A well-known story from yesteryear: when Venustiano Carranza was President
of Mexico (1917-1920). Carranza issued a great quantity of worthless paper
money, which caused much resentment on the part of the population. Someone
(whose identity was never discovered) printed up some papers, and these were
pasted one night on the walls of buildings in the heart of Mexico City; the
papers had the following text:
“The Mexican eagle is a very cruel animal: It eats only silver, and
shits only paper.”
President Carranza was furious on account of the insult, and his
government offered a reward of $5,000 Pesos for information leading to the
arrest of the culprit.
The witty author answered with a new text pasted on the walls of downtown
Mexico City during the following night:
“And with what is the payment to be? With what the eagle eats, or with
what the eagle shits?
Another tale from the time of Carranza: one good day, one of the humble
peasant women selling vegetables in the great “Merced” market of downtown
Mexico City refused to receive payment for her vegetables in paper money. She
demanded silver coin in payment. Her example was swiftly followed by the rest
of the women selling foodstuffs at the market. I have no further information
on what happened after that, but I suspect that this refusal to accept paper
money led to the end of Don Venustiano’s paper money scheme. In 1920, he
created the 0.720 Peso (i.e. 72% pure silver) which was the money that Mexico
used up to 1945, when the coin could no longer be minted because the price of
silver in the coin became worth more than $1 Peso.
I think it is interesting to know why the Mexican monetary unit is called
the “Peso”. In 1535, the Mexican Mint in Mexico City began to mint silver
coins that eventually became the most-used money in the world: the famous
“Pieces of Eight”. (Under President Jefferson, the model of the Mexican
“Pieces of Eight” was the model used for the US Silver Dollar.) After Mexican
Independence, the “Pieces of Eight” minted under Spanish rule had to be modified
in their facial characteristics, in accord with the new situation of
independence from Spain. The world “peso” in Spanish, means “weight”. The new
coin was called the “Peso”, because it contained the same weight of silver as
its predecessor, the “Pieces of Eight”. This Mexican silver Peso continued to
be the money of Mexico from 1812, shortly after Independence, up to the
outbreak of the Mexican Revolution, in 1910. So the silver money established
under Monarchy continued without change for nearly four centuries, from
1535 to 1910 – a notable case of monetary stability, perhaps only outdone by
the gold Bezant of the Byzantine Empire.
Venustiano Carranza was assassinated in 1920: some historians claim that
he was assassinated because his policy did not accommodate the interests of
the US, whose aim was to put an end to the great productivity of Mexican
agriculture, at the time in the hands of the great landowners of the country.
Don Venustiano was opposed to the “Agrarian Reform” that the US wished to
impose upon Mexico.
Perhaps the assassination of Don Venustiano also opened the way for
the creation of a Central Bank in Mexico, which took place in 1925. Its
organization was parallel to the creation of the Federal Reserve in 1913. We
cannot know whether he would have favored the creation of a Central Bank, or
not.
Up to 1925 there existed in Mexico private banks which were well-managed,
as for example the Terrazas Bank in the State of Chihuahua in northern
Mexico, whose banknotes enjoyed an unblemished reputation as representations
of wealth - that is to say, their banknotes were fully redeemable in silver
money upon presentation to the bank. However, there were also some private
banks that were not well-managed by their owners, who used their banks to finance
their own ventures, which sooner or later led to their bankruptcy, to the
detriment of their depositors and creditors, among which were the owners of
the banknotes they had issued as money.
One of the reasons given both for the creation of the Federal Reserve in
1913, and for the creation of Banco de Mexico in 1925, was that it was
necessary to do away with “the bankruptcy of banks” – though the leaders of
the move to create the Federal Reserve were the great bankers of the US, who
wanted to create an entity that would protect them from their own
mismanagement, by means of a guarantee of financial support of the
Federal Reserve if and when they should run into a situation of insolvency.
The result of the “Guarantee” on the part of the Federal Reserve was that
all the banks associated to the banking system under the control of the
Federal Reserve immediately proceeded to operate imprudently: if one bank
acted imprudently without any risk, it would have a competitive advantage
over its rivals; therefore all were compelled to act imprudently or get left
behind. The mismanagement consisted in “borrowing short and lending long”, in
other words using funds obtained either “at sight” or for a short period of
time from depositors and investors, and lending them out for a longer term,
which was more profitable. The same result obtains at present, in the Mexican
banking system.
Another reason given for the creation of a Central Bank in Mexico, was
that the issue of banknotes would not be permitted to private banks, but
would be a function enjoyed exclusively by the Central Bank, which would thus
establish a sound and reliable monetary system in the country.
However, what was achieved was a situation which was much worse: instead
of having to suffer the bankruptcy of some isolated banks of private
property, the establishment of Banco de Mexico became an entity which would
collaborate with the government in the government's requirements of unlimited
spending.
The interests of isolated cases of private banks whose mismanagement
continued until they reached insolvency and bankruptcy, were substituted by a
Federal entity, Banco de Mexico, which can never go bankrupt and whose
banknotes and digital money must be unquestionably accepted in payment of
debts, notwithstanding their continual depreciation.
Up until 1925, and practically since our Independence up to the present,
with the exception of the revolutionary period (1910 – 1925) the Peso/Dollar
ratio was always more or less $2 Pesos for $1 Dollar. Today, the Peso/Dollar
ratio hovers around $19,000 Pesos for $1 Dollar – if we ignore the make-up
applied to the Peso en 1993, when three zeros were erased from the ratio. And
we all know that the Peso is in danger of falling to $20, to $23, to $25,000
or more – God only knows what is in store for the Banco de Mexico Peso!
To make matters worse, we have to take into account the fall in value of
the Dollar itself, during the same period - for the same reason,
excessive money printing or creation of excessive digital money. It has been
calculated that the US Dollar is today worth only 3 Cents or less of its
value in 1925.
One highly important result of the monetary system we are forced to
endure, has been the progressive moral deterioration of society in
general, both in the Mexico and in the US – actually in the whole world.
The world’s thinkers turn a blind eye to the very strong link that exists
between the prevailing morality in a nation and its monetary system. Honesty
prevails where real money - of gold or silver – prevails. When a nation is
forced to live with false money – paper or digital – honesty is compromised
and vice booms; just one of the many symptoms of moral breakdown is the
flight from a situation of uncertainty into the refuge of a drug-induced
stupor, when how to act in order to provide for life becomes an
unsolvable puzzle due to the forced use of false money. Apparently, the
Catholic Church itself does not worry about false money. I once had a
conversation with Cardinal Norberto Rivera, during which I suggested the
support of the Church for my proposal regarding the silver “Libertad” ounce.
Don Norberto yawned and said he knew nothing about monetary affairs.
I close with a last anecdote:
My father-in-law, Don Guillermo Pliego y Pliego, once told me of an
experience he had: “I saw a truck in downtown Monterrey (Mexico) on its way
to the refinery at American Smelting and Refining Company, loaded with 0.720
silver Pesos; the truck had a mishap and dumped its silver load into the
street; hundreds of Pesos rolled down the street, but the people passing by
gathered every one of them and returned them to the truck.”
Can we imagine how people would react, in a similar situation, today?
