Elon Musk Calls America’s System of Fiat Money a ‘Scam’
If the wealthiest man in the world is prepared to campaign for monetary reform in a constitutional way, we say welcome to the fight.
News that Elon Musk is calling our system of fiat money a “scam” certainly puts a spring in our step. It’s nice to have the wealthiest man in the world plunging into the debate over monetary reform. We read about Mr. Musk’s remark Tuesday in Forbes. Then again, too, is the visionary who built Tesla and SpaceX and now owns what used to be called Twitter going to make a strategic commitment to work for honest money?
The report in Forbes is by Susie Violet Ward. She suggests that Mr. Musk’s “brief comment” focused “renewed attention” about Bitcoin’s potential role in challenging traditional financial systems. Ms. Ward reckons that unlike fiat currencies, Bitcoin is “regulated by code and the consensus of its network.” She writes: “For advocates of Bitcoin, Musk’s tweet read like an affirmation of the digital currency’s benefits over fiat.”
Only up to a point, we’d say, in that this is a bit awry of the Constitution’s configuration. The monetary powers the Constitution grants — in Article I, Section 8 — do include the power to coin money and regulate the value thereof, and of foreign coin. That power to regulate, though, is not granted to a “code” or a “consensus” or a “network.” It is granted to the Congress. Is that where Mr. Musk wants to address the scam of fiat money?
If so, he could play a serious role. At the moment, what regulation of the dollar that does take place is done by a creation of Congress, the Federal Reserve. Bizarrely, though, its regulatory goal seems to be to inflate prices at, on average, two percent a year. It was not Congress that established that goal, and it certainly didn’t come from the Constitution or the sages who drafted it or the states that ratified the parchment.
What Mr. Musk will find if and when he gets into this fight is that it is not only an economic or policy problem but also a question of law. Right now, there is no definition of the dollar in terms of gold in American statute.* That’s a retreat from the monetary system erected at Bretton Woods. That was based on America maintaining the value of our dollars at a 35th of an ounce of gold and agreeing to redeem at that rate dollars presented to us by foreign governments.
This story goes back to the Founders. It was in 1792 that Congress first exercised the coinage power. It was Alexander Hamilton who wrote our first coinage act, which adopted the dollar as America’s unit of account. That law defined the dollar as 371.25 grains of pure silver and authorized gold coinage at a 15 to one ratio, or 24.75 grains of the monetary metal per dollar. The Founders expected dollars issued by America to be redeemed in such specie.
Debate over whether to define the dollar in gold or silver consumed the 19th century. It climaxed in the election of 1896, when voters rejected William Jennings Bryan’s inflationary platform of Free Silver and elected William McKinley, who signed the Gold Standard Act of 1900. Whether in gold or silver, one would think that restoring a legal definition of the dollar would matter to Mr. Musk, who owns more dollars than anyone else in the Milky Way.
* Here’s how the Congressional Research Service puts it: “In October 1976, the government made official what was already true in reality: the definition of the dollar in terms of gold was removed from statute. The monetary system officially became one of pure fiat money.”