Gold cannot be produced very easily; it must be dug laboriously out of the ground. But if paper tickets are to be money, and the State is to have the sole power to issue these virtually costless tickets, then we are all at the mercy of this gang of legalized, sovereign counterfeiters. Yet this is the accepted monetary system of today.
Not only is this system of the State’s having absolute control of our money been accepted by Establishment economists; it has been just as warmly endorsed by the powerful “Chicago” branch of free-market economists. Twenty years ago, almost all conservative, or free-market oriented, economists, favored a return to the gold standard and the elimination of fiat paper.
But now the gold standard economists have almost all died out and been replaced by the glib, technically expert Chicagoites, to a man scoffers at gold and simple-minded endorsers of fiat paper. The gold standard has died from desertion of its cause by the right-wing and its economists. Numerous right-wingers who should know better yet continue to fawn upon Milton Friedman and his Chicagoites. Why? Presumably, because they have power and influence, and one never finds conservatives lacking these days when it comes to toadying the power.
Two years ago, Jerome Daly, a citizen of Savage, Minnesota, a suburban town just south of Minneapolis, refused to make any further payments on the mortgage which he had owed to his bank. At his jury trial (First National Bank of Montgomery vs. Jerome Daly) in December, 1968 before Justice of the Peace Martin V. Mahoney, a farmer and carpenter by trade, at which the bank tried to repossess the property, Mr. Daly argued that he owed the bank nothing. Why? Because, the bank, in lending him money, had loaned him not real money but bank credit which the bank had created out of thin air. Not being genuine money, the credit was not a valid consideration, and therefore the contract was null and void. Daly argued that he did not owe the bank anything.
In making this seemingly preposterous argument, Jerome Daly was being a far better economist—and libertarian—than anyone knew. For fractional reserve banking—now a system at the behest and direction of the Federal Reserve Banks—is, like fiat paper, legalized counterfeiting, the creation of claims which are invalid and impossible to redeem.
Furthermore, Daly contended that this kind of creation of money by banks is illegal and unconstitutional.
Even more remarkable than Mr. Daly’s thesis is that the jury unanimously held for him, and declared the mortgage null and void; and Justice Mahoney’s supporting decision, delivered last Dec. 9, is a gem of radical assertion of the rights of the people and a thoroughgoing assault on the unwisdom and fraudulence and unconstitutionality of fractional reserve banking.
Bewildered, the First National Bank of Montgomery, Minnesota proceeded in routine fashion to file an appeal with Justice Mahoney for a higher court. But the catch is that in order to file an appeal, the plaintiff has to pay a fee of two dollars. Justice Mahoney, O happy day, refused to accept the appeal on January 22 because Federal Reserve Notes, which of course constituted the fee, are not lawful money. Only gold and silver coin, affirmed the judge, can be made legal tender, and therefore the fee for appeal had not been paid. Justice Mahoney followed this up with supporting memoranda on January 30 and February 5, which are heartwarming blends of sound economics and strict legal constructionism, and which also declared the unconstitutionality of the Federal Reserve Act and the National Banking Act, the capstones of our current interventionist and statist monetary system.
There the matter rests at the moment; but where does it rest? We have it on the authority of Justice Mahoney that debts to fractional reserve banks (i.e. the current banking system) are null and void, that their very nature is fraudulent and illegal (in short, that the banks belong to the people!), that Federal Reserve Notes and fiat paper are unlawful and unconstitutional.
Never has there been a more radical attack upon the whole nature of our fraudulent and statist banking system.... more>> Mises Daily
