first majestic silver

The Silver Alternative

June 30, 2003

“Changing the Fed's monetary tactics may help, but the System needs basic reform. We should end its money-creating powers, make it a bureau of the Treasury, and freeze the quantity of high-powered money.”

Do you know who authored this radical proposal? After all, this is a proposal to do away with the Fed and to stop printing money once for all.

If you have already decided it was very truly yours, please try again.

It was Milton Friedman!

You can read his article, The Case for Overhauling the Federal Reserve System, adapted by Dr Dale Funderburk (Texas A&M University - Commerce) from “Monetary Policy for the 1980s” in To Promote Prosperity (edited by John H. Moore and published by the Hoover Institution Press, © 1984 by the Board of Trustees of the Leland Stanford Jr. University) at

Only five years earlier, Milton Friedman was still selling his “monetarist” theory that made worldwide career not because it was applied and succeeded anywhere, but because it provided the alibi to central bankers that the fiat standard was not criminal per se, that if properly administered it could be superior to commodity standard. In “Free to Choose”, published in 1979 with his wife Rose, he proposed the following constitutional amendment:

“Congress shall have the power to authorize non-interest-bearing obligations of the government in the form of currency or book entries, provided that the total dollar amount outstanding increases by no more than 5 percent per year and no less than 3 percent.”

And this is how Friedman himself explained his 1984 revision of his flagship theory:

“I remain persuaded that a monetary rule that leads to a predictable long-run path of a specified monetary aggregate is a highly desirable goal - superior either to discretionary control of the quantity of money by a set of monetary authorities or to a commodity standard. However, I am no longer so optimistic as I once was that it can be effected by either persuading the monetary authorities to follow it or legislating its adoption. Congressional attempts in the past decade to push the Fed in that direction have repeatedly failed. The Fed has rhetorically accepted monetary targets but never a firm monetary rule. Moreover, the Fed has not been willing even to match its performance to a rhetorical acceptance of monetary targets. All this suggests that a change in our monetary institutions is required in order to make such a rule effective.”

“Why zero growth? Zero has a special appeal on political grounds that is not shared by any other number. If 3 percent, why not 4 percent? It is hard, as it were, to go to the political barricades to defend 3 rather than 4, or 4 rather than 5. But zero is - as a psychological matter - qualitatively different. It is what has come to be called a Schelling point - a natural point at which people tend to agree, like ''splitting the difference" in a dispute over a monetary sum. Moreover, by removing any power to create money it eliminates institutional arrangements lending themselves to discretionary changes in monetary growth.”

By writing this article, Milton Friedman drifted the full circle into something that on its own terms was inferior to a plain commodity standard.

Under gold standard, prices had natural tendency to decrease because economic growth was often faster than production of new gold. So, Milton Friedman seized upon a bright idea that to prove itself superior the fiat monetary regime needed only to increase its money supply by the annual percentage matching the economic growth rather than the growth of gold production. Under so elevated monetary growth - he figured - the prices would not be going down, as they were under gold standard, and they would not be going up, as they always are under purely discretionary control of the money supply by the central bank. To make the long story short, Milton Friedman's discovery was packaged around the world as the ideal solution nobody seriously proposed in the past three thousand years. And no rocket science was required for it either. It was all so simple and convincing.

As the hosannas kept pouring in, eight years after receiving the Nobel prize and five years after reaffirming his theory, Milton Friedman realized he was writing his proposals on water. When he finally postulated in 1984 to close the Fed down and to put a freeze on fiat money supply, he in effect threw his towel in and said to the whole world that his concept of a fiat money performing not only as good as gold but better than gold was a chimera, a pipe dream. To avoid admitting complete fiasco, Friedman switched to zero growth of the overall quantity of the monetary base, but... zero growth would be the exact equivalent of gold standard without any new gold production at all. Milton Friedman now had improvement on his hands that was admittedly worse than what he proposed to improve.

There are only two types of monetary systems. There is honest money and there is fiat money. The third choice, whose promotion gave Milton Friedman his worldwide acclaim, never really existed. The only monetary discipline the bankers can keep is the one they cannot break, the discipline of silver and gold.

Was Milton Friedman exercise utterly useless then?

No, it was not altogether useless. It confirmed once again for the benefit of those who still needed it that there was no practical substitute for commodity money, and that’s accomplishment enough.

As if to amplify this point, the Financial Times offered the following disinformation in its "Lunch with FT" feature of June 6, 2003:

--- Hold on to your hats and prepare to be amazed: Milton Friedman has changed his mind. “The use of quantity of money as a target has not been a success,” concedes the grand old man of conservative economics. "I'm not sure I would as of today push it as hard as I once did." Granted, this is hardly a conversion of Damascene significance. But, heck, it's a start. It also shows that, at the age of 91, Friedman still has his critical faculties intact. The man once described as "the most consequential public intellectual of the post-war era" is still engaged - and engaging. --- Can you hear the horses laughing?

Milton Friedman’s 1984 about-face to make the Fed a bureau of the Treasury and to freeze the quantity of high-powered money was significant enough to close his “monetarist” shop for good, not only because it was an open admission of failure, but also because the proposed replacement theory was a work of fiction too. Milton Friedman’s “freeze” could not bring about honest money regime even if ladies and gentlemen of US Congress would awake from their stupor and agree to give it a try.

To place this proposal in the exact context Milton Friedman placed it - in order to avoid even a mere appearance of manipulating his thoughts - let us quote from the conclusion of his 1984 article in extenso:


“Major institutional change occurs only at times of crisis. For the rest, the tyranny of the status quo limits changes in institutions to marginal tinkering - we muddle through. It took the Great Depression to produce the FDIC, the most important structural change in our monetary institutions since at least 1914, when the Federal Reserve System began operations, and to shift power over monetary policy from the Federal Reserve Banks, especially that in New York, to the Board in Washington. Since then, our monetary institutions have been remarkably stable. It took the severe inflation of the 1970s and accompanying double-digit interest rates - combined with the enforcement of Regulation Q - to produce money-market mutual funds and thereby force a considerable measure of deregulation of banking.

“Nonetheless, it is worth discussing radical changes, not in the expectation that they will be adopted promptly but for two other reasons. One is to construct an ideal goal, so that incremental changes can be judged by whether they move the institutional structure toward or away from that ideal.

“The other reason is very different. It is so that if a crisis requiring or facilitating radical change does arise, alternatives will be available that have been carefully developed and fully explored. International monetary arrangements provide an excellent example. For decades, economists had been exploring alternatives to the system of fixed exchange rates - in particular, floating exchange rates among national currencies. The practical men of affairs derided proposals for floating rates as unrealistic, impractical, ivory-tower. Yet when crisis came, when the Bretton Woods fixed-rate system had to be scrapped, the theorists' impractical proposal became highly practical and formed the basis for the new system of international monetary arrangements.

“Needless to say, I hope that no crises will occur that will necessitate a drastic change in domestic monetary institutions. The most likely such crisis is continued monetary instability, a return to a roller coaster of inflation about an upward trend, with inflation accelerating to levels of 20, 30, or more percent per year. That would shake the social and political framework of the nation and would produce results none of us would like to witness. Yet, it would be burying one's head in the sand to fail to recognize that such a development is a real possibility. It has occurred elsewhere, and it could occur here. If it does, the best way to cut it short, to minimize the harm it would do, is to be ready not with Band-Aids but with a real cure for the basic illness.

“As of now, I believe the best real cure would be the reform outlined above: abolish the money-creating powers of the Federal Reserve, freeze the quantity of high-powered money, and deregulate the financial system.”


Now, as we keep Milton Friedman’s position in our cross hairs, let us pose the following questions:

If we were to face a 20-30 percent inflation today, would Milton Friedman’s prescription - “abolish the money-creating powers of the Federal Reserve, freeze the quantity of high-powered money, and deregulate the financial system” - be “the best way to cut it short, to minimize the harm it would do”? Yes or No?

Let us assume the Fed has just been made a bureau of the Treasury (or, to be even more facetious, was merged with the Treasury’s Exchange Stabilization Fund) and its fiat monetary base has just been frozen at the existing level. Could this maneuver restore the honest money and the economy capable of unimpeded growth? Yes or No?

Because Milton Friedman's solution is on its face patently inapposite to its professed task, and as we are under growing pressure to scrap the fiat money and its floating-rate system, the question arises where should we look for these “carefully developed and fully explored” alternatives he writes about but so demonstrably fails to produce them?

I submit, we won’t find them in the University of Chicago, Milton Friedman’s old stomping ground, or anywhere else in the academia. The only place to look for such alternatives is

In the face of ultimate economic catastrophe, Milton Friedman’s freeze would be precisely the kind of Band-Aid he professes it is not. What good would it do to stop printing non-interest bearing currency when the supply of interest bearing currency (Treasury bills, notes and bonds) is virtually endless, instantly transferable, and already used as money on global scale in money laundering and tax evasion schemes?

When Milton Friedman is telling us that “when crisis came, when the Bretton Woods fixed-rate system had to be scrapped, the theorists' impractical proposal became highly practical and formed the basis for the new system of international monetary arrangements“, he is not telling us the whole story.

He is not telling us that another theory, the theory of honest money, silver and gold, proven viable for thousands of years, was also available.

For this reason, I elected to be so indelicate as to say point blank that Milton Friedman came up with that “freeze” embalming for his dead theory primarily to contain the renaissance of gold. “The Case for Gold”, written by Ron Paul and Lewis Lehrman for US Gold Commission, and published in 1982 by the Cato Institute, was very much in circulation then. Milton Friedman called for dismantling the Fed because Ron Paul called for dismantling the Fed. The difference was that Ron Paul’s motive was to bring back gold, and Milton Friedman’s motive was to reinforce fiat.

When Milton Friedman advances the thesis that if the quantity of high powered money were frozen earlier “the inflation and volatility of the past ten years would never have occurred”, he appears to be utterly ignorant of the fact that inflation of the 1970s was not caused by erratic money supply by the Fed, but reflected an adjustment to inflation that already occurred in 1950s and 1960s but was put on hold so to speak by the suppression of the price of gold under Bretton Woods rule. Erratic increases in the overall quantity of the Federal Reserve notes in 1970s were often required as ad hoc responses to dramatic increases in demand for cash balances after inflation cat was let out of the bag by decoupling the price of oil and other commodities from the price of gold. Please see: Euro and Gold Price Manipulation, Part I, and search for paragraph with “Wanniski”: (Wanniski at least noticed the problem, Friedman never did. And Eurodollar factor along with cash requirements of the floating system’s arbitrageurs are conspicuous by their absence from his analysis.)

The only practical scenario of instantaneous transition from the fiat money regime to the honest money regime was presented in THE ALTERNATIVE FUTURE - A Call for Overnight Revolution -

Paradoxically, the transition scenario presented in “Case for Gold” is also impractical. In fact, I originally came up with the idea of using the existing fractional coins as a transition currency when I realized the transition was the weak point of the Case for Gold.

The Alternative Future scenario will work because it proposes to scrap the entire fiat system, lock stock and barrel.

The only valid argument against the Alternative Future I have received so far is that it does not offer equitable solution to the problem of restitution of the stolen Social Security savings. This is what the Alternative Future says:

“The government will of course assume responsibility for continuing Social Security benefits now due, and for equalizing benefits to new retirees in the coming years, for whom NPF system will not be able to produce adequate pensions in time for their retirement. These benefits will be paid from the Treasury's general fund.”

I gave it a thought, and here is the amending solution:

“The Stolen Social Security Savings Restitution Act, calling for placing all the tax exempt foundations - which are now engaged in financing globalist agenda worldwide and subverting US Constitution at home - into national receivership in order to use their proceeds and assets for paying restitution for deficiency in Social Security trust fund, shall be presented to Congress tomorrow morning.”

This should be equitable enough.

The primary purpose of this presentation is to bring to your attention that a new alternative, the Silver Alternative, is now emerging.

There is a way to bring honest money system into existence by diametrically different approach: not from the top down but from the bottom up, not by overnight revolution but by eroding the fiat currency by the state silver currency.

This new idea comes from NEVADA ASSEMBLY Bill 532 of March 24, 2003 -

Please read this bill carefully along with much earlier presentation by Susan Witt of monumental significance PRINTING MONEY, MAKING CHANGE: The Future of Local Currencies -

Why are these two seemingly incongruent proposals related?

Standing on their own, neither one of these proposals has a fighting chance even to make a dent in the cancer of globalism. But combining their efforts into one coherent initiative may add up to the assertion of power of immeasurable proportions and incalculable consequences. Here is the scenario:

(A) Nevada Assembly should authorize not one Silver Ounce coin, but four different coins made of monetary silver .900 fine:

20 grams

10 grams

5 grams

2.5 grams

(B) Denomination of these coins should be “Grams”, not “Dollars”, and on reverse their gram denominations the following inscriptions should be placed, respectively:

- Two Hours of Basic Labor

- One Hour of Basic Labor

- One-Half Hour of Basic Labor

- One-Fourth Hour of Basic Labor

(C) Nevada silver currency bill should be framed as purely local economic initiative, not any different in nature than Ithaca Hour currency and many other local currencies now in existence. This bill should not, repeat, should not be framed as constitutional confrontation of any kind.

(D) Rather than openly conferring a legal tender status upon these new silver coins, Nevada legislation should stop at mere declaration that these coins will be accepted for state taxes, fees and dues in lieu of 20, 10, 5 and 2.5 US Dollars respectively (linked through $10 per Hour of basic labor), and that preference shall be given by the State of Nevada in awarding contracts to organizations willing to accept Nevada silver Grams in lieu of US Dollars and in hiring state employees willing to accept Nevada silver Grams in lieu of US Dollars. The effect is the same but the nail to hang constitutional confrontation upon it is missing.

(E) Because the Gram denomination of Nevada silver currency translates into the price of silver of $34.56, roughly $30 more than the present suppressed price of silver, minting of her new silver coins will provide very substantial seigniorage to Nevada which will solve budget crisis without any need to raise taxes. This seigniorage will of course be gradually diminishing in time as the price of silver will be climbing, especially, when other states will follow Nevada example. Ultimately, when the price of silver will reach $34.56, Nevada and her sister states will have the option to open their mints for free coinage of silver at the price of 34.56 Grams, and that will be the day when the long process of eroding the Federal Reserve notes will come to an end. Nevada and her sister states will end up with silver Grams and US cents as their lawful and honest money, and with locally centered economies.

(F) A universal principle that an Hour of basic labor is worth 10 Grams of silver .900 fine and 10 current US Dollars anywhere in the world, will in the end kill the sick global economy and return the world to the healthy natural diversity of local economies. True economy, like true politics, is local. “The Idea of a Local Economy” by Wendell Berry neatly explains what mainstream media will not -

Personally, I would prefer the approach outlined in the Alternative Future, if only because the price of silver would be set with precision by the free market, but I recognize that the Silver Alternative is viable, as long as the state power is there to assure circulation. Again, not by declaring silver coins a legal tender but by accepting them in payment of state taxes, fees and dues. Without state weight, the point made in At First For Buses Only - will remain valid. Adjusting silver ex post facto may be burdensome, but it is preferable to inaction. The goal number one is to take the Fed cancer out.

It is not necessary, and not discouraged either, for the existing local currencies, such as Ithaca Hour, to adopt and use Nevada style silver coins, for the connecting link is one Hour of basic labor. If the Federal Reserve dollars ever turn in short order into chicken feathers, prices set in Hours of basic labor will remain unchanged. That’s the beauty and wisdom of the alternative local currencies we should not be afraid to make our own.

In the long range, the outlook for restoring honest money will be dramatically improved once the environmentalists among us will realize that in the final analysis it is the fiat money that is destroying our world.

People can be reached by new causes through their old sensitivities. I was reached, and touched, by the environmental cause when I read these words by Wendell Berry in “The Idea of a Local Economy”:

"...vocation is a dead issue. One does not do the work that one chooses to do because one is called to it by Heaven or by one's natural or god-given abilities, but does instead the work that is determined and imposed by the economy. Any work is all right as long as one gets paid for it."

This is not like killing a mockingbird, this is like stealing your soul.



J.N. Tlaga

30 June 2003

In 1934 President Franklin Delano Roosevelt devalued the dollar by raising the price of gold to $35 per ounce.
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