Economic Error #15: Congress Can Safely Be Trusted to Manage the Money System Without Any Price Inflation.

Gary North

Ellen Brown follows in the footsteps of all previous Greenbackers. She tells us that the Congress of the United States should have the sole authority to create money and issue it to the general public. She believes that Congress is trustworthy with respect to spending money. Here is what she writes about replacing the banking system.

The question is, can this secretive private cartel be trusted with so much unregulated power? Wouldn't it be cheaper and safer to give the power to create dollars to Congress itself, with full accountability and full disclosure to the public? Congress would not have to conceal the fact that it was financing its own debt. It would not even have to go into debt. It could just create the money in full view in an accountable way. The power to create money is given to Congress in the Constitution. . . .

The government could simply acknowledge that it was pumping money into the economy. It could explain that the economy needs the government's money to prevent a dollar collapse, and the cheapest and most honest way to do this is by creating the money directly and then spending it on projects that "promote the general welfare." [Web of Debt, pp. 388-89]

First, Congress has never controlled monetary system. The monetary system was tied to gold and silver coins until 1933. So, when Roosevelt confiscated the public's gold, he let the Federal Reserve buy it and take control over it. This left the FED in charge of money.

When the country did not have a central bank, the responsibility over money always fell to the Executive branch. The Executive branch enforces the rules governing money. For example, laws against counterfeiting are enforced by the United States Secret Service, which is an agency of the Executive branch. To imagine that Congress would unilaterally control the supply of money is to be as naive as to imagine that Congress really has the authority in modern times to create the budget. The President submits the budget to Congress, and then Congress debates. Usually, Congress passes it. Then the President signs it into law. The Constitution says that the House of Representatives must introduce all spending legislation, which technically it does, but the President is in charge of the basics of the budget, and everybody knows it.

Second, whenever the government can purchase votes by sending money to special-interest groups, it is going to do so. It has always done so. If Congress did not have to answer to the taxpayers with respect to the imposition of taxes, Congress would thereby escape the political pressure associated with specific groups that resist paying specific taxes.

Congress could reward specific groups and pay for this by printing money that everybody by law must accept in payment of debts. This is what "legal tender" means. Congress would be able to buy all the votes it wants, and specific groups would not be well-organized against these expenditures, because the costs are borne by everyone in the society. Everyone suffers a loss when the purchasing power of the dollar declines. Admittedly, different groups suffer worse than others, but they generally are unable to organize against these losses, because the money supply is perceived as affecting everybody in the same way at the same time.

This means the traditional political strategy of mobilizing against high taxes, or discriminatory taxes, would be undermined by Ellen Brown's system of spending without taxing. Specific groups that get the money early would be happy with the arrangement. Specific groups that lose wealth because of the decline in the purchasing power of money as a result of the increased quantity of money would find it almost impossible to organize against Congress's expansion of money, which really means the Executive branch's expansion of money.

Third, the history of fiat money is the history of price inflation. There is no exception to this rule. It does not matter whether central banks are in control of the money supply, or whether central governments are in control. If the government can buy votes by spending money, and if the public cannot place limits on this increase in the money supply by going down to the bank and exchanging paper money for gold coins or silver coins, then the general public is left almost defenseless against rising expenditures by Congress. The only way to stop Congress from expanding money supply would be at the next election of Congressman. But, because of bipartisan commitment to an ever-expanding government, replacing the majority party in Congress by another political party never rolls back government spending. This is true even when the government has to tax us directly. If the government could simply print the money to buy whatever it wants, it would be impossible to get Congress to cut spending. It already is.

Fourth, if Congress gets to decide which vote-buying schemes can be justified with the phrase, "promote the general welfare," then the public is going to be at the mercy of the special interest groups. The public will pay for the boondoggles by the depreciation of the monetary unit. The boondogglers benefit; the taxpayers lose.

Inflation is a tax. It is an invisible tax, and it is rarely proceed as a government imposed tax, but when the government controls the money supply, the inflation tax will be the primary tax in the society.

Ellen Brown is so convinced Congress is reliable that she proposes a constitutional amendment, in the form of a bill passed by Congress and signed into law.

A bill to update the constitutional provision that "Congress shall have the power to coin money" so that it reads, "Congress shall have power to create the national currency in all its forms, including not only coins and paper dollars but the nation's credit issued as commercial loans." (p. 459)

This is a very odd approach to amending the Constitution. The fact that she is a lawyer makes it even more odd.

There is nothing conservative about Ellen Brown's suggestions. She would turn over taxation to the Federal government, leaving voters virtually defenseless. Voters would watch the purchasing power of the dollar decline, and the politicians would blame this decline on currency speculators. This is exactly what Ellen Brown does in every case in her book in which she discusses currency collapse. There is not a single case in which she blames the government, not even Zimbabwe's government. The politicians will do exactly what she does. They will point the finger of responsibility at people who are simply trying to hedge themselves against the falling value of the dollar. The politicians will blame the speculators, and most voters will believe it, right up until the day when the currency is worth nothing.

This is why the Constitution made it illegal for states to issue fiat money that possess the legal status of legal tender. Legal tender state-issued money has to be gold or silver. This is also why the government of the United States maintained a metallic monetary standard until 1933. The men who wrote the Constitution understood that Congress cannot be trusted to provide a predictable currency unit unless the general public has the right to take the paper money down to the bank and exchange it at a fixed price for either gold or silver coins.

The Greenbackers have fought against the gold standard, beginning in 1862. From that date on, Greenbackers have promoted the idea of a government-controlled paper money should be the replacement to both the gold standard and fractional reserve banking. The Greenbackers trust the Congress, which means they do not understand Congress. The Greenbackers think Congress would be in control of money, when in fact the executive branch would be in control of money.

There is nothing remotely conservative about Ellen Brown's economics. She trusts Congress to produce a reliable monetary standard. I do not. Do you?

For a detailed critique of Ellen Brown's economics, go here:

http://www.garynorth.com/public/department141.cfm|