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.

http://www.house.gov/paul/congrec/congrec2008/cr021308h.htm

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.

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5 responses to “Congressman Ron Paul – Statement on Competing Currencies

  1. Hi I found your site when i was searching Yahoo for sites related to this content. I must say, I like your site. I like the layout too, its pleasing. I dont have much time at the moment to fully read your website but I have noted it and I also signed up for your RSS feed. I will be back in a day or two. Thanks for an useful site.

  2. I’ve been involved in taxes for lengthier then I care to admit, both on the private side (all my employed life story!!) and from a legal stand since satisfying the bar and following tax law. I’ve supplied a lot of advice and redressed a lot of wrongs, and I must say that what you’ve posted makes impeccable sense. Please persist in the good work – the more people know the better they’ll be outfitted to deal with the tax man, and that’s what it’s all about.

  3. James Question: Paul says money should be kept scarce. Should it? Indeed, in an information age (money being, assumably, an “information system we use to deploy human effort” – linton) then CAN money be scarce?

    Neno Reply: In respect to Gold or silver, yes money can be kept scarce. yes it should be kept scarce because we have demand and supply factors that control the pricing and weight of gold or silver that feed into the market prices, thus leaving market forces (the people) to set the price of commodity money, rather than politicians with an out of market agenda.

    James Question: Why should we wait for these people, or anyone else for that matter, to “develop a system of competing currencies” when for all intents and purposes, apparently, it’s not in their interest to do so?

    Neno Reply: Because they are pioneers that take unselfish risks, who want to see a just and ethical money system that will liberate people who are not as learned in the money game as you and me.

    James Question: Is not the support of *any* politician, including Ron Paul, merely wasting our time and resources when “we” could be creating alternatives (”complementaries”) of our own, right now using computers, software and the Internet?

    Neno Reply: Ron Paul is the historical figure in the money game intrenchened in the bureaucratic system that is flying the liberation flag from within the belly of the beast, he has put his mouth where his heart is in regards to “Competing Currencies”.
    Anyone can create a competing currency alternative, but while where talking about it there are people out there actually doing it.

    James Question: Aren’t *I* the sovereign source (creator and backer) of *my* money, not some hallucinated “collective entity”? Where’s the trust?

    Neno Answer: Trust like respect is earned, the GDCA is a regulatory body that authorises trust for a number of alternative currency issuers and has gained trust within itself as an organisation respected by the gold community.

    James Question: Don’t you think that “the money problem” is really a people problem, and will *not* be solved by the same thinking, or people, that created it?

    Neno Reply: Yes the money problem is a people problem in respect to the fact that a lot of people regard money as a product of labour and not a product of price fixing.
    The problem of money can be if not solved but made transparent by competing non fiat currency’s.

    Neno…

  4. Hi Thomas,

    OK, so let’s scrutinize…

    Paul says money should be kept scarce. Should it? Indeed, in an information age (money being, assumably, an “information system we use to deploy human effort” – linton) then CAN money be scarce?

    Why should we wait for these people, or anyone else for that matter, to “develop a system of competing currencies” when for all intents and purposes, apparently, it’s not in their interest to do so?

    Is not the support of *any* politician, including Ron Paul, merely wasting our time and resources when “we” could be creating alternatives (“complementaries”) of our own, right now using computers, software and the Internet?

    Aren’t *I* the sovereign source (creator and backer) of *my* money, not some hallucinated “collective entity”? Where’s the trust?

    Don’t you think that “the money problem” is really a people problem, and will *not* be solved by the same thinking, or people, that created it?

    James

  5. Tom,

    Thanks for spotlighting Ron Paul a bit in some of your recent posts. I had been wondering what you thought of his monetary ideas. To me, he emphasizes gold and silver as money a bit too much, but I do like it that he allows for the idea of competing currencies. He also understands that many of our current problems, from immigration to foreign policy, have an economic (and therefore monetary) basis. He is the only candidate still left in the race who articulated the basic truth that the war in Iraq and the foreign policy on which it is based are wrong on multiple levels: wrong morally and ethically, wrong constitutionally, and wrong economically.

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