Here’s Why Thomas Jefferson Would’ve Had Jerome Powell Arrested
Before we get started today, I want to tell you a story about the former military dictator of Uganda, Idi Amin. During his eight years in power, the economy and infrastructure of the nation collapsed thanks to years of neglect and abuse. Amin took a familiar economic approach to his nation’s economic crisis – he had more money printed.
In fact, he personally negotiated a print run of 2 million in banknotes with a British company – at the end of the negotiations, the company’s salesman asked how they’d be paid for this service.
Amin dismissively replied, “Print 3 million and take 1 million for yourself.”
As you might expect, a planeload of new banknotes didn’t help solve Amin’s economic problems. He doubled the nation’s money supply in his last two years as dictator, absolutely flooding the nation with paper money. His people had money, but they didn’t have wealth because prices naturally skyrocketed. (Amin couldn’t really ask for economic advice as he’d had “intellectuals,” along with the former leader of the national central bank, Joseph Mubiru, executed.)
Throughout history, governments and citizens have repeatedly made the same mistake. Money isn’t wealth. And our Founding Fathers knew it…
The Founding Fathers knew what money was
The Coinage Act was passed by the Congress of 1792, which established the silver dollar as the unit of money in the United States. Along with silver dollars, the Act specified three gold coins (a $10 eagle, a $5 half-eagle and a $2.50 quarter-eagle) and smaller silver denominations – half dollars, quarter dollars, “dismes” and “half dismes” (dimes and nickels).
Each and every piece of money circulating in the nation had the backing of real, physicalgold or silver. This guaranteed the nation could never inflate the money supply simply because the money supply couldn’t exceed the supply of gold and silver. Paper money was allowed, as a claim on real physical gold or silver. As Adam Smith said,
In other words, you can issue exactly $1 in paper money for every $1 in gold you have on-hand. (The total collapse of fractional-reserve banking pyramid schemes like the Mississippi Bubble taught this lesson.)
The Constitutional Convention of 1787 enacted a provision “forbidding the member states of the Union to emit paper money (bills of credit) or to declare as legal tender anything but gold and silver coin.”
“Bills of credit” was a term synonymous with “paper money” back then – or what we’d think of today as “Federal Reserve notes.” Basically, our founders did not want anyone in government writing IOUs. They wanted to outlaw government spending money it didn’t have.
Why was this so important? Well, our founders believed in fiscal sanity. They believed that forcing the government to spend within its means would preserve the liberty of all Americans, and protect them from being robbed by inflation.
Our founders took this incredibly seriously! So much so that, to quote from my book The Case for Gold:
“Debasing” in this sense means substituting some measure of “base metal” (copper or iron, for example) for the gold or silver in coins. Sometimes, we use the term “debasing”metaphorically, regarding Federal Reserve’s actions to destroy the dollar’s value. The crime of counterfeiting also earned the death penalty.
Why were our Founding Fathers so harsh in mandating punishment for these crimes? Why should some poor fellow be hanged for forging a silver dollar?
Money requires trust
In addition to the other jobs money has to do (store of value, medium of exchange, unit of account), there’s an underlying assumption that must be met.
In order to be accepted, money must be trusted.
If a buyer and a seller both trust the money they’re exchanging, they don’t need to trust one another (well, not nearly as much). Money helps to bridge the lack of trust between strangers.
Obviously, this only works so long as the money is authentic and valuable – in other words, if it’s trustworthy. Counterfeit or debased money undermines the trust in money itself. If this undermining gets bad enough, citizens lose faith in money. Trade grinds to a halt, the economy collapses and people find themselves bartering for essentials. (Barter, by the way, is perfectly fine but it doesn’t scale well.)
That’s why the punishment for faking money or devaluing it was so severe. The Congress of 1792 wanted to make sure trust in the American dollar was absolute.
That’s also why I honestly think our Founding Fathers (specifically Thomas Jefferson), were he alive today, would have Federal Reserve Chairman Jerome Powell arrested and tried for destroying trust in the dollar.
If found guilty, well, his replacement would probably behave very differently…
Jerome Powell: on trial for debasing, devaluing, depreciating and inflating the dollar
I’ve said it before, and I’ll say it again… Since the beginning of the pandemic panic, U.S. dollars in circulation rose from about $15.5 trillion to over $22 trillion:
It’s impossible to add 50% to the money supply without causing inflation. The Federal Reserve did not increase the supply of goods and services available during the pandemic panic by 50%, did they? No – because all they can make is money.
By massively inflating the money supply, the Fed sowed the seeds of massive inflation. (In fact, that’s why it’s called “inflation” – it’s caused by increasing or inflating the money supply.) Not by supply chains or Vladimir Putin – by the Federal Reserve.
Inflation devalues the dollar by reducing your spending power. Not just of your income or wages – but of every single dollar you’ve ever saved your whole life.
This doesn’t just destroy purchasing power, though – it erodes the world’s trust in the dollar as a store of value.
Fortunately, we have alternative stores of value – the very same ones our Founding Fathers selected as the basis for the U.S. monetary system. Physical gold and silver can’t be inflated, can’t be devalued and can’t be equaled as stores of value and safe-haven investments.
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