Federal Reserve Watch

[NYBob]

The people we know as the Founding Fathers were against paper money and for a gold/silver standard. But many people of the 1780s favored paper money, and in 1787 it was hard to determine which side would win. Voters in many states (besides Rhode Island) were endorsing limited issues of paper money, and how the matter would go in a general election was not known.

The Founding Fathers chose to resolve the issue by writing a new constitution (the existing one being the Articles of Confederation) which would ban all fiat money permanently. The issue of paper money by the states was banned in the new Constitution by Article I, Section 10. And the issue of paper money by the Federal Government was banned by omission. That is, the basic structure of the Constitution, latter clarified by Amendment 10 of the Bill of Rights, restricted the Federal Government to 17 powers enumerated in Article I, Section 8. The power to issue paper money was omitted from this list. At the Constitutional Convention, an attempt to smuggle in the paper money power (disguised as bills of credit) was defeated 9 states to 2, and the paper money faction left the convention advising their supporters to reject the new constitution.

So when the Founding Fathers attempted to gain ratification for the Constitution in 1788, they faced a difficult battle. But remember Washington’s technique of arguing issues by means of reason. “Let us raise a standard to which the wise and honest can repair.” They did, and they began to win victory after victory. In some cases, the voters elected an anti-constitution slate to a special convention to consider the issue. The delegates assembled, initially in opposition. But during the debate the pro-Constitution side was more persuasive, and the convention wound up ratifying. In short order, 12 of the 13 states had ratified and the new Government , sans Rhode Island, went into operation. Rhode Island was no longer part of the United States.

Then a hard money faction formed in the southern part of the state (centered in Newport). It threatened to secede from Rhode Island, form its own state and apply for admission. Faced with this threat the paper money faction in the northern part of the state admitted defeat, and Rhode Island ratified the Constitution in convention by a vote of 34-32. The Founding Fathers had won a unanimous victory.
History often repeat itself -

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