Ron Paul Bill Seeks Coin and Bullion Tax Ban Posted Thursday, 10 December
2009
Before
the US House of Representatives, December 9, 2009
Madame Speaker, I rise to introduce the Free Competition
in Currency Act of 2009. 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 reintroduce 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 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, which hates competition. The responsibility
to protect contracts is of no interest to the government.
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 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% 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, Madame 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 and cosponsor the Free
Competition in Currency Act.