The Mystery of Banking

some
definition of weight, I propose that
the most convenient definition is one that will enable us, 
at one
and the same time
as returning to a gold standard, to denational-
ize gold and to abolish the Federal Reserve System. 
Even though, for the past few years, private American citizens
have once again been allowed to own gold, the gold stolen from
them in 1933 is still locked away in Fort Knox and other U.S.
government depositories. I propose that, in order to separate the
government totally from money, its hoard of gold must be 
dena-
tionalized
; that is, returned to the people. What better way to
denationalize gold than to take every aliquot dollar and redeem it
concretely and directly in the form of gold? And since demand
deposits are part of the money supply, why not also assure 100
percent reserve banking at the same time by disgorging the gold
at Fort Knox to each individual and bank holder, directly redeem-
ing each aliquot dollar of currency and demand deposits? In
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short, the new dollar price of gold (or the weight of the dollar),
is to be defined so that there will be enough gold dollars to
redeem every Federal Reserve note and demand deposit, one for
one. And 
then
, the Federal Reserve System is to liquidate itself by
disgorging the actual gold in exchange for Federal Reserve notes,
and by giving the banks enough gold to have 100 percent reserve
of gold behind their demand deposits. After that point, each bank
will have 100 percent reserve of gold, so that a law holding frac-
tional reserve banking as fraud and enforcing 100 percent reserve
would not entail any deflation or contraction of the money sup-
ply. The 100 percent provision may be enforced by the courts
and/or by free banking and the glare of public opinion. 
Let us see how this plan would work. The Fed has gold (tech-
nically, a 100 percent reserve claim on gold at the Treasury)
amounting to $11.15 billion, valued at the totally arbitrary price
of $42.22 an ounce, as set by the Nixon administration in March
1973. So why keep the valuation at the absurd $42.22 an ounce?
M-1, at the end of 1981, including Federal Reserve notes and
checkable deposits, totaled $444.8 billion. Suppose that we set the
price of gold as equal to $1,696 dollars an ounce. In other words
that the dollar be defined as 1/1696 ounce. If that is done, the Fed’s
gold certificate stock will immediately be valued at $444.8 billion. 
I propose, then, the following: 
1. That the dollar be defined as 1/1696 gold ounce. 
2. That the Fed take the gold out of Fort Knox and the
other Treasury depositories, and that the gold then be
used (a) to redeem outright all Federal Reserve Notes,
and (b) to be given to the commercial banks, liquidating
in return all their deposit accounts at the Fed. 
3. The Fed then be liquidated, and go out of existence. 
4. Each bank will now have gold equal to 100 percent of
its demand deposits. Each bank’s capital will be written
up by the same amount; its capital will now match its
loans and investments. At last, each commercial bank’s
loan operations will be separate from its demand
deposits. 
Conclusion
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5. That each bank be legally required, on the basis of the
general law against fraud, to keep 100 percent of gold
to its demand liabilities. These demand liabilities will
now include bank notes as well as demand deposits.
Once again, banks would be free, as they were before
the Civil War, to issue bank notes, and much of the gold
in the hands of the public after liquidation of Federal
Reserve Notes would probably find its way back to the
banks in exchange for bank notes backed 100 percent
by gold, thus satisfying the public’s demand for a paper
currency.
6. That the FDIC be abolished, so that no government
guarantee can stand behind bank inflation, or prevent
the healthy gale of bank runs assuring that banks remain
sound and noninflationary. 
7. That the U.S. Mint be abolished, and that the job of
minting or melting down gold coins be turned over to
privately competitive firms. There is no reason why the
minting business cannot be free and competitive, and
denationalizing the mint will insure against the debase-
ment by official mints that have plagued the history of
money. 
In this way, at virtually one stroke, and with no defla-
tion of the money supply, the Fed would be abolished,
the nation’s gold stock would be denationalized, and
free banking be established, with each bank based on
the sound bottom of 100 percent reserve in gold. Not
only gold and the Mint would be denationalized, but
the 
dollar
too would be denationalized, and would take
its place as a privately minted and noninflationary cre-
ation of private firms.
8