US politicians swear oaths to protect and defend their supposed rule book, the US Constitution. Yet, for over a century (and during various periods prior to that), the US government has given a central bank the power to dictate the currency we are allowed to use in market transactions.
But the legislature of Wyoming is fighting back.
As Joe Wolverton II reports for The New American, Wyoming legislators recently and overwhelmingly passed HB 103, a bill that legalizes the use of gold and silver specie (metal coin) as currency and eliminates the tax penalty for ownership of specie -- the tax stick being something often used by politicians to smack citizens for engaging in behaviors they don’t like.
The Wyoming Legal Tender Act is a big, big deal, and the reasons for this are myriad.
First, there is the basic ethical matter of politicians mandating that free people use the currency they command. If market exchanges are truly voluntary, then those engaging in them should be able to use anything they want as a form of currency. In fact, as the great Austrian economist Carl Menger wrote in the 19th Century, and as contemporary economists like Robert Murphy remind us, the selection of certain items as currency was a spontaneous outgrowth of human interaction that began before governments, and arose as a means of facilitating easier trade than multi-person barter. Like language, like the Golden Rule, like the idea of private property ownership of oneself and the fruits of one’s labor, the practice of using a widely valued commodity as a means of currency was not dictated by government. It came about through free market trial and error and the use of subjective valuation by participants.
We not only don’t need politicians telling us we have to use a “Dollar” or a “Federal Reserve Note” as currency, our economic well-being depends on it. In fact, as I have noted for the Mises Institute, since the creation of the Federal Reserve in 1913, the “official” US currency has lost 2.5 percent of its value each year, compounded. As Dr. William Greene notes for Mises.org, that’s over 95% of its purchasing power.
And this decrease in purchasing power through inflation would happen regardless of whether the US government gave the Fed a monopoly on currency, or that monopoly were held by the US Treasury.
The key is to understand “inflation”, which is not the increase in prices so may pop media figures call “inflation”. In fact, the increase in prices comes after the inflation, which is an inflation of the money supply, or the aggregate amount of money liquidity in the system. To imagine the process in microcosm, picture yourself at an auction where there are a set number of participants, all of whom know their limits. Then, imagine a fat-cat politician standing outside the doors with a lot of cash he’s printed and is handing to new bidders.
What’s going to happen to the price of the auction item?
The actual value of it has not changed, but the price will shoot up. And this is an example of the price increase trouble we see at the end of the inflation train.
Associated with the inflation of the money supply is what Austrian School economists recognized as the “boom-bust” cycle, wherein, market participants who get the printed money first get to spend it before the cash has been widely distributed, and before prices shoot up. This, and artificially low interest rates, inspire people down the money train to sense an expanding economy, so they invest in more stock, hire more employees, etc… But once the money has started bidding up prices, as we see in the example of the single item at auction, people reduce their market activity, restrict buying, and then all those investments made by business people are shown to have been made on faulty expectations. They’re left with a lot of what is called “malinvestment”: wasteful surplus, including employees, that has to be liquidated.
The Constitution came close to preventing this kind of problem. Article One, Section Eight, Clause Five allows Congress to create money, but not the only money, and it can only be in coin form.
And Article One, Section Ten, Clause One states, among other things, that no state may create its own money, and that no state shall, “…make any Thing but gold and silver Coin a Tender in payment of Debts.”
As a result, Wolverton notes:
Distinct from many other unconstitutional programs and policies forced upon the people of the United States by judges, lawmakers, and presidents, the compulsory use of Federal Reserve notes as legal tender ‘for all debts, public and private’ is an open and hostile affront to the blackletter of the Constitution.
He also observes:
…(B)y making mandatory the acceptance of paper money (Federal Reserve notes), Congress is denying to the states a republican form of government, as it is prohibiting the representatives of the people from making laws that conform with the Constitution.
Now, thanks to the work of the Wyoming legislature, Federal Reserve Notes could be driven out of the local market by participants’ attraction to gold and silver coins that retain their value. This is a hugely significant economic move, and marks a watershed moment in constitutional history.