A Colonial Radical in King Bernanke's Court


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May 5, 2008

Thomas Paine made the case for freedom in 1776, and ten years later made the case for freedom's money, gold and silver. [1] If we had followed his advice on the latter, we would still possess a good measure of the former.

Only an intimidated culture could succeed in preventing a subject like money from reaching the forum of mainstream media, particularly with the dollar's heavily-inflated history plainly evident on world currency markets, not to mention at the local grocery store. None of what we see today in the financial press would be surprising to hard-money thinkers like Paine. The Common Sense author might respond much like Nock did in regard to the criminality of states: 'Well, what would you expect? Look at the record! This is what states do. This is what happens when the government forces you to use paper money and imposes a banking cartel to 'manage' its supply.'

'Why, what do you mean?' a supporter of today's house of cards might indignantly reply. 'We've learned from brutal experience that without adequate liquidity, the economy tends to swim like a brick. Bernanke himself recently reiterated this view. Here are his exact words:

In particular, much experience shows that economies cannot perform at their full potential when financial conditions are such as to restrict the supply of credit to sound borrowers.

'Furthermore,' our hypothetical supporter might say, 'you're trying to elevate the words of a known drunk and atheist [2] to a position of superiority over the accumulated wisdom of two centuries, a wisdom critically assimilated by the sterling intellects that run the central banks of the world. Get outta here!'

Before leaving, though, let's allow Paine his time in court.

Money is Money, and Paper is Paper

This is all the subject requires, Paine says, if we understand what it means. What does it mean?

Gold and silver are money and come from nature. Since their quantity depends on nature, their value depends on nature -- and not man. We could add that gold and silver became money because they were so highly tradable. And they retain their value regardless of their form. We mine gold and silver, then stamp it into coins, sometimes referred to as specie, and coining 'adds considerably to its convenience but nothing to its value.' He adds:

Alter it as you will, or expose it to any misfortune that can happen, still the value is not diminished. It has a capacity to resist the accidents that destroy other things. It has, therefore, all the requisite qualities that money can have . . .

As for paper, it has none of the requisite qualities for money. 'It is too plentiful, and too easily come at.' Paper has value only as a promissory note to pay the bearer in specie. If the obligation cannot be met, the note is worthless.

The value, therefore, of such a note, is not in the note itself, for that is but paper and promise, but in the man who is obliged to redeem it with gold or silver.

As the notes circulate, they continually point to the place and person who is obliged to redeem them, he tells us. When at last the paper comes back to the issuer, it 'unlocks its master's chest [as it were] and pays the bearer.'

Paper money: The illegitimate offspring of assemblies

If government declares the notes themselves to be money, 'the whole system of safety and certainty is overturned, and property set afloat.' By what authority does government undertake to make this switch? Since it is not specified in the Constitution, nor is it something the people would delegate, it becomes an assumption of power.

Paper money, Paine says, 'turns the whole country into stock jobbers [speculators].' Debtors will welcome its depreciation, while creditors seek to raise its value; thus, 'there is a continual invention going on that destroys the morals of the country.'

He reminds readers of the horrors experienced with the 'paper emissions' during the Revolutionary War. The injustices incurred stand in glaring contrast to the proposition that anything can serve as money, as long as the people using it are virtuous. 'Sharpers,' he says, 'always talk this language.' Government printers robbed the colonists then just as today's printers at the Fed threaten to reduce us to sackcloth and ashes.

[T]he evils of paper money have no end. Its uncertain and fluctuating value is continually awakening or creating new schemes of deceit. Every principle of justice is put to the rack, and the bond of society dissolved.

When he wrote 'new schemes of deceit,' could he possibly imagine that such inventions would be elevated to a position of policy? Today we read headlines such as 'Fed raises TAF auctions to $75 billion, expands swap agreements with ECB, SNB ' as the latest attempt to bail out a financial system struggling to ignite another speculative boom. And those are only the headlines -- the things we're supposed to read -- as if the average working person were supposed to comprehend swaps, auctions, and the endless drive for more liquidity so banks can start lending what they borrowed or created out of thin air. What about central banks' gold leasing activities, done for the sole purpose of suppressing the gold price, a policy that adds a little starch to their paper and fosters the illusion that inflation is minimal? We hear of such rumors only from contrarian sources, which we're not supposed to trust. And if Paine were around today, how would Bernanke or Paulson explain how the people's gold ended up deep in government vaults, to be swapped, leased, and manipulated every which way as long as it's kept out of the hands of the public?

Those who promote paper because there's not enough gold and silver have it backwards, he contends. One of the reasons paper money is so dangerous is because it's so easy to produce. During war, countries often resort to counterfeiting their enemies' currency in an effort to destroy their economy. What should we make of this practice in peacetime, under the protection of our own government, as a means of promoting economic health?

In Paine's time, gold and silver were imported, often as payment for our exported goods. He saw that there would be enough specie domestically, in time, 'as the occasions of it require, for the same reasons there are as much of other imported articles.' Paper money, though, acts to banish specie. We can only 'import' real money by exchanging it for real goods.

Death for those who propose tender laws

A republican government has no authority to make its paper money legal tender, he says, for that would deny people their freedom and security. Those who attempt to pass legal tender laws merit impeachment, he adds, though later he goes further and recommends death, since

tender laws, of any kind, operate to destroy morality, and to dissolve, by the pretense of law, what ought to be the principle of law to support, reciprocal justice between man and man . . .

Paine never recoils from the conclusions to which his reasoning leads:

If anything had or could have a value equal to gold and silver, it would require no tender law; and if it had not that value it ought not to have such a law; and, therefore, all tender laws are tyrannical and unjust and calculated to support fraud and oppression.

Tender laws aren't just wrong -- they're dishonest. They're a form of 'calculated' aggression by the government against the people it is supposed to be defending. 'Men ought to be made to tremble at the idea of such a bare-faced act of injustice' that tender laws represent.

And which are so universal today most people never think to question them.

One thing is certain: If Paine recited his essay in the court of a Fed FOMC meeting or a friendly gathering of the President's Working Group on Financial Markets, some in his audience might wish to reconsider their career choices.



1. My eternal gratitude to Mises Institute for publishing Paine's essay on paper money.

2. The ad hominem character of the argument aside, regarding Paine's drinking Paine biographer John Keane writes:

Gossip about his hard drinking was a false inflation of his periodic enjoyment of moderate social drinking in a hard-drinking age . . . (p. 155)

and on the subject of his alleged atheism, Keane notes that in The Age of Reason,

Paine came close to saying that if the Christian God lived on earth, virtuous people would break his windows. He agreed with William Blake that prisons are built with the stones of Law, brothels with bricks of Religion. (p. 395)

Paine states his convictions clearly in the opening chapter of The Age of Reason. He writes:

  • I believe the equality of man, and I believe that religious duties consist in doing justice, loving mercy, and endeavoring to make our fellow-creatures happy.
  • I do not believe in the creed professed by the Jewish church, by the Roman church, by the Greek church, by the Turkish church, by the Protestant church, nor by any church that I know of. My own mind is my own church.

All national institutions of churches, whether Jewish, Christian, or Turkish, appear to me no other than human inventions set up to terrify and enslave mankind, and monopolize power and profit.

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George F. Smith is the author of The Flight of The Barbarous Relic, a novel about a renegade Fed chairman.  Visit his website.