The Paper Chase Part I The Paper Chase By Martin A.

Armstrong Copyright June 1988

The story of paper money goes back a long way. One could argue that its first emergence was even before 2500BC in Bablyon. For the sake of convienence, banking transactions took place in the form of a clay tablet which served as a letter or credit. While such forms of money are known to have existed since the dawn of time, it is important to realize that such instruments were not of official issue on the part of government for the purpose of circulating units of money.

Marco Polo, upon returning from historical trip to China, told stories about how the people of China used paper as money. This was a totally unheard of form of money to the European way of thinking. It is true, that letters of credit also emerged in China as early a 900 BC inscribed on paper rather than clay tablets. However, in the case of China, these letters of credit did evolve into an official form of paper money issued by the state. In both cases, the origin of paper money can be traced back to the practice of issuing a letter of credit. In European culture, money itself emerged as an official unit of account certified by the state as to its weight and fineness around 600BC. Because of this origin, western culture still believes that money itself is worth something even though our paper currencies have evolved into merely circulating letters of credit backed by nothing more than the faith in the state. This is a strikingly different origin for money in the west as compared to eastern cultures. Before paper money was invented in the west, governments were unable to spend more than they had in their treasury. The kings and ministers who wanted to spend more than what they possessed normally resorted to raising taxes or they began to debase their coinage either by reducing its silver or gold content or by reducing the actual weight of the coinage. When the taxes became too overbearing, eventually revolution arose among the people who then promptly overthrew the king and ministers, putting a swift end to deficit spending. This was one of the best methods to insure the normal checks and balances required to keep government spending in line. When governments took the debasement route, inflation normally followed. This was a slower process but the end result was usually the same one dead king. As inflation soared, the economy quickly declined and confidence was eroded. This typically produced higher crime and a decline in social values. The overriding factor to the entire game was always gold. Mother nature decided the supply of money and the system had to be administered with integrity and responsibility or disaster would soon result. In many cases, when Kings or ministers became a little too deep in the red, there were other means of preventing revolution. Often wars of acquisition were waged merely to gain the spoils or, in todays modern language, increased money supply. This normally brought inflation along with prosperity and kept the domestic population happy for a while. The concept of paper money substituting for gold was about as far removed from ancient and medieval mans mind as landing on the moon. Certainly there were those who dreamed of turning lead into gold, but not even King Midas would have been satisfied with a ream of paper bills. Today we are involved with hedging programs and trading systems designed to keep track of the latest commodity game paper currencies. It is amazing just how far this instrument has evolved over the centuries. Paper currencies are just another commodity that hangs by a thread connected to what often seems to be skittish fundamental analysis. It is more than just interesting to look back at the origins of a word or an invention. The outcome of such pursuits can shed a fresh beam of light onto an otherwise obscure or confusing subject.

Paper money is relatively new within the monetary history of man. It was perhaps the invention of necessity but it has also made it easier for man to slip into periods of massive unsound finance, which has always and without exception, caused great periods of economic instability, volatility and chaos and at times even war. Until the 17th Century, currency was nothing more than a cash and carry affair. Either you had the gold or you simply had not. One of the first official government issues of paper money in western society was made by cutting up playing cards during 1685 in Canada. The military payroll of gold was delayed on its journey from France and necessity dictated that some form of money had to be invented immediately. The spark of invention had dawned in the mind of a French paymaster. He took a deck of normal playing cards and cut them into quarter sections. He then, by hand, wrote various denominations on the sections of cards. They became legal tender when the official signature of the commanding officer, Jacques Demuelles, had been applied. The invention of paper money saved the day and these scraps of playing cards were declared to be legal tender for three months. When the ship came in, literally speaking, the paper money was redeemed for gold and everyone lived happily ever after. Or so we would think. This French Canadian invention sparked by necessity had given birth to the seeds of corruption. What man could resist such awesome power? Eventually the idea was used again in 1686, 1690, 1691 and 1692. Year after year the playing cards were being issued in substitution for real money. Finally, by 1701, the military government had issued more playing cards than there ever would be gold on its way from France to redeem these new monetary inventions. As a result, a lot of people ended up with chopped up, scribbled on scraps of paper that they couldnt spend and were no longer usable even for a decent game of cards. It is ironic to note that playing cards were used to introduce the ultimate game of chance, the Paper Chase. We cannot credit the entire invention of paper money to a military outpost in Canada. The idea seems to have also developed along with the invention of the modern day bank. During the mid-seventeenth century, goldsmiths were renowned for their secure vaults. If anyone had a store of valuables, it was your common every day goldsmith. Eventually, goldsmiths realized it could be very profitable to store someones gold for a fee. A receipt was given for the amount of gold which was to be stored. It was not long before these receipts were being used as collateral and often payment in gold was passing around in the form of receipts, without the physical gold ever leaving the goldsmiths vault. Sooner than expected, the birth of a new banking system had taken place. The receipts became written orders to transfer gold from one account to another; or in modern terms, a bank check. A brilliant idea came to the goldsmith. He realized that a portion of the gold could be lent out for even greater profit (interest) and never be missed. After all, odds were surely against everyone withdrawing their entire deposits of gold at the same time. Greed and corruption finally created another version of the Paper Chase and in the process, gave rise to the banking system.

By now, the goldsmith was issuing more receipts for gold on loan than there actually existed in his vault. Like so many financiers to follow, the goldsmith didnt know when to quit. He had more than tripled the amount of receipts that now passed as freely among the local population as dollar bills do today. The net result was inflation, prosperity and good times. But the day of reckoning arrived when the townspeople found out that all they really owned was a piece of paper and the gold it represented didnt actually exist at all. The entire town had been played for a bunch of fools. The receipts had created enormous inflation, since on paper, there was more gold floating around than the goldsmith held in his vault. It had appeared as if there was more gold than goods. It was only natural that the goods, being scarcer than gold receipts, rose in value as they were sold to the person with the most receipts or, in plain terminology, cash. It was a major breakthrough the rediscovery of INFLATION coming out of the dark ages. It was as real to them as we have ever experienced in our lifetime. When the townspeople found out what the goldsmith had done, the paper gold receipts became totally worthless. The goldsmith didnt have enough real gold to back up the substituted paper receipts, which everyone had considered to be money. Inflation, which had brought on temporary prosperity, led to depression and riots. The outcome was very predictable. One dead goldsmith usually followed. The Paper Chase has been a dream of man for nearly 300 years. It is that quest, that desire to get rich quick or to create something intangible that people would accept as money. There has been one inherent problem with paper money. No matter who has been in charge of its issue, the same problem has constantly occurred. The controlling party who is has never been able to resist the temptation to print just a little more than he should. During the late 1600s, America was to become the official test pilot for paper money economics. The entire world was to watch a bold attempt to create something from nothing. The first mass-produced printed paper money for general circulation was invented when Massachusetts lacked the real money (gold) to pay its troops fighting the French during 1690. They issued paper money which they officially called Bills of Credit. The government tried to encourage the people to accept the new funny money by guaranteeing a 5% premium to those who used the bills of credit (paper money) to pay their taxes. South Carolina loved the idea and issued its version of the Paper Chase game, also called Bills of Credit, to finance the Spanish and Indian war of 1703. The Queen Annes War of 1702-1713 brought forth paper money issues in 1709 from New Hampshire, Connecticut, New Jersey and New York, promptly followed by Rhode Island in 1710. North Carolina needed money and decided to create it via this new paper experiment. They printed large quantities to pay for the war against the Indians in 1712. This new game of the Paper Chase was, in effect, an I.O.U. borrowing for a public expenditure. No one could have possibly imagined where this bold venture would lead. Sure enough, the latest political game, the Paper Chase, took hold. Each Colony found reasons to commence and continue its own issuance of paper money. After all, if one Colony didnt print the currency, a neighboring Colony would print the worthless stuff to

circulate within their own territory. Then the first would be saddled with worthless paper money and wouldnt enjoy any of the benefit from its issuance this became a competitive race among the colonies all participating in the Paper Chase. By the early 1700s, the Colonies had abused the issue of paper money to such an extend that what few silver Spanish Dollars (8 Reales) which managed to circulate, began to command a handsome premium. Spanish Dollars and their fractional derivitives (pieces of eight), were able to purchase three times the amount of goods as a colonial paper dollar. Simply put; inflation had taken its toll. Paper money had created a new age of deficit spending for such things as the repair or construction of jails, harbors, court houses, lighthouses, buoys, forts and just about anything else that they didnt have the real money to pay for in those days. In fact, Marylands first paper money issue was used to reimburse farmers taxed in 1733 for being forced to burn off a portion of their tobacco crops to support the price of huge inventories on hand. In 1769, Pennsylvania printed paper money to institute the first welfare program for the poor in Philadelphia. Despite signs of inflation and the increased volatility in local commodity prices, this experiment was far from complete. The next great idea brought about government Loan Banks. Colonial Assemblies established loan offices and printed paper money to loan to people who could put up their land as security. The Colony charged interest and, in some instances, the interest was payable only in gold or silver! Naturally the idea spread to Europe. But the idea was never carefully studied. The whole system had become seriously out of control. Consequently, by the time the Continental Congress was formed, it too issued paper money called Continental Currency to finance the American Revolution. In total, $241,552,780 were printed and anyone who did not accept this new paper money was declared a traitor, an enemy, or a tory. There was so much worthless paper money circulating about, it bacame necessary to take some drastic measures. But there was so much of it circulating around, inflation ran completely out of control to the point that it actually cost the government more to print the paper money than what the money would buy. This sparked terms such as not worth the paper its printed on and not worth a Continental catch phrases that are still present in American slang more than 200 years later. A British article published in 1777 stated: The Pasteboard Dollars of Congress are now refused by the hottest among the rebels themselves. One, who was a member of a committee to punish those who might refuse them, was lately punished for refusing them himself. The truth is, everyone was trying to get rid of them in exchange for anything of real value he might be able to buy land, commodities and even businesses. To top the entire matter off, the British were counterfeiting the Continental paper money, a warfare tactic later used during World Wars I and II.

The expense of the Revolution was great. Paper money was worthless and the war was won by nothing more than guts and spirit in the end. By 1781, the Continental Congress incorporated the Bank of North America. The paper money and copper coins remained a difficult task to circulate. Gold was rare and silver circulated only to a limited extent. The Continental Dollars were devalued and exchanged at the rate of $1,000 to $1 in gold. With gold fixed at $19.393 in new dollars, the peak was official. Gold had peaked in 1781 at $19,395.00 (CONTINENTAL DOLLARS) per troy ounce. Naturally a severe lack of confidence had set in. If there had not been the emotional satisfaction of winning the war, we may have called it quits right then and there. The discovery of inflation, hyperinflation, collapse and depression had become the first economic experience of the United States. During 1793, the U.S. attempted to create its own new money supply. Copper was used to mint 1,819,067 coins, while silver was used to mint 409,560 coins. Gold was as rare and valuable in those early days as it is today. There was only enough gold to mint a mere 15,253 coins. To this day the collapse of the paper money of the Continental Congress and the independent States has left its mark upon the monetary system within the United States. The Constitution of the United States took away all rights of the states to issue paper money and strictly reserved that right for the Federal Government. However, even today most people look upon the treasury bonds of the United States as beingone of the most secure of investent instruments. They are under the misconception that the U.S. Government has never once defaulted upon its debt obligations. However, this is yet another misconception. The Articles of Confederation which were adopted on June 26, 1778 clearly provided that all the paper money issues that had been previously issued by the Continental Congress were to be charges against the United States. In 1787 the Constitution also stated that the debt obligations of the Continental Congress were to be assumed by the new United States government. In both cases, the total debt of outstanding Continental Currency, which was $241,552,780, were to be made good by the U.S. government. Alexander Hamilton proposed and offered to the people an exchange of currency of $1 to $100 for U.S. Treasury Bonds. However, the people were led to believe that the currency would become redeemable in the future without any mention of devaluation. In light of these representations to the people that the debts of the Continental Congress would be settled, the U.S. government to this day stands in default of that obligation. Of course the people were precluded by law from bringing suit against the government. However, since the 1900s that right now exists. It would be an interesting court case indeed if someone were now to demand that the U.S. government redeem the outstanding $241 million at full face value with accumulated interest since 1782. As time went on, confidence was slowly restored and the government withdrew from issuing paper money on a large scale that was not strictly and fully backed by gold. By 1815 a new round of deficits had accumulated which was caused primarily by the War of 1812. The government issued Treasury Notes which served as currency in the form of promissory notes that actually paid interest. People were reluctant to accept the

money particularly after past experiences. Therefore a new twist had been invented. Interest was actually paid to the bearer of this new paper money on denominations over 50 dollars. The smaller notes were once again merely circulating pieces of paper. The War of 1812 was followed by the Hard Times of 1827-1843, Mexican War of 1846, and the Panic of 1857. The public had been played for fools once again. The country had been blanketed by private bank notes which became worthless as bank failures emerged as a common day event. Thousands lost everything they had during this collapse of the paper money system. On top of that, the government was once again printing worthless paper. Soon after the Panic of 1857, the government found itself in desperate need of money to finance the Civil War. An Act of Congress on July 17, 1861, permitted the Treasury Department to print new paper currency to the extent of sixty million dollars. Copper, silver and gold were in short supply and this new issue of currency could not be lawfully converted into coin. The Government forced the public to accept this new paper money purely on faith. This, in turn, sparked the term Greenback, since the dollar was backed by nothing more than the green ink used to print the reverse side of the note. By March of 1862, five new issues of paper money had been authorized, this time the notes were called Legal Tender and were valid for all debts public and private except duties on imports and interest on public debt. The government expected the people to accept the notes. However, when it came to taxes only gold or silver would be accepted by the government. The invention of the legalized official paper con-game had been accomplished. Deficit spending created by the Civil War had brought the financial position of the Treasury Department to within an inch of bankruptcy. Foreign countries selling goods to the U.S. demanded payment in gold or silver. Real money (gold and silver) had become very rare despite the new taxes imposed during 1862 on everything from bank checks, playing cards and telegraphs to mortgages, bonds, insurance, photographs, leases and wills. Copper, silver and especially gold coins had disappeared from circulation and postage stamps were actually used to make small change. Postage stamps were placed in small enclosed containers and circulated as money. This brought a new dimension to the paper money con-game. A series of fractional paper money was introduced in denominations of 5 to 50 cents. To insure public acceptance, it was called Postage Currency and was backed by actual postage stamps. The postage stamps which had circulated already, proved to be impractical. Hence, paper money backed by postage stamps was invented. After all, if you couldnt spend it as currency, you could at least buy a postage stamp to write home and ask for some real money when things got bad. By 1864, the government would do anything to continue printing paper money. They didnt even have enough gold or silver to pay the people who had printed the paper currency. Finally, in a desperate attempt to restore some confidence, an Act of Congress of June 30, 1864 authorized another series of paper money. This time with

another brilliant idea far better than postage stamps. The Government created legal tender currency that actually paid 6% interest compounded twice a year for three years only. On the back of each note was a payment schedule showing that, if accepted, the note would pay $11.94 for every $10 face value upon redemption after three years. Today, very few of these notes remain in public hands. Taking into account the perilous state of the nation during those years, coupled with the rarity of real money, runaway inflation and general fears, it would have been a very rare person who didnt scramble to cash in his interest bearing currency upon the day of expiration. This form of interest bearing currency was, in reality, circulating war bonds. It did restore some confidence since the compounded interest gave some added assurance that inflation would not render it worthless as long as government honored its debts. As a result, three subsequent interest bearing issues were released. However, inflation had persisted. To still insure acceptance in the face of rising inflation, the interest rate was subsequently raised to 7.3 percent later that year. After the Civil War, inflation continued and paper money was still far from well received. Gold soared to record highs during the panic of 1869. Panic was everywhere, much in the very same manner as the goldsmith and the playing card scams. People were running to their banks and demanding gold. It had reached the point that troops were actually called out into the streets of New York to subdue the riots. The panic was halted by a rumor that the government was going to release 4 million ounces of gold when, in fact, the true story was only $4 million worth of gold. The price collapsed and some order was once again restored.

The Paper Chase Part II The Paper Chase Part II by Martin A. Armstrong Copyright June 1988
The panic of 1869, which caused gold to rally significantly, was in itself a sign to the government that paper money would not win the affections and confidence of the people. But paper money provided government with the means of creating money at will without any tangible backing. Alarmed by the shocking gold panic, government devised another means of creating money a tool generally employed by many a Roman Emperor.

The Democrats had proposed the monetization of silver as a standard within the money supply. Perhaps there was some political corruption involved on the part of the silver mine owners who had just made the largest silver discovery in history and needed a market for their wares. Whatever the reason, government began to mint silver dollars in 1878 by the ton. They were frantically buying up the metal and taking 66 cents worth of silver and coining it into a legal tender dollar. This was a form of inflation just as the paper money itself. The only difference is that at least they gave the people 66 cents worth of silver for a dollar instead of a piece of paper with no commodity value. The nation had entered the deepest depression since 1776. The post war depression lasted from 1873-1879. This silver dollar was a means of inflating their way our of depression. This same method was later employed by Franklin D. Roosevelt in 1934. Nevertheless, perhaps domestically anything could be called money, but when it came to international transactions, 66 cents worth of silver just wasnt acceptable. The U.S. began to mint the Trade Dollar a silver coin identical in size to the domestic silver dollar, but it contained $1 worth of silver. There was no cheating when it came down to money internationally. For the first time in U.S. history, the U.S. actually issued two types of dollars with distinctly different values for domestic and international transactions. In 1879, the paper currency and bonds had become virtually the same instrument. An Act of Congress authorized the Treasury to issue Refunding Certificates in $10 denominations. This was an effort to raise money by issuing these notes which paid 4% interest for as long as the bearer held on to them. This issue raised hopes within the government that the people would accept these paper notes and hold on to them rather than redeem them. Previous interest bearing notes had always been redeemed since they had restrictions placed upon them as to the amount of time interest would be paid. This issue of Refunding Certificates was eventually cancelled on July 1, 1907 when the original face value had more than doubled making the outstanding debt obligation to the government $21.30 per original $10 note. Between the silver dollars and cleverly devised issues of paper money, the economy began to recover through these artificial inflationary measures. In 1882, the first postwar gold backed paper money was issued. These notes were necessary to repair the great damage caused by the mismanagement of paper money over the 120 years. Americans were not as foolish as the government had thought and a return to real money became mandatory for the survival of the government and the economy both on a domestic and international level. Public distrust began to rise. The gold certificates became highly prized and the average man would spend the silver dollars and greenbacks long before ever disposing of a gold certificate. The economy was responding to the huge influx of these various forms of money. Silver dollars had been minted by the millions every year and Greshams law prevailed. The influx of cheap money through the greenbacks and silver dollars forced the people to hoard gold. But of even greater significance was the fact that gold was leaving the country to satisfy foreign obligations both private and federal. Silver dollars were just not

accepted in foreign exchange. As a direct result, the Panic of 1893 arrived and the Treasury, nearly stripped of its gold reserves, had nothing itself other than silver dollars and greenbacks. An economic panic took place which was far more devastating than most ever dreamed possible. The Republicans were desperately trying to get the monetary system back in line and were pressing for a return to gold as being the only lawful money. But the democrats continued to proclaim that it was gold which had caused the panic and not the proliferation of silver which had been introduced. William Jennings Bryan spoke out in favor of issuing more silver and against the return to gold as the sole standard. Bryan stated in a speech on December 22, 1894: I shall not help crucify mankind upon a cross of gold. I shall not aid in pressing down upon the bleeding brow of labor this crown of thorns. President Groover Cleveland stood before a special session of Congress on August 8th, 1893 and stated: At times like the present, when the evils of unsound finance threaten us, the speculator may anticipate a harvest gathered from the misfortune of others, the capitalist may protect himself by hoarding or may even find profit in the fluctuations of values; but the wage earner the first to be injured by a depreciated currency is practically defenseless. He relies for work upon the ventures of confident and contented capital. This failing him, his condition is without alleviation, for he can neither prey on the misfortunes of others nor hoard his labour. History has this labeled as the period of the silver democrats and it was averted through the efforts of J.P. Morgan. The Panic of 1893 was followed by Panic of 1896 and 1898. The economy never seemed to return to a stable atmosphere. This period was followed by the Rich-mans Panic of 1903 and another devastating affair, the Crash and Panic of 1907. Then World War I rescued the economy. The war succeeded in turning the attention from economic woes towards the enemy in Europe. The war had brought a whole new era of prosperity and the Bull-Market of the 1920s. Commodities soared and reached their peaks during the 1923 period. Still the government was printing and spending more unbacked money in the hope that the small portion of gold and silver backed currency would retain the publics confidence. The Bull-Market of 1929 had almost everyone believing that the economy was on the eve of the biggest and strongest economic boom in history. Strange how those words seem so familiar. But what led to that infamous day when the great paper bubble burst, was a huge influx of European government spending and the creation of debt. The crack came when the European debt system collapsed and government after government went into default. Sound familiar?

Almost everyone was speculating and buying stocks with only 10 cents on the dollar. The public had discovered the paper and played it just as well as their governmental competitor on the other side of the game board. The only winners at first seemed to be those who had been smart and used their paper money to invest in tangible assets such as real estate and stocks. But the economy shifted and even those assets had collapsed. The government had nearly gone bust along with Wall Street. Another attempt to chase that paper pot of prosperity had led to disaster. We had been caught playing monopoly with the government on one side and the public on the other. People had lost their complete faith in paper money. They viewed the collapse as a fault of the system. There was nowhere to turn for those that had survived, but gold. In a last desperate attempt to continue the Paper Chase, the government got angry and decided to put an end to their competition. The Gold Reserve Act of 1933 was devised to put an end to the problem from their viewpoint. This Act was an attempt to stop the public from refusing to accept paper dollars and hoarding gold. It was also to correct the imbalance within the international purchasing power of the dollar due to the depreciation that had accumulated as the result of an increase in supply of paper versus gold. The free market forces can never be controlled no matter how powerful any individual or government may believe themselves to be. In this case, gold coin on the street would buy two to three times the amount of paper dollars. Therefore, the Act of 1933 was also a massive devaluation of the dollar which was forced upon the government by the sheer premium that gold was commanding in the open market. The official exchange rate of gold to dollars in 1929 was $20.67 but the Act of 1933 devalued the dollar and altered that rate to $35. The blunt reality of the matter was clear. The government needed to hold on to the Paper Chase and if they couldnt get the willing participation of the public to accept the dollar without a constant erosion, which had forced devaluations of the dollar throughout the monetary history of the U.S., they would demand it by law. They actively seeked to prosecute anyone for hoarding gold and demanded that the public surrender their gold to the Treasury. This sumptuary law was, in reality, quite similar to that which was passed during the Continental Congress days when people were prosecuted for refusing to accept the paper money of the Congress. The government was now locked in a struggle with its public opponent on the other side of the game board. The stakes were for real money gold. But this Act of 1933 was only partly responsible for what was to become know as the Great Depression. It was more than a depression of the economy, it was a depression of public confidence, emotion, hopes and dreams. World War II brought not only heightened American spirit of patriotism, but increased Government spending. The War was costly and the presses were rolling. The unemployed were sent to war and productivity increased. Most everyone, including economists, were misled to believe that paper dollars had brought the period of prosperity and that the system of organized borrowing could actually last forever. But everyone overlooked a vital point. The U.S. had managed to stay out of the

war long enough to produce weapons and parts for Europe. For its services, the U.S. was handsomely paid in gold. By the end of the war, the United States had emerged with 71% of the worlds gold reserves. But everyone looked at the dollar as the bulwark within the international monetary structure, when it was this posession of 71% of the worlds gold, which had provided that level of international respect for the dollar. Economists and government officials viewed the dollar which was strong and almighty in a war ravaged world. But with hindsight, as is often the case, it is clear that it was Fort Knox which provided the strength behind the paper mirage. Once the gold backing was closed in 1971, the dollar fell substantially in international respect and purchasing power. The recession of 1949 was, perhaps, a warning sign that government had not won the Paper Chase for prosperity. But the Korean War geared the presses up again. The cycle returned and the recession of the 1950s was corrected by tax cuts. The Paper Chase can be best illustrated by the currency itself. In review of the currency issues since 1928, the Paper can be seen in its true naked form. On the currency issues of 1928 you can clearly note the fine print: This certificate is legal tender in the amount thereof in payment of all debts and dues public and private. There was no question it was NOT money itself, it was a certificate for real money which was gold. The Series of 1928A carried the fine print which reads Redeemable in Gold on Demand at the United States Treasury or in gold or lawful money at any Federal Reserve Bank. This shifted part of the responsibility to the Federal Reserve and away from the Treasury. But it also refers to lawful money which could be redeemed for silver coin and not merely gold. In the series of 1934 we find a departure from gold backing. The fine print clearly states: This note is legal tender for all debts public and private and is redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank. The importance of this is that this series is still not suggesting that the dollar itself is lawful money and makes reference to the fact that something else is lawful money. Even though gold was illegal for American private ownership, it was still the lawful money for which all paper currency could be redeemed on the part of the American public. The fine print that appeared on the series of 1934 remained in effect on all subsequent issues of paper dollars until 1963. In 1963 the government took one step further. The price of silver had moved in the free market to levels which forced the government to stop issuing silver coin. The last leg of the Paper Chase was not to take shape. The series of 1963 carried boldly upon its face the fine print which stated: This note is legal tender for all debts public and private. There was no longer any mention of being redeemable for lawful money. The transformation was complete. The people over the transition from generation to generation forgot what lawful money once was. Since 1963 the American population has believed that it is the paper dollar that is money itself. The certificates which once guaranteed that the Treasury held the lawful money for the individual, has been successfully transformed into the money itself. Mans quest to create something totally

intangible that the public would look upon as actually being tangible was finally accomplished after 200 years. Today the paper currencies have emerged as commodities subject to the whims of speculation. They have lost their tangible aspect which at one time had rendered them a mere receipt for a tangible deposit of lawful money. Instead paper currencies trade violently on rumors anticipation, and lack any definitive value from one day to the next. The role of the paper currencies within our economy has been changing dramatically over the past 30 years. Yet this change has not been noticed by the public. The recent history of the paper currencies can be seen by looking back and reading the fine print which they once carried. It is like standing in front of a mirror every morning. You may not notice the signs of aging or the change of your appearance, but pull out a photograph of days long since past and you will suddenly notice how much of a change has actually taken place. Within the international central banking system, the assets of each nation include gold bullion and a variety of paper currencies from other nations. These currencies make up credits which are balanced against the systems liabilities which are largely its own currency. Therefore, each nation is actually backing its own currency with gold bullion and currency issues from other nations. In reality, the system is like two people creating a paper transaction. One signs a note that he owes the other $1 million and in return the other gives him a note also for $1 million. If they were to prepare a financial statement each would show $1 million in receivables along with $1 million in liabilities. But in reality, there is nothing there. In 1950 the foreign exchange holdings among central banks was $17.3 billion. In 1980 those holdings rose to $350 billion. On a central bank level, their gold holdings have been declining while paper currency holdings have been rising. The Paper Chase is not over. Eventually this monopoly game will meet the same end as it did in the 1700s. In the words of Daniel Webster we find the true bottom line of reality. of all the contrivances for cheating the laboring class of mankind, none has been more effective than that which deludes them with paper money.