mck@ratex.UUCP (Daniel Kian Mc Kiernan) (02/08/85)
First, I'd like to let everyone know that the Constitutional dollar
was NOT backed with gold (Ms. Creighton did not say or imply that it was,
but here is a convenient place to discuss the matter). When the
Constitution was adopted, 'dollar' (which comes from 'Joachimstaler')
referred to a Spanish-milled coin of about 24 grams of silver. Since the
Constitution refers at various points to dollar amounts, it is quite clear
that Congress does NOT possess the Constitutional authority to change the
meaning of 'dollar' (such amounts to an amendment of the Constitution).
When Congress first established a mint, they ordered the coining of
additional dollars, 'each to be of the value of a Spanish milled dollar as
the same is now current, and to contain three hundred and seventy-one
grains and four sixteenth parts of a grain of pure, or four hundred and
sixteen grains of standard silver' (Act of 02 Apr 92). Gold coins were
also authorized, but as a SUBSIDIARY coinage. Unfortunately, they FIXED
the value and weight of these subsidiary coins. Legal relationships
notwithstanding, this was ECONOMICALLY identical to a bimetallic standard;
Gresham's Law drove all the gold out of circulation, and large bills could
only be paid with bank-notes or LOTS of silver coins. Jacksonian Democrats
distrusted banks and paper-money, and had the bimetallic ratio changed;
because CONGRESS DID NOT HAVE CONSTITUTION AUTHORITY TO CHANGE THE MEANING
OF 'DOLLAR', the ratio was changed by changing the weight of gold coins.
Since they again had a fixed ratio, Gresham's Law once again went to work;
this time gold came back into circulation and silver left circulation.
But, while silver dollars were not circulating, nevertheless the
Constitutional meaning of 'dollar' was unchanged. In stages, from 1873
thru 1900, Congress passed unconstitutional laws which redefined 'dollar'
in terms of gold. The majority of the Supreme Court pretended that the
Jacksonian alteration of the weight of gold coins was a demonstration of
Congress's authority to redefine 'dollar'; the minority pointed out that
the gold coins were subsidiary. When, during the Great Depression,
Congress began phasing-out the gold-standard, the Supreme Court used the
gold-standard rulings to support the authority of Congress to again
redefine the dollar. Now, mind you, I don't regard the Constitution as
legitimate in the first place, but this all still fascinates me.
In a Free Economy, there would be no legal prohibition against the
use of gold (or silver, &c) as money, but there are economic reasons to
hope and expect that people won't. As well as serving as 1) the medium of
exchange, money usually serves as 2) the unit of account, 3) the standard
of deferred payment, and 4) the store of value.
If the unit of account does not maintain a fixed value, economic
calculation is thwarted; this is true whether the value of the unit drops
(as during inflation) or rises (as during deflation) or wobbles. We can,
of course, adjust for these changes by indexing; which amounts to
substituting a market-basket as the unit of account.
If the standard of deferred payment does not maintain a fixed value,
then real wealth is diverted from creditor to debtor (as during inflation)
or from debtor to creditor (as during deflation) without correspondence to
productivity. This too can be overcome by indexing; which amounts to
substitution of a market-basket as the standard of deferred payment.
If the store of value doesn't maintain a fixed value, then real wealth
is diverted to or from holder without correspondence to productivity. IF
the holder deposits his money within the financial system, then this too
can be overcome by indexing; which would amount to a substitution of a
market-basket as the store of value. If the holder hoards his money,
indexing won't help.
Given that a market-basket is being used as the unit of account, the
standard of deferred payment, and to some extent as the store of value, it
would be more efficient to use it as money in general, especially as this
would eliminate the rewards and penalties associated with hoarding.
Ms. Creighton no doubt recognizes that such money would most probably
be associated with bank expansion of the money supply, and perhaps worries
about the associated distortions (since, Milton Friedman notwithstanding,
new money is not uniformly and universally distributed by helicopter), but
given Free Banking and modern innovations in information handling, and
assuming that economic growth is brisk but not explosive (so that monetary
expansion is brisk but not explosive), distortions would be minimal. If
we did not have Free Banking, or if information technology were less
advanced, then these distortions would be more significant.
Bye,
Daniel Kian Mc Kiernan
9120 Hawthorn Pt
Westerville, OH 43081-9605
(614) 891-6604
This disclaimer is no longer valid.