Howard Buffett explains the “Golden Leash”

(How the citizen's gold used to control Washington)

Excepted from an edition of Freemarket Gold & Money Report.

Rep. Howard Buffett, father of Wall Street legend Warren Buffett, addressed a group of businessmen on May 4, 1948. His address was published two days later in The Commercial and Financial Chronicle, and has been reprinted by the Committee for Monetary Research & Education (10004 Greenwood Court, Charlotte, NC 28215-9621), a not-for-profit organization dedicated to the restoration of sound money.

The passage of time has proven Rep. Buffett to be right, so the ideas of this brilliant Congressman from Nebraska should be reexamined in the light of our quest for reform and our need to regain control of Congress.

The problem

"Today Congress is constantly besieged by [special interest] groups seeking benefits from the public treasury. Congressmen find it difficult to persuade themselves not to give in to pressure groups. With no bad immediate consequence it becomes expedient to accede to a spending demand. The Treasury is seemingly inexhaustible. Besides the unorganized taxpayers back home may not notice this particular expenditure - and so it goes."

"Because [a politician's] continuance in office depends upon pleasing a majority of the pressure groups," there is a natural propensity for over-spending. Rep. Buffett recognized this reckless tendency to be a political fact of life, with predictable and discouraging results if left uncontrolled.

.... How the leash works!

"Before 1933 the people themselves had an effective way to demand economy. Before 1933, whenever the people became disturbed over Federal spending, they could redeem their paper currency in gold, and wait for common sense to return to Washington."

"That happened on various occasions and conditions sometimes became strained, but nothing occurred like the ultimate consequences of paper money inflation."

"When the people's right to restrain public spending by demanding gold coin was taken away from them, the automatic flow of strength from the grass-roots to enforce economy in Washington was disconnected."

The Solution, restated:

...... "With a restoration of the gold standard, Congress would have to again resist handouts. If Congress seemed receptive to reckless spending schemes, depositors' demands over the country for gold would soon become serious. That alarm in turn would quickly be reflected in the halls of Congress. The legislators would learn from the banks back home and from the Treasury officials that confidence in the Treasury was endangered."

"Congress would be forced to confront spending demands with firmness. The gold standard acted as a silent watchdog to prevent unlimited public spending."

"Most opponents of free coinage of gold admit that restoration is essential, but claim the time is not propitious. Some argue that there would be a scramble for gold and our enormous gold reserves would soon be exhausted."

"Actually, this argument simply points up the case. If there is so little confidence in our currency that restoration of gold coin would cause our gold stocks to disappear, then we must act promptly."

Ironically, even though Gold redeemability was not restored, much of our Gold stock has disappeared. The 22,100 tonnes held in May 1948 has been drastically reduced to 8,100 tonnes today. This dissipation happened in a way that Rep. Buffett would have found alarming because he understood irredeemable currency posed a threat that could deplete American wealth.

The "gold is not subject to demand by American citizens. It could all be shipped out of this country without the people having any chance to prevent it."

The reduction of the Gold stock robbed the American people. They created the wealth that built it, but they were helpless from stopping its dispersal. Nevertheless, what remains is still the world's largest hoard of Gold, and it can be put to effective use by reestablishing Dollar redeemability into Gold.

"There is only one way that these spending pressures can be halted, and that is to restore the final decision on public spending to the producers of the nation. The producers of wealth - taxpayers - must regain their right to obtain gold in exchange for the fruits of their labor. This restoration would give the people the final say-so on governmental spending, and would enable wealth producers to control the issuance of paper money and bonds."

"Far away from Congress is the real forgotten man, the taxpayer who foots the bill. He is in a different spot from the tax-eater or the business that makes millions from spending schemes. He cannot afford to spend his time trying to oppose Federal expenditures. He has to earn his own living and carry the burden of taxes as well."

"But for most beneficiaries a Federal paycheck soon becomes vital in his life. He usually will spend his full energies if necessary to hang onto this income."

"The taxpayer is completely out-matched in such an unequal contest. Always heretofore he possessed an equalizer. If government finances weren't run according to his idea of soundness he had an individual right to protect himself by obtaining gold."