I think most people would agree that George Washington was the most revered of our nations’ early leaders. Yet if I were to tell you his opinion on the way the Federal Reserve and recent Presidential administrations were handling the economy, most Americans would be shocked to say the least.
Before you think I’m totally crazy or taken with the idea of talking to the departed via crystal balls, Ouija boards or channeling, let me explain. Mr. Washington very clearly stated his opinion on the actions of today’s politicians – and let me say, he clearly wouldn’t like it. Incredibly, even though most of our politicians are presumably well educated and have studied the laws of the land, history and the US Constitution, they have abandoned many of the ideals of our founding fathers along with the economic principles on which this country was founded.
Let me prove it to you.
On January 9, 1787, George Washington in a letter to Jabez Bowen, Deputy Governor of the State of Rhode Island, wrote these words:
“I am sanguine in the belief of the possibility that we may one day become a great commercial and flourishing nation. But if in the pursuit of the means we should unfortunately stumble again on unfunded paper money, or any similar species of fraud, we shall assuredly give a fatal stab to our national credit in its infancy. Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”
To put this statement in context, the State of Rhode Island implemented a paper money plan to satisfy their farming constituency who had no way to pay taxes on their property. In addition to the paper money system, the Rhode Island General Assembly implemented a ‘force provision’ effectively forcing all citizens to accept the paper money for all debts both public and private, rather than using a special currency to assist the farmers who were ‘land rich and cash poor’. The punishment for not accepting the paper money was to be inflicted immediately without any trial by either judge or jury. In short, accept this paper money or go to jail. (Source for information in this blog, “The Rhode Island State Constitution: A Reference Guide”)
As you might have expected, it didn’t take long for this new law to be tested. Revolutionary War veteran John Trevett stopped by his local butcher’s shop to buy some meat for dinner and attempted to use the new paper money to pay John Weeden, the local butcher. Trevett vs. Weeden, one of the most important legal battles in the State of Rhode Island’s history, began when Weeden refused to accept the money and told Trevett to go elsewhere.
The dispute was heard by the highest court in the State. At this point in history, the State of Rhode Island was not part of the federal US Government. The state didn’t join the union until 1790, well after Washington was inaugurated as the new nation’s first President. James Mitchell Varnum, one of Weeden’s defense attorneys, argued for the court to review the ‘force provision’ and effectively declare it unconstitutional. The Court heard the arguments and concluded they had no jurisdiction, effectively walking away from the case.
Many legal scholars believe Varnum’s arguments may have influenced John Marshall in the development of the concept of judicial review. Ultimately the legislature, largely made up of the farmers who wanted the debt relief the new paper money could offer, repealed the force provision the court refused to enforce and then refused to renew the terms of 4 of the 5 judges who made up the court.
To put this in perspective, not much has changed. Rhode Island politicians then, like our politicians and the lobbies they coddle, attempted to pass legislation that was self-serving and detrimental to the greater, common good and economic prosperity.
Washington saw what a problem this caused and in a letter to Bowen, who was the modern day equivalent of the state’s governor, stated his belief that the United States would one day become a great economic power due to the Constitution Washington himself had helped create. He was right.
Washington also issued a word of warning – unfunded paper money was the equivalent of fraud, and, in our pursuit of life and liberty, should we ever fail to recognize this truth, we would “ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.” You’d almost think Mr. Washington had his own crystal ball, wouldn’t you?
Ever since Richard Nixon removed our country from the gold standard and each subsequent congress and administration accelerated spending and the accumulation of debt, our economy has been moving down the slippery slope Washington warned us of over 200 years ago.
Before you dismiss this as the ravings of a gold bug, take a look at the following chart:
Nixon took us off the gold standard in 1971. Since that time, the level of total American debt (public and private) compared to national income has widely diverged. Up until 1971, the relationship between income and debt was constant, effectively maintaining a manageable level of debt due to the fact money was tied to something ‘real’ and ‘tangible’. Once that connection between dollars and gold was broken and dollars were now backed by ‘the full faith and credit of the US Government’, debt accumulation and the financial games Washington warned of began to occur.
Now we as a nation, as a result of the actions taken by the Federal Reserve, find ourselves racking up public debt at a record pace in an attempt to solve a problem created by debt – something Washington would have abhorred, probably even revolted against. And, something in my strong opinion, that can’t work.
George warned us about this day and told us what to do – too bad we’re not listening
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