Ron Paul Introduces Free Competition in Currency Act of 2011 by Darrin Lee Unser
| March 24, 2011
Congressman Ron Paul [R-TX] is seeking to end all taxes
charged by federal, state and local governments on coins
and bullion.
Rep. Paul introduced the Free Competition in Currency Act
of 2011, H.R. 1098, in the United States House of Representatives
on March 15, 2011.
The move to end the taxation is one of three parts to the
bill and marks a continuation of an effort by Paul that
can be traced back to previous Congressional sessions. Those
attempts stalled, leaving Ron Paul little choice but to
re-introduce the measures in the latest session of Congress.
If passed, the Free Competition in Currency Act would eliminate
capital gains taxes on gold and silver coins which are levied
at rates of up to 35% for short term and 28% for long-term.
Also eliminated would be sales taxes charged by state and
local governments on coin and bullion transactions.
A second change sought in H.R. 1098 would repeal legal
tender laws which Congressman Paul believes to be unconstitutional.
These laws dictate that the currency produced by the United
States government must be accepted for most kinds of monetary
transactions. A repeal would mean that other mediums could
be used in place of the currency such as gold or silver.
"We, the Congress, have the power to
coin money, regulate the value thereof, and of foreign
coin, but not to declare a legal tender," explained
Rep. Ron Paul in his in remarks introducing the Free Competition
in Currency Act of 2011. "Yet, there is a section
of U.S. Code, 31 U.S.C. 5103, that purports to establish
U.S. coins and currency, including Federal Reserve notes,
as legal tender."
Finally, the new law would end a prohibition on the operation
of private mints and stop current legal proceedings against
them. Additionally, any previous convictions suffered as
a result of the prohibition would be deemed null and void.
"One private enterprise which attempted
to popularize the use of precious metal coins was Liberty
Services, the creators of the Liberty Dollar," stated
Ron Paul. "Evidently the government felt threatened,
as Liberty Dollars had all their precious metal coins
seized by the FBI and Secret Service in November of 2007.
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 three-pronged approach undertaken in the bill seeks
to establish a "competing currency" system in
which parties would be allowed to conduct their transactions
in whatever system of currency they felt appropriate. This
could, in the end, stop the government from printing more
money at will and ultimately result in a more stable economy,
at least according to Paul.
"The prospect of American citizens turning
away from the dollar towards alternate currencies will
provide the necessary impetus to the U.S. government to
regain control of the dollar and halt its downward spiral,"
Rep. Ron Paul said in his final remarks while introducing
the bill.
For the Free Competition in Currency Act
of 2011 to become law, it must be passed in the House and
Senate and get signed by the President.
For reference, the following is the speech by Rep. Ron
Paul which introduced the legislation.
SPEECH OF
HON. RON PAUL
OF TEXAS
IN THE HOUSE OF REPRESENTATIVES
TUESDAY, MARCH 15, 2011
Mr. PAUL. Mr. Speaker, I rise to introduce
the Free Competition in Currency Act. Currency, or money,
is what allows civilization to flourish. In the absence
of money, barter is the name of the game; if the farmer
needs shoes, he must trade his eggs and milk to the cobbler
and hope that the cobbler needs eggs and milk. Money makes
the transaction process far easier. Rather than having
to search for someone with reciprocal wants, the farmer
can exchange his milk and eggs for an agreed-upon medium
of exchange with which he can then purchase shoes.
This medium of exchange should satisfy certain properties:
it should be durable, that is to say, it does not wear out
easily; it should be portable, that is, easily carried;
it should be divisible into units usable for everyday transactions;
it should be recognizable and uniform, so that one unit
of money has the same properties as every other unit; it
should be scarce, in the economic sense, so that the extant
supply does not satisfy the wants of everyone demanding
it; it should be stable, so that the value of its purchasing
power does not fluctuate wildly; and it should be reproducible,
so that enough units of money can be created to satisfy
the needs of exchange.
Over millennia of human history, gold and silver have
been the two metals that have most often satisfied these
conditions, survived the market process, and gained the
trust of billions of people. Gold and silver are difficult
to counterfeit, a property which ensures they will always
be accepted in commerce. It is precisely for this reason
that gold and silver are anathema to governments. A supply
of gold and silver that is limited in supply by nature cannot
be inflated, and thus serves as a check on the growth of
government. Without the ability to inflate the currency,
governments find themselves constrained in their actions,
unable to carry on wars of aggression or to appease their
overtaxed citizens with bread and circuses.
At this country’s founding, there was no government
controlled national currency. While the Constitution established
the congressional power of minting coins, it was not until
1792 that the U.S. 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 U.S. Code, 31 U.S.C. 5103, that purports to establish
U.S. 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 U.S. 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 in November
of 2007. 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 U.S. 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 U.S. 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 with the
supposed aim 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 percent per year. Sales taxes
in many states can take away 8 percent or more on every
single transaction in which consumers wish to convert their
Federal Reserve Notes into gold or silver.
In conclusion, Mr. 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 U.S. 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 and cosponsor the Free Competition
in Currency Act.