Prosperity and Charity for America

COMMON SENSE
in 2012

Art Robinson, PhD

Liberty and Justice for All
Our nation has a bright future, but the politicians in Congress are doing a poor job, endangering – our Jobs; the National Budget; Social Security; Education; the Environment; Medical Care; and Economic Prosperity. Let’s replace them by electing citizens with common sense. Art Robinson has the abilities we need in Congress.
“Dr. Robinson is one of the most gi ed scientists I have ever met.” – Martin Kamen – Fermi Prize and Discoverer of Carbon 14 “Dr. Robinson is known to me as a careful, competent, and wellinformed scientist” – Edward Teller – Defense Scientist “Arthur Robinson has the respect of a very signi cant portion of the scienti c community.” – Frederic Seitz – Former President of the U.S. National Academy of Sciences “I strongly endorse Art Robinson for election to the U.S. Congress. In the 15 years I have known Art, I have found him to be an outstanding scientist, a man of uncompromising integrity. Art’s depth of knowledge of the economic, scienti c, energy, and industrial challenges that face our nation is unparalleled. Men of his ability are urgently needed in Washington.” – Steve Forbes – Publisher and Entrepreneur “In my experience with space ight, I have come to know many men of excellence. Art Robinson is the best can-do guy I know. He’s what we need in Washington, and I think Oregon voters should elect Art Robinson. He’s a treasure.” – Scott Carpenter – Mercury Astronaut “Art Robinson’s philosophy is that the government is far too intrusive in our lives. He understands we have to stop the spending in Washington, the growth of the national debt, and allow the Constitution to function. I strongly recommend the 4th congressional district of Oregon put Art Robinson in the Congress of the United States.” – Harrison Schmitt – Apollo Astronaut and former U.S. Senator Robinson is a “pathological nut-job”. – Peter DeFazio – Career Politician and Art’s Opponent

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24
SOUND MONEY
The Congress shall have Power . . . To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures; Article I, Section 8, Part 5 No State shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debts; Article 1, Section 10, Part 1

T

he Constitution is clear that Congress has the authority to coin money. The Constitution mentions only gold and silver coins. The section in which the authorization to While paper money is convenient, it has the disadvantage that, unless it is secured by gold, silver, or something else of intrinsic value, it can be printed in unlimited amounts. The Federal Reserve, authorized by Congress, has printed too much of ours. One dollar buys today what 5 cents bought in 1940. Inflation of money discourages saving and disrupts commercial activity, which reduces prosperity and jobs. Our country should have sound money.

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coin money appears also mentions that Congress has the right to fix the standard of weights and measures. The Founding Fathers did not call for paper money, because all of them had been through a disastrous period of American history with respect to paper money inflation during the War for Independence. The war was partially financed by the printing press. The Continental government was unable to collect sufficient taxes from the states, so it printed money and, for a time, imposed price controls. So, the army had difficulty buying supplies because the paper money had declined rapidly in value, and price controls made it difficult for farmers and other suppliers to deliver goods to the Army. At a low point during the war, George Washington could not buy food for his soldiers because farmers would not accept the printed money of the Continental Congress. Our country is now repeating this experiment with paper money and getting the same result. Inflation has destroyed 95% of the value of the dollar since I was a boy. Strictly interpreted, the Constitution does not permit paper money, only gold and silver. This was first violated by allowing government paper money backed by gold. Then the gold backing was removed. Capital gains taxes and special laws stopped the use of gold and silver. Just repeal of these taxes and laws would permit gold and silver coins to circulate beside paper money. Americans could then choose, in each transaction, their preference. If this were done, either the coins would drive the paper out of circulation, or inflation of the paper money would stop. This is opposed by the Federal Reserve and Congress because they get a lot of political and economic

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power by printing money and inflating the money supply. These people argue that they need to be able to print money in case the economy has a difficult problem. Why not just have Congress save money for a “rainy day?” This is what we ordinary people must do. The Power to Coin Money In the early years of the Republic, Spanish coins, known widely as pieces of eight, were often used. This coinage provided sound money. It was reliable, and it could not be debased by government inflationary actions. The price level stayed fairly constant during the whole period. The Constitution also made it illegal for any state to pass a law requiring creditors to accept anything except gold and silver as a means of repaying debt. The constitutional convention considered the problems caused by paper money that was issued in Rhode Island. The other participants did not trust paper money, and the only reference to congressional authority in the Constitution regarding money is to establish coinage. The United States government provided sound money, either gold or silver, from 1788 until the Civil War. In 1862, the government began to issue paper money to pay for the war. The government decided it would not tax the people directly for all of its revenue, so the people were taxed indirectly with rising prices. The government stopped following the gold standard in 1861, and it was not restored until 1879. The result was price increases. The United States was part of the international gold standard during the 19th century, except during the pe-

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riod of the Civil War and Reconstruction. From 1815 until 1914, most of the Western world was on a gold coin standard. During that hundred-year period, prices remained remarkably constant. People did not have to worry about prices going up. Prices remained very stable. People could make plans for the future, knowing that the prices they would pay for goods and services later would be similar to the prices they were paying when they made their plans. This is one important reason that Western civilization in the 19th Century experienced the greatest period of economic growth in the history of mankind. At the beginning of World War I in 1914, the countries embroiled in the war went off the gold standard. They relied on the invisible tax of inflation. The consequent rise of prices was visible, but the public didn’t always understand that the government was behind this rise. In 1933, the United States went off the gold standard by calling in the public’s gold coins and making it unlawful for American citizens to own gold. It was claimed that this would help end the Great Depression. It didn’t. After World War II, the United States had most of the world’s gold. So Congress, under congressional authority it delegated to bankers and the President, convinced the world to use U.S. paper dollars as the world reserve currency. It was promised that these dollars would be gold backed. At any time, dollars could be exchanged for gold, except by American citizens. This promise was honored by our politicians with the same forthright ethics that have gotten Congress its current 10% approval rating. They broke it. In 1971, they refused to honor the promise. President Nixon made the

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announcement. Since then Congress, through the bankers and agencies Congress authorizes to do the job, has printed a blizzard of paper money and caused price increases all over the world. By getting to spend this printed money first, congressmen have purchased votes, power, and wealth for themselves at the expense of savers. Savings is the most important source of capital. Capital is used to create jobs. Americans used to be savers. Each month, responsible citizens spent somewhat less than they earned and saved the rest, typically in a bank or savings and loan. The irresponsible printing of paper money under congressional authorization has greatly reduced this practice. Money saved in a bank, regardless of interest earned, just deteriorates in value. The dollar is rapidly losing its value as a direct result of the congressionally authorized printing press – now made more convenient by money “printing” with Federal Reserve computers. So, still wanting to save for their futures, Americans have looked to other places to save their earnings. They have tried real estate, bonds, stocks, collectables – literally everything with intrinsic value. These markets, however, are volatile and uncertain. They are speculative. So, America has become a nation of speculators rather than savers. Since savings are stolen by Congress and its allies the bankers through inflation, Americans have scrambled to find alternatives. Many people no longer follow frugal ways by saving their money in banks. As a result of money printing and the price increases that it causes, their savings are not safe in the banks. Almost everyone with wealth is gambling – in the

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stock markets, in the bond markets, in real estate, and other markets. If ordinary workers do not themselves do this, their pension funds are doing it for them. It is widely realized that the U.S. Congress is corrupt, and that Congress cannot be trusted with the world reserve currency. China may try to replace the dollar - with gold backed Chinese money. Consider the “rally” in the dollar value of U.S. stocks over the past two and one half years. The rally is there only because the government printed lots of paper money and caused stocks priced in dollars to rise. Priced in gold, silver, oil, gasoline, or a basket of world commodities, there has been no rally. The two figures below show you the price of the Dow Stock Average in units of the price of crude oil and in units of an average of world commodities. Commodity prices are a good comparison because their prices reflect the difficulty in producing them, which is a relatively stable measure of real value. You can see that stock prices peaked near the year 2000 and have been decreasing since then. Can you see the stock “rally” of the past two and one half years? No? That’s because it isn’t there. The stock market has dropped 6-fold in terms of crude oil. Yet, in printed money the “Dow price “ has risen. The second graph uses a basket of commodities called the “Continuous Commodities Index.” By this measure, the Dow has fallen 3-fold, and there is no rally. Dividing the current paper money price of gasoline by just 3-fold, the price is about $1.25 per gallon. Does that trigger a memory? How could there be a stock market rally? The value of

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American businesses has been falling for 10 years, ever since it peaked in about the year 2000. Taxation, regulation, litigation, and debt are destroying American industry and business. Congress doesn’t want you to know this. The banks and stock brokers don’t want you to know this. So, the government has printed a lot of money. Now, they are printing even more money to make things look as good as possible for the national elections in November 2012. But, you know because you realize that economic life is becoming steadily more difficult and precarious even if you still have a job. By authorizing the printing of lots more dollars – trillions of more dollars – Congress makes dollar prices go up, but real wealth goes down. Unless you are a congressman or in a niche group that receives special favors from Congress, your chances for a prosperous life are steadily diminishing. When money is unsound, people turn to speculation – speculation in stocks, houses, land, and anything else of value that they hope will preserve their savings. Speculation drove the stock market up in the years before 2000. The unwinding of speculation plus the destruction of American business and industry by over-taxation, overregulation, and over-indebtedness drove the stock market back down. As this occurred, the successive collapses of over-speculation in stocks and later in real estate added to the downward trend. The blizzard of paper money being printed by the government is increasing the dollar price of stocks. People are trying to use stocks as an inflation hedge to protect themselves from unsound money. Historically, however, it has been observed that stocks provide only about 30% pro-

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Dow Average Valued in Crude Oil
When the Dow stock average is graphed in crude oil, it is seen that the Dow has fallen 6-fold since 2000 and has not recovered. The same 6-fold drop is seen for gold, silver, and copper. This is twice the decline seen for a “basket” that includes agricultural items.

tection from severe monetary inflation. They are likely, on average, to lose 70% of their wealth to the printing presses. If one looks at real prices of goods and services over long periods of time, he finds that prices have tended to be stable, with a downward trend. The downward trend results from improvements in methods of production. Yet, during my lifetime, prices in paper dollars of goods and services have increased about 20-fold. Recent price increases have been masked in various

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Dow Average Valued in a Basket of Commodities
When the Dow stock average is graphed in things of real value that cannot be inflated by congressionally authorized money printing, it is seen that the Dow has fallen dramatically since 2000 and has not recovered at all. Here the Continuous Commodity Index reveals a 3-fold collapse of the Dow.

ways, including the export of inflation to other countries because the dollar is used as the world reserve currency. The world has begun to break free of this restraint. Americans have been badly hurt by the dishonest, unbacked fiat paper money that Congress has sponsored. As the world exits the dollar, they are going to be hurt a lot more. Can this still be stopped. Yes! How? Elect honest citizens to Congress who will stop the inflationary money printing.

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The Federal Reserve System In the final days of 1913, when many in Congress had returned home for the Christmas vacation, the remaining House and Senate members passed the Federal Reserve Act, and President Wilson signed it into law within hours. That law delegated congressional control over American money to the Federal Reserve System, which is controlled by a committee of the Federal Reserve Bank. As the American dollar has come to be used as currency throughout the world, the Federal Reserve Bank has become the most powerful bank in the world. The Federal Reserve Bank became so powerful that Congress dared not even audit its activities. In principle, the “Fed” is supposed to supply Americans with honest and reliable money. Yet, there is not a single example in history where men were given the power to print money or debase coinage and did not abuse that power. The Fed has proved to be no exception. The Fed should be completely audited – not just partially – and Congress should assert its constitutional authority to assure that Americans have a sound currency that is not inflated. If the Fed cannot do this – a goal that it has completely failed to meet so far and is unlikely ever to achieve – the Fed should be ended. The Need for Sound Money Money is a very important aspect of economic liberty. It serves several crucial purposes.

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1. Money is a medium of exchange. Suppose that the Rough and Ready lumber mill in Josephine County paid its workers in lumber – the product they manufacture. The workers would then need to trade this lumber for food, clothing, fuel and other things that their families need. Imagine these workers hauling their wages in trucks to Nelson’s farm in Sauer’s flat in order to trade boards for tomatoes and corn. This inconvenience and many similar barter transactions would interfere with the division of labor throughout the economy. This would harm the economy and lead to less prosperity for the mill workers and the Nelsons. Money solves this problem. The workers are paid in money and Nelson accepts money for his produce. Thus money serves as a medium of exchange. 2. Money serves as a store of capital. Rough and Ready may decide to save some of its profits or the workers at Rough and Ready may decide to save part of their wages in the Evergreen Bank. Their savings then become available as capital for other businesses and provide jobs for other workers. Here again, this use of money increases the efficiency of the economy and the prosperity of everyone. Without using money, the mill workers could save part of their time and labor – and then use that time to work for the Taylor Sausage company. This would cause, however, an economic loss because most of the mill workers don’t know much about making sausage. If they instead save money and put it in the bank, Taylor can borrow it from the bank and hire more workers. If the new workers earn more for Taylor than they are paid in

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wages, everyone benefits. They have jobs, Taylor makes a profit, and Evergreen can pay interest to the mill workers. Taylor may decide to save his profits in the Evergreen Bank, too, or in the Sterling Bank or the South Valley Bank. Capital, stored as money, makes possible the division of labor. The mill workers are specialists in producing boards. Nelson is a specialist in producing food. Everyone is more prosperous when people are able to work to produce the things that they are especially skilled in making. Thus, savings and profits, made more convenient by money, serve as a source of capital – real capital, which can be used productively to create products and jobs. Capital cannot, however, be faked by printing money. Fake capital produces no net products or jobs. Suppose the Fed, authorized by Congress, just prints up some new money and loans it to Evergreen. Can’t Evergreen then loan this money to Taylor and thereby create more jobs? No. This doesn’t work. By printing more money, the Fed causes prices to rise, thereby taking real capital away from workers, businesses, and savers elsewhere in the economy. So, jobs elsewhere are lost. Money printing just moves capital from one group to another. It does not create new capital or additional jobs. Moreover, since politicians and bureaucrats who did not work to produce the capital spend this money less wisely than would those who earned it, capital is actually lost when seized from the owners by inflation or taxes and cycled through government. So, there are fewer jobs. The same holds true for borrowing or taxing by politicians. Net capital is not produced by these activities. It is just moved around to less productive uses.

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If a mill worker is waylaid by a criminal and robbed, capital is immediately lost and Josephine County becomes less prosperous. When government waylays the mill worker at every opportunity and seizes his capital through inflation, taxation, and borrowing, Josephine County becomes less prosperous, too. 3. Money serves as a measure of value. When Robinson decides to harvest some trees on his land, he sends the logs over to Rough and Ready. How does the mill decide on a price for the logs? How does Rough and Ready decide how much to pay its workers, its fuel suppliers, its equipment suppliers, and the many other industries upon which it depends? When the mill workers buy produce from Nelson, how does Nelson decide how much to charge, and how do the mill workers decide whether Nelson’s prices are fair? These decisions are all made easier by money. A mill worker knows how long he must work to buy a dozen ears of sweet corn from Nelson. Everyone knows how much effort it takes for him to earn money, so he knows its value. 4. Money Facilitates Long Term Economic Decisions. When Nelson buys additional farm equipment, he needs to be able to make a good estimate of the future price of his produce. If the money is sound, Nelson can assume that prices will be moderately stable – subject, of course, to weather and other factors that are the unavoidable risks of his business. If the money is not sound, Nelson will have trouble planning for the future, and his business will be less productive – providing fewer jobs and less products.

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Consider the hundreds of millions of transactions throughout the American economy that take place similarly to those of the mill workers and Nelson. With sound money, all of these transactions are facilitated and all Americans benefit. In our current situation, where Congress causes economic confusion by creating money of unreliable value, jobs and prosperity are lost. Congressional actions that have made our money unsound have cost the American people millions of jobs and tragic losses in prosperity and economic freedom. Prices Should Decrease My mother was very frugal. She carefully saved as much of my father’s wages as she could. She played a little game. She tried to see how long she could pay the family shopping expenses with a $20 bill. What will $20 buy today? As prices rose as a result of inflationary money printing, however, her savings were taken from her. Yet, prices should have decreased. Technological advance constantly makes things easier to make. With sound money, we could save part of our earnings for the future, knowing that they would buy more then rather than less. Money printing has stolen all of the productivity savings that would have made saved money more valuable. When government reports the “consumer price index,” it under-reports the rise for political reasons. And, the rise it does report hides the fact that it should have gone down. Our nation needs sound money. It is a duty of Congress to see that sound money is assured.

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