Competition: Good for the Economy, Good for the Currency, Says Ron Paul

Ron Paul, scourge of the Fed, and his newly introduced bill to take away its monopoly over U.S. currency, the Free Competition in Currency Act of 2009. Excerpts explaining the hows and whys:

There are three steps that must be taken to produce a legal climate favorable to competition.

The first step consists of eliminating legal tender laws. Article I Section 10 of the Constitution forbids the States from making anything but gold and silver a legal tender in payment of debts... However, there is nothing in the Constitution that grants the Congress the power to enact legal tender laws. We, the Congress, have the power to coin money, regulate the value thereof, and of foreign coin, but not to declare a legal tender. Yet, there is a section of US Code, 31 USC 5103, that purports to establish US coins and currency, including Federal Reserve notes, as legal tender.

Historically, legal tender laws have been used by governments to force their citizens to accept debased and devalued currency. Gresham's Law describes this phenomenon, which can be summed up in one phrase: bad money drives out good money. An emperor, a king, or a dictator might mint coins with half an ounce of gold and force merchants, under pain of death, to accept them as though they contained one ounce of gold. Each ounce of the king's gold could now be minted into two coins instead of one, so the king now had twice as much "money" to spend on building castles and raising armies. As these legally overvalued coins circulated, the coins containing the full ounce of gold would be pulled out of circulation and hoarded....In the absence of legal tender laws, Gresham's Law no longer holds. If people are free to reject debased currency, and instead demand sound money, sound money will gradually return to use in society....

The second step to reestablishing competing currencies is to eliminate laws that prohibit the operation of private mints.....

The final step to ensuring competing currencies is to eliminate capital gains and sales taxes on gold and silver coins. Under current federal law, coins are considered collectibles, and are liable for capital gains taxes. Short-term capital gains rates are at income tax levels, up to 35 percent, while long-term capital gains taxes are assessed at the collectibles rate of 28 percent. Furthermore, these taxes actually tax monetary debasement. As the dollar weakens, the nominal dollar value of gold increases....Thus, the more the dollar is debased, the more capital gains taxes must be paid on holdings of gold and other precious metals.

Just as pernicious are the sales and use taxes which are assessed on gold and silver at the state level in many states. Imagine having to pay sales tax at the bank every time you change a $10 bill for a roll of quarters to do laundry....

Allowing for competing currencies will allow market participants to choose a currency that suits their needs, rather than the needs of the government. The prospect of American citizens turning away from the dollar towards alternate currencies will provide the necessary impetus to the US government to regain control of the dollar and halt its downward spiral. Restoring soundness to the dollar will remove the government's ability and incentive to inflate the currency, and keep us from launching unconstitutional wars that burden our economy to excess.....

Who else believed in competing currencies? Nobel-winning economist F.A. Hayek for one--see his Choice in Currency: A Way to Stop Inflation.  And so did another Nobel-winning economist, Milton Friedman, by the end of his career. And see free banking advocate Lawrence White on the economics and history of currency competition.

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  • Warty||

    Never happen. Washington would rather bring all the troops home and abolish every federal department than give up its monopoly on money.

  • Mad Max||

    God, guns and gold . . . they made America great, let's restore all three!

  • Flex Nasty B.I.G.||

    You had me up until the "God" part.

  • Old Mexican||

    Well, I got me gold and me guns....

    Ok, I don't have the guns... yet.

  • Stine||

    Actually God is what made the UK great because Queen Elizabeth rules because God granted that right to her and her alone.

    What made us great is to tell her ancestor that he was full of it.

  • Mad Max||

    Their monarchy deteriorated starting with Henry VIII. Ask me why!

  • Inkblots||

    Max, I like the cut of your jib.

  • The Art-P.O.G.||

    I like Max, too. Even when I disagree with him.

  • robc||

    I think you just made an argument in favor of protestantism.

    Congrats! And I agree.

    The pinnacle of British history was when Charles I had his head lopped off.

  • Mad Max||

    Charles I was a zealous Anglican.

  • robc||

    Max - I made two separate points.

    The first was that you made an argument in favor of protestantism.

    The second, completely unrelated point, is that cutting of the heads of kings is a good thing.

  • ||

    I don't think Paul believes it to be the role of government to interfere with any of the three... sorry MM.

  • BakedPenguin||

    Never happen.

    Considering it's a way to tax people without discussion (until after the fact), let alone enacting a new law, I would have to agree.

  • anon||

    Pigs flying in a frozen hell.

  • ||

    Poppycock.

  • ||

    Easier way.

    Start paying each other in shares of stock or bonds. Not necessarily in the employer's company. You could pay someone in Chinese or british Bank bonds, or shares of Microsoft or something equally likely to retain value. The employee immediately sells them for cash, or trades them for some other bonds, if he feels like investing them in something else.

    You also have lots of people getting paid in stock options. Why not just make it stock in a large stable corporation?

  • ||

    Plus it probably wouldn't be difficult to invent a machine that you could "swipe" the bonds or stock certificates at a register, and get the current market price in dollars.

  • ||

    Fuck, what do you need certificates for, just have a card for your AmeriTrade account. Swipe the card, and key in the symbol what what you want to pay with, and the machine calculates the cash value at that instant, and makes a sale at the current market price.

  • ||

    Even better idea.... you swipe the card, the register (self-checkout style) brings up a display with little icons for what's in your portfolio. You poke one and it computes how much of that you need to sell at the current market price to cover the charge. Then you approve it.

    Perfectamundo.

  • ||

    However, that would be a taxable event if that portion of your portfolio was up in value since you purchased it.

  • ||

    True, but paying a 20% capital gains tax is better than seeing the real value of your savings debased when the Fed devalues the US dollar to get out of the SS/Medicare debt.

  • Warty||

    The IRS would not be amused.

  • ||

    piffle. They can figure out the market value in dollars of the stock and tax you accordingly. Otherwise, they're just lazy.

  • Warty||

    There was a heroic dude in Nevada, a few years ago, who paid his employees one U.S. Mint-issued $50 gold coin per week. Their yearly salary, then, came to less than the threshold where it is required to file a tax return. Those $50 coins, of course, have one ounce of gold in them.

    I think the dude managed to come out of the whole thing with only a few misdemeanor convictions. The IRS doesn't like cuteness.

  • ||

    See, the problem is obviously the mismatch between the "official" value and the market value.

    But you don't have that problem with stocks - the emplyoee would of course have to sign a contract agreeing to get paid in X stock or bonds. With the full knowledge that that value might fluctuate.

    Consequently, the prefered payment is probably going to be in some very large stable corporation or bank. You'd still have people converging on a preferred thing to use as currency. But the difference is it could change over time. Whatever get's used as "currency" could switch from a less stable source to a more stable one.

  • Brian||

    Actually he was convicted of several felonies and was sentenced last month to 15 years in prison.

    http://www.lasvegassun.com/new.....aud-schem/

  • ||

    After more than three hours in a sentencing hearing, visiting U.S. District Judge David A. Ezra of the District of Hawaii sentenced Robert Kahre to serve 15 years and 10 months in federal prison, followed by three years of supervised release.

    Fucking Judge Ezra. He isn't content with screwing things up here, he has to go to Nevada and mete out injustice there, too?

  • ||

    He was acquitted the first time around, and then the government ignored the constitutional prohibition on double jeopardy and tried him again. The second time around, they succeeded in railroading him.

    If they'd failed the second time, they probably would have just arranged an "accident" to kill him.

    -jcr

  • ||

    He got busted bad. Get off the tax crank pages, and over to Quatloos, and you can look up the results. You see, you have to pay income on the value of what you earn. This is a no brainer. It doesn't matter whether it's a gold coin, gold bullion, junkets to the Bahamas, a new home as incentive bonus, whatever, you're going to pay taxes on the full value of it.

  • Warty||

    Well, that sucks. Fucking feds have to spoil everyone's fun.

  • Chony||

    Hey!

  • ||

    So, since I get paid in worthless paper, I should pay taxes on the value of the paper itself?

    The point is, the IRS is trying to have it both ways: if you get paid in currency whose face value is higher than the intrinsic value, you have to pay taxes on the face value. In the opposite case, you pay taxes on the intrinsic value.

    I know they can get away with it because they're the govt and might makes right, etc. But that's not the point.

  • ||

    I wonder if the dude could appeal based on that.

    I wish I could have been in the jury to null it.

  • ||

    Tax protesters do win from time to time when they have non retard not sheep jury members. And I am always surprised who they are.

    One such lady was a criminal justice student in a class with me. I would have always guessed that she would have been the law & order, cops and prosecutors are always right. I was very pleasantly surprised that she wasn't. I am guessing the accused was also.

  • ||

    The value of those pieces of paper is what you can purchase with them. And if you happen to live in the real world, you may have noticed that the value tends to coincide very closely with the nominal figure printed on those pieces of paper.

  • ||

    Shares of individual stocks are volatile. A more stable approach would be to use shares of low-cost index mutual funds that replicate the behavior of the entire marketplace.

  • ||

    sure, okay. Let people figure out what works. Ideally, your employer might offer you a selection of different options. Including international funds.

  • robc||

    One of my suggestions for alternate currency is a SPYder based currency. SPY is the tradeable S&P500; index.

  • Brian||

    LOFL. If the gov't is going to consider regulation of wheat grown for personal use constitutional, and stealing someone's property to give to someone else constitutional ... you know they're sure as fuck going to consider declaring legal tender constitutional. And what are we serfs gonna do about it? Vote?! LOL!

  • Colin||

    Something tells me he won't get 300 cosponsors on this one.

  • ||

    I'm glad Dr. Paul gets it. So does Mises and Hayek. Yet so so very many "Austrians" do not. They think freedom is about forcing gold on everyone at the point of a gun, and having banking police go around to make sure everything is 100.0% in reserve.

    Free banking is the way to go. If the interactions of a free people in a marketplace decide on something other than what Rothbard demanded, then so be it. And damn all those anarchists who would erect a state to force things otherwise.

  • tarran||

    Actually Rothbard repeatedly stressed that he didn't support a government imposed gold standard.

    He used gold as money in the examples in his textbooks, and predicted that under a free market that gold would become the dominant money, but he was very clear about the fact that he felt whatever the market chose would be fine with him.

    Now his calls to outlaw fractional reserve banking on the other hand...

  • Old Mexican||

    Now his calls to outlaw fractional reserve banking on the other hand...

    Fractional Reserve Banking is institutionalized fraud. Unless you and its clients deal with the bank with full disclosure that it OPERATES under a system of fractional reserves and you and the clients fully accept the consequences of that fact, then the bank is acting fraudulently.

  • ||

    Unless you and its clients deal with the bank with full disclosure that it OPERATES under a system of fractional reserves and you and the clients fully accept the consequences of that fact

    Um, yeah. That's all fractional reserve advocates are saying: as long as everyone understands and accepts that the bank is operating with fractional reserves, there's no fraud. I expect we'd see a return of the periodic runs on weak and undisciplined banks, as well as discounts applied to the notes issued by fractional reserve banks, like there were in the nineteenth century. So much the better.

    Bring back the bank run! http://mises.org/story/3350

  • robc||

    Im fully aware, so how is it fraud when my bank only keeps part of my deposits on hand?

  • ||

    It devalues your savings... destroys your investment.

  • Rich||

    Imagine having to pay sales tax at the bank every time you change a $10 bill for a roll of quarters to do laundry.

    "It's easy if you try." 8-(

  • Jersey Patriot||

    We, the Congress, have the power to coin money, regulate the value thereof, and of foreign coin, but not to declare a legal tender.

    Congress has the power to regulate commerce amongst the states. All Congress need do is state that all contracts dealing with interstate commerce must be paid in legal tender. The rest takes care of itself.

  • Brian||

    Actually, precedent already exists for the theory that every transaction between a buyer and a seller affects interstate commerce, whether the transaction itself is interstate or not. There is literally no limit to the commerce clause anymore.

  • Stine||

    You go too far, Brian.

    After Gonzalez v. Raich, there doesn't even have to be a transaction for it to be regulated under the commerce clause.

  • ||

    Yeah, I love that reasoning. "By refraining from interstate commerce you affect interstate commerce. Therefore, we own your ass."

    Send a shockwave through the pols in DC and the State capitals in Nov 2010. Fire all the incumbents. Replace them with independents or candidates from third-parties. Leave no GOP or Demo standing. That's what they'd do (are doing) to us, after all. Fair's fair.

  • The Art-P.O.G.||

    If only. That'd be amazing.

  • BakedPenguin||

    They can figure out the market value in dollars of the stock and tax you accordingly.

    They wouldn't figure out anything. They'd make you figure it out, and then penalize you if you're wrong.

  • Rich||

    +1. Perhaps you've been invited to participate in the "taxpayer compliance program", eh?

  • BakedPenguin||

    Well, I guess they'd figure it out if they were auditing you...

  • Rich||

    It's more precise to say they'd come up with a figure.

  • TP||

    Are you suggesting reforming the tax code? If so, what are all those accountants going to do for a living, and who is going to run all of the businesses in this country, management?

  • BakedPenguin||

    Heh. "What would all those DEA agents do if there was no war on drugs?" At least accountants have marketable skills. I suspect DEA agents would wind up manning the death squads of dictators, or joining non-governmentally recognized organized crime.

  • TP||

    It's truly amazing how many business decisions are made from advice of accountants (and attorneys). It would be nice if business owners and CEOs could actually make decisions on how to run a company based on something other than tax advice.

  • Nancy Pelosi||

    Are you serious? Are you serious?

  • Nipplemancer||

    IDSL - International Dog Shooting League.
    Watch as our teams of heavily armed men face off against dogs. Live!

  • ||

    I'm imagining that the computers would automatically calculate it for you, at the time you get paid, and it would appear on your W-2.

  • BakedPenguin||

    Rich - I've never been audited, but I've always been pretty honest about my taxes. Strictly to avoid what happened to the guy in Brian's link.

  • The Libertarian Guy||

    Honest people get audited, too. Which is why the IRS should be emptied of all employees, and the building must be not only demolished, but have the ground salted and paved over with ten feet of cement.

    Then, forbid all those ex-IRS employees to ever hold a public-sector job again. Flip burgers, assholes.

  • ||

    What have burger-flippers ever done to you, that you should wish them to have such unpleasant coworkers?

    -jcr

  • The Libertarian Guy||

    I just picked a job at random. "Cleaning out sewers beneath slaughterhouses" was too long to type at that moment.

  • ||

    Shine on, you crazy diamond Dr. Paul.

  • ||

    God Bless Ron Paul, I disagree with him on much, but he does more good than any politician alive.
    I tried to vote for him in the Primary, but my residence is Nevada, and it was pretty much fixed there.

  • Ted Kennedy||

    Does he do more good than I did?

  • ||

    well when you died you probably did more good in that particular action.

  • ||

    You might want to read the post above about Jeff Flake ripping into Ron Paul before you give Paul that award.

  • Tim Russert||

    We would still have SLAVERY!

  • ||

    I disagree with RP on a few things, but I think that i am with him on that flair up.

  • ||

    Flake doesn't have any ground to stand on, particularly constitutional ground. The constitutional manner of appropriations is for congress to specify particulars regarding each and every appropriation of money levied for the enactment of constitutionally acceptable Article I ends.

    Paul gets that award hands down.

  • Balls Deep Foot Sweep||

    The only thing more frightening than the jacknuts that can vote, is the very fact that they make up the jury of my peers.

  • Kolohe||

    The final step to ensuring competing currencies is to eliminate capital gains and sales taxes on gold and silver coins.

    Based on the other thread, where half a loaf is worse than no loaf at all, this seems too narrow.

    He should have removed the cap gains tax on *all* 'collectibles' - if people want to follow the beanie baby standard, they should not be put at an automatic disadvantage based on the tx code.

  • robc||

    I collect stocks, so Im fine with that. :)

  • Lindsey Graham||

    I won’t let Ron Paul hijack the GOP.

    Because I'm a huge pussy named "Lindsey". So there.

  • Silentz||

    When our budget deficit gets so big that our borrowing outpaces our tax receipts, can we just go all in and just borrow the whole thing and let us abolish the IRS? I mean it's not like they're really trying to do this with any sort of restraint. Why collect taxes from us anymore anyway(other than the control aspect)?

    That'd really stimulate the economy, no?

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