The strangest measure on the Nov. 3 ballot is surely Referendum 41, State Sen. Jack Metcalf’s crusade to challenge the legality of Federal Reserve Notes. Metcalf argues that the Constitution’s grant to Congress of the power “to coin money [and] regulate the value thereof” cannot be delegated. The Fed, says Referendum 41, is subject to “no oversight or control by any elected body or official.” 

         Metcalf, 59, a soft-spoken and earnest Republican from Langley on Whidbey Island, is a former high-school history teacher. His crusade springs straight out of the history books of the 19th century. 

         A century ago, an impassioned battle raged over the monetary system. The conflict echoes faintly today in the arguments about interest rates, but in those days it was anything but faint. At stake was whether the nation would restrict the money supply to the amount of gold the government had, or expand it with a lot of new silver or paper dollars. In that struggle the gold people were the conservatives, the “free silver” people the liberals, and the paper-money people the radicals — the bank-hating “greenbackers.”

         Metcalf is a greenbacker.

         The first greenbacks were issued in the Civil War. To pay for the war, Abraham Lincoln’s Congress authorized the Treasury to print $450 million in United States Notes. They were not redeemable in gold, and traded at a discount to coin. After the war, the government took 15 years to shrink the money supply so it could resume paying gold coin for paper at the old rate.

         The result was a credit squeeze on farmers. Farm-belt populists, who hated city bankers, started the Greenback Party. They elected 14 congressmen in 1878. Their goals, wrote Milton Friedman and Anna Schwartz in A Monetary History of the United States, “included a plentiful supply of currency, destruction of the ‘money monopoly,’ elimination of foreign capitalists in the United States, and reduction in the burden of debt.”

         Except for the part about foreign capitalists, those are Jack Metcalf’s goals.

         In 1879 the dollar became convertible into gold, and the greenbackers faded away. They regrouped in 1892 as the People’s Party, and embraced “free silver” — the idea that the government buy silver at a high fixed price and coin it. In 1896 they won over the Democratic Party. Its evangelical nominee, William Jennings Bryan, vowed in his acceptance speech that he would not “crucify mankind upon a cross of gold.”

Bryan lost, and the dollar remained convertible into gold until 1933. But the gold standard was prone to crises. After the Panic of 1907, Congress created the Federal Reserve System, and after the Crash of 1929, Franklin Roosevelt took the nation off gold. Paper money today is all Federal Reserve Notes.

         Well, almost all. Lincoln’s greenbacks were never fully withdrawn, and an occasional $2 or $100 United States Note, reprinted and reissued, can occasionally be found to this day. Jack Metcalf certainly hasn’t forgotten them. He says they’re the only legal paper money in circulation.

         Metcalf says the only other legal money is coin, because coins are made by the Treasury. In April 1981, at the beginning of his anti-Fed crusade, Metcalf got his name in the news by insisting that a $383 expense check be cashed in Susan B. Anthony dollars. Endorsing his check, he wrote, “It is hereby noted that in cashing this check I will accept only constitutional, lawful money.”

         Gold advocate Kent Pullen, a Republican state senator from Kent, shuddered. “I said, ‘Jack, you just undermined all those principles you stood for by accepting those cheap Susan B. Anthony dollars.’ ”

         But Metcalf stands for different principles. He wants to replace the Federal Reserve with a new system under which all money would be created by the Treasury. For tactical reasons, Referendum 41 specifies what it’s against, not what it’s for. Says Metcalf, “I’m not getting into a fight with the gold and non-gold people.”

         On Sept. 6, 1987, Metcalf held a press conference at the Seattle Sheraton Hotel, where the 1988 presidential nominee of the Libertarian Party, Ron Paul, endorsed Referendum 41. The Libertarians favor a gold standard to preserve the value of currency and limit the power of government.

         Metcalf wants to limit the power of bankers. He wants low interest rates and a lightening in the burden of debt. The Bible, he says, condemns the sin of usury, the charging of an unreasonable rate of interest. “I don’t know when ‘interest’ ends and ‘usury’ begins,” he says with earnest deliberation, “but 10 percent interest is criminal looting.”

         Metcalf was a teenager during the 1930s Depression, and recalls the mass unemployment and suffering that the wise men of the day could not explain. Says he, “I remember my parents saying, ‘There’s something wrong with the money.’ ”

         He also remembers his first home mortgage, in the 1940s, at 4.75 percent. The 1940s had low rates because Franklin Roosevelt and Harry Truman kept the Fed under the Treasury’s thumb, to support the sale of war bonds. All during World War II, the bank prime rate was stuck at 1.5 percent, and nobody thought of the chairman of the Federal Reserve Board as a power to rival the President.

         The Fed broke free of the Treasury during the Korean War and raised interest rates. Its power increased as it was called on to fight the inflation of the 1970s. By the 1980s, Fed Chairman Paul Volcker was considered the second most powerful man in Washington, D.C., and was accused of raising rates so high that it cost Jimmy Carter his re-election.