In the Constitution of the united States, all of the powers of Congress regarding the creation of money are in article 1, section 8:
[ The Congress shall have power ] To coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures; To provide for the punishment of counterfeiting the securities and current coin of the United States.
Very clearly, the Constitution says that Congress may create coins, not paper money, to be used as currency. Paper money has no intrinsic value. It is only a promise to the bearer that someone will give you real money in exchange for that piece of paper. Paper money is not a new phenomenon either. It was well known to the founders of this country including those at the Constitutional convention. In fact, the continental Congress issued over $225 million in paper bills of credit to fund the Revolutionary war. 1
Further on, in Article 1, Section 10, there is a clear distinction made between coin and paper money (aka bills of credit):
No State shall coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of debts.
Ever since the Constitution was signed and published, there has been a continual degredation in the public's understanding of this important fact: paper money has always created inflation and rapidly devalues as more bills are produced. When the continental Congress made their first 'Continental' dollar, it was worth exactly 1 dollar's worth of gold. A dollar is a specific unit of weight of gold. That's what Article 1, Section 8 is alluding to when it states that congress can fix the weight. By the end of the war, due to Congress printing so many paper bills, that same 'Continental' was worth half of one percent of one dollar's worth of gold.1 By that time, you needed 168 of these bills to purchase what 1 of them used to buy. Today, a Big Mac costs $3.15. Imagine that same Big Mac costing $529.20 just five years from now. That's the kind of inflation we're talking about here.
The authors and signers of the Constitution knew exactly what kind of limitations they were putting upon themselves, and future generations, when they declared that Congress could only use coinage for currency. They knew that paper money would get them into trouble like it already had.
Our government, though, has found it all too easy to ignore these limitations. Throughout our history, our leaders have debased our currency by printing it whenever they have wanted. In 1971, all remaining doubts that there were links between the paper 'dollar' and real money were laid to rest.
Ever since 1971, the US 'dollar' has been officially backed by absolutely nothing (unofficially a lot longer than that). The only reason why people accept it as a valid medium of exchange is because of the confidence people have in the strength of our country. Let me repeat that - the only reason why people accept the 'dollar' is because people trust that the US is being responsible with its monetary policy.
On March 26, 2006, the Board of Governors of the Federal Reserve System ceased to publish the M3 monetary aggregate. WTF is that you may ask?
The M3 is the report that the Fed publishes (or until this year, that is) that shows exactly how many bills are being created and held. If it becomes no longer possible to tell how many 'dollars' are being made, then how is the confidence in our monetary policy going to fare? What have we got to hide?
A lot, apparently.
The M3 has more than doubled in 10 years. Bush has borrowed more money from the Fed than all the previous presidents of the US combined. We're still shoveling money into Iraq, and we're steadily preparing to mount war against Iran. What better way to hide how much money is being stolen from us than to destroy the source of that information?
- A History of Money and Banking in the US, Murray Rothbard, pg 59, 60