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Gold Bills and Legal Tender: Two wrongs make a right?

Gold Bills and Legal Tender: Two wrongs make a right?

By: Ron Helwig

Gold Bills and Legal Tender: Two wrongs make a right?
By Ron Helwig

Many people in favor of sound money are making a claim that ought to
be refuted. I believed myself for quite some time that the U.S.
Constitution prohibits the states from accepting anything but silver
and gold as legal tender or for paying taxes. The wording in the
Constitution almost says that, but not quite. While the states can’t
make anything but gold and silver legal tender, it doesn’t limit the
ability of the federal government to make other things legal tender,
thus enabling the states to do so via federal legislation.

Now, the intention of the clause in Article 1 Section 10 is pretty
clear: the federal government makes the coins, and the states use the
coins, and that should be that. But the wording is a little more
specific. It only says that the states cannot make anything other than
gold and silver into legal tender for debts. It doesn’t limit the
states with respect to non-debt transactions, nor does it prevent the
federal government from allowing states to use something else. It does
prevent the states from making their own coins, however.



So in that respect the Federal Reserve system’s notes and their being
legal tender is technically within the confines of the Constitution.
We sound money advocates are correct in wanting the Fed ended, but the
Constitutional argument isn’t our strongest weapon.

Another strategy people have used is getting so-called “gold bills”
through their state legislatures, attempting to have the states return
to sound money by passing laws to make their state act as the federal
government is supposed to: using coins of silver and gold as money.
This too is flawed, in great part due to the restrictions placed upon
the states by the Constitution.

As we saw earlier, the states are prevented from coining their own
money. In addition, they are prevented from making non-government
bullion legal tender by laws defining “coin” as that produced by
government. In other words, the federal government has used its power
to coin and regulate money to define “coin” (for purposes of legal
tender, at least) as only the stuff it produces.

So when these gold bill laws get passed, they are bound by the
Constitution to only use coins produced by the U.S. Mint. So far it
all still seems good and likely to be helpful in a gradual return to
sound money. So where’s the catch? The face value, for starters.

The federal government controls the face value of the coins it
produces, and it keeps them far lower than their actual market value.
The federal government, and especially the I.R.S., can and will insist
that for purposes of any transactions with the Federal government, the
face value will be the one that matters, except when using the market
value benefits the feds - then it will insist that the market value is
what matters. This will mean that the market will be confused. In some
cases the coins will be used at market value of the metal, while in
other cases they will be used at face value (For anyone not
understanding or accepting this analysis, I ask that you research the
Kahre case. A more specific search phrase would be “Robert Kahre tax
case”.) Never forget that the people that make up the rules not only
change them at their whim, but selectively follow them (or not) when
it suits them.



This will not only confuse the people wanting to use the coins, but
also cashiers. As much as we’d like it, not a lot of people are going
to carry around one ounce coins. That means that cashiers aren’t
likely to see them very often, and so won’t likely know how to handle
them. They might just look at the face value and only try to accept
that. Or they might be confused as to where to put it in the cash
drawer - they are bulky.

And apparently even in the places where they have passed these laws,
such as Utah, they aren’t seeing much success (for example, Rep. Brad
Galvez, R-West Haven in Utah, sponsored legislation last year
to recognize gold and silver as legal tender)

But there is some hope from these efforts. At the very least they are
additional outreach and education to the general public, making the
case for sound money. As these laws get passed, there are a few likely
outcomes.

1) They can be ruled unconstitutional. The effect of this will be to
refocus the efforts of sound money advocates to more effective tactics
while educating the public even more about sound money.

2) They will be tolerated and used by only a few. The “powers that be”
might choose to not challenge these laws, under the assumption that
they are a useful pressure valve to sap the energy of “gold bugs”. In
the end though, if as I suspect, the market mostly rejects the use of
low face value coins, the proponents will soon enough realize the
tactic isn’t working and will refocus.

3) I do admit the possibility that I could be wrong, and these efforts
might become successful. Eventually though, even if we do restore
sound money at the state and national levels, these coins are not
going to be all that popular with the general public and they will
desire a return to paper or plastic.



In the long run, coins as currently and historically produced by the
government are not viable. They are too cumbersome and heavy for a
population that is used to the convenience of paper and plastic. But
of course we can’t expect government to get it right, and we
shouldn’t. While these tactics and arguments might move the culture
towards sound money, eventually we need to separate government and
money altogether. This is where I’m placing most of my efforts, and
hopefully a lot of you will join this great endeavor.
 
Ron Helwig is the owner of ShireSilver.Com




 
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