It may be of interest to our US readers around our Independence Day holiday to take a look at how one of the chief architects of our country's constitution, Alexander Hamilton, looked at the then proposed federal government's revenue prospects.
Here is a link to Federalist 12.
Unfortunately, it looks like Hamilton was caught up in some sort of gold and silver love triangle that was apparently blinding him:
The prosperity of commerce is now perceived and acknowledged by all enlightened statesmen to be the most useful as well as the most productive source of national wealth, and has accordingly become a primary object of their political cares. By multiplying the means of gratification, by promoting the introduction and circulation of the precious metals, those darling objects of human avarice and enterprise, it serves to vivify and invigorate the channels of industry, and to make them flow with greater activity and copiousness...
...The hereditary dominions of the Emperor of Germany contain a great extent of fertile, cultivated, and populous territory, a large proportion of which is situated in mild and luxuriant climates. In some parts of this territory are to be found the best gold and silver mines in Europe. And yet, from the want of the fostering influence of commerce, that monarch can boast but slender revenues.
There are some other perhaps interesting details concerning revenue enforcement...
I must say though, that I find this personally disappointing when I read how Hamilton, whom I've always had a certain, say, 'intellectual' respect for, was caught up in what appears to have been a pervasive use of what he terms "precious metals" as the form of "money" in western civilization at the time he wrote this paper.
Perhaps I'm expecting too much from Hamilton in regards to his then ability to see the potential for a monetary system for the new country that would not be beholden to the authorities represented by certain forms of subterranean matter. In this case Au and Ag, both of which would interestingly go on to appear in column 11 of The Periodic Table of the elements.
Looking at our nation's monetary system that we have in operation today, as it is revealed through MMT, it seems that we as a nation have been able to go on and somehow obtain our independence from the authorities represented by these metallic elements.
Though, there are some in politics currently advocating a return to this previous form of monetary tyranny... stay vigilant.
19 comments:
I don't think this is such a damning look at Hamilton, Matt. Hamilton lived in an era in which the precious metals were the most universal and commonly accepted medium of exchange globally. The metals played a role similar to the role played by the dollar today. Any nation which hoped to be an expanding global player, actively engaged in commerce abroad and sometimes needing to borrow from abroad, could not afford to neglect the accumulation of precious metal reserves.
The colonies had experimented with unbacked paper currencies, which were fine for domestic exchange. But in Hamilton's time, there was little in the way of a stable and well-governed international market for the exchange of these currencies. A colonial paper dollar couldn't buy you much outside the colonies, although there was an evolving market in various kinds of credit instruments.
Paper money was mainly associated at the time in the public mind with "paper credit" - redeemable government bonds issued broadly and used as a medium of exchange. Paper credit had produced some notorious bubbles - in classic Minsky fashion - and catastrophic financial collapses. The Mississippi and South Sea bubbles and John Law's experiment made people very wary of banks and credit money.
There was no such thing as the periodic table in Hamilton's time. Yeah you are being a bit too hard. :-)
I guess I see what youre saying Dan, seems like it was not out of the ordinary for the times... but it still seems like the west went backwards to me here as compared to ancient Greece and Rome... somehow we ended up using metals...
An idea I had is that there simply was insufficient IT back then to run a single state currency effectively... with what we have at our disposal (IT wise) today it seems like it has a much better chance of working... although of course you still need the right people with the correct understanding to administer the system..
rsp
Adam, that is why I used future tense.
btw Do you know chemistry well? If so, what the hell is going on in column 11????
rsp
Hamilton wrote:
The quantity of gold and silver in the national coins, corresponding with a given sum, cannot be made less than heretofore without disturbing the balance of intrinsic value, and making every acre of land, as well as every bushel of wheat, of less actual worth than in time past. * * *
[A debasement would cause] a rise of prices proportioned to the diminution of the intrinsic value of the coins. This might be looked for in every enlightened commercial country; but, perhaps, in none with greater certainty than in this; because in none are men less liable to be the dupes of sounds; in none has authority so little resource for substituting names for things.
A general revolution in prices * * * could not fail to distract the ideas of the community, and would be apt to breed discontents as well among those who live on the income of their money as among the poorer classes of the people, to whom the necessaries of life would * * * become dearer.
Among the evils attendant on such an operation are these: creditors, both of the public and of individuals would lose a part of their property, public and private credits would receive a wound; the effective revenues of the Government would be diminished. There is scarcely any point, in the economy of national affairs, of greater moment than the uniform preservation of the intrinsic value of the money unit. On this the security and steady value of property essentially depend.41
In sum, Hamilton recommended two equivalent statutory money-units based on weight, a gold coin of 24.75 grains of fine gold, and a silver coin of 371.25 grains of fine silver. "[N]othing better,” he wrote, "can be done * * * than to pursue the track marked out by the resolution [of the Continental Congress] of the 8th of August, 1786.”
Hamilton's Report thus restated the traditional monetary principles of American law, as the Continental Congress applied them, and as the Federal Convention embodied them in the Constitution. Congress, Hamilton urged, should adopt silver and gold as the nation's monetary substances, at an exchange-ratio representing the average proportionate value between the metals in the domestic free market. Congress should continue on "the track marked out" under the Articles of Confederation and the Constitution by employing the "dollar" as the "money-unit,” or "money of account" - a silver "dollar" derived directly from the Spanish milled dollar, and a new gold coin containing a silver-"dollar's" worth of gold. The government should provide "free coinage" of both silver and gold for the public. And it should guarantee the preservation of the intrinsic value of the coinage.
Of enduring importance is Hamilton's admonition that "[t]here is scarcely any point, in the economy of national affairs, of greater moment than the uniform preservation of the intrinsic value of the money unit. On this the security and steady value of property essentially depend" Apparently, however, although Hamilton's statue stands before the Department of the Treasury, his words have been forgotten in contemporary Washington, D.C.
The frequent claim of MMTers that the government can create “dollars” at its whim is baseless. Such an activity is unconstitutional and the resulting shifting and theft of purchasing power is without due process of law.
http://www.fame.org/HTM/Vieira_Edwin_What_is_a_Dollar_EV-002.HTM
Bob,
True.
Lot's of "love" for copper, silver and gold (Column 11 PTE) in the human history....
And then Hamilton here again in Federalist 12:
" It has been found in various countries that, in proportion as commerce has flourished, land has risen in value. And how could it have happened otherwise? Could that which procures a freer vent for the products of the earth, which furnishes new incitements to the cultivation of land, which is the most powerful instrument in increasing the quantity of money in a state "
Hamilton refers to the increase in the value of LAND as directly related to increase in "MONEY"... I see this as the same process that the banks use today to increase "money" ie they keep raising the collateral value of LAND in order to lend more "money" against in many cases the exact same property that was financed not long ago for much less...
Interesting if nothing else!!!
rsp
Mr. Franko:
As I've said 8 million times before, money dilution shifts wealth to the elite. Money dilution increases the price of land and land is owned by the elite. With a relatively fixed amount of gold and silver in the world, prices stated in those forms of money would gradually decrease over time, to the benefit of all, especially the poor and powerless, with the added benefit of savings being protected against debasement.
but Bob,
Would we not then be surrendering to whatever is behind Au and Ag?
I'm not ready to surrender to that, I still think the human spirit is superior to whatever is behind Au and Ag and Cu....
rsp
I would say that on the point Bob raises, Hamilton was profoundly confused. There is not the slightest reason for thinking that the value of gold and silver as a medium of exchange has much at all to do with its "intrinsic value". When gold and silver where money, or at least the ingredients of money, their exchange value was based on convention and law, just as it is with respect to other forms of money.
Bob, sad to say, has a truly childish understanding of money, according to which there is some kind of "true money" that is basically bartered with other goods on the basis of the intrinsic value of the goods that are exchanged, and other kinds of money are "fake", because their market value in exchange is not grounded in its intrinsic value.
There is not true money of that kind; nor has there ever been. Bob seems terrified by the very idea of a monetary economy, in which there exists a liquid, universal medium of exchange whose intrinsic value is irrelevant, and whose exchange value is based primarily on the fact that (i) people customarily accept it as a medium of exchange, (ii) those customs have been cemented into place by positive law whereby the government provides a variety of additional incentives, grounded in government power, for using that instrument as a medium of exchange.
The Articles of Confederation provided Congress with the power to emit bills of credit (paper money).
[1777] ARTICLES OF CONFEDERATION
Agreed to by Congress November 15, 1777 then ratified and in force, March 1, 1781.
Article IX.
***
The United States in Congress assembled shall have authority *** to borrow money, or emit bills on the credit of the United States, transmitting every half year to the respective States an account of the sums of money so borrowed or emitted ***
The United States in Congress assembled shall never *** nor emit bills, nor borrow money on the credit of the United States *** unless nine States assent to the same ***
***
Article XII.
All bills of credit emitted, monies borrowed and debts contracted by, or under the authority of Congress, before the assembling of the United States, in pursuance of the present Confederation, shall be deemed and considered as a charge against the United States, for payment and satisfaction whereof the said United States, and the public faith are hereby solemnly pledged.
http://supreme.findlaw.com/documents/aofc.html
That same clause providing for the power to emit bills of credit was inserted in an early draft of the Constitution and removed. Congress was granted no power to emit bills of credit and the states were expressly forbidden from such activities. Congress has no power to enact legal tender laws and the states are prohibited from making “any Thing but gold and silver Coin a Tender in Payment of Debts.”
1787 U.S.A. Constitution
Art. I, Sec. 8. The Congress shall have Power ***
[Cl. 5] To coin Money, regulate the Value thereof, and of foreign Coin ***
[Cl. 6] To provide for the Punishment of counterfeiting the Securities and current Coin of the United States; ***
Art. I, Sec. 10, para. 1. No State shall *** coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts ***
MMT is illegal and unconstitutional absent an amendment to the Constitution.
bob,
It's not that "MMT" is illegal, MMT is just explaining what we are currently doing... whether "what we are doing" is constitutional is a separate issue...
rsp.
should have said MMT is "explaining what we are doing with prescriptive policy suggestions..."
MMT is comprehensive, etc...
on second thought Tom can explain this better, I defer...
rsp
Matt, Hamilton was a man who was greatly smitten by the "savvy businessmen" of his time. He thought that America could emulate Great Britain's success by emulating its financial system. As Alexander Del Mar states in his History of Money in America from the Earliest Times to the Establishment of the Constitution
this was the founder's original sin:
"The Civil War was fought with the bills of credit issued by the general government, after all the private banks in the country had shamefully closed their doors and gone into bankruptcy, (December, 1861). Now that the war is over, these same banks, under new names, are urging Congress to retire the greenbacks and allow them, the bankrupts, to issue their own notes as money in place of the greenbacks which served the nation so well.
That such measures were enacted by Congress a century ago, and
that similar measures are entertained by Congress to-day, can only
be attributed to the absence of such a body of knowledge on financial subjects as would have enabled the statesmen of that day and as might enable statesmen of the present day, to profit by the experience of the past. The Americans of the Revolution had before them not merely the chimerical Utopias which were dreamed of during the Halcyon Age of Europe, they had the historical examples of
Greece and Rome. In all of these states, the main contention from
first to last between the aristocratic and popular factions, arose out of and centered in the monetary system; that greatest of all dispensers of equity or inequity. In America there were no such difficulties in the way as those which had beset the great republics of antiquity ; no dissonance of races, language or history; no conflicting religions; no constriction of territory; no fear of neighboring interference. The Colonists had practically an entire continent to themselves. They had only to take care that the seed they planted was genuine and uncontaminated. Nature was certain to do the rest.
Well, they planted; and now look at the fruit and see what it is that
they planted! They planted financial corporations, a rotten seed that
Rome had trampled under foot nearly two thousand years before;
they planted private money, in which successively both Greece and
Rome had found the germs of social decay; and they planted financial exemptions from public burdens, whose offspring has already become a tree so mighty that it casts a threatening shadow over the land. In a word they planted another revolution."
Dan,
"or at least the ingredients of money"
This looks like it goes back to Alexander (the Great, not Hamilton) who looks like he was the first to have HIS IMAGE... POUNDED into the silver as if to say: "I'm in charge now, not you!" as a metaphor....
rsp,
David,
OMG....
"MMT is illegal and unconstitutional absent an amendment to the Constitution."
Wrong.
"The Congress shall have Power To coin Money, regulate the Value thereof, and of foreign Coin"
So the Congress can coin a trillion dollar coin and place it in its account at the Fed. Then it can spend that money in whatever form it likes. When it runs out of money it can mint another trillion dollar coin, perhaps made out of steel or iron or copper this time.
Or they could cut out this step and the Fed could just give the treasury an unlimited overdraft.
Matt -- I'm not a chemist, but there are a few similarities I see in Cu, Ag and Au.
They are all metals that could be extracted from ore with a relatively primitive technology.
They are relatively impervious to many of nature's solvents and oxidizers. Therefore, they last through many generations.
They are relatively malleable and can be shaped by hand.
@ John Z
And precious and sem-precious objects ‚ metals and gems, for instance are relatively scarce.
Scarcity is a sine qua non in determining economic value. Air is the most valuable thing biologically for air-breathers, yet, it is free (disregarding the negative externality now imposed as a tax by socializing liabilities).
Thanks John...
Nickel is also there and lead.. I'm going to continue to think about this...
Tom,
CO2 is a trace gas though... 0.0387% of all "air".... and ALL LIFE DEPENDS ON IT BEING THERE... many are now working to get rid of it.... I hope they know what they are doing...
resp,
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