Scott Smith is an editor of The Daily Bell, an online newsletter which features a daily compendium of Free-Market thought on its website published from Appenzell, Switzerland.  A free subscription to the online newsletter is available from www.thedailybell.com.  __________________________________________________________________________

 

Ingo Bischoff Interview with Daily Bell

Daily Bell: You've focused to some degree on the 17th amendment as a negative for the United States. Can you tell us why?

Ingo Bischoff: I have indeed. I will use strong language to underscore my opinion about the damage the ratification of the 17th Amendment to the U.S. Constitution has wrought upon the form of government the framers had intended for us Americans. I see the 17th Amendment as a ticking time bomb imbedded inside the constitution that is poised to destroy the American republic. Let me explain.

The founding fathers knew of the fate of Athens and Rome. They recognized that a democracy, i.e. the "Rule by Majority", is not a viable form of government, but that it soon spends itself, turns into anarchy from which the people are then rescued by an elite which will govern them under an oligarchy. Their knowledge of history convinced them that only the "Rule of Law" i.e. a republic, could secure individual rights and keep citizens free from tyranny. For such a republic to be workable however, they had to take human nature and the lust for power into consideration. Hence, they created checks and balances wherever possible to avoid encroachment by the power of one branch of government on that of another. One of those checks and balances was the creation of the legislative branch with a U.S. House of Representatives to be the voice of the people, directly elected from districts by people residing therein, for a period of two years; and a U.S. Senate, to be the voice of the individual, sovereign States within the federal republic with two U.S. Senators from each State, elected by the state legislators of each State for a period of six years and subject to their recall.

In important legislation effecting the States and people in general, this system was very effective. It prevented the banking interests from obtaining an extension of the bank charter for the First and Second Bank of the United States, and it successfully checked the spending by the Federal Government. The reason for the introduction and ratification of the 17th Amendment was the wide spread corruption in the election of U.S. Senators by state legislators in the late 1800s. The amendment was to eliminate the corruption by allowing people within the individual, sovereign States to vote for U.S. Senators by popular vote. Such change in the constitution was standing the intent of the founding fathers on its head. Little known is the fact that the Republican Congress in 1866, quite legitimately, used a provision in the original constitution to pass a law requiring an open voice vote by state legislatures in the election of U.S. Senators.

By passing this law, Republicans attempted to gain insight into the election process of U.S. Senators from the Southern States. The vote by State legislators to elect U.S. Senators had by custom and tradition been a secret vote. The effect of the 1866 law was that soon every other state legislature was rife with corruption in the election of their U.S. Senators. Instead of repealing the 1866 law and returning to a secret vote in electing U.S. Senators, the 17th Amendment was added to the U.S. Constitution. This has launched the American republic, created by the founding fathers in Philadelphia in 1787, on the road to a "Democracy".

Our present crisis within the federal government is directly related to the ratification of the 17th Amendment. This becomes clear when one realizes that the U.S. Senate is the linchpin within the U.S. Government. The U.S. Senate must concur with the spending measures of the U.S. House of Representatives, it must approve the cabinet nominees of the U.S. President, and it must confirm the appointees to fill the vacancies on the U.S. Supreme Court. Quite simply, who ever gains control of the U.S. Senate has control over the U.S. Government. Such development, the framers did not imagine.

Not in their wildest dreams did they envision that the individual, sovereign States would give up their voice in the U.S. Congress. Yet the States did so by ratifying the 17th Amendment in 1913. This amendment has become a ticking time bomb. It must be extricated from the U.S. Constitution, if the American republic is to survive. The bomb squad required to do the job will have to be the citizens of each state calling for a new amendment to repeal the 17th Amendment. If this is done, it will be the first time in history that a people have reversed the direction of government on the road to tyranny.

Daily Bell: What about the 14th and the 16th amendments, which are considered equally if not more problematic by many free-market thinkers? The 14th amendment gave the federal government overwhelming powers over the states as it turned out while the 16th amendment introduced an income tax. Would George have been in favor of the income tax? Are you?

Ingo Bischoff: Both the 14th and 16th Amendments pale in comparison to the dangerous effect of the 17th Amendment on the survival of the American republic. I firmly believe that once the 17th Amendment has been exorcised from the constitution, the new U.S. Senate will in short order cause the repeal of the 16th Amendment, which by the way was also ratified in 1913. This will put the individual, sovereign States in the position of having to raise all funds on their own, but freeing them from the clutches of the Federal Government.

The greatest opportunity for the implementation of Henry George's land value tax idea is then at hand. Any State failing to raise government expenditures with other than a land value tax will quickly find itself disadvantaged, losing population, talent and capital to those States that institute a "single tax". Under no circumstance would Henry George have been in favor of an income tax. He was certain that all requirements for government expenditures could be met with the "single tax", a tax on community created land values. I am a total "Georgist" in that regard. I am against any income tax, particularly the federal income tax. It was the 16th Amendment which was eventually used by the Federal Reserve in the 1920s to justify the acquisition of "Anticipation Bills" i.e. Treasury Bills which were expressly prohibited from purchase by the Fed as "ineligible" paper under the Federal Reserve Act of 1913. It was not until 1934 that these rogue acts by the Fed were actually legitimized by the U.S. Congress in the passage of ex-post facto laws.

 

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James Turk Interview with the Daily Bell

Daily Bell: What is the rising price of gold telling us?

Turk: Gold rises in terms of national currencies whenever there is any kind of monetary problem. These problems include inflation, bank failures, currency debasement, exchange controls, etc. For decades the US dollar has been adversely impacted by one or more of these monetary ailments, so the dollar price of gold has generally been in an uptrend for decades. Or in other words, the purchasing power of the dollar - and for that matter, other national currencies - has been falling.

For example, a barrel of crude oil presently costs 2.2 goldgrams, which is more or less the same price since the end of WW II. Crude oil only looks like it is getting more expensive when its price is measured in terms of national currencies, and the worse the currency is debased, the more expensive crude oil looks. We can therefore conclude that the experiment with fiat currency - currency not backed by precious metal and circulating simply because of government edict - is an appalling failure.

Daily Bell: You've written that gold always wins -- that is, its price inevitably climbs higher as fiat currency is debased, which is a reality understood and recognized by government policymakers. If they know this, what exactly is their strategy these days, what are they trying to do?

Turk: Two things. First, they only care about themselves, namely, their ‘job' as a bureaucrat or a politician. Despite their rhetoric, they don't care about you or me. To politicians, constituents are simply an unavoidable annoyance that must be kept in line until the next election, which brings up the second point. Policymakers only care about keeping the fiat currency game alive until they have personally sufficiently milked the system to retire with a fat pension. They also have a short-term goal, which is to keep the system from collapsing until the next administration.

There are of course some notable exceptions, like Ron Paul. But generally speaking, the US does not have leaders today. There is no one willing to admit that the US is on the wrong road, even though polls show that a vast majority of Americans -around 80% - instinctively understand and acknowledge that the US is headed in the wrong direction.

Daily Bell: Is it a managed retreat that hopes to preserve fiat money?

Turk: You could call it that. But it is more like politicians not wanting the ship to go down on their watch.

Daily Bell: Does gold remain undervalued?

Turk: Yes, which is quite amazing considering that gold has risen eight years in a row against the US dollar and appreciated during this period at an average annual rate of 16.3%. In fact, gold has risen by double-digit annual rates this decade against all of the world's major currencies. But one ounce of gold still buys approximately the same amount of crude oil it purchased when this decade began. This performance is a testament as to how badly the purchasing power of the dollar is being destroyed, which is quite ironic given that real estate in the States is getting cheaper by the month. What is clear is that we are measuring this decline in real estate prices with a currency that is inflating. That real estate is falling in price while the purchasing power of the dollar is eroded by inflation simply shows how overvalued real estate had become at the height of that bubble.

Daily Bell: You've written that it is reasonable to conclude that gold should comprise at least 10 percent of the world's money supply. And that because it is nowhere near that level, gold is undervalued. Can you elaborate?

Turk: For decades we have been using in commerce money substitutes, i.e., national currency, rather than money itself, namely, gold. Consequently, few people today understand money/gold, which has created a prevailing bubble mentality. In other words, people view dollars and other fiat currency to be a store of value, rather than what they really are, empty promises that are no more reliable in the long-run than the hollow rhetoric of politicians. My point is that we are in a bubble, which is bigger than the Internet bubble, the Nasdaq bubble and the real estate bubble. It's the bubble of mistaken beliefs that the dollar has a long-term future, when in reality, the dollar is on the road to the fiat currency graveyard. The consequence of this irrational faith in the dollar means that the dollar is over-valued and gold is under-valued. These relative valuations are an unnatural state and will correct - I should say, continue to correct given gold's appreciation this decade - by the price of gold rising a lot further.

Eventually, more and more people will recognize the dollar for what it really is, which will cause this dollar-bubble to pop. When it does, people will increasingly turn to gold, and this heightened demand will increase the value people place on gold. In the 19th century, about 40% of the purchasing power of the world's money rested in gold, with the balance in money substitutes, i.e., the various national currencies. By the mid-20th century gold's percentage declined to about 10%, and fell further to less than 2% in 1971 when the dollar's link to gold was formally broken by government edict. The reliance of money substitutes thereafter declined in the inflationary 1970s, so gold increased to about 10% again by 1980. It thereafter fell again, this time to less than 1% when Gordon Brown announced that the Bank of England was selling one-half of the gold reserves it held. Gold's percentage today still remains less than 2%. I believe that the 10% level is a reasonable minimal target, which implies that gold will rise 5-times in real purchasing power terms. My longstanding price target for gold, first given in an interview in Barron's back in October 2003 when gold was in the $340s, is $7,000 per ounce by 2013-15. But given how badly the Federal Reserve is destroying the dollar probably means that my price forecast will be too low.

 

The complete interview of James Turk by Scott Smith can be viewed on the website of The Daily Bell at www.thedailybell.com .

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