"AN ACT relating to the designation and use of silver and gold
coin as media of exchange with respect to essential sovereign functions
in the State of NEW HAMPSHIRE."
COMMON QUESTIONS / OBJECTIONS ANSWERED
1. Americans have been
using Federal Reserve Notes for some ninety years —so why stop
a. The Federal Reserve Notes Americans use today are not the
same, economically or legally, as the Federal Reserve Notes used in
Federal Reserve Notes have gone through a process of deterioration.
From 1913 to 1933, they were directly redeemable in United States gold
coin; and the banks were required to maintain a reserve of gold equal
to forty percent of their outstanding notes. Redeemability of Federal
Reserve Notes in gold for American citizens was terminated in 1933;
but the notes remained indirectly redeemable in silver from 1933 until
1968. Redeemability of Federal Reserve Notes for foreigners was terminated
in 1971. So, today, Federal Reserve Notes are irredeemable in gold or
silver. See Title 31, United States Code, Section 5118(b, c). Thus,
the present situation is radically different from what it was prior
to 1968 or 1971.
Furthermore, the supply of Federal Reserve Notes (and of bank deposits
payable in those notes) has greatly expanded since the 1950s, seriously
eroding the purchasing power of all United States paper currency and
base-metallic (“clad”) coinage. Indeed, from 1985 to 2000,
while the production of material goods in the United States increased
by 50%, the money supply increased by 300%.
In sum, today the purchasing power of Federal Reserve Notes has no anchor
in a valuable monetary commodity (silver or gold); and the policy of
the Federal Reserve System is to increase the supply of those notes
(and related bank deposits), thereby further sinking the notes’
b. The proposed legislation does not stop—or in any way inhibit—the
use of Federal Reserve Notes or base-metallic coin. It simply enables
citizens of New Hampshire to use United States silver and gold coin
in preference to other media of exchange in their monetary transactions
with the State, if they choose to do so.
Both before and after the Federal Reserve System was created in 1913,
the United States minted silver and gold coins. Entirely base-metallic
“clad” coinage began to be minted only in 1970. So, today,
Congress has authorized a multiform monetary system, consisting of Federal
Reserve Notes irredeemable in silver or gold [see 12 U.S.C. § 411
and 31 U.S.C. § 5118(b)], base-metallic coin [see 31 U.S.C. §
5112(a)(1-6)], silver coins [see 31 U.S.C. 5112(e)], and gold coins
[31 U.S.C. § 5112(a)(7-10)], all of which are equally “legal
tender” [see 31 U.S.C. §§ 5103 and 5112(h)], and any
of which any individual may use to the exclusion of the others [see
31 U.S.C. § 5118(d)(2)].
Under the proposed legislation, those citizens of New Hampshire who
prefer to use irredeemable Federal Reserve Notes and base-metallic coinage
may continue to do so. But they will make this choice intelligently,
knowing of their option to use silver and gold coin instead.
2. Why should New Hampshire question what the national government is
doing with regard to monetary policy?
New Hampshire is not questioning, but is actually implementing, Congres-sional
monetary policy. As explained in No. 1, above, Congress has authorized
several types of money as official media of exchange, but has not given
a special position or preference to any. Through the proposed legislation,
New Hampshire will enable its citizens to choose among these various
media of exchange, and will facilitate their choices.
To fulfill its duty to protect its citizens’ economic welfare,
New Hampshire needs to concern itself with the instability of the present
monetary and banking regimes. See No. 4, below. Obviously, Congress,
too, is concerned with this problem—or it would not have authorized
the present multiform monetary system. See No. 1, above.
3. Is it really constitutional and otherwise legal for New Hampshire
to offer its citizens monetary freedom of choice?
a. Article I, Section 8, Clause 5 of the United States Constitution
grants Congress the power “To coin Money”; and Article I,
Section 10, Clause 1 provides that “No State shall * * * make
any Thing but gold and silver Coin a Tender in Payment of Debts”.
Congress has authorized the coinage of silver and gold. See 31 U.S.C.
§§ 5112(a)(1-7) (gold) and 5112(e) (silver). Congress has
declared this coinage to be “legal tender”. See 31 U.S.C.
§§ 5103 and 5112(h).
The proposed legislation simply allows and assists New Hampshire’s
citizens to use this coinage for that purpose, according to their own
free choices. Thus, the State obeys the constitutional requirement that
it not “make any Thing but gold and silver Coin a Tender in Payment
of Debts”, by leaving that choice to its citizens. Congress has
also licensed the Federal Reserve System to emit Federal Reserve Notes
irredeemable in silver or gold. See 12 U.S.C. § 411 and 31 U.S.C.
§ 5118(b, c). Congress has authorized the minting of base-metallic
coin. See 31 U.S.C. § 5112(a)(1-6). And Congress has declared Federal
Reserve Notes and base-metallic coin to be “legal tender”.
See 31 U.S.C. §§ 5103 and 5112(h). The proposed legislation
allows and assists New Hampshire’s citizens to use Federal Reserve
Notes and base-metallic coinage for that purpose, according to their
own free choices.
Although the proposed legislation does adopt the various media of exchange
that Congress has declared “legal tender”, as a matter of
constitutional law it need not do so. For the Supreme Court has squarely
held that Congress lacks any constitutional power to specify what the
States shall use
as “legal tender” or media of exchange in the exercise of
their reserved sovereign functions. See Lane County v. Oregon, 74 U.S.
(7 Wall.) 71 (1869); Hagar v. Reclamation District No. 108, 111 U.S.
701 (1884). As the proposed legislation deals with New Hampshire’s
reserved sovereign functions, it comes within these decisions.
b. Today, all United States coins and currencies, whenever minted or
issued, are equally “legal tender”. See 31 U.S.C. §§
5103 and 5112(h). The law makes no preferences among them. See Thompson
v. Butler, 95 U.S. 695 (1878). Anyone may choose one form of “legal
tender” as his medium of exchange, to the exclusion of any or
all other forms. See 31 U.S.C. § 5118(d)(2). And the courts must
honor and enforce such choices. See, e.g., Bronson v. Rodes, 74 U.S.
(7 Wall.) 229 (1869); Butler v. Horwitz, 74 U.S. (7 Wall.) 258 (1869).
So the proposed legislation simply aids New Hampshire’s citizens
in doing what Congress and the courts recognize as people’s statutory
4. Why should New Hampshire provide its citizens with monetary
freedom of choice?
Monetary freedom of choice is necessary to stimulate and aid the circulation
of United States silver and gold coin as media of exchange in normal
transactions between New Hampshire and its citizens. This will provide
the State and its citizens with some level of insurance against monetary
and banking crises that can seriously undermine the value of irredeemable
United States paper currency and base-metallic coin. Such insurance
is necessary because, under the present Federal Reserve System, monetary
and banking crises are likely, if not almost assured.
The Federal Reserve System is a central bank that operates on the principle
of “fractional reserves”: that is, the System has insufficient
“reserves”, or stocks of “lawful money”, to
redeem all of its notes and deposits on demand. For that reason, the
System is always prone to a catastrophic “bank run”, should
the public lose confidence in its policies. Furthermore, the Federal
Reserve Note is a near-fiat currency, redeemable only in United States
base-metallic coins with little intrinsic value in the free market.
In addition, the Federal Reserve System is a political central bank
and the Federal Reserve Note a political currency, because the System’s
policies, including changes in the supply of its currency and extensions
of credit, are determined to a large degree according to political,
rather than strictly economic, criteria.
A banking and monetary regime of this type is unstable and prone to
crises arising out of both economic and political causes, domestic and
foreign. Many of these causes find their genesis in the System itself:
• The exchange value of the Federal Reserve System’s currency
(its purchasing power) is artificially inflated by its designation as
“legal tender” and by the national government’s duty
to redeem it in “lawful money” if the banks fail to do so.
• By means of so-called “monetization of public debt”
the Federal Reserve System enables public officials to spend more than
they otherwise could, without economic resistance from the free market
and political resistance from the electorate. Thus, the System, in league
with public officials, is a mechanism for the political redistribution
of wealth from society at large to politically favored special-interest
• Through monetization of private debt, the Federal Reserve System
is a mechanism for the economic redistribution of wealth from society
at large to the banks and their favored clients in the private sector.
•The Federal Reserve System’s monetization of both public
and private debt inflates the supply of America’s (and the world’s)
media of exchange, without control by the free market. This falsifies
prices and thereby misallocates scarce resources, in the short term
resulting in a lower standard of living for the vast majority of people
and in the long run causing chronic “booms and busts”, characterized
by excessive speculation, depreciation in the purchasing power of paper
currency, economic stagnation, recessions, and even depressions.
The hope that the Federal Reserve System, the United States Treasury,
Congress, or some other branch of the national government will prevent
the inherent instability of the present banking and currency regimes
from breaking out in crises is historically unfounded. Not only does
the nationwide banking collapse of 1932 and subsequent Great Depression—which
occurred under the auspices of the Federal Reserve System—prove
otherwise, but also Congress has mandated that during such [financial]
emergency period as the President * * * by proclamation may prescribe,
no member bank of the Federal Reserve System shall transact any banking
business except to such extent and subject to such regulations, limitations
and restrictions as may be prescribed by the Secretary of theTreasury,
with the approval of the President. 12 U.S.C. § 95(a). Obviously,
as this statute proves, Congress believes even now in the possibility
of banking and currency crises so horrendous that a financial dictatorship
may be necessary to deal with them. That it would be better to prevent—or
at the least to provide some insurance for Americans against—such
crises and the political upheavals that will follow them, by reintroducing
silver and gold coin into ordinary monetary transactions, cannot seriously
5. Are arguments about the instability of the Federal Reserve System
not simply sophisticated “scare tactics” and “fringe”
If so, then all insurance is based on “scare tactics”. No
prudent individual, however, dismisses as mere “scare tactics”
reasonable concerns about dangers that could arise in the future and
recommendations that people attempt adequately to protect themselves
against the financial consequences of such dangers. To be sure, certain
kinds of insurance address the “fringes” of human experience,
because the dangers against which they protect are remote or uncertain.
Nevertheless, that does not mean that no insurance at all is warranted
or prudent even in those situations. Critics of the proposed legislation
fail to take into account that doing nothing may actually increase the
likelihood of monetary and banking crises. That is, the best way to
reduce the possibility of such crises, or to mitigate their severity,
is precisely for Americans to reintegrate silver and gold coin into
their financial transactions to a degree that stabilizes money and banking
with a direct tie to the free market through silver and gold.
In any event, just as people who discount the possibility of fires,
floods, or other catastrophes need not take out insurance for those
contingencies, people who imagine that the dangers from monetary and
banking instability are remote or uncertain need not participate in
the program the proposed legislation will set up.
6. Will enough people in New Hampshire take advantage of monetary
freedom of choice to make it worthwhile?
No absolute answer to this question is possible. However, as more and
more people realize that the present Federal Reserve System is economically
unstable, prone to manipulation and misuse for political purposes, and
subject to unpredictable and almost inevitable crises from both domestic
and foreign causes, they will recognize the advantages to themselves,
their families, the State, and America as a whole from monetary diversification:
the ability to move some or all of their monetary transactions from
paper currency and base-metallic coin to silver and gold coin.
7. Is not monetary freedom
of choice too complicated for the average person to understand?
In an era in which average Americans increasingly use personal computers
or other data-processing equipment at home as well as at work, the notion
that exercising choice in media of exchange is “too complicated”
lacks plausibility. Many sites on the Internet already apprise people
of the exchange rates between United States paper currency and base-metallic
coin, on the one hand, and United States silver and gold coin, on the
other. And the proposed legislation requires the State Treasurer, as
well, to post that information on the Internet.
8. Is the present supply of United States silver and gold coin
sufficient for the purpose of bringing monetary freedom of choice to
New Hampshire; or will the United States Treasury have to mint more?
The present supply of United States silver and gold coin is certainly
sufficient for the program the proposed statute sets up in New Hampshire,
and most likely sufficient even if all the States implemented similar
programs. Critics forget that, in a free market, prices of all goods
and services will automatically and correctly adjust to the amount of
silver and gold coin in circulation, whatever that may be. Moreover,
it is far better to allow the free market to adjust prices to the amount
of money in circulation, than to empower monopolistic banks or ponderous
government bureaucracies to dictate the supply of money in inevitably
futile attempts to control prices.
The first method is economically rational, because it integrates the
supplies of all nonmonetary goods and services with the supply of money.
The second method is economically arbitrary, because there are no rational
criteria or standards for how high (or low) prices of goods or services
ought to be, and no accurate means to fix prices. Indeed, setting prices
in order to serve political purposes is the best and fastest way to
throw the free market into chaos, and to lower the standard of living
for the vast majority of people.
In any event, the supply of United States silver and gold coin is not
unalterably fixed. Congress has mandated that the United States Treasury
should mint sufficient silver and gold “American Eagle”
or “Liberty” coins to meet public demand. See 31 U.S.C.
§§ 5112(e) (silver coins) and 5112(i)(1) (gold coins). Therefore,
the supply of silver and gold coin can increase step by step with the
successful implementation of the proposed legislation.
9. If this program is put into widespread practice in New Hampshire,
will there not be a “run” on silver and gold coins?
To the extent the proposed legislation succeeds in encouraging citizens
to choose to use United States silver and gold coin in their monetary
transactions, the demand for such coins in New Hampshire will increase.
But the free market, responding to that new demand, will then automatically
increase the supply of silver and gold coins in this State.
Most likely, all other things being equal, the purchasing power of silver
and gold coins will increase (i.e., they will become more valuable than
they are now). That, however, will result in decreases in the prices
of goods and services measured in silver and gold. So, people whose
monetary incomes or reserves are composed of silver and gold coin will
see their standards of living rise. This process, though, will be gradual,
and in any event will depend on how many citizens exercise their freedom
of monetary choice in favor of silver and gold coin, and to what degree
and how quickly they do it.
10. Are not silver and gold coins out of date as money?
If they were, Congress would not have mandated that they be coined in
amounts sufficient to meet public demand, and that they be “legal
tender”. See 31 U.S.C. §§ 5112(e) (silver coins) and
5112(i)(1) (gold coins); 5103 and 5112(h). Besides, the question of
which forms of money are best suited to people’s needs should
be decided through open and fair competition in the free market.
11. Will not the use of silver and gold coin as media of exchange
Not necessarily. The proposed legislation anticipates that new private
silver and gold depositaries will provide New Hampshire’s citizens
(and perhaps the State as well) with facilities for storing and exchanging
silver and gold coin for Federal Reserve Notes and base-metallic coin,
and that exchanges will largely take place through such familiar and
convenient means as checks. As utilization of the program becomes more
widespread, methods of electronic transfers will doubtlessly become
The important point is not whether the use of silver and gold coin may
be marginally inconvenient, but whether it will stabilize the monetary
and banking systems, and protect the average person’s financial
situation, by providing media of exchange with definite commodity values
in the free market.
12. What forms of silver and gold will the State allow people to use?
All types of United States silver and gold coin, whenever minted, may
be used—with the exception of coins that have special numismatic
value (such as commemorative or rare pieces).
Private silver or gold coinage or privately generated “electronic
money” that pays in silver or gold may not be used, because these
are not “legal tender”.
13. From what sources will people obtain silver and gold coin
to exchange with the State?
Initially, people will obtain silver and gold coin from private coin
dealers, or (if they are creditors of the State) from the State Treasury.
As the program expands, people can expect increasingly to find silver
and gold coin being used in day-to-day transactions in the free market,
At the present time, individuals cannot obtain United States silver
and gold coin from Federal Reserve banks or directly from the United
States Treasury. If the program the proposed legislation sets up succeeds,
however, that likely may change.
14. Will the State impose a limit on the premiums or commissions that
may be charged by private dealers who trade silver and gold coin?
No. The heights of premiums or commissions for trading silver and gold
are best left to the free market. If the program the proposed legislation
sets up succeeds, however, competition will drive these costs to the
lowest possible levels.
15. What State taxes, fees, and other charges will be payable
in United States silver and gold coin?
The intent of the proposed legislation is to make every State tax, fee,
or other charge payable in silver and gold coin for those who choose
to use those media of exchange.
16. Will not a program of monetary freedom of choice be expensive
to put into practice?
The initial cost of setting up the State depositories authorized in
the proposed legislation is anticipated to be reasonable. The legislation
presumes, moreover, that the functions of the State depositaries will
soon be augmented, if not superseded, by private silver and gold deposit
banks that the free market will bring into existence.
In any event, New Hampshire has a duty to protect its citizens’
financial well being, as well as their health and safety. That performing
this duty may entail costs does not justify shirking that responsibility.
17. Will complications arise if an individual wants to use both
gold or silver coins, and Federal Reserve Notes, in a single transaction?
Perhaps, but they will not be particularly serious. Typically, the size
of a transaction will determine what medium or media of exchange may
be usefully employed. Small transactions will likely be paid in silver,
large transactions in gold. Instances may arise, however, in which,
for example, a sizable portion of a large transaction will be paid in
gold coins, but the remainder in silver coins (or Federal Reserve Notes
or United States base-metallic coins) simply because there are no gold
coins of sufficiently low value available. In an era in which electronic
calculators are almost universally in use, though, determining how much
should be paid in what medium of exchange for what amount should pose
no problem, once people become accustomed to thinking in terms of multiple
18. If the Constitution and laws of the United States already
allow States and individuals to use United States silver and gold coins
as their media of exchange, why does New Hampshire need a new statute
on the subject?
To authorize and direct the State Treasurer and other officials as to
how and in what circumstances to use United States silver and gold coins
as media of exchange for public purposes. The proposed legislation provides
freedom of choice in media of exchange to those people who deal with
the State in the exercise of its sovereign functions. But facilitating
their choices requires that public officials be given clear guidelines
on how to proceed, so that everyone who avails himself of the new system
will be treated fairly, uniformly, and expeditiously.
19. Will the requirement in the Patriot Act that some purchases
of silver or gold from dealers be reported to government agencies have
an adverse effect on what New Hampshire is proposing to do?
No. Reporting requirements are designed to expose tax cheats, money
launderers, and clandestine flows of funds for illegal purposes. The
proposed legislation addresses legitimate transactions in the public
domain. No one dealing with the State or with legitimate dealers in
precious metals for
lawful purposes should worry. This is not to say that the Patriot Act
and similar legislation raise no concerns about privacy. Those concerns,
however, apply equally to reporting requirements already in place that
affect banks and similar financial institutions. Reporting requirements
should have no
disproportionate effect on the legal use of silver and gold coins, especially
where the ultimate transactions involve the State.
20. How will the State detect manipulated or counterfeit coins?
Quite easily. Manipulated coins—ones, for example, that have been
clipped, shaved, or filed to remove some of their precious-metal contents—as
well as out-and-out counterfeits can be readily detected with inexpensive
devices already commercially available, and commonly in use by dealers
in precious metals. Moreover, most bad coins will probably be discovered
by simple visual inspection alone.