Dr. Edwin Vieira, Jr.


Dr. Edwin Vieira, Jr., has condensed into this Monograph the substance of addresses he has given to small groups that represent a cross-section of American citizens concerned with fundamental monetary and banking reform.

Dr. Vieira's purpose is to present an analysis of the Federal Reserve System, its fiat paper currency, and "fractional-reserve" banking that infrequently, if ever, appears in the popular press, in the media, in the discourse of legislators or political candidates, or (worse yet) in the nation's schools. This analysis, however, is crucial to popular understanding of what the Federal Reserve System is, what it does, and the dangers it poses to America's economy and republican institutions of government. And such an understanding is crucial to sweeping legislative or judicial reform of the monetary and banking systems - hopefully, before the Federal Reserve System causes an economic and social catastrophe; but, if not, at least after such a catastrophe makes painfully clear to every thinking man and woman the urgent necessity of such reform along constitutional lines.

Dr. Vieira's central theme is that today's scheme of Federal-Reserve-System fiat currency and fractional-reserve banking is plainly unconstitutional, inherently fraudulent, economically unworkable in the long run, and subversive of America's political traditions of individual liberty and private property. This may appear, at first blush, a harsh indictment of a system in existence since 1913, and which the vast majority of Americans apparently accepts (albeit on next to no real knowledge). But, harsh or not, it is an indictment substantial political-economic theory and historical evidence support.

Hopefully, Dr. Vieira's message will prove to be a warning that comes, if none too soon, at least not too late.

Richard L. Solyom, Chairman
Sound Dollar Committee


Although the press, the media, and major political figures never mention it the major cause of the financial dangers facing America today is the incestuous relationship between the national government and the quasi-public, but largely private banking cartel deceptively called the Federal Reserve System (FRS). Although historians can state with little difficulty when various stages in the establishment and evolution of the FRS took place, understanding what the FRS has done to America's money, and how and why the FRS has done it, is not quite so easy. Rather, it requires careful attention to certain critical details of American monetary and banking theory and history that are usually forgotten in discussions of the problems the FRS has caused.


I.     Most contemporary debate on the FRS focuses on whether what people call the "dollar" should, in some way, be "linked to" or "backed by" gold or another valuable commodity. The fundamental, un-examined, and utterly fallacious assumption in this debate is that the paper currency the FRS generates, the Federal Reserve Note (FRN), is, as a matter of fact and a matter of law, a "dollar" at all. As American constitutional law and history show, the FRN is not a "dollar", has never been declared by Congress to be a "dollar'; and could never be an actual "dollar" notwithstanding all the statutes or resolutions Congress might enact. Rather, as cited in the Constitution and as historically defined in the Coinage Act of 1792, a "dollar" is a specific coin containing 371-1/4 grains of fine silver. Very simply put, the Constitution fixes the monetary unit of the United States as this (silver) "dollar", empowers Congress to coin silver and gold coins the values of which are to be "regulate[d]" in relation to the "dollar", prohibits any government from issuing what the Founding Fathers denominated "Bills of Credit" (and what we today would understand as paper currency redeemable in silver or gold), and outlaws any form of "legal tender" except silver and gold coins. Thus, from the constitutional perspective, it is literally senseless to talk about making the "dollar" redeemable, or adopting a "silver-" or "gold-backed" "dollar". And that such debate as occurs on the FRS and the FRN fixes on this senseless point demonstrates how confused the American people are concerning their own monetary system.

II.     Defining the "dollar" constitutionally, however, is only the first step in explaining the real problem the FRS poses. Three other matters require careful consideration:

First, the evolution of the FRS exemplifies the typical historical devolution - or corruption - of monetary systems throughout the world in the last two centuries from commodity money, to fiduciary money, to fiat money. Here, accurate definitions of various forms of money are useful.

Second, the theory and history of fiduciary money (which is also largely the theory and history of banking) must always focus on the ever-present problem of redemption. Emphasis on the noun "problem" is warranted, because a fiduciary money is, by definition, a promise to pay the real, commodity money of the country. A piece of commodity money - typically, a silver or gold coin - is itself payment because it contains a fixed weight of precious metal. But a unit of fiduciary money - typically, a bank or government-treasury note - is only a contingent and uncertain payment that depends upon the ability or the willingness of the issuer to redeem. And there always exists a temptation for issuers to renege on their promises to redeem. Thus, fiduciary money always threatens to become fraudulent money. Not surprisingly, therefore, the history of fiduciary money has been more or less the history of monetary fraud, both economic and political.

Third, the danger of fraud in the issuance of fiduciary money becomes particularly acute in the case of modern "fractional-reserve banking". Under fractional-reserve banking, the bank always issues more units of fiduciary money, supposedly "payable on demand", than it has units of commodity money available for redemption, counting on the unlikelihood that the majority of its customers will ever seek redemption at one time. Thus, modern fractional-reserve banking is inherently fraudulent, because:

III.     Fully to comprehend the significance of the FRS also requires recognition that no such thing as "politically neutral" or "politically independent" money exists. For, ultimately, money is a medium both for storing wealth and for exchanging wealth. Thus, money is both itself a form of property and a mechanism for implementing contracts that transfer other kinds of property from one party to another. So, even in a free-market economy with a limited government, money exhibits a necessarily political character, inasmuch as the degree to which the government protects the monetary system from private fraud and public looting reflects the degree to which the government respects and protects private property and the right of private contract. A free-market economy will have one kind of money; a "mixed" or "fascist" economy, another kind of money; a "socialist" economy, yet another kind; and so on - but in each case, the monetary system will accurately reflect the values of the political system.

Thus once again, the contemporary debate over whether and to what degree the FRS should be "politically independent" of Congress and the United States Treasury is badly misdirected. Originally, the Constitution made Americans' money independent of electoral politics, by fixing the monetary unit as the (silver) "dollar", outlawing "Bills of Credit", and allowing only silver and gold coin to operate as "legal tender" in the payment of debts. But the Constitution is itself the basic political charter of the country - so, far from making money "politically independent" or "politically neutral", the Constitution actually settled on one, very specific political formula for money: namely, a commodity money of historically proven intrinsic value, the supply of which the political authorities could not manipulate at will.

Creation of the FRS in 1913 did not render FRNs "politically independent" or "politically neutral", but merely changed the political character of the monetary system by empowering a small, un-elected clique of self-professed "experts" and self-interested bankers and politicians to control the supply of FRNs, interest rates, and other monetary and banking phenomena. Thus, as contrasted with the constitutional system, the FRS actually politicized money, by enabling politicians, administrators, and a few selected special-interest groups to exercise the very influence over this country's monetary and banking systems that the Constitution had originally disallowed.

Americans tend to accept the description of the FRS as "politically independent" because, although control of the monetary and banking systems has serious political significance, the apologists for the FRS have been successful, over the years, in removing monetary and banking issues from the agenda of political parties and candidates and stifling public discussion of those issues. Yet,

Obviously, a group that could completely excise these matters from political discourse in the United States, without complaint by any significant part of the public, must be powerful indeed. Now, how the apologists for the FRS have been successful since 1913 in stifling political debate on money and banking the history books do not satisfactorily explain. What is clear enough, nonetheless, is that the FRS was established to remove the Constitution as the arbiter of national monetary policy on behalf of all Americans, and to guarantee instead that certain special-interest groups are disproportionately (indeed, monopolistically) represented in the determination of that policy, for the peculiar benefit of those groups and at everyone else's expense. Here, more than one level of analysis is pertinent.

A.     At the first level, the FRS appears as primarily a mechanism to "stabilize" the inherently fraudulent fractional-reserve banking system. From this perspective, the purpose of the FRS is not necessarily to do what the bankers want, but always to do what they need. Consider the devolution of the monetary system from a regime of commodity money to one of fiat money:

Under a regime of commodity money, the bankers employ the inherently fraudulent fractional-reserve system to expand the supply of fiduciary money (that is, bank-notes and deposit-currency) beyond the supply of commodity money (that is, gold and silver coin) available for redemption. This has two effects.

1. The bankers can loan more "money" than otherwise, thereby increasing their profits. And

2. The holders of the fiduciary money become unknowing (and presumably unwilling) "partners" with the bankers in these excessive loans, thereby spreading the risk of those loans throughout society and indirectly "insuring" the bankers at the expense of the general public.

Because the expansion of the supply of this inherently fraudulent fiduciary money is limited by the possibility of widespread demands for redemption (so-called "bank runs"), followed by bankruptcy of the issuing banks, the bankers as a class support a series of steps designed to insulate the fractional-reserve scheme from collapse.

First, they use every available means of propaganda, agitation, and disinformation to instill unjustified confidence in the holders of fiduciary money, so as to minimize redemption and thereby facilitate ever-greater expansion of the supply of that money. Underfunded "deposit-insurance" schemes (either private or public) typify this deceptive tactic.

Second, if "bank runs" do occur, the bankers importune the government to authorize "suspensions of specie payments": temporary refusals on the part of the issuers of the fiduciary money to redeem their notes with commodity money. This permits the bankers to remain in business even though they are bankrupt. "Suspensions of specie payments" are a key indicator of the breakdown of the free-market economy, because they are a governmentally protected repudiation of contracts - in effect, governmentally licensed theft.

Third, to prevent "bank runs" altogether, the bankers lobby for governmental permission to repudiate their fiduciary money totally and permanently - that is, to transform their fiduciary money into fiat money. This generally requires that the government activate some mechanism for the "forced circulation" of the fiat money, such as

These steps substitute the government - actually, the taxpayers - for the banks and their shareholders as the ultimate guarantors of the fiat money, in return for which the banks agree to two requirements:
1. They "monetize" the public debt, in effect enabling the government to use the fiat-money system as an instrument of taxation. And,

2. They cooperate in a cartel or other self-regulatory scheme to control their expansion of the supply of fiat currency within limits that maintain public confidence in the banking system and the government.

In short, the government and the banks agree to divide the amount that can be looted from the general public by manipulation of the money supply, and to moderate that looting so that the public never catches on.

The FRS is simply an elaborate device set up to accomplish these rather simple ends in a highly convoluted, and thereby deceptive, way. The FRS was the response of bankers and their political cronies to decades of failures in the fractional-reserve banking system at the local and regional levels throughout the United States. The FRS was an attempt to maintain that system in perpetuity - first, at the national level with the Federal Reserve Act in 1913, and then at the international level with the Bretton Woods Agreement in 1944. "Was" is the appropriate verb, because the Bretton Woods Agreement collapsed in 1971, with President Nixon's repudiation of redemption of FRNs in gold internationally; and mounting strains in the system have been appearing domestically since the 1970s.

The key dates in the devolution of the FRS are as follows:

So, today, Americans suffer under a regime of fiat money and unlimited fractional-reserve banking. In this system, the FRS plays a very simple, but vital role: When public confidence in the monetary and banking systems weakens, the FRS acts to "restore confidence". The FRS may use what the public considers "drastic means" in this alleged "fight", but never means so drastic that they precipitate genuine economic collapse or seriously endanger the long-term interests of the banking cartel, its satellite industries, and its political cronies.

The unavoidable problem, of course, is that any system of fractional-reserve banking suffers from inherent instability that increases over time, because at base fractional-reserve banking is a kind of "Ponzi" or "pyramid" scheme. For that reason, fractional-reserve banking is a "confidence game" in both senses of that term. The FRS, the banking cartel, and the politicians of the American one-party system operate on the theory that "You can fool all of the people some of the time, and some of the people all of the time - and that's good enough!" But they forget that, as Lincoln concluded, "You can't fool all of the people all of the time." Over time, some people - often large numbers of them - do learn. And people who have learned tend to act on their knowledge. So the remaining lifetime of the FRS "confidence game" may, and likely will, be relatively short.

B.     On a higher level of analysis, the FRS is not simply a control-mechanism for the national banking cartel, but also one of the most important mechanisms in a pervasive system of fascistic "economic regulation" that has been set up in this country, slowly but surely, since the turn of the century. This explains the "political independence" of the FRS in a way more logical than the idea that money and banking are no longer politically important, divisive, or even interesting subjects. If a fascistic state is to "regulate" the economy with relative autonomy from the electoral public and most special-interest groups, then its monetary agency must claim "political independence". (Actually, in a fascistic state, all of the regulatory agencies must claim "political independence" to some degree - which claim, not surprisingly, is advanced by essentially every administrative agency of the national government today. But the degree of "political independence" will vary with the importance of the agency to the overall scheme of centralized regulation of society.) Thus, the "political independence" the FRS claims is precisely expectable were it part of an anti-democratic mechanism of economic and political control. And that no constitutional branch of the national government - not the Congress, not the President, and not the Judiciary - disputes the FRS's supposed "independence" proves that those branches, too, have been co-opted as agencies of the fascistic state.

In sum, contemporary political money and the politicized banking system that generates it have five major consequences:

First, modern political money is the prime means by which the government operates a scheme of OPPRESSIVE, HIDDEN TAXATION through increases in the supply of money that generate systematic increases in the prices of goods and services (what the public calls "inflation").

Second, by operating as a system of hidden taxation, modern political money licenses the dominant financial and political oligarchy of this country to "REDISTRIBUTE" THE NATION'S WEALTH from one group to another - more than $6 trillion since World War II, according to the American Institute for Economic Research.

Third, by functioning as a mechanism for "redistributing" wealth, modern political money SYSTEMATICALLY CORRUPTS THE ELECTORAL PROCESS, enabling politicians to buy votes with promises of new or expanded governmental spending-programs made possible only by the banking system's ability to "monetize" the public debt.

Fourth, by linking the banking system to the public debt, modern political money licenses the banks to LOOT THE PUBLIC TREASURY, initially by guaranteeing FRNs as "obligations of the United States" and specially privileging those notes as "legal tender", and ultimately by providing taxpayer-funded "bail outs" of the bankers when the scheme of inherently fraudulent fractional-reserve banking collapses.

Fifth and last, modern political money and political banking function as key mechanisms in the scheme of FASCISTIC CENTRAL ECONOMIC PLANNING that misdirects and wastes resources and thereby lowers the standard of living of the vast mass of Americans for the benefit of a privileged few.

IV.     Although long a powerful - and today still a politically untouchable - institution, the FRS faces a dismal future. This can be assessed by considering the contemporary political-economic conditions that have given rise to the problem of collapsing domestic banks.

A.     The first of these conditions is the essentially fictional and fraudulent nature of modern paper money and fractional-reserve banking.

The fictional and fraudulent character of contemporary paper money is a demerit additional to the inescapable economic disparity between all paper money and real money (that is, silver and gold coins). Paper money can never be economically equivalent to real money because:

In short, even when paper money is actually a promise to pay - and potentially fully redeemable in silver or gold - it remains an asset to its holder only to the extent that the issuer of the promise ultimately makes good on his liability to redeem, or that other people are themselves sufficiently confident of the promisor's solvency to accept the paper money at its face value in exchange for nonmonetary goods and services. In the final analysis, paper money is an asset only if it can be cashed or passed without loss in purchasing power as against real money - which the holder of paper money can determine only when he actually cashes or passes it.

In the United States, for example, today's fiat paper currency is neither itself a valuable commodity nor even a credible promise to pay a valuable commodity in redemption. No holder of FRNs has any legal right to require that the Federal Reserve Banks or the United States Treasury redeem them for any amount of any commodity. And no holder of these notes has any legal right to compel any other ordinary person to exchange a fixed amount of any good or service for some known nominal value of this currency proportional to some weight of silver or gold. Indeed, notwithstanding the statutory mumbo-jumbo mandating their redemption "in lawful money", guaranteeing them as "obligations of the United States", and declaring them "legal tender" for all debts, the most a holder of FRNs can demand as a matter of law is that the national government receive them in discharge of tax-liabilities. Thus FRNs are largely fictional money: for they are, in fact and law, a medium of exchange certain exchanges of which are absolutely refused by their issuers and conditionally refused by everyone else in the marketplace, and which the government accepts only to set off antecedent tax-claims the size of which it unilaterally determines in the first instance. FRNs are, really, just tax-anticipation coupons masquerading as money.

Similarly, contemporary "reserve" banking is, not merely "fractional", but rather inherently fictional. For no bank in the FRS maintains any real "reserves" of money, only paper notes or bookkeeping-entries that the system can "create out of nothing", at any moment and in any amount - but the purchasing power of which in real money (silver or gold) or in any valuable commodity the system cannot guarantee at any time or to any degree.

Moreover, the essentially fictional character of contemporary fiat paper currency and "reserve" banking is the source of their inherent fraudulence - because the fiction is unknown to (indeed, carefully hidden from) the general public. The special privilege of the FRS to emit unlimited amounts of irredeemable, "legal-tender" paper currency, and to loan that currency at interest through the system's commercial member-banks, amounts to a veritable license to steal - because the general public is unaware of the economic significance of the currency's irredeemability, and ignorantly assumes that its designation as "legal tender" compels its use as a medium of exchange to the exclusion of all other forms of money.

The abjectly fictional nature of modern paper currency and fractional-reserve banking encourages the question: why do fiat FRNs continue to circulate, and banks without any real monetary reserves continue to function? Those who accept the theory that "money" is whatever the government decrees would answer that FRNs (or bank-deposits denominated in FRNs) have value as media of exchange in the marketplace because people must acquire them in order to pay their taxes. The obvious fallacy here, though, is that the government accepts payment of taxes in FRNs precisely because those notes have a finite purchasing-power in the market, and therefore are usable as "money" by the government. It is not the present and future taxability of the notes that gives them their market exchange-value, but their residual market exchange-value that renders them viable as a medium of taxation. One must recall that FRNs were originally redeemable, directly or indirectly, in gold coins, silver coins, or both. For that reason, FRNs had a real exchange-value in the market that reflected their underlying redemption-values in gold or silver, and depended not at all on their use as a medium of taxation but indeed made them valuable for that purpose. When FRNs became wholly irredeemable after 1968/1971, they lost any fixed or predictable market exchange-value in terms of real money, and therefore became of increasingly uncertain value as a medium of taxation, too (at least to the extent they continue to depreciate in market exchange-value, as they have, steadily, since then).

A more realistic explanation for the continued circulation of FRNs (or bank-deposits denominated in FRNs) as "money" is that the general public is the victim of a confidence-game, in which the government and the banks have foisted off paper liabilities in the place of real monetary assets in an inverted pyramid of monetary fraud. At the tip of this upside-down pyramid are real "dollars": silver and gold coins that are themselves monetary assets and no one's liabilities, and circulate among those knowledgeable about the differences between real money and paper money. Next in amount in circulation - and at the first level of the institutionalized fraud - are the base-metallic token (or "clad") coins of cupro-nickel alloy. These are monetary assets to the extent of their salvageable metallic content - which is worth about 2% or less of their face values - , but otherwise are liabilities of the government which at one time were redeemable in silver, but are today wholly irredeemable. The next largest fraudulent circulating medium consists of actual FRNs, today "redeemable" only in "clad" coins. Finally, the greatest portion of the so-called "money supply" consists of bank demand-deposits, most of which have been loaned at interest to persons other than the depositors. Revealingly, not only are these purported deposits not actually on deposit in the banks at all, but also the deposits are not even formally "redeemable", because the deposits themselves are not the depositors' "money", but the banks'! The deposits are loans of money the depositors (many of them unknowingly) have made to the banks, and which the banks have then further loaned to third parties.

But how many people are aware of this situation? Why do the government and the banks not educate those who are unaware of what is really going on - other than because the government and the banks knowingly profit from public ignorance and therefore intentionally promote it? And how long can such a swindle continue?

B.     This question highlights the second of the contemporary political-economic conditions that underlie the problem of collapsing domestic banks: namely, the inability of the banks to continue indefinitely to increase the supply of money within the domestic economy, that is (as the saying goes), to "expand credit" (because the supply of new money derives from the extension of bank-credit to borrowers). The answer to the question "How long can this confidence-game last?" is "Not forever!". If, on the one hand, the banks overly expand credit, hyperinflation occurs (that is, the purchasing-power of the monetary unit falls exponentially). If, on the other hand, the banks overly restrict the expansion of credit in order to avoid hyperinflation, recession and then depression occurs (that is, people borrow less, and then existing borrowers in massive numbers default on loans). The bankers' "trick" (and dilemma) is to continue to expand credit within an expanding, and therefore essentially noninflationary, economy. The insoluble problem inherent in credit-expansion through fractional-reserve banking, however, is that expansion of a fiat money supply inevitably misdirects and wastes real economic resources, resulting in an increasingly nonrational economy - that is an economy that does not expand in real terms. In short, credit-expansion by fractional-reserve banking in the long run guarantees economic collapse, with resultant social chaos and political crisis.


No crystal ball is necessary to predict that a turning-point in the history of money and banking in the United States is drawing nigh. The burden of governmental debt - much of it made possible only by central-bank "monetization" - has approached levels unsustainable in real terms even with drastically increased confiscation of Americans' earnings through explicit taxation. But Americans seem reluctant to accept more taxation to fund the never-ending follies of a spendthrift welfare state. Thus, repudiation of the debt (in whole or in part) through extreme depreciation of FRNs and bank-deposits denominated therein appears likely, if not certain.

For this looming debacle, Americans can thank the FRS, the "experts" who administered it since 1913, the politicians who wed it as a "cover" to finance their own careers, the bankers who profited from their monopoly over the emission of "legal-tender" paper currency, and the "intellectuals" in academia, the press, and the media who (quite unlike their counterparts in the last century) remained strangely silent on the issue of money and banking. That is, Americans can properly thank these people if Americans become aware of what the FRS is, what it does, and why it is responsible for having undermined to the point of collapse the nation's once proudly prosperous economy and staunchly republican political process.

Hopefully that day of a new national awareness will soon be at hand.

The above monograph is the fourth in a series of nine published by The National Alliance for Constitutional Money, Inc., 13877 Napa Drive, Manassas, Virginia 22111. Each of the monographs in this series discusses a significant aspect of the current monetary system and no serious student of the money issue should be without these articles. If you wish to obtain the remaining monographs, contact the National Alliance and make a generous contribution.

Dr. Vieira is also the author of PIECES OF EIGHT: THE MONETARY POWERS AND DISABILITIES OF THE UNITED STATES CONSTITUTION - A STUDY IN CONSTITUTIONAL LAW. This work is the most exhaustive and scholarly treatise ever written regarding the legal history of money in this country. This work is currently being revised and will be available soon from the National Alliance.