[Congressional Record Volume 157, Number 39 (Tuesday, March 15, 2011)]
[Extensions of Remarks]
[Pages E483-E484]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
INTRODUCING THE FREE COMPETITION IN CURRENCY ACT
______
HON. RON PAUL
of texas
in the house of representatives
Tuesday, March 15, 2011
Mr. PAUL. Mr. Speaker, I rise to introduce the Free Competition in
Currency Act. 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.
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 in
November of 2007. 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.
[[Page E484]]
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 with the supposed aim 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, Mr. 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 and cosponsor the Free Competition in Currency Act.
____________________