by Dr. Edwin Vieira, Jr., Ph.D., J.D.
PART ONE of this commentary explained why reform of America’s monetary and banking systems requires introduction of a private electronic gold currency as a parallel medium of exchange to compete with Federal Reserve Notes and the Treasury’s base-metallic coinage. PART TWO explained why a State would provide the best vehicle for introducing such a new monetary unit. This PART highlights some of the specifics of the plan as they apply to the model State, New Hampshire. The latest version of the New Hampshire bill can be found at http://www.goldmoneybill.org
A. The State Electronic Gold Currency Plan is based on two fundamental principles of law and economics: (i) that the Constitution provides for monetary federalism, whereby each State retains sovereignty over her own monetary transactions; and (ii) that individual choice and free competition among various currencies in the open market offer the most rational, efficient, and politically safe way for society to select its media of exchange.
1. Congress lacks constitutional power to require that the States use any particular medium of exchange or “legal tender” in the exercise of their governmental functions. In addition, although Congress has mandated that “United States coins and currency (including Federal reserve notes) are legal tender for all debts, public charges, taxes and dues”, it has also declared that all “obligation[s]…containing a gold clause or governed by a gold clause…issued after October 27, 1977” are legal.
The New Hampshire bill deals with the most important of every State’s reserved sovereign functions: namely,
*borrowing by the State;
*payment of State legislators, officials, employees, contractors, suppliers, and so on (that is, public spending);
*payment for takings of private property through exercise of the power of eminent domain; and
*payment of judgments, fines, penalties, and other monetary awards in the State’s courts.
Moreover, by specifying the use of gold for receipts and payments in these areas, the New Hampshire bill plainly operates on the basis of “gold-clause contracts”. So, both constitutionally and statutorily, the bill removes the State’s monetary policy from control by Congress, the Department of the Treasury, or the Federal Reserve. To be sure, Article I, Section 10, Clause 1 of the Constitution imposes absolute limits on a State’s monetary policy:
No State shall…coin Money; emit Bills of Credit; [or] make any Thing but gold and silver Coin a Tender in Payment of Debts.
In using electronic gold currency as her medium of exchange, however, New Hampshire will not be “coin[ing] Money”, merely employing a private “Money” over the creation of which she has no control. And even the gold or silver coins into which the bill requires that an electronic gold currency be freely convertible are not “Money” that the State herself has “coin[ed]”.
Neither will the State be “emit[ting] Bills of Credit” when she employs electronic gold currency as her medium of exchange. For such a currency is not anyone’s mere “Bills of Credit” that only promise to pay gold, but consists instead of the actual gold that is the very stuff of payment.
And when the State offers electronic gold currency “in Payment of [her] Debts”, she will in effect “Tender” such “gold and silver Coin” as her creditors may desire to receive by the statutorily required conversion of their electronic gold currency into coinage. Thus, her creditors, not the State, will fix what shall be the exact form of the gold or silver that functions as the final “legal tender” for their own transactions.
2. The New Hampshire bill does not require that everyone use only electronic gold currency in their financial transactions with the State. Although, consistently with Article I, Section 10, Clause 1, the State could do just that: For in reciting that “[n]o State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts”, that Clause plainly reserves to each State her original sovereign power to “make…gold and silver Coin a Tender”, to the exclusion of everything else. Rather, in keeping with the principle that the question of which media of exchange are best suited to people’s needs should be decided through open and fair competition in the free market, the bill leaves the choice to use electronic gold currency, or not to use it, to each individual or enterprise (with the exception of a small class of taxpayers and parties subject to certain judgments adjudicated in the courts, to be discussed below). Thus, New Hampshire will have a system of parallel and competing media of exchange, to the exact degree her own citizens and businessmen desire it.
As those citizens and businessmen increasingly realize that gold is a medium of exchange far superior to such political currencies as Federal Reserve Notes and base-metallic coinage, the State will enjoy numerous benefits. For example,
•The use of electronic gold currency in people’s financial transactions with the State will encourage and facilitate its use in their general commercial transactions, because people who receive that currency from the State will want to spend it directly for their own purposes; and people who need electronic gold currency to make regular payments to the State will want to receive it directly in their own businesses and employment.
•People’s increasing use of electronic gold currency in financial transactions other than those involving the State will encourage the expansion of the new financial institutions the New Hampshire bill recognizes, as well as promoting entry into the field by existing banks, which will recognize the advantage–and soon the necessity–of offering such services.
•These financial institutions and reformed banks can be expected in short order to offer, not only deposit accounts, but also investment or loan accounts, in which customers deposit electronic gold currency that the depositaries then loan to other clients, sharing the interest-earnings with their depositors. (These investment or loan accounts, of course, will have to be strictly segregated from the institutions’ and banks’ gold deposit accounts, and not be allowed to serve as a basis for issuing gold currency units.) Long-term loans for capital development will especially benefit from being denominated in gold, because of the low rates of interest that payments guaranteed in that medium will allow. And,
•The development of an economy in which gold plays an important role as a medium of exchange for capital investment will encourage new investment in New Hampshire, because capital tends to flow towards a stable economy, and foresighted investors always consider an economy to be more stable the more stable its medium of exchange, and the more supportive of that medium and its stability the government is.
Thus, this bill can significantly contribute to a solid foundation for New Hampshire’s economy for a long time to come. Is that too optimistic a forecast? Hardly as optimistic as the degree to which one must be pessimistic (or just plain realistic) about the future of the present monetary and banking regimes.
B. Some particulars of the New Hampshire bill merit attention, too.
•”Section 6-D:3 Duties of the Treasurer” defines the special duties the State’s Treasurer must fulfill with respect to New Hampshire’s use of electronic gold currency. This provides guidance to the Treasurer, and sets standards by which his performance can be evaluated. After all, the State’s use of electronic gold currency will be both novel and controversial. Without precise directions, the Treasurer may not understand the extent of his authority and how he is to exercise it. He may also find himself under adverse political pressure, or even be personally unsympathetic or antagonistic to the idea of gold as currency. A clear statement of his duties will contribute to the Treasurer’s proper, efficient, and even-handed execution of his responsibilities.
•”Section 6-D:4 Electronic Gold Currency Payment Providers” establishes strict qualifications and standards of operations for the private firms that will supply electronic gold currency for the State’s use. This weeds out any “fly-by-night operators”, particularly those who might attempt to employ a fractional-reserve scheme in their issuance of gold currency units. An important goal of the bill is to insulate the State herself (and, eventually, New Hampshire’s whole economy) from the dangers inherent in the present Ponzified regime of fiat currency and fractional-reserve central banking. This purpose would be defeated if the firms supplying electronic gold currency were permitted to function in that unsound manner.
•”Section 6-D:5 Independent Specie Vaults” establishes qualifications and standards of operations for the private firms that will hold in safekeeping the actual gold on the basis of which the Electronic Gold Currency Payment Providers will furnish electronic gold currency. This eliminates any and all fractional-reserve practices, guaranteeing instead that the system operates exclusively on the safe principle of “bailment”–whereby the depositaries hold their customers’ gold or silver not as the depositaries’ property, to which the depositors have only a claim for the payment of a debt, but as the depositors’ property, in which the depositaries can assert no proprietary interest whatsoever.
•”Section 6-D:6 Specie Exchanges” establishes qualifications and standards for the private firms that will engage in free-market exchanges of electronic gold currency for gold and silver coin, or Federal Reserve Notes. This makes gold and silver coin the ultimate media of payment into or out of the system. Thus, electronic gold currency units can be created from, and converted into, gold and silver coin–and while those units are in existence, they will represent an exact, insured equivalent of actual gold bullion held in safekeeping.
•”Section 6-D:7 Use of Gold and Silver” establishes the State’s policy of not requiring any person or enterprise that deals with the State to use anything but electronic gold currency as a medium of exchange; lists the State’s essential sovereign functions as to which such currency will be employed; and offers to enter into “gold-clause contracts” with all creditors of the State to the extent the Treasury holds sufficient gold to pay out at that time. This takes the State out from under the national legal-tender law, and empowers her people, to the degree they desire to exercise that power, effectively to “demonetize” Federal Reserve Notes and base-metallic coinage in their financial transactions with the State.
•”Section 6-D:8 Use of Gold and Silver; Taxes and Other Public Charges” requires that State tobacco taxes be paid in electronic gold currency. Although tobacco taxes are relatively small in amount (estimated to be somewhat less than 10% of New Hampshire’s annual revenue) they will provide the State with a regular income in gold that will enable her to pay the first creditors who desire to receive gold. If, on the one hand, more creditors request payment in gold than the tobacco taxes can satisfy, the Treasurer may convert holdings of Federal Reserve Notes into electronic gold currency, or advise New Hampshire’s Legislature to mandate that other taxes or public charges be made payable in gold. If, on the other hand, tobacco taxes prove more than sufficient to satisfy creditors’ requests, the residual amount of gold held by the State can be treated as an investment, or can be converted into Federal Reserve Notes or other assets as necessary.
•”Section 6-D:9 Use of Gold and Silver; Loans, Bonds, and Notes” allows for State debt to be denominated and paid in electronic gold currency. Use of gold as the guaranteed medium for payment of her bonds will enable New Hampshire to borrow at low interest rates for long periods, stabilize her long-term indebtedness, and increase her credit rating.
•”Section 6-D:10 Use of Gold and Silver; Purchase and Sale of Property by the State” permits the State to buy and sell property of all kinds for electronic gold currency. As the process of governmental purchase and sale sets prices in gold for various types of property, it will assist in expanding the use of electronic gold currency in similar private commerce throughout the State, by providing the base on which a general structure of prices denominated in gold can be built.
•”Section 6-D:11 Use of Gold and Silver; Expropriated Property” allows payment in electronic gold currency for property taken by the State through exercise of her power of eminent domain. This will eliminate the incremental confiscation that can occur when “fair market value” for such property is purportedly paid in a chronically depreciating currency such as Federal Reserve Notes. Full payment of “fair market value” for any property requires payment with a truly free-market, not a political, currency.
•”Section 6-D:12 Use of Gold and Silver; Damages, Fines, and Penalties” allows, and in some cases requires, judicial damages, fines, and penalties to be paid in electronic gold currency. This curtails the ability of judges arbitrarily to decide what shall be the tender for these payments on the basis of their erroneous interpretations of monetary law, either requiring that the tender be gold, or leaving that choice to the private parties involved.
•”Section 6-D:13 Use of Gold and Silver; Contracts, Wages, and Fees” allows public employees and public contractors to be paid in electronic gold currency. This will assist in further expanding the use of such currency in private commerce throughout the State, by providing more foundational blocks upon which a general structure of prices denominated in gold can be erected.
•”Section 6-D:14 Notification of Choice of Medium of Payment” and “Section 6-D:15 Limitations on Payments of Gold and Silver by the State” require persons or enterprises desiring payment in electronic gold currency to elect such payment on a timely basis, and limit total payments of that currency to the amounts the State holds at that time. This is necessary because, when the statute is first implemented, the State’s only gold income will be relatively small, deriving solely from tobacco taxes and judicially imposed fines and penalties. The State cannot be required to convert its larger holdings of Federal Reserve Notes into gold in order to pay its creditors in the latter medium of exchange–for that would be to compel New Hampshire to redeem in gold the very notes the Federal Reserve System and the Department of the Treasury have refused to redeem since the 1930s. As more creditors of the State request payment in gold beyond the amounts collected through tobacco taxes and fines, however, public pressure will compel New Hampshire’s Legislature to designate more taxes and other forms of State income payable exclusively in gold, until eventually the State, her debtors, and her creditors will deal solely in that medium of exchange.
To be sure, the New Hampshire electronic currency bill is long and somewhat involved, because it tries to foresee and address every problematic contingency, leaving as little as possible to chance. In principle, though, the bill is very simple, because it promotes monetary freedom and the honesty such freedom imposes on the government in the most straightforward manner possible: free competition among media of exchange in the open market. That alone should be enough to warrant its support by every patriot.
1 See Lane County v. Oregon, 74 U.S. (7 Wall.) 71 (1869); Hagar v. Reclamation District No. 108, 111 U.S. 701 (1884).
2 Title 31, United States Code, Section 5103.
3 Title 31, United States Code, Section 5118(d)(2).
4 Distinguishably from Clauses 2 and 3 of Article I, Section 10, Clause 1 does not contain the exception: “[n]o State shall, without the Consent of Congress….” That means that Congress lacks any power to license a State to do any of the things Clause 1 forbids. So, for example, even if Congress had constitutional authority to create a “legal tender” other than “gold and silver Coin”, it could not require any State to use that “legal tender” as “a Tender in Payment of Debts”.
5 Title 31, United States Code, Section 5103.
© 2005 Edwin Vieira, Jr. – All Rights Reserved