[Congressional Record Volume 154, Number 24 (Wednesday, February 13, 2008)]
[Extensions of Remarks]
[Pages E177-E178]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                          COMPETING CURRENCIES

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                      Wednesday, February 13, 2008

  Mr. PAUL. 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 everyday 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 U.S. 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.

[[Page E178]]

  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 U.S. Code, 31 U.S.C. 5103, that purports to establish U.S. 
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 U.S. 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 U.S. 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 U.S. 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 percent per year. Sales taxes in many states 
can take away 8 percent 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 U.S. 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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