Legal Tender & 5 things I learned from D.C.

AOCS Executive Director Rob Gray testifies before the House Domestic Monetary Policy Subcommittee

As some of you know, I had a rare opportunity to testify August 2nd 2012 before the House Financial Services Subcommittee on Domestic Monetary Policy regarding parallel currencies. For a full video of the hearing, click the image on the left. It all passed so fast, and the reality didn’t set in until I left the chamber.

My first thought upon walking out of the building was really anti-climatic: “I spent all this time over the past week for that?” And to think I could have focused my time and energy somewhere else. Nonetheless, testifying in front of the House Domestic Monetary Policy subcommittee was a learning experience. Unfortunately, I don’t think they’re going to invite me back anytime soon. So here’s what I got out of it:

It’s easier to get in to congress than it is on a plane – Maybe it’s part of the new regime’s open-door policy, or maybe it’s always been like this, but apparently it’s really easy to enter the lion’s den. Simply walk in the front door, stick you cell phone and keys in a bowl, and walk right on through the metal detector, complete with shoes, jacket, belt, pocket change, lighter, liquids, gels (you don’t even need a 1-quart bag!) and anything else you feel like bringing in. There are no guard dogs, no intimidating desk clerks, and you don’t need an I.D. or boarding pass (or any other doc that proves you should be there).
Very few in government care – When you say House Financial Services Domestic Monetary Services Subcommittee to me, it sounds important. First, the domestic economy is in shambles, and our monetary policy is at the very root of this issue. Maybe you don’t know enough to agree with me, but certainly the members of the committee DO (or at least should). 30 seconds before the hearing was scheduled to start, we were still unsure if the hearing was going to start. Why? Because, as Ron Paul explained, “We need at least one other committee member here to call the session to order.” I’m sorry? No one shows up for this stuff? And that’s okay? At the scheduled hour, almost on the dot, we were lucky to be joined by Congressman Luetkemeyer, and the meeting was called to order.

Ten minutes in to the session, Congressman Al Green joined us, and then Congressman Schweikert. Congressman Green left after less than three minutes.

The most stressful part for me was wondering if I had enough time – You get 5 minutes. That’s it. My speech, in full and at the right tempo and tone, was 13 or so minutes. I cut more than half of it. I rushed at the end of the delivery just because I didn’t want to get cut off. 2 minutes after my time was up, I finally wrapped up my oral argument and realized they probably didn’t hear any of it. Except for Congressman Green, who walked out as soon as I mentioned “thieves”.
Ron Paul doesn’t understand legal tender laws or is up to something – It’s kinda a big deal to make an accusation like that, but I have a very hard time believing that he is completely ignorant of how the legal tender code actually reads.

“United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues. Foreign gold or silver coins are not legal tender for debts.” - 31 USC § 5103 – Legal Tender

I knew I should have printed this and brought it with me. Congressman Paul asked the panel of witnesses if we thought we needed to repeal the legal tender laws to make competing currencies a reality. When it was my turn to answer, I first asked Congressman Paul to summarize his understanding of the Legal Tender Laws – he said no. So, being only 99.9% sure of how the legal tender laws read, I said “Leave them alone.” They don’t need to be repealed.

A lot of inference was made to legal tender laws resulting in tax obligation, exclusive requirement and/or mandatory acceptance. Legal tender laws provide for none of this. In fact, I’ll go one step further and say (on a rare occasion) that I’m IN FAVOR of legal tender laws. Why?

Let’s suppose I go in to a restaurant with my family and order dinner. We enjoy our meal, ask for the check, and get ready to pay. Unfortunately, without sign or notice, the restaurant in Dallas exclusively accepts Korean Won. Since I do not carry won, I am unable to pay my bill. The police are called, and I’m arrested for theft. Not cool.

In the US, legal tender laws ONLY apply to debt obligations. To clarify, if you are in debt, as in you just ate your meal, in the US you must be able to satisfy that debt in federal reserve notes. Period. Legal tender laws protect you from a merchant getting creative on you and making it difficult or impossible to pay your bill. Good idea, right?

Well, it doesn’t stop there. Legal tender laws are so un-important that most/all states have plenty of exceptions to the rule. For example, a gas station can refuse any bills larger than $20. A soda machine can only accept coins. A bus driver can only accept tokens. A business owner, who has an unlimited right to private contract, can negotiate a deal in gold, silver, copper, direct barter, or any other way they like. And if that’s not enough, states will recognize this contract even in the event of a default. For example, you negotiate a contract in ounces of silver, default on the deal and lose in court: the court will still enforce the original agreement!

What legal tender laws do NOT do is make the federal reserve note the exclusive form of payment in the US. You can pay any way you like, so long as it’s agreed and accepted before you incur a debt. Again, there is no law that requires you to spend or accept federal reserve notes. None.

The part where it starts getting weird is the contradiction between the state “Honest Money Legislation” and the Ron Paul “Free Competition in Currency Act”. They seem to be opposite. The state groups want to make gold and silver Legal Tender. Ron Paul wants to eliminate Legal Tender laws. Maybe someone should bring the two groups together and get on the same page. From the state perspective, how is requiring a business to accept gold and silver fair to the business owner? I thought we want to do away with the government telling business owners how they can accept payment. What if your bill is $18, and you whip out an ounce of silver to pay. The business now has to look up the price of silver and figure out how to make change for you? What if they don’t want the silver? Are you asking the government to force them to accept it?

Congressman Paul should know all of this. He’s been saying it long enough to know what the legal tender law actually means, and he should have known that it could have been explained at the hearing in less than 10 seconds. Instead, he refused to define the words used in his question. I don’t know what it means, but something smells fishy.

Not only do they not care, but they’re almost completely clueless – the committee members asked questions about consumer protection, consumer confidence and how the poor people would deal with community currencies. I’ll address these issues one by one here:

Consumer protection – this comes down to one thing: personal responsibility. “Alternatives” are not for everyone. Some people will never buck the system, or even try anything outside the box. The ones that will must be educated on the risks associated with operating outside the jurisdiction of government. That’s the way it goes with voluntary systems. Congressman Luetkemeyer brought up the FDIC, and how it guarantees deposits. Sure, the FDIC guarantees the deposit, but it can’t guarantee the deposit’s purchasing power. Take this example: the FDIC was crafted in 1933, when gold was about $20 per ounce. If you put that $20 in the bank, today it would be worth $20, even if the bank went belly-up tomorrow. Wanna guess how much gold you can get today for $20? Not a lot. Is that consumer protection?
Consumer confidence – people are pulling money out of the banks at an alarming rate. People don’t have confidence in the system because they are beginning to realize the currency is built on a foundation of debt, and that it all must be repaid. Gold & Silver, on the other hand, are debt-free, never need to be repaid, can’t be fractionally loaned, and buys more today (in most cases) than it did through history. Which system inspires more confidence? An honest one, or one that’s run behind closed doors?
The poor people – Do you know where the poorest area of the country is right now? It’s not Detroit, Cleveland, Kansas City or some other dried-up industrial center. It’s the Pine Ridge Indian Reservation, which boasts a whopping 95% unemployment rate, 22% male suicide rate, 42-year average male lifespan, and a 75% illiteracy rate. And they decided to start their own community currency because they flat broke, not because they’re flooded with capital. It’s predominantly poor people that launch community currencies because they believe taking control of the issuance of their money will help them create economic opportunities, like producing, trading, and exporting goods and services in exchange for more capital.

All things considered, I had a great time. It was a lot of fun hanging out with [and a very special "THANKS" goes out to] Chris Duane from Silver Bullet & Silver Shield. Chris spilled the better part of a full glass of wine on a US Congressman of unknown identity at dinner.

We paid our respects to TJ at his memorial, and blasted around Georgetown. The primary goal was to [have fun and] get in front of the subcommittee and tell them the truth: we want to be left alone.

Mission accomplished.