With its monopoly on money, the Federal Reserve is the engine that drives the biggest, most powerful government in the history of the world. But it’s not going to end itself. And Congress almost certainly won’t ever get rid of its money printer.

That’s why it’s imperative to focus on the Founders’ advice – using their strategy on the state, local, and individual levels to nullify the Federal Reserve from the bottom up.

This involves creating an environment that will allow people to ignore and undermine the government’s monopoly on money.

There are several steps the states and people can take to support sound money. Each step builds on the others, and they don’t have to be done in any particular order. 

Declare Gold and Silver Legal Tender

A key step toward reestablishing sound money is declaring gold and silver legal tender at the state level. This opens the door to the widespread use of the metals as money.  

In 2011, Utah became the first state to recognize gold and silver as legal tender with the passage of the Utah Legal Tender Act. The law made gold and silver coins issued by the federal government legal tender in the state. 

In practice, the value of gold and silver coins is based on their market value based on weight instead of its face value. 

For instance, a one-ounce American Gold Eagle coin has a face value of $50. But in the marketplace, it is valued based on the spot price of gold. If the price is $2,300 an ounce, then the Gold Eagle will buy that much in goods and services.

In effect, declaring gold and silver legal tender explicitly signaled to people in Utah they could begin using gold and silver as money, rather than as just a mere investment vehicle. 

While the scope of this act was relatively limited, it set the stage for the next step and the overall impact has been multi-tiered. 

Expand the Definition of Legal Tender

States that have passed laws to treat only US-minted gold and silver coins as legal tender should move to expand that definition to include other types of gold and silver bullion, including, but not limited to, foreign and privately-minted coins.

Foreign gold coins have a long history as money in the United States. The Spanish dollar was the coin upon which the original United States dollar was based (at 0.7735 troy ounces or 24.06 grams), and it remained legal tender in the United States until the Coinage Act of 1857.

The Utah legislature followed up in 2012 with a second law expanding the Legal Tender Act, and renaming the law the “Specie Legal Tender Act.” This measure expanded the definition of specie legal tender beyond only coins authorized by the federal government to include any gold and silver coins if “a court of competent jurisdiction issues a final, unappealable judgment or order determining that the state may recognize the gold or silver coin or bullion, other than gold or silver coin that is issued by the United States.

By allowing additional types of specie to be used as legal tender, the Utah legislature freed people from potential supply constraints imposed by the use of only United States-minted gold and silver coins. More importantly, the state courts can now define what specie is considered legal tender, further distancing themselves from potential control of their money by Washington D.C..

The effect of these acts has been significant. It has opened the door for the development of a robust gold and silver market in the state. With some legal hurdles cleared away by law, the United Precious Metal Association (UPMA) in partnership with Alpine Gold Exchange set up the state’s first “gold bank.” 

The Utah Specie Legal Tender Act has also led to the creation of the Goldback, a local, voluntary medium of exchange. Goldbacks are notes made from fractions of an ounce of physical gold, and the company reports that as many as 50 percent of local businesses in the state now accept them for payment.  

Repeal Taxes on Gold and Silver

By repealing sales and capital gains taxes on the exchange of gold and silver, states take a step toward treating gold and silver as money instead of commodities. 

Taxes on precious metals erect barriers to using gold and silver as money by raising transaction costs. It also has a psychological effect. Taxing creates the impression that gold and silver aren’t money at all. 

Imagine if you asked a grocery clerk to break a $5 bill and he charged you a 35-cent tax. Silly, right? After all, you were only exchanging one form of money for another. But that’s essentially what sales taxes on gold and silver bullion do.

Similarly, capital gains taxes penalize people when the price of gold goes up in fiat dollars.

For example, if you exchange $20 for a 1-ounce silver coin and the price of silver rises to $30, the government will tax you for the $10 increase in value if you use that coin to purchase $30 in goods or services. This discourages the use of gold and silver as money. 

Ending sales and capital gains taxes can happen separately or simultaneously.

For example, Alabama has already taken three steps to end state taxation of gold and silver. First, it passed a five-year suspension of its sales tax on gold and silver in 2018. The state then extended the exemption to 10 years. It will need to extend the suspension of the sales tax or get rid of the tax permanently before this exemption expires in 2028.

In 2024, the state took the next step and repealed the state capital gains tax on gold and silver bullion.

Utah took a broader approach. The Specie Legal Tender Act first started with provisions exempting the sale of gold and silver that constitutes legal tender in the state from sales and use tax. 

The Utah legislature followed up with another move to ensure taxes aren’t levied on specific gold instruments, revising its tax code to include a sales tax exemption on the sale of “goldback” notes in 2022.

But capital gains taxes remain a major roadblock on the federal level. Since the IRS expects users of gold or silver to report, as income, any gains in the value from the time they obtain it to the time they spend it, this still discourages their use as money.

Utah came up with a creative approach to offset the federal capital gains tax – “a nonrefundable credit established for any capital gains incurred from the exchange of gold and silver coin issued by the federal government for another form of legal tender.” 

In practice, the state provides a partial tax credit with the amount directly subtracted from the amount of state tax owed.

Here’s a simplified example. If you bought $1,000 in gold and the price went up to $2,000, the IRS would expect you to report $1,000 in capital gains as income for tax purposes. The average marginal tax bracket for a person making $100,000 a year is 24 percent. (Brackets run from 10 percent to 37 percent.) At that marginal rate, the IRS would demand $240 in taxes on your capital gains. 

In this scenario, the Utah taxpayer would get a credit of $46.50 (4.65 percent of the gain). If you owed $300 in state income tax, the credit would lower the amount to $253.50. That represents a 15.5 percent decrease in the state tax bill – and a 19.4 percent reduction of the impact of the federal capital gains tax.

This is a solid step forward, but the tax credit should be raised to cover the full amount of federal capital gains tax to have the biggest impact. 

Reinstitute Gold Contract Clauses

The principle behind a gold clause contract is simple. It stipulates that payment must be made in a specific amount of gold or its paper equivalent. For example, a mortgage might require repayment in the form of 30 ounces of gold. 

Louisiana took a step in this direction with the passage of its legal tender act in 2024. It includes a clause specifying that “no person shall incur any liability for refusal to accept recognized legal tender for the payment of debts, except as provided by contract.

Gold clauses protect the parties to a contract from currency debasement. If I enter into a contract where I receive a $1,000 payment in five years, inflation will likely eat away at least 10 percent of the purchasing power if I’m paid in Federal Reserve notes. (This is assuming the Fed’s target 2 percent inflation rate.) By requiring payment in gold (or a gold equivalent), I will preserve the purchasing power of my money. 

Gold clause contracts were common in the United States until the early 1930s when Congress and Franklin D. Roosevelt voided all past and future gold clauses as part of a multi-pronged attack on gold.

In 1977, President Jimmy Carter signed a bill repealing the joint resolution abrogating gold contracts – making them once again enforceable.

There is still one barrier to employing gold clauses in many states – usury laws that limit the amount of interest that can be charged on a loan. Because the price of gold can rise significantly over the course of a contract, a debtor could be required to pay back far more in equivalent dollars than the initial face value of the contract, if they decide to pay in U.S. dollars. Some mistakenly interpret this devaluation of fiat dollars as “interest” and argue usury laws prohibit or limit gold contracts.

The path forward is for states to amend their laws to require state courts to give gold clauses full effect and enforceability. 

Bullion Depositories

Whether they are private entities or state-run, bullion depositories can facilitate the use of sound money and undermine the Federal Reserve’s monopoly on currency.

The passage of the Utah Legal Tender Act paved the way for the establishment of the United Precious Metals Association (UPMA), a non-profit member cooperative that offers bank-like services to its members using legal tender precious metals. UPMA is similar to a credit union offering services from other providers to its membership much like the ‘AARP’ or other such associations.

Alpine Gold Exchange serves the UPMA as its metals exchange and exclusive service and support provider offering publicly available accounts denominated in gold and silver dollars.

Customers with gold or silver accounts at Alpine can spend it in everyday transactions using a debit card connected to their accounts. In effect, Alpine facilitates the electronic transfer of gold and silver, allowing customers to make purchases using fractions of coins. This solves one of the central problems of transacting business using precious metals.

States can also establish bullion depositories.

The Texas Bullion Depository officially opened for business in 2018 after Gov. Greg Abbott signed legislation creating the state bullion and precious metal depository three years earlier. 

Ultimately, the goal is for depositors to be able to use a bullion-funded debit card that seamlessly converts gold and silver to fiat currency in the background. This will enable them to make instant purchases wherever credit and debit cards are accepted.

By making gold and silver available for regular, daily transactions by the general public, the depository has the potential for a wide-reaching effect. In practice, the Texas Bullion Depository could operate much like the privately owned Alpine Gold Exchange.

Human Action

Ultimately, all these state-level acts will not have any impact if the people still choose to use fiat dollars instead of gold and silver as money. That’s why human action is actually the most important step.

It is crucial for people to start using gold and silver in everyday transactions. This can start as small as individuals agreeing to do business in gold and silver in private transactions. For instance, an author could pay an editor in gold or silver – via coins, Goldbacks, or through a debit card linked to an account at UPMA.

As more and more people get used to using gold and silver, the marketplace can expand, opening the door for its use in commercial transactions.

However, using gold and silver coins in our modern economy can be unwieldy. This is why private actors must continue to build, especially convenient payment systems using gold and silver. 

Goldbacks are a great example. As mentioned earlier, Goldbacks are “gold-weight” notes made from physical gold. The 1 is 1/1000 of an ounce of Troy weight gold; the 5 is 5/1000 or 1/200 of a Troy ounce, and so on. These notes turn gold into a form similar to a dollar bill, making them ideal for everyday transactions. 

Goldbacks also encourage people to think outside of the dollar paradigm. Instead of saying something costs $4, you can say it costs 1 Goldback.

Debit cards that transfer gold and silver between accounts can also facilitate their use.

A sound money system will require businesses to accept gold and silver. This is primarily an issue of education. The market will adapt if enough people want to do business with sound money. The key is for people who want to use gold and silver to encourage businesses they frequent to accept it.

Goldback.com has resources to help customers locate businesses that accept Goldbacks

These networks can start small and expand over time. 

Simply put, state action alone won’t accomplish the goal. 

In the end, it’s up to the people. They have to take advantage of the doors opened by state action, reject government fiat, and embrace sound money.

Mike Maharrey

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