Are you aware that a Federal Reserve dollar bill is not a constitutional dollar? Perhaps you are, but if so, do you know what a constitutional dollar literally is? Is it gold? Is it silver? Is it both? What is actually meant by a metal standard? Can the United States or any country be on two standards at the same time? Can two metals circulate as coin if there is but one standard? Or does one metal have to drive the other out of circulation? How and why does Gresham’s law work when a country uses metal coin for money? In what ways are certain statements of Gresham’s law misleading?

Sooner or later, if and when the power of the Federal Reserve over money is revoked in a constitutional manner, and if and when constitutional coin comes back into use, these questions will need to be asked, answered, and understood. That is what this article does in a compact fashion.

In his meticulously researched two-volume work, Pieces of Eight, constitutional lawyer Edwin Vieira Jr. shows beyond any doubt that the constitutional dollar in the United States is an “historically determinate, fixed weight of fine silver.” The Coinage Act of 1792 is but one source among many that makes this evident, reading,

“the money of account of the United States shall be expressed in dollars or units … of the value [mass or weight] of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure … silver.

The United States has a legal and constitutional silver standard, although we would not know it today, since the government has illegally and unconstitutionally removed silver as currency and replaced it with the Federal Reserve notes that we know as dollar bills. The term “dollar bills” obscures the actual and tangible meaning of “dollar” as a specific weight of silver.

The United States has historically minted gold coins as well as silver coins, as the constitution instructed. It regulated their “value,” the weight of gold they contained, in order to bring the meaning of a gold dollar into conformity with the silver standard coin, which contains 371.25 grains of pure silver. This too was constitutionally mandated. The government did the same for foreign coins up until 1857.

The United States never was or could be constitutionally on a dual standard or a gold standard. It circulated silver and gold coins as media of exchange by adjusting the content of the gold dollar to a silver-standard dollar. For example, the Coinage Act of 1792 authorizes “Eagles — each to be of the value of ten dollars or units [i.e., of ten silver dollars], and to contain two hundred and forty-seven grains, and four eighths of a grain of pure … gold.” Since the dollar contained 371.25 grains of silver, this brought into legal equivalence 3712.5 grains of silver and 247.5 grains of gold. The ratio was 1:15.

In the Coinage Act of 1834, Congress adjusted the gold eagle: “Each eagle shall contain two-hundred and thirty-two grains of pure gold.” This brought into legal equivalence 3712.5 grains of silver and 232 grains of gold. The ratio was 1:16. The reason for the change was that gold had appreciated in market value relative to silver.

Old coins could be brought in and reminted for free (after waiting 40 days.) If old coins were not reminted, they were to be accepted as payments “at the rate of ninety-four and eight-tenths of a cent per pennyweight.” The weights of the earlier and later eagles were influenced by a change in the standard gold alloy. The rate of 94.8 cents per pennyweight took that change as well as the alteration in the pure gold content into account, so that payments made in either the old or the new coins became very nearly equivalent in terms of the amounts of pure gold being paid.

With this as an introduction, let us go on to an explanation of Gresham’s law and the reason why Congress was constitutionally mandated to make such adjustments in the weight of gold in the gold-dollar coin.

Suppose that the dollar is defined as a unit that contains 371.25 grains of silver, and suppose that the unit is physically identified with a specific silver coin that contains that mass of silver. Since grains are unfamiliar units, let us use ounces. Let us note that There are 480 grains in one troy ounce. Hence, 371.25 grains weighs 0.7734375 oz. That is to say that if a silver-dollar standard is officially and constitutionally instituted, with each dollar having the mass of 371.25 grains of silver, this means that the dollar is defined as containing 0.7734375 troy ounces of silver.

In all nonfraudulent exchanges involving dollars, someone who pays or receives a dollar is supposed to pay or receive that mass (or loosely weight) of silver in coin or its equivalent in bullion (bars or ingots). The dollar sign, “$,” in such a regime means 1 silver dollar of the official weight of 0.7734375 troy ounces of pure silver. The word “dollar” means the silver coin of that specific mass.

A standard is something that is unchanging. A yard always has 36 inches. A pound always has 16 ounces. A standard, constitutional dollar always has the same amount of the metal that is chosen as its definition, until the constitution is amended to alter the standard, or unless the constitution allows the legislature to alter the standard.

Economically, there can only be a single such standard dollar at a time. One cannot simultaneously have the dollar mean a certain amount of silver and another amount of gold. An economy cannot have two concurrent and different standards of the dollar. The reason for this is that, as will now be discussed, the relative prices of any two metals fluctuate over time.

The exchange rates of gold for silver vary over time due to the changing supplies and demands for these metals in markets. At one time, 1 oz of gold may exchange for 16 oz of silver, while at another time it may exchange for 25 oz of silver. These fluctuations go on unceasingly.

If an attempt is made to define a dollar by two standards simultaneously, it will fail. If a dollar is made to be 1 oz of gold and also 16 oz of silver, what is a dollar when those metals no longer exchange at that ratio? What is a dollar when they exchange at 1 oz of gold to 25 oz of silver? There is no answer. There is no answer because the dollar cannot simultaneously be two different weights of two different metals whose rates of exchange vary over time. One or the other of the two metals has to be chosen as a standard.

Fluctuations occur in the market even if the government sets an official rate of exchange between the two metals, which is what was done in the various coinage acts. The government can attempt to force a given exchange rate, but this will not alter the fact that the market exchange rate departs from the forced exchange rate. The result of a discrepancy between legal and market rates of exchange will be that one of the metals will disappear from circulation. That result comes under the heading of Gresham’s law in operation.

There are two ways that the government can, without the direct use of force, keep both silver and gold circulating as money even if only one of them is the standard. One way is to regulate the value of the official gold dollar as time passes, which means to change the official rate of exchange between gold and silver in order to bring it into accord with the market rate of exchange. That is what the coinage acts did.

The other way is to avoid using a gold dollar altogether and produce gold coins that have a known weight but no designation as a dollar. The gold coin can “float” or have a changing price against the silver-standard dollar. This method was not used but it could and should be used in the future if and when the constitutional silver dollar is restored as the unit of account.

Let us examine in more detail how a money standard, such as the silver standard, works; and then let us examine Gresham’s law.

Suppose that there is a single silver standard: that of a dollar containing 0.7734375 oz of silver. Suppose also that at some specific time, the price of a troy ounce of gold in terms of silver is $16 in the market. This means that 1 oz of gold exchanges in the market for 16 silver dollars, each dollar containing 0.7734375 oz of silver. That is, 1 oz of gold exchanges for 12.375 oz of silver.

Now suppose that the government issues a gold coin. If an official gold coin is made that says it is a $16 gold coin, stamped literally 16 dollars, it will contain 1 troy ounce of gold, worth exactly $16, that is, worth 16 silver dollars. Suppose that the government goes one step further: it makes this exchange rate the official rate, such that in debt contracts one is permitted to pay either 16 silver dollars or 1 of these gold coins.

The official exchange rate is 1/16 oz of gold per silver dollar. The silver standard and accompanying law make silver a legal payment or legal tender in debt contracts, unless perhaps the private parties to the contract are allowed to specify otherwise. With gold’s price officially fixed at 1 oz per 16 silver dollars, then gold at that price is also a legal tender in payment of debts. The government in this example is attempting to keep both gold and silver in circulation by making the official rate the same as the market rate.[1]

In the unlikely case that the market price of gold remains at $16 indefinitely, this gold coin provides a substitute or equivalent to the silver standard, even though there is but a single standard. If this market ratio prevails through time, staying at the official rate, there is no real difference between gold and silver for payment purposes. In this situation, one can think in terms of either a silver or a gold standard, even though there is really only a single standard. There is no significant difference.

However, this situation never actually occurs. Market prices do change. A single standard then becomes essential in an economic sense if the dollar is to retain a clear definition as a standard. The silver standard fixes the dollar at 371.25 grains of silver, no matter what happens to the market price of gold in terms of silver. If the relative prices of silver and gold change, that shows up in a change solely in the price of gold. This will make the “16 dollar” designation on the gold coin obsolete from a market point of view, but not from an official point of view.

This disparity will set in motion certain events that we now look into. These events are certain to occur because the discrepancy between the market and official rates will create a profit incentive.

Consider two examples in which the market prices deviate from the official exchange ratio. The first example occurs when gold rises in price relative to silver. Suppose that 1 oz of gold becomes able to buy 20 silver dollars in the market. The market exchange ratio becomes 0.05 oz of gold per silver dollar, while the official rate is still 0.0625 oz of gold per silver dollar. The gold piece becomes more valuable. An ounce of gold now exchanges for 15.46875 oz of silver, which is the amount of silver in 20 silver dollars. At the official rate, it exchanges for only 12.375 oz of silver.

Now we explore the profit opportunity that lies at the heart of Gresham’s law: If someone owes 16 dollars and can pay in either silver or gold coins, which will they chose? Will it be silver or gold? Intuitively, one pays with the less expensive metal, which is silver. One holds gold off the market and instead uses silver for payments. The more expensive metal disappears from circulation as money or coin, although it will continue to be used for jewelry, teeth, and industrial applications.

The official contractual rate in debt contracts calls for either 16 silver dollars or 1 gold coin. But 1 gold coin now exchanges for 20 silver dollars in the market. If a person possesses 1 gold coin, he can buy 20 silver dollars in the market by ignoring the official rate of exchange. He can then pay the debt with 16 of these silver dollars and have 4 silver dollars left over. This is clearly preferable to paying out the entire gold coin to satisfy the debt, since he gets rid of the debt and still has 4 dollars left over. Hence, he will pay at the official rate in silver dollars, not in gold coins.

This situation contains a risk-free arbitrage (or profit) opportunity. Exploiting it drives gold out of circulation as money. For example, suppose a person starts by borrowing 1 gold coin. He then buys 20 silver dollars and keeps 4 of them. He then repays the loan of the gold coins with 16 silver dollars, since they are legal tender. He can repeat this operation again and again to augment his pile of free silver. This is a money machine — a risk-free arbitrage — in which one party gains and the other loses.

The lender of gold coins is obeying the law by honoring the official exchange rate, but he is losing on this deal since the 16 silver dollars that he is repaid cannot buy 1 gold coin in the market. He will stop lending gold coins. He will put an end to the money machine. This is why finance theories typically assume that assets are priced so as to preclude risk-free arbitrage opportunities.

Let us think of this in another way, which is in terms of exchange rates. An exchange rate when silver is the standard is expressed as a number of ounces of gold per silver dollar. When gold appreciates in price relative to silver, the exchange rate falls. That is, less gold is required to exchange for each silver dollar. In the example above, one can satisfy the debt at the official exchange rate of 0.0625 oz of gold per silver dollar, whereas the silver dollar fetches only 0.05 oz of gold in the market. Silver that is used to extinguish debt has a greater value than silver that is used to buy gold in the market as coin. Therefore, silver will be used for payments of debt and all other exchanges, not gold.

The result of gold having appreciated in price relative to silver and thus of the market rate of exchange of gold for silver having fallen below the official rate of exchange (0.05 oz of gold per silver dollar as opposed to 0.0625 oz of gold per silver dollar) is that gold will disappear from circulation as payments. This is an example of Gresham’s law.

When two metals are legal tender at an official rate of exchange and one metal’s market price increases, that metal (here gold) will disappear from circulation as money. Gresham’s law is an application of the idea that money machines do not exist in equilibrium, that there is no free lunch, and that risk-free arbitrage opportunities do not exist in equilibrium.

There is another way of describing what happens when gold appreciates in price relative to silver, but the official rate is lower: One could say that the official exchange rate undervalues gold. The undervalued metal disappears from circulation.

This language is misleading and confusing, however. Is silver overvalued? It seems natural to conclude that silver is overvalued if gold is undervalued. However, silver is not overvalued. Silver cannot possibly be overvalued because it is the standard being used to define the dollar.

Despite the very great drawback introduced by the terms “undervalued” and “overvalued” in this context, they have been common in debates on bimetallism. These terms have contributed to confusion, erroneous analysis, and policy blunders with costly consequences, because they obscure the reality that one metal is always the standard. In the United States, that constitutional metal has always been silver.

One also hears Gresham’s law stated as “bad money drives out good.” This too is misleading, confusing, and erroneous. In the example of gold appreciating and disappearing, silver is by no means “bad money,” nor is gold “good money.” There is no good and bad money at all. Silver is the metal being used as the standard. It has not driven gold or good money out of circulation. The fixed exchange rate of gold set at too high a level compared to the going market rate has driven gold out of exchange.

For completeness, we consider the opposite case in which gold depreciates relative to the silver standard. Suppose that the market exchange rate rises from 0.0625 oz to 0.076923 oz of gold per silver dollar, which means that one ounce of gold now trades for 13 silver dollars. Suppose that a debt of $16 is to be paid. A person can pay in either silver or gold dollars. This again requires 1 gold coin at the official rate. The cost of that coin in the market is 13 silver dollars. If one had 16 silver dollars, one could use 13 of them to buy 1 gold dollar in order to pay off the debt. One would then have 3 silver dollars left over. Therefore, it’s less expensive to pay the debt with gold.

Gresham’s law again goes to work. Silver disappears from circulation. When two metals are legal tender at an official rate of exchange and one metal’s market price depreciates in terms of the metal used as a standard (silver), that depreciated metal (gold) will circulate, and the other metal (silver) will disappear from circulation as a medium of exchange while maintaining its role as a medium of account.

In practice, a rather small depreciation of gold (1–3 percent) is enough to cause silver coins to disappear from circulation. Suppose we start with an official and market ratio of silver to gold at which there is the equivalent of 0.05 oz of gold in one silver dollar. This means that 1 silver dollar buys exactly $1 worth of gold at the official and market rate, and that 20 silver-dollar coins buy 1 gold coin that weighs 1 oz and is worth 20 times as much as the silver in one silver dollar.

Suppose now that the market price for gold declines such that 0.051 oz of gold buys 1 silver dollar. This is a 2-percent increase in the market exchange ratio. At the official exchange rate of 20 silver dollars per gold coin, the 0.051 oz of gold is worth 0.051 × 20 = $1.02 (i.e., 1.02 silver dollars.) If a person had to pay $1, it would be better to pay it in the less-expensive metal (here gold), at the official rate of 0.05 oz of gold per dollar. People will thus tend to use gold for exchanges and hold silver off the market.

If small changes drive one metal or the other out of circulation, the government has to adjust the official exchange rates frequently if both are to be kept in circulation. This is both costly and inconvenient. The solution to this is straightforward. Choose one metal as a standard and allow the price of the other metal to fluctuate freely or float in the market.

If silver is the standard, then gold coins can be minted with no dollar designation at all. They can be minted with the weight of pure gold shown. Then when they are used as payments or used as a basis for issuing e-credits or gold certificates, their weights can be used in conjunction with the changing price of gold to gauge appropriate payments and receipts.

Frequently Asked Questions

Q: What is a constitutional dollar literally (in the United States)?

A: It is a silver coin containing 371.25 grains (0.7734375 troy ounces) of pure silver.

Q: Is a gold standard constitutional?

A: No, not for the United States as the constitution is written. It should be noted, however, that individual states have a constitutional power to make specie (silver, gold, or both) legal tender.

Q: What is meant by a metal standard?

A: It means a monetary unit that contains a specific weight of metal.

Q: Can the United States or any country be on two metal standards at the same time?

A: No, this will be impracticable because of the continual changes in relative prices of any two metals.

Q: Can two metals circulate as coin if there is but one standard?

A: Yes. The metal that is not the standard can circulate as a coin of a given weight of that precious metal whose value at any given time is determined by reference to market prices. Such a coin need not carry any specific dollar designation. This obviates Gresham’s law.

Q: Does one metal have to drive the other out of circulation?

A: No. As long as the metal that is not the standard is not legally made to exchange at a fixed ratio to the standard metal, both metals can circulate just as silver and gold both trade in today’s markets. Gresham’s law will not come into play.

Q: How and why does Gresham’s law work when a country uses metal coin for money?

A: Gresham’s law takes hold when the government fixes an exchange rate between two metals. When the market rate of exchange deviates from the fixed rate, arbitrage opportunities arise that make it profitable to use the less-expensive metal as means of payment at the official rate. Then the more-expensive metal disappears from circulation as a medium of exchange.

Q: What is an accurate rendition of Gresham’s law?

A: When two metals are legal tender at an official rate of exchange and when one metal’s market price appreciates in terms of the metal used as a standard, the appreciated metal will disappear from circulation as money and the metal used as a standard will circulate. Conversely, when two metals are legal tender at an official rate of exchange and one metal’s market price depreciates in terms of the metal used as a standard, the depreciated metal will circulate; the metal used as a standard will disappear from circulation as a medium of exchange, although it is still the medium of account.

Put more simply, when two metals are legal tender at a fixed, official rate of exchange, the metal that is less expensive at the market rate of exchange will tend to circulate for payments while the more expensive metal will tend to disappear as a medium of exchange.

Michael S. Rozeff is the Louis M. Jacobs Professor of Finance at the University at Buffalo.

Copyright, Mises Institute, printed under the Creative Commons License, 3.0

There is a secession movement afoot and its proponents are determined to put a halt to the federal government’s ambitions to destroy and reconstruct an entire economy and dissolve the last remnants of individual liberty. Twenty-eight states are invoking the law of the land, the U.S. Constitution, by rolling out legislation to assert their sovereignty as free states in order to keep from being undermined by the never-ending swarm of unrestrained federal decrees.

The speed with which the federal government intends to take over private institutions and usurp states’ rights and individual autonomy is unprecedented. When the Bush-Obama regime maneuvers are compared to the Hoover-FDR New Deal era, it looks like today’s hare vs. yesterday’s turtle. The state’s various propaganda arms, from big media to institutionalized special interest forces, are being empowered to publicize and sell the agenda of the totalitarian state by painting it in glossy colors that warm the hearts of unresisting Americans. There are, however, growing pockets of dissenters who conclude that life, liberty, property, and the futures of their children are more important than the trivial things that occupy the minds of the submissive class. For that reason, the state’s militarized police force, which has been given unparalleled powers by the contrived crises following 9-11, has snowballed in size and is being fortified in expectation of confronting rebellion from those citizens who intend to resist the tyranny of an over-reaching Leviathan.

Since the Bush II regime took control and 9/11 became its launch pad for sweeping hegemony, the police state has moved more swiftly than ever to demonize resistance and criminalize dissent. The most recent example is the Missouri Information Analysis Center (MIAC) report that profiled individuals according to their political convictions, especially those ideas that agitate against the institutionalization of unconstitutional acts that are intended to grow state power at the expense of individual liberties. Ron Paul, Chuck Baldwin, Bob Barr (!), guns & ammo, taxes, the Federal Reserve, secession, and resistance to universal government service or anti-privacy actions – all of those topics have become keywords in the crusade to criminalize individuals who refuse to be rounded up like cattle and marched toward serfdom.

Two years ago, a similar thing happened in Alabama when its Homeland Security Department released a report pigeonholing freedom activists as “anti-government types” who “claim that the U.S. government is infringing on their individual rights, and/or that the government’s policies are criminal and immoral.” Such groups, the report said, “May hold that the current government is violating the basic principles laid out by the U.S. Constitution…” Don’t bother to look up that report, however, because LewRockwell.com blogger Chris Brunner’s post on the Alabama report spread like wildfire ’round the Internet, resulting in that report being pulled from the website.

In addition, the MIAC report was quickly stifled by hordes of liberty activists, leading Chuck Baldwin to say, “the most effective way to fight an ever-encroaching federal leviathan is to focus on our individual states.”

The struggle for sovereignty, though begun on the part of spontaneous individuals with leanings toward the radical principles of our nation’s founding, has reached state legislatures across America in the form of sovereignty bills. According to the Christian Science Monitor, twenty-eight states are now commencing resolutions as a reaction to the sudden and massive expansion of federal powers. Even the Republic of Lakotah is declaring its withdrawal from all treaties and agreements imposed on it by the US government. The notion of state secession, once written off as a subject matter for political crackpots and eccentrics, has become a legitimate and practical solution for undoing the years of accumulated assaults on individual liberty that has come from the centralized state.

With revolutionary die-hards behind him, Mr. Pitts has fired a warning shot across the bow of the Washington establishment. As the writer of one of 28 state “sovereignty bills” – one even calls for outright dissolution of the Union if Washington doesn’t rein itself in – Pitts is at the forefront of a states’ rights revival, reasserting their say on everything from stem cell research to the Second Amendment.

…And although Pitts [state rep from South Carolina] hails from Abbeville, the place where the South’s first secession votes were cast, he insists that today’s efforts to check federal power aren’t limited to regional pockets or even political affiliation. “The mainstream media would portray some of us as rednecks, whether we’re from Pennsylvania, Oregon, or South Carolina,” says Pitts. “But this is a wake-up call. And if Washington doesn’t heed that wake-up call, revolution is on the horizon.”

That is from a recent issue of the Christian Science Monitor. Walter Williams, a respected academic and popular, syndicated columnist, declared this in his most recent column:

Our Colonial ancestors petitioned and pleaded with King George III to get his boot off their necks. He ignored their pleas, and in 1776, they rightfully declared unilateral independence and went to war. Today it’s the same story except Congress is the one usurping the rights of the people and the states, making King George’s actions look mild in comparison. Our constitutional ignorance – perhaps contempt, coupled with the fact that we’ve become a nation of wimps, sissies and supplicants – has made us easy prey for Washington’s tyrannical forces. But that might be changing a bit. There are rumblings of a long overdue re-emergence of Americans’ characteristic spirit of rebellion.

Emory Professor and constitutional scholar Don Livingston notes, in his Secessionist Paper No. 19: What is Secession?, “talk about secession makes Americans nervous. For many it evokes images of the Civil War, and is emotionally (if not logically) tied to slavery, war, and anarchy. That the word “secession” is laden with these negative connotations should be surprising since America was born in an act of secession.” He goes on to describe secession as an act that “does not seek to overthrow or alter the government of a modern state, but seeks merely to limit its jurisdiction over the seceding territory.”

But still, the negative connotations of secession live on, even within some libertarian circles. Perhaps the most puzzling thing I keep hearing from some libertarians is that those of us who adhere to secessionist ideas are wacky outliers who offer no value “to the movement,” and instead, we only throw up red flags that warn others to avoid us, and libertarianism as a whole. Thus we are led to believe that our founding fathers, the architects of rebellion and the champions of Jeffersonian principles, were reactionary wackos.

The anti-radical libertarians ask for practical solutions, with “practical” being the code word for something that is acceptable to the majority of the Oprahized masses. This kind of thought is known as “libertarian lite,” or as I call it, “car wash libertarianism.” The car wash libertarians persuade others – “especially those new to libertarianism – to stay away from the radical, “crazy” stuff and hold true to the agenda of getting “our people” elected through legitimate political means. The car wash libertarians still have a voice in the modern LP, which is also known as GOP 2.0. These libertarians are in the game not for reasons of deep-rooted principles and love of liberty, but for the social, bonding aspects, with some mild libertarianism sprinkled on the side. They love attending their local meetings and dinners each month and discussing who is going to run for what local post, and when, and applying strategy. How fun it all is. City council or board of county commissioners? Now those are appointments that will have a significant impact upon an America that is quickly descending into a Communistic hellhole.

Truth is, the car wash libertarians will be the ones cowering in a corner the day they come for our guns (under a massive, federal gun control act) and our children (under federal, child “protective services” laws or a national service act). But they may have a post or two at some tiny township, with such important duties as arranging for an annual dinner at the VFW or setting up the car wash fundraiser to pay for new lamp posts along Main Street. The car wash libertarians tend to have scant knowledge of history, monetary policy, constitutional disputes, and the political philosophers who have, over the years, defended states’ rights and the natural rights of the individual against the totalitarian, centralized state. In fact, they tend to shy away from the intellectual life because it’s not as fun, or as social, as the monthly meetings and supper club invites.

In spite of the radicalism of many of the early LP’ers, in 30+ years the LP has made no advances whatsoever, except that a few of them hold feeble local offices where it is their brand of politics in charge as versus the other guy’s rules. One guy’s coercion in place of another guy’s coercion offers us no progress whatsoever in terms of quelling the federal expansion that is speedily choking off life, liberty, and the pursuit of happiness. The rapid-fire socialization of America, I hope, will have the effect of turning many of these libertarians toward more radical plans of action.

The Feds are engaged in a sweeping series of measures to take complete control of the financial system (which is forever destroyed) and selected business entities; ratchet up plans for perpetual war; socialize health care; further implant federalized education and criminalize homeschooling; grab guns and ammo; remove children from the homes of dissenters; commence race wars and class wars; force young adults into mandatory state service camps; send protesters to FEMA camps; and on and on and on.

At this point, none of this can be undone through time-consuming, political means. Rahm Emanuel, Eric Holder, and the other agents of Obama’s unfreedom brigade were brought to Washington D.C. for one very specific purpose: to centralize every last bit of property and life and put it all under federal rule, from money to education to personal behavior. Note the condescending and arrogant behavior of King Obama on the 60 Minutes television show as he laughed at the inability of majority opinion to do a damn thing to stop his freight train of power grabs and federal takeovers.

Perhaps the most significant move on the part of the Feds, outside of crushing the free market through rapid nationalization, is the move on the part of the centralizers to extinguish the single most important characteristic of a free society – the right to bear arms. A society in which individuals cannot bear arms is a society doomed to eternal serfdom and oppression from self-serving overlords. Attorney General Eric Holder has long been an advocate of snuffing out gun rights, yet he got through the confirmation process with nothing more than a few feeble whimpers from helpless Republicans playing partisan games. Even worse is a recent occurrence that is perhaps unprecedented on the part of modern presidential administrations. Rahm Emanuel, in his capacity as Chief of Staff, is being utilized outside of his official role and is acting in the role of propagandist by lobbying for absolute and unconditional gun control. Emanuel, an Israeli citizen, is attempting to target gun owners by categorizing them in terms that will brand them as terrorists (the government’s favorite buzz word) in the eyes of their fellow Americans. Yet there has been no challenge to Emanuel for stepping outside his role and becoming an official flag-bearer for the disarming of America.

Gun rights is one of the most visible issues causing states to retreat and claim the federal government has gone way beyond its limits. In Montana, elected officials have signed a resolution declaring that any ruling by the Federal government on the Second Amendment violates its statehood contract. In fact, Montanans are moving to add more lenient concealed weapons laws to what’s already on the books. In Tennessee, state Senator Doug Jackson, a Democrat, has filed legislation that would ban the sale of micro-stamped firearms and ammunition. Such laws will mean a federal registry of gun owners, and Jackson calls this insanity “a preamble to gun confiscation.”

The other prime mover spurring claims of sovereignty on the part of states is rejection of the Federal Reserve and its illiberal policies that enslave the citizens of states by locking them into its inflationary fiat money machinations and debases their currency. Legislators in some states, such as Georgia and Montana, have agitated in favor of throwing off the Federal Reserve in favor of instituting a sound money policy advocating the use of gold and silver as opposed to the Fed’s legal tender notes. In Montana, Representative Bob Wagner introduced a sound money bill (HB 639), though it later died in committee along partisan lines. As times go on and the economic landscape becomes even gloomier, we are more likely to see many more of these kinds of initiatives on the part of state legislatures.

Gold, as such, is a tool for protection against the collapse of the dollar, which is why opponents of the Federal Reserve desire to buy it and hold it. Guns are the tools with which you defend yourself, not only from the local criminal who wants what you have, but even more so, they provide free men with the capability for physical resistance from a federal government whose expansion of powers and oppressive tactics are out of control. Think Rahm Emanuel and Eric Holder, and ask why it is that they champion an agenda that puts guns only into the hands of the government and its approved agents.

The only way to get this oppressive tyrant – known as the federal government – off our back is to break away from it and start anew. That twenty-eight states are starting to fan the flames of rebellion by moving towards a sovereign itinerary is fairly remarkable. States and people must declare their sovereignty and remove the tentacles of the federal government’s oppressive laws from their necks. Only a breakup of this monstrous and out-of-control, despotic giant can restore freedom and keep us all from descending further into the federal government’s grip.

Karen De Coster [send her mail] is a Certified Public Accountant, has an MA in Economics, and works in finance and accounting in the securities industry. See her website and her blog.

Copyright © 2009 Karen De Coster

I’ve discussed just a few benefits of sound money in the last two weeks, and contrasted them to the perils of fiat currency.  Sound money keeps government spending in check, keeps trade fair and honest, which reduces the temptations, and many underlying causes, for governments to wage wars.  It also gives you the peace of mind of knowing that your savings will be able to sustain you in your retirement.

So if sound money is such a good thing, what is stopping people from simply trading with each other in gold and silver?  Why are you still being paid in fiat dollars, and why can’t you pay for gas in gold?  The answer is that the government has enacted policies that provide considerable stumbling blocks to such transactions.

One of the main stumbling blocks is Federal legal tender laws, which state that government-controlled fiat currency MUST be accepted for many kinds of monetary transactions.  In light of this, Gresham’s Law takes effect.  Gresham’s Law states that bad money drives out good money.  Meaning, if someone is forced to accept your bad money, it is to your advantage to pass it off, like a hot potato, in exchange for something of value.

Any good money you have, you will hoard.  Eventually, real money is driven out of circulation and under people’s mattresses, so to speak.  In the absence of legal tender laws, people are free to accept the medium of exchange of their choice, and are likely to insist on payment in something of real value.

Related to legal tender laws, contracts in gold are not enforced.  Meaning if two parties agree to exchange goods or services for gold, and end up in a dispute, the courts will simply settle the dispute in Federal Reserve notes. Governments should do very little, in my estimation, but it should enforce contracts and property rights through the courts.  But in this instance it shirks this basic duty, when it comes to gold, as one way to keep control of our economy and the medium of exchange.

One is also expected to pay sales tax on the purchase of gold.  This is as ludicrous as if you paid sales tax at the bank when you converted dollars into quarters!  The IRS also expects you to pay capital gains tax on gold, which is so backwards, since gains on gold really represent decline in the value of the dollar!

Legal tender laws should be repealed at the Federal level.  Congress has the Constitutional duty to protect the integrity of our money.  However, since it has passed this duty off, and the Federal Reserve has only debased our currency, Congress should no longer force Americans to do business in dollars if they would prefer to transact in gold, or silver, or cigarettes or seashells, for that matter.

Free people should be free to associate and do business in ways that benefit them.  Instead they are forced to use the unstable dollar to their own detriment, and the benefit the government.

Ron Paul is a republican member of Congress from Texas.

Last week I discussed how sound money contributes to peaceful relationships around the world.  It is not gold, in and of itself that excites me, but the many benefits of sound money.  Another benefit is financial security.

Can sound money give you financial security?  There is something very comforting in knowing that what you earn today will retain its purchasing power in the years to come.  Indeed, the same silver dime that bought a loaf of bread in the 1960′s can still buy a loaf of bread with its precious metal content – which is worth about $1.00 today. 

An ounce of gold has always been about evenly exchangeable for a finely tailored men’s suit, which these days is roughly $800.  And in these days of fluctuating gas prices, when priced in gold, oil has been stable.  Meanwhile, since the creation of the Federal Reserve, the fiat dollar has lost 94?f its purchasing power.  The erosion of purchasing power rapidly accelerated when it was completely uncoupled from gold in 1971.

This sort of fluctuation in the medium of exchange creates a lot of uncertainty in the marketplace and necessitates that you either take extraordinary defensive maneuvers, or face financial ruin.  Trusting in government for financial security in retirement is not a safe option.  Indeed, a recent study by the Consumer Bankruptcy Project shows that bankruptcies among those 75 and older has more than quadrupled since 1991.

This represents wealth and savings that have been eroded by inflation, and trust in entitlement promises that were more fantasy than reality.  Even with the pittance that social security pays to seniors, it is bankrupt and bringing the economy to its knees.  It is no wonder that many in the younger generations want no part of it, and they should not be forced into a failed system.

On the other hand, holding physical gold can defend against aggressive government monetary policies that threaten to inflate away the value of your life savings.  During the hyperinflation in post WWI Germany, what used to be a comfortable nest egg was suddenly the value of a postage stamp.

If one held just a portion of their savings in precious metals, the crisis was greatly softened.   Gold will never be worth nothing, even if the exact price fluctuates.  There is a famous photograph, however, of a German woman during this time period burning piles of tightly bound banknotes to keep warm.

Imagine if the money you earned had honest, stable value, or even appreciated like an investment!  No such special measures, like converting dollars to gold, would be required to ensure that your savings would sustain you in your golden years.

That is the way it could be and is supposed to be.  However, the government’s thirst for power will not be easily, or cheaply, quenched.  Fiat currency is one tool governments have to extract wealth quietly from the working class.  It is time for the people to wake up to this ruse and look to the Constitution to restore sound currency.

Ron Paul is a republican member of Congress from Texas.

Many who agree with me on a lot of other issues, do not understand my enthusiasm for gold and sound money or why I spend so much time studying and talking about monetary policy.  It’s true that I talk about money differently than most, but the fact is sound money offers many benefits.

For example – peace.

Can sound money really bring about peace?  Actually, it plays a big part in peaceful international relationships.  Money based on commodities, rather than paper, is not subject to government manipulation, and is a key component to free and honest trade.

History shows that if countries engage in trade with each other, their governments tend to find ways to get along for the same reason you do not kill your customers at your place of business, even if they occasionally annoy you.  If someone outright cheats you, however, you may engage in “war” by taking them to court, for example, and the relationship will sour.  Governments and central banks with unfettered power to manipulate currency also have the ability to cheat their creditors.

One way they do this is to simply create enough currency to pay off debts.  This devalues the currency and “cheats” the recipient out of what they are owed.  It would not be fair if you watered down your product the way our government waters down its currency, so it is not hard to understand, in these simplified terms, why loose monetary policy contributes so much to ill will and war around the world.

Sound money, on the other hand, simply is what it is.  Removing governmental power to manipulate money, removes the temptation for government to spend, print and cheat.  Sound money ensures that our government’s spending priorities would be brought into sharp focus and reduced to only what we can afford.

Sound money also limits the ability to wage wars of aggression.  Imagine how much more careful Washington would have to be about starting a war if they did not have this financial sleight of hand at their disposal!

Fiat currency allows government do expensive things they should not be doing while paying the bills with cheap money.  The Federal Reserve has lately been auctioning off large amounts of treasury bills as a way to finance the wars in Iraq and Afghanistan, and our crushing entitlement burden.

The resulting devaluation of the dollar is quickly eroding our image as a good trading partner in the world.  As a consequence, there is therefore more talk of economic isolation and war.

This vicious cycle of spending, fighting and inflating is not what Americans want.  It is what the government wants, and it has had to deceive the citizens into allowing and supporting it.

Sound money curbs the government’s ability to engage in these shenanigans and reduces the wars we fight to only truly defensive ones, for which Americans are more than willing to stand and fight.  So in these ways, sound money is very conducive to peace.

Ron Paul is a republican member of Congress from Texas.

The Latin term “fiat” roughly translates to “there shall be”. When we refer to fiat money, we are referring to money that exists because the government declares it into existence. It is not based on production or earnings, and not backed by any commodity. It is solely based on trusting the government.

Fiat money is exchanged in the economy as long as there is faith in the government that issues it.

Some are blaming the recent shakeup in the markets to “whining” or financial fear-mongering, which misses the whole point. History has shown that fiat money, or “faith-based currency” always fails, because when governments claim this power, they always behave irresponsibly.

When government has the ability to create and spend all the money it wants, priorities shift, and the concept of budgeting, as most Americans know it, loses all meaning. Hand a teenager a credit card, and tell him there is no limit and no accountability for what he spends, and the effect would be the same. You see, this problem is not unique to our government.

It is a predictable outcome based on human nature, and we’ve seen variations of what we are experiencing now happen over and over throughout history. I didn’t have a crystal ball or a fortune teller when I predicted this 3, 7, or even 30 years ago. Actions have logical consequences. The government becomes the reckless teenager with the credit card, and in the end, the taxpaying citizens get the bill. What happens after that is never pretty.

This is why our founding fathers considered, but decidedly rejected the creation of a national central bank. They understood that governments, even the best of governments, cannot control spending. Even the current administration, which promised strict fiscal responsibility, has had to increase the national debt limit by 65 percent to keep up with its spending sprees.

Every dollar created and spent by government makes the dollars in your pocket worth less and less. Eventually any currency controlled by government will be debased to worthlessness, and will wipe out the savings of the citizens who put faith in that currency.

Hard currencies, on the other hand, force governments to remain in check, strictly limited to the revenues they can raise from the country’s economic health. This is also an incentive for government to stay out of the way of productivity. The hyper-regulation in today’s economy demonstrates that this is no longer the case. What does it matter if the economy is crippled and the tax-base eroded, if government can create whatever dollars they need to keep the special interests happy?

We have been building economic castles on the sand, and the tide is coming in. The answer is not to bring in more sand, but to move to more solid foundation.

So yes, it is true that many are complaining about our economic trouble, but our economic trouble is not caused by their complaining. Many are being forced to wake up to the predictable troubles associated with faith-based currency. As more people notice the hardships, more will lose faith.

We are long overdue for a course correction and I can only hope that this awakening translates to a solid approach to currency reform.

Ron Paul is a republican member of congress from Texas.