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A rambling (be warned!) and maybe kooky but somewhat educational post on a few principles of economic theory by Maynard

As Madame Speaker said, we’d know what was in the Health Control bill after we passed it. The other day, we learned the health bill augments the 1099 tax form to track gold coin transactions.

This is another surprise attack in the economic war of the government against the people. You should know more about this war, since you’re in it.

Some history:

Until the Great Depression, Western nations were broadly on the gold standard. This meant that money equated to gold. Non-gold money existed as a matter of convenience, but it was not legal tender (meaning you weren’t legally compelled to accept it in settlement of a debt).

The gold standard has both advantages and disadvantages, and I don’t want to oversimplify the debate. The advantage of gold is it’s in limited supply that doesn’t change quickly, and this assures a stable money supply. A disadvantage is that physical possession of gold is clumsy and risky. Then there’s the argument that under some circumstances it’s helpful to expand the money supply, because there simply isn’t enough gold to flow through large modern economies. Is monetary flexibility, which the gold standard lacks, a good thing?

People write books about this stuff, but I just want to make one point here: The gold standard is outside of government control, because money is a thing you possess (gold!), and gold is hard for authorities to control (which doesn’t stop them from trying). So governments never liked gold, but it was regarded as a necessary evil because the people historically learned to distrust government paper.

But the history of the world is like Charlie Brown rushing once again to kick the football Lucy is holding for him. The people forget the hard-learned lessons of their grandfathers, and governments take advantage of the replenished naiveté. Between the time of the Great Depression and the 1970’s, America and the world transitioned through a series of steps from gold to fiat money (meaning government-created paper money that the government commands you to accept). (Some would say the transition started with the creation of the Federal Reserve in 1913.)

Gold comes from a gold mine. Anybody can dig a gold mine. Modern dollars come only from the government.

Because government dollars are central to all significant economic transactions, the government has its fingers in everything. Consider that, in pursuit of your personal livelihood, you are allowed fewer rights and less privacy than a criminal. Your employer tells the government how much money you were paid, and so does your bank. Likewise, you’re compelled to report the money you paid to employees or others. Certain cash transactions are hard to monitor, but your bank will report you to the government if you withdraw too much cash. Big players send money abroad, but our government pressures foreign banks to disclose private information.

We’re so used to having no financial privacy whatsoever that we take the situation for granted. But consider how many criminals are freed because of an unreasonable search. Think of the sharp limits applied to law enforcement agencies, and the presumption of innocence until proven guilty. If the IRS questions you, the burden is on you to prove your innocence. If they tell your bank to freeze your account, you’re stuck. If you’ve ever had a dust-up with the IRS, you know what I mean.

Contrast our lack of financial privacy against the brouhaha from our self-proclaimed guardians of civil liberties in response to the Patriot Act. The people who are troubled when the government looks into your communications with the Taliban are perfectly happy to leave you open to the continuous financial equivalent of a cavity search.

Don’t get me wrong. I’m not making this into a simple anti-government rant. There are plenty of good reasons for the existing system, and I wouldn’t casually suggest we tear it down. It’s also worth noting that a lot of the people seeking to evade government financial scrutiny are drug dealers or terrorists or other truly nasty criminals. But neither should we forget the cost, or the ideals and principles we have abandoned.

Aside from the loss of privacy, government fiat money is subject to abuse by whoever controls the printing press. A government always wants to spend more money than it has, and one way to do that is to debase the money supply. It’s politically more popular to print money than it is to raise taxes, and governments are nothing if not sneaky…even when they’ve pledged to be open and transparent. When the economy is disrupted by fiscal mismanagement, people run around blaming each other, rather than the guy with the printing press. In fact, the guy with the printing press uses turmoil as an excuse to perpetrate more fiscal mismanagement than ever. (For example, it’s clearly on the record that Barney Frank was instrumental in steering us into the mortgage meltdown by his aggressive advocacy of unsound lending practices, even as others were warning of catastrophe. But Frank, who in any sane world would be locked out if not actually locked up, found his power has been increased by the disaster, as people demand the government “save” them from this awful situation.)

So if you want freedom from government oversight and overreach, then you’ll either keep false books or you’ll resort to barter transactions that don’t appear on the books at all. Either path sets you on a collision course with authority. But is there anything a citizen can do that’s both safe and legal, or at least closer to being safe and legal? Can we ease away from the Federal monopoly dollars?

The government is deathly afraid of losing control of your assets. If the idea of a money-substitute such as gold catches on, the government will react by pushing the people back onto their radar. Hence the new law slipped into the health control bill.

I have a dream. And I’ll admit that this is a stupid dream; an unrealistic dream; a dream that is not thought out. So please mute your enthusiasm, because I’m doing nothing here but speaking in the vaguest possible terms about where we want to get to. But the goal is to give “we the people” an alternative to the dollar. Rather than being forced to hold our assets in government paper, there should be a new private currency (call it a “NewBuck”), managed by an authority that acts with integrity and is accountable only to the people that hold NewBucks.

The dollar was once respected because you could exchange it for gold. Now it’s respected only by custom and force of law. We take the dollars because the next guy will take the dollars from us. Not to mention that it’s illegal to refuse dollars. But our confidence in the underlying integrity of the dollar is dwindling.

What would a NewBuck be? Should it be a coin with intrinsic value? That’s appealing but clumsy. Precious metals are a commodity that fluctuate in value, so your savings would be unstable. And healthy capitalism requires banks and the liquid flow of capital, rather than a bunch of people with gold stashed away in the cellars. No, gold and silver have their place, but I don’t think we can save the world simply by minting coins.

For a widespread operation, we would need electronic accounts just like your current bank account, probably managed by a data processing center on one of the banking haven islands. (It would be nice if we could take over an island nation for this purpose. Maybe we could buy Sealand?) The movement would start with a small network of businesses that would accept NewBucks in trade. Maybe get a national chain of fast food restaurants on board. Once you’ve got that, your new currency has momentum. Maybe a NewBuck is the price of a hamburger. That means more than you realize. The price of a hamburger is more stable than the price of gold.

Of course, the NewBucks would have to reach the critical mass of greater acceptance. Obviously the fast food restaurants would have to be able to spend or redeem them. Jump-starting the process of creating a new circulating medium is no small trick.

If any of the foregoing started to become real, the government would declare war on you. For all the reasons discussed in this article, the government couldn’t allow the NewBuck to displace the dollar. It would be foolish to initiate an enterprise like this without carefully considering how to stand against the government.

I could speculate at length, but I’ve said enough along these lines for the moment. I’ll close by pointing out a cautionary story that’s been a footnote in the news in recent years. Several years ago, someone actually tried to create an alternative currency called a “Liberty Dollar”. The idea was to mint coins with silver or gold in them and get merchants to accept those coins. This operation has been stomped down by the Feds. Their website, LibertyDollar.org, now announces: “Site Removed Due to Court Order”. So much for freedom of expression.

I don’t want to rush to defend the Liberty Dollar. I don’t know enough about the situation to offer a definitive opinion. The Wikipedia entry reports that the government saw an unsavory element of multilevel marketing in the operation. I can’t say that’s not the case. And it may be that the term “dollar” should have been avoided, in that it implies legal tender.

On the other hand, it’s not clear how Liberty Dollar’s offences are more than mere technicalities. It seems that people were interested in the notion of Liberty Dollars because they understood how unsound the ordinary dollars have become. I think the government hit hard against the Liberty Dollar out of fear rather than due to any serious transgression.

You can see the usual “magic bullets” entering the debate in this Washington Post report.

‘Liberty Dollars’ Can Buy Users A Prison Term, U.S. Mint Warns

…the U.S. Mint would like to remind Liberty Dollar users that since the United States already has its own currency, the only thing Liberty Dollars buy in these parts is a jail term…

…there’s a potentially more sinister side to all this. A 1999 report by the Southern Poverty Law Center calls Norfed a far-right anti-government group that has “long claimed that American dollars are . . . part of a vast conspiracy by international bankers to defraud the rest of the world.” The center links some Norfed devotees to far-right hate groups.

“That definitely is not the philosophy of the organization,” Johnson said. “I’ve been a Republican for most of my life. . . . We are focused on the mainstream. . . . I guess we are libertarian. But definitely not anti-government.”

The U.S. Mint acted after federal prosecutors around the country began forwarding inquiries about the coins. “We don’t take these consumer alerts lightly,” said spokeswoman Becky Bailey. “Merchants and banks are confronted by confused customers demanding they accept Liberty Dollars. These are not legal coin.”

Norfed responded to the Mint on its Web site. “Here it is in plain sight . . . the Liberty Dollar is not a coin, not legal tender, and backed with inflation proof gold and silver!”

Kooky, maybe. But do they need to be locked up? The Southern Poverty Law Center, cited by the Post, is another agenda-driven organization. Is the government protecting the people, or is it protecting its own ability to abuse the people?

I’m not going to resolve the question here. For further information, check out some YouTube videos. And if you care to Google, there’s a lot more on the subject out there.

This is an educational report on the difference between fiat currency and bullion coins, as exemplified by the Liberty Dollar.

Here are some news reports on the raid against the Liberty Dollar organization: Part 1, Part 2, Part 3.

There is a dated blog post at LibertyDollarArrest.blogspot.com.

A report in Reason on the FBI raid.