Ron Paul's Newest Bill: Free Competition in Currency Act of 2009

Economic Policy Journal ^ | December 10, 2009 | Robert Wenzel

[bamahead]

Congressman Ron Paul has introduced a new bill in the House of Representatives.

The bill calls for the elimination of legal tender laws, the elimination of laws that prohibit the operation of private mints and the elimination of capital gains and sales taxes on gold and silver coins.

His statement introducing the bill in the House is here.

[bamahead]

Here is an excerpt from the statement:
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Historically, legal tender laws have been used by governments to force their citizens to accept debased and devalued currency. Gresham's Law describes this phenomenon, which can be summed up in one phrase: bad money drives out good money. An emperor, a king, or a dictator might mint coins with half an ounce of gold and force merchants, under pain of death, to accept them as though they contained one ounce of gold. Each ounce of the king's gold could now be minted into two coins instead of one, so the king now had twice as much “money” to spend on building castles and raising armies. As these legally overvalued coins circulated, the coins containing the full ounce of gold would be pulled out of circulation and hoarded. We saw this same phenomenon happen in the mid-1960s when the US government began to mint subsidiary coinage out of copper and nickel rather than silver. The copper and nickel coins were legally overvalued, the silver coins undervalued in relation, and silver coins vanished from circulation.

These actions also give rise to the most pernicious effects of inflation. Most of the merchants and peasants who received this devalued currency felt the full effects of inflation, the rise in prices and the lowered standard of living, before they received any of the new currency. By the time they received the new currency, prices had long since doubled, and the new currency they received would give them no benefit.
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I'd be surprised to see the elimination of laws prohibiting private mints go anywhere. But doing away with captial gains on coins might carry some weight with many.

[bamahead]

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[bamahead]

Bump!

[Titus Quinctius Cincinnatus]

the elimination of laws that prohibit the operation of private mints

You mean like the U.S. Constitution?

[American Quilter]

But doing away with captial gains on coins might carry some weight with many.

It would with me. I'm in favor of any and all tax reductions.

[djsherin]

Ping

[djsherin]

Ping

[bamahead]

Ummm...the Constitution doesn't prohibit private mints, but it authorizes the Federal Government to operate it's own.

.I don't think this bill says anything about doing away with a Constitutionally prescribed power. But it does propose allowing private competition to compete with the FedGov in currency markets.

[Titus Quinctius Cincinnatus]

Ummm...the Constitution doesn't prohibit private mints, but it authorizes the Federal Government to operate it's own.

Good luck running with that dog. The powers granted to Congress in Art.I, Sect. 8 (as well as the powers enumerated to those granted to the Executive and Judiciary in their particular articles) are among the powers referred to in the 10th amendment as being specifically granted to the federal government. Just as the private individual does not have the right to conduct his or her own private foreign policy or to declare war on another country on his or her own prerogatiove, neither does he or she have the right to coin their own money.

[C19fan]

The US did have a quasi-competition in currency. Banks in the 19th century issued their own notes but the value relative to par was based on distance and the perceived soundness of the bank. The notes are nice collection items. Perhaps it would be easier with today’s technology but businesses would have think books showing the “true” value of notes from different banks. A $10 note from Bank A might be worth par but a $10 note from Bank B might only be truly worth $5 because of the risk the bank did not have enough gold in its vault to honor the note.

[GraceG]

This bill looks more like a piece of “pressure legislation” designed to expose governmental monkey business rather than actually pass. Though it would be nice if it did pass as it would help strip power from the federal reserve.

[Hazwaste]

Does this mean I can start paying my mortgage in Schrute-bucks?

[GraceG]

would this mean that there could be private mints making their own gold coins? But I wonder who would enforce the counterfeiting laws if someone was making counterfeit coins of the private mints?

Of course China is probably already making fake US funny money to use in buying resources from other countries....

[C19fan]

Link to an image of a 19th century private bank note:

http://static.open.salon.com/files/private_bank_note1237482688.png

[bamahead]

Just as the private individual does not have the right to conduct his or her own private foreign policy or to declare war on another country on his or her own prerogatiove, neither does he or she have the right to coin their own money.

Check out post 10, and also read up on a little economic history. Privately printed currency and coin was abundant in the early-mid 19th century, and perfectly legal tender, until the Civil War changed the marketplace.

1837–1862: "Free Banking" Era

In this period, only state-chartered banks existed. They could issue bank notes against specie (gold and silver coins) and the states regulated their own reserve requirements, interest rates for loans and deposits, the necessary capital ratio etc. The Michigan Act (1837) allowed the automatic chartering of banks that would fulfill its requirements without special consent of the state legislature. This legislation made creating unstable banks easier by lowering state supervision in states that adopted it. The real value of a bank bill was often lower than its face value, and the issuing bank's financial strength generally determined the size of the discount. By 1797, there were 24 chartered banks in the U.S., while with the beginning of the Free Banking Era (1837), there were 712.

The banks were short-lived compared to today's commercial banks, with an average lifespan of five years. About half of the banks failed, a third of which went out of business because they couldn't redeem their notes. During the free banking era (also see "Wildcat banking"), the value of gold and silver was very stable. Price stability and changes in price are two different things. When monetary bases (such as gold or silver) are allowed to stay relatively constant, that allows for all other prices to adjust quickly. If a price is quick to adjust (a.k.a. NOT 'sticky') it is said to be a stable price.

During the free banking era, some local banks took over the functions of a central bank. In New York, the New York Safety Fund provided deposit insurance for member banks. In Boston, the Suffolk Bank guaranteed that bank notes would trade at near par value, and acted as a private bank note clearinghouse.

Now, don't get me wrong. I fully agree with you on 'good luck running with that dog'. The current oligarchy would flail like a fish on a dock if this ever even got to committee.

[Drill Thrawl]

This seems like everything else with Paul. Half of it is great, makes perfect sense and would absolutely help the country. The other half is just plain frickin’ NUTS.

[Titus Quinctius Cincinnatus]

Check out post 10, and also read up on a little economic history. Privately printed currency and coin was abundant in the early-mid 19th century, and perfectly legal tender, until the Civil War changed the marketplace.

Privately-printed it was, but still tied to the US dollar, the federal currency. Unless I'm reading the story about Paul's bill incorrectly, this doesn't seem to be what he's aiming for.

Now, don't get me wrong. I fully agree with you on 'good luck running with that dog'. The current oligarchy would flail like a fish on a dock if this ever even got to committee.

Hey, I'd love it if we could get some sensible currency reform out of Congress, and would even go along with Paul wrt getting back onto precious metal standards. Anything would be better than the "print as fast as we can spend it" regimen currently existing in Washington. I just doubt that this particular proviso - private mints - would really be all that useful. If he's proposing allowing private citizens to invent their own currencies, then it's obviously unconstitution, and would be an unworkable hash within five years. If it's the 19th-century style of banks printing it, but tied to the dollar, then it'll still be a hash, though not so much so as the other scenario, and won't address the fundamental problems of currency devaluation and lack of specie backing.

[C19fan]

I do not think private mints were ever allowed. Basically individuals with gold and silver coins would deposit them at a bank and in exchange get the bank notes which was more easier to carry around than a bags of coins.

[Unknowing]

Interesting article about Clark, Gruber & Co.

http://www.money.org/AM/Template.cfm?Section=Search&section=July9&template=/CM/ContentDisplay.cfm&ContentFileID=1418

Seems unconstitutional, but it worked as a practical reality.

[Nephi]

Did you find fiat currency in the constitution, genius?