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Ron Paul in the US House
of Representatives, July 25, 2003
Mr. Speaker, I rise to introduce
the Honest Money Act. The Honest Money Act repeals legal tender laws, a.k.a.
forced tender laws, that compel American citizens to accept fiat (arbitrary)
irredeemable paper-ticket or electronic money as their unit of account.
Absent legal tender laws,
individuals acting through the markets, rather than government dictates,
determine what is to be used as money. Historically, the free-market choice
for money has been some combination of gold and silver, whenever they were
available. As Dr. Edwin Vieira, the nation’s top expert on
constitutional money, states: “A free market functions most efficiently
and most fairly when the market determines the quality and the quantity of
money that’s being used.”
While fiat money is
widely accepted thanks to legal tender laws, it does not maintain its
purchasing power. This works to the disadvantage of ordinary people who lose
the purchasing power of their savings, pensions, annuities, and other
promises of future payment. Most importantly, because of the subsidies our
present monetary system provides to banks, which, as Federal Reserve Chairman
Alan Greenspan has stated, “induces” the financial sector to
increase leverage, the Federal Reserve can create additional money, in Mr.
Greenspan’s words, “without limit.” For this reason, absent
legal tender laws, many citizens would refuse to accept fiat irredeemable
paper-ticket or electronic money.
Legal tender laws
disadvantage ordinary citizens by forcing them to use money that is
vulnerable to vast depreciation. As Stephen T. Byington wrote in the
September 1895 issue of the American Federationist: “No legal tender
law is ever needed to make men take good money; its only use is to make them
take bad money. Kick it out!” Similarly, the American Federation of
Labor asked: “If money is good and would be preferred by the people,
then why are legal tender laws necessary? And, if money is not good and would
not be preferred by the people, then why in a democracy should they be forced
to use it?”
The American Federation
of Labor understood how the erosion of the value of money cheated working
people. Further, honest money, i.e., specie, was one of the three issues that
encouraged ordinary people to organize into unions when the union movement
began in the U.S. circa 1830.
While harming ordinary
citizens, legal tender laws help expand the scope of government beyond that
authorized under the Constitution. However, the primary beneficiaries of
legal tender laws are financial institutions, especially banks, which have
been improperly granted the special privilege of creating fiat irredeemable
electronic money out of thin air through a process commonly called fractional
reserve lending. According to the Federal Reserve, since 1950 these private
companies (banks) have created almost $8 trillion out of nothing. This has
been enormously advantageous to them.
The advantages given
banks and other financial institutions by our fiat monetary system, which is
built on a foundation of legal tender laws, allow them to realize revenues that
would not be available to these institutions in a free market. This
represents legalized plunder of ordinary people. Legal tender laws thus
enable the redistribution of wealth from those who produce it, mostly
ordinary working people, to those who create and move around our irredeemable
paper-ticket electronic money which is, in essence, just scrip.
The drafters of the
Constitution were well aware of how a government armed with legal tender
powers could ravage the people’s liberty and prosperity. That is why
the Constitution does not grant legal tender power to the federal government,
and the states are empowered to make legal tender only out of gold and silver
(see Article 1, Section 10). Instead, Congress was given the power to
regulate money against a standard, i.e., the dollar. When Alexander Hamilton
wrote the Coinage Act of 1792, he simply made into law the market-definition
of a dollar as equaling the silver content of the Spanish milled dollar
(371.25 grains of silver), which is the dollar referred to in the
Constitution. This historical definition of the dollar has never been
changed, and cannot be changed any more than the term “inch,” as
a measure of length, can be changed. It is a gross misrepresentation to
equate our irredeemable paper-ticket or electronic money to
“dollars.”
However, during the 20th
century, the legal tender power enabled politicians to fool the public into
believing the dollar no longer meant a weight of gold or silver. Instead, the
government told the people that the dollar now meant a piece of
government-issued paper backed up by nothing except the promises of the
government to maintain a stable value of currency. Of course, history shows
that the word of the government (to protect the value of the dollar) is
literally not worth the paper it is printed on.
Tragically, the Supreme
Court has failed to protect the American people from unconstitutional legal
tender laws. Salmon Chase, who served as Secretary of the Treasury in
President Lincoln’s administration, when he was Chief Justice of the
Supreme Court, dissenting in Knox vs. Lee, summed up the argument against
legal tender laws in twelve words: “The legal tender quality [of money]
is only valuable for the purposes of dishonesty.” [emphasis added.]
Another prescient Justice
was Stephen Field, the only Justice to dissent in every legal tender case to
come before the Court. Justice Field accurately described the dangers to our
constitutional republic posed by legal tender laws: “The arguments in
favor of the constitutionality of legal tender paper currency tend directly
to break down the barriers which separate a government of limited powers from
a government resting in the unrestrained will of Congress. Those limitations
must be preserved, or our government will inevitably drift from the system
established by our Fathers into a vast, centralized, and consolidated
government.” A government with unrestrained powers is properly
characterized as tyrannical.
Repeal of legal tender
laws will help restore constitutional government and protect the
people’s right to a medium of exchange chosen by the market, thereby
protecting their current purchasing power as well as their pensions, savings,
and other promises of future payment. Because honest money serves the needs
of ordinary people, instead of fiat irredeemable paper-ticket electronic
money that improperly transfers the wealth of society to a small specially
privileged financial elite along with other special interests, I urge my
colleagues to cosponsor the Honest Money Act.
Ron Paul
www.house.gov/paul
Congressman Ron Paul of Texas enjoys a national reputation as the
premier advocate for liberty in politics today. Dr. Paul is the leading
spokesman in Washington for limited constitutional government, low taxes,
free markets, and a return to sound monetary policies based on
commodity-backed currency. For more information click on the Project Freedom website.
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