From the March 2010 Idaho Observer:
A State Bank for Idaho?
by Bill Denman
A proposal has been made to establish a bank as an agency of the Idaho State government patterned after the North Dakota State Bank. It would not simply be chartered as a state bank, it would be part of state government like the North Dakota Bank. This raises some serious questions about money, freedom and the proper role of government.
The first question that must be answered is “What is money?” Once this question is answered and clearly understood, the answer to the next question “to whom does money belong?” will be obvious and from there the “freedom” and “State Bank” issues will be easily resolved.
What is money?Money is simply a commodity that serves to facilitate the exchange process; we usually phrase it “money is a medium of exchange.” After centuries of experimenting with many different commodities, gold and silver have evolved as the universally accepted media of exchange. Gold has all the necessary characteristics of a premier medium of exchange.
It is relatively scarce and therefore its quantity cannot be arbitrarily expanded in relation to the quantity of other commodities.
(As a matter of fact, the production of other commodities determines the quantity of gold produced. This is explained in detail in my article “Free Market Banking”.) This insures long-term stability in its purchasing power. Of course this stability has made it the arch-enemy of governments, who invariably want to control money as a means of controlling people. Therefore it is no surprise that governments, and their sycophants, always disparage the use of gold as a medium of exchange. When gold is the medium of exchange, prices in a free market economy do not vary significantly over extended periods of time. Between 1880 and 1900, while we were on the gold standard, prices rose one-half of one percent during that twenty-year period and wages doubled. It’s interesting that we also had the greatest industrial growth rate in our history during that period. The reason is quite simple: stability in purchasing power encourages saving, which is the foundation for industrial progress.
Before an exchange of commodities can take place, both parties to the exchange must have produced a commodity. An example will be given to illustrate the principle:
John Doe raises cattle: Jack Black raises horses. John needs a horse to herd his cattle and Jack needs a cow to put beef on the table. John and Jack exchange a cow and a horse. This is the barter system that was in use for centuries before money confused things. Notice that both John and Jack had to produce commodities before they could be exchanged. In other words, the commodities came first and then the exchange. The reason for mentioning this is that today’s Federal Reserve System reverses this process; FRNs are created first and then commodities are produced to pay the debt. I’m not going to discuss this issue except to say that this is a system of capital consumption that puts consumption before production and is obviously a self-destructive process that cannot last – as Americans are going to find out in the very near future.
But suppose Jack has chickens and doesn’t need beef for the table; what he needs is a new saddle. But John still needs the horse. What to do – what to do? A gold miner saves the day by stepping in and offering John a one ounce gold coin for his cow. Notice that the gold coin is also a commodity that requires a lot of sweat and capital investment to produce; it cannot be produced by simply writing numbers on paper or in computers. Therefore counterfeiting it is impossible. In essence, all that has happened at this point is that the time and energy invested in raising a cow has been exchanged for the time and energy invested in producing a gold coin. There is nothing magical about the gold coin; it simply facilitates the exchange of other commodities because it is accepted as honest money and has long term (thousands of years) value that other commodities lack.
Since John invested his time and energy in raising a cow, it belongs EXCLUSIVELY to him. It does not belong to society, or government, or anyone else. The same can be said of the gold coin produced by the miner – it belongs exclusively to him. Thus we have two pieces of personal property -- a cow and a coin – being exchanged VOLUNTARILY because John values the coin more than the cow and the miner values the cow more than the coin, otherwise the exchange would not take place. This is the subjective theory of value in operation.
The gold coin belongs to John because it now represents the time and energy he spent raising a cow. A similar statement can be made about the miner’s cow. Jack needs a saddle instead of a cow so John offers him a one ounce gold coin which Jack will accept for a horse. The horse now belongs to John and the coin belongs to Jack – it represents the time and energy that Jack spent raising the horse. The gold coin does not belong to the government because government has not invested one minute of time or an ounce of sweat producing the cow, coin, horse or saddle.
To whom does money belong?From the foregoing analysis we arrive at the inescapable conclusion that MONEY BELONGS TO THE PRODUCERS IN SOCIETY – NOT GOVERNMENT!
But producers want services – aching teeth pulled, broken bones mended, etc., so they VOLUNTARILY give up a portion of their money for services provided by other members of society. Therefore, that portion of money becomes the property of service providers because it represents the human energy expended in providing the services. Notice that up to this point, everything has been VOLUNTARY.
Yes, we are obliged to share some of OUR MONEY with government for the PROTECTION SERVICE it provides. Today this is unfortunately NOT VOLUNTARY and government is engaging in activities for which it has NO AUTHORITY. For example: I have no authority to tell others what they can, or can’t, do with the fruits of their labor (money). Neither I or anyone else has this authority, therefore we cannot individually, or collectively, delegate to government authority that we do not have.
Since we are supposed to be a republic based on delegation of authority FROM THE PEOPLE TO GOVERNMENT, ERGO – government has no authority to meddle in the monetary affairs of the people other than to collect taxes. Article 1, Section 2, of the Idaho Constitution says: “All political power is inherent in the people.” Obviously there are candidates for public office, and incumbents, that do not understand this. Unfortunately, they often get elected and re-elected.
At this point we have defined money and to whom it belongs and it is NOT GOVERNMENT. Yes, the money government collects in taxes to support its protection services belongs to it but that DOES NOT MEAN THAT ALL MONEY BELONGS TO GOVERNMENT.
FreedomMoney represents the fruits of people’s labor and if people cannot use their money as they wish, they are not free. From this we arrive at the conclusion that money control is simply people control and government has no authority to control the peaceful activities of people. People cannot be controlled and free at the same time. Therefore we arrive at the conclusion that government control of money, or any peaceful activity of people, results in a loss of freedom. Thus we see that today’s government is operating completely outside its authority and proper function. Its purpose is to protect people’s right to property (which includes money); not violate it.
Now that we’ve reviewed the fundamental principles of money, let’s turn our attention to the North Dakota State Bank that is being touted as the example for Idaho to follow.
North Dakota State BankFirst, the North Dakota State Bank is NOT a free market bank. It’s a tax-supported agency of the State ($38,121,867 for the 2007-2009 biennium) that has been granted vast powers over the economy. It guarantees loans made by non-state banks, credit unions, and lending institutions that are part of the farm credit system, and savings and loan associations. The state bank guarantees 75% of the principle on loans to persons who purchase agricultural real estate, provided that no single loan can exceed $400,000.
“The (State) Bank may guarantee loans made by the bank, credit union, savings and loan association, or any other lending institution in this state to the owner of a commercial livestock feeding operation or to the owner of a new or expanding dairy operation. In the event of a default, the (State) Bank shall pay to the lender the amount agreed upon, provided that the amount may not exceed 85% of the principle due the lender at the time the claim is approved.” (See the North Dakota State Bank Report)
The State Bank also guarantees lenders against default by a beginning entrepreneur for up to 85% of the amount of the principle due the lender at the time the claim is approved. A non-state bank can apply to the state bank for a loan guarantee on an individual loan of up to $100,000.
Note 13 in the North Dakota State Bank Report contains the following statement:
“All state funds and funds of all state penal, education and industrial institutions must be deposited in the Bank under state law.” Why should the state be controlling industrial institutions? Do they have total socialism in North Dakota and is that what we want in Idaho?
Furthermore, this North Dakota State Bank operates under regulations promulgated by the Federal Reserve System and can create fraudulent money the same as private banks do – their reserves at the FED in 2008 were $7,000,000. Thus they are contributing to the hidden tax of inflation that robs the people by causing a depreciation in the purchasing power of their money. This bank also borrowed $300,945,000 of Federal Reserve funds as of June 30, 2009.
The State of North Dakota is playing in investment markets with taxpayers money just like Idaho is doing and 35.8% of their budget comes from the federal government compared to 31.6% for Idaho. With a banking system like that, they obviously need more help from the rest of us to keep the scam going.
It is somewhat disheartening that any political candidate would propose having the power of the state compete with what’s left of private enterprise. Granted, control of practically all financial institutions by the FED has effectively abolished free markets in that arena but that’s no excuse to add fuel to the fire by adding the State of Idaho to the cabal that’s plundering the people.
“Whoever controls the volume of money in any country is absolute master of all industry and commerce.” ~President James A. Garfield.
But “industry and commerce” are simply conglomerations of people. This takes us back to the fact that money control is people control. In a free market banking system (which we have never had) neither banks nor government could control the volume of money. All that free market banks could do is provide an investment and savings service for those who own the money – the producers in society. Government could not create money to finance their economic “stimulus” projects and would have to live within the limits of tax revenue. This would put a damper on government expansion because taxpayers would “vote the rascals out” if taxes increased enough to fund the expansion. This naturally engenders bureaucratic antipathy towards “that barbarous metal” gold.
Instead of moving further down the road to total socialism, let’s get rid of that which we already have and stop the flow of fraudulent money that steals people’s property.