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Remove Legal Tender Laws to Help The Middle Class and Poor

I am a long time observer at the Dailypaul, but this is my first post.

Below is a shortened rewrite of one section of an essay/presentation I had to do for an economics class. My goal was to explain Dr. Paul's position in a way where the average American can see the benefit to monetary reform. If you think I misunderstood any of the issues, please enlighten me with some comments.

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Dr. Paul recently appeared on Bloomberg TV, where he debated the Nobel laureate Paul Krugman in a segment called “Paul versus Paul”. The congressman said that his plan for monetary reform will not immediately end the Federal Reserve System, but instead remove the legal tender laws.

[ Paul versus Paul: http://www.youtube.com/watch?v=BcuAOdXD0Go&feature=related ]

Those unfamiliar with Dr. Paul’s philosophy may not have grasped how monetary reform would help the average American. With real unemployment over 20%, ever increasing prices for healthcare, energy, and education, Americans are demanding a solution. In the debate, Dr. Paul called for the end of the legal tender laws as being the best way to phase out the Federal Reserve System.

Paul Krugman scoffed at the idea of removing the legal tender laws, and even doubted their existence. Having such a high profile economist reject Paul’s ideas will keep many from further exploring the ideas of economic and monetary liberty. Some middle class Americans, who are suffering from the economic depression, may have been pushed away from a real solution.

The removal of the legal tender laws would allow Americans to begin to use alternative currencies, such as gold or silver. This would have a profound effect. American workers will be able to ask for their salaries to be paid in commodity money, likely gold or silver. Businesses, too, will be able to accept payment for goods and services priced in alternative currencies. As more and more individuals make the transition to alternative currencies, the value of Federal Reserve Notes will fall as people begin to reject them.

The debts owed by individuals and companies are denominated in Federal Reserve Notes (FRNs). As people begin the transition, the fractional reserves of the banks will be depleted as individuals convert their bank balances into alternative currencies, necessitating monetary inflation by the Federal Reserve System to meet depositor demands. This will only hasten the transition away from FDRs as individuals will protect themselves against the depreciating FRN currency. The use of commodity money will protect the savings of Americans while their purchasing power will begin to grow once again.

The value of Federal Reserve Notes will, over time, fall substantial against gold and silver and eventually the notes will become worthless as the Federal Reserve System collapses under competition. Here is the most important point: Americans will be able to pay down their FRN denominated debts by using their commodity money-based salaries to purchase the rapidly depreciating FDRs. The millions of American families with large credit card debt or home mortgages will be able to pay off their debts for next to nothing after a period of as short as several months after the removal of the legal tender laws. The bankers will lose their privileged position and their ability to loot the middle class. They will fight this reform with all the might of the establishment media that they own.

Something must be done. The politicians want to solve problems with more inflation and more deficit financing, the same things that created the current mess. There is another option, the return of constitutional money. The legalization of alternative currencies will provide for the liquidation of debt and reestablishment one of the pillars of the free society, sound money.