Here is a thought experiment concerning two men who have issued money. One issued gold and silver coins that will today bring more in dollars than he charged for them. The other issued paper notes that are today worth but a fraction the gold or silver they were worth at the time they were issued. One man is facing the possibility of years in prison after a federal jury found his issuing of money to have been a crime. The other man is walking around free and being treated by the authorities with great deference.
Which is which?
It turns out that the man walking free is Ben Bernanke, the chairman of the Federal Reserve. A one-dollar note that his bank issued used to be worth — as recently as, say, the start of President Bush’s first term — a 265th of an ounce of gold; today it’s value has plunged to less than a 1,400th of an ounce of gold. The man who issued the coins that will fetch more dollars today than when he issued them is Bernard von NotHaus, 67. He called his coins “Liberty Dollars,” minted them with some similarities to government money, and even though they more than held their value it turns out they’re against the law.
Von NotHaus promised a “spectacular trial” when, in 2007, he was interviewed by our Joseph Goldstein.* At the time von NotHaus was expecting to be indicted, as he eventually was, in connection with his minting of coins. His boast to our Mr. Goldstein was that he would “put this country's monetary system on trial.” In the event, the trial of von NotHaus, which took place at Statesville, North Carolina, was over in but eight days. The jury deliberated but two hours before bringing in its verdict of guilty. It will stand for many as a lesson in the difficulties of illuminating the illogic of our monetary system.
We do not suggest that Mr. von NotHaus was wrongly tried or convicted. The United States code imposes a fine or imprisonment for anyone who, “except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design . . .” The Justice Department, in a press release about the verdict, asserts that von NotHaus was placing just such coins into circulation with the purpose of mixing them “into the current money of the United States.”
Nor do we suggest that Mr. Bernanke and his colleagues at the Federal Reserve have been violating the United States criminal code by issuing their currency by fiat. Nor do we suggest that the officers and directors of the Fed are anything other than honest and honorable individuals. The Federal Reserve has, over the years, won most of its battles in the federal courts, though possible angles for constitutional challenges have yet to be exhausted.
What we do suggest is that the contrast between the Fed and von NotHaus is an example of how the scandal is not in what’s illegal but in what’s legal. When Mr. Goldstein interviewed Mr. von NotHaus in 2007, he had recently been selling a one-ounce silver coin for $20, which at the time was, Mr. Goldstein noted, several dollars above the spot price of silver. It was also at the start of a rapid collapse in the value of Federal Reserve Notes, which has plunged to the point where today a dollar is worth less than a 30th of an ounce of silver. So who is the injured party — the individual who acquired a one-ounce Liberty silver coin for $20 or the individual who kept his wad of twenty one-dollar Federal Reserve Notes?
“A unique form of domestic terrorism” is the way the U.S. Attorney for the Western District of North Carolina, Anne M. Tompkins, is describing attempts “to undermine the legitimate currency of this country.” The Justice Department press release quotes her as saying: “While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country.” Such language strikes us as hyperbolic. It may be that the monetary authorities in America fear that their own currency will be exposed as unsound. The monetary terror for the rest of Americans is the danger that there will be a further collapse in the value of their dollars or, conversely, a deflation that will make it even harder, or impossible, to pay back their debts.
The Founders of America understood all this. No doubt they wanted a national coinage. The Constitution they wrote forbids the states from making legal tender out of anything but gold or silver coins, and it is to the Congress that the Constitution gives the power to coin money and regulate its value. But they promptly defined a dollar as 371 ¼ grains of silver, which was the same as in a coin called a Spanish Milled Dollar, or the free market equivalent in gold. The record left by the Founders is replete with expressions of horror at paper money. They required our government officials to enforce the laws Congress has passed until a court tells them otherwise. But they would have understood the instinct of a man like von NotHaus to seek protection from a debasement that the Founders feared was, in respect of paper money, inevitable.