To Reform Congress, Reform the Dollar
Copyright © 1998 by Freemarket Gold & Money Report. All Rights Reserved.
I wrote and first published the following article in December 1991. I thought it timely and useful to reprint this article given the important announcement by Warren Buffett that he has purchased 130 million ounces of Silver through his company, Berkshire Hathaway.
It is clear that Warren Buffett's father understood sound money. I suspect Warren understands both the importance and the essential nature of sound money as well as his father, which should be taken into consideration by anyone trying to better understand the reasons for his Silver purchase.
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Almost everybody these days is mad at Congress. Regardless of our reasons for this outburst of anger, we all believe that Congress has gone too far. Everyone has had enough.
We must regain control of Congress. That means putting our legislators on a short leash, but how do we do it? The proposed solutions are diverse, but have a common thread — they aim to constrain.
Term limitation is one of the most talked about new remedies put forward. Unfortunately, like so many other ideas, it looks good at first, but doesn't hold up under closer scrutiny. Are we to believe that politicians only wreak havoc if they hold office too long?
An examination of the record indicates that legislative ineptitude, misdeeds or policies of abuse do not necessarily come with seniority. It would be interesting to know how many first and second term Congressmen were among the 134 House members bouncing checks. Unfortunately, we do not know because Congress has exempted itself from the Freedom of Information Act and more than a dozen other laws that it has imposed on everyone else. Actions such as these continue to erode public confidence in that once-hallowed institution.
Most members of Congress seem to be well intentioned individuals with commendable amounts of dedication and motivation. So it seems reasonable to ponder whether they may be doing their individual best in a very tough job. If so, is it fair to be critical of their actions?
Because most Americans are generous people, it is natural to think that the tough times in which we live make it impossible for any group of persons in Congress to do any better than today's incumbents. Moreover, leaving aside the check-bouncers and those involved in other flagrantly irresponsible and untrustworthy acts, most of us probably believe the display of personal indiscretions to be anomalies better forgiven and forgotten. However, before we give any scoundrels any benefit of the doubt, first consider what one Congressman had to say about Congress. After all, who better than a Congressmen could recognize the problems? And who could possibly have more standing than someone who speaks to us across decades?
Rep. Howard Buffett, father of Wall Street legend Warren Buffett, was too far ahead of his time, so few listened to the concerns and even fewer appreciated his wisdom when he addressed a group of businessmen on May 4, 1948. To our good fortune, his address was published two days later in The Commercial and Financial Chronicle, and has been reprinted by the Committee for Monetary Research & Education (10004 Greenwood Court, Charlotte, NC 28215-9621), a not-for-profit organization dedicated to the restoration of sound money.
The passage of time has proven Rep. Buffett to be right, so the ideas of this brilliant Congressman from Nebraska should be reexamined in the light of our quest for reform and our need to regain control of Congress. His words speak for themselves.
"Today Congress is constantly besieged by [special interest] groups seeking benefits from the public treasury. Congressmen find it difficult to persuade themselves not to give in to pressure groups. With no bad immediate consequence it becomes expedient to accede to a spending demand. The Treasury is seemingly inexhaustible. Besides the unorganized taxpayers back home may not notice this particular expenditure - and so it goes."
"Because [a politician's] continuance in office depends upon pleasing a majority of the pressure groups," there is a natural propensity for over-spending. Rep. Buffett recognized this reckless tendency to be a political fact of life, with predictable and discouraging results if left uncontrolled.
"From 1930-1946 your government went into the red every year and the debt steadily mounted. Various plans have been proposed to reverse this spiral of debt."
"One is that a fixed amount of tax revenue each year would go for debt reduction. Another is that Congress be prohibited by statute from appropriating more than anticipated revenues in peacetime. Still another is that 10% of taxes be set aside each year for debt reduction."
"All of these proposals look good. But they are unrealistic under our paper money system. They will not stand up against post-war spending pressures. The accuracy of this conclusion has already been demonstrated."
"Under the stream-lining Act passed by Congress in 1946, the Senate and the House were required to fix a maximum budget each year. The statute providing for a maximum budget has fallen by the wayside even in the first two years that it has been operating and in a period of prosperity."
The demise of Gramm-Rudman sounds like an exact replay of this episode from the past. Rep. Buffett's words ring true as if they were spoken just yesterday, not 43 years ago. His understanding and insight truly reaches across the decades. But Rep. Buffett did not stop with an accurate statement of the problem. He also provided the solution. He understood why Congress was no longer the quaint little institution it was during his youth. He knew what was needed to set things right and to bring unbridled spending under control.
"Before 1933 the people themselves had an effective way to demand economy. Before 1933, whenever the people became disturbed over Federal spending, they could redeem their paper currency in gold, and wait for common sense to return to Washington."
"That happened on various occasions and conditions sometimes became strained, but nothing occurred like the ultimate consequences of paper money inflation."
"When the people's right to restrain public spending by demanding gold coin was taken away from them, the automatic flow of strength from the grass-roots to enforce economy in Washington was disconnected."
"With a restoration of the gold standard, Congress would have to again resist handouts. If Congress seemed receptive to reckless spending schemes, depositors' demands over the country for gold would soon become serious. That alarm in turn would quickly be reflected in the halls of Congress. The legislators would learn from the banks back home and from the Treasury officials that confidence in the Treasury was endangered."
"Congress would be forced to confront spending demands with firmness. The gold standard acted as a silent watchdog to prevent unlimited public spending."
Rep. Buffett clearly understood the consequences of his recommendation. He also recognized the outcry that would result among those who would criticize the restoration of the Dollar's direct and transparent link to Gold.
"Most opponents of free coinage of gold admit that restoration is essential, but claim the time is not propitious. Some argue that there would be a scramble for gold and our enormous gold reserves would soon be exhausted."
"Actually, this argument simply points up the case. If there is so little confidence in our currency that restoration of gold coin would cause our gold stocks to disappear, then we must act promptly."
Ironically, even though Gold redeemability was not restored, much of our Gold stock has disappeared. The 22,100 tonnes held in May 1948 has been drastically reduced to 8,100 tonnes today. This dissipation happened in a way that Rep. Buffett would have found alarming because he understood irredeemable currency posed a threat that could deplete American wealth. The "gold is not subject to demand by American citizens. It could all be shipped out of this country without the people having any chance to prevent it."
The reduction of the Gold stock robbed the American people. They created the wealth that built it, but they were helpless from stopping its dispersal. Nevertheless, what remains is still the world's largest hoard of Gold, and it can be put to effective use by reestablishing Dollar redeemability into Gold. What motivated Rep. Buffett? Although it may be hard to understand or accept in today's environment of cynicism and flagrant self-interest, his words reveal him to be a true statesman, whose aim was to serve his country. In one introspective moment, he provides a frank and candid personal assessment.
"In politics votes [are of] vital importance to an elected official. That situation is not ideal, but it exists."
"Perhaps you are now saying to yourself: 'That's just what I have always thought. The politicians are thinking of votes when they ought to think about the future of the country. What we need is a Congress with some 'guts.' If we elected a Congress with intestinal fortitude, it would stop the spending all right! "
"I went to Washington with exactly that hope and belief. But I had to discard it as unrealistic. Neither the President [Harry Truman, a Democrat] nor the Republican Congress is under real compulsion to cut Federal spending. And so neither one does so, and the people are largely helpless."
"There is only one way that these spending pressures can be halted, and that is to restore the final decision on public spending to the producers of the nation. The producers of wealth - taxpayers - must regain their right to obtain gold in exchange for the fruits of their labor. This restoration would give the people the final say-so on governmental spending, and would enable wealth producers to control the issuance of paper money and bonds."
Rep. Buffett expressed a sincere concern for the taxpayers who votes put him into office. "Far away from Congress is the real forgotten man, the taxpayer who foots the bill. He is in a different spot from the tax-eater or the business that makes millions from spending schemes. He cannot afford to spend his time trying to oppose Federal expenditures. He has to earn his own living and carry the burden of taxes as well."
"But for most beneficiaries a Federal paycheck soon becomes vital in his life. He usually will spend his full energies if necessary to hang onto this income."
"The taxpayer is completely out-matched in such an unequal contest. Always heretofore he possessed an equalizer. If government finances weren't run according to his idea of soundness he had an individual right to protect himself by obtaining gold."
Rep. Buffett championed the cause of sound money because he understood that human freedom is dependent upon money redeemable in Gold. By analyzing the regimes of dictators, which invariably aimed to control the country's money as an important part of the process to secure their absolute power, he concludes that the "connection between money, redeemable in Gold, and the rare prize known as liberty" is irrefutable.
"In a free country the monetary unit rests upon a fixed foundation of gold or silver independent of the ruling politicians" and is "redeemable for a certain weight of gold, at the free option and choice of the holder of paper money." The Dollar lost this virtue in 1933.
The remedy proposed by this brilliant Congressman from Nebraska is not new. Rather, it is a fundamental principle important in the history of this country. It is a safeguard against Congressional mismanagement enshrined in the Constitution, specifically the monetary powers and disabilities as stated in Article I.
Rep. Buffett served four terms in Congress. Would the limitation of his service to three terms have been better for this country? I think not. Term limitation and other suggestions to control Congress are well intentioned and may have some useful benefit, but it is naive to expect them to control Federal spending and stop the snowballing national debt.
Rep. Buffett accurately understood that "Our finances will never be brought into order until Congress is compelled to do so. Making our money redeemable in gold will create this compulsion." We could do well by learning from his insight, and once again make our money redeemable into Gold. There is no single action that could do more to effectively reform Congress, nor do so in a more democratic way.
However, it will not be an easy task. Rep. Buffett said with considerable foresight: "I warn you that politicians of both parties will oppose the restoration of gold [and] those elements here and abroad who are getting rich from the continued American inflation will oppose a return to sound money. You must be prepared to meet their opposition intelligently and vigorously."
John Maynard Keynes, no friend of sound money, said that in the long-run we are all dead. He forgot to add, or more likely did not recognize, that though we may be dead, the results of our actions and our written words live on forever.
We are fortunate that Rep. Buffett's wisdom was recorded for posterity. Unlike his contemporaries, who did not act on his insight and prescience, we can. There is no reason not to do so. The accuracy of his conclusions is self-evident, now that time has proven him right.
To reform Congress, reform the Dollar by restoring its redeemability into Gold. The power to control Congress will then be returned to the people, which is where it rightfully belongs. Rep. Buffett has provided the blueprint. All we need to do is act. |
