Thought for the Day

"It is easier to believe a lie that one has heard a thousand times than to believe a fact that no one has heard before."
-Unkown Author

Printing Money for Wall Street

Hat Tip: The Acton Institute

The global financial system is in a deepening crisis, largely due to greedy gambles with complex financial derivatives. The bailout of Bear Stearns Cos., in which the Fed provided $30 billion loan to J.P. Morgan Chase to acquire the investment bank, is only the latest -- and probably not the last -- rescue mission from the central bank. Overall, the response of the Bernanke-led Federal Reserve to the global financial meltdown has been exceedingly simple: lower interest rates.

It is debatable whether that is an effective solution to the problem. It risks destroying the international demand for dollars, and a declining exchange rate would imply rapid price inflation at home as well as increasing pressure on foreign investors to take their money out. Both effects would exacerbate the crisis.

But that is a technical issue. The Fed strategy raises more fundamental issues.

When a central bank lowers interest rates, it engages in an activity that is loaded with moral meaning. The jargon of the macroeconomist can be misleading. Lower interest rates are achieved by increasing the money supply, which is basically equivalent to “printing money out of thin air,” and selling it cheaply to the banking community (although technically it is now achieved by creating fictitious accounting entries).

The moral dimension becomes plainer if we consider a private person doing that. It is called fraud. Counterfeit money enriches the fraudster at the expense of the rest of the society. Creating more paper slips does not bring about more economic resources (production or consumption goods), but only serves to redistribute them. The counterfeiter immediately acquires additional money at his disposal, whereas the purchasing power of the money balances of the rest is slowly eroded.

Modern central banking claims to serve lofty goals: high employment, price stability, and economic growth. In fact, it only enriches those who run the system. Sometimes it is the national government. Consider, for instance, Robert Mugabe’s Zimbabwe with its well-over 1,000 percent (and rising) inflation rate.

In other instances, the central bank is a private entity serving the interests of the financial elite. This was true of most central banks historically, including the Bank of England (founded in 1694), which was only nationalized in 1946.

Unbeknownst to many, the 1913-founded U.S. Federal Reserve System also comes under this category. It is a private corporation owned by its member banks, about whose owners little is known. As a special privilege, the Fed has never undergone a complete independent audit, and it is claimed that it keeps some of its records secret.

One may also challenge the lofty goals of central banks. Inflation is largely caused by increasing the money supply. In consequence, inflation encourages living on debt and discourages prudence and thrift.

Moreover, by creating artificially low interest rates, central banks foster damaging boom-bust cycles, as economists Ludwig von Mises and F.A. Hayek demonstrated. The dot.com bubble, which collapsed in 2000, and the real estate and overconsumption bubble, which is coming to an end today, are just the most recent examples.

So much for stability, economic growth, or high employment.

The Old Testament provides some principles on sound money. Complaining of the sins of Judah and Jerusalem, the prophet Isaiah denounced monetary debasement: “Your silver is turned to dross, your wine is mixed with water” (Isaiah 1:22). Likewise, the Lord exhorted the Jewish people: "Do not act dishonestly in using measures of length or weight or capacity. You shall have a true scale and true weights…” (Lev. 19:35-36)

Debasement and tampering with weights and measures have been a temptation throughout the history of money and banking. They are the essence of the more complex methods of monetary inflation practiced today.

Then there is fractional-reserve banking, the use of demand deposit money in lending business. Many economists, including Milton Friedman and others at the University of Chicago in earlier decades, have identified it as the source of banking instability throughout modern times. Fractional-reserve banking was censured already by Roman jurists, who found it dishonest and legally unsound. Yet modern scholarship shows that it was precisely this instability that provided the justification for inflationary central banking.

The Founders of the United States grasped this. In his letters, Thomas Jefferson wrote numerous lines on the problem with unsound money. In an 1817 letter to Josephus B. Stuart, he noted the consequences of paper money: "That paper money has some advantages is admitted. But that its abuses also are inevitable and, by breaking up the measure of value, makes a lottery of all private property, cannot be denied.”

Jefferson likewise understood the problem with unsound banking. In a letter to John Taylor he said: "I sincerely believe\... that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity under the name of funding is but swindling futurity on a large scale." (1816)

These courageous words ring remarkably relevant today. The roots of the current crisis lay in the manipulation of the money of American citizens. More of that will not solve the problem. Will we have the courage to go to the heart of the matter?

The High Tide RP Cartoon

High Tide Promo

Homeschoolers Jail House Humor

Hat Tip: Catholic Cartoon Blog

Bribing Us With Our Own Money

March 3, 2008, The Sam Adams Alliance


I wear a seat belt when I drive. Why? A belt might save my life in a crash — call me addicted to life. Additionally, I take it as my responsibility to make certain my kids wear their safety belts. And I have the authority to make them do it, whether they want to or not.

I bring all this up because the federal government is now bribing state governments to pass new laws allowing police to stop motorists on the suspicion of not wearing a seat belt. The feds are dangling millions of dollars in aid if states do as they are told.

We already have seat belt laws, but in most states the law doesn’t get primary enforcement, only secondary; meaning, we can’t be stopped for that offense.

I have problems with these laws. Government is not our mother or father. It doesn’t have authority over us. We are supposed to have authority over it.

This latest federal government scheme points out another problem. Why are we being taxed by the politicians furthest away from us — and least vulnerable at the polls — only so they can use that money against us?

As Arkansas State Senator Jerry Taylor said, “It’s kind of like the federal government is bribing us with our own money.”

Only there’s no “kind of.” The federal government is bribing us with our own money.
This must be brought to a screeching halt. Our state officials should not take the bribe. Nor the Feds have enough of our money to offer it.


This is Common Sense. I’m Paul Jacob.

What Does the Pope Know About World Affairs?

Taken from The New Oxford Review, November, 2005


In The American Conservative (Aug. 29), Daniel McCarthy has an article titled "Bush vs. Benedict." Says he: "And like John Paul II, the new pope [Benedict XVI] is a man of peace whose vision for the world does not include wars of the sort lately waged against Iraq. The priority Benedict places on peace was apparent even in his choice of name." McCarthy quotes Benedict: "I chose to call myself Benedict XVI ideally as a link to the venerated pontiff Benedict XV, who guided the Church through the turbulent times of the First World War. He was a true and courageous prophet of peace who struggled strenuously and bravely, first to avoid the drama of war and then to limit its terrible consequences. In his footsteps I place my ministry...."

McCarthy continues: "The new pope would be a sure ally for the Right in the Culture War. But where hot wars are concerned, many of Ratzinger's most ardent admirers -- Catholic neoconservatives especially -- find themselves diametrically at odds with the pope."

McCarthy mentions the usual suspects: Michael Novak, George Weigel, Richard John Neuhaus. For them, when it comes to U.S. foreign policy, says McCarthy, "it is Bush sí, Benedict no."

McCarthy quotes then-Cardinal Ratzinger: "The pope [John Paul II] expressed his thought with great clarity [on the invasion of Iraq], not only as his individual thought but as the thought of a man who is knowledgeable in the highest functions of the Catholic Church.... The Holy Father's judgment is also convincing from a rational point of view: There was not sufficient reason to unleash a war in Iraq."

McCarthy says: "There is no mistaking the gravity of their [the two popes] views. If, as both men believed, the attack on Iraq in 2003 was unjust, support for the war becomes unconscionable. Novak, Neuhaus and Weigel have spent much of their careers battling relativism, arguing forcefully that there is moral truth at the core of even the most contentious and divisive issues. There is a moral truth...at the heart of the Iraq War. The war in Iraq is a matter of moral right and wrong. Catholic neoconservatives say it was right; Benedict says it was wrong."

According to McCarthy, conservative Catholics face a problem: "Their president, the Republican Party, and the leading Catholic intellectuals who identify themselves as conservatives all support a policy that the pope opposes. Yet the antiwar movement seems at a glance to consist of people whose values are unalterably opposed to a Catholic's -- a motley collection of secular leftists, many of them supporters of abortion and homosexual marriage."

Thank goodness, McCarthy points out that there is "a conservative alternative...which agrees with the pope on hot wars and the culture wars alike. This brand of antiwar Catholicism is to be found in periodicals like The Wanderer, a 138-year-old newspaper based in Minnesota, and the considerably younger New Oxford Review."

McCarthy is right on the money when he says: "The price paid by antiwar Catholic conservatives...has been ostracism from the respectable Right." Happily, the neocons can't ostracize Pope John Paul and Pope Benedict from the respectable Right. What they do instead is ignore or minimize the two popes' opposition to the Iraq War.

McCarthy reminds us of recent history: "Even the late Brent Bozell, a founding father of postwar conservatism...found himself marginalized after he and the Catholic magazine he founded, Triumph, began to grow critical of the Vietnam War. [You will notice that Bozell still graces our masthead.] The conservative movement that has built itself a big tent in so many other respects still counts dissent in the foreign-policy arena as an excommunicable offense." Of course Bozell was right about the Vietnam War; nonetheless, his excommunication lasts even into death.

In First Things (Dec. 2001), the Editors, the primary one being Fr. Neuhaus, had a raging editorial called "In a Time of War" in response to 9/11. The editorial begins: "This is war." Neuhaus continues, "we are engaged in a war that can be defined in many ways, but is also and inescapably a war of religion." Neuhaus says America "is an overwhelmingly Christian nation rooted, albeit sometimes tenuously, in the Judeo-Christian moral tradition." Neuhaus affirms that America is God's "almost chosen nation" (First Things, Oct. 2002, p. 92). What fantasy! What hubris! Where in Scripture or Tradition does it say that? This is just a vagabond American Protestant tradition (although Protestants claim not to believe in any tradition). The New Testament says, "You [Christians] are a chosen race, a royal priesthood, a holy nation, God's own people..." (1 Pet. 2:9). It comes close to blasphemy to call America God's "almost chosen nation."

Neuhaus (Dec. 2001) says America is "'one nation under God' -- meaning that we are under both His protection and His judgment." Given that Neuhaus says this is a "war of religion" against Islam, that America is "an overwhelmingly Christian nation," and that America is God's "almost chosen nation," it's obvious that Neuhaus means America is under God's "protection"; the bit about being under "His judgment" is just a throwaway line.

Fr. Neuhaus supported the invasion of Iraq, a country that did not threaten us and had nothing to do with 9/11. Before the war started, the Catholic Church pronounced the war unjust, a war of aggression. We wonder if Neuhaus would be willing to consider that America has come under God's judgment.

After 9/11 and before 2003, America was united. Now our country is bitterly divided. (As we write, Bush's approval rating for handling the war is down to 32 percent.) Before 2003, America's military was considered invincible. Now America can't even defeat a ragtag bunch of "insurgents" -- call them what you will, terrorists, freedom fighters, whatever. Sooner or later America is going to bug out of Iraq without defeating the insurgents, and it will be clear to the entire globe that, contrary to President Bush, the Mission Was Not Accomplished. What humiliation!

And then there are all the U.S. soldiers killed and wounded (never mind the Iraqi soldiers and civilians). What noble cause did our soldiers die or suffer for? Did they die and suffer to overthrow Saddam, a brutal dictator? He used to be America's ally, and America gave Saddam weapons which he used on his own people. There are so many brutal dictators in the world -- why him, why not others? Moreover, the U.S. has a long history of siding with and propping up brutal dictators. The reason for the war on Iraq was to get rid of Saddam's weapons of mass destruction. But Saddam had no weapons of mass destruction. So the overthrowing of Saddam was just a flimsy excuse.

Let's be honest -- and, yes, we realize that many conservative Catholics don't want to know the unvarnished truth: It turns out that our soldiers died and suffered to set up a training ground for Islamic terrorists in Iraq. Bush has it backwards: The U.S. is creating many more terrorists in Iraq than it is eradicating. As Paul Weyrich said in Human Events (Nov. 8, 2004), al-Qaeda is "benefiting from the Arab and Islamic backlash against our occupation of an Islamic country." Bush's experiment in international social engineering is a disaster.

And adding insult to injury (and we write before the Oct. 15 referendum on the Iraqi Constitution), it looks like our soldiers will be establishing an Islamic Republic in Iraq, if the Constitution is approved. If not, who knows what will happen?

And speaking of God's judgment: There is Hurricane Katrina, but we don't want to get into that.

We would assume that the Lord hates unjust wars. "'Vengeance is Mine...,' says the Lord" (Rom. 12:19). Has the Lord's vengeance come upon America, and so quickly? Of course we don't know the mind of the Lord, so this is speculation. But we do know that "Righteousness exalts a nation..." (Prov. 14:34), and we are reminded of what Mary said in her Magnificat, "He [the Lord] has scattered the proud in the conceit of their heart.... and the rich he has sent away empty."

Neuhaus (Dec. 2001) says war is a "great horror." Neuhaus quotes the words of General Sherman: "It is only those who have neither fired a shot nor heard the shrieks and groans of the wounded who cry aloud for blood, more vengeance, more desolation. War is hell." The operative words are of course "War is hell." How often have we heard that "War is hell," which is supposed to justify any and all atrocities. But we would rather turn your attention to the other part: "It is only those who have neither fired a shot nor heard the shrieks and groans of the wounded who cry aloud for blood, more vengeance, more desolation." Indeed, President Bush has never fired a shot or heard the shrieks of the wounded. It is Bush who cries aloud for more blood in an unwinnable war.

Neuhaus (Dec. 2001) asks: "Why do they [the Muslims] hate us so? One after another, they [most Americans] answered that they hate us because 'America is free, rich, powerful, and good.' There is something in that, but for the most part it is smug self-delusion. They hate us because they believe that the West, now indisputably led by America, has marginalized, exploited, and oppressed them for centuries. They hate us for the cultural decadence that we export and that many of them hate themselves for enjoying. They hate us because we have troops on their sacred soil, and they hate us because we support what they view as the alien State of Israel on their land." Truer words were never spoken. Yet Neuhaus denounces those who go on "endlessly about...how we must address the root causes of resentment...." Neuhaus has laid out the root causes of the resentment. So obviously Neuhaus doesn't want reconciliation, understanding, doesn't want peace; he wants war.

As for the state of Israel, which is in large part what the war on Iraq is all about, Neuhaus (First Things, April 2002, p. 7), quotes Victor Davis Hanson favorably as saying: "Should the United States withdraw from active participation in the Middle East and let the contestants settle their differences on the battlefield, Israel, not the Arab world, would win." Still, many would disagree with Neuhaus, especially the worrywarts in Tel Aviv and Neuhaus's fellow neocons in Washington. Neuhaus even disagrees with himself (which he frequently does), for Neuhaus is a Zionist sympathizer and has deep ties with neocon Zionists in the U.S., which is his right. Neuhaus writes on the day of 9/11 (First Things, Nov. 2001, p. 65): "The first commentary I heard was from a woman coming out of the church: 'That's what we get for unconditionally supporting Israel.'... Watching television during the day, the question was several times asked, 'Why do they hate us so much?' And the answer given in one word was 'Israel.' The further question implied was, Is our support for Israel worth this? What justice requires us to do in order to punish the perpetrators [the 9/11 terrorists] and ward off even greater evil, is done for Israel, of course...." (Neuhaus also says, "it is done, much more comprehensively, for the civilization that Christians, Jews, and everyone else will now come to see more clearly as it is seen by others: the Christian West." Hello! The Christian West is long gone. Christian nations do not allow abortion, pornography, open homosexuality, prostitution, astronomical divorce rates, etc. This appeal to "the Christian West" is a red herring, purely vaporous.)

Neuhaus says (First Things, May 2002, p. 70): "The Cold War is over. Today, almost nobody tries to argue that, for the U.S., the tie with Israel is more of an asset than a burden. Most Americans are prepared to bear that burden, and one must hope that will continue to be the case."

And Neuhaus says (First Things, Dec. 2002, p. 79): "Today the claim is made that Israel is America's best friend in the Middle East, but most Americans are likely inclined to the not unreasonable view that, were it not for Israel, America would not have so many enemies in that part of the world. As the believability of the past reasons for support fade or disappear [the Holocaust, the Cold War], fresh attention must be paid to the deepest and most abiding reason, namely, that Israel is a Jewish state, and 'Jewish' is understood as a religious category. However inarticulate they may be about it, American Christians intuit that there is a divinely ordered entanglement between Christians and Jews that is not there with any other people. Certainly not with the Muslims, for the obvious reason that Christians can understand their doctrines, history, and hopes without reference to Islam, while Christianity makes no sense, Christianity would not be, without Judaism." So Israel is a Jewish state, Jewish is a religious category, and therefore there is a "divinely ordered" relationship between Christians and the Jews of today. How he makes the jump from the Israelites of the Old Testament to the necessity of supporting present-day Israelis ("divinely ordered") is anyone's guess. Moreover, Jews in Israel -- as in America -- are overwhelmingly secular.

We don't know if Neuhaus has a dual allegiance to Israel, but we know he does not have a dual allegiance to the Holy See. (For the record: The NOR does have a dual allegiance to the Holy See.)

It isn't hard to intuit from what Neuhaus says that America invaded Iraq largely for the sake of Israel.

When Robert McNamara, the Secretary of Defense during the Vietnam War, paid a visit to General Giap of Vietnam after the War, McNamara wanted to know: How did you beat us? The answer: "You invaded our country." That's why America is losing in Iraq. The war on Iraq was bogus from the beginning, just as Pope John Paul said. It reminds us of the childhood jingle, "Cheaters never prosper."

Stalin once asked, "The Pope! How many divisions has he got?" Well, he found out in 1989. We can just hear President Bush ask, "The Pope! What does he know about world affairs?" Well, the Pope knows plenty. And Bush will find out much sooner than Stalin did.

Gun Control Claims More Victims

Last year, Virginia Tech University successfully lobbied the state legislature to prohibit concealed-permit holders from carrying a sidearm on campus. At the time, university spokesman Larry Hincker commented,

I’m sure the university community is appreciative of the General Assembly’s actions because this will help parents, students, faculty, and visitors feel safe on our campus.

In June of last year, the university reemphasized its ban on carrying guns on campus by students, employees, and visitors. Last spring, it disciplined a student with a concealed-carry permit who brought his handgun to class. On April 16, 2007, 43 students and faculty members paid the price for such shortsightedness when a deranged student killed 33 and wounded the remainder with handguns.

Despite claims to the contrary, this is not the worst school killing in U.S. history. On May 18, 1927, a disgruntled school-board member killed 45 people and injured 58 – most of them second-grade to sixth-grade children – when he set off bombs at Bath Consolidated School in Bath, Michigan.

In response to the Virginia Tech incident, gun-control advocates predictably demanded more gun-control laws. Carolyn McCarthy (D-N.Y.), author of the latest assault-weapon ban making its way through Congress, which is a more draconian version of the Clinton 1994 assault-gun ban that expired in 2004, suggested that we need to talk about guns on campus. For once, I agree with Representative McCarthy.

The gunman, Cho Seung-Hui, a Korean national with permanent resident status, had filled out the required forms and undergone the mandatory background check and waiting period, proving once again the uselessness of such laws.

The problem at Virginia Tech was not that there were guns on campus – only the campus police and gunman were armed – but that it was a “gun-free zone.” As a result, there were not enough people carrying guns to neutralize the gunman once he began his rampage. He should have been outgunned after his first shots. To a criminal or deranged person bent on killing, a gun-free zone is a free-fire zone. As is obvious from all such incidents, the police arrive too late to prevent multiple killings.

That’s not to disparage the police. In most cases, they act aggressively and competently. But they are rarely the first to arrive at the scene of a crime. The first ones there are the perpetrators and their victims. That’s when self-defense weapons are needed, not after the damage is done.

Consider that in all such incidents, the shooters are not so deranged as to attack police stations, shooting ranges, or gun shows. They have enough presence of mind to assail unarmed people in gun-free zones because they will encounter no effective resistance. (The one incident in which an individual was foolish enough to threaten to kill hostages where guns were prevalent was at a shooting club in California in July 1999. The gunman was promptly shot by an employee, without harm to the hostages.)

Test my hypothesis. Was anyone carrying a gun killed or injured in the Virginia Tech shooting? Only one, the perpetrator by his own hand. All the other victims were unarmed. They were unarmed because of state law, university policy, the success of gun-control advocates, and a false sense of security. The gun-control lobby has succeeded in stigmatizing gun possession and training; influencing legislators to pass laws making it difficult for law-abiding people to purchase, carry, and use firearms; and convincing people that they can depend on the police to protect them. The students are also at fault for believing the lie that they are not responsible for their own protection in the face of common sense and history.

Handguns and self-defense

Handguns are self-defense tools. They are designed to protect people from those who would harm them. In many cases, merely the appearance of a firearm dissuades an attacker. When you prevent people from carrying self-defense weapons, you are making them easy targets.

Let’s look at some examples to illustrate my point:

-In 1974, 34 Israeli students were gunned down in a bus on a school trip. Israel responded by arming teachers, administrators, bus drivers, and others to protect their children. Israel has not had a repeat of that tragedy. The U.S. government’s response? Prohibit guns within 1,000 feet of schools, as if criminals and deranged people obey laws.
-In October 1997, Assistant Principal Joel Myrick used a gun to stop a violent teen who was shooting up his high school in Pearl, Mississippi. The student killed two and wounded seven before Myrick could stop him. Why did it take Myrick so long to disarm the shooter? His gun was in his automobile, which was parked more than 1,000 feet from the school in compliance with the law.
-In January 2002, a disgruntled student at the Appalachian School of Law in Grundy, Virginia, shot and killed the dean, a professor, and a fellow student. He was disarmed and subdued before he could harm anyone else by two students who retrieved guns from their automobiles.
-Utah and Oregon allow concealed-permit holders to carry their weapons on campus. To date, no school shooting incidents have occurred in these states.
-The most heavily armed populations are the Swiss and the Israelis. Crime is negligible in both countries.
-The Luby Cafeteria shootings in Killeen, Texas, on October, 16, 1991, where a gunman killed 23 people, provide a stark example of the danger of gun-control laws. Suzanna Gratia Hupp, who was having lunch with her parents, left her gun in her car in compliance with state law. Her parents were among those killed. Two other diners also left their guns in their cars for fear of violating state law. Hupp had a clear shot at the killer several times as he reloaded and leisurely executed patrons.

“I was mad as hell at my legislators,” she said, “because they had legislated me out of the right to protect myself and my family.” Hupp is responsible for Texas’s having enacted a concealed-carry law in 1995.

How many more victims must be sacrificed on the altar of gun control? How many more Virginia Tech incidents must occur before common sense prevails? Blaming inanimate objects for criminal acts and legislating barriers to self-defense is foolish and self-destructive. The hostile atmosphere to gun possession and training fostered by gun-control advocates is costing lives. Frustration, pain, and other emotions shouldn’t drive legislation; reason should. Though we may not be able to prevent such incidents, we can limit the damage they do.

Instead of listening to gun-control advocates whose advice brings death and injury, we would do better to abide by the Boy Scout motto: Be prepared!


February 28, 2008 Benedict LaRosa

Cool Picture of the Day

Hat Tip: Shouts in the Piazza

Lesson of the Day

"Never argue with an idiot, they will drag you down to their level and stomp your ass with personal experience."

-Unknown

How About 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 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.


Congressman Ron Paul before the US House of Representatives, February 13, 2008