6. Restore Honest Money

A Plan to Renew the Promise of American Life, Plank 6

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Plank 6. Restore honest money

Specific Recommendations

6.1. To secure the blessings of economic health and fiscal common sense, restore honest, constitutional money and popular control of the money supply through an enlightened system of free banking, free minting, and free choice of currency.

6.2. Scrupulously adhere to the Constitution’s five monetary rules: 1) The basic unit is the dollar, a silver coin containing 371.25 grains of pure silver. 2) Only gold or silver coins and currency (specie-backed banknotes) can be legal tender. 3) No state may issue coins or currency. 4) No one may counterfeit U.S. Government-issued coins or currency. 5) Fiat money notes (‘bills of credit’) are forbidden.

6.3. Allow gold and silver coins and currency to resume their natural role as money. Re-monetize specie and specie-backed banknotes, regardless of issuer or denomination, as follows: 1) lift all restrictions on private ownership of them, 2) abolish all taxes and penalties on them, 3) permit them to serve as legal tender for all private debts and all public charges, taxes, and dues, 4) restore the enforceability of gold-clause contracts, 5) restore the automatic convertibility of specie coins into specie-backed banknotes and vice versa at the Treasury, and 6) resume the issuance of constitutional money (i.e., United States Government-issued gold and silver coins and currency as defined in the Coinage Act of 1792).

6.4. Over a period of years, gently remove fiat money (including Federal Reserve Notes and base-metal coins) from circulation, replacing it with honest, constitutional money in a non-disruptive manner.

6.5. Permit the free exchange of bullion and specie for constitutional money at the Treasury on demand.

6.6. Allow any bank, not just a privileged central bank or the Treasury, to issue notes, backed by specie or other assets, that may lawfully circulate as currency.

6.7. Uphold the right of private parties, in face-to-face transactions, to use physical money (legal-tender coins and currency) rather than digital or checkbook money. Reject the idea of a ‘cashless’ society.

6.8. To keep the coinage honest, mark all United States Government-issued gold and silver coins to show the coin’s actual precious-metal content, both in terms of weight in troy ounces and purity in parts per thousand.

6.9. When necessary, amend the Coinage Act to adjust the precious-metal content of United States gold coins, in order to keep both gold and silver in continuous circulation (counteract Gresham’s Law).

6.10. Promote free competition between banks. Make market entry easy, allow branch banking, and permit fractional reserve banking. Never provide taxpayer guarantees to banks, nor bailouts of overextended banks. Keep the bankruptcy laws just as between creditors and debtors. To reduce moral hazard, phase out government deposit insurance.

6.11. Transform the quasi private Federal Reserve System into a fully public independent treasury system, similar to the one that existed and worked quite well from 1846 to 1914. Restore to the Treasury Department the Fed’s current functions as federal fiscal agent, lender of last resort, and national bank regulator.

6.12. Overturn, by statutory and judicial means, the mischievous doctrines of the Legal Tender and Gold Clause Cases, which erroneously attribute to the U.S. Government ‘plenary’ economic powers alleged to be ‘inherent’ in national sovereignty, but which are in fact antithetical to the constitutional text and to the spirit of free republican government.


We cannot protect our liberty and prosperity without protecting our property. And that means we must protect the value of our money. Honest money is among the greatest of blessings. It’s also a constitutional requirement. To have it, we must follow the Constitution’s five rules for money, which are established in the Constitution’s seven money clauses. Unlike our current practice, these five rules respect our natural rights and liberty:

  1. The basic unit is the dollar, a silver coin containing 371.25 grains of pure silver.
  2. Only gold or silver coins or currency (specie-backed banknotes) can be legal tender.
  3. No state may issue coins or currency.
  4. No one may counterfeit U.S. Government-issued coins or currency.
  5. Fiat money notes (‘bills of credit’) are forbidden.

Thanks to these five rules, the Constitution puts the country, domestically speaking, on a bimetallic system of both silver and gold, measured in dollars, with the term ‘dollar’ defined as a specific amount of silver, and without need for much government oversight or intervention. Silver and gold coins may float freely against each other in the marketplace. Private banks and the Treasury may issue gold- and silver-backed banknotes that circulate as money. And the money supply may naturally expand and contract as market forces require. Congress may adjust the metallic content of U.S. Government-issued gold coins from time to time to ensure both metals remain in circulation.

This simple and ingenious system requires no central bank, no centralized control of the money supply, and no central planners to manipulate the price of money by setting interest rates. It leaves money under the control of the people acting freely in the marketplace.

It is the only monetary policy that is consistent with economic prosperity and political freedom. And it’s what the Constitution requires. Honest money. It’s the law.

Note: It is possible for a nation to use a gold standard in international trade and yet not be on a gold standard (a metallic system) at home. This plank calls for reestablishing a metallic system at home (in the form of dollar-gold convertibility) but is silent on the question of whether we should have an international gold standard, for which there are plusses and minuses.

Some Definitions

Dollar. The basic unit of the U.S. economic system, defined as a silver coin of a certain weight and fineness. A dollar is simply a unit of measure, like ounce, gallon, yard, or mile. While the Constitution does not define the word ‘dollar’ explicitly, it does so implicitly because everyone in 1787 knew exactly what a dollar was. It was a Spanish milled dollar, a coin then in wide circulation. A U.S. dollar is therefore a U.S. coin of the same weight and fineness as the Spanish milled dollar, which contained 371.25 grains of pure or 416 grains of standard silver. This precise definition is legally binding, and Congress has no power to change it. Only a constitutional amendment could do that. /1

Currency. Banknotes, pieces of paper intended to be used as money and exchangeable for something of value, usually precious metals. A banknote that is exchangeable for a dollar is a dollar, as a practical matter. In the discussion that follows, I generally restrict my use of the term ‘currency’ to mean banknotes that are readily redeemable in gold or silver coin (specie).

Legal tender. A thing that a government requires creditors to accept in payment of debts. In the U.S. Constitution, legal tender is restricted to gold and silver coin. /2

Bills of credit. Legal-tender banknotes not backed by anything of value. Synonyms include ‘fiat money’ and ‘worthless paper money.’ The Constitution prohibits bills of credit. This prohibition is explicit with respect to the states governments and implicit with respect to Congress (via the Ninth and Tenth Amendments).

Honest money. Sound or stable money. Money that tends to hold its value over time and is not easily debased.

Unsound money. The opposite of honest money. Money that does not hold its value over time. Money that can be debased.

Metallic system. A policy whereby the government readily exchanges bullion and banknotes for coins on demand. A gold standard is a metallic system based on gold.

Why Honest Money?

Honest money is an essential prerequisite for stable prices, a smoother business cycle, economic health. It encourages fiscal discipline, balanced budgets, and low taxes, and is necessary for free trade. It helps the poor escape poverty and promotes a large and stable middle class.

Importantly, the blessings of honest money are not just economic but political. Honest money safeguards our freedom. In the words of Austrian School economist Ludwig von Mises:

It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.

Unsound money is the primary cause of inflation and harmful deflation and a major contributing factor to economic bubbles and financial panics. It cheats savers of their wealth and causes unemployment. It hurts the poor.

What Is Money?

Just about any commodity can serve as money, but gold and silver are the traditional favorites because, compared to other commodities, they have in the greatest measure the most desirable qualities: they are durable, portable, malleable, divisible, easily recognizable, and naturally limited in quantity. Basically, they are Mother Nature’s answer to the question, ‘What is money?’

Why should money be ‘sound’? Because it is the economy’s lifeblood, part of every transaction. When the currency loses some of its value, everyone who relies on it becomes poorer. When money sneezes, the economy catches cold.

The only legitimate role for government in monetary policy is to declare what is legal tender, that is, what kinds of money must be accepted in payment of debts and taxes.

The definition of legal tender must be strictly limited to honest money, or else government will find it too tempting to give itself a monopoly power over money-creation. It will inevitably use that power to cheapen the currency, in order to cheat its creditors and raise taxes without a vote.

There are three main ways governments cheapen their currency: 1) They issue fiat money and require it to be used as legal tender. 2) They declare honest money to have a value different from its market value, rendering it dishonest. And/or 3) they tax rival currencies to drive them out of circulation. Often, they establish a monopoly central bank to enable them to do these things more conveniently.

Metallic System or Central Bank?

A metallic system shifts control of money from the government to the people. A metallic system produces price-stability and superior employment outcomes for everyone because it imposes a limit on the total amount of money that can exist at any one moment.

There is nothing dangerous or difficult about a metallic system, unless your goal is to cheapen the currency.

None of the arguments traditionally leveled against a metallic system — it’s too rigid, it’s a monopoly, there’s not enough gold to make it work — is persuasive.

While it’s true governments often abandon the discipline of a metallic system in a crisis, it’s also true that governments invariably return to that discipline eventually. At some point, private markets insist on it.

How much money an economy needs is dictated by how much it produces. The more it produces, the more money it needs.

The only way to maximize the efficient use of resources is to let the price-signaling system do its job, and the only way to do that is to keep the money supply stable, and the only way to do that is to ensure that the value of money cannot easily be manipulated, and the best way to do that is to follow the discipline of a metallic system.

Under a metallic system, significant inflation is rare and hyperinflation is essentially impossible.

There appear to be only three ways that a government can ‘manage’ a currency: a metallic system with no central bank, a central bank that mimics a metallic system, and a central bank that cheapens the currency. The greatest of these is the first, a metallic system with no central bank.

The first job of any central bank is to act as the government’s principal or exclusive fiscal agent. In this role, it buys, sells, and holds interest-bearing government bonds and potentially other forms of property.

A second role for a central bank follows naturally from the first, namely, to serve as the national lender of last resort. A lender of last resort is someone who, during a credit crisis, makes credit available temporarily where it is needed. If the lender of last resort is a central bank, it has an implicit or explicit tap on the treasury, in effect making taxpayers the true lender of last resort.

A central bank that serves as both fiscal agent and lender of last resort will be well-situated, in turn, to take on a third job: managing the national money supply by lending to other banks at interest, and setting the interest rates on those loans, which can affect interest rates elsewhere.

Fourth, the central bank can be, and typically is, authorized to serve as the national bank regulator. This, of course, helps it maintain its monopoly.

Our Federal Reserve wears all four of these hats.

All four hats can be, and historically have been, worn by private entities. There is no essential need for a central bank. The Fed, our first and only true central bank, did not exist before 1913. The national bank that existed from 1791 to 1836, the Bank of the United States, was not a central bank in the modern sense, although it did exercise some of the functions of one.

Happily, except for the major devaluations of 1934 and 1971, the Fed has more or less avoided the twin evils of outright devaluation and hyperinflation.

Until 1968, when President Johnson cut the last ties to silver, and 1971, when President Nixon cut the last ties to gold, inflation was largely kept in check because the Fed acted for the most part as a central bank that mimics a metallic standard. In the 1970s inflation soared because it drifted from that discipline. In the 1980s, Paul Volcker and Alan Greenspan returned it to being a central bank that mimics a metallic standard, and inflation abated. This is the origin of the Great Moderation.

Danger: Devaluation Ahead

The existence of the Fed makes it easy for Congress to run continuous deficits. The Fed monetizes those debts — converts them into money — and thus cheapens the currency. The government then repays those debts in dollars that are worth less than they dollars it originally borrowed.

To keep this game going, the Fed must generate a small amount of inflation all the time. Right now, for example, its official policy is to maintain a two percent inflation rate. (This, despite operating under a statutory mandate to maintain ‘price stability.’)

The three main ways that government can reduce its debts are inflation, repudiation, and spending limitation. The greatest of these is spending limitation. But to be sustainable, it requires the discipline of a metallic system.

While inflation and repudiation are inimical to economic health and the government’s credit, spending limitation is essential to both.

The five rules of fiscal common sense are: limit spending, tax lightly, borrow the minimum, maintain a surplus, and pay down debt.

The best way to limit spending is to limit debt. If you cannot borrow easily, you must tighten your belt.

The best way to limit government debt is to limit government’s ability to monetize its debts via money-printing.

Hence the need for honest money.

By limiting government’s ability to cheapen the currency, honest money paves the path to prosperity — the golden path, if you will. Follow the yellow brick road.

Over the course of American history, the U.S. Government has launched five major devaluations of the dollar, relative to gold, that is, five major bouts of intentional inflation. These occurred in 1834, 1862, 1934, 1942, and 1971. Today the value of the dollar, relative to gold, is a fraction of one percent of its pre-1834 value.

The return to a metallic system and fiscal common sense is inevitable. What goes up must come down. But realistically — sadly — this return is unlikely to happen before the dollar collapses and the economy hits rock-bottom.

Free Banking

Inherent in the idea of ending government monopoly banking is the idea of free banking, a decentralized system that leaves control of the money supply with the people rather than the government. Free banking allows competing private banks to issue their own asset-backed notes that may lawfully circulate as currency. In such a system, there is little need for taxpayers to serve as the lender of last resort.

How Constitutional Money Was Overthrown

Another element of this plank is to overturn the Supreme Court’s Legal Tender and Gold Clause Cases. In those cases, the high court ruled that Congress has ‘plenary’ power to issue fiat money and dictate its value, pursuant to its power to ‘regulate the value’ of foreign and domestic coin. This interpretation is wrong. The congressional power to regulate the value of gold and silver coins is limited to the purpose of ensuring that both kinds remain in circulation (that is, to counteract Gresham’s Law). In the aforementioned rulings, the Court made the incorrect assumption that the federal government is endowed with attributes of ‘national sovereignty’ like those found in governments with monarchical backgrounds. That assumption has no grounding in the constitutional text and indeed turns the American Revolution on its head. The whole point of the Revolution, and its greatest achievement, was to deny the existence of ‘sovereignty’ in the ‘rulers’ and to recognize it instead in the people, acting together for common purposes and also, ultimately, as individuals. ‘All men are created equal’ — even you, King George. From which it follows that government must be by the consent of all the people. That consent is reflected in our Constitution, a voluntary yet binding act of the whole people, each individual solemnly covenanting with every other individual to recognize the equality of all and to follow the rules that all have together made for the benefit of all. The Constitution duly limits the powers of our ‘rulers,’ so that they always remain our servants and never become our masters. Congress’s monetary powers cannot be ‘plenary’ unless we are willing to be slaves.


1/ The Federal Reserve Note in your pocket is only a ‘dollar’ in an analogous and inertial sense. It is not a dollar in the constitutional sense. If we return to constitutional money, people will have to trade their FRNs for constitutional dollars at a market-based exchange rate.

2/ Here is the text of the current legal tender statute (31 U.S.C. 5103):

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.

It should be changed to something along the following lines:

Gold and silver coins and currency, regardless of issuer or denomination, are legal tender for all debts, public charges, taxes, and dues. For purposes of the preceding sentence, the term ‘currency’ means banknotes readily redeemable in specie.

Constitutional Amendments

This plank requires no constitutional amendments. It does require overturning some judicial precedents.


Greatly increases personal financial security and incentives to work, save, and invest.

Ends government-created inflation.

Produces a smoother business cycle, with fewer economic panics and shallower contractions.

Provides a powerful check on the growth of government.

Revised: November 6, 2019.

Published: June 21, 2013.

Author: Dean Clancy.

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7 Replies to “6. Restore Honest Money”

  1. So since I do not see congress changing us back to a metallic system anytime soon…a question: If the supreme court were to reverse/revise those two decisions you talk about would that force the government back to a metallic system? Originalist/Textualist Justices (like soon to be Justice ACB) would be inclined to do that right? But what kind of case would have to be brought, and who would have standing to bring such a case, to try to make that happen?

    1. Great questions. The Court tends to follow the election returns. So I guess we can’t count on it to do what I propose, until the coast is clear, meaning Congress has already resolved to restore honest money. Still, it would be nice if it took the initiative.

  2. “A second role for a central bank follows naturally from the first, namely, to serve as the national lender of last resort. A lender of last resort is someone who, during a credit crisis, makes credit available temporarily where it is needed. If the lender of last resort is a central bank, it has an implicit or explicit tap on the treasury, in effect making taxpayers the true lender of last resort.”

    Will this allow Treasury to reach into our bank accounts to make good on the public debt?

    1. Short answer is probably not. Politicians are unlikely to allow it. But one of the nice things about honest money is that it can be kept somewhere other than an electronic fund that the government can take control of.

  3. One of the greatest sources of U S Constitutional economic information I’ve ever read! Much of the information I’ve know about, but, this ties it all up, and together very neatly! Thank you very much, Dean Clancy!

  4. Great questions. The Court tends to follow the election returns. So I guess we can’t count on it to do what I propose, until the coast is clear, meaning Congress has already resolved to restore honest money. Still, it would be nice if it took the initiative.

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