Creature From Jekyll Island by G. Edward

[and] to provide for the punishment of counterfeiting....

No state shall ... coin money; emit bills of credit; [or] make anything but gold and silver coin a tender in payment of debts.

The delegates were precise in their use of these words.

Congress was given the power to 'coin money,' not to print it.

Thomas M. Cooley's Principles of Constitutional Law explains that

'to coin money is to stamp pieces of metal for use as a medium of exchange in commerce according to fixed standards of value.'

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310 THE CREATURE FROM JEKYLL ISLAND

What was prohibited was to 'emit bills of credit' which, according to the speeches and writings of those who drafted the document, meant the printing of paper IOUs which were intended to be circulated as money—in other words, the printing of fiat money not backed by gold or silver.

At first, it would seem that nothing could be more clear. Yet, these two simple clauses have become the basis for literally thousands of pages of conflicting interpretation. The crux of the problem is that, while the Constitution clearly prohibits the states from issuing fiat money, it does not specifically prevent the federal government from doing so. That was truly an unfortunate oversight on the part of the document's framers, but they probably never dreamed in their wildest nightmares that their descendants

'could be so stupid' as to not understand their intent.

Furthermore, 'it ain't easy' to miss their intent. All one has to do is look at the monetary history that led up to the Constitutional Convention and to read the published letters and debates of the men who affixed their signatures to that founding document.

As one reads through the debates on the floor of the convention, one is struck by the passion that these delegates held on the subject of money. Every one of them could remember from his personal experience the utter chaos in the colonies caused by the issuance of fiat money. They spoke out against it in no uncertain terms, and they were adamant that it should never be tolerated again in America—at either the state or federal level.

PAPER MONEY IN THE COLONIES

The first colonial experience with fiat money was in the period from 1690 to 1764. Massachusetts was the first to use it as a means of financing its military raids against the French colony in Quebec.

The other colonies were quick to follow suit and, within a few years, were engaging in a virtual orgy of printing 'bills of credit.'

There was no central bank involved. The process was simple and direct, as was the reasoning behind it. As one colonial legislator explained it:

Do you think, gentlemen, that I will consent to load my

constituents with taxes when we can send to our printer and get a wagon load of money, one quire of which will pay for the whole?

1. See William M. Gouge, A Short History of Paper Money and Banking in the United States (Philadelphia: T.W. Ustick, 1833), Part II, p. 27.

THE LOST TREASURE MAP

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The consequences of this enlightened statesmanship were classic. Prices skyrocketed, legal tender laws were enacted to force the colonists to accept the worthless paper, and the common man endured great personal losses and hardship. By the late 1750s, Connecticut had price inflated by 800%, the Carolinas had inflated 900%, Massachusetts 1000%, Rhode Island 2300%.1

The situation was so out of hand that, beginning in 1751, the British Parliament stepped in and, in one of those rare instances where interference from the mother country actually benefited the colonies, it forced them to cease the production of fiat money.

Henceforth, the Bank of England would be the only source.

What followed was unforeseen by the promoters of fiat money.

Amid great gloom about 'insufficient money,' a miracle boom of prosperity occurred. The forced use of fiat money had compelled everyone to hoard their real money and use the worthless paper instead. Now that the paper was in disgrace, the colonists began to use their English and French and Dutch gold coins once again, prices rapidly adjusted to reality, and commerce returned to a solid footing. It remained so even during the economic strain of the Seven-Years War (1756-1763) and during the period immediately prior to the Revolution. Here was a perfect example of how an economic system in distress can recover if government does not interfere with the healing process.

WARTIME INFLATION

But all of this came to a halt with the onset of colonial rebellion.

Not only did open hostilities throw England deeper into the cogs and wheels of the central-bank mechanism, it also was the compelling motive for the colonies to return to their printing presses. The following figures speak eloquently for themselves:

• At the beginning of the war in 1775, the total money supply for the federated colonies stood at $12 million.

• In June of that year, the Continental Congress issued another $2 million. Before the notes were printed, another $1 million was authorized.

• By the end of the year, another $3 million.