Money and Credit
Proposed Parallel Gold-Coin Standard
to the Federal Reserve System
By Antal E. Fekete
Money must function both as a medium of exchange and a means of
saving. Therefore money is also the symbol of a nation's morality.
Unconstitutional tampering with money is deeply immoral.
The Founding Fathers strove for establishing a monetary system whereby
the power to create or to extinguish money is reserved directly for
the people themselves, rather than for the people's representatives
in government. They did not establish a Central Bank in the United
States; they established the U.S. Mint instead. The Founding Fathers
subscribed to the principle of free and unlimited coinage of silver
and gold. If people felt that there was not enough money in circulation,
then they could do something about it. They could take old jewelry
and plate or new gold and silver from the mines to the Mint and have
it struck into the coin of the realm free of charge of seigniorage.
If people felt that there was more than enough money in circulation,
then they could do something about that, too. They could melt down
the coin of the realm and have it fashioned into jewelry or plate,
or they could export it. The system was designed to prohibit the "improper
and wicked" manipulation of the nation's medium of exchange, while
guaranteeing the value of what people have earned with the sweat
of their brow.
The federal government has departed from these eternal principles
of coined money. By sleight of hand, it has passed control over money
from the people to the Federal Reserve System which has, during the
four and a half score of years of its existence, gradually usurped
unlimited power by dint of foisting unlimited amounts of irredeemable
Federal Reserve notes, not only upon the United States, but upon
the entire world. These violations have overthrown the principle
of limited and enumerated powers of government, threatened our economic
stability and the survival of our country's republican form of government.
Reform of the Monetary and Credit System
Therefore we the people demand the reform of the monetary and credit
system. In particular, we call for:
The Restoration of Constitutional Coined Money:
The silver dollar of weight and fineness established by
the U.S. Constitution shall be rehabilitated as the standard
silver coin of the realm.
The gold eagle coin containing one ounce of gold 999 fine,
presently sold as a souvenir pursuant to the U.S. Gold Coin
Act of 1984, shall be elevated to the status of the standard
gold coin of the realm.
Congress shall make no law regulating the exchange rate
between the standard silver dollar and the standard gold eagle,
which is to be left to the free market.
The irredeemable dollar shall remain outstanding as the
liability of the banks. Congress shall make no law regulating
the exchange rate between the irredeemable dollar and Constitutional
coined money, which is also to be left to the free market.
The President shall make no proclamation, and Congress shall
make no law, abridging the right of the people to the unlimited
coinage of the standard silver dollar and the standard gold
eagle at the Mint free of seigniorage.
All the gold presently credited to the U.S. Treasury, the
Federal Reserve banks, the Exchange Stabilization Fund, and
any other department or agency of the United States, shall
be paid into a Rehabilitation Fund. This is gold belonging
to the people that was confiscated without due process of law
The Reform of Credit:
Congress shall revoke all coercive laws making Federal Reserve
notes and deposits legal tender.
Congress shall charter Credit Unions to issue gold certificates
and grant deposits redeemable in the standard gold eagle, on
the security of gold held by the Rehabilitation Fund. That
gold shall be apportioned among the Credit Unions according
to their subscribed capital. All those who claim that they
or their predecessors have been unlawfully deprived of property
in consequence of unconstitutional monetary laws shall be given
opportunity to subscribe. Having converted its gold into gold
eagle coinage, the Rehabilitation Fund will pay it over to
the Credit Unions within one year, after which it must go out
The Credit Unions shall have reserves of gold for no less
than forty percent of their note and deposit liabilities.
The remainder of the Credit Unions' note and deposit liability
shall be covered by reserves in the form of gold-based short-term
commercial credit, that is to say, self-liquidating bills of
exchange drawn on marketable merchandise moving fast enough
to the ultimate gold-paying consumer so that it will be sold
in 91 days or less.
Other types of securities, including U.S. Treasury bonds,
notes and bills, or agency debt shall not be eligible as reserves
for the note and deposit liabilities of the Credit Unions.
The primary function of the Credit Unions shall be to supply
gold and silver redeemable currency for the payment of wages
and salaries wherever collective agreements call for this form
in preference to payment in the form of irredeemable dollars.
The proposed Plan stops short of demanding the stabilization of
the irredeemable dollar in terms of gold. That would involve the
fixing of the price of gold in terms of paper dollars. Such a measure
would make consensus impossible to reach. Creditors would be jockeying
for a low and debtors for a high gold price, as the former would
give a high and the latter a low gold content to the paper dollar.
Thus any stabilization plan would carry with it the seeds of its
own rejection. This may well be the reason why none has been proposed
for the past 33 years of roller-coaster ride of the paper dollar,
euphemistically called "floating" by mainstream economists.
The proposed Plan leaves the Federal Reserve System alone, along
with its liabilities: the Federal Reserve notes and deposits. Nevertheless,
it calls for the revocation of all coercive laws that declare the
irredeemable dollar legal tender. Let the Federal Reserve System,
like everyone else, fend for itself and struggle for its own economic
survival. There is no valid reason why the Federal Reserve System
and the United States Treasury be allowed between the two of them
to exchange promises to pay which neither has the resources or the
intention to honor. It is this check-kiting that, more than anything
else, is responsible for the paper-money magic that has been invented
for the sole purpose to fool and defraud the public.
The proposed Plan lets the best currency win whether it is paper,
silver, or gold. Furthermore it lets the people, free of coercion,
be the judge. If anyone refuses to accept the judgment of the people,
then he can call himself neither a democrat nor a republican. By
his refusal he declares himself to be a believer in dictatorship.
To grant the power to issue irredeemable currency is tantamount to
installing a dictator, with no recourse ever to recall him or his
successors. The republican system of government, at its deepest roots,
is incompatible with the regime of irredeemable currency. So is democracy.
As Amschel Rothschild, the founder of the famous banking dynasty
of the same name said succinctly: "Give me the right to print money,
and I don't give a hoot who makes the laws".
There is no need to stipulate that the standard gold coin of the
realm be legal tender. The financial annals do not know of a single
case where a creditor has refused gold tendered to him in repayment
of debt. Under a metallic monetary standard the term "legal tender" refers
to no coercion whatever. It refers to standards of tolerance with
regard to wear and tear of coin. It confers no power onto the government.
On the contrary, it imposes a dutyupon it, that of replacing worn
coins with full-bodied ones.
A gold standard has nothing to do with the elevation of gold to
the status of legal tender, nor with fixing the price of gold. The
essence of a gold standard is the right of the people to the unlimited
coinage of gold at the Mint, free of charge of seigniorage.
It is this right that the proposed Plan seeks to restore, while also
advocating the restoration of the right to the free and unlimited
coinage of silver. It is outrageous that the issuance of the irredeemable
dollar imposes a levy of one hundred percent seigniorage upon the
people where the Constitution envisages zero percent. Those who,
as do the monetarists, charge that a metallic monetary standard is
a price-fixing scheme, do not know what they are talking about. No
price-fixing is involved in the proposed Plan. People will have as
much gold or silver coined as they think is necessary for the daily
conduct of their business, and for the validation of the market rate
of interest, no more and no less.
Further notes on the specific demands contained in this Plan follow.
The silver dollar is a pristine coin that has never been
devalued or tampered with in any way, other than by closing
the U.S. Mint to its free and unlimited coinage in 1871. This
was done in defiance of the Constitution. It would be a betrayal
of our great monetary heritage if we failed to remedy this
particular violation of our Constitution in adopting any other
silver coin as the standard.
By contrast we cannot say that the gold dollar is a pristine
coin. It was minted only for a brief period in the early 19th
century. It has been tampered with several times, first in
1834 when it was debased from 24.75 to 23.2 grains of pure
gold. The Gold Standard Act of 1900 increased its content some
from 23.2 to 23.22 grains. In 1933 the gold coinage of the
United States was discontinued, outstanding coins were called
in, confiscated, and melted by the government. The gold dollar
survived only as a book-keeping entry after it has been revalued
from 1 to about 1.75 paper dollars (making the official gold
price $35 per oz). Brain-dead, it still lingers on after it
has been further revalued to about 2.2 paper dollars (making
the official gold price $42.22 per oz), which still stands
according to the Statutes of the United States. After such
a checkered past no historic gold coin of the United States
is in good standing as a candidate for the standard coin. In
the 1980's the Treasury started selling a souvenir coin made
of one ounce of gold, 999 fine, called the gold eagle. Reproducing
the beautiful St.Gaudens design, it could be readily identified
by most Americans as well as foreigners. It seems to be the
natural choice to elevate to the status of standard U.S. gold
The mistake made by the Coinage Act of 1792 in imposing
a fixed exchange ratio between the standard silver dollar and
the gold coinage must not be repeated. The Act purported to
establish a bimetallic monetary standard for the United States
with an official bimetallic ratio of 15. However, the bimetallic
dollar did not fly. In fact, the Act established an alternating
standard that was jumping back and forth between gold and silver.
It overvalued one monetary metal while undervaluing the other,
only to switch these roles as time went by according to the
vagaries of the free market. Naturally, people took the overvalued
metal to the Mint for coinage while withholding the undervalued
one from circulation. In addition, the overvalued metal flooded
the United States while the undervalued one drained abroad.
This has been known as Gresham's Law since the times of Queen
Elizabeth I. The lesson is that bimetallism is not a viable
monetary system. If we want both monetary metals to circulate
side-by-side, then we should adopt a dual monetary system with
a market-determined, possibly variable exchange rate between
the standard silver dollar and the standard gold eagle. This,
then, is the intention of the proposed Plank.
As we desire the greatest possible consensus in accepting
the new metallic monetary system of the United States, this
Plan does not advocate the outright abolishing of the Federal
Reserve System. Let it have a chance to prove that it can make
a contribution to the commonweal if it wants to. But it must
do it without monopoly power. If it can't, then it should
be allowed to wither away on its own, so that no one can say
in the post mortem that the Federal Reserve System has
been forcibly removed. Monopoly power is the Emperor's clothes
and people should be free to discover for themselves that the
Emperor has no clothes on if they could see through the garb
of monopoly power.
We desire a monetary system that cannot be subjected to
the whims of a megalomaniac President or a dictatorial Congress
hell-bent to deprive the people of their monetary rights, as
was done in 1933. Therefore it is necessary to spell out the
limits on the power of these arms of government in matters
related to money.
It was wrong to confiscate gold in the possession of people
in 1933 without due process of the law. It is difficult to
make amends for the crime of dispossessing our fathers and
grandfathers. Yet the attempt must be made. This Plan calls
for the return of the confiscated gold to a Rehabilitation
Fund, with paragraph (2) of the proposed Plan outlining its
ultimate disposal and the method of compensation.
Legal tender laws under the regime of the irredeemable dollar
cannot be reconciled with the concept of individual freedom,
any more than censorship laws could. Under legal tender laws
producers are forced to give up their product in exchange for
irredeemable promises to pay. Moreover, their freedom to sell
to whomever they want is fatally compromised, since the issuer
of currency has first refusal. Finally, savers are forced to
entrust their savings to an instrument that can be multiplied
indefinitely to their prejudice.
Banks in the United States have forfeited the trust of the
people. Under their care the value of the dollar has lost well
over 90% of its purchasing power during the last 33 years alone.
The banks are insolvent. This fact is concealed through the
corruption of accounting standards and through the connivance
of bank inspectors as well as jurors, in allowing banks to
carry depreciating assets at face rather than market value,
and to issue liabilities that the banks could only discharge
at the pleasure of the government. The banks have neither the
competence nor the trustworthiness to administer the new metallic
monetary standard of the United States. To entrust the fate
of the standard silver dollar and the standard gold eagle to
these unfaithful stewards would be to condemn the standard
coins to failure in advance. New stewards are needed. These
stewards are the Credit Unions. They do have a vested interest
in the success, rather than the failure, of the new metallic
This provision of the Plan may appear to some as a repetition
of the mistake to establish a fractional reserve banking system.
It is not. The entire issue of gold eagle currency, notes and
deposits, is backed by gold or by short-term credit maturing
into gold in less than 91 days.
Self-liquidating bills of exchange are the best earning
assets the Credit Unions can have. Every single day one-ninety-first
of the bill portfolio matures into gold eagle coins that people
will give up in exchange for essential consumer goods. This
flow of gold should suffice to satisfy normal demand for redemption.
Still, should one Credit Union experience greater than normal
demand, it can discount its bills with another experiencing
less than the normal demand for redemption.
Treasury bonds, notes, bills are not self-liquidating and
as such should not be eligible as a reserve for the gold-redeemable
Labor unions in the United States will have a real choice
at the bargaining table. They either demand higher wages payable
in depreciating irredeemable dollars whereby wage-earners lose
the purchasing power represented by wage-gains long before
their contract expires. Or they may opt for stable wages payable
in redeemable currency. They can rest assured that "improper
and wicked" tinkering cannot deprive the currency of value
laborers have earned with the sweat of their brow. Laborers
who do not trust paper money can always redeem it in gold eagle
coinage. At the same time redemption serves as the flashing
red light and sound alarm warning legislators that they should
keep public expenditures safely within the limits of tax revenues.
Without such a warning sign profligate politicians could promise
the electorate eternal bliss in exchange for their votes, wrecking
government finances in the process. Responsible labor leaders
will want stable wages the value of which is guaranteed by
gold-redeemability. They will also see through promises made
for the sole purpose of buying votes. To recapitulate:
Why gold? A gold coin standard is needed to bolster the monetary
system, because there is no other way to realize the Founding Fathers'
ideal that the power to create and to extinguish money ought to be
reserved directly for the people themselves, rather than for elected
representatives or for appointed bureaucrats.
Wisely, the Founding Fathers did not establish a Central Bank for
the United States "to regulate interest rates". They established
the U.S. Mint. If people felt that there was not enough money in
circulation, or that interest rates were too high, they could do
something about it. They could take old jewelry and plate or new
gold and silver from the mines to the Mint and have it struck into
the coin of the realm free of charge of seigniorage.
Alternatively, if people felt that there was more than enough money
in circulation, or that interest rates were too low, then they could
do something about that, too. They could melt down or export the
coin of the realm, or let the flow of new gold and silver from the
mines bypass the Mint and be fashioned into jewelry or plate.
The Founding Fathers designed a monetary system that would prohibit
the "improper and wicked" manipulation of the nation's medium of
exchange for the benefit of special interest groups, while guaranteeing
the value of what people have earned with the sweat of their brow.
It is this system that the proposed Plan seeks to rehabilitate.
Copyright © 2004, Antal E. Fekete
Antal E. Fekete is Director of Research and Education at
the Ferdinand Lips Institute, Zurich, Switzerland. Born and educated
in Hungary, he emigrated to Canada after the Hungarian Revolution
in 1956 and taught for 35 years in the field of mathematics. He has
been a visiting professor or Fellow at Columbia University, Princeton
University, and Trinity College of Dublin. For five years in the
nineties, he worked in the Washington office of Congressman W.E.
Dannemeyer on monetary and fiscal reform. He is the author of Gold
and Interest and Monetary Economics 101. In addition,
his scholarly articles have appeared on numerous Internet sites throughout