constitution.

    Shit. And I am not even a native English speaker.

  • Brandybuck||

    Shit. And I am not even a native English speaker.

    Yes we can tell.

    You are correct that Congress was not given the explicit power to print money. But neither is it explicitly forbidden. It seems clear to me that it's an implied power. The difference between printing money and coining money is only that of the technologies involved. There is no essential difference between a $100 note backed by $1 of gold and $100 coin stamped from $1 worth of silver.

    The 1st amendment covers television even though it was not explicitly listed, the 2nd amendment covers knives even though they are not firearms, and Article 1 Section 10 includes the power to print money.

    I've yet to hear from any reputable constitutional scholar that copper pennies are illegal because they are not gold or silver.

  • OldMexican||

    Re: Brandybuck,

    You are correct that Congress was not given the explicit power to print money. But neither is it explicitly forbidden [???].


    You must be joking, Brandy. The Constitution is a charter that forms a government, therefore it cannot perform outside the scope of said charter. So your contention makes no sense.

    The 1st amendment covers television even though it was not explicitly listed[...]


    The Amendment protects the people from government, it is meant to limit government, not to grant rights. You're so desperate to win that you're now conflating issues.

  • Calidissident||

    But where are the feds granted the power to deem anything legal tender?

  • Rasilio||

    Probably, and if you went back 220 years and asked the founders they probably would have been near unanimous (Hamilton excepted) in being horrified by the idea.

    That said while there is no specific grant of authority to Congress to charter a central bank it isn't specifically ruled out either and a reasonable argument could be made that it fits under a combination of the regulation of the value of money and the necessary and proper clauses.

    Compare this with say having a standing army in peace time. The specific differences in how The Army and Navy are treated plus the importance of state millitia's in the Constitution show that the existance of a standing army was intended to be forbidden and yet no one has questioned having a standing army in over a hundred years (and realistically given the changes in technology it is probably necessary to have at least a small standing army plus there is no real guidance on what to do with the Air Force since the concept didn't even exist in the 1700's).

    Ultimately challenging the existiance of the Fed on Constitutional grounds would be a waste of time becasue you could have a massively more strict and literal reading of the Constitution and still allow it but outlaw half of what the government does today.

  • Stormy Dragon||

    Probably, and if you went back 220 years and asked the founders they probably would have been near unanimous (Hamilton excepted) in being horrified by the idea.

    They probably would have been horrified by women wearing pants too, that doesn't mean the Constitution requires Hillary Clinton to be in a dress when she's engaged in official duties.

  • Red Rocks Rockin||

    Wow, talk about your false equivalencies.

  • Stormy Dragon||

    It's a reducto ad absurdum. The false equivalency is Rasilio's equivalency between how horrifying the founders would have found something and constitutionality.

  • Rasilio||

    Actually no, the opinions of the founders on matters of government authority are quite relevant, even if you do not assume an originalist view it should still inform any analysis of Constitutionality. However their opinions of ladies fashion is not really relevant.

    Further you will note that the rest of my post after that first paragraph is downplaying the significance of the entire question so it is not exactly like I am sitting here saying "See Jefferson would have hated a central bank so we must eliminate it". My entire point is that yes, it probably should be ruled Unconstitutional but in the grand scheme of things the Fed is one of the least Unconstitutional things the Government has done in the last 100 years and so it is not really a valid approach to attacking it.

    If you really want to attack the Fed you need to make the case that it's mission is misguided at best and even if it were correct is impossible to achieve and that there are better methods for ensuring a stable economy in the long run.

  • ||

    "I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs."

    - Jefferson

  • Brandybuck||

    A good example of Jefferson's being just another lying politician. Private banks ARE the people. They are organizations of private citizens. When he calls for the issuing power to be restored to the "people" he means the Congress and the gummit. Lying bastard.

  • Paul.||

    Is the Federal Reserve Unconstitutional?

    Yes.

    Is there anything anyone is going to do about it, or shorter: Does it matter?

    No.

  • OldMexican||

    Is the Federal Reserve Unconstitutional?


    Do women have vaginas?
    Are stars bright?
    Are Hindus numerous?
    Is the Pope Catholic?

    For present purposes, though, the point is this: there is no constitutional warrant for an independent Fed that acts as the economy's master puppeteer;


    Stop beating around the bush. The Constitution clearly states that CONGRESS gets to coin money (Art. 1 Sec. 8 Par. 5) and that only Gold and Silver can be accepted as currency (Art. 1 Sec. 10 Par. 1)

    Read the fucking manual!

  • Brandybuck||

    Article 1, Section 10, Paragraph 1 is a restriction on the states not on congress. Repeat, it's a restriction on STATES. Congress could decide to coin a [gasp] copper penny, and be 100% in accord with the Constitution.

  • Pro Libertate||

    When did the federal government start minting currency? I actually don't know the answer to that. Was it doing so near the time the Constitution was adopted?

  • Brandybuck||

    They printed lots of it before the ratification of the Constitution, the Revolutionary War period being the most obvious example.

    And the First Bank of the United States was founded in 1791, so you only had a single presidential term before the printing presses were back up and running.

  • Tulpa Doom||

    The federal govt during the Revolution was not the same federal govt that we had in 1789.

  • Mike M.||

    I believe that the first U.S. Mint in Philly started operations in 1792.

  • OldMexican||

    Re: Brandybuck,

    Congress could decide to coin a [gasp] copper penny, and be 100% in accord with the Constitution.


    No, Art 1 Sec 8-5 establishes the responsibility of Congress to coin MONEY. What is MONEY? What the states are restricted to use as such to pay debts and as legal tender - gold and silver: "make any Thing but gold and silver Coin a Tender in Payment of Debts"

    Congress cannot then use copper as coin because the legal tender for all DEBTS is gold and silver. Therefore, there's your restriction. QED.

  • Tulpa Doom||

    "make any Thing but gold and silver Coin a Tender in Payment of Debts"

    That's not a complete sentence. What was the subject noun in that sentence?

  • OldMexican||

    Re: Tulpa,

    It's not a sentence, it's part of a list - not that it matters to the discussion.

    1: No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

  • Tulpa Doom||

    So, the subject is "state". Not federal government.

  • Brandybuck||

    If you wanted to get picky about it, it means a state can't require you to pay your debts with copper pennies or paper banknotes. It doesn't mean they can ban other forms of money, only that they can't require other forms of money for payment of debts.

  • OldMexican||

    Re: Brandy,

    If you wanted to get picky about it, it means a state can't require you to pay your debts with copper pennies or paper banknotes.


    Or the States debts with the Federal government. You quickly forget that because you're fixated with the idea that the clause is meant to define what will money be only for the States, but that is not so.

  • Brandybuck||

    Oh dear, you're right! All those copper pennies people have been using for two and a quarter centuries HAVE ALL BEEN ILLEGAL!

    You would think somewhere in our past some constitutional scholar would have written an article on the unconstitutionality of the PENNY, but no they were not as smart as you. Bravo on your legal acumen.

  • Emmerson Biggins||

    Ok, so all state laws which allow/require debts to be paid in Federal Reserve dollars are null and void then, right?

  • Tulpa Doom||

    The states don't make FRNs legal tender, the federal govt does.

  • Tulpa Doom||

    Dude, you're totally misrepresenting the second clause. The gold and silver clause explicitly only applies to the state govts.

  • OldMexican||

    Re: Tulpa,

    The gold and silver clause explicitly only applies to the state govts.


    It establishes what is MONEY. The prohibition on the states is on accepting anything else BESIDES gold and silver as legal tender, not that only the states get to use gold and silver. It clearly states that LEGAL TENDER shall be only GOLD and SILVER to pay all debts - ergo, MONEY. The ennumerated power of Congress in Sec 8 of Article I states that Congress is the only one that can coin MONEY. What is MONEY? It is clearly stated in Sect 10.

  • OldMexican||

    I'll help you a little bit, because it looks like I will have to do a Mr. Rogers here:

    THink about a factory policy that states that only Maintenance is responsible of painting the buildings.

    Then, in the same policy, it states that Procurement can only purchase the approved pantone-color paint for all buildings and that such will be light green no. 5.

    Now, WHICH FUCKING PAINT can Maintenance use to paint the FUCKING building, children?

    That's how you read a policy/Constitution.

    Shit. And I am not even a native English speaker.

  • Tulpa Doom||

    You're just stringing a bunch of words together in a very questionable fashion.

  • Tulpa Doom||

    Here, I'll help you.

    No State shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
  • OldMexican||

    Re: Tulpa,

    The one that needs help is you. You cannot even read what's right there in front of you: Sect 10 establishes gold and silver as LEGAL TENDER (i.e. MONEY) and Sect 8 No. 5 of Art 1 indicates that only Congress can coin MONEY.

    Ergo, only Gold and Silver are MONEY. QED.

  • The Derider||

    That clause specifically limits the states from coining anything. It's saying that the states must pay their debts in metallic currency-- not IOUs. It does not define what "money" is.

  • ||

    Hey joe, didn't I tell you to shut the fuck up?

  • OldMexican||

    Re: The Derider,

    That clause specifically limits the states from coining anything. It's saying that the states must pay their debts in metallic currency-- not IOUs. It does not define what "money" is.[WTF????]


    You're an idiot, Joe. If you can only pay your debts in metallic currency, then THAT'S MONEY. It IS being defined.

    Jeez. Pathetic.

  • Tulpa Doom||

    That passage does not establish gold and silver as legal tender. It says states are not allowed to make anything else a tender. As far as that clause is concerned, a state can refuse to recognize gold and silver as legal tender.

  • OldMexican||

    Re: Tulpa Doom,

    That passage does not establish gold and silver as legal tender. It says states are not allowed to make anything else a tender. As far as that clause is concerned, a state can refuse to recognize gold and silver as legal tender.


    You're still confused, Tulpa. The clause does NOT limit people from using whatever commodity they want for payment. It limits the states from mandating other forms of payment besides gold and silver.

    What YOU'RE missing is that the definition of MONEY is IMPLICIT in that clause: Government can only coin money that is GOLD or SILVER because, otherwise, the clause in Sec 10 becomes meaningless - why else would the States be required to accept only gold or silver as legal tender? And since that clause comes AFTER Art. 1 Sec 8-5, then it is clear that the framers meant GOLD and SILVER when they indicated that only Congress can coin MONEY. All subsequent clauses DEFINE the previous ones, that's how contracts are done and read.

    I point to you again to the analogy of the factory and the painting jobs.

  • Tulpa Doom||

    So if the passage said that states are forbidden from making anything except gold, silver, or dog shit into legal tender, does that mean that dog shit is legal tender?

  • Alan Vanneman||

    "Our fate hangs on the Fed; and yet, it is an independent institution, immunized from direct political pressures."

    Kind of like the Supreme Court of Damon Root's dreams.

  • OldMexican||

    Re: Alan Vanneman,

    Kind of like the Supreme Court of Damon Root's dreams.


    The Supreme Court is constitutional - it was established by it. The Fed wasn't and it isn't, not in its current form. Only Congress has the authority to coin and regulate money; in order to delegate that responsibility, an amendment to the Constitution is required, not just a simple bill.

    You have a keen ability to counter a point with irrelevancy, Anal.

  • Tulpa Doom||

    In theory, the Fed could be shuttered by a regular act of Congress (with prez signature, of course), so I'm not really sure whether they're more independent in practice than parts of the executive branch. The main difference is the lack of congressional oversight, but oversight is overrated.

  • The Derider||

    The Fed was created by congress through the federal reserve act. They could repeal the act tomorrow.

  • ||

    Hey joe, does being short make you stupid, or did being born stupid make you short? It's an interesting question. Oh wait, no it's not. Fuck off, scumbag.

  • The Derider||

    Hey joe, stop posting.

  • ||

    Sure, joe. Right when you do. By the way, how thick are your platform shoes?

  • ||

    I missed it. How do we know Joe is short?

  • Brandybuck||

    We don't know for sure, but it's very likely considering his nose to dick size ratio. From the standard NDR table (Higgins, p.238) that would put him somewhere between a Hobbit and a randy Lannister.

  • ||

    Hahahahahahaha. Like it matters!

  • The Derider||

    Yeah, you guys are going to whine about the fed whether it's constitutional or not.

  • ||

    Yeah, you're going to be pathetic partisan shithead whether we give a fuck what you say or not.

  • califernian||

    In my opinion, just about everything the federal government does is unconstitutional

  • Stormy Dragon||

    expropriates fixed-income recipients so that Congress can continue to borrow on the cheap

    I have a lot of trouble with this characterization. If I open a new widget factory, the increased supply will reduce the open market value of existing widgets. It seems to me very odd to describe that as having taken property from people who happened to be stockpiling large numbers of widgets. If we accept that logic, it seems we're inviting all manner of market interference.

  • Tulpa Doom||

    currency != commodities

    No one can force me to accept widgets in payment of debt.

  • OldMexican||

    Re: Tulpa,

    No one can force me to accept widgets in payment of debt.


    100% correct.

    What skews the market is the mandate to accept FRN as currency, not the choice of commodity.

  • Stormy Dragon||

    1. Currency IS a commodity. It is "a class of goods for which there is demand, but which is supplied without qualitative differentiation across a market". A lot of bad economic decision making comes from the failure to recognize that money is ultimately just another commodity.

    2. Yes, you can be forced to accept payment of debt in dollars, but you can't be forced to structure the debt so it matters. That is, when you originated the debt, you could have easily tied the principal to some derivate (e.g. like variable rate loans essentially do).

    3. I'm not arguing that devaluing the currency is a good policy, I'm questioning the assertion that the government has the power, much less the obligation, to protect the value of capital by restricting supplies. It seems that Root could have made the point he wanted to make without rentseeking on behalf of dollar stockpilers.

  • Tulpa Doom||

    I would dispute dollars being a "good". They are not used for anything other than exchange. Even gold and silver have non-monetary uses in jewelry and electronics and other areas.

    Another thing...if we consider dollars to be just another commodity, then how can we have a law against counterfeiting?

  • Rasilio||

    Breech of trademark and Fraud.

    Paper Currency, even a fiat one is a claim on the creditworthyness of the issuing agency.

    If someone prints copies of that fiat currency without the authorization of that issuing agency then they are both using that agency's trademarks inappropriately and commiting fraud against whoever they trade that currency with as that counterfit currency is not backed by the creditworthyness of the issuing agency.

  • Tulpa Doom||

    It's not trademark infringement; that occurs when you use someone's trademark in a way they did not approve of. Photocopying an ad from Walmart and handing it to someone else does not infringe their trademarks; Walmart obviously approved of their trademark being used in the ad.

    You could argue copyright infringement but that would be a huge stretch, and IP infringement is more of a civil matter than a criminal one (despite recent stupid laws).

    As for fraud, a sufficiently well-done counterfeit bill is worth just as much as one printed by the Treasury, for its sole purpose (medium of exchange). So it's not fraud either.

  • Stormy Dragon||

    If you recall that US dollars are ultimately backed up by deposits at the reserve, a counterfeit dollar is basically asserting ownership of deposits that don't actually exist. Counterfieting currency is a crime for the same reason counterfieting any other security would be a crime.

  • Tulpa Doom||

    If you recall that US dollars are ultimately backed up by deposits at the reserve

    No, I don't recall that. Deposits of what? Unicorn farts? AFAIK the dollar is backed by nothing but the fact it can be used to pay taxes and debts, and the fact that you have to accept it for debts.

  • Brandybuck||

    They are not used for anything other than exchange.


    So something can't be a good if it only has one use? For example, Coors Light, which has only one known utility, that of cleaning the corrosion of battery terminals.

  • Tulpa Doom||

    It's not that it has only one use, it's that its only use is for trading for other things. A commodity must have some value outside the trading exchange.

  • R C Dean||

    Currency IS a commodity.

    Nothing that can be created with a mouse click is a commodity.

  • Rasilio||

    There are a large number of digital artists who would beg to differ with that statement.

  • R C Dean||

    Probably not. In fact, they would probably object quite strongly to their work being called a commodity.

  • Tulpa Doom||

    I don't know that I would be that restrictive in defining it. Another definition would be that it must have some value to an end user who does not trade it for anything else.

  • R C Dean||

    It seems to me very odd to describe that as having taken property from people who happened to be stockpiling large numbers of widgets.

    Bad analogy, that breaks down on so many fronts. Just a few:

    We are talking about currency, on which the Fed has a monopoly.

    We are talking about devaluing currency via the creation of new currency out of nothing, which directly reduces the value of currency held as pre-existing stocks of currency ("savings") to those.

    There is no difference between having the government seize half your savings, declare by fiat that the value of each dollar is reduced by half, and doubling the existing money supply, which reduces the value of each dollar by half. If the first is expropriation, so are the second and third.

  • Stormy Dragon||

    We are talking about currency, on which the Fed has a monopoly.

    The existence of a cartel in a particular commodity does not cause it to cease being a commodity.

    We are talking about devaluing currency via the creation of new currency out of nothing

    Except it's not actually created out of nothing. Every new dollar created by the Fed results from the purchase of some asset. In most cases, this is treasury bonds, which is why we have that massive debt built up. Financial liabilities are not "nothing" (indeed, if they are, you've already lost the argument that the fixed income people are being hurt, since their annuity is just a financial liability as well and thus would als be "nothing").

  • R C Dean||

    Except it's not actually created out of nothing. Every new dollar created by the Fed results from the purchase of some asset.

    Here's how it works, Stormy:

    Most of the Fed's assets are Treasuries, which I believe are created out of nothing.

    When the Fed acquires a batch of Treasuries, the expansion of its balance sheet means it issues ("creates") additional currency. If it creates that currency in exchange for something created out of nothing, I'm comfortable saying the currency was created out of nothing.

  • Stormy Dragon||

    Most of the Fed's assets are Treasuries, which I believe are created out of nothing.

    If Treasuries are "created out of nothing", then where did this huge national debt I keep hearing about come from?

  • R C Dean||

    It comes from spending money we don't have. Money we don't have? Created out of nothing? Hello?

    There's no difference between the government just directly printing the money it needs to cover a deficit (which would be money created out of nothing, right?) and the government selling bonds to a bank that prints the money to buy the bonds, is there? If the former is money created out of nothing, why not the latter?

  • Stormy Dragon||

    For the same reason that buying something with a credit card isn't the same thing as bouncing a check. The treasury bond comes with an attached liability that has economic value. You seem to be laboring under this delusion that if something is intangible, then it must not actually exist.

  • Tulpa Doom||

    Hollywood's accurate rendition of the Fed

    Lloyd: Listen, Mr. Samsonite, about the briefcase, my friend Harry and I have every intention of fully reimbursing you.

    Nicholas Andre: Open it up. Open it up!

    Lloyd: [Motioning to Mary] Go ahead, open it up. Do what he says. Hurry.

    Nicholas Andre: What is this? What is this? Where's all the money?

    Lloyd: That's as good as money, sir. Those are I.O.U.'s. Go ahead and add it up, every cent's accounted for. Look, see this? That's a car. 275 thou. Might wanna hang onto that one.

  • Stormy Dragon||

    There is no difference between having the government seize half your savings, declare by fiat that the value of each dollar is reduced by half, and doubling the existing money supply, which reduces the value of each dollar by half. If the first is expropriation, so are the second and third.

    That's like saying that if I have a bunch of my savings in gold, there's no difference between breaking into my house and cleaning out my safe and discovering a giant new gold deposit that causes gold prices to plummit.

  • R C Dean||

    So, you really don't see any difference between somebody devaluing all you own with a mouse click, and the introduction of a new supply of goods or raw materials?

  • Stormy Dragon||

    No I don't. That's why I don't keep my long term savings in a commodity that can be devalued as easily as currency.

  • R C Dean||

    There's no such thing as a commodity that can be devalued as easily as a fiat currency.

  • Stormy Dragon||

    PCRAX would like to disagree with you:

    http://finance.yahoo.com/q/bc?.....Chartt=5y

  • Tulpa Doom||

    Appeal to authority FTL.

  • Jeff||

    Ah yes, the "Constitution". We have dismissed that claim.

  • db||

    I think the value of a dollar should be linked to something interesting, like the cost of a ticket into low earth orbit. The amount of energy required to reach orbit (physics defines it) is well known, the rest is efficiencies and overhead costs. Eventually it will become a commodity, but it isn't tied to one physical metal that is unevenly distributed around the earth.

    Alternatively, currency could be considered as a unit of energy, given improved methods of storage. There's a fixed amount of chemical energy stored jn the earth's crust, and a more or less constant insolation rate, so inflation happens at a fixed rate that depends on energy storage technologies. I don't know, I just came up with this, but it's possible it could be made to work.

  • Brandybuck||

    Making coins and banknotes radioactive would significantly increase the velocity of money and kickstart our economy. Banks would be paying you to take their excess reserves off their hands!

  • pipemiddle7||

    I am fed up with the fed. http://silvercoinsphoenix.com

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