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SOUND MONEY: PARALLEL CURRENCIES 

AND THE ROADMAP TO MONETARY FREEDOM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

DOMESTIC MONETARY POLICY 

AND TECHNOLOGY 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

AUGUST 2, 2012 

Printed for the use of the Committee on Financial Services 

Serial No. 112–153 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

SPENCER BACHUS, Alabama, Chairman 

JEB HENSARLING, Texas, Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

RON PAUL, Texas 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, North Carolina 

JUDY BIGGERT, Illinois 

GARY G. MILLER, California 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

NAN A. S. HAYWORTH, New York 

JAMES B. RENACCI, Ohio 

ROBERT HURT, Virginia 

ROBERT J. DOLD, Illinois 

DAVID SCHWEIKERT, Arizona 

MICHAEL G. GRIMM, New York 

FRANCISCO R. CANSECO, Texas 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

FRANK C. GUINTA, New Hampshire 

BARNEY FRANK, Massachusetts, Ranking 

Member 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JOE DONNELLY, Indiana 

ANDRE ́ CARSON, Indiana 

JAMES A. HIMES, Connecticut 

GARY C. PETERS, Michigan 

JOHN C. CARNEY, JR., Delaware 

JAMES H. CLINGER, Staff Director and Chief Counsel 

(III) 

SUBCOMMITTEE ON DOMESTIC MONETARY POLICY AND TECHNOLOGY

RON PAUL, Texas, Chairman 

WALTER B. JONES, North Carolina, Vice 

Chairman 

FRANK D. LUCAS, Oklahoma 

PATRICK T. MCHENRY, North Carolina 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

NAN A. S. HAYWORTH, New York 

DAVID SCHWEIKERT, Arizona 

WM. LACY CLAY, Missouri, Ranking 

Member 

CAROLYN B. MALONEY, New York 

GREGORY W. MEEKS, New York 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GARY C. PETERS, Michigan 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

August 2, 2012 .................................................................................................. 1 

Appendix: 

August 2, 2012 .................................................................................................. 23 

WITNESSES 

THURSDAY, AUGUST 2, 2012 

Ebeling, Richard M., Professor of Economics, Northwood University ................. 5 

Gray, Robert J., Executive Director, The American Open Currency Standard .. 7 

Lewis, Nathan, Principal, Kiku Capital Management LLC ................................. 3 

APPENDIX 

Prepared statements: 

Paul, Hon. Ron .................................................................................................. 24 

Ebeling, Richard M. .......................................................................................... 26 

Gray, Robert J. ................................................................................................. 41 

Lewis, Nathan ................................................................................................... 50 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Paul, Hon. Ron: 

Written statement of Edwin Vieira, Jr. .......................................................... 62 

(1) 

SOUND MONEY: PARALLEL CURRENCIES 

AND THE ROADMAP TO MONETARY FREEDOM 

Thursday, August 2, 2012 

U.S. HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON DOMESTIC MONETARY

POLICY AND TECHNOLOGY, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The subcommittee met, pursuant to notice, at 10:04 a.m., in room 

2128, Rayburn House Office Building, Hon. Ron Paul [chairman of 

the subcommittee] presiding. 

Members present: Representatives Paul, Luetkemeyer, 

Schweikert; and Green. 

Chairman PAUL. This hearing will come to order. Without objection, all Members’ opening statements will be made a part of the 

record. 

I also ask for unanimous consent to place in the record a letter 

with an attachment from Dr. Edwin Vieira, who could not appear 

on this panel today. 

Without objection, it is so ordered. 

I will now recognize myself for 5 minutes to make an opening 

statement. First, I want to welcome our panel today to discuss a 

very important issue dealing with monetary policy. We have had a 

series of hearings and discussions in this committee dealing with 

monetary policy, mostly directed around Federal Reserve policy 

and the Federal Reserve. 

Today, there will not be that much emphasis on the Federal Reserve itself, but rather on money: on money, the issue of what it 

means; what our history is like on money; whether we can have 

parallel currencies; and what the founders might have thought 

about parallel currencies. 

The world is in the midst of a crisis today, and many of us believe it is related to a deeply flawed monetary system, a deeply 

flawed understanding of what money should be, a rejection of the 

notion that money should have real value and that money originated in the marketplace rather than originating from a computer 

over at the Federal Reserve. 

And though today the general public, as well as the financial 

markets, have a difficult time wanting to accept that or even understand it, ultimately it is the nature of money that I believe we 

will have to come to grips with, and make a decision about. Because as we speak, they are meeting in Europe and the ECD’s are 

deciding what to do and manipulating their money and credit, as 

well as we here in the United States. 

2 

We in this country have been given some benefits, definitely, by 

being able to issue the reserve currency of the world. And because 

there is no definition to money, and because we can create money 

out of thin air, we have had some advantages. 

But the whole world is engulfed in this problem because of this 

lack of determination, a lack of desire to understand what money 

is all about. So today, we want to discuss that, and get the testimony from our witnesses to try to further understand the nature 

of money and credit, and whether it is necessary to have a precise 

definition. 

Also, really, we want to talk about parallel currencies, concurrencies circulate next to each other. And I think the answer is rather 

clear. They are doing it all the time internationally. Currencies are 

circulating all the time, and in the computer age, they adjust their 

values rather quickly. 

But the question is, can we have parallel currencies within the 

United States? Would it be legal? Does it contradict the Constitution? What would the States’ role be in this? And what can they 

do? Under these circumstances, it does raise a lot of questions, because it raises tax questions and the authorities on how they are 

going to respond and what one can do with currencies without having the wrath of Big Brother and Big Government coming down on 

us, and saying, ‘‘No, you can’t do that.’’ 

But today, we have an absolute monopoly control over money and 

credit. They are managing a money that they can’t even define. 

And then they wonder why we have chaos in the marketplace. I see 

a time coming where there will be a response to the problems that 

we have, a response that I will endorse. And that is for monetary 

reform. 

But it won’t happen because of our hearing today. I know we are 

going to have a great hearing and great testimony, and there will 

be lots of words of wisdom. But we are not going to walk away and 

all of a sudden the world is going to say, ‘‘You know, that makes 

a lot of sense. We have to deal with this.’’ 

The one thing that I am convinced of with the current system 

that we have, because we don’t deal with the issue of money, is the 

financial system worldwide is going to get a lot worse, because they 

are not admitting the truth of what is happening. Because the system that we have, we have had for so many years and so many decades that it has encouraged a system of horrendous debt. 

And not only are many of our companies and banks and States 

and countries insolvent, they wonder why we have a problem. But 

if they don’t admit to it, and think that, well, the solution is just 

creating more money. So that is an overwhelming task for that reform. 

But in the meantime, is there anything that we can do to emphasize and to promote the interests of, and the understanding of what 

sound money would be by just permitting parallel currencies? Why 

can’t we have the freedom to do this? We claim we live in a free 

country and a free society, but are we allowed to have parallel currencies, are we allowed to have competition, are we allowed to have 

something in addition to a cartel and a monopoly that has controlled money and credit and has created a worldwide monster for 

which they have no answers? 

3 

That is the reason I think this is a very, very important subject. 

And once again, I want to welcome our panel. I would like to know 

now if any other Members have an opening statement. No? Okay, 

thank you. 

I will now introduce our guest speakers and the members of the 

panel. Our first guest, Mr. Nathan Lewis, is the principal of Kiku 

Capital Management, a private investment firm, and author of 

‘‘Gold: the Once and Future Money,’’ which is now published in five 

languages. 

His writings can be found in the Financial Times, Forbes, and 

Dow Jones Newswires, among others. He has appeared on television networks, including Bloomberg TV and CNBC, and has been 

featured in several television documentaries. 

Dr. Richard Ebeling is a professor of economics at Northwood 

University in Midland, Michigan. He is recognized as one of the 

leading members of the Austrian School of Economics. He is the 

former president of the Foundation for Economic Education, and 

author of ‘‘Political Economy, Public Policy, and Monetary Economics.’’ Dr. Ebeling earned his Ph.D. in economics from Middlesex 

University in London. 

Mr. Robert Gray is founder and executive director of the American Open Currency Standard. He is responsible for the creation 

and successful implementation of more than 150 circulating community currencies and silver-, gold- and copper-based token fundraising programs. 

Mr. Gray helped issue the official currency of the free and independent Lakota Indian Nation, and also founded the Mulligan 

Mint, a full-service mint in Dallas, Texas. 

Without objection, your written statements will be made a part 

of the record, and you will now be recognized for a 5-minute summary of your testimony. 

I now recognize Mr. Lewis. 

STATEMENT OF NATHAN LEWIS, PRINCIPAL, KIKU CAPITAL 

MANAGEMENT LLC 

Mr. LEWIS. Thank you. The phrase ‘‘parallel currencies’’ tends to 

sound rather novel and experimental to us today, living in the 

United States. However, most people in the world are using parallel currencies today. U.S. dollars or euros are accepted in trade 

in goods and services. 

In many countries that suffer from low-quality domestic currencies, the largest corporations finance themselves with dollar-denominated debt. The governments of such countries themselves 

issue dollar-denominated government bonds. By the end of World 

War II, the U.S. dollar, which had been considered an emerging 

market currency in 1900, had proved to be the most reliable currency in the world. 

In practical terms, this meant that the U.S. dollar remained on 

a gold standard system while once-prominent European currencies 

were devalued and political situations became unstable. The dollar 

thus became the parallel currency of choice worldwide. 

In 1971, the United States abandoned its then-nearly two-century-old commitment to the gold standard system. At this point, 

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est quality, most reliable alternative was which, in practice, meant 

a gold standard currency from a large developed country. 

Despite the U.S.’s poor currency management since 1971, the alternatives have been even worse. This why the U.S. dollar remains 

the most popular currency in the world, and serves as a parallel 

currency in many, if not most, countries today. 

Today, there are no particularly onerous barriers against using 

a parallel currency in the United States. People are free to do business in euros or Russian rubles if they so choose. There are over 

150 currencies in the world, all of which could conceivably be used 

as parallel currencies within the United States or other countries. 

However, all of them are floating fiat currencies generally of 

lower quality than the U.S. dollar or euro. There is hardly any reason to introduce another. Plus, the most meaningful new parallel 

currency to be introduced in the United States or in another country would be one based on gold. 

Although the use of other countries’ national currencies is largely 

accepted in the United States, the issuance of alternative currencies within the United States can run afoul of what are collectively known as ‘‘legal tender laws,’’ both de jure and de facto. The 

one person who attempted to issue a gold- and silver-based parallel 

currency in the United States was arrested in 2009 and convicted 

of charges related to counterfeiting and declared to be a domestic 

terrorist. 

Gold, today, is regarded as a collectible, and subject to a different 

system of taxation than if one were to do a similar transaction 

using foreign currency such as euros or Canadian dollars. In addition, purchases or sales of small quantities of gold are subject to 

sales taxes in many States. 

Thus, in practice, the U.S. Federal Government makes a powerful effort to suppress the introduction and use of alternative goldand silver-based currencies today. This state of affairs has become 

intolerable to many. In 2011, the State of Utah declared that it 

would consider U.S. Mint gold and silver coins and monetary instruments based on these coins to be legal as currency. 

This included the removal of all State-level taxes on transactions 

in gold and silver bullion. Twelve other State legislatures have had 

similar bills proposed. The Utah example could serve as a template 

for similar Federal-level legislation to legalize gold- and silverbased currencies within the United States. According to a study of 

775 floating currencies by Mike Hewitt, no floating fiat currency 

has ever maintained its value. 

The average life expectancy of a floating fiat currency was found 

to be 27 years. The U.S. dollar, which has been a floating fiat currency for 41 years now, is thus an unusual example of longevity. 

However, today’s extreme reliance upon easy money approaches to 

deal with economic problems, with the Federal Reserve promising 

unprecedented zero percent policy rates for years, and real interest 

rates deeply negative, suggests to many that the floating fiat dollar 

does not have a long or successful future. 

Governments of China, Russia, Malaysia, Switzerland, the Gulf 

States, and others have complained about the potential consequences of today’s aggressive easy money techniques not only at 

the Federal Reserve, but also the European Central Bank, the 

5 

Bank of England, and the Bank of Japan, and have made preliminary steps toward a future alternative, including discussions of 

new gold-based parallel currencies. 

On the international scale, the parallel gold-based currency, or 

many such currencies, would help ease this transition and form the 

basis of a new monetary order if that should become necessary. 

Each individual would be free to make increasing use of the goldbased alternative as it best suited their interests. 

It would be no great day of transition, but a smooth, extended 

process, perhaps over years. The existence of a high-quality alternative could help people avoid much of the potentially disastrous 

consequences if today’s floating fiat currencies meet the same end 

as the 599 floating currencies that no longer exist. 

Thank you. 

[The prepared statement of Mr. Lewis can be found on page 50 

of the appendix.] 

Chairman PAUL. I thank you. 

And now, we will go to Dr. Ebeling. 

STATEMENT OF RICHARD M. EBELING, PROFESSOR OF 

ECONOMICS, NORTHWOOD UNIVERSITY 

Mr. EBELING. Chairman Paul, and members of the subcommittee, 

I would like to thank you for this opportunity to share some ideas 

on this important theme of sound money, parallel currencies, and 

the roadmap to monetary freedom. 

To discuss a possible roadmap to monitor a freedom in the 

United States requires us to first determine what may be viewed 

as sound or unsound money. Through most of the first 150 years 

of U.S. history, sound money was considered to be the one based 

on a commodity standard, most frequently gold or silver. 

In contrast, the history of paper, or fiat, monies were seen as an 

account of abuse, mismanagement, and financial disaster, and 

therefore were viewed as unsound monies. The histories of our own 

American Continental notes during the Revolution, the assignat 

during the French Revolution, and the greenbacks and the Confederate notes during the American Civil War all warned of the dangers of unrestricted and discretionary government power over the 

monetary printing press. 

That result was that in the second half of the 19th Century, all 

of the major countries of the world moved towards a monetary 

standard based upon a commodity, in this case, gold. 

The important matter to be emphasized—that while it assured a 

degree of monetary stability while governments basically followed 

the rules of the gold standard—that is, a fixed ratio was established between a unit of gold and the amount of notes or account 

deposits that were extended after a deposit was made; the ability 

to redeem them at that fixed rate; the monetary authority of the 

central banks at that time basically following the rules of the road 

of limiting the amount of notes or accounts open to the amount of 

gold that had been deposited, withdrawing notes and accounts 

when gold was withdrawn, the fact remains that it still was a system of government-managed money. 

And once the ideologies and philosophies of the time changed and 

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tury of government targeting price levels, government attempting 

to influence and manipulate output and employment or inflation 

targets and so on, the reins of ability to manipulate the monetary 

system were already in the hands of the authority given responsibility for money and credit in the economy. 

That raises the entire issue as to whether it is desirable to have 

government managing a monetary and banking system at all. The 

free market case for competition in general and, therefore, a similar case in the case of money is the fact that competition in a market does at least two essential things. 

First, it decentralizes the impact of errors. If a businessman 

makes a mistake in his entrepreneurial judgments, it may have a 

negative effect on himself, some of his employees, or a few suppliers of the good that he produces. But it is decentralized. It does 

not affect the entire economy. When a central bank makes a mistake, its impact is potentially on the entire economy as a whole, 

since the monetary authority influences interest rates in general, 

affects the supply of money in the economy in general, distorts relative prices, and impacts the general rate of inflation in the economy as a whole. 

Second, it is only through competition that we discover innovative and creative ways to give people the things that they want. 

And this, market advocates have argued, is no less true in the case 

of money. If government did not monopolize the control of money, 

individuals in the market would determine what commodities such 

as gold and silver they choose to use as media of exchange. 

What type of financial intermediation and forms of financial 

intermediation they found most advantageous and profitable to 

use. And a diversity of such forms—as banks offered different features, issuing their own notes based upon commodity money deposits—and therefore acting as a check and a balance on each other 

to give consumers what they wanted while restraining their ability 

to abuse their particular individual authorities. 

So how would one move towards such a system of free banking 

and competitive choice in currency? I would like to suggest the following steps. 

First, the repeal of the Federal Reserve Act of 1913 and all complementary and related legislation giving the Federal Government 

authority and control over the monetary and banking system. 

Second, the repeal of the legal tender laws, giving the government the power to specify the medium of exchange through which 

people will transact and enter into contract. 

Third, repeal all restrictions and regulations on the free entry 

into banking business and the practice of interstate banking. 

Fourth, repeal all restrictions on the right of private banks to 

issue their own bank notes and to open accounts denominated in 

foreign currencies or in weights of gold and silver. 

Fifth, repeal all Federal and State government rules, laws, and 

regulations concerning bank reserve requirements, interest rates, 

and capital requirements. 

And sixth, abolish the Federal Deposit Insurance Corporation. 

Any deposit insurance arrangements and agreements between 

banks and their customers and between associations of banks 

should be private, voluntary, and market-based. In the absence of 

7 

government regulation of this type, we would naturally move towards a system of competitive currencies and free banking. 

Thank you. 

[The prepared statement of Dr. Ebeling can be found on page 26 

of the appendix.] 

Chairman PAUL. I thank the gentleman. 

And now, we will go to Mr. Gray. 

STATEMENT OF ROBERT J. GRAY, EXECUTIVE DIRECTOR, THE 

AMERICAN OPEN CURRENCY STANDARD 

Mr. GRAY. Thank you, Mr. Chairman, and members of the subcommittee. My name is Rob Gray, and I was asked to testify today 

on the theory of competing currencies and the practical challenges 

that make such a theory difficult or impossible to implement. 

For nearly 5 years now, I have successfully directed the American Open Currency Standard, the standard for private voluntary 

silver, copper, and gold currencies that compete with each other, 

not against the U.S. dollar. Allow me to clarify. We do not consider 

AOCS-approved medallions produced and traded in our private barter marketplace competition at all to the U.S. Federal Reserve 

note. 

Because fair competition, as one would find in the free market, 

assumes the existence of a level playing field, existence of a standard set of rules. Those players who wish to compete honestly do so 

by simply relying on the merit of the value that they bring to the 

market. 

Well, no fair challenge can be made between honest men and 

thieves. Now let me be clear that when I say, ‘‘thieves,’’ I refer directly to the current private central bank and the men in government who allow it to exist. It brings us to a critical point. According to your employee handbook, article one, section eight says that 

Congress shall have the power to coin money and regulate the 

value thereof. 

I would argue that since 1913, Congress has failed to do the job 

with which it has been tasked. In the free market, since our inception, the Open Currency Standard has enjoyed nearly 5 years of 

growth and success, and our mission of issuing a means that allows 

valuable exchanges among those who produce. 

In the next 5 years, we expect to expand our offerings and to increase our ability to keep up with the demand for our private currency. We are doing the job today that Congress would not. But 

back to theory. The use of community currencies here in the United 

States became popular back in the early 1930s. 

At the time, the theory was that a group of the world’s most powerful men were intentionally and systematically removing currency 

from circulation, creating artificial scarcity of money across the 

country. Small cities and towns felt it worse than anyone, but life 

did go on. 

Then, during the greatest economic depression the country had 

ever seen, individuals across the country developed their own mediums of exchange. They still needed things like food, clothing, and 

daily essentials; they still needed to live. And they didn’t have time 

to sit around and wait for the government to fix the problem. 

8 

And so, according to historical records, thousands of community 

currencies were created, circulated, and traded in places where the 

scarcity of dollars was interfering with humans’ desire to live. Individuals took it upon themselves back then to secure the means for 

their own survival and potential prosperity. 

More recently, community currencies have sprung up across Europe, as the euro and other national currencies become increasingly 

unavailable and undependable. Today, communities all across the 

eurozone trade their own money instead of the euro. Community 

currencies today are not simply a good idea in theory. 

Right now, alternative and complementary currencies circulate 

widely across the country in many different forms. Ithaca, New 

York, has Ithaca Hours that are loosely based on the value of time. 

Berkshire, Massachusetts, uses a fiat-backed fiat system. And 

many more communities circulate gold, silver, and copper AOCSapproved barter tokens as a medium of exchange. 

As for the practical challenges in the issuance and circulation of 

complementary currencies, there are plenty. In a voluntary system, 

those that participate in the trading of private currencies must 

deal with the possibility of counterfeiting, fraud, scarcity, acceptance, accounting, storage, and other issues, all without the luxury 

of Big Brother holding a gun to anyone’s head to ensure their success. 

But even with all these risks, the market still moves on. As in 

any free market, good ideas circulate with success and bad ones 

eventually fade away. Participants voluntarily choose to accept and 

circulate the highest quality currencies in exchange for their best 

production. 

Merchants accept complementary currencies based on the 

premise that someone else is willing to do the same thing later. 

Issues arise and are worked out by the market with only one light 

to guide them—the mutual exchange of value. No guns, no laws, 

nor force, just the willingness to think outside the box and act on 

principle. 

Complimentary currencies are not new, in theory or in practice. 

Private currencies circulated long before governments erected 

themselves to interfere. But what is new, however, is the public’s 

apathy towards the government and the Federal Reserve, and their 

policies. You have managed somehow for the last 100 years to convince the citizens of this country that you are relevant. 

But now, just recently, we are beginning to see the tides change 

on this. And once it catches on, you will be rendered completely obsolete. The greatest hurdle you will face over the next 100 years 

is trying to convince We the People that you are still necessary in 

spite of your failure to get the job done. 

Sure, some will rely on your for handouts. That is what they 

have always known their entire lives, and they will be slaves right 

up to the point of their own destruction. But they don’t know any 

better, and I don’t blame them for their ignorance. In the future, 

you will not have to worry about Million Man Marches or citizen 

journalists trying to catch you on camera. 

What you need to fear is no one paying attention to you. The 

next American revolution will be fought not with bullets and 

bombs, but instead it will be won with the opposite consciousness. 

9 

To that end, I am here today to propose a solution. My understanding of this committee is that you want to be part of the solution. 

You want to believe that you are doing something good for the 

country. And so today, the greatest gift that you can offer to the 

people that you clearly represent—not to the legislature, but directly to the public—is what I call ‘‘IR–1207,’’ Individual Resolution 

1207, commonly referred to as ‘‘Ignore the Fed.’’ 

Store your wealth in silver, bank with non-fractional banks that 

pay real money on deposits, use the card service network to satisfy 

dollar obligations, do not try to compete with the Federal Reserve 

system; simply ignore them. 

I ask you to leave the Fed their Federal Reserve notes and leave 

us our gold, silver, and copper. Do not push to redefine whatever 

representations we choose for our wealth. Let the Fed do what it 

wants with their legal tender, so long as they leave our money 

alone. I warn you, honest money legislation is a wolf in sheep’s 

clothing. 

The greatest thing this body can do is exactly what it has done 

so far: absolutely nothing. All I ask is that you stay out of the market’s way. The people in our world are very happy to go right along 

saving you from your own destruction by producing value against 

all odds, regulations, codes, and challenges that you throw our way, 

but leave our money alone. 

It doesn’t belong to you, and it never will. The bottom line is very 

simple. Humanity is not going to wait for permission to survive. 

Things that cannot go on forever simply won’t. The market will 

move on with or without you. And based on your rate of success 

to date, our preference is certainly without you. 

Thank you for the time. 

[The prepared statement of Mr. Gray can be found on page 41 

of the appendix.] 

Chairman PAUL. Thank you. I will now yield myself 5 minutes 

for questioning. 

First off, I would like to talk about the legal tender laws a little 

bit more. I want to pose a question for all three of you. It was mentioned in your testimony about how important legal tender laws 

are and whether or not we can ignore them. 

How important are the legal tender laws, and how important is 

it that we get rid of the legal tender laws if we really want to have 

a parallel currency and be assured that we can do it? Can we ignore it? Should we work to repeal it? How far can you go without 

dealing with this issue? 

Because it does provide the monopoly that will not go away easily. So if each one of you could expand your thoughts on the importance of legal tender laws and what we should try to do, and is it 

absolutely necessary that we do something before we can advance 

the cause of competition or parallel currencies? 

Mr. Lewis? 

Mr. LEWIS. Although I think that some communities are using 

small-scale metallic currencies, more or less under the radar, if a 

large corporation—let us take Ford Motors, for example—would 

begin to do business in gold and silver coins or related currencies, 

10 

they would immediately come under Federal scrutiny and basically 

be prevented from doing so. 

What I would like to see is basically for gold and silver, and currencies based on gold and silver, to be treated as legal currency 

within the United States. In practice, this will require a declaration of some sort to make it effective. And ultimately, at the very 

least, to be able to treat gold and silver the same way we treat 

euros or Canadian dollars today. 

We can all do business in them in the United States, even 

though they are not necessarily declared as legal tender, and so on 

and so forth. It would be better to have a more official declaration 

to say, yes, we accept gold and silver as a legitimate means of monetary transaction and a legitimate foundation for business. 

Chairman PAUL. Thank you. 

Dr. Ebeling? 

Mr. EBELING. Yes. Anyone who has traveled in a country that 

has been experiencing severe, or even hyperinflation knows that in 

spite of official legal tender laws—that is, the government declaring a certain money or its currency the lawful money—people start 

using alternative currencies that they view, given their circumstances, as having more confidence in shorter certain value. 

So in spite of laws and regulations, at the end of the day what 

people will choose to use as money, even when it breaks the law, 

they will follow what they view as most effective and self-interested 

for themselves in the marketplace to secure their wealth and their 

transaction opportunities for themselves and their families. 

But the fact remains that while the market, in a sense, finally 

supersedes and no longer recognizes government laws when it becomes serious enough, it is crucially important if we could eliminate the legal tender restrictions in the United States. Because basically, it would say that now individuals—and the law, the government, the courts—will respect the contracting and the exchanging 

of any form of medium of exchange that the individual citizens of 

the society choose to use. 

That would go a long way. For example, a well-known Nobel 

Laureate, Austrian economist Friedrich Hayek, once made the case 

for what he called ‘‘choice in currency.’’ He was doing this before 

the euro in the context of Europe. But he said one way to tame the 

inflationary tendencies of government is to allow citizens within 

their own country just to use the currencies of other countries within their domestic exchanges if they choose. 

To be able to say I don’t trust, and have confidence in, the monetary authority to restrain itself in issuing excessive quantities of 

that money. Also, if you eliminated the legal tender laws, then the 

people themselves would decide do we want to use dollars, do we 

want to use alternative to dollars, how much do we want to use 

notes, how much do we want to use, actually, coins of various 

sorts? 

And it would be basically saying consumer sovereignty, consumer 

choice. But if we could do that, that would be the essential roadway, and path, to restoring a system of monetary freedom. But if, 

in the United States, we were to ever experience—and, of course, 

we hope we never do—a serious and hyperinflation, the market 

11 

would basically tell the government what it thinks of its money because people will choose to use alternative currencies of choice. 

Chairman PAUL. Thank you. 

Mr. Gray? 

Mr. GRAY. Mr. Chairman, before addressing or issuing the answer to that question, can you please summarize for me your understanding of the legal tender laws as they exist today? 

Chairman PAUL. Not at this moment. I would like you to answer 

the question first. 

Mr. GRAY. My answer is, very simply, leave them alone. My understanding of the legal tender laws is that the U.S. dollar, the 

Federal Reserve note, can be used to satisfy debt obligations. We 

don’t need to change that at all. There is no law that restricts us 

from privately minting coinage—tokens, medallions as we refer to 

them. 

There is no law that restricts us from engaging in private barter 

transactions with other men. And so, we don’t need to change anything about the legal tender laws in order to do exactly what we 

are doing right now. 

Chairman PAUL. Okay. 

I now yield 5 minutes to Mr. Luetkemeyer from Missouri. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

As you talk about the different parallel currencies, I think we 

have a parallel currency situation over in Europe right now that 

is pretty obvious. How is the euro working over there, in your judgment, all three of you? 

Mr. EBELING. I will begin by saying I think it is an unmitigated 

disaster. The fact is, this was not a choice by the people either 

making their demonstrated choice in market exchanges or even in 

a political vote or a referendum. This was basically imposed upon 

many of the E.U. countries as a discretionary choice of the politicians. 

Some of the more prominent countries wanted to have a unified 

currency so as to be able to have the political clout to look down 

the dollar in the eye, to be explicit. That is my view of why the 

French were pushing it. The result is that this currency has been 

imposed upon systems that follow different regulatory paths, different fiscal paths in terms of debt and deficits, all of which has 

created this problem. 

A lot of people in Europe are saying, ‘‘Oh, it would be disastrous 

if the Greeks pulled out and reestablished the drachma,’’ for example, or ‘‘the Spaniards were to reestablish a peso,’’ for instance. I 

think that would be the path to denationalize, or rather 

deinternationalize this monetary system because it is not working. 

And it is dependent upon a central bank in one location to make 

the monetary choices and decisions for all of the hundreds of millions of people who participate in this system, rather than allowing 

even the competition of the national central banks, as had existed 

before. Because if you felt that the lira was being inflated, people 

escaped into marks. 

That was the pattern in the post-war period. Where does an 

Italian escape to now as easily as into the market as was historically the case? So even in terms of competitive national currencies, 

12 

the unification under the euro has been a disaster, and certainly 

for the freedom of the people there. 

Mr. LUETKEMEYER. Mr. Lewis? 

Mr. LEWIS. I would generally agree with Dr. Ebeling. I don’t 

think the euro is a case of a parallel currency so much as a shared 

monopoly currency. With parallel currency, the idea is having the 

choice of two highly viable alternatives. For example, the euros, 

maybe, in Turkey, where the Turkish lira has a rather poor history, often people use Deutsch Marks in the past and now use the 

euro. 

So I think that is probably a bad example of a parallel currency. 

Thank you. 

Mr. LUETKEMEYER. Mr. Gray? 

Mr. GRAY. I think the key thing to consider with what is going 

on right now in Europe, besides the fact that there is just no confidence whatsoever in the banking system is that still, in our country here today, we do have confidence in our currency, we do have 

confidence, for the most part, in the banking system, for whatever 

reason. 

And that is very different over in Europe right now. As soon as 

money shows up and the banks are unfrozen, the people make a 

run on the bank. They pull out as much currency as they can, they 

turn it into anything they can get their hands on that is valuable; 

whether that is another currency, or hard goods, or gold and silver. 

It is the same thing that we are seeing now that we saw in 

hyperinflation just before World War II, where the race was on to 

get rid of the currency as quickly as possible. The advantage we 

have right now is that we don’t have that yet in our country. And 

I think the opportunity that lies before us is to help the people of 

this country get out of that system, deleverage the system, so that 

they don’t have to experience the panics and the fear that are being 

experienced right now in Europe today. 

Mr. LUETKEMEYER. You had a key word there that really describes all monetary systems and, basically, even economics. And 

that is ‘‘confidence.’’ If people don’t have confidence that the money 

that they are exchanging for goods is worth that amount of money, 

or whatever it is, there is very little transaction that takes place. 

And so really, even at the highest levels of the biggest banks, we 

found in 2008 that it wasn’t necessarily the entity that they were 

dealing with. It was the confidence in that entity to be able to 

transact business. 

And so basically, you have a fall-back on confidence, which leads 

me to the question with regards to what we are talking about this 

morning, sound money and parallel money. If you work in a different monetary system parallel to another one, where is the level 

of confidence going to come from that allows that business to be 

transacted in a parallel currency? 

Mr. GRAY. The simple answer to that question is the confidence 

comes from the fact that the currency is not based on debt. Every 

national fiat currency is put into circulation through loans and 

debt. 

And so people today are starting to understand that there is so 

much money out there that people owe in loans, mortgages, credit 

13 

card bills, all these derivatives out there—trillions and trillions of 

dollars—and all that money has to be paid back eventually. 

That is where the lack of confidence comes from. And so when 

you start thinking and talking about alternative currencies, especially those that are issued in gold, silver, copper, and something 

real, some sort of commodity, people who understand the concept 

begin to realize that those are debt-free currencies that don’t need 

to be paid back at some point to some bank. 

Think about all the money that the people of America owe to the 

banks. Think about all the people who are in debt, all the States 

and the municipalities, the colleges, universities. Everyone is in 

debt. The real question is, who owns the other side of that debt? 

And that is where the lack of confidence comes from. The fact 

that people are starting to ask that question, and realize that there 

is really no money out there to begin with. 

Mr. LUETKEMEYER. I see my time is up. 

Thank you, Mr. Chairman. 

Chairman PAUL. Thank you. 

If the gentleman from Arizona is ready, he could be recognized. 

If not, we can wait a couple of minutes. Are you ready? Okay, 

thank you. I will go on and have a second round of questions. 

The question of taxation comes up with money, as well, because 

we think money is a commodity. And our government tends to 

think that any time you have a commodity transaction, you pay 

taxes on it. You have sales taxes and you have capital gains taxes. 

And that, I think, curtails this development of parallel currencies. 

And I don’t know how we could ignore this if we really want to 

promote some competition or allowing another currency. Because if 

you tax one currency but not another one, it is hardly a parallel 

currency. It is at a tremendous disadvantage. 

So if a parallel currency really got off the ground, because of the 

conditions or the people became knowledgeable and they thought it 

was wise to do it, the people in Washington don’t like to have their 

powers undermined. So they have the power of the IRS. 

Isn’t this a significant concern, or do you think we can just sort 

of bypass it, and say, ‘‘Well, it’s a problem, but not a big problem. 

We will just go do our thing, and it can work.’’ What is your opinion about the tax issue when it comes to a parallel currency, all 

three of you? 

Mr. LEWIS. I think there are—just as you can have under-thetable transactions in U.S. dollars, small-scale that maybe you don’t 

report to the IRS, you can also do so. And maybe people are doing 

so with gold and silver coins or copper coins today. But as soon as 

you get the business of any scale, you can’t break the laws that 

easily. 

I think that ultimately, just as you say, we have taxes that apply 

to transactions in dollars, capital gains taxes, for example. We have 

taxes that apply to transactions in euros and Canadian dollars and 

many other currencies. We have many thousands of corporations 

doing business in many currencies worldwide. 

I think we should recognize that because gold and silver and related instruments are not recognized as currencies, they are under 

a different system of taxation. Gold, for example, has a different 

tax rate because it is a collectible. But I think more importantly, 

14 

let’s just take a very simple transaction. I wanted to buy a car from 

the Ford Motor Company, I wanted to pay them in gold coins, U.S. 

Mint American Eagles produced by the government. 

When I give the gold coin to the auto dealer, that would be considered basically a sale of the coin and you would have to pay capital gains tax, taxes on what the dollar value of the coin was when 

you acquired it and when you dis-acquired and so on and so forth. 

Which is very different than if I were to, for some reason, do the 

same transaction in euros where that would not apply. 

So I think that at the very minimum, we should endeavor to 

treat these the way we would treat other national currencies today, 

which we are actually doing business in. Not so much in the United 

States, but what American citizens, the American corporations are 

doing every day and accountants are very familiar with how this 

works. 

So I think that there is definitely something for the Federal Government to do there to legitimize that and treat it as the same way 

we treat other national currencies today. 

Thank you. 

Mr. EBELING. Yes, I would argue that the parallel way of thinking about this is, in international trade, what we call the most favored nation clause. Any agreement that you reached with country 

X, you give the same best-favor treatment with import duties and 

so on to all other countries with which you trade. 

The parallel argument would be that the government should recognize that anything that people use as a medium of exchange in 

transactions should be viewed as anything that they have historically viewed as a transaction. Basically, that there shouldn’t be 

these extra taxes. That was just pointed out. 

So that if people are now using gold and silver coins, the transaction should be more taxed or treated in a different way than any 

transaction with the Federal Reserve’s own note. That gives a level 

playing field with neither an advantage nor disadvantage for the 

use of one currency versus the other. 

Because otherwise, the government creates stumbling blocks and 

hurdles to give people those fair and level playing field choices. So 

the parallel should be some taxing of media of exchange along this 

notion of the most favored nation clause. 

Chairman PAUL. Mr. Gray? 

Mr. GRAY. First of all, Mr. Chairman, I want to clarify that we 

are not tax experts and we are not allowed to give tax advice, nor 

do we give tax advice to anyone who participates in our system. 

Our job is, very simply, to issue the currency and make sure we 

guarantee the weight and the purity. So we are just keeping an eye 

on what is going out there. 

But tax applications vary from State to State, municipality to 

municipality. Some States, some cities and towns, allow you to barter. They say, well, you can do 100 barter transactions per month 

or per year, and they don’t look at is as being under the table or 

underhanded. They look at it as just being private trade that is not 

a taxable event. 

Certainly, my understanding is that the Federal Government 

would like us to report the profit or gain from any transaction. 

That is kind of strange because in a barter transaction, there is not 

15 

really any profit or gain on either side of it. But in our voluntary 

system, we encourage the participants to explore and decide for 

themselves based on their own morals and values what their tax 

obligation is, and to report and to remit accordingly. 

Chairman PAUL. Thank you. 

Now, I recognize Mr. Luetkemeyer from Missouri again. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Following up again on my comments earlier with regards to the 

confidence in the system and the ability to protect the citizens 

whenever you transact business like this, Dr. Ebeling, I think in 

your testimony you abolish the Federal Deposit Insurance Corporation. While you may not like it, that is also one of the things that 

adds confidence to the person who deposits money in the bank. To 

realize that if they deposit the money there, they are going to be 

able to get it back. Without that, the consumer is going to have to 

do an awful lot of work. 

And as you gentlemen have described this morning, parallel 

monetary systems—you are going to put a tremendous onus on the 

individual to make sure that they get value back for whatever they 

exchange their money for, and that that money will have value 

down the road so they will not lose value and business continue to 

be transacted in that same form. 

And so, I think one of the advantages of the system we have now 

is that it takes a lot of the work in trying to find ways for the 

money to be able to be secured and have confidence in away from 

the consumer. Am I wrong in that, or do you agree with that statement? 

Mr. EBELING. I think that the problem with deposit insurance is 

that it creates a degree of confidence, but a false sense of security. 

The fact is, is that the impression is made that the bank is serving 

as a depository for your money and that it is always guaranteed 

to be gotten back. 

The fact is, you put money into a bank to earn interest. The bank 

can pay you interest only through one way, and that is extending 

it and pooling your savings with others to worthy borrowers. They 

pay interest for the loan, the bank receives that loan. They take 

what they view as their service charge for financial intermediation, 

and then you as the depositor receive your interest, whether it be 

a savings account or most forms of checking accounts which pay interest now. 

The fact is, you are putting your money at risk. You are lending 

it to others through the bank’s good services. Federal Deposit Insurance has created this impression as if there is no risk with your 

money. And the fact is, I think the people would be more cautious 

and more attentive to the nature of the bank that they are doing 

business with, what the track record of the bank is in managing 

your funds, along with those of other depositors. 

And on that basis, seeing what private insurance or guarantees 

or other forms of assurances bank competitively would establish. 

We take for granted that when you go in and buy, for example, a 

microwave or an oven or a refrigerator, what if it doesn’t work? 

Most large companies, for brand name reputation, give you various warranties and guarantees. And it is important for the company’s success to stand by and guarantee that warranty and guarVerDate Nov 24 2008 13:52 Nov 28, 2012 Jkt 076124 PO 00000 Frm 00021 Fmt 6633 Sfmt 6633 K:\DOCS\76124.TXT TERRI
16 

antee. Various banks, for competitive advantage, would offer various types of, perhaps, guarantees and warranties on deposits, but 

with the understanding that nothing is certain. 

In a money market mutual fund, you realize that the value of 

your account may go up or down depending upon the value of the 

portfolio of the company with which you are dealing. The fact is, 

that is the case of a bank, too. 

Mr. LUETKEMEYER. You are mixing apples and oranges here. You 

are talking about an investment account, where you know that the 

money is going to be invested and it has the ability to go up and 

down, versus a deposit where you put the money in and you are 

going to write checks on that account. 

And I think the deposit insurance takes some of the risk away. 

Over the last 4 years, we as a society have been educated to the 

fact that banks manage risk. That is what they do. Before, people 

thought they just take deposits, make loans, and turn around and 

pay out dividends and interest and whatever. 

That is not what happens. They manage risk. And so, the deposit 

insurance actually minimizes the risk. It doesn’t take it all away, 

but it minimizes it so that it gives some level of confidence to that 

investor. And I don’t think you can sit there and say that somebody 

who invests in a money market account or some sort of investment 

account at the bank, that is a totally different relationship between 

the bank and the individual customer. 

I have some concerns about that. 

Mr. EBELING. If I could just sort of follow up on that, the mistake 

is that people view their checking accounts—I have a checking account, as I know you have—you feel as if, well, I have deposited 

my paycheck and I can draw that money down by writing checks 

or using my debit card, etc. 

The fact is, that is not a warehouse deposit or like a safety deposit box. The fact is, under our current banking system that 

money is then taken—which you are viewing as 100 percent accessible to you—and using it as part of their investment funds to lenders. It is at risk as much as a savings account is, where you know 

that during the period of like a time deposit your money is being 

lent out to a lender. 

The fact is, to a borrower, the same things applies with our 

checking accounts. People are given a false sense of security that 

this is not an investment account, when it is. It is as much of a 

risk as when you put your money in the bank and a savings account and you more consciously know the bank is using your 

money for a period of time with a risky loan. 

Checking accounts are, in fact, with our system no different. And 

if you didn’t have deposit insurance, I would suggest that people 

would become more aware of it and be more cautious, informed and 

intelligent in what type of banking institution they did business 

with. 

I am talking about the long-run, institutional incentives of a system. 

Mr. LUETKEMEYER. I see my time is up. Thank you, Mr. Chairman. 

Chairman PAUL. Thank you. 

I now recognize the gentleman from Arizona, Mr. Schweikert. 

17 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. This may be a 

slightly more ethereal question, but I am trying to also understand 

how much of this is actually going on around us. And actually, also, 

if you have ever looked at the differential in high transaction cost 

jurisdictions: high sales tax; the barter economy; some of these 

things I now see on the Internet. 

What was one of them called? Something ‘‘coin,’’ where you can 

actually develop—what was it? 

Mr. GRAY. Big Coin, I believe? 

Mr. SCHWEIKERT. Yes. And I think there are two or three 

versions of that, where, because of certain transactions or uses of 

Web sites or these things, you actually build accounts. How much 

of this is there already, even though in the scale it may be very 

small? 

Is there actually, in sort of the barterer of economy, of this Internet exchange of value that is out there? I remember there was an 

explosion of it in the early 1980s, very early 1980s, when inflation—so I would trade something with my dentist for this. And 

even though inflation and other things, I knew I was getting a certain service for a certain service. 

What is out there today? 

Mr. GRAY. It is pretty substantial. The first thing to take a look 

at is the gray and black economics of the world which, right now, 

are really the only segment of the global marketplace that is actually growing. A lot of that is done with barter, direct trade. Some 

of it is done with alternative community currency, some of it is 

done with gold and silver. 

So it is happening right now across the globe in a very big way. 

In the United States, there are probably 400 to 600 different community currencies in circulation right now. The total value of the 

currency in circulation is probably somewhere between $1 billion 

and $5 billion, I would estimate. 

So it is small, but it is consistently growing. 

Mr. SCHWEIKERT. I don’t think a lot of folks even understand. My 

little sister was part of a baby-sitting exchange. She puts in so 

many hours, and she gets so many hours over there. In many ways, 

that was a barter economy, and folks don’t realize they were basically transacting value for value. 

What happens if we wake up tomorrow and a handful of our 

trading partners, competitors move to a basket or currencies? And 

so China and a couple other countries say, ‘‘We are going to do this 

new blended currency.’’ Does that actually now create a new method of exchange? 

I have been trying to figure out if that actually creates an additional value of exchange with which we would have to deal. 

Mr. GRAY. I think on the macro level in the global economy, yes, 

it does. As far as the micro level and the baby-sitters and the pet 

groomers and people in small towns and cities across the country, 

I don’t think they would notice that any more than they notice, and 

are affected by, the international currency problems we have right 

now. 

So I think, yes, globally sure. 

Mr. SCHWEIKERT. But where that more comes from, Mr. Chairman, and to whoever would like to answer this, I don’t know how 

18 

often you see this, but I used to see it in the old days. A contract 

would have a gold clause in it, particularly contracts that were 

coming out of the late 1970s, very early 1980s when there was high 

inflation, saying, ‘‘Hey, we are going to write the contract denominated in U.S. dollars, but there will be a gold peg on it so if somehow inflation might—by the time we are going to do the takedown.’’ 

I am curious if we are seeing any more of that type of hedging. 

And that is actually what a blended commodity currency would do, 

also. I told you this was going to be a bit ethereal. 

Mr. EBELING. I think what is sometimes being proposed, the Chinese and the Russians have talked about this instead of the dollar 

as an international currency for a lot of transactions. What this 

idea of a basket of commodities or series is, is to try to have an 

index of what currency A, let us say the U.S. dollar, is worth as 

sort of an index, or composite, of these other currencies to determine some value. 

But the fact is that what would still be traded is actually some 

currency A for currency B. But the market estimate of what currency A is worth in relation to currency B would be that the currency B would, in fact, have its value based upon some composite 

index. It is a way of determining the exchange ratio, not so much 

that you would be trading the basket of the currencies for this 

other good, or this other currency. 

Mr. SCHWEIKERT. And my fear is, often—and my good friend, Mr. 

Luetkemeyer, I think, that was also part of the dialogue of it— 

sometimes, it is not only you get back your dollar-for-dollar invested, but what was the actual ultimate purchasing power of that 

dollar when you get it back. 

And I think that is actually a much more honest way to look at 

the value of a transaction. 

Mr. EBELING. Right. And see, what happens—again, as I mentioned in an earlier question—is that if you have traveled in a 

country that is dealing with a severe or a hyperinflation, the uncertainty and instability of that nation’s own currency has reached 

such a point that people no longer either use that currency, or they 

calculate its real value in another currency, whether it be, let us 

say, a dollar or an ounce of gold. 

And they say that based upon this other currency, that is what 

we are going to view as the value of my own currency in buying 

commodities. 

Mr. SCHWEIKERT. Mr. Chairman, I know I am way over time. But 

if you have done lots of traveling, particularly in the third world, 

you will often see, here is the price in the local and here is the 

price, as I had an experience in Myanmar. There was a price for 

green, which was U.S. currency. 

So thank you, Mr. Chairman. 

Chairman PAUL. Thank you. 

We will be having a vote shortly, but I believe we have time for 

another round of questions. I have a question for Dr. Ebeling. And 

it is a more generalized and philosophic question. Under the system we have today, it is very unfair to one group, where another 

group, I think, benefits. 

19 

And if you look at runaway inflation, it is not usually those who 

have been able to park their money overseas and escape the harm. 

Many times it is the average person who had savings in accounts 

and they lose everything. I think what we are dealing with on a 

monetary system is a reflection of a bigger philosophy. 

And that is the philosophy of government, big government, and 

why we spend so much money. And money is not so much a means 

of exchange, like it should be. It is the vehicle for taxation. Because 

we have big government for various reasons and there is never 

enough tax money. But there is also the printing press and there 

is the printing of money. 

Which is really a tax on the people, the middle class and the 

poor. Many people endorse that system because they have been 

convinced that the current system is helpful to the poor. We can 

have housing programs and we can provide welfare, and they really 

like the system. They don’t want to give up on it. 

Now, we might agree that a sound monetary system would be 

more fair and it wouldn’t be beneficial to the very, very wealthy 

and to the Wall Streets and the bankers. But what about if we got 

a little further along on parallel currencies? 

Do you see any way this could give a temporary reprieve, or 

would it once again been seen oh, this is just another gimmick to 

protect the rich, and the poor don’t know anything about this, they 

can’t use this currency, and it is really not a solution; it doesn’t 

even address the subject of this inequity in the system that we 

have today. 

Do you have any thoughts on that at all? 

Mr. EBELING. Yes, I think that is an important point. We can see 

the problem sort of magnified as one reads about it in the press, 

for example, is what has happened in Greece right now. The fact 

is, is that for years, decades, the Greek government promised more 

than it has turned out it can pay for, either with taxes or with continuing borrowing. 

That is one of the reasons some in Greece want to return to a 

drachma so they can just print the money that they need to cover 

the promises for which the real resources in the society are not 

available. It is the long run versus the short run. 

In the short run, if the government can tax, borrow or print 

money, it can create the illusion of generating wealth and benefits 

and special opportunities for various segments of the society. But 

in the longer run, the problem is that eventually the piper has to 

be paid. The tax money runs out. 

Or it can’t borrow anymore, or it becomes very expensive, as the 

Spanish and the Italians are now finding, as well as the Greeks. 

Or they resort to printing money. But at the end of the day printing money dilutes the value of every unit of money in people’s pockets. It destroys savings, it undermines the ability to undertake exchanges. It diminishes the ability for profit-making decision-making. And therefore, it is most devastating on the poor. 

The analogy is like the kid who goes to the circus and he eats 

too much cotton candy. And his Uncle Bob who took him said, 

‘‘Gee, I am sorry that you have a tummy ache, so to make you feel 

better here’s more cotton candy.’’ That is just exacerbating the 

20 

problem. At the end of the day, the boy gets home and he has a 

big tummy ache. 

And that is what has to be emphasized, the illusion— 

Chairman PAUL. Okay, I want to interrupt for a minute because 

I want to know about whether the parallel currencies affect this in 

any way, positively or negatively. Or does it help this inequity and 

this disadvantage over the kind of system we have today? 

Mr. EBELING. Yes, I would argue that if people had a choice in 

currency—whether they be rich, middle-income or poor—they 

would have a way to park their income and wealth in an alternative medium of exchange, a unit of account, that they could have 

greater security of, that its value is more certain and more stable 

based upon their fears and expectations about the trend their own 

national currency is following. 

Chairman PAUL. So there is even an advantage to 

incrementalism in moving in this direction if it is available to the 

people rather than saying, ‘‘Well, we can’t do a thing until we repeal the Federal Reserve Act,’’ and that sort of thing. 

Mr. EBELING. Absolutely. 

Chairman PAUL. Okay, very good. 

Now, I want to go to Mr. Luetkemeyer, if he has another question. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

To follow up on that, how do you protect the citizen to make sure 

that they don’t get slipped up on with going to alternative or parallel currencies? How do they have, how can they enable—we have 

a whole group of folks here this morning. How can each one of 

them know that if they want to transact business and each one of 

them a different currency, it is going to be something that they will 

be able to trade down the road? 

Mr. LEWIS. This relates to your previous comment about confidence. In practice, it will be a process of some institution establishing a track record. And also the institution being sort of visibly 

considered to be a long-term— 

Mr. LUETKEMEYER. So in other words, whether it is a country or 

city or a state, whatever entity produces the currency there will 

have to be a certain level of confidence in that entity to be able to— 

Mr. LEWIS. Right. 

Mr. LUETKEMEYER. There would— 

Mr. LEWIS. And it will have to be earned. You can’t decree it. 

You can’t have an advertising campaign. We are kind of talking 

about these very small kind of neighborhood currencies. And on a 

larger scale, that might be where we would begin. 

On a larger scale, it could be Citibank, it could be the State of 

Utah. I know some of my colleagues here would be appalled at the 

idea of the U.S. Federal Government issuing a parallel gold currency. But I think it is an interesting idea. 

Or it might be the state of Russia. In practice, the one that has 

the most confidence will be the one that people use. The reason 

that people used the U.S. dollar after World War II is because it 

had a long history, over 100 years, of sticking to the gold standard. 

It had a stable political system, it was militarily impervious. 

21 

And that is why they used that instead of the currency of China 

or what have you. It will be, ultimately, a process of track record, 

and probably very large organizations will dominate. 

Mr. LUETKEMEYER. Okay, Mr. Lewis, we have before us this 

morning your book. I was trying to read the cover and the back of 

it here, as well as the inside slips. Can you just briefly tell me how 

you would like to see us—or could be enabled to be able to move 

over to the gold standard? What are your thoughts on it? 

Mr. LEWIS. Ideally, you would all have an epiphany and understand that this is the best system for all of us. However, in practice, one of the reasons we are here today, I think, is that typically, 

people have these epiphanies after a tremendous catastrophe. It 

happened many, many times in the past. 

Usually, things go all the way. You don’t stop halfway and say, 

‘‘Oh, I think I know where this is going. Let us stop now and 

switch to a gold standard system.’’ Usually, you end up in disaster. 

Whether it be China in 1949; the hyperinflation, Japan in 1949; 

hyperinflation, United States in 1784; hyperinflation, Germany 

1923. 

Hyperinflation, you tend to end up with some kind of catastrophe 

beforehand. One of the nice things about the parallel currency idea 

is maybe you can avoid that process, that political cycle. You could 

establish something, even by the Federal Government or by very 

many means, and you could have the two options available. 

So when people simply decide to do business in one currency or 

another—say I am going to write the contract in U.S. gold dollars, 

not U.S. Bernanke bucks, they will start to buy and sell and do 

business in that way. And then over a period of a few years, perhaps, people will just naturally decide which system they like better, the Bernanke system or the gold system, and they can migrate 

and, eventually, have a very smooth, non-disruptive transition between one and the other, ideally. 

Mr. LUETKEMEYER. But even in your system of moving over to 

the gold standard, there still has to be a level of confidence and 

that as the backup, as the standard, would it not? 

Mr. LEWIS. You would have to have—ultimately every currency 

has an issuer. And ideally, that issuer will have a track record of 

managing the currency correctly. And will likely probably be, in my 

opinion, a large institution, maybe a national government, maybe 

a State government, maybe a—maybe a large bank, maybe some 

other large institution that emerges. 

We are simply not going to have the entire United States do 

business in a currency that is issued by something in—a little 

storefront in Miami or something of that sort when we get to that 

scale. So the institution will earn the confidence. 

Mr. LUETKEMEYER. All right, thank you. 

Thank you, Mr. Chairman. 

Chairman PAUL. I thank the gentleman. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 30 days 

for Members to submit written questions to these witnesses and to 

place their responses in the record. 

22 

This hearing is now adjourned. I appreciate your appearance 

today. Thank you very much. 

[Whereupon, at 11:08 a.m., the hearing was adjourned.] 

(23) 

A P P E N D I X 

August 2, 2012 

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United States Honse of Representatives 

Committee on Financial Services 

Subcommittee on Domestic Mouetary Policy 

Hearing on Sound Money: Parallel Cnrrencies and the Roadmap to Monetary Freedom 

August 2, 2012 

Congressman Ron Paul 

Statement for the Record 

One of the most pressing issllcs of our time is the Pllsh for monetary freedom. The only sound 

monetary systcm is one which protects sound money and allows consumers, businesses, and investors 

the freedom to transact in the currency of their choice. The importance of sound money is summed up 

nicely by Ludwig von Mises: "It is impossible to grasp the meaning of the idea of sound money if one 

does not realize that it was devised as an instrument for the protection of civil libetties against despotic 

inroads on the part of governments." It is no wonder that governments fight tooth and nail against 

sound money, as sound money protects the well-being of the middle class and the poor while 

preventing the expansion of government. 

Governments throughout history have sought to monopolize the issuance of money. either 

directly or through the creation of central banks. The growth of central banking in the 20th century 

allowed governments to monctize their debt in an indirect manner while still ensuring a ready market 

for government debt. And central banks' slow but sure debasement of the currency allowed 

governments to repay their debts in devalued money. What debtor would not want such a sweetheart 

deal? 

Indeed, the 20th century witnessed a revolt by governments against the strictures of sound 

money. In some countries such as Weimar Gcnnany the revolution came quickly and the results were 

both immediately apparent and instantaneously disastrous. In other countries such as the United States, 

the revolt came more gradually, with the destructive efTects of money printing only recently becoming 

apparent to more and more Americans. 

Over the past 100 years. the Federal Reserve has continually pumped new money into the 

economy, resulting in a 96 percent devaluation of the dollar. This devaluation does not affect evcryone 

equally, as the banks who receive this new money tirst benefit from using it before prices rise. while 

average Americans suffer the pricc rises first and receive only a trickle of money well afterward. In 

this way the Fed enriches Wall Street while impoverishing Main Street, leading to a growing disparity 

of wealth. 

The wealthy arc always able to protect the value of their assets against inflation to an extent that 

the middle class and poor cannot. Anyone with enough money and resources can set up a foreign bank 

account denominated in euros or Hong Kong dollars, or purchase gold and silver that will be safely 

stored in London or Singapore. The rich are best able to purchase precious metals, the only ones able 

to invest in high-yielding hedgc funds. and the ones most able to shelter their assets from punitive 

taxation. 

All the legislation and regulation that ostensibly protects the average American from losing 

money in fact does exactly the opposite. It keeps the average American li'om being able to defend 

against intlation by investing in precious metals, forces him into mediocre investment opportunities 

that do not cven keep up with inflation, and leaves him at the mercy of the taxman. Compared to their 

counterparts in other countries. the average American has far fewer tinancial options available to them. 

Mexican workers can set up accounts that are denominated in ounces of silver, and can take 

delivery of that silver whenever they want. tax-free. In Singapore and some other Asian countries. 

individuals can set up bank accounts denominated in gold and silver. Debit cards can be linked to gold 

and silver accounts so that customers can use their gold and silver to make point of sale transactions. a 
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service which is only available to non-Americans. In short, Americans have far fewer options to 

protect their wealth than citizens of many foreign countries do. 

The solution to this problem is to legalize monetary freedom and allow the circulation of 

parallel and competing currencies. There is no reason why Americans should not be able to transact. 

save, and invest in the currency of their choosing. Unfortunately, decades of government restrictions 

and regulations have hampered and prevented the circulation of parallel currencies and destroyed the 

familiarity of Americans with any sort of money aside from Federal Reserve Notes or bank deposits 

denominated in U.S. dollars. The thought of introducing paraliel currencies undoubtcdly scares many 

people who understandably wish to minimize their financial risk. 

All financial activity is fraught with risk. Most people understand the risks inherent in stock or 

bond investment, but the risk of holding savings accounts or cash is still drastically under-appreciated. 

Everyone is familiar with the maxim "Don't put all your eggs in one basket" and investors and savers 

are constantly urged to diversify their portfolios, yet the U.S. government continues to set roadblocks 

that force Americans to transact and save in dollars that continue to depreciate. 

According to the government's official figures, price inflation runs around two percent per year 

whieh means that, since interest rates on savings accounts are near zero, the real rate of return on 

savings accounts is negative. Anyone holding a savings account or cash is losing nearly two percent of 

the value of his savings per year with this relatively mild inflation. Some private economists estimate 

that actual price inflation is running closer to nine percent per year, which would make the loss li'om 

holding dollars enormous. 

Even greater danger comes during bouts ofhyperintlation, such as during Weimar Germany and 

more recently in Zimbabwe. But when Zimbabwe's dollar became wOlthless, people began to use U.S. 

dollars, South African rand, and Zambian kwacha to conduct transactions. Similarly in Weimar 

Germany, many individuals resorted to using dollars, pounds, and precious metals. So despite the 

cconomic hardship wrought by hyperinflation, not all economic activity ground to a halt, largely due to 

the circulation of parallel currencies. Should the United States ever face a hyperinflationary crisis, 

which due to the Fed's quantitative easing is very possible, the only means of survival would be 

through the use of parallel currencies. 

It is horribly unjust to force the American people to do business with a dollar that is 

continuously debased by the Federal Reserve. Forcing a monopoly currency with legal tender status 

onto the people benefits the issuer (government) while harming consumers, investors, and savers. The 

American people should be free to lise the currency of their choice, whether gold, silver, or other 

currencies, with no legal restrictions or punitive taxation standing in the way. Restoring the monetary 

system envisioned by the Constitution is the only way to ensure the economic security of the American 

people. 
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Testimony for the Subcommittee on Domestic Monetary Policy and 

Technology, on "Sound Money: Parallel Currencies and the Roadmap to 

Monetary Freedom, Thursday, August 2,2012. 

Sound Money, Monetary Freedom, and the Government 

By Dr. Richard M. Ebeling 

Professor of Economics 

Northwood University 

Midland, Michigan 49640 

The gold standard alone is what the nineteenth-century freedomloving leaders (who championed representative government, civil 

liberties, and prosperity for all) called "sound money." The eminence 

and usefulness of the gold standard consists in the fact that it makes the 

supply of money depend on the profitability of mining gold. and thus 

checks large-scale inflationary ventures on the part of governments. 

Ludwig von Misesi 

To discuss a possible roadmap to monetary freedom in the United States requires us to 

first determine what may be viewed as a "sound" or "unsound" money. Through most of 

the first 150 years of U.S. history, "sound money" was considered to be one based on a 

commodity standard. most frequently either gold or silver. In contrast. the history of 

paper, or fiat, monies was seen as an account of abuse, mismanagement and financial 

disaster, and thus "unsound'- money. 

The histories of the Continental Notes during the American Revolution, the Assigl1ats 

during the French Revolution. and then Greenbacks and the Confederate Notes during the 

American Civil War. all warned of the dangers of unrestricted and discretionary 

government power over the monetary printing press." This view was summed up in the 

middle of the nineteenth century by the famous British economist, John Stuart Mill, 

whose Principles of Political Economy was a widely used textbook for decades not only 

in his native Great Britain, but in the United States. as well: 

The issuers may add to it indefinitely, lowering its value and raising prices 

in proportion; they may. in other words depreciate the currcncy without 

limit. Such a power. in whomsoever vested. is an intolerable evil.... To be 

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ablc to pay offthc national debt. defray the expcnscs of government 

without taxation, and in fine. to makc the fortunes of the entire 

community, is a brilliant prospect, when once a man is capable of 

believing that printing a few characters on bits of paper will do it ... 

There is therefore a preponderance of reasons in favor of a convertible. in 

preference to even the best-regulated inconvertible currency. The 

temptation to over-issue. in certain financial emergencies is so strong, that 

nothing is admissible which can tend. in however slight a degree. to 

weaken the barriers that restrain it." 1 

Episodes of great inflations in countries like Germany, Austria, and China in the 

twentieth century only have reinforced the advocates of"sound money" on the dangers of 

paper money in the hands of any political authority. IV 

The importance of a monetary system based on gold, therefore. is that it limits the range 

of discretion opcn to governments to manipulatc the quantity and value of money. The 

fundamental rule that the supply of money in the economy is anchored to the profitability 

of gold production as determined by market forces depoliticizes the monetary system to a 

significant degree. 

Given an establishcd redemption ratio bctwccn bank notes and deposit accounts and a 

quantity of gold on deposit in banks; given fixed reserve requirements on checking and 

other forms of bank deposits; given an established rule of the right of free import and 

export of gold between one's own country and the rest of the world; and assuming that 

the political authority with responsibility over the country's monetary system does not 

interfere with these conditions and rules. then political intluences on the value and 

quantity of money would be minimized. 

The Gold Standard in Practice 

In the second half of the nineteenth century most of the major nations of the world put 

into place national monetary systems based on gold. By the fact that such a large number 

of countries had each linked their respective currencies to gold at some nxed rate of 

redemption in this manner. there emerged an international gold standard. A person in any 

one ofthosc countries could enter any number of established. authorized banks and trade 

in a certain quantity of bank notes for a stipulated sum of gold. in the form of either coin 

or bullion. He could transport that sum of gold to any of the other gold-based cOlilltries 

and readily convert it at a nxed rate of exchange into the currency orthe cOllntry to which 

he had traveled. 

As tvlurray Rothbard expressed it in, IVhat Has (Joverl1l11elll DOlle 10 Our },4oney:' 

The world was on a gold standard, which meant that each national 

currency (the dollar. pound. franc, etc.) was merely a name for a certain 

definite weight of gold. The "dollar," for example. was defined as 1/20 of 

a gold ounce. the pound sterling as slightly less than 114 of a gold ounce .... 

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This meant that the "exchange rates" between various national currencies 

were fixed. not because they were arbitrarily controlled by governmcnt, 

but in the same way that one pound of weight is defined as being equal to • v sixteen ounces. 

Why did governments recognize and (with occasional exceptions) follow the rules 

of the gold standard through most of the nineteenth century? Because the gold standard 

was considered an integral element ill the reigning political philosophy of the time. 

classical liberalism. As the German free-market economist Wilhelm Roepke explained in 

Jl1Icrnatiol1a/ Order and Ecol1omic integration: 

The international "open society" of the nineteenth century was the creation 

of the "Iiberal spirit" in the widest sense. [guided by] the liberal principle 

that economic affairs should be n'ee from political direction. the principle 

of a thorough separation between the spheres of government and of 

economy ... The economic process was thereby removed from the sphere 

of officialdom, of'public and pcnallaw, in short from the sphere of the 

"stae' to that of the "market," of private law, of property. in short to the 

sphere of "society."" 

At the same time, said Roepke, 

This [liberal] principle also solved an extrcmely important special problem 

of international integration ... i.e., the problem of an international 

monetary system ... in the form of a gold standard ... It was a monetary 

system which rested upon the structural similarity of the national systems. 

and which made cUlTency dependent. not upon political decisions of 

national governments and their direction, but upon the objective economic 

laws. which applied once a national currency was linked to gnld ... Hut it 

was at the same time a phenomenon with a moral foundotion ... The 

obligations, namely, which a conscientious cont(ll'lnity with (he rules of 

the gold standard imposed upon all participating countries (ol111ed at the 

same time a part of that system of written and unwritten standards which 

... comprised the I international] liberal order. '" 

In the nineteenth century. the ruling idea had becn liberty. The wealth of nations 

was seen as arising fi'om individual freedom in a social order respecting private property 

in the means of pro duel ion. The relationships among men. it \-vas believed. should be 

based on voluntary exchange for mutual benefit. Just as there were no inherent 

antagonisms among men in a free market within the same nation. there were no inherent 

antagonisms among men living in different nations. The mutual gains from trade could be 

expanded by extending the principle of division of labor to a global scale. I r men were to 

benefit from those possibilities, a stahle. sound, and trustworthy monetary order had to 

assist in the internationalization of trade. Gold was considered the commodity most 

proven through the ages to serve thal function. And preservation of the gold standard. 

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theref(Jre. \\as given a prominent place among the limited duties assigned to the elassicalliheral stale in that earlier era. 

In the nineteenth century there also was a greater humility among those who 

constructed and implemented variolls government economic policies. There was a 

general agreement with Adam Smith's observation that "the statesman. who should 

attempt to direct private people in what manner they ought to employ their capitals. 

would not only load himself with a most unnecessary attention. but assume an authority 

which could safely be trusted. not only to no single person. but to no councilor senate. 

and which would nowhere be so dangerous as in the hands ofa man who had the folly 

and presumption enough to f~lllcy himsel I' fit to exercise it."\n1 

The Gold Standard, Central Banking, and Changing MOlletary Policy Goals 

The classical liberals were deeply suspicious of government abuse of the printing press. 

They bclieved that only a monetary system under which all bank-issued notes and other 

deposit claims were redeemable on demand for gold could act as a sufficient check 

against the abuse and debasement of a currency. 

However. even in the high-water mark of classical liberalism in the nineteenth century. 

practically all advocates of the free market and free trade believed that money was the 

one exception to the principle of private enterprise. The intel11ational monetary order of 

the last century. of which Wilhelm Roepke spoke in such glowing terms, was nonetheless 

the creation o1'a planning mentality. The decision to "go on" the gold standard in each of 

the major Western nations was a matter of state policy. 

A central-banking structure for thc management and control of a gold-backed currency 

was established in each country by its respective government. either by giving a private 

bank the monopoly control over gold reserves and issuing banknotes or by establishing a 

state institution assigned the task of managing the monetary system within the borders of 

a natioll. The United States was the last of the major Western nations to establish a 

central bank. but it I1nally did so in 1913. 

Central-banking authorities were given the power and responsibility to manage the gold 

reserves at their disposal and the quantity of notes and other bank deposit claims 

outstanding to maintain the soundness of the monetary system and to counteract various 

shott-term Ouctuations in the national currency's foreign-exchange rate. the balance of 

payments. and the quantity ofilnuneial credit available in the country's cconomy. Their 

policy "tools" included manipUlation of short-term interest rates and the buying and 

selling of private-sec lor bills of trade and securities. 

While the goals for monetary policy may have been considered modest and limited in the 

eyes of the classical liberals of the nineteenth century. it remained a fact that the 

monetary system was a subject for national government policy. In an era of relatively 

unrestricted free-market capitalism. money and thc monetary system were a "nationalized 

industry:' And as such. even most of the advocates or economic liberty argued for 

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monetary socialism and monetary central planning. They failed to call for and defend the 

privatization of the most important commodity in a market economy the medium of 

exchange. 

What they f()rgol was that once a government has control and responsibility for the 

monetary system within a country, lillie was outside the power of thaI government to 

influence and manipulate. This was clearly stated by a prominent German economist 

named Gustav Stolper while a refugee in the United States 11'0111 war-torn Europe during 

the Second World War: 

Hardly ever do the advocates of free capitalism realize how utterly their 

ideal was frustrated at the moment the state assumed control of the 

monctary system ... A '"free" capitalism with govcrnment responsibility 

for money and credit has lost its innocence. From that point on it is no 

longer a matter of principle but one of expediency how far one wishes or 

permits governmental interference to go. Money control is the supreme 

and most comprehensive of all government controls short of 

expropriation." 

As a result, when economic collectivism, socialism, and interventionism gained 

popularity and power in the early decades of the twentieth century. money was the one 

area in which the central-planning ideal was already triumphant. For a hundred years. 

now. in the United States it had been taken for granted that the state should have either 

direct or indirect monopoly control over the supply of money in the market. 

In the nearly one hundred years since the First World War, the goals assigned to 

monetary central planning changed. but the instrument for their application remained the 

same - central bank management of the money supply. In the 1920s, Federal Reserve 

policy was heavily focused on "price level" stabilization: its result \vas generating a 

variety of imbalances between saving and investment that set the stage for the Great 

Depressioll. ' 

Beginning in the I 930s. under the growing influence of Keynesian Economics the gual 

was to inlluence the Ievcls of aggregate employment and output in the economy. idler 

the disastrous experience with Keynesian-generated "stagflation " in the 1970s -- a 

combination of significantly rising prices and persistently high unemployment the 

monetary authorities in the 1980s and 1990s flxused on slowing down and "controlling" 

inllalion." In the late 1990s. the !'cdcral Reserve switched back to a more ·'activisC 

monetary policy that fed the excesses of the "high tech" bubble that went bust shortly 

after theturn of the new century. Then. in 2003, fearful of hypothetical ··detlationary" 

forces. '" the Federal Reserve went on a policy of monetary e.xpansion that created the 

monetary and credit wherewithal that produced the hOllsing and investment and consumer 

spending boom that \Vent dramatically burst in 2008 - and from which we are still 

atkmpling to recover, especially in tcrlllS of cmp]oYlllcnt. "" 

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In addition, throughout the last century, governments including the United States 

government--Ioosened the limits that gold placed on the ability oCtheir central banks to 

expand the money supply and manipulate the amount of credit created and issued through 

the banking system to further changing monetary and fiscal goals_ For decades, now, 

governments including the United States government have completely eliminated this 

-'break" on their discretionary monetary policy by viltually ending any connection 

between the paper currencies they control and gold_ 

The world economy operates in an economic environment of paper monies under the 

monopoly control central banks_ 

Central Banking is a Form of Central Planning - With the Same Defects 

One of the primary benefits of economic freedom is that it decentralizes the negative 

effects that may arise from ordinary buman error_ Everyone of us makes decisions that 

we hope \vill produce outcomes we desirc_ 

Yel the actual outcomes from our actions otten fail to match up to the hopes that 

motivated them. A busincssman who misreads market trcnds in planning his private 

company's production and marketing stratcgies may cxperience losses that require him to 

cut back bis activities, resulting in some of his employees' losing their jobs and in 

resource suppliers' expericncing fewer sales because the loss-suffering businessman 

rcduces his orders for what they have t(X sale_ 

But the negative ripple effects from his entrepreneurial mistakes are localized within one 

corner of the overall markct Other sectors of the market nced not be directly pcnalized or 

subject to the unfoliunatc effects of his poor judgment Profit-making enterprises can 

Ii'eely go about their business hiring, producing, and tben selling the goods that they have 

more correctly antieipated the consuming public actually desires to buy_ 

Under government central planning, however, errors committed by the central planners 

are more likely to have an impact on the economy as a \"hole. Evcry sector of the 

economy is directly interlocked within the centrally planned blueprint for the allocation 

of resources, thc quantities of different goods and services to be produced, and the 

distribution of the output to the consuming public. 

Centralized failures in resource use or production decisions more directly affect every 

sector of the economy, since nothing can bappen in any oflhe government-run industries 

indepcndently of how the central planners try to fix tbeir mistakes. Everyone more 

directly feels the consequences of the central planners' errors and must wait for those 

planners to devise a revised central plan to correct the problem, 

Monetary central planning suffers from the same SOli of defect Changes in the money 

supply emanate from one central source and are determined by the monetary central 

planncrs' conceptions of the "optimal" or desired quantity of money that should be 

available in the economy_ Their central decision can indirectly influence the pattern of 

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inten:st rates (at least in the short run) and the market structure of relative prices and 

inevitably bring about changes in the general value. or purchasing power, of the monetary 

unit. The monetary central planners' policies work their way through the entire economy. 

possibly bringing about a cycle of an inllalionary boom followed by general economic 

downturn or even depression. 

Halting the inflation and bringing an unsustainable boom to an end depends upon the 

monetary central planners' discovery that things "may have gone too far" and a decision 

by them to revcrse thc course of monetary policy. l'vlany. if not most. sectors ofthc 

marker ,,·iIl then have to modify and correct investment. production, and employment 

decisions that had been made under the false. inl1ationary priee signals the central 

planners' monetary policy has artificially created. CapitaL wealth. and income spending 

patterns in the market will have been misdirected and partly wasted because of the errors 

committed by the monetary central planners. 

The opponents of central banking have argued that the occurrence of such errors would 

be less fi'equcnt and discovered more quickly under a system of competitive free banking. 

Any private bank that "over-issud" its currency would soon discover its mistake through 

the feedback of a loss of gold or other reserves through the interbank clearing process and 

withdrawal by its depositors. The bank would realize the necessity of reversing course to 

ensure that its gold- and other-reserve p()sition was not seriously threatened and avoid the 

risk of losing the confidence of its own customers because of heavy withdrawals by 

depositors. 

Moreover, the effect of such a private bank's following a "loose" and "easy" monetary 

policy would be localized by the fact that only its banknotes and check money would be 

increasing in supply because of the additional spending of those to whom that bank had 

extended additional loans. It could neither force an economy-wide monetary expansion 

throughout the entire banking system nor create an economy-wide price-inflationary 

effect. Any negative consequences, while being unt()!"tunate, would be limited to a 

relatively narrow arena of market decisions and transactions. 

Free Banking and the Benefits of Market Competitioll 

One of the strongest arguments that advocates of the free market have made over the last 

200 years has been to point out the benefits of competition and the harmfulness of 

governmcnt-suppOltcd monopoly. In a competitive market. individuals are at liberty to 

creatively transform the existing patterns of producing and consuming in ways they think 

will make life better and less expensive for themselves and oth.:r mcmbers of society as a 

whole. 

Wherever legalized monopoly exists. the privileged producer is protected from potential 

rivals who would enter his corner of the market and supply an alternative product or 

service to those consumers who might prefer it to the one marketed by the monopolist. 

Innovation and opportunity are either prevented or delayed from developing in this 

politically guarded sector of thc economy. Production methods remain unchanged or are 

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modified only with great delay. Product improvements are slow in being developed and 

introduced. Inccntivcs {Clf cost cfTicicncies arc less pressing and. when utili/ed, are often 

only sluggishly passed on to consumers in the form of lower sale prices. 

Those who havc the vision and daring to enter the market and sllccessfully innovate and 

create newcr or better products than the existing suppliers are offering are stymied or 

blocked tI'om doing so in the protected sectors of the economy. They are forced to apply 

their entrepreneurial drive in less-profitable directions or are dissuaded by the political 

restrictions from even attcmpting to do so. Thc product improvcmcnts they \VOldd have 

supplied to the consuming public remain invisible "might-have-beens" lost to society. 

Furthermore. as fricdrich A. Hayek especially emphasized. market competition is the 

grc:at discovery procedure through which it is determillc:d who can produce the better 

product with the most desired features and qualities and at the lowest possible price at 

any given time.'" It is the peaceI'll I market method through which each participant in the 

social system of division of labor finds his most highly valued use as judged by the 

relative pattern and intensity of consumer demand for the various goods supplied. 

Competition's dynamie quality is that it is a never-ending process. In the arena of 

exchange. every day offers new 0ppoliunities and allows entrepreneurs and innovators to 

create new opportunities that they are free to test on the market in terms of possible 

profitability. 

Every political restriction or barrier placed in the way of competition. therefore. closes 

the door on some potential creativity. risk-taking. and entrepreneurial discovery of more 

efficient and rational uses of men, materials, and money in the interdependent and 

mutually beneficial relationships ofmarkct specialization and cooperation. The choice is 

always bctwcenl1larket freedom and political constraint, between the competitive process 

and governmentally created monopoly. 

This general argument in favor of market competition and against politically provided 

monopoly is no less valid in the arena of money and banking. The participants in the 

market may choose money they lind most advantageous to lise. or gov.ornment can 

impose the use of a medium of exchange on society and monopolize control over its 

supply and value. The benefit from market-chosen money is that it reflects the 

preferences and uses of the exchange participants themselves. Participanls in tile market 

process will sort out which commodities offer those qualities and characteristics most 

useful and convenient in a medium of exchange. As the Austrian economists persuasively 

dcmonstrated. while money is onc of those social institutions that are .. the results of 

human action but 110t of human design." it nonetheless remains the spontaneous 

composite outcome of multitudes of individual choices (i-eely made by buying and selling 

in the marketplace. 

The alternative is what the American economist Francis A. Walker referred to in 1887 as 

"political money:' Political money is one that the government determines shall be llsed as 

money and whlOse supply "is made to depend upon law 0[' the will of the ruler." lie 

warned that under the best of circumstances the sliccessful management of a government8 
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c()ntrolled n1llney would "depend upon an exercise of prudence. virtue and self-controL 

beyond what is reasonably and 1~lirly to be expected of men in masses. and of rulers and 

legislators as we find them." Governments \vould. in the long run. always be tempted to 

abuse the printing press for various political reasons." 

But besides the dangers of poJiticalmiscilieC the filet is that the government monetary 

monopoly prevents the market from easily discovering whether. over time. market 

patiicipants would find it more advantageous to use some particular commodity or 

several alternative commodities as diflerent types of media of exchange to serve 

changing and differing purposes. The "optimal" supply ofrnoney becomes an arbitrary 

decision by the central monetary monopoly authority rather than the more natural market 

result of the interactions between market dcmanders desiring (0 lISC money for various 

purposes and market suppliers supplying the amount of commodity money that reflects 

the profitability of mining various metals and minting them into money-usable forms. 

But commodity money. as history has shown. has its inconveniences in everyday 

transactions in the market. There are benefits from financial depositories for purposes of 

safety and lowering the costs of facilitating transactions. But what type of financial and 

banking institutions would market participants find most useful and desirable under a 

regime of money and banking ti'eedom') The answer is that we don't know at this time 

precisely because government has monopolized the supplying of money; and it imposes. 

through various state and federal regulations. an institutional straitjacket that prevents the 

discovery of the actual and full array of preferences and possibilities that a free market in 

monetary institutions might be able to provide and develop over time. 

The increasing globalization of commerce, trade. and financial intermediation during the 

last several decades has certainly demonstrated that there is a far greater range of 

possibilities that market suppliers of these services could provide and for which there are 

clear and profitable market demands than traditionally thought 20 or 30 years ago. But 

even in this more vibrant global competitive environment it remains the case that 

\~hatever options havc begun tG emerge has done so in a restrictive climate of national 

and international governmental regulations. agreements. and constraints. 

Suppose that monetary and banking li'ecdom were established.'" What type of banking 

system would then come into cxistenee'} Some advocates of monelary freedom have 

insisted that a free banking system should be based on a 100 percent commodity money 

reserve. Others have argued thal a n·cc banking system would be based Oil a form of 

fi'aclional-reserve banking. with the competitive nature of the banking structure serving 

as the check and balance on any excessive note isslle by individual banks. 

Until monetary and banking freedom is established. we have no way of knowing which 

of the two alternatives would he the most preferred. This is for the simple reason that 

under the present government-managed and government-planned monetary and banking 

system. market competition is not allo\\ed to demonstrate which options suppliers of 

financial intermediation might find it profitable (0 offer and which options users of 

9 
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money and financial institutiolls would decide are the ones best fitting their needs and 

preferenccs. 

Given the diversity in people's tastes and preferences. the differing degrees of risk people 

are willing to bear for a promised interest return on their money. and the variety of 

market situations in which different types of monetary and financial instruments might be 

most useful for certain domestic and international transactions. it probably would be the 

case that a spectrum oftinaneial institutions would come into existence side by side. At 

one end of this spectrum would be 100 percent reserve banks that guaranteed complete 

and immediate redemption of all commodity money deposits. even if every depositor 

were to appear at that bank within a very short period of time. 

Along the rest of the spectrum would be various fractional-reserve banks at which lower 

or no lecs would be charged lil!' serving as a warchollsing flleility fbr deposited 

commodity money. Their checking accounts might offer different interest payments 

depcnding on the fractional-reserve basis 011 which they were issued and on the degree of 

risk or uncertainty concerning the banks' ability to redecm all deposits immediately under 

exceptional circumstances. 

Some banks might otTer both types: they might issue some bank notes and checking 

accollnt.s that were guaranteed to be 100 percent redeemable on the basis or commodity 

money deposited against them; and they might issue other bank notes and checking 

accounts that. under exceptional circllmstances. were not 100 percent redeemable. 

And these banks might otTer "option clauses" stipulating that if any designated notes or 

checking accounts were not redeemed on demand for some limited period of time. the 

note and account holder would receive a compensating rate of interest for the 

inconvenience and cost to himself. 

Whether most banks \'iOuld be closer to the 100 percent reserve end of this spectrum or 

farther from it is not - and cannot be - known until the monetary and banking system is 

set free fi'om government regulation, planning, and control. As long as the government 

remains as the monetary monopolist. there is just no way to know all the possibilities that 

the market could or would generate. Indeed. for all \ve know, the market might devise 

and evolve a monetary and banking system different from that conceived even by the 

most imaginative free-banking advneatcs. 

Competition is thwarted by government monopoly money. and the creative possibilities 

that only free competition can discover remain invisible "might- have-beens." How then 

can the existing system be moved towards a regime ofmondary and banking freedom? 

For a System of Monetary and Banking Freedom 

The great tragedy of the t\\cntieth century was the arrogant and futile belief that man can 

master. control. and plan society. i'vlan has fbund it difficult to accept that his mind is too 

finite to know enough to organize and direct his overall social surroundings according to 

10 
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an ov<:ran:hillg design. The f~1Il1OUS Am.:ricanjournalist. Walter Lippmann. neatly 

explained the nature of this problem in his 1937 book . .'111 fnquirv imo the Principles of 

the Good Sociely: 

The thinker. as he sits in his study drawing his plans j()t' the direction of 

society. will do no thinking ifhis breakfast has not been produced for him 

by a social process that is beyond his detailed comprehension. He knows 

that his breakfast depends upon workers 011 the coffee plantations of 

Brazil. the citrus groves of Florida. the sugar fields of Cuba. the wheat 

farms of the Dakotas. the dairies of New York: that it has been assembled 

by ships. railroads. and trucks. has been cooked with coal Ii'om 

Pennsylvania in utensils made ofaluminul1l. china. steel. and glass. But 

the intricacy of one brcakj~lst. if every process that brought it to the table 

had deliberately to be planned, would be beyond the understanding of any 

mind. Only because he can count upon an infinitcly complex system of 

\\urking routines can a man cat his breakfast and then think about a new 

social order. The things he can think about arc few compared with those 

that he must presuppose .... Of the little he has learned. he can. moreover. 

at anyone time comprehend only a part and ofthat part he can attend only 

to a fragmcnt. The essential limitation. therefore. of all policy, of all 

government. is that the human mind mllst take a partial and simplified 

vicw of existence. The ocean of experience cannot be poured into the 

bottles of his intelligence .... Men deceive themselves when they imagine 

that they can take charge of the sllcial order. They can never do more than 

break in at some point and cause a diversion."" 

Money is one of those institutions that owes its origin and early development to social 

proccsses beyond what individual minds could havc fully anticipated or 

comprehended.""! But money's evolution has been constantly "diverted" from what 

would have becn its markel-determined course by governments and political amhorities 

that saw in its control an ability to plunder the wealth of entire popUlations. 

Debasement and depreciation ofmcdia of exchange through monetary manipulation has 

been the hallmark of recorded history. To prevent slich abuses and their deleterious 

effects. advocates of freedom suppolicd the gold standard to impose an external check on 

monetary expansion. Paper money was to be "convetiible." redeemable on demand to 

banknote and checking account holders at a fixed ratio of redemption. 

But even this limit Oil government-managed money was eliminated in the twentieth 

century by the hubris of the central-planning mentality, under which moncy. too, was to 

bc completely under the control orthc monctary central planners as part of the vision of 

designing and directing the economic affairs of society. 

Monetary central planning is one of the last vestiges of generally accepted out-and-out 

socialist central planning in the world. The fact is that even if monetary policy could 

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somehow be shielded from the pressures and pulls of ideological and special-interest 

politics, there is no way to successfully centrally manage the monetary system. 

Government can no 1110re correctly plan f'Or the "optimal" quantity or money or the 

properly "stabilized" general scale of prices than it can properly plan for the optimal 

supply and pricing of shoes, cigars. soap. or scissors. 

The best monetary policy, therefore. is no monetary policy at all. The advocate of the free 

market believes that ending all trade restrictions or harriers and permitting free trade 

would eliminate the need for foreign trade policies. 

He also believes that the need for domestic regulatory policies would he eliminated hy 

aholishing the regulatory agencies and repealing the antitrustluws and simply permitting 

market-guided competition and exchange. 

And logically the need for monetary policy would be eliminated by abolishing 

government monopoly control and regulation over the monetary and banking system. 

As Austrian economist Hans Sennholz once concisely expressed it, 

We seek no reform law, no restoration law, no conversion or parity. no 

government cooperation: merely freedom .... In freedom. the mOlley and 

banking industry can create sOllnd and honest currencies. just as other free 

industries can provide efficient and reliable products. Freedom of money 

and freedom of banking, these arc the prineiples that must guide our 

steps. ,,, 

An Agenda for Monetary Freedom 

So what steps might be undertaken to move the American eeonomy in the direction of 

establishing a regime or monetary freedom? At a minimum. they should include the 

following: 

I. The repeal of the Federal Reserve Act of 1913. and all complementary 

and related legislation giving the tCderal government authority and control 

over the monetary and banking system. 

2. The repeal of legal-tender laws. that gives government power to specify 

the medium through which all debts and other financial obligations, publie 

and private. may be settled. Individuals, in their domestic and foreign 

transaetions, would determine through contract the fl)rm of payment they 

mutually found most satisfactory f()!' fulfilling all financial obligations and 

responsibilities into which they entered. 

3. Repeal all restrictions and regulations Oil the fi'ee entry into the banking 

business and in the practiee of interstate banking. 

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4. Repeal all restrictions on the right PI' private banks tp issue their OWI1 

bank notes and to open accounts denominated in foreign currencies or in 

weights of gold and silver. 

5. Repeal of all federal and state government rules, laws. and regulations 

concerning bank-reserve requirements, interest rates, and capital 

requirements. 

6. Aholish the Federal Deposillnsurance Corporation. Any deposit 

insurance arrangements and agreements between banks and their 

customers and between associations or banks would be private. voluntary. 

and market-based. 

In the absence of government regulation and monopoly controL a free monetary and 

banking system would exist: it would not have to be created. designed, or supported. A 

market-based system would naturally emerge. lake Conn, and develop out of the prior 

system of monetary central planning. 

What would be its shape and structure over time'? What innovations and variety of 

services would a nctv,ork of frec, private banks offer to the public over time? What set of 

market-determined commodities might be selected as the most convenient and useful 

media of exchange? What lypes of money substitutes would be supplied and demanded in 

a tI-cc-markct \vorld of commerce and finance? Would many or most banks operate 011 the 

basis of fractional or 100% reserves') 

There are no definite answers to these questions, nor can there be. It is deceptive to 

believe. as Walter Lippmann explained, that we could comprehend and anticipate all the 

outcomes that will arise li'om all the market interactions and discovered opportunities that 

the complex processes or the free society would generate. It is why liberty is so 

important It allows for the possibilities that can only emerge if freedom prevails. It's why 

monetary freedom, too. must be 011 the agenda for economic liberly in this new twentyfirst century. 

End Notes: 

1 Ludwig von Mises, "The Gold Problem." [1965 J in Planning/c)r Freedom (South 

Holland. III: Libertarian Press. 1980): see. also, Richard M. Ebeling, Austrian Economics 

and Jhe l'olilical Economy of'Freedom (i'\orthampton. 1,\,IA: Edward Elgar. 2(03), 

Chapter 5: "Lud\-vig von Mises and the Gold Standard." Pl'. 136-158, 

ii On the American Continental Notes. the french Revolutionary Assignats. and the 

Greenbacks and Confederate currency during the American Civil War. see, J. l.aurence 

Laughlin. A New Exposition of'Mol1ey, Credit and Prices, Vol. II (Chicago: University of 

13 
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76124.016

Chicago Press, 1931), pp. 147-185 & 302-341; Edwin W. Kemmerer. Money (New York: 

MacMillan, 1935) pp. 173-197 & 230-270: and. Richard M. Ebeling, "Inflation and 

Controls in Revolutionary France: The Political Economy of the French Revolution:' in 

Stephen Tonsor, ed., Reflections on the French Revolution (Washington, D.C.: Regnary 

Gateway. 1990) pp. 138-156: and Richard M. Ebeling. "The Great French Inflation:' Thc 

Pi'ceman: Ideas on Liberty (JulyIAugust, 2007) pp. 2-3. 

iii John Stuart Mill, Principles o/Political Ecol1omy. with Some Applications to Social 

Philosophy (Fairfield. N.J.: Augustus M. Kelley, [1871 J 1976) pp. 544-546, 

iv For a brief history of the great inflations during and after the First World War, and 

especially in Genllany and Austria in the early 1920s. sec, Richard M. Ebeling, "The 

Lasting Legacy of World War I: Big Government. Paper Money. and Intlation" 

Economic Educatiol1 Bulletin. Vol. XLVII]. No. 11 Great Barrington, MA: American 

Institute for Economic Research, November 2008): and 011 the hyperinflation in China 

during the 1930s and I 940s. see, Richard M. Ebeling. "The Great Chinese Intlation." The 

Pi'eeman: Ideas on Liberty (December 2004). pp. 2-3. 

v Murray N. Rothbard. What Has Gowrnment DOlle to Our iv/oney? (Auburn, AL: 

Ludwig von Mises Institute. 1990) p. 23-24. 

vi Wilhelm Roepke, International Order and Economic Integration (Dordreeht. Holland: 

D. Reidel Publishing, 1959) p. 75. 

vii Ibid .. pp. 76-77. 

viil Adam Smith. An Inquil:v into Ihe Nature and Causes oIthe Wealth olNalions (New 

York: New Modern Library, [17761 1937). Book IV, Chapter II, p. 423. 

ix Gustav Stolper, This Age o/Fable in the Political and Economic IYorld (New York: 

Reynal & Hitchcoek, 1942), p. 42. 

x For an analysis of the Federal Reserve policy in the I 920s, and the contrasting 

interpretations on the causes and cures fi)!' the Great Depression given by the Austrian 

Economists and the Keynesians, see, Richard M. Ebeling, Political Economy. Pllblic 

Pol h)'. (lnd lvlonetarv Econoillics: Ludlt'ig von /wises and the Austrian Tradition 

(London/New York: Routledge. 20 I 0), Chapter 7: "The Austrian Economists and the 

Keynesian Revolution: The Great Depression and the Economics of the Short-Run." pp. 

203-272. 

xi On the "stagllation" of the 1970s. see. Gottfried Haberler. l/1e Problem o/Stagjlaliol1. 

Rejlections on the Microjinmdation o/Macroecol1omic Theorj' and Policy (Washington. 

D.C.: American Enterprise Institute, 1985). 

xii Sec. Richard Ebeling. "The Hubris of Central Bankers and the Ghosts of Det1ation 

Past," In Dcfense o/Capilalism & HUlllall Progress blog (July 5. 2010), 

http://b logs.northwood .edu/indefenseo t'capita I i sm/20 1 0/07/05ithe-hubris-of-centra 1-

ban kers-and-the-ghosts-o f-deflation-past -byl 

xiii On the current economic crisis, see my testimony before the House of Representatives 

Subcommittee on Domestic Monetary Policy and Technology delivered on May 11, 

2011: Richard M. Ebeling, "Monetary Policy, the Federal Reserve. and the National Debt 

Problem:' 111 De/elise olCapitalism & lfuman Progress blog (May 11,2011), 

http://blogs.northwood.edu/indefenseot'capital ism/20 11105/. 

14 
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76124.017

.XlV F. A. Ilayek. "Competition as a Discovery Procedure:' [1969 J in .'Vew Siudies in 

Philosophy. Polilics. Economics and the HislO/~v olIdeas (Chicago: l:niversity of 

Chicago Press. 1978) pp. 179-190. 

xv Francis A. Walker. Political Economy (New York: Henry Holt. 1887) p. 352. After the 

last one hundred years of even further monetary mischief and abuse than those in the 

nineteenth century had learned from. Walker's further comment is more peliinent today 

than ,vhen he wrote it. p. 353: "The man who advocates governmcnt issues [of paper 

moncy]. without being prepared to sho\\ reasonahle ground for believing that they will 

not be so abused as to accomplish more evil than of benefit, is not entitled to be listened 

to. After the experiences of the last hundred years intelligent men rightly refuse to take 

the trouble even to discLlss political schemes that assume an impossible virtue, or which 

disregard the actual conditions under which alone they could bc sct to work." 

xv, The literature on the potential. nature and workings of a private. competitive banking 

system with complete monetary freedom is large. Among the important works are: 

Ludwig von .'vlises. "Monetary Stabilization and Cyclical Policy r 1928] in On the 

l'v/ol1ipulation olAtoney and Credit (Indianapolis. IN: Liberty Fund, 20 I 0); Mises. 

Human Action: A li'eatise 0/1 Ecol1omics (Chicago: Henry Regnary. revised cd .. 

1966). pp. 440-448; Mises. The TheOl:)! olMoney and Credil (Indianapolis. IN: Liberty 

Fund. [19531 1981) pp. 434-438; Vera Smith. The Ralional ol( 'enlml Banking and the 

Free Banking Alternative (Indianapolis. IN: Libeliy Fund. [19361 1990); F. A. Hayek. 

"Denationalization of Money: An Analysis of the Theory and Practice of Concurrcnt 

Currencies." [1978] in Stephen Kresge. cd .. The Collected Works ol F. A. Hayek, Vol. 6: 

Good Money, Part 11 (Chicago: University of Chicago Press, 1999) pp. 128-229; 

Lawrence H. White. Free Banking in Britain: Theory. Evidence. lind Debale, 1800-18.J5 

(Cambridge: Cambridge University Press. 1984); White, Competition lind Currency: 

Essavs on Free Banking (New York: New York University Press. 1989); White, Thc 

Them), oj'Afol1etar1' Institulions (Wiley-BlackvvelL 1999): George A. Selgin, 7711' Theory 

olfi'ee Banking: Money Supply Under Competitive Note il'evue (Totowa. N.J.: Rowman 

& LittlefIeld. 1988): Selgin. Bank Deregulation and :vtonel(l/~)! Order (New York: 

Routledge. 1996); Kevin Dowd. Primte Mone)': The Path to Monetary Stability (London: 

Institute of Economic Affairs. 1988): Dowd. 1771' Slate and the Monetmy S)lslel71 (New 

York: St. Martin's Press. 1989): Dowd. Laisse:::-Faire Banking (New York: Routledge. 

1993): Kevin Dowd. cd .. The Eyperience olFree Banking (New York Routledge, 1993): 

Steven Horwitz. Monet(flT Emlution Free flanking lind T:col1omic Order (Boulder, CO: 

Westview Press, 1(92): Murray N. Rothbard, The Case.fcH' a lOO Percent Dol/ar 

(Auburn. AL: Ludwig von Mises Institute. 1991); Mark Skousen. Economics ola Pure 

Gold Standard (Auburn, AL: Ludwig von Mises Institute. 1988). 

xvii Walter Lippmann. An Inquiry into the Principles otthe Good Society (Boston: Little, 

Brown. 1937) pp. 30 & 32. 

XVII' Carl Menger. "On the Origin of Money:' [1892] in Richard M. Ebeling. ed .. Austrian 

Economics: A Reader (Hillsdale. MI: Hillsdale College Press. 1910) pp. 483-504. 

xix Hans Sennholz, Money {[nd Freedom (Cedar Fall. Ii\: Center for Futures Education. 

1985) pp. 77 & 83. 

15 
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76124.018

Date: August 2,d, 2012 

Author: Robert J Gray, Executive Director of the American Open Currency Standard 

Re: Testimony before the Subcommittee on Domestic Monetary Policy & Technology 

Mr. Chairman and Members of the Committee, 

My name is Rob Gray and I was asked to testify today on the theory of competing 

currencies, and the practical challenges that make such a theory difficult or 

impossible to implement. 

For nearly 5 years now, I've successfully directed the American Open Currency 

Standard - the standard for private voluntary and complementary currencies that 

compete against each other, not against the US dollar. Allow me to clarify: we do 

not consider AOCS Approved medallions produced and traded in our private barter 

marketplace 'competition' to the US Federal Reserve Note. Because "fair 

competition", as one would find in the "free market", assumes the existence of a 

level playing field, the existence of a standard set of rules. Those players who wish 

to compete honestly do so by relying simply on the merit of the value they bring to 

the market. 

No fair challenge can be made between honest men and thieves. Let me be clear 

that when I say thieves: I refer to the current private central bank and the men in 

government who allow it to exist. 

Rob Gray, August 2ml 2012 - Testimony before the Domestic Monetary Policy Subcommittee Page 1 
42 


76124.019

This brings us to a critical point: according to your Employee Handbook, Article 1, 

Section 8 says: "The Congress shall have the Power ... To coin Money, regulate the 

Value thereof ... ". For anyone who has been a manager or business owner, it is not 

uncommon to find that you may have an employee who may choose to not do the 

work that is delegated to them, or even that they simply do it very badly. When 

such a time comes it is necessary for the manager or owner to step in and do the 

work themselves. I would argue that since 1913, Congress has failed to do the job 

with which it had been tasked. We the people are now bypassing you and are no 

longer waiting for you to make it right. It is far better to simply walk away from 

the system. We are walking away from toxic thoughts, relationships, investments 

and careers. We are taking the hard intellectual journey to rid ourselves of the 

indoctrination that keeps us in this system. We are realizing the power we have in 

ourselves and the everyday choices that we make to either empower some soulless 

collective or our own families. We are realizing that we simply need to withdraw our 

time, energy, and money from banks, politicians and corporations that do not serve 

our interests. 

In the time since our inception, the American Open Currency Standard has enjoyed 

nearly five years of growth and success in our mission of issuing a means that 

allows valuable exchanges among men who produce. In the next five years, we 

expect to expand our offerings and to increase our ability to keep up with the 

demand for our private currency. We are doing the job Congress would not. 

Rob Gray, August 2'" 2012 - Testimony before the Domestic Monetary Policy Subcommittee Page 2 
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76124.020

The use of community currencies here in the US became popular back in the early 

1930's. You see, at the time, the theory was that a group of the world's most 

powerful men, many of them international bankers, were intentionally and 

systematically removing currency from circulation, creating an artificial scarcity of 

money across America. Small cities and towns felt it worse than anyone. But life did 

go on. 

Then, during the greatest economic depression this country had ever seen, 

individuals across this country developed their own mediums of exchange. They still 

needed things - food, clothing, daily essentials - they still needed to live, and they 

didn't have time to wait for the government to fix the problem, and they certainly 

weren't going to rely on the same bankers that caused the crash to offer solutions. 

And so, according to historical records, thousands of community currencies were 

created, circulated and traded in places where the scarcity of dollars was interfering 

with the human desire to live, and the market's desire to trade. And since their 

elected employees were not doing the job for which they were hired, these 

individuals took it upon themselves to secure the means to their own survival and 

potential prosperity. 

More recently, community currencies have sprung up across Europe as the Euro 

and national fiat currencies become increasingly unavailable and undependable. 

Today, communities all across the Eurozone trade their own money instead of the 

Euro. 

Rob Gray, August 2"d 2012 - Testimony before the Domestic Monetary Policy Subcommittee Page 3 
44 


76124.021

Community currencies are not simply a good idea in theory; they are necessary, 

alive, and true examples of the free market's unwillingness to be artificially 

manipulated. Right now alternative and complementary currencies circulate widely 

across this country and in many different forms: Ithaca, New York uses a local fiat 

currency based loosely on the value of time; Berkshire, Massachusetts uses a fiatbacked fiat system, while many more communities circulate gold, silver and copper 

AGCS Approved barter tokens as a medium of exchange. How they are issued, 

accepted, accounted for and reported varies widely, as the participants and 

procedures are as different as the markets they serve. 

As for practical issues to overcome in the issuance and circulation of 

complementary currencies, there are plenty. In a voluntary system, those that 

participate in the trading of private currencies must deal with the possibility of 

counterfeiting, fraud, scarcity, acceptance, accounting, storage and other issues, all 

without the luxury of big brother holding a gun to anyone's head to ensure their 

success. 

Even with all the risks, the market moves on. As in any free market, good ideas 

circulate with success, and bad ones eventually fade away. Participants voluntarily 

choose to accept and circulate the highest quality and most valuable currencies in 

exchange for their best production. Merchants accept complementary currencies 

based on the premise that someone else is willing to do the same later. Issues arise 

and are worked out by the market with only one light to guide them: the mutual 

Rob Gray, August 2"d 2012 - Testimony before the Domestic Monetary Policy Subcommittee Page 4 
45 


76124.022

exchange of value. No guns, no laws, no force: just the willingness to think outside 

the box and act on principle. 

Complementary currencies are not new, in theory or in practice. Further, private 

currencies circulated long before governments erected themselves to interfere. 

What's new, however, is the public's apathy towards you and your policies. You've 

managed for the last hundred years somehow to convince the citizenry that you're 

relevant. Now, just recently, we're beginning to see the tides change on this. And 

once it catches on, you'll be rendered completely obsolete. 

The greatest hurdle you will face over the next few years is trying to convince "we, 

the people" that you are still necessary in spite of your failures to get the job done. 

Sure, some will continue to rely on you for hand-outs; it's what they've known their 

entire lives and they will be slaves right up and to the point of their own 

destruction. They don't know any better and I don't blame them for their ignorance. 

But as you continue to squeeze the life out of the middle class, watch out for their 

greatest weapon: apathy. They may not be ready to admit it, but soon they'll turn 

their backs on you and never believe another lie - the lie that you are willing and 

able to do the job for which you were hired. In the future you will not have to 

worry about million man marches or citizen journalists trying to catch you on 

camera. What you need to fear is no one paying attention to you. The next 

American revolution will not be fought with bullets and bombs; it will be won with 

the opposite consciousness. 

Rob Gray, August 2m' 2012 - Testimony before the Domestic Monetary Policy Subcommittee Page 5 
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76124.023

"It is well enough that people of the nation do not understand our banking and 

monetary system, for if they did, I believe there would be a revolution before 

tomorrow morning." ~Henry Ford 

To that end, I'm here today to propose a solution. My understanding of this 

subcommittee is that you desire to be part of the solution. You want to believe 

you're doing something good for the country. Today, the greatest gift you can offer 

to the people you clearly represent is to introduce, not to the legislature but directly 

to the public, what I call IR 1207 - Individual Resolution 1207 - commonly referred 

to as 'Ignore the Fed'. Store your wealth in silver. Bank with a non-fractional bank 

that pays real money on deposits. Use the card services network to satisfy dollar 

obligations. Do not try to compete with the federal reserve system: ignore them. 

This country has succeeded in doing away with two central banks already over the 

course of its history - it is learning to do the same again. 

Congressman Paul: on July 13, 2011, you asked Federal Reserve Chairman, Ben 

Bernanke, a question: 'Is gold money?' I ask that same question of you here today: 

is gold money? Is silver money' They most certainly are not. At least not by the 

current definition as handed down by Congress' money-issuing surrogate, the 

Federal Reserve. And that's just fine. 

I respectfully petition you, sir, to seriously reconsider your position on this matter. 

The government has perverted the word money. My wife is a nutritionist, and she 

tells people, 'If your grandparents wouldn't recognize it as food, don't eat it.' I 

Rob Gray, August 2"' 2012 - Testimony before the Domestic Monetary Policy Subcommittee Page 6 
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76124.024

suggest to you that if your great-grandparents wouldn't recognize it as money, 

don't accept or spend it. 

A great philosopher once said "When destroyers appear among men, they start by 

destroying money, ",," Today, conventional wisdom tells us that money is a 

worthless pile of paper. And for the last 100 years Congress has for a third time 

(again) shunned its responsibility when it comes to issuing money. Since the 

creation of the Federal Reserve and Congress' abdication of their responsibility, the 

dollar has lost 98% of its value. I don't suspect anyone would call that stellar job 

performance. I must be blunt and say that, as employees, Congress, you have not 

been successful in your charge to "".coin money and regulate the value thereof"." 

and therefore your services in this area are no longer needed. It is sad that even 

the men and women in this chamber either do not understand the system they 

serve or are so dependent upon the system's favors that they dare not speak in 

opposition to it. 

"It is difficult to get a man to understand something, when his salary depends 

upon his not understanding it!" ~Upton Sinclair 

I ask you to leave the Fed their money and leave the people our silver, gold and 

copper. Do not push to redefine whatever representations we choose for our wealth 

as 'money'. Let the Fed do what it wants with their 'money', so long as they leave 

us alone. I warn you: 'honest money legislation' is a wolf in sheep's clothing. The 

Rob Gray, August 2"d 2012 - Testimony before the Domestic Monetary Policy Subcommittee Page 7 
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record of Congress over time has proven that it will make a miserable failure of this 

aspect of human survival as it has so many others. 

The greatest thing this Congress can do is exactly what you've done so far: 

nothing. 

"The nine most terrifying words in the English language are, ''I'm from the 

government and I'm here to help." Ronald Reagan. 

I will not facilitate this government to "help" understand, control and ultimately 

destroy alternative currencies. All I ask is that you stay out of our way. The people 

in our world are happy to go right along saving you from your own destruction by 

producing value against all the odds, regulations, codes, and challenges thrown our 

way. But leave our money alone. It doesn't belong to you, and it never will. 

If you really want to help, I would recommend that instead of trying to DO 

something, you could start by undoing some things. But that list is far too long for 

me to get into here today and as a responsible employer, I'll allow you some room 

for creativity. 

One last thing I would like to leave you all to ponder ... 

How is it possible for every single person in the world to be in debt with credit card 

debt, student debt, consumer debt, auto debt, and mortgages? 

Rob Gray, August 2,d 2012 - Testimony before the Domestic Monetary Policy Subcommittee Page 8 
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How is it possible that every small business and corporation in the world is also in 

debt? 

And finally how is it possible that every single local, county, province, state and 

nation on earth is also in debt? 

Who owns the other side of that debt? 

When you understand that, maybe just maybe, something positive will come out of 

this chamber. 

The bottom line is simple: humanity is not going to wait for permission to 

survive. Things that cannot go on forever ... won't. The market will move on - with 

or without you. And, based on your rate of success to date, our preference is 

without you. 

I thank you for your attention to this matter of life and death. 

There are thousands hacking at the branches of evil to one who is striking at 

the root. -Henry David Thoreau 

Rob Gray, August 20d 2012 - Testimony before the Domestic Monetary Policy Subcommittee 
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Nathan Lewis 

nathan@newworldeconomics.com 

Nathan Lewis is the author of Gold: the Once and Future Money (2007), now available in 

five languages. He writes a weekly column for Forbes.com, and is the principal of Kiku Capital 

Management LLC. His website is: newworldeconomics.com 

Written testimony for the United States House Committee on Financial Services, 

Subcommittee on Domestic Monetary Policy and Technology, August 2,2012. 

Use of Parallel Currencies 

The phrase "parallel currencies" tends to sound rather novel and experimental to us today, 

living in the United States. However, most people in the world are using parallel currencies 

today. Many of us have found that, when traveling to some foreign countries, that shops 

and restaurants are happy to accept U.s. dollars in return for their goods and services. 

Often, people there also use U.s. dollars among themselves, in their own commerce and 

business dealings. In this case, the U.S. dollar is serving as a parallel currency, alongside the 

currency issued hy the domestic government, such as Costa Rican colon or Vietnamese 

dong. 

In such places, the U.s. dollar is used not only by sidewalk vendors, but often by the largest 

corporations in the country. Throughout Latin America, until only a few years ago, large 

corporations would typically finance their operations with loans or debt denominated in 

U.S. dollars. Indeed, the governments of these countries themselves borrowed in dollars, 

issuing dollar-denominated government bonds. After many decades of bad experience, 

nobody would buy a bond denominated in the local currency, which the government could 

devalue at a whim. Before the introduction of the Euro in 1999, German marks were 

popular throughout Europe. During the 19905, governments with a history of poor 

currency management, such as that of Greece, issued government debt denominated in 

German marks. 

It is perhaps only in the United States, and more recently in the eurozone, that people are 

not already accustomed to using a variety of currencies in their daily business and 

commerce. Large U.S. corporations regularly do business in a variety of currencies, and 

investors commonly buy or sell foreign stocks or bonds using foreign currencies. For most 

of us, however, we have no reason to use the Ukrainian hryvna in our daily affairs. We 

would much rather use dollars. 

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Ukrainians, at some points in their history, have also preferred to use U.S. dollars. Why is 

that? It is because the dollar has consistently been one of the best-managed, highest-quality 

currencies in the world. For 182 years, from the founding of the United States in 1789 to 

1971, the United States government adhered to the principle of a gold standard for the 

dollar, even if, in practice, it deviated from that ideal from time to time. The United States 

was following the example demonstrated by the best European governments, especially 

Britain, whose gold standard system can be traced to 1698. 

However, during the 20th century, those European governments made a mess of things 

numerous times, and their currencies became unreliable. The British pound, like most of 

the currencies of Europe, became a floating currency at the onset of World War I, and soon 

depreciated in value. People didn't even know if France or Britain would exist after the war. 

In the early 1920s, more European currencies became unreliable, with the hyperinflation of 

the German mark perhaps the best remembered example. By 1926, Europe had mostly 

reconstructed the world gold standard system that existed before the war, just in time for 

the chaos of the Great Depression. During the Great DepreSSion, currencies everywhere 

were devalued, led by Britain in 1931. Also, we tend to forget today that several European 

governments also defaulted on their sovereign debt during the 1930s, including Austria, 

Germany, Greece, Hungary, Poland, Romania and Turkey. 

By the end of World War II, the U.S. dollar, which had been considered an emerging-market 

currency in 1900, had proved to be the most reliable currency in the world. It thus became 

the parallel currency of choice worldwide, and U.S. tourists in the 1950s found that they 

could spend their dollars throughout Europe. The British pound still had some fans, but 

after a devaluation in 1949 and again in 1967, few people were willing to give Britain any 

more chances. 

In 1971, the United States abandoned its then nearly two-century-old commitment to the 

gold standard system. At this point, historically, currencies were often discarded for 

whatever the highest-quality, most reliable alternative was, which in practice meant a gold 

standard currency from a large developed country. However, a consequence of the U.S.'s 

abandonment of the gold standard in 1971, due to the nature of the Bretton Woods system, 

was that other governments' currencies left gold too. There was no gold standard 

alternative in the world. 

Since 1971, the value of the U.S. dollar has fallen from 1/35th of an ounce of gold to about 

1/1600th of an ounce today. The dollar today is worth only 1/46th of its value during the 

Kennedy administration. As bad as this is, the alternatives have been even worse. This is 

why the U.S. dollar remains the most popular currency in the world, and serves as a parallel 

currency in many, ifnot most, countries today. 

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Value of $1000 In Gold oz. 1700-2008 

100 

~ <> 

0. 10 

0 

" -0 

1.0 

1700 1750 1800 1850 1900 1950 2000 

After several centuries of stability, the dollar became ajloating fiat currency in 1971. Since 

then, it has fallen to about 1/46th of its prior value. The decline in the 1780s represents the 

hyperinjlation of the Continental dollar. 

Use of parallel currencies in the U.S. today 

Today, there are no particularly onerous barriers against using a parallel currency in the 

United States. People are free to do business in euras or Russian rubles if they choose to. It 

would be easier if there were no tax consequences from this, such as a capital gains tax. 

This is the case in Switzerland or liong Kong, where people can do business in the currency 

of their choice without tax issues. At least one country, Zimbabwe, has no official currency, 

but rather a formal multi-currency policy where people can do business using any currency 

the like. In practice, this has turned out to be primarily U.s. dollars, with some use of South 

African rands. 

liistorically the preferred currency of business, in any country, is one based on a gold 

standard system. British pounds, and later U.S. dollars, became the preferred parallel 

currency throughout the world for this reason. It was the currency people chose to use 

instead of their own government's fiat junk. 

Some people today, including myself, think that the United States should return to the 

monetary prinCiples of the country's first 182 years - in other words, a gold standard 

system. However, that idea remains contentious, particularly among those who believe that 

a currency should be used as a tool for economic manipulation. Our present chief currency 

manager, Benjamin Bernanke, spent his academic career arguing for the merits of 

economic manipulation via currency manipulation. A gold standard system would prevent 

such things. 

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However, even among academics who share Mr, Bernanke's viewpoints, the idea of letting 

people choose whatever currency suits them best remains a popular one. The concept of 

parallel currencies, including those based on gold, within the United States seems to be 

relatively uncontroversial among the economic mainstream, 

Today, there are over 150 currencies in the world, all of which could conceivably be used as 

parallel currencies within the United States or other countries, However, all of them are 

floating fiat currencies, generally of lower quality than the U,S. dollar or euro, There is 

hardly any reason to introduce another, Thus, the most meaningful new parallel currency 

to be introduced, in the U.S. or in another country, would be one based on gold. 

Difficulties of using gold- and silver-based parallel currencies in the U.S. today 

Although the use of other countries' national currencies is largely accepted in the U,S., the 

issuance of alternative currencies within the U.S. can run afoul of what are collectively 

known as "legal tender laws," both de jure and de iacto, Beginning in 1998, private 

businessman, Bernard von NotHaus, issued a system of coinage and paper bills called 

Liberty Dollars that represented warehouse receipts for gold and silver bullion. The notes 

and coins bore no resemblance Federal Reserve Notes or U.S. Mint coins. About 250,000 

people apparently participated in the system. Although other alternative currencies have 

existed, such as "Phoenix dollars," Baltimore's "BNote," "BerkShares," "Ithaca Hours," and 

"bitcoin," this was apparently the only such system based on gold and silver. 

Liber~y Dollar notes and coins. 

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In 2006, the U.S. Mint issued a press release stating that the U.S. Justice Department had 

determined that using Liberty Dollars was a Federal crime. The press release stated: 

Under 18 U.s.c. § 486, it is a Federal crime to pass, or attempt to pass, any coins of 

gold or silver intended for use as current money except as authorized by law .... 

NORFED's "Liberty Dollar" medallions are specifically marketed to be used as 

current money in order to limit reliance on, and to compete with the circulating 

coinage of the United States. Consequently, prosecutors with the United States 

Department of Justice have concluded that the use of NORFED's "Liberty Dollar" 

medallions violates 18 U.s.c. § 486, and is a crime. 

In 2007, the Federal Bureau of Investigation (FBI) raided the warehouse used by the 

Liberty Dollar system at the Sunshine Mint in Coeur D'Alene, Idaho, confiscating a reported 

$7 million of gold and silver bullion. The seizure warrant was for money laundering, mail 

fraud, wire fraud, counterfeiting, and conspiracy. 

In 2009, von NotHaus was arrested and charged with: one count of conspiracy to possess 

and sell coins in resemblance and similitude of coins of a denomination higher than five 

cents, and silver coins in resemblance of genuine coins of the United States in 

denominations of five dollars and greater, in violation of 18 U.s.C. § 485, 18 u.s.c. § 486, 

and 18 u.s.c. § 371; one count of mail fraud in violation of 18 U.S.c. § 1341 and 18 u.s.c. § 

2; one count of selling, and possessing with intent to defraud, coins of resemblance and 

similitude of United States coins in denominations of five cents and higher, in violation of 

18 usc. § 485 and 18 U.s.c. § 2; and one count of uttering, passing, and attempting to utter 

and pass, silver coins in resemblance of genuine U.S. coins in denominations of five dollars 

or greater, in violation of 18 U.s.c. § 486 and 18 U.s.c. § 2. 

In 2011, von Notl-laus was convicted on several counts, and faced up to 15 years of jail time. 

In 2011. von NotHaus was labeled a domestic terrorist by the FBI. 

Conceivably, people today could do business using gold coins produced by the U.S. Mint, 

such as the popular American Eagle gold and silver coins. However, they too would face 

unusual difficulties. Despite its long history as the foundation of monetary systems in the 

United States and elsewhere, gold today is regarded as a "collectible," and subject to a 

different system of taxation than if one were to do a similar transaction using foreign 

currencies such as euros or Canadian dollars. The capital gains tax rate on "collectibles" 

held for one year or longer is 28%, compared to 15% for stocks and bonds. 

For example, if a house were purchased using U.S. Mint gold coins, the transfer of the coins 

to the seller would be regarded as a "sale" of gold bullion for tax purposes, and subject to 

capital gains taxes. If the same transaction were done with euros, no such taxes would 

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apply. (Capital gains taxes would apply to the eventual sale of the house, and if the euros 

were converted back to dollars.) 

In addition, purchases or sales of small quantities of gold are subject to sales taxes in many 

states. California, for example, charges sales tax on bullion sales of less than $1,500. Thus, a 

businessman who wished to pay employees using a 1/10th ounce U.s. Mint gold bullion 

coin, or one-ounce U.S. Mint silver coins, may face sales taxes on his "sale" of the bullion 

coins to the employee. (No such sales taxes apply to purchases of euros.) 

Also, transactions in gold bullion are now subject to onerous surveillance, which does not 

apply to similar transactions in foreign currencies. To give an idea of the present state of 

affairs, here is some information from bullion dealer metallixdirectgold.com: 

4. COMPLIANCE WITH GOVERNMENT AGENCIES; RECORDED CONVERSATIONS. 

A. Documentation for Payment. Several states require that we obtain your driver's 

license number or other government-issued identification and a sworn statement 

from You as to the Merchandise and compliance with applicable law before we 

process any payment to You. Certain localities require completion of forms and a 

waiting period for a transaction in precious metal. If merchandise contains by 

weight or volume 50% or more of precious metal and is valued at more than $3,000, 

federal anti-money laundering laws obligate us to obtain certain completed forms 

and identity information from you before we process the transaction (such local, 

state and federal documentation, "Compliance Documents"). You agree to supply 

such Compliance Documents to us upon our request. . If You fail to provide such 

Compliance Documents to us within 5 Business Days after the date of our notice to 

You requesting such information, we have the option to terminate the proposed 

Transaction and return your Merchandise in the form in which You furnished it to 

us or in a different form in accordance with this Agreement without providing You 

with additional notices. 

Thus, in practice, the U.S. Federal Government makes a powerful effort to suppress the 

introduction and use of alternative gold- and silver-based currencies today. 

This state of affairs has become intolerable to many. In 2011, the State of Utah declared 

that it would consider U.S. Mint gold and silver coins (and monetary instruments based on 

these coins) to be legal as currency. This included the removal of all state-level taxes on 

transactions in gold and silver bullion. The Utah example has been widely followed. Twelve 

other state legislatures have had similar bills proposed 1. The Utah example could serve as a 

1 South Carolina, North Carolina, Alabama, Virginia, Tennessee, Missouri, Idaho, California, 

Colorado, Washington, Indiana and Minnesota. 

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template for similar Federal-level legislation to legalize gold and silver (and associated 

monetary instruments) as currency within the United States. 

Parallel Currencies Issued by National and State Governments 

In the last decade, some governments have taken steps to introduce gold-based parallel 

currencies, intended to circulate alongside their existing currencies, and to be used 

internationally. 

In 2002, the prime minister of Malaysia proposed the introduction of a gold dinar currency, 

for use throughout the Islamic world. In 2006, gold dinar coins (containing 4.25 grams of 

gold) were introduced by the government of the Malaysian state of Kelantan. This was 

followed by the state of Perak in 2011. The coins have been quite popular. However, the 

effort to create a usable international currency based on the gold dinar has been hindered, 

in my opinion, by the fact that small denomination banknotes and coins have not yet been 

issued. Gold coins are much too valuable (have a high denomination) to be useful in small 

daily transactions by themselves. Also, banking arrangements based on the new currency 

have apparently not been established yet. 

Malaysian gold dinar and silver dirham coins, produced by the state of Kelantan. In 2002, the 

prime minister of Malaysia stated the intent to create a gold dinar system to serve the entire 

Islamic world. 

In 2011, the Swiss Parliament began discussions on the creation of a gold franc, which 

would be issued by the Swiss national government and circulate in parallel with the 

existing Swiss franc, a floating fiat currency. The initiative is part of the "Healthy Currency" 

campaign sponsored by the conservative Swiss People's Party. 

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Governments of the Gulf States discussed common currency tentatively named the 

khaleeji, which some have speculated would be based on gold. [n August 2011, the Dubai 

Multi Commodities Center introduced a gold coin, called the khalifa, intended to serve as 

legal currency. The DMCC is in talks with the central bank of the UAE to designate the coin 

as legal tender throughout the UAE and Middle East. 

Proposed khalijl1 coio, intended to serve as legal currency the Gulf States region. 

What if the US Federal government itself issued a parallel currency, in particular one 

based on a gold standard system? It could be quite popular both in the U.s. and abroad. The 

U.S. Federal government already has a long histOfY of this. From 1882 to 1933, the Federal 

government issued gold certificates - a form of banknote, Of paper money, redeemable for 

gold bullion - that constituted a major part of the U.S. currency system. During that time, 

both US Treasury gold certificates and National Bank Notes issued by a menagerie of 

private banks circulated alongside. The gold certificates were more popular, due to their 

uniformity and the fact that people trusted the reliability of the Federal government 

more than the small commercial banks of the day. In 1914, gold certificates accounted for 

32% of Circulating currency in the United States. 

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U.S. Treasury Gold Certificate, series .1922. These gold certificates circulated alongside many 

other types olbanknotes, including Federal Reserve Notes and National Bank Notes. People 

were free to choose which ban/Glote they preferred. 

If the Federal government does not wish to undertake such a program, a state government, 

such as the State of Utah, could conceivably issue its own parallel currency. 

Historically, before 1971, there was little reason for national governments to issue their 

own parallel currencies, because their primary currencies were already operating on a gold 

standard system. However, there is at least one example: in 1922, the Russian government 

introduced the gold-based chervonets currency, to circulate alongside the ruble, which at 

the time was a floating fiat currency. By 1947, the ruble itself had been pegged to gold, thus 

negating any need for a parallel gold-based currency. Thus, the chervonets was retired. 

1937 Russian gold chervonets banknote. The chervonets was introduced by the Russian 

national government os a para lie/ currency to the floating fiat ruble in 1922. 

A similar example comes from Germany. In November of 1923, a new currency based on 

gold, the rentenmark, was introduced to replace the hyperinflated Reichsmark. For a short 

period, the two currencies circulated alongside, the rentenmark pegged to gold and the 

reichsmark continuing its plunge into oblivion. The rentenmark was quickly adopted byall, 

and the Reichsmark in effect disappeared from circulation. 

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German rentenmark banknote. The rentenmark was introduced by the nationally-sanctioned 

Rentenbank as a gold-based parallel currency, at first circulating alongside the hyperinflated 

reichsmark. 

Gold and silver have reportedly been declared legal currency in China, and major stateowned commercial banks there now offer gold- and silver-denominated bank accounts. 2 

Significance of gold-based parallel currencies today 

The discussion today around parallel currencies is part of a broader discussion: whether to 

have a currency that can be manipulated for economic effect, or to have a currency which is 

as stable and reliable as possible, free of human intervention. Traditionally, these have 

been known as "soft money" and "hard money," and, in practice, have meant either a 

floating fiat currency, or a gold standard system. The two options are, for the most part, 

mutually exclusive: it is not possible to have a gold standard system and a policy of 

monetary manipulation together for any length of time. 

Both options have been used, by one government or another, for literally thousands of 

years. We have a lot of experience in these matters. For the entire post-medieval history of 

capitalism -- stretching from the Italian city-states of the Renaissance era, through the 

heyday of Amsterdam as the world's financial center in the 17th century, through the entire 

history of the Industrial Revolution with London as the world's financial center in the 19U\ 

century, into the 20U\ century with the U.S. as the leader of the capitalist world a gold 

standard system was the preferred monetary foundation. 

The worldwide transition to floating fiat currencies, or "soft money," in 1971 reflected the 

increasing popularity of currency manipulation ideas beginning in the 19305. However, it 

also reflected simple incompetence. It was an accident. In 1971, the Bretton Woods gold 

standard system had delivered twenty years that were among the most prosperous in 

See for example: http://businesstimes.com.vn/ chinas-banks-use-gold-as-legal-currency I 

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world history. There was no reason to change it. President Nixon himself said that the end 

of the gold standard in August 1971 would be temporary. Indeed, he tried to reinstate it 

with the Smithsonian Agreement in December 1971, which he called "the most significant 

monetary agreement in the world." 

Thus, it is not surprising today that we are again trying to find a way hack to the world gold 

standard system, which worked so well for literally centuries. 

Rather than endlessly debating the merits of one system or another, a simpler method is to 

make both options available, and allow people to choose which they prefer. Just as people 

in Turkey today choose to do business either in the Turkish lira or euros, as suits their 

needs, people in the U.S. or elsewhere could choose to do business either in floating fiat 

dollars or some gold-based alternative. 

According to a study of 775 floating fiat currencies by Michael Hewitt 3, no floating fiat 

currency has ever maintained its value. In 20% of cases, they were destroyed in 

hyperinflation; 21% were destroyed by war; 12% disappeared in independence; 24% 

underwent a monetary reform; and 23% exist today, awaiting their final outcome. The 

average life expectancy of a floating fiat currency was found to be 27 years. 

The U.s. dollar, which has been a floating fiat currency for 41 years now, is thus an unusual 

example of longevity. However, today's extreme reliance upon "easy money" approaches to 

deal with economic problems - with the Federal Reserve promising unprecedented zero 

percent policy rates for years, and "real" interest rates deeply negative - suggests to many 

that the floating fiat dollar does not have a long or successful future. Unfortunately, with 

world currency arrangements still very dollar-centric, the management of the dollar has 

consequences for everyone. Governments of China, Russia, the Gulf States and others have 

complained about the potential consequences of today's aggressive "soft money" 

techniques -- not only at the Federal Reserve but also the European Central Bank, Bank of 

England, and Bank of Japan and have made preliminary steps toward a future alternative. 

3 Hewitt, Michael. "The Fate of Paper Money," dollardaze.org, January 7, 2009. 

http://dollardaze.org/blog/?postjd=00405 

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Ata G8 meeting in July 2009, Russian President Dmitry Medvedev illustrated his callfor a 

supranational currency to replace the dollar with a coin that he called a sample of a "united 

future world currency." The coin is half-ounce gold bullion coin. Such a "supranational 

currency" would be, in effect, a parallel currency, used alongside national currencies. 

The coin held by President Medvedev. 

source: futureworldcurrency.com 

On the international scale, a parallel gold-based currency, or many such currencies, would 

help ease this transition, and form the basis of a new monetary order if that should become 

necessary. Each individual would be free to make increasing use of the gold-based 

alternative, as it best suited their interests. There would be no great day of transition, but a 

smooth extended process perhaps over years. The existence of a high-quality alternative 

could help people avoid much of the potentially disastrous consequences if today's floating 

fiat currencies meet the same end as the 599 floating currencies that no longer exist. 

If the United States government wishes to retain its leadership role in world monetary 

affairs, I suggest that this alternative be created in the United States either by federal or 

state governments themselves, or by allowing private institutions to do so. Otherwise, 

governments that are clearly establishing the foundation for a future dollar alternative, 

likely based on gold, will take that role in the future. 

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27 July 2012 

The Honorable Ron Paul 

Qawvn U'Kei~-,~. 

52 STONEGA TE COURT 

FRONT ROYAL, VIRGINIA 22630 

Telephone: 540-636-9378 

e-mail: <edwinvieira@megapipe.net> 

Chairman, Subcommittee on Domestic Monetary Policy and Technology 

Committee on Financial Services 

United States House of Representatives 

203 Cannon House Office Building 

Washington, D.C. 20515 

Dear Dr. Paul: 

Attached hereto is a brief study on some of the basic legal issues surrounding the use 

of "alternative currency" in the United States, which I should appreciate being considered 

and included in the record of the hearing to be held on this subject on 2 August next. 

In the present economic climate, I can think of few matters more important than 

for Congress to secure the right of all Americans to protect themselves against debasement 

of their money by having available the option of employing currencies other than Federal 

Reserve Notes in their day-to-clay transactions. 

Although these are, of course, simply the views of only a single individual (albeit one 

who has looked into these matters rather extensively over the years), I hope that the 

attached study will prove useful to that end. 

EV:ev 

attachment 

Your servant, 

Edwin Vieira, Jr. 
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SOME OBSERVATIONS ON THE LEGALITY OF 

"ALTERNATIVE CURRENCY" IN THE UNITED STATES 

by EDWIN VIEIRA, JR. 

For the purposes of this study, an "alternative currency" will be defined as United 

States gold or silver coins' which are llsed in normal financial transactions in preference to 

Federal Reserve Notes' or United States base-metallic coins.' Although the Federal Reserve 

System and Federal Reserve Notes are burdened with many constitutional infirmities,4 this 

study will assume arguendo that these problems are not material. 

I. Present law already allows Americans to use "alternative currencies"; on the one 

hand, Federal Reserve Notes irredeemable in either gold or silver;' and, on the other hand, 

United States gold and silver coins, specifically gold "American Eagles" and silver 

"American Liberty" coins.6 

A. In general, all "United States coins and currency (including Federal Reserve 

notes * * * ) are legal tender for all debts, public charges, taxes, and dues.'" In particular, 

American Eagle and American Liberty coins are "legal tender", too.s 

In practice, any contract or other obligation for which the medium of payment is 

denominated in undefined or undifferentiated "dollars",' such as by the use of "the dollar 

sign" ("$") without more, is payable in whatever "legal-tender" United States coin or 

currency, the value of which Congress has set in some number of "dollars" pursuant to its 

power" [t]o coin Money [ and] regulate the Value thereof"," the debtor wishes to tender. 

, See 31 U.S.C. § 5112 (3)(7) through (10), and 5112 (e). 

2 See 12 USc. § 411. 

J See, e.g, 31 U.S.C. § 5112(a)(1) through (6). 

4 See Edwin Vieira, Jr., Pieces of Eight; The Monetary Powers and Disabilities of the United States Constitution 

(Chicago, Illinois: R R Donnelley & Sons, Inc., GoldMoney Foundation Special Edition [2011] afthe Second 

Revised Edition of 2002), Volume 2, at 14Cl·1524. 

5 Compare 12 U.S.C. § 411 with 31 U.S.C. § 5118(b) and (c). 

6 31U.S.C. § 5112(a)(7) through (10), and 5112(e). 

'31U.s.C. § 5103. 

8 31 U.S.c. § 5112(h). 

9 See 31 U.S.C. § 5101. 

'0 U.S. Const. art. I, § 8, d. 5. 
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B. Americans can, however, avoid this eftect of the "legal-tender" law by entering 

into so-called "gold-clause contracts", which specify that only a certain type of coin or 

currency-typically, gold or silver coin-may be used as the medium of payment. As 

relevant here, "'gold clause' means a provision in or related to an obligation" which "give Is 1 

the obligee a right to require payment in * * * a particular United States coin"." Such 

"particular United States coin" is the only "legal tender" for such a contract. "[E] xpress 

contracts to pay coined dollars can only be satisfied by the payment of coined dollars. They 

are not 'debts' which may be satisfied by the tender of * * * notes". t1 

1. "Gold-clause contracts" have a constitutional basis. The Constitution provides 

that "[n]o State shall * * * make any Thing but gold and silver Coin a Tender in Payment 

of Debts"." This amounts to an explicit constitutional reservation of the States' right, 

power, and duty to "make * * * gold and silver Coin a Tender".'4 Most "Debts" for which 

"gold and silver Coin" would naturally he "a Tender" would arise out of "gold-clause 

contracts", in which the parries have explicitly chosen such "Coin", and only such "Coin", 

as their medium of exchange and therefore "Tender". Thus, the Constitution requires the 

States to recognize and enforce their citizens' "gold-clause contracts". 

That being so, the Constitution disables Congress from prohibiting or inhibiting the 

enforcement of "gold-clause contracts" in the States' courts. In addition, "[t]he judicial 

Power [of the United States] shall extend * * * to Controversies * * * between Citizens of 

different States"." Such "Controversies" which involve the enforcement of "gold-clause 

contracts" usually must be decided under the particular State laws pursuant to which the 

contracts were negotiated. Perforce of the Constitution, all of the States are required to 

ent'Jrce sllch contracts in their courts specifically by the payment of the gold or silver coin 

the contracts designate as the sole allowahle "Tender". So, because the courts of the United 

States must follow State law on this matter, Congress caunot prohibit or otherwise impair 

the enforcement of such "gold-clause contracts" in the courts of the United States. 

2. "Gold-clause contracts" have a statutory basis, too. Any American may now enter 

into private contracts that "give the obligee the right to require payment in * * * gold", or 

"a particular United States coin or currency", or "United States money measured in gold 

Ii 31 USC. § 5118(a) (1)(B). 

12 Bronson v. Rodes, 74 U.S. (7 Wallace) 229, 254 (1869). Accord, Buder v. Horowitz, 74 U.S. (7 Wallace) 

258,260·261 (1869). See Dewing v. Scars, 78 U.S. (11 Wallace) 379, 380 (1870) (court judgment on a "gold. 

clause contract" must be "entered for coined dollars * * * instead of * * * nOtes equivalent in market value") 

II U.S. Const. art. I, § 10, d. 1 (emphasis supplied). 

14 See U.S. Canst. amend. X. 

'5 U.S. Canst. art. Ill, § 2, d. 1. 

2 
65 


76124.042

or a particular United States coin or currency".16 (Perforce of the Constitution, the States 

may enter into such cont"racts. As a practical matter, however, the United States have 

disabled themselves from entering into such contacts.") 

II. At the present time, the use of United States gold and silver coin as an 

"alternative currency" pursuant to "gold-clause contracts" has two practical limitations. 

A. The amount of American Liberty and American Eagle silver and gold coinage 

being minted is not optimal. The present statutes require that those coins shall be minted 

and issued "in quantities sufficient to meet public demand".18 "Public demand" is now 

gauged by the sale of the coins "at a price equal to the market value of the bullion 

[measured in Federal Reserve Notes] at the time of sale, plus the cost of minting, 

marketing, and distributing such coins"." The correct method for determining the true 

public demand for silver and gold coinage, however, is so-called "free coinage", whereby the 

Mint coins all of the silver and gold that the public presents for coinage.'o Adoption of "free 

coinage" would surely produce more coinage than the present scheme. 

B. Perhaps of more immediate consequence is the problem of how a "gold-clause 

contract" providing for the payment of United States gold or silver coins should be valued, 

particularly for purposes of taxation. For instance, is the value of a "gold-clause contract" 

which stipulates payment in (say) ten "$50" American Eagle gold coins" the aggregate face 

value of those coins ("$500"), or the much greater "dollar" value of the Federal Reserve 

Notes against which those coins would exchange in the free market? The Internal Revenue 

Service and various State agencies generally take the position that the value of such a 

contract for purposes of taxation is the latter. But the correct answer, for all purposes, is the 

former ("$500"). 

1. American Eagle and American Liberty coins are minted pursuant to statutes 

enacted under Congress's constitutional authority "[tlo coin Money, [and] regulate the 

Value thereof". They are therefore "lawful money" by definition. They are also specifically 

constitutional "currency", because the only use in the Constitution of a word related to 

16 31 U.S.c. § 5118(a) and (d). 

11 See 3l U.S.C. § 5118(b) and (c). 

IS 31 U.S.C. § 5112(e) and (;)(1). 

19 31 U.S.c. § 5112(£)(1) and (i) (2)(A). 

20 See, e.g .• Act of 2 April 1792, ch. 16, § 14, 1 Stat. 246, 249. 

21 31 U.S.C. § S1l2(a)(7). 

22 31 U.S.C. § 5112 (a)(7) through (10), and 5112 (e), enacted under aegis of U.S. Const. art. I, § 8, d. 5. 

3 
66 


76124.043

"currency" is the reference to "current Coin of the United States".') More generally, they 

are "currency" because they are "fcjoined money * * * authorized by law" which, when 

"gold-clause contracts" are involved, "in fact circulate[s 1 from hand to hand as the medium 

of exchange".24 And they are designated "legal tender", on an equal basis with all other 

United States coins and currency.!S 

The statutes providing for American Eagle and American Liberty coins explicitly 

set their values at their face values." The coins announce their values on their faces." And 

no other statute sets any other values for these coins, or purports to delegate authority to 

anyone to set other values by regulation or otherwise. Therefore, the coins' values as "bwful 

money", "currency", and "legal tender" are their face values, and nothing else. 

2. Today the United States have a "dual monetary system", consisting of: (i) gold 

and silver coinage; and (ii) Federal Reserve Notes and base-metallic coinage which the 

United States refuse to redeem in gold or silver." 

Different United States coins and other currency have different economic 

purch8sing powers in the marketplace. For example, 8 "$10" American Eagle gold coin or 

ten "$1" American Liberty silver coins both buy far more th8n a "$10" Federal Reserve 

Note or "$10" face value in base-metallic coinage. This economic discrepancy, however, 

is irrelevant to the legal values as mOHey of these various coins and currency. Applying mutatis 

mutandis the controlling case-law with respect to a "dual monetary system" and "gold-clause 

contracts" in the United Statesthe laws for the coinage of gold and silver [in the present United States 

Code 1 have never been repealed or modified. * * * And the emission of gold 

and silver coins * * * continues * * * . 

Nor have those provisions of law which make these coins a legal 

tender in all payments been repealed or modified. 

It follows that there r alre two descriptions of money in use * * * , 

lJ U.S. Canst. art. I, § 8. cl. 6. 

24 See Black's Law Dictionary (rev. 4th ed. 1968), at 458 ("currency"), 459 ("current money"). 

25 31 U.S.C. §§ 5112(h) and 5103. 

26 31 U .S.c. § 5112 (a) (7) (" [a] fifty dollar gold coin"). (a) (8) (" [a] twenty-five dollar gold coin"), (a) (9) (" [a] 

ten dollar gold coin"), and (a)(10) ("[a] five dollar gold coin"); and § 5112(e)(4) ('''One Dollar'" in silver). 

22 31 U.s.c. § 5ll2(e) (4) ("have inscriptions of * * * the words * •• 'One Dollar"') (American Liberty); and 

§ 5112(i) (1) (B) ("have inscriptions of the denominations") (American Eagles). 

28 See 31 U.S.C. § 5112(a)(7) through (10), (e), and (i); 12 U.s.C. § 411; 31 U.S.c. §§ 5112(a)(1) through 

(6), (b)' (c), and (d), and § 5118(b) and (c). No legal disability prevents Federal Reserve Banks from 

redeeming their notes in gold. See 12 U.s.C. § 354. It is the banks' practice not to do so, however. 

4 
67 


76124.044

both authorized by law, and both made legal tender in payments. The 

statute denomination of both description [i]s dollars; but they falre 

essentially unlike in nature. The coined dollar fils * * * a piece of gold or 

silver * * * . The [federal Reserve Note iJ s a promise to pay a coined dollar 

* * * . It [ils impossible, in the nature of things, that these two dollars 

should be the equivalent of each other, nor lils there anything in the 

currency acts purporting to make them such * * * . 

If then, no express provision to the contrary be found in the acts of 

Congress, it is a just and necessary inference, from the fact that both 

descriptions of money were issued by the same government, that contracts 

to pay in either [alre equally sanctioned by law. It is, indeed, difficult to see 

how any question can be made on this point. Doubt concerning it can only 

spring from that confusion of ideas which always attends the introduction 

of varying and uncertain measures of value into circulation of money." 

One owing a debt may pay it in gold coin on in legal-tender notes of the 

[Federal Reserve System], as he chooses, unless there is something to the 

contrary in the obligation out of which the debt arises. A coin dollar is 

worth no more for the purposes of tender in payment of an ordinary debt 

than a note dollar. The law has not made the note a standard of value any 

more than coin. It is true that in the market, as an article of merchandise, 

one is of greater value than the other; but as money, that is to say, as a 

medium of change, the law knows no difference between them.)' 

Cases such as Bronson and Thompson stated the law of America's "dual monetary system" 

and "gold clauses" until 1933-1934. When Congress then prohibited the private ownership 

of gold and declared certain "gold clauses" unenforceable, those cases became temporarily 

obsolete." They were not overruled, however. The private ownership of gold was statutorily 

"Bronson v. Rodes, 74 U.S. (7 Wallace) 229, 251-252 (1869). It is no longer entirely true that "[tlhe 

[Federal Reserve Note i)s a promise to pay a coined dollar", Federal Reserve Notes must be redeemed for 

"lawful money". 12 U.s.C. § 4[1. Both the Treasury and the Federal Reserve Banks will redeem Federal 

Reserve Notes with United States base-metallic coinage. See, e.g., 3 [ U.S.C. 5112(3) (I) through (6). But the 

Treasury refuses under color of statute to redeem them for gold or silver coin. See 31 U.S.C. § 5118(b) and 

(c). And the banks as a matter of practice refuse to perform such redemption, too. This refusal of the Treasury 

and the banks is the reason that United States gold and sHver coinage constitutes an "alternative currency'" 

and not an integral part of the Federal Reserve System's currency, in contrast to the original arrangement 

specifically as to gold. See Act of21 December 1913, ch. 6, § 16,38 Stat. 251, 265-267. 

l0Thompson v. Butler, 95 U.S. 694, 696 (1878). 

31 See Norman v. Baltimore & Ohio R.R., 294 U.S. 240 (1935). 

5 
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76124.045

permitted in 1973-1974.32 "Gold clauses" (other than for the United States) were allowed 

statutorily post-1978. And the minting of American Eagle and American Liberty coins was 

authorized in 1985. 14 At that point, Bronson, Thompson, and related cases once again 

provided, and today continue to provide, the controlling legal standards, as the United 

States Court of Appeals for the Fifth Circuit recently recognized by explicitly relying on 

Thompson in Crummey v. Klein Independent School District.15 

On these points, the differences between the United States Treasury Notes at issue 

in Bronson and Thompson, on the one hand, and Federal Reserve Notes, on the other, work 

against the latter. Both were or are obligations of the United States, "legal tender", and 

irredeemable in gold or silver coin. But the Treasury Notes issued directly from the 

Treasury, whereas Federal Reserve Notes are "issued at the discretion of the Board of 

Governors of the Federal Reserve System". And the Treasury Notes were explicitly 

designated as "bwful money", whereas Federal Reserve Notes are to be "redeemed in lawful 

money" (and obviously cannot be the very things in which they are to be redeemed).l' 

No decision of the Supreme Court has overruled, limited, or even questioned 

Thompso1l or Bmmoll. So lower courts must follow these precedents "no matter how 

misguided the judges of those courts may think [them] to be".l? A fortiori, all other 

governmental agencies are bound by the principles stated in these decisions. 

Because, as the Court of Appeals opined in Crummey, '''[bly statute it is established 

that federal reserve notes, on an equal basis with other coins and currencies of the United 

States, shall be legal tender"', it must also be "'established'" that American Eagle and 

American Liberty coins are '''legal tender'" "'on an equal basis'" with Federal Reserve 

Notes.JS So, "[als legal tender, a dollar is a dollar, regardless of the physical embodiment of 

the currency".19 Any attempt by a court or an agency such as the IRS to re-value a "goldclause contract" in terms of some United States coin or currency other than the "particular 

Act of 21 September 197 3, Pub. L. 93·110, § 3, 87 Stat. 352,352; Act of 14 August 1974, Pub. L. 93-373, 

§ 2(b) and (c). 88 Stat. 445, 445. 

3J Act of 28 October 1977, Pub. L. 95-147, § 4(c), 91 Stat. 1227, 1229. 

34 Act of 9 July 1985, Pub. L. 99·61, Title II, 99 Stat. 113, 115; Act of 17 December 1985, Pub. L. 99-185, 

99 Stat. 1177. 

11 No. 08-20133 (5th CiL 2008) (unpublished opinion). 

36 Compare and contrast Act of25 February 1862, ch. 33, § 1, 12 Stat. 345, 345; Act of 18 March 1869, ch. 

1,16 Stat. 1; and New York ex reI. Bank of New Yotk v. Board o{Supervisors, 74 U.S. (7 Wallace) 26,30· 

31(1869), with 12 U.s.c. § 411 and 31 U.S.C. § 5118(b) and (c). 

17 Hutto v. Davis, 454 U.s. 370, .375 (1982). 

lS Slip Opinion at 3, quoting Unired States v. Wangrud, 533 F.2d 495, 495 (9th Cir. 1976). 

39 Slip Opinion at 3. 

6 
69 


76124.046

United States coin" in which the contract is payable, where such re-valuation results in a 

value in "dollars" more or less than the aggregate face value of the "particular United States 

coin" the contract specifies, therehy attempts to "[re-J regulate the Value" and change the 

"legal tender" character of that coin contrary to the express determination of Congress. The 

power to "regulate the Value" of money and "to declare what is and what is not 'legal 

tender"', and at what value in "dollars" particular coins or other currency shall be taken as 

such, however, "lies with Congress and not the Courts" or any other governmental body:o 

3. The contrary contention is frivolous. The Supreme Court has described claims 

"so attenuated * * * as to be absolutely devoid of merit" in several ways: as "wholly 

insubstamia]", "obviously frivolous", or "no longer open to discussion".41 "A claim is 

insubstantial * * * if'its unsoundness so clearly results from the jJTeViOHS decisions of this court 

as to f()reclose the subject"'" As explained above, "the previous decisions of this 

court"-that is, the Supreme Court-in Bronson, Thompson, and related cases establish 

heyond question that, where "gold-clause contracts" are concerned, "[a1 coin dollar is 

worth no more f()r the purposes of tender in payment of an ordinary debt than a note dollar. 

The law has not made the note a standard of value any more than coin."" 

Congress itself has approved the use of "gold-clause contracts" according to these 

principles. When Congress authorized private "gold-clause contracts" by statute in 1977, 

its Members knew the applicable law as stated in Thompson, Bm715on, and other decisions 

of the Supreme Court." Also, because Congress was fully aware of its own constitutional 

power "[ tlo * * * regulate the Value" of"Money",45 it knew that it could effectively modify 

or overrule the holdings in those cases as to how "gold-clause contracts" should be valued 

in "dollars".'" Yet Congress has never taken any such action. 

With the statutory authorization of "gold-clause contracts" in 1977, Congress 

recreated essentially the same "dual monetary system" which existed during and after the 

Civil War. Congress then strengthened this system in 1985, by authorizing the minting of 

American Eagle gold and American Liberty silver coins as "legal tender" and "in quantities 

40 See U.S. Const. art. I, § 8, cl. 5, and Linne v. Baker, 1986 WL 9502, at *3, affd, 826 F.2d 129 (D.C. Cir. 

1987). 

41 See Newburyport Water Co. v. Newburyport, 193 U.S. 561,579 (1904); Bailey v. Patterson, 369 U.S. 31, 

33 (1962); Hannis Distilling Co. v. Baltimore, 216 U.S. 285, 288 (1910); Levering & Garrigues Co. v. Morrin, 

289 U.S. 103, 105 (1933); McGilvra v. Ross, 215 U.S. 70, 80 (1909). 

4' Goosby v. Osser, 409 U.S. 512, 518 (1973) (emphasis supplied). 

41 Thompson, 95 U.S. at 696. 

44 See Cannon v. University of Chicago, 441 U.S. 677, 696-697 (1979). 

45 U.S. Canst. art. I, § 8, cl. 5. 

46 See Albernaz v. United States, 450 U.S. 333, 341-342 (1981). 

7 
70 


76124.047

sufficient tu meet puhlic demand". At both times (and ever since unto today as well), 

Congress knew that: 

(i) This "dual monetary system" consists of paper currency not 

redeemable in gold or silver coin (United States Treasury Notes then, 

Federal Reserve Notes now) and United States gold and silver coins. 

(ii) Under this system, individuals can choose, through "gold-clause 

contracts", to employ United States gold and silver coins as their media of 

payment to the exclusion of Federal Reserve Notes. 

(iii) As a matter oflaw, perforce of Congress's monetary statutes as 

applied under the rule enunciated in Tlwmp$on, the value of a "gold-c1mlse 

contract" is the aggregate face value in "dollars" of the coins involved. 

(iv) As a matter of fact, equal face values of United States gold and 

silver coins and of Federal Reserve Notes do not have equal purchasing 

powers in the marketplace. Therefore, 

(v) Individuals who employ "gold-clause contracts" might obtain 

some tax benefits therefrom-unless Congress enacted a statute preventing that 

result, along the lines of a statute it enacted shortly after the Civil \Var, when 

America's first "dual monetary system" existed.48 But, 

(vi) No such statute was in force in 1977 or 1985. And Congress has 

enacted no such statute since then. 

One may posit numerous, and compelling, reasons why Congress created and has 

maintained such a "dual monetary system", including: 

• to enable Americans, by increasingly employing gold and silver 

coin in preference to Federal Reserve Notes, to pressure the Federal Reserve 

System into adopting policies that would stop the depreciation of those 

notes relative to specie; 

• to enable Americans to protect themselves financially against the 

41 31 U.S.C. § SII2(e), (h), Rnd (i)(l). 

48 See Act of 13 July 1866, ch. 184, § 9, 14 Stat. 98,147, amending Act of 10 March 1866, ch. 15, §§ 3 

through 5,14 Stat. 4, 5, repealed by Act of 14 July 1870, ch. 255, § I, 16 Stat. 256, 256. See Pacific Insurance 

Co. v. Soule, 74 U.S. (7 Wallace) 433.440-443 (1869). 

8 
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76124.048

conseljuences of the Secretary of the Treasury's failure to perform his duty 

to "redeem gold certificates owned by the Federal reserve banks at times and 

in amounts the Secretary decides are necessary to maintain the equal 

purchasing power of each kind of United States currency";49 

"to provide Americans with an alternative currency (and a set of 

market prices denominated in such currency) that could enable the markets 

to continue to function even if the Federal Reserve System should collapse 

in hyperinflation or depression; and 

"to supply the several States and the United States with an 

alternative currency then in use by many Americans on the basis of which 

public business could be conducted even were the Federal Reserve System 

to collapse. 50 

In any event, the very existence of this "dual rrwnetary system", unrestricted by statute 

with respect to the calculation and J)ayment of taxes, establishes that Congress has authorized and 

empowered Americans to employ that system to the maximum extent they desire and for the 

maximum benefit that it can afford them, even with respect to taxes. 

Ill. Notwithstanding the foregoing, certain practical problems in the use of United 

States gold and silver coin as "alternative currency" remain. Fortunately, the solutions are 

not particularly difficult: 

A. Congress should enact a statute under its powers" [t10 lay and collect Taxes" and 

''It]o coin Money, [and1 regulate the Value thereof"," or the President should promulgate 

a directive under his power and duty to "take Care that the Laws be faithfully executed",51 

requiring the IRS and all other agencies of the United States to follow the rule of valuation 

set in Thompson v. Butler. And under its power "[tJo coin Money, [and] regulate the Value 

thereof", Congress should enact a statute requiring the same compliance from all State 

49 31 U .s.C. § 5119(a). If the Secretary fulfilled this duty, rhe exchange-rate between Federal Reserve Notes 

and United States gold coin would immediately become close ro unity, because a one~ouncc American Eagle 

gold coin is statutorily denominated <i$50 11

, and the statutory standard for the redemption of gold certificates 

is "542-219" per ounce. Compare 31 U.S.C. § 5112(3)(7) wirh § 5117(b). 

50 A model statute for the adoption of an "alternative-currency system" by the States can be found in E. 

Vieira, Jr., Pieces of Eight, ante note 4, Volume 2, at 1664-1666. 

11 U.S. Const. art. I, § 8, cis. I and 5. 

51 U.S. Canst. art. II, § 3. 

9 
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76124.049

agencies." 

It might he ohjected that, in <l system of taxation with "progressive" rates, applying 

the rule of Thompson would encourage individuals to enter into "gold-clause contracts" 

simply to reduce their tax-liahilities through the lesser number of "dollars" that would be 

involved in such ttansactions (as opposed to the same transactions when conducted on the 

basis of Federal Reserve Notes as the media of payment). The best way to deal with this 

possibility, however, would be for Congress (and the States' legislatures) to require that 

taxes on transactions effected with United States gold and silver coins be paid with the 

same type of coins involved in those tr<lnsactions. Thus, taxpayers would file specitk returns 

for "gold-clause contracts" payable in gold, and pay the taxes on those transactions in gold; 

they would file specific returns for "gold-clause contracts" payable in silver, and pay the 

taxes on those transactions in silver; and would file general returns for all other transactions 

conducted in Federal Reserve Notes, and pay the taxes on those transactions in such notes. 

B. As noted above, the first step in maximizing the amount of gold and silver 

coinage available for use as alternative currency must be to reinstate "free coinage" in the 

United States Mint. 

A second valuable step would be for Congress to declare by statute that specifically 

designated foreign gold and silver coins will he "legal tender for debts" at their values in 

terms of American Eagle or American Liberty coins.54 For example, a foreign gold coin that 

contained one ounce of pure gold would be valued at "$50";55 a foreign silver coin that 

contained one ounce of pure silver would be valued at "$1";56 and coins of other weights 

would be valued proportionately. This would effectively incorporate all of the reliable gold 

and silver coinage of the entire world into the monetary system of the United States. If the 

same procedure were applied to bullion, all of the gold and silver of any form llseful as 

money to be found anywhere in the world would in principle be incorporated into that 

system. 

The imprudence in not taking these steps, in the face of the present worldwide 

monetary and banking crisis, speaks for itself. 

53 See U.S. Const. art. VI, d. 2. A model statute can be found in E. Vieira, Jr., Pieces of Eight. ante note 4, 

Volume 2, at 1663·1664. 

54 Contrast the present provision on this subject, in 31 U.S.C. § 5103. Congress has taken this route in the 

past. See E. Vieira, Jr., Pieces of Eight, ante note 4, Volume 1, at 199-205. 

55 See 31 U.s.C. § 5112(a)(7). 

56 See 31 U.S.c. § 5112(e). 

10 

o