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Ron Paul: Statement on Competing Currencies

Congressman Ron Paul | February 13, 2008

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 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 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.




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So, I am curious...

What was Madame Speaker's response or did her head blow up?

the present system is indeed insane

letting a private banking corporation called the fed reserve control our money is insane..example..a builder builds a home..nails,shingles,siding & sweat..the bank 'loans' the money to someone to buy the house..the "loan" is a computer accounting entry..nothing more than that..thin air..yet if the new owner of the home defaults on the loan THE BANK & BANKSTERS GET THE D HOUSE! they get a house & adjacent land for doing absolutely fricking NOTHING but making an accounting entry into a computer..& some paperwork..HOW CAN THIS BE? because late one night 1 day before X-mas in 1913,with just a handful of senators left in chambers,a bill was passed that would some 100 years later destroy the greatest country that ever existed in the free world called THE FEDERAL RESERVE ACT

randy n.

Not that's not why

Fractional reserve banking was in practice before the Fed was created. When the money was backed by gold, it still was the practice.

Hi Noelle, I think

Hi Noelle,

I think fractional reserve banking is possible even when the currency is redeemable in gold or silver. However, the redeemable aspect of the currency puts a check and balance on the amount of gold or silver reserves a bank needs, and so limits over-supply of the currency (i.e. a run on a bank that has irresponsibly over-issued its currency will likely go bankrupt).

With a government mandated fiat currency that's issued by a central bank, the fiscal discipline of this check and balance is essentially lost because in the event of a bank run, the central bank (lender of last resort) can print the money. This can lead to significant inflation problems.

RH

NO!

Fractional reserve banking is just a fancy term, and method, for inventing money out of nothing. It means the bank is only required to have a fraction (10% usually) of the actual money on hand, for the credit it extends. In other words, I have ten bucks but by some insane law I'm allowed to loan you a hundred bucks (because I can just inflate your bank account by pressing a button on my keyboard).

But now you've got to pay me back 100 bucks, with interest. On my ten dollar investment. Get it?

This is how banks operate, and remember, that initial ten bucks was invented out of air also ...

Get the scam?

Hi Matthew,

Hi Matthew,

Yes, I understand the scam, but a similar scam can be accomplished even if the currency is backed by a commodity. I found the following at http://www.lewrockwell.com/north/north86.html :

"FRACTIONAL RESERVES WITH GOLD

The familiar story of how fractional reserve banking began may be mythical historically, but it does accurately describe the process.

A goldsmith accepts gold bullion as a deposit from a gold owner who wants to have the goldsmith fashion the gold into something lovely. The goldsmith issues a receipt for this specific quantity and fineness of gold. The recipient then finds that he can buy things with the receipt, as if it were gold. The receipt is "as good as gold."

Next, the goldsmith discovers something wonderful for him. He can issue receipts for gold for which there is no gold in reserve. These receipts circulate as if they were 100% reserve receipts. They are "as good as what is as good as gold." He can spend them into circulation. Better yet, he can loan them into circulation and receive interest. The new money is cheaper to produce than mining the gold that each receipt promises to pay. The restriction of the money supply that is imposed by the cost of mining is now removed. This is supposedly the origin of fractional reserve banking."

Again, a check and balance against allowing this scam to go too far is that citizens can make a run on the bank to redeem their currency for the commodity that's supposed to back it. This check and balance essentially does not exist if the currency is irredeemable.

RH

[Edit] I do not condone legalizing fractional reserve banking (even if the currency is backed by a commodity), since this too can cause significant inflation and is dishonest (i.e. a violation of contract), imho.

Yes but

when you inflate a commodity-backed currency you have to break the law to do so. With fractional reserve banking, it's LEGAL to inflate the currency indefinitely. That's a very important distinction.

The point wasn't a fractional reserve system

It was about fiat money, which the US dollar has been since the 70's with Nixon decoupling it from gold.

Investopedia..Most of the world's paper money is fiat money. Because fiat money is not linked to physical reserves, it risks becoming worthless due to hyperinflation. If people lose faith in a nation's paper currency, the money will no longer hold any value.

As is our case, coming up. There has never been a fiat money system in existence that has not gone under.

A brief history...

Examples of Prior Attempts at Fiat Money Systems 20 BC - Roman Empire - After a highly successful period of empire building, Augustus, ordered mines in Spain and France to be mined 24 hours a day to support his tremendous infrastructure costs. Money was increased faster than production, however, creating inflation. He cut back on coinage, but later his stepson put coinage into government coffers, which was eventually abused by emperors that followed him including: Caligula, Claudius, and Nero. Their lavish spending on consumption, (sound familiar?) wiped out most of Rome's riches when Nero got the idea to debase the currency in 64 AD by putting less silver into coins. This allowed the emperor to continue his lavish spending, building increasingly large trade deficits with Rome's colonies, and causing the wealthy to either hide their wealth or flee from the confiscating government. This did not have a happy ending as we now know.

910 AD - China experiments with paper money - It takes several hundred years but the system is abandoned due to unacceptable levels of inflation as money printing exceeded production.

1500'S - Spain gathered gold from Mexico and the new world, becoming the richest nation in the world. Instead of developing their own economy they sent gold to trade partners in a consumption orgy not dissimilar to the US today. Then they went on a military rampage to extinguish pirates, (terrorists?) in an imperialistic march into other lands, dropping any distinction between terrorists, (I mean pirates) and the countries that harbor them. Their excessive consumption ran through their gold hoard, so they turned to financing the war with debt, bankrupting them.

1716 - John Law convinced France to use paper money and declared all taxes must be paid with it to gain acceptance. The idea snowballed and paper money became more desired than coin. It led to excessive printing, additional moneymaking schemes and fraud. Exaggerated values coinciding with money printing eventually blew up the system.

1791 - The French Government again tries its hand with a paper currency. The Government confiscated land from aristocrats and issued "assignats" which paid interest against the properties. Land was auctioned off in exchange for these notes, inflation rose to 13,000% by 1795. Napoleon ended the revolution and replaced the "assignats" with the gold franc, which set off over a century of prosperity for France. In the 1930's Socialists came to power and brought the Bank of France fully into the Government. They quickly removed gold backing of the currency and made the franc a managed fiat currency. In only 12 years the currency lost 99% of its value.

1853 - Argentina went on a gold standard and thrived for close to 100 years. A central bank was created in 1932, beginning a long downfall. Juan Peron took charge in a 1943 coup and depleted reserves causing trade to fall. Argentina continued on this path of paper money, falling from the eighth largest economy to a mere shadow of its former self, which it has not recovered from as of today.

1862 - Abraham Lincoln passed the Legal Tender Act allowing the Government to issue paper money, backed by nothing but government promises. A huge inflation transpired that caused the practice to fall out of favor until the Federal Reserve System was put in place in 1913.

1923 - Weimar Republic - After World War I, Germany, crippled from its loss in the war, was held accountable for its war reparations. The country was destitute so found no other choice but to simply print the money in massive quantities to pay the reparations. The result was the plundering of the entire middle class, wiping out all value of savings, and paving the way for Hitler in front of an angry public.

The US dollar went off the gold standard in stages:

1934 - President Roosevelt revalued gold from its official price of $20.67 to $35 an ounce in an attempt to print more money, with the hope that this would lift us out of the depression.

1944 - The Bretton Woods Agreement was made to treat the dollar as a substitute for gold, since a dollar was defined as 1/35th of an ounce of gold, which was pegged at $35 per ounce. The door was opened worldwide to print money; foreign nations could print if they had gold or US dollars.

1971 - President Nixon closed the gold window, ending convertibility of dollars to gold. This came about because the US was printing too many dollars and living beyond its means. Foreign nations led by France, recognized this and began demanding payment in gold, breaking the system as the US experienced a major gold drain.

Look how long a fiat currency can thrive. Between 1948-1969 world money reserves increased only 55%, since that time they have shot up more than 2000%. See any connection? Also note that after Nixon's move, gold went up over 25 times in less than ten years. Was it discounting the unprecedented money printing that was about to unfold? A brief perusal of history will show that when a nation went on a gold standard it was the beginning of a very long period of that nation thriving. When a country went to a fiat currency there was a period, as long or longer than 30 years, in which it thrived even more. However, during that period of prosperity on a fiat currency, excesses began to build. Once they have built up to extreme levels, it is a very dangerous time. When levels of debt become too excessive, an increasing amount of the rewards of production; profits, must go to servicing debt. When the servicing of debt consumes all of the profits of production, it finally consumes production itself.

It would probably behoove us to get out of the fiat money racket... a competing currency would be the smoothest transition.

~Live life to its fullest, with an open heart, open arms and most important... an open mind~

Now, the question is, how do

Now, the question is, how do we get our gold back from the bankers???

WE ARE THE RON PAUL MEDIA!!!

--
Host, The Next Step Podcast
http://thenextstep.podomatic.com

Thiws is how we get our gold back from the bankers.

Here is an article on how to go from Paper back to Gold. It was written by Bill Denman who got interested in Austrian Economics about the same time as Ron Paul.

It is a PDF document. It includes the long answer on how we get the gold back from the bankers.

Conversion from Paper to Gold

Please let me know what you think of this article. Thanks

“The desire to be relevant in the political sphere can be a temptation to compromise with the engine of plunder.”

OR

Or maybe the 50 dollar gold coin would be worth 50 dollars and 50 dollars would by you 5000 worth of goods in todays value.

KT

KT

Gold and Silver are Money

WAKE UP AMERICA!!!

Every Year the US Mint produces one oz gold and silver coins called eagles. A one oz gold eagle is a 50 dollar peice and a one oz silver eagle is a one dollar peice. You can go to any bank and purchase them or order them. Many dealers also handle this money. Currently a 50 dollar eagle is worth approximately $950.00 Bucks.

WAKE UP AMERICA

KT

KT

Intrinsic value

And if the dollar has already lost 95% of it's value since 1913 that $50 face value gold coin should be equal to about $4,750 in FRN's today.

"Rather to seek new kingdoms by their own work, than to slumber in peaceful subjection to the rule of others."

-Alaric Gothic Leader-

Hahahahaha

I love the Daily Paul.

How to return to using Gold and Silver as a means of exchange.

Here is a paper recently written by Bill Denman on how to return from using unbacked paper money to Gold and Silver.

I think Ron is right that we can have competing currency but if the fed is allowed to continue defraud us by pumping out new paper they could use this fraud to buy up much of the gold. They would just offer very high prices for it.

The paper is in PDF format. You will need to have BookAntigua font installed in the fonts folder in control panel for the pictures and the graphs to show up correctly.

http://christianlibertyparty.com/index.php?option=com_remosi...

“The desire to be relevant in the political sphere can be a temptation to compromise with the engine of plunder.”

beans again!

The question is how do we return to the gold standard, is the government going to start paying of the people with gold? Are my parents going to get gold certificates in the mail for their Social Security check. As the situation goes now, until the government makes gold availible and pays people with them it isn't very practical to buy gold, do you think your neighbor is going to accept a gold piece for payment, probably wouldn't know what it was or if it was real. It the government mints some coins and issues them as payment, investing in gold is only a venture and it could be risky, buy beans, corner the market for Ron Paul.

Gold as an alternate currency

If my employer would agree to pay me in standard gold coins (e.g. American Eagles or the like) an amount at today's prices ($900 / oz) equivalent to my current salary, and agree to keep paying me each year that same many ounces of gold regardless of what happens to the gold price, I would happily agree never to ask for a raise. Gold could conceivably lose half of its purchasing power, were it to drop to its historical low, but the dollar has already lost over 95% of its purchasing power since the Federal Reserve was created (if you use the government's own low ball CPI numbers) and will certainly lose another 95% of what value it has left. So I know which currency has the greater down side risk. The government can print money. It can't print gold.

If my neighbor has any sense he will happily accept gold as payment. It is a form of money that has been universally accepted for thousands of years. When the three wise men visited the baby Jesus they did not bring frankincense, myrrh, and Federal Reserve Notes. Today in communist Vietnam there are merchants who reprice their goods each day according to the price of gold -- they have effectively put themselves on the gold standard. Meanwhile, here in capitalist America the rubes keep voting in politicians whose principle promise is that they will further destroy our money.

Frankincense and myrrh!

The wise men did not bring gold because it was valuable, they brought it because it was symbolic of royalty. Its market value was significantly less than that of myrrh.

Gold is not special, and using it as currency is just a waste of gold.

frankincense and myrrh?

now there's an idea! while gold does have some health properties---
as does silver---frankincense and myrrh were actually brought b/c one stops blood clotting and the other is anti viral...they are both good post-partum herbs and were in all likelihood brought for Mary.
They have many other health properties,as well. Not a bad idea....I need my health most.
Hey,wasn't long island purchased in shells?
it truly is up to the 'market' to determine what has value.

i love that shiny stuff

the irs and bankers hate it, instead of paying taxes on $900 we pay the taxes on the face value of the coins. we keep the gold and give them back paper, eventually they will go away. the federal reserve will go away. the sooner the better.

Asking the wrong question?

This is all about competing currencies allowing people to control their own destinies and protect their savings. Asking what the government't going to do is the wrong question.

It would work pretty easily. You wouldn't accept payment in liberty dollars when one liberty dollar sells for twenty fake fed notes on Ebay?

Top US Investor Jumping Ship

Jim Rogers, a top US investor, is pulling roots and heading east, where he says Asia is like NYC was at the turn of the century, "full of excitement." He is going to where he sees the future of growth is and as a matter of a fact, he has taught his very young daughter, Chinese. This is exactly what Ron Paul would stop.

Top U.S. Investor, Jim Rogers- pulling out for Asia:
http://ronpaul.myfeedportal.com/viewarticle.php?articleid=52

How would Ron Paul stop that?

Are you saying Ron Paul would stop someone from learning Chinese? What do you mean? Ron Paul believes in fair and free trade with all nations and a free market.

Youtube?

Was this speech recorded & on YouTube anywhere?

.

.

This is pretty simple

But it's too complicated for the average complete and utter imbecile on the street.

I put it like this when trying to explain it to people:

"Tell me, asshole, since our money is just paper, why does our government buy it, as if it was a commodity, from private bankers????? And why does our gov agree to pay constantly mounting interest on this INVENTED debt??????

"If it's to be paper money, why doesn't our government just print the currency itself, virtually for free, with no public debt attached and no interest due ever. And then regulate the amount in circulation with a simple mathematical formula based on the population????? The money would never lose its value, there could be no great depressions, and it would cost nothing. Don't think it can be done? look up Colonial Scrip. Ben Franklin did it.

"So do you think our masses of so-called public servants are mentally retarded and can't figure out that they could do this for free, or do you think the money system is a system of control?"

Then they say, "I don't know."

And then I say, "That's why you're an asshole. Go vote for the next American Idol. You've got no business trying to have a say in politics. Asshole."

HAHAHAHA

"language" or not, that was funny!!!!!

:)

Love it!

Love it!

Hi Matthew,

Hi Matthew,

I agree that it makes little sense for our government to be required to pay interest on intrinsically worthless fiat FRNs. I also agree that if our government printed our currency directly and was able to manage the quantity using a rule like you propose (based on population), the fiat system might work. However, imho the system you propose is less honest than a commodity backed currency (since the fiat system is still irredeemable), and it would likely be easier for government to ignore/bend the money creation rule than to debase a commodity backed currency.

RH

[Edit] Just to clarify, I think it would be more difficult for government to debase a commodity backed, redeemable currency because citizens that redeemed their currency for the commodity would provide a check and balance against over-supply of the currency.

Hi rharaz

It's pretty much the same thing.... Gold backed currency is just a guarantee that the gov won't overprint, so the currency will always buy the same amount in gold. The key with gold backed currency is the amount in circulation. The fact that the currency always needs to be redeemable in x amount of gold, automatically restricts the amount of currency that can be printed.

So the Ben Franklin-type system did the same thing--restricted the amount that could be printed--and consequently the currency always purchased the same amount in gold--although it wasn't "backed" by gold.

For practical purposes, scientifically regulated fiat currency provided by The People for themselves would be no different than gold backed currency. Both would be

1) free to produce, with no interest due ever.
2) hold their value forever due to restrictions on the amount that may be printed.

The point of my exercise isn't to make a case for fiat currency, it's to illustrate that okay, we're working with bullshit monopoly money anyway, so why do we PAY a few private bankers absolutely absurd sums to mismanage the supply and crash our econony? The point is to put some ignoramus in a position where he/she has to acknowledge that something fishy is going on with the money system. Then hopefully he/she starts thinking real hard about what it means.