You must have accurate and honest weights and measures, so that you may live long in the land the God is giving you. God detests anyone who does these things, anyone who deals dishonestly.

Why is this important?

Well, let’s say you needed to buy some paint and went into a hardware store and ordered 3 gallons of paint, got it tinted to the right color, and then told them you’d be back later to pick it up. A couple of days later you go back to the store to pick up your paint and the clerk hands you three cans of paint that are about half the size that you originally ordered. You, of course, complain – “I can’t paint my room with this much paint. I ordered 3 gallons of paint because I needed three gallons of paint!” The store owner says to you “Well, it is 3 gallons of paint. The size changed.”

That could create some problems.

So, what does this have to do with government? Well, one of the major roles of government is to create standards for weights and measurements. Money happens to be one of those (it’s actually a measurement of worth, value, or wealth), and so our government has the ability to create money. The problem happens when government starts changing the size (value) of money by creating more of it (that’s called inflation).

This is exactly what our government is doing. This first started happening back in 1913 when the Federal Reserve was founded. At the time, the Fed promised that they wouldn’t change anything, that they were just a clearinghouse for banks to lend money to each other. But in 1932, Franklin Roosevelt and the Fed actually changed the value of the dollar (which is a measurement, remember) from $20/ounce of gold to $35/ounce. They effectively cut the value (weight or measurement) of the dollar by half. And then, in 1972, Nixon said that the dollar wasn’t worth any gold at all.

They changed the measurement, by cutting the value in half. And then they removed any sort of control over making more of it, by making sure there was no measurement standard at all.

A government can do this for a little while. But eventually people in positions of power realize that they aren’t held accountable for anything they actually do with money. They get into a situation where they need more of it, but collecting more taxes on people would ruin their political career. So, what they do instead is print more money. Then they do it again. And then again. And pretty soon they end up addicted to the free money they can print, so they just leave the printing presses turned on and print as much as they want.

The fallout from this is that the money supply becomes massively large, and suddenly they can’t get rid of it so easily. The demand (or desire) for the money starts going down, and in response prices rise (it costs more money to buy something because the individual dollars are worth less). Eventually it gets to the point where no one will accept the money that the government has printed, and the money becomes completely worthless.

This has happened in the past on numerous occasions. One of the major examples of this happening is in Argentina. In 1913 it was the world’s 10th wealthiest country, and it is now 36th. Their story started with huge national debt during the Great Depression (starting there in 1936). The government decided it would just print enough money to pay off their national debt. In 2002, Argentina had 25% unemployment, and the peso had lost 70% of it’s value (in other words, the money is now 30% of the measurement it was previously).

What makes the whole situation so much worse is that the people who suffered most were the poor. The very rich could absorb the currency losing its value and the prices going up as a result, but the poor couldn’t. The government mucking around with the value (measurement) of their money destroyed the country.

The scary thing is that the same sort of thing is happening in our country right now. We have crazy huge amounts of debt, and the way we’re planning to get out of it is by printing more money (changing the value – measurement – of it at the same time).

Here’s what bothers me – if (when) Eric deCarbonnel’s and the rest of the contrarian economists are proven right, they will continue to be ignored. How bad does it really need to get before people start to believe that we are in big trouble, that Obama will not be able to save us, that the worth of our money isn’t important, and that government isn’t the answer (but freedom, the market, and personal responsibility are)?

It’s easy to come to the conclusion that Bernanke is telling the truth. After all, the Constitution does grant the Congress the authority to create money and regulate it. In fact, it says it like this: “the Congress shall have power… to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” (you can find it in Article 1, Section 8 if you’re up for it) And Congress did in fact delegate authority to create money to the Federal Reserve. So how is Bernanke wrong?

It lies in the phrase “authority to coin money.” I mean, the world’s been printing money since the invention of paper in China. Even Ben Franklin printed money for the British government. So it’s not as though the concept hadn’t been introduced before they sat down to write the Constitution. So why use as weird a phrase as “coin money”?

The answer is across the Atlantic in France, in an economic crisis called the Mississippi Bubble. I won’t go into specifics here (this article at PBS does), but the gist of it is that the Banque Royal (France’s Federal Reserve) printed far more banknotes than they could cover and the entire financial system collapsed as a result. So, the folks who attended the Constitutional Congress in 1787 had an object lesson to draw from.

And draw they did, being very careful that a similar situation couldn’t happen in this country. The reason they wrote “coin money” into section eight of the constitution instead of “create money” was so the government could only create as much money as their resources could handle. Printing money is really easy. Coining money – well, that’s a whole other ballgame. First you have to get the stuff out of the ground, then you have to press the stuff into a mold, then you have to somehow distribute it (usually by buying something), and then you have to have accounting records for all of this.

By requiring the government to coin money, the constitution forces it to stay honest with the amount of money in circulation and where it’s being spent. They can’t just fire up the printing presses to pay off a debt – or to buy up bad debt in our present crisis – they have to somehow get the money from the population. The people have to agree to let the government have it.

Now, the part that Bernanke got right (well, sort of right) is that the Congress did delegate authority to regulate the US banking system to the Federal Reserve System. The problem is that the Federal Reserve prints money. And Congress doesn’t have the authority to print money, it only has the authority to coin money. So in passing the Federal Reserve Act, Congress delegated power that it didn’t have.

That’s sort of like me giving you the authority to declare war on Canada.

Bernanke either doesn’t understand the Constitution (making him an idiot), or just doesn’t care (making him a crook). Either way, it’s bad news for us.

As promised, here’s my plain as day advice: buy gold and silver coins. It’s the only stuff that’s actually money by definition, and it’s the only money that’s not going to have it’s worth destroyed by a seven-hundred-billion-dollar bailout.

Needless to say, such a system would not only end the threat of deflation, but, equally important, it could end the threat of inflation as well. For if it were actually followed, the increase in the quantity of money would be limited to the increase in the supply of gold, which is extremely modest compared with increases in the supply of irredeemable paper money. This is because gold is rare in nature and costly to extract. Irredeemable paper money in contrast is virtually costless to produce and is potentially as abundant as the supply of currency-sized sheets of paper, indeed, as abundant as the size of the largest number that can be printed on all such sheets of paper.

This is an issue that is very much on my mind these days. I think that the majority of our country’s problems are rooted in the stealing of the poor’s wealth through the invisible force of inflation. The popular solution is to redistribute money through taxation via free social programs. The problem is that redistribution doesn’t actually encourage individual financial responsibility, but rather individual entitlement (which I’m sure we can all agree is a very bad thing).I could go on and on about this, but that’s for another post when I’m not running late to work. In the meantime, go read George Reisman’s article.