Fifty years ago, the United States began actively debasing the dollar, and the results are now readily apparent: low price-adjusted productivity and total compensation growth, extraordinary wealth and income disparities, and a more treacherous employment environment.
From the beginning of our republic, in 1792, the U.S. dollar was able to purchase 0.77 ounces of silver on a relatively consistent basis, until 1965. That year, President Lyndon Johnson signed the Coinage Act, which permitted the circulation of coins made from less valuable metal alloys instead of the original silver composition.
Since 1965, the dollar’s purchasing power has been in free fall – reaching a nadir of 0.02 ounces of silver in 1980, and recovering minimally to 0.06 ounces of silver today.
Further insult occurred when the dollar lost its backing by gold in 1973 under President Richard Nixon. As the value of the dollar slid, so did productivity. From 1947 through 1973, productivity expanded at an average annual rate of 2.8 percent. However, since 1973, this figure plummeted to a paltry 1.8 percent, according to the Bureau of Labor Statistics.
As productivity declined, many households required more than one earner to maintain comparable living standards.
The civilian labor participation rate for prime-age workers, from 25 to 54 years, was 64 percent in 1948, and by 1965, it reached 70 percent, according to the Federal Reserve. However, following the dollar debasement that year, this figure reached a zenith of 84.6 percent in January 1999 — a staggering rise given the relatively small improvement in living standards for many.
The labor participation rate has since retreated to 81 percent, not because we are experiencing an economic renaissance, rather because many workers in this age group are unable to get absorbed into the labor market due to poor business conditions or less than adequate skill levels.
How can we improve productivity?
Private currency creation is a critical way. Money creation predicated on a creative and innovative use of resources will provide the foundation for stable productivity and income growth.
Effective currency creation will stimulate more prudent long term investment in real goods and services, generating strong economic growth and a more consistent relationship between the money supply and the quantity of goods and services produced. In this scenario, labor productivity will rise, business cycle volatility will fall, and income and purchasing power will increase.
This is the premise behind the virtual currency movement.
Recently, Representative Paul Brown, R-Georgia, reintroduced the Free Competition in Currency Act, an idea originally promoted by Ron Paul, the former Texas Congressman, and based on the work of Friedrick Hayek, a Nobel laureate in economics.
This bill would end legal tender laws, permit private coinage and eliminate capital gains taxation on gold and silver. Also reintroduced recently was the proposal for the Centennial Monetary Commission by Representative Kevin Brady, R- Texas, chairman of the House-Senate Joint Economic Committee, to examine United States monetary policy, evaluate alternative monetary regimes and recommend a course of monetary policy going forward.
In addition to monetary reform, fiscal changes are essential to resuscitate labor productivity and economic growth. Principal among the possible initiatives is the simplification of the tax code.
My proposal, in collaboration with my wife Billie, can balance the budget at current spending levels with lower rates, fewer deductions and smaller compliance costs. We have work to do America – let’s get started!
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