Monthly Archives: February 2008

A Comment and Critique of Congressman Ron Paul’s Statement on Competing Currencies

A Comment and Critique of Congressman Ron Paul’s Statement on Competing Currencies

Thomas H. Greco, Jr. February 18, 2008

My recent message, which included the text of Congressman Ron Paul’s Statement on Competing Currencies, drew a flurry of responses, some positive and some negative. That’s fine because now I know I’ve got people’s attention.

Now I would like to explain why I think his message is so important and why I decided to circulate it. There are several good reasons I did not mention in my introduction.

I intended from the start to write a detailed critique of Congressman Paul’s monetary agenda, but I did not want to delay its circulation. I’ll include at least a portion of that critique toward the end of this message. I will outline what I agree with and what I disagree with, adding some points about implementation strategies that I think have better chances of success than the political approach which Congressman Paul and other monetary reformers find it difficult to see beyond.

The truth of Lord Acton’s warning that “power corrupts” becomes more evident every day, so anything that enables the ever-increasing concentration of power must be exposed and disabled. Although it is not widely recognized, the monopolistic control of the money system is primary among these.

So my reasons are these:

1. Ron Paul’s message has made the money issue, for the first time in decades, part of the mainstream political dialog. His candidacy for the office of president, and his demonstrated ability to raise significant amounts of money from a grassroots constituency have attracted some mainstream media attention, enabling his statements on money to get some major exposure.

2. Congressman Paul’s statement explicitly exposes the fact that we have “a government-instituted banking cartel that monopolizes the issuance of currency,” and makes the case that competition in currencies is necessary to restoring democracy in America.

3. His statement calls for “eliminating legal tender laws.” People need to understand that legal tender laws play an essential role in empowering and enriching central governments and banking elites at the expense of the people and democratic governance. Legal tender laws amount to, quite simply, a license to steal. They enable the federal government to spend virtually any amount of money for wars and favors to crony corporations without regard to its limited tax revenues. Chronic deficit-spending creates debt that will never be repaid. It takes value out of the economy by diluting the money supply with legalized counterfeit. Eliminating legal tender is the single most important step in reining in abusive central government and restoring the balance of power.

Do I believe that repeal of legal tender is a likely prospect? Under the present circumstances I put the probability at nil, as I do the chances of getting any kind of political solution to the money problem. But we must look ahead to a time when it will be possible to establish truly democratic government in which people hold power at the local level and the upward assignment of responsibilities is only provisional and temporary. Just as the separation of church and state was a huge step forward, which was enshrined in the United States Constitution, and is generally accepted as a fundamental tenet of democracy, so too the separation of money and state will need to be explicitly enshrined in a new or amended constitution.

4. He correctly states that, “In the absence of legal tender laws, Gresham’s Law no longer holds.”

Under legal tender laws, which force acceptance of “bad money,” “bad money” drives “good money” out of circulation. In the absence of legal tender laws, the bad money will be rejected or discounted in the marketplace leaving in circulation only “good money,” money that people trust.

5. The Paul message includes some current and historical anecdotes that provide additional insights into the dimensions of the money problem. Specifically, he refers to various government actions that were designed to eliminate free exchange by shutting down competing exchange media.

Anyone who seeks to establish community currencies or other alternative exchange processes, needs to be cognizant of these potential hazards.

Now, for my critique:

Anyone who has been following my work knows that I have repeatedly made clear my opposition to using gold as money. While gold (or silver) might serve as an objective measure of value, there is no need to revert to gold as a payment medium. But even in the role of value measure, gold has serious shortcomings, not the least of which is the fact that the market for gold is manipulated by the large holders of gold. I made these points in my 2007 Malaysia presentation

The traditional functions which money is supposed to serve must be segregated. For my brief recent statement on this see,

The exchange of real value, which money is supposed to facilitate, has evolved beyond money. This is the fact that the “gold bugs,” and almost everyone else, fail to recognize. As I’ve described in my presentation on The Evolution and Transformation of Money, the highest stage of evolution in the exchange process is direct credit clearing. This is a process by which accounts payable (resulting from purchases) are offset by accounts receivable (resulting from sales) within a circle of associated buyers and sellers.

This approach has the added advantages of bypassing all the sales tax issues associated with using commodities, including gold, as exchange media.

So, in brief, all kinds of “money” are obsolete. All that is required now is a system that provides for the democratic allocation and management of credit. If we insist on using the term money, we must say that money is nothing more than credit.

The local, democratic management of credit and the establishment of networks that connect those local credit clearing entities into regional and global trading unions provides the means for establishing true economic and political democracy and a dignified life for all.

Congressman Ron Paul – Statement on Competing Currencies

Dr. Ron Paul is probably the only member of the United States Congress who really understands the “money problem” and is intent on doing something about it. Yesterday, February 13, 2008, Congressman Paul delivered the following message before the US House of Representatives. It is a clear, concise, and pointed statement about what ails, not just the American economy, but American democracy. And since the monetary systems of virtually every country around the world follow the same basic pattern, it behooves everyone to read it.

If the world is to avoid catastrophic economic and political convulsions, the money problem must be solved. How to achieve that has been the focus of my work for almost 30 years. While Congressman Paul and I may not totally agree on monetary design principles or on implementation strategies, what he proposes should receive close scrutiny and strong support. – t.h.g.

Congressman Ron Paul

Statement on Competing Currencies

February 13, 2008

Madam Speaker,

I rise to speak on the concept of competing currencies. Currency, or money, is what allows civilization to flourish. In the absence of money, barter is the name of the game; if the farmer needs shoes, he must trade his eggs and milk to the cobbler and hope that the cobbler needs eggs and milk. Money makes the transaction process far easier. Rather than having to search for someone with reciprocal wants, the farmer can exchange his milk and eggs for an agreed-upon medium of exchange with which he can then purchase shoes.

This medium of exchange should satisfy certain properties: it should be durable, that is to say, it does not wear out easily; it should be portable, that is, easily carried; it should be divisible into units usable for every-day transactions; it should be recognizable and uniform, so that one unit of money has the same properties as every other unit; it should be scarce, in the economic sense, so that the extant supply does not satisfy the wants of everyone demanding it; it should be stable, so that the value of its purchasing power does not fluctuate wildly; and it should be reproducible, so that enough units of money can be created to satisfy the needs of exchange.

Over millennia of human history, gold and silver have been the two metals that have most often satisfied these conditions, survived the market process, and gained the trust of billions of people. Gold and silver are difficult to counterfeit, a property which ensures they will always be accepted in commerce. It is precisely for this reason that gold and silver are anathema to governments. A supply of gold and silver that is limited in supply by nature cannot be inflated, and thus serves as a check on the growth of government. Without the ability to inflate the currency, governments find themselves constrained in their actions, unable to carry on wars of aggression or to appease their overtaxed citizens with bread and circuses.

At this country’s founding, there was no government controlled national currency. While the Constitution established the Congressional power of minting coins, it was not until 1792 that the US Mint was formally established. In the meantime, Americans made do with foreign silver and gold coins. Even after the Mint’s operations got underway, foreign coins continued to circulate within the United States, and did so for several decades.

On the desk in my office I have a sign that says: “Don’t steal – the government hates competition.” Indeed, any power a government arrogates to itself, it is loathe to give back to the people. Just as we have gone from a constitutionally-instituted national defense consisting of a limited army and navy bolstered by militias and letters of marque and reprisal, we have moved from a system of competing currencies to a government-instituted banking cartel that monopolizes the issuance of currency. In order to introduce a system of competing currencies, there are three steps that must be taken to produce a legal climate favorable to competition.

The first step consists of eliminating legal tender laws. Article I Section 10 of the Constitution forbids the States from making anything but gold and silver a legal tender in payment of debts. States are not required to enact legal tender laws, but should they choose to, the only acceptable legal tender is gold and silver, the two precious metals that individuals throughout history and across cultures have used as currency. However, there is nothing in the Constitution that grants the Congress the power to enact legal tender laws. We, the Congress, have the power to coin money, regulate the value thereof, and of foreign coin, but not to declare a legal tender. Yet, there is a section of US Code, 31 USC 5103, that purports to establish US coins and currency, including Federal Reserve notes, as legal tender.

Historically, legal tender laws have been used by governments to force their citizens to accept debased and devalued currency. Gresham’s Law describes this phenomenon, which can be summed up in one phrase: bad money drives out good money. An emperor, a king, or a dictator might mint coins with half an ounce of gold and force merchants, under pain of death, to accept them as though they contained one ounce of gold. Each ounce of the king’s gold could now be minted into two coins instead of one, so the king now had twice as much “money” to spend on building castles and raising armies. As these legally overvalued coins circulated, the coins containing the full ounce of gold would be pulled out of circulation and hoarded. We saw this same phenomenon happen in the mid-1960s when the US government began to mint subsidiary coinage out of copper and nickel rather than silver. The copper and nickel coins were legally overvalued, the silver coins undervalued in relation, and silver coins vanished from circulation.

These actions also give rise to the most pernicious effects of inflation. Most of the merchants and peasants who received this devalued currency felt the full effects of inflation, the rise in prices and the lowered standard of living, before they received any of the new currency. By the time they received the new currency, prices had long since doubled, and the new currency they received would give them no benefit.

In the absence of legal tender laws, Gresham’s Law no longer holds. If people are free to reject debased currency, and instead demand sound money, sound money will gradually return to use in society. Merchants would have been free to reject the king’s coin and accept only coins containing full metal weight.

The second step to reestablishing competing currencies is to eliminate laws that prohibit the operation of private mints. One private enterprise which attempted to popularize the use of precious metal coins was Liberty Services, the creators of the Liberty Dollar. Evidently the government felt threatened, as Liberty Dollars had all their precious metal coins seized by the FBI and Secret Service this past November. Of course, not all of these coins were owned by Liberty Services, as many were held in trust as backing for silver and gold certificates which Liberty Services issued. None of this matters, of course, to the government, who hates to see any competition.

The sections of US Code which Liberty Services is accused of violating are erroneously considered to be anti-counterfeiting statutes, when in fact their purpose was to shut down private mints that had been operating in California. California was awash in gold in the aftermath of the 1849 gold rush, yet had no US Mint to mint coinage. There was not enough foreign coinage circulating in California either, so private mints stepped into the breech to provide their own coins. As was to become the case in other industries during the Progressive era, the private mints were eventually accused of circulating debased (substandard) coinage, and in the interest of providing government-sanctioned regulation and a government guarantee of purity, the 1864 Coinage Act was passed, which banned private mints from producing their own coins for circulation as currency.

The final step to ensuring competing currencies is to eliminate capital gains and sales taxes on gold and silver coins. Under current federal law, coins are considered collectibles, and are liable for capital gains taxes. Short-term capital gains rates are at income tax levels, up to 35 percent, while long-term capital gains taxes are assessed at the collectibles rate of 28 percent. Furthermore, these taxes actually tax monetary debasement. As the dollar weakens, the nominal dollar value of gold increases. The purchasing power of gold may remain relatively constant, but as the nominal dollar value increases, the federal government considers this an increase in wealth, and taxes accordingly. Thus, the more the dollar is debased, the more capital gains taxes must be paid on holdings of gold and other precious metals.

Just as pernicious are the sales and use taxes which are assessed on gold and silver at the state level in many states. Imagine having to pay sales tax at the bank every time you change a $10 bill for a roll of quarters to do laundry. Inflation is a pernicious tax on the value of money, but even the official numbers, which are massaged downwards, are only on the order of 4% per year. Sales taxes in many states can take away 8% or more on every single transaction in which consumers wish to convert their Federal Reserve Notes into gold or silver.

In conclusion, Madam Speaker, allowing for competing currencies will allow market participants to choose a currency that suits their needs, rather than the needs of the government. The prospect of American citizens turning away from the dollar towards alternate currencies will provide the necessary impetus to the US government to regain control of the dollar and halt its downward spiral. Restoring soundness to the dollar will remove the government’s ability and incentive to inflate the currency, and keep us from launching unconstitutional wars that burden our economy to excess. With a sound currency, everyone is better off, not just those who control the monetary system. I urge my colleagues to consider the redevelopment of a system of competing currencies.

Beyond Reform

A recent message from Richard K. Moore prompted me to write the following:
I fully agree with you that reform is not possible.
If metamorphosis is an apt analogy for the evolution of civilization, then it appears that we are nearing the end of the caterpillar stage.
We can only transcend it.
We who consider ourselves to be among the “cultural creatives” are the “imaginal cells” that need to communicate, organize, collaborate, and replicate – devising and implementing new structures that foster “butterfly” behaviors that will realize social justice, economic equity, liberty, and ecological restoration.
My little bit of that relates to exchange and finance (money, banking, saving and investment). Particularly pertinent to this thread is a slide show presentation I’ve given a few times, called Money, Power, Democracy and War, which has just been put up as a movie at
It can also be reached from my blog under “My Audio-visual Presentations.”

E. C. Riegel Added to Wikipedia

Wikipedia now has a detailed entry on E. C. Riegel, “master of monetary truth.”

The Real Estate Bubble

This 2004 article by Prof. Fred Foldvary seems prophetic in view of recent market developments. It goes a long way toward explaining not only the real estate bubble, but also the so-called “business cycle.” It acknowledges the role of monetary policies and banking practices in creating these periodic disruptions in the economy. If a sustainable steady state economy is to be achieved, both the “money problem” and the “land problem” must be solved. Highly recommended. – thg

Fundamentals of Alternative Currencies and Value Measurement

See this new post under Pages, New Chapters in the column to the right.