Jul. 20 2011 - 11:33 am | 0 views | 0 recommendations | 0 comments
By RICH DANKER
Image by AFP/Getty Images via @daylife
While most of their colleagues in Congress have sat on their hands as Ben Bernanke’s Federal Reserve has brought out the worst in the paper dollar monetary system, three U.S. senators recently began a legislative effort toward hard money. Republicans Jim DeMint, Mike Lee and Rand Paul have introduced the Sound Money Promotion Act, which removes taxes on gold and silver coins declared as legal tender by the federal government or states.
If that sounds like a narrow change, consider Sen. DeMint’s statement with its introduction. “Thanks to the government’s reckless over-spending, continued bailouts and the Federal Reserve’s easy money policy, this year the purchasing power of the dollar hit an all-time low in the several decades since we went off the gold standard,” he said. “In order to rebuild strength and confidence in our economy, we need both the fiscal discipline to cut wasteful spending and the monetary discipline to restrain further destructive monetizing of our debt. This legislation would encourage wider adoption of sound money measures, and that’s a step in the right direction.”
Today there is approximately $20 billion worth of U.S.-minted gold and silver coins in circulation, most of which have been demonetized owing to the 28% tax slapped on them by the IRS. Since the U.S. abandoned the gold standard, they have gone from money to collectibles on par with rugs, stamps, and bottle caps in the eyes of the taxing authority. Because they are undervalued at their face definition and the tax wedge discourages them from being used at their fair market value, the coins are sidelined as “good money” while the U.S. dollar (a worthy foil as “bad money”) reigns supreme.
But times are changing. Start in Sen. DeMint’s home state of South Carolina, where Rep. Mike Pitts introduced H.B. 4128 legislation that makes gold and silver coins legal tender in the state. It drew 13 co-sponsors, including House Majority Leader Kenny Bingham. Senate Banking and Insurance Committee Chairman David Thomas introduced a companion bill. The point is to encourage the use of the coins as money, which is why the bill also eliminates state taxes on them. It derives its legal authority from Article I, Section 10 of the U.S. Constitution, which says no state may “make anything but gold and silver coin a tender in payment of debts.”
Although South Carolina had proposed similar bills before, H.B. 4128 was important because it followed the passage of the Utah Legal Tender Act in March. Utah became the first state in more than a century to recognize gold and silver coins as legal tender. Plans are underway to open a local depository that will allow customers to make everyday purchases with a debit card linked to their coin holdings at fair market value. Citizens will have a way to avoid the diminishing buying power of the dollar through money that retains its worth.
If multiple states adopt legal tender legislation, depositories open, and the DeMint-Lee-Paul bill becomes law, there will be an alternative monetary system. For some that system could become the way of doing business. But for most it will probably be used as a form of protest against the dollar. That’s why the use of gold as money and the backing of the dollar with gold are compatible and necessary.
The gold standard, where a dollar is defined by a weight unit of gold, will enable people to use the same currency at a secured value. If there becomes reason to question that value, people can switch from dollars to gold currency (most easily through electronic payment systems like debit cards). The monetization of gold through legal tender laws and removal of taxes will restrain the government from reneging on the gold standard by putting gold on an equal footing with the dollar. When the dollar is as good as gold and gold as good as the dollar, we’ll have a sound and efficient monetary system worthy of the American economy.
Rich Danker is Project Director of Economics at American Principles in Action, a Washington policy organization