Pernicious Paper  

 The boys and girls in Washington have pulled another fast one on us. With much ado they passed that Dodds-Frank bill that will make consumerism safe for consumers once more and “send a message to Wall Street” to get its act together because the regulators are going to get tough.

   It’ll do none of this, of course. But incumbents running for re-election might try to score points with constituents by having supported this legislation aimed at financial reform.

   Financial reform is not what’s needed. The main cause of our present economic misery is monetary. What’s desperately needed is monetary reform, but your senators and representatives don’t understand that—unless you’re from Rep. Ron Paul’s district in Texas. Why this elderly medical doctor is the only member of Congress to understand why the Constitutional Convention was called in 1787 is a mystery to me. Perhaps he’s the only one in Congress to attach some importance to the Constitution and took time to study it.

   The United States already had a constitution in 1787. The Articles of Confederation were adopted in 1781, but they weren’t strict enough—particularly in regard to money. Perhaps, if you’re old enough, you recall a history teacher long ago lecturing about the awful inflation of paper money in Colonial times.  The Continental currency became so loathed that even today you can hear the echo of the old phrase “...not worth a Continental!”

   George Washington wrote to James Madison just before the 1787 convention, “The wheels of government are clogged, and we are descending into the vale of confusion and darkness. No day was ever more clouded than the present. We are fast verging to anarchy and confusion.”

   The 1781 Articles of Confederation needed fixing, particularly with respect to putting the kibosh on irredeemable paper currency. Forty-seven years after ratification of the new constitution President Andrew Jackson explained it: “...it was the purpose of the Convention to establish a currency consisting of the precious metals. These were adopted as a permanent rule excluding the use of a perishable medium of exchange, such as certain agricultural commodities recognized by the statutes of some States as tender for debts, or the still more pernicious expedient of paper currency.”

   Paper currency…”pernicious expedient.” It was ruinous in the fledgling United States in the 1780s and it’s ruinous now. No society in all of history ever been able to make irredeemable paper currency trustworthy for long in the role of money.  None.   

   Roger Sherman of Connecticut got a taste of dishonest paper currency as a young man in New Milford. He and his brother, William, opened the town’s first store and were ripped off by a customer from Rhode Island who ran up a bill of 129 pounds. The Shermans believed the transaction was in reliable Connecticut “Old Tenor” currency, but the customer, one James Battle, paid in rapidly depreciating Rhode Island currency. This meant a considerable loss to the Sherman boys and they sued. Battle won under colonial common law which made no provision for the loss of purchasing power among competing paper currencies.

   This left a sour taste in young Roger’s mouth and he became an enemy of fluctuating media of exchange. And, being a delegate to the Constitutional Convention in 1787 he found himself in a position to speak vigorously, and often, against paper money.

   Sherman served in the Continental Congress. He was on the committee to draft the Declaration of Independence. He made 138 speeches at the Constitutional Convention, and the provisions he fought for - Article 1 Sections 8 and 10 - have never been amended out of the document.

   Needless to say, the Constitution’s prohibition against irredeemable paper currency was long ago ignored. Congress gave away much of its authority over the substance of money on December 23rd, 1913. By 1971 it removed the last vestige of backing from the dollar and today a once powerful nation finds its money unit approaching worthlessness and its accumulation of debt so great no one alive believes it will ever be paid. Yet, all debt must be paid...either by the debtor or the creditor.

    Roger Sherman had it right. The paper money crowd in Congress blew it by not sticking to his Constitutional prohibition against worthless paper.  The consequence will be a dramatic diminution of living standards.