Dialogue #1 On the American Gold Standard:
Who Ya Gonna Trust?

by Gary North
by Gary North

In reading any dialogue, you know in advance that the guy asking the questions is the guy who wrote the dialogue. He will win the argument. This tradition goes back to Plato, where the losers were sometimes reduced to some variation of "Tell us more."

This dialogue is between two vocal advocates of limited civil government: Private Money Guy (PMG) and State Money Guy (SMG).

PMG: Please describe the ideal monetary system.

SMG: Where the Constitution bans all forms of official money except gold and silver.

PMG: Why do we need official money?

SMG: Because people need to trust the money system.

PMG: What has this got to do with the government?

SMG: People need to believe that the money is honest.

PMG: Because the government is honest.

SMG: That is correct.

PMG: But if the government is honest, why limit money to gold and silver? Why not let it declare anything it chooses as money?

SMG: Because gold and silver keep the government honest.

PMG: I don’t follow. Are people supposed to have faith in gold and silver because the government is honest, or because gold and silver are honest, and the government is essentially crooked?

SMG: Both.

PMG: This is a circular argument. Circular arguments go in circles. Where does your argument begin?

SMG: With the Constitution.

PMG: The United States Constitution?

SMG: Yes.

PMG: The Constitution prohibits any state from issuing legal tender money unless it is gold or silver (Art. I, Sect. 10). It says nothing about the United States Government.

SMG: Well, it’s implied.

PMG: That is not what the U.S. Supreme Court said in 1935, when it certified, 5 to 4, the legality of Franklin Roosevelt’s confiscation of all Americans’ gold in 1933.

SMG: Well, the Court was wrong.

PMG: Can the Court be trusted?

SMG: No.

PMG: Who has the final say in determining what the Constitution says?

SMG: The People.

PMG: And what if the People do not care one way or the other?

SMG: The Supreme Court.

PMG: I think we have another circular argument here. The Constitution is sovereign, but the Supreme Court interprets the Constitution as the final court of appeal. We cannot trust the Court, but we can trust the Constitution. Could you clarify this?

SMG: That is a trick question.

PMG: If it is, then it is an old one. It goes back to Chief Justice John Marshall’s decision in Marbury v. Madison (1803), which determined that the Supreme Court has the right of judicial review, something that is not mentioned in the Constitution. The Court can annul laws passed by the government. But the other two branches cannot overturn a decision by the Court.

SMG: Well, someone has to have the last say.

PMG: And that someone said, 5 to 4, in 1935 that the government had the right to abolish the gold coin standard in 1933.

SMG: The gold standard survived.

PMG: The gold-exchange standard survived, which allowed foreign governments and central banks to buy gold from the Treasury at $35 per ounce. That ended on August 15, 1971, when Nixon unilaterally ceased honoring the law. From 1933 to 1971, the Federal Reserve System issued fiat money and bought the gold from the government. It has never returned that gold to the Treasury, nor has the Treasury returned it to the families from whom the government stole the gold in 1933.

SMG: Don’t say "stole" when referring to the government. It merely appropriated it in the name of the People.

PMG: Like Communists used to do in the Soviet Union.

SMG: That was theft. They were Commies.

PMG: They were, indeed. How do you define Communism?

SMG: Any confiscation in the name of the People that is not authorized by the Constitution.

PMG: Stalin issued a Constitution in 1936.

SMG: Yes, but it was not our Constitution.

PMG: You mean the Constitution that established the gold standard for states, but not for the national government, according to the Supreme Court?

SMG: Yes.

PMG: Let me summarize. You are saying that in order for people to trust the monetary system, the government must set the terms of the gold standard. This gives people confidence in gold and silver coins. The coins are necessary because people need to hold the government in check.

SMG: That is correct.

PMG: The government is reliable because the Constitution is sovereign.

SMG: Yes.

PMG: But the Constitution is interpreted by the Supreme Court, according to the Supreme Court.

SMG: Yes.

PMG: So, if the Supreme Court declares that the government can abolish the gold coin standard, this is legal.

SMG: Yes.

PMG: Then why should anyone trust the government rather than trusting in gold and silver coins?

SMG: The people should trust in gold and silver coins, not in the government.

PMG: Who owns the gold confiscated by the government in 1933?

SMG: The U.S. government.

PMG: Not the Federal Reserve System?

SMG: The government.

PMG: Where is that gold?

SMG: In Fort Knox.

PMG: How do you know?

SMG: Because the government says so.

PMG: Has this been audited by any outside agency?

SMG: No.

PMG: Why not?

SMG: Because the government is sovereign.

PMG: Is there any other gold owned by the government?

SMG: Yes. It is stored at 33 Liberty Street, New York City.

PMG: That is the address of the New York Federal Reserve Bank.

SMG: Yes.

PMG: Then who owns this gold?

SMG: The government.

PMG: Then why is it stored at a privately owned Federal Reserve Bank?

SMG: Because it is part of the monetary base.

PMG: Who owns the assets in the monetary base?

SMG: The Federal Reserve System.

PMG: A government agency.

SMG: Yes.

PMG: Has this gold been audited?

SMG: No.

PMG: Why not?

SMG: Because the Federal Reserve System is an agency of the U.S. Government.

PMG: But the Federal Reserve Bank of New York is private.

SMG: Yes.

PMG: Can the government find out what is inside that bank?

SMG: No.

PMG: Why not use the Freedom of Information Act to find out?

SMG: The New York FED says that such a request is a violation of Exemption 4 of the FOIA: an invasion of trade secrets.

PMG: But doesn’t it carry out the orders of the Board of Governors of the Federal Reserve System?

SMG: Yes.

PMG: Then why can’t Congress or the public demand proof that the Federal Reserve Bank of New York has carried out the orders as ordered?

SMG: That is a trick question.

PMG: If so, then it goes back to Marshall’s decision in McCulloch v. Maryland (1819), which declared that the State of Maryland could not tax the Second Bank of the United States, even though the bank was privately owned. It was the agent of the sovereign United States government, and therefore possessed sovereignty, making it immune to state action.

SMG: Well, somebody has to have the final say.

PMG: The U.S. Supreme Court?

SMG: No, the Constitution.

PMG: As interpreted by the Supreme Court.

SMG: Yes.

PMG: So, let me get this straight. We need a government-enforced gold coin standard because people need to trust the monetary system.

SMG: Yes.

PMG: But the government can lawfully unilaterally abolish the right to own gold.

SMG: No, that would be unconstitutional.

PMG: But the Supreme Court said it was Constitutional.

SMG: The Court was wrong.

PMG: Should people trust in gold and silver coins or the government, as limited by the Constitution, as interpreted by the Supreme Court, which obviously can’t be trusted?

SMG: Gold and silver coins.

PMG: Then why did we need a government-enforced gold standard?

SMG: Because people need to trust the monetary system.

PMG: Why not just allow anyone to produce gold and silver coins?

SMG: They are allowed.

PMG: But they were not from 1933 through 1974.

SMG: But they are now.

PMG: But few Americans have ever seen a gold coin. They do not regard gold and silver as money. They do not think gold and silver should serve as a limit on the government.

SMG: Well, they used to.

PMG: Then what do they trust today?

SMG: The government.

PMG: Which stole their grandparents’ gold.

SMG: Don’t say "steal" when referring to a sovereign government under the Constitution as interpreted by 5 out of 9 Supreme Court justices.

PMG: All right, "which appropriated gold from Americans in the name of The People."

SMG: What was your question again?

PMG: Whom do Americans trust to provide trustworthy money?

SMG: The government.

PMG: Which has transferred this authority to a government organization, the Board of Governors of the Federal Reserve System.

SMG: Yes.

PMG: Which has delegated authority over monetary policy to the Federal Open Market Committee, which is made up of representatives of the 12 regional and privately owned Federal Reserve banks.

SMG: Yes.

PMG: Whose decisions are implemented by the Federal Reserve Bank of New York.

SMG: Yes.

PMG: So, everyone is supposed to trust the dollar because an agency that (so far) is immune to the Freedom of Information Act implements policy of privately owned banks in the name of the Board of Governors of the Federal Reserve System, which operates under the authority of the U.S. Government.

SMG: Yes.

PMG: Do you trust the dollar?

SMG: Are you out of your mind? I am buying gold and silver coins.

End of Dialogue #1

February 16, 2009

American Gold Standard Dialogues

1. Who Ya Gonna Trust?
2. A Temporary Interruption of Service
3. Science Is as Science Does
4. Trust and Distrust in Banking
5. Winners and Losers

Gary North [send him mail] is the author of Mises on Money. Visit http://www.garynorth.com. He is also the author of a free 20-volume series, An Economic Commentary on the Bible.

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