Ron Paul on Legal Tender Laws

[galtgulch]

Here is an article which appeared on the www.ronpaul.com website. I thought i would post it here so you would see that Ron Paul is very actively supporting the enlightenment of his supporters on issues which affect their lives, their prosperity and their freedom.

By tmartin • September 28, 2008

<<<"Ron Paul on Legal Tender Laws

by Ron Paul

I’ve discussed just a few benefits of sound money in the last two weeks, and contrasted them to the perils of fiat currency. Sound money keeps government spending in check, keeps trade fair and honest, which reduces the temptations, and many underlying causes, for governments to wage wars. It also gives you the peace of mind of knowing that your savings will be able to sustain you in your retirement.

So if sound money is such a good thing, what is stopping people from simply trading with each other in gold and silver? Why are you still being paid in fiat dollars, and why can’t you pay for gas in gold? The answer is that the government has enacted policies that provide considerable stumbling blocks to such transactions.

One of the main stumbling blocks is Federal legal tender laws, which state that government-controlled fiat currency MUST be accepted for many kinds of monetary transactions.

In light of this, Gresham’s Law takes effect. Gresham’s Law states that bad money drives out good money. Meaning, if someone is forced to accept your bad money, it is to your advantage to pass it off, like a hot potato, in exchange for something of value. Any good money you have, you will hoard. Eventually, real money is driven out of circulation and under people’s mattresses, so to speak. In the absence of legal tender laws, people are free to accept the medium of exchange of their choice, and are likely to insist on payment in something of real value.

Related to legal tender laws, contracts in gold are not enforced. Meaning if two parties agree to exchange goods or services for gold, and end up in a dispute, the courts will simply settle the dispute in Federal Reserve notes. Governments should do very little, in my estimation, but it should enforce contracts and property rights through the courts. But in this instance it shirks this basic duty, when it comes to gold, as one way to keep control of our economy and the medium of exchange.

One is also expected to pay sales tax on the purchase of gold. This is as ludicrous as if you paid sales tax at the bank when you converted dollars into quarters! The IRS also expects you to pay capital gains tax on gold, which is so backwards, since gains on gold really represent decline in the value of the dollar!

Legal tender laws should be repealed at the Federal level. Congress has the Constitutional duty to protect the integrity of our money. However, since it has passed this duty off, and the Federal Reserve has only debased our currency, Congress should no longer force Americans to do business in dollars if they would prefer to transact in gold, or silver, or cigarettes or seashells, for that matter.

Free people should be free to associate and do business in ways that benefit them. Instead they are forced to use the unstable dollar to their own detriment, and the benefit the government.">>>

[syrakusos]

... Federal legal tender laws, which state that government-controlled fiat currency MUST be accepted for many kinds of monetary transactions.

Perhaps neither you nor Ron Paul understands what "legal tender" means. More likely, Dr. Paul knows, but prefers to bank on your ignorance.

[galtgulch]

... Federal legal tender laws, which state that government-controlled fiat currency MUST be accepted for many kinds of monetary transactions.

Perhaps neither you nor Ron Paul understands what "legal tender" means. More likely, Dr. Paul knows, but prefers to bank on your ignorance.

Hi Michael,

You manage to be pretty obnoxious without really trying. If you assume that one of your like minded fellows in our joint battle for our freedom is in a state of ignorance, why not come down off your high horse and enlighten one or more of us? You know there are new people joining this forum all the time. I should think you would want them to feel comfortable here by being civil and not confrontive nor condescending. When they mention that this seems to be a pleasant forum to visit I fear it is because they haven't encountered any of your more egregious posts. I will spare everyone the profanity which comes to mind when I read your far from enlightening post above. Thanks for your response. I learned quite a bit about you but nothing about what you are driving at regarding legal tender laws. If you have something substantive to contribute feel free to do so. I assure you I will appreciate learning something.

Wm

[algernonsidney]

It seems that some people make arguments in "sound bites." It's really just a reflection of what political discourse has become in this country.

[algernonsidney]

I guess that was a sound bite, too.

[Mindy Newton]

... Federal legal tender laws, which state that government-controlled fiat currency MUST be accepted for many kinds of monetary transactions.

Perhaps neither you nor Ron Paul understands what "legal tender" means. More likely, Dr. Paul knows, but prefers to bank on your ignorance.

Hi Michael,

You manage to be pretty obnoxious without really trying. If you assume that one of your like minded fellows in our joint battle for our freedom is in a state of ignorance, why not come down off your high horse and enlighten one or more of us? You know there are new people joining this forum all the time. I should think you would want them to feel comfortable here by being civil and not confrontive nor condescending. When they mention that this seems to be a pleasant forum to visit I fear it is because they haven't encountered any of your more egregious posts. I will spare everyone the profanity which comes to mind when I read your far from enlightening post above. Thanks for your response. I learned quite a bit about you but nothing about what you are driving at regarding legal tender laws. If you have something substantive to contribute feel free to do so. I assure you I will appreciate learning something.

Wm

I agree, Wm. I don't know what he's implying. And I agree that the smear is gratuitous. C'mon, Michael!

= Mindy

[syrakusos]

If someone said something like that to me, I would do some research to discover what I do not know, but that's just me. Since you asked...

1. Government -- any economic entity, really -- creates a wide range of "money" objects. One example would be the checks issued to soldiers. (Today, they have debit cards, but the idea still works. Same with the money paid to contractors for the production of weapon systems. Payment is electronic. The idea is the same.) Is the check money? Is it "legal tender"?

Another form of fiduciary paper would be a contract. I sign a contract with my city government to deliver services for a year for a million dollars. I can take that contract to a bank and get a loan -- or take it to a "factor" who will discount it and essentially buy it from me for cash. The contract represents a financial obligation of the government, but is the contract "legal tender"? Is it "money"?

The IRS sends you a letter saying that as a result of an audit, you now have a credit for $1000 against next year's taxes. (Lucky you!) Is the letter money? Is it legal tender? It is indeed, fungible, discountable, tradeable, an asset on your books. It is a financial instrument issued by the government. But it is not money. It is not legal tender.

In the days of gold and silver, governments would issue "warrants" promises to pay gold and silver when it came into the treasury, though, well, ahem, right now, you see, we're a little short, you know... Texas Warrants from the Republic are highly collectible today. Warrants would then circulate on their own as a money substitute, though, again, they were not legal tender. Legal tender only means that this particular instrument is recognized for the bearer: "... will pay to the bearer on demand."

That is one development of the definition of legal tender.

2. Ask the government itself. Go to www.ustreas.gov and put "legal tender" in the search box. The first hit will be to an FAQ. (See this is not hard -- and it is a popular topic.) In the official words of the official govenrment treasury:

Question: I thought that United States currency was legal tender for all debts. Some businesses or governmental agencies say that they will only accept checks, money orders or credit cards as payment, and others will only accept currency notes in denominations of $20 or smaller. Isn't this illegal?

Answer: The pertinent portion of law that applies to your question is the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled "Legal tender," which states: "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy

In other words, if I give my landlord my letter from the IRS, I have not given him "legal tender" but if I give him a thousand $1 federal reserve notes, I have. That is all. Nothing more. Nothing less.

You do not have to accept government money. You can barter for apples if you want. Ron Paul may know this. However, it is painfully obvious that many Objectivists, Libertarians and Conservatives do not. Now, at least, you know.

By the way, in case I forgot to mentiion it more than a thousand times, I win literary awards for writing about money. My first one corrected the Encyclopedia Britannica and the nomination came from a curator at the Smithsonian. That ties to the opening sentence. When someone points out that I am ignorant, my feelings will be hurt, but I still accept responsibility to take the initiative to get smart.

Edited September 30, 2008 by Michael E. Marotta

[Mindy Newton]

If someone said something like that to me, I would do some research to discover what I do not know, but that's just me. Since you asked...

1. Government -- any economic entity, really -- creates a wide range of "money" objects. One example would be the checks issued to soldiers. (Today, they have debit cards, but the idea still works. Same with the money paid to contractors for the production of weapon systems. Payment is electronic. The idea is the same.) Is the check money? Is it "legal tender"?

Another form of fiduciary paper would be a contract. I sign a contract with my city government to deliver services for a year for a million dollars. I can take that contract to a bank and get a loan -- or take it to a "factor" who will discount it and essentially buy it from me for cash. The contract represents a financial obligation of the government, but is the contract "legal tender"? Is it "money"?

The IRS sends you a letter saying that as a result of an audit, you now have a credit for $1000 against next year's taxes. (Lucky you!) Is the letter money? Is it legal tender? It is indeed, fungible, discountable, tradeable, an asset on your books. It is a financial instrument issued by the government. But it is not money. It is not legal tender.

In the days of gold and silver, governments would issue "warrants" promises to pay gold and silver when it came into the treasury, though, well, ahem, right now, you see, we're a little short, you know... Texas Warrants from the Republic are highly collectible today. Warrants would then circulate on their own as a money substitute, though, again, they were not legal tender. Legal tender only means that this particular instrument is recognized for the bearer: "... will pay to the bearer on demand."

That is one development of the definition of legal tender.

2. Ask the government itself. Go to www.ustreas.gov and put "legal tender" in the search box. The first hit will be to an FAQ. (See this is not hard -- and it is a popular topic.) In the official words of the official govenrment treasury:

Question: I thought that United States currency was legal tender for all debts. Some businesses or governmental agencies say that they will only accept checks, money orders or credit cards as payment, and others will only accept currency notes in denominations of $20 or smaller. Isn't this illegal?

Answer: The pertinent portion of law that applies to your question is the Coinage Act of 1965, specifically Section 31 U.S.C. 5103, entitled "Legal tender," which states: "United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues."

This statute means that all United States money as identified above are a valid and legal offer of payment for debts when tendered to a creditor. There is, however, no Federal statute mandating that a private business, a person or an organization must accept currency or coins as for payment for goods and/or services. Private businesses are free to develop their own policies on whether or not to accept cash unless there is a State law which says otherwise. For example, a bus line may prohibit payment of fares in pennies or dollar bills. In addition, movie theaters, convenience stores and gas stations may refuse to accept large denomination currency (usually notes above $20) as a matter of policy

In other words, if I give my landlord my letter from the IRS, I have not given him "legal tender" but if I give him a thousand $1 federal reserve notes, I have. That is all. Nothing more. Nothing less.

You do not have to accept government money. You can barter for apples if you want. Ron Paul may know this. However, it is painfully obvious that many Objectivists, Libertarians and Conservatives do not. Now, at least, you know.

By the way, in case I forgot to mentiion it more than a thousand times, I win literary awards for writing about money. My first one corrected the Encyclopedia Britannica and the nomination came from a curator at the Smithsonian. That ties to the opening sentence. When someone points out that I am ignorant, my feelings will be hurt, but I still accept responsibility to take the initiative to get smart.

Michael, you missed the point. I don't think any of us needs a whole explanation of "legal tender," rather, what is Ron Paul's error with respect to it?

= Mindy

[syrakusos]

Michael, you missed the point. I don't think any of us needs a whole explanation of "legal tender," rather, what is Ron Paul's error with respect to it?

"One of the main stumbling blocks is Federal legal tender laws, which state that government-controlled fiat currency MUST be accepted for many kinds of monetary transactions."

[Brant Gaede]

Michael, you missed the point. I don't think any of us needs a whole explanation of "legal tender," rather, what is Ron Paul's error with respect to it?

Treat it like a bonus.

--Brant

[Mindy Newton]

Michael, you missed the point. I don't think any of us needs a whole explanation of "legal tender," rather, what is Ron Paul's error with respect to it?

"One of the main stumbling blocks is Federal legal tender laws, which state that government-controlled fiat currency MUST be accepted for many kinds of monetary transactions."

And is that false? And if so, how? Thanks for your patience.

= Mindy

Edit: Ron Paul is saying government's expanding the money supply robs people holding gov. currency, and we're stuck with gov.-issued currency. (Unless we carry barter goods around with us, and are fortunate enough to find a gas station that needs a lot of, e.g., potholders.)

No?

= Mindy

Edited September 30, 2008 by Mindy

[syrakusos]

Michael, you missed the point. I don't think any of us needs a whole explanation of "legal tender," rather, what is Ron Paul's error with respect to it?

Here are the first three errors:

"One of the main stumbling blocks is Federal legal tender laws, which state that government-controlled fiat currency MUST be accepted for many kinds of monetary transactions."

"In the absence of legal tender laws, people are free to accept the medium of exchange of their choice, and are likely to insist on payment in something of real value."

"Related to legal tender laws, contracts in gold are not enforced. Meaning if two parties agree to exchange goods or services for gold, and end up in a dispute, the courts will simply settle the dispute in Federal Reserve notes."

Read your contracts. Very often, you agree to arbitration as your first remedy. And, courts being what they are, what would you expect? If I offer to ship you my iron ore in exchange for your coal and we have a problem, the courts will use the common denominator. That only makes sense. Again, you do not have to go to the government courts. That is another canard of the Right Wing and a different topic as well.

"One is also expected to pay sales tax on the purchase of gold."

This is not true in Michigan or in several other states. As a result of the "Coingate" scandal in Ohio, that state resumed taxes on bullion. But it is not a federal tax. Ron Paul glided from a rant against "government" to ignoring the differences among state laws and then back to a complaint about the federal government. Also, sales tax being what it is, would you expect sales tax on gold jewelry or nor? On platinum or iridium or iron or praesodymium or what? What makes gold so special to Ron Paul but a mystical attachment to a chemical element? I understand the case for gold as the standard for money, but, here the issue is conflated by someone who, I believe, knows better but profits from being a demogogue.

"Congress should no longer force Americans to do business in dollars if they would prefer to transact in gold, or silver, or cigarettes or seashells, for that matter."

No such law exists. Buy and sell with sesshells if you can find the trading partners.

Ron Paul plays to the ignorance and self-imposed helplessness of his god-guns-gold constituents.

The U.S. Treasury sells gold coins in exchange for Federal Reserve Notes at the market rate for gold. They sell Eagles (ounces and fractions) to a restricted list of large volumne wholesales. However, they also sell numismatic items with modest to hefty mark-ups over bullion. The bottom line is that the dollar is backed in gold at the market rate and those data are available for a mouseclick.

Edited September 30, 2008 by Michael E. Marotta

[Mindy Newton]

Michael, you missed the point. I don't think any of us needs a whole explanation of "legal tender," rather, what is Ron Paul's error with respect to it?

Here are the first three errors:

"One of the main stumbling blocks is Federal legal tender laws, which state that government-controlled fiat currency MUST be accepted for many kinds of monetary transactions."

"In the absence of legal tender laws, people are free to accept the medium of exchange of their choice, and are likely to insist on payment in something of real value."

"Related to legal tender laws, contracts in gold are not enforced. Meaning if two parties agree to exchange goods or services for gold, and end up in a dispute, the courts will simply settle the dispute in Federal Reserve notes."

Read your contracts. Very often, you agree to arbitration as your first remedy. And, courts being what they are, what would you expect? If I offer to ship you my iron ore in exchange for your coal and we have a problem, the courts will use the common denominator. That only makes sense. Again, you do not have to go to the government courts. That is another canard of the Right Wing and a different topic as well.

"One is also expected to pay sales tax on the purchase of gold."

This is not true in Michigan or in several other states. As a result of the "Coingate" scandal in Ohio, that state resumed taxes on bullion. But it is not a federal tax. Ron Paul glided from a rant against "government" to ignoring the differences among state laws and then back to a complaint about the federal government. Also, sales tax being what it is, would you expect sales tax on gold jewelry or nor? On platinum or iridium or iron or praesodymium or what? What makes gold so special to Ron Paul but a mystical attachment to a chemical element? I understand the case for gold as the standard for money, but, here the issue is conflated by someone who, I believe, knows better but profits from being a demogogue.

"Congress should no longer force Americans to do business in dollars if they would prefer to transact in gold, or silver, or cigarettes or seashells, for that matter."

No such law exists. Buy and sell with sesshells if you can find the trading partners.

Ron Paul plays to the ignorance and self-imposed helplessness of his god-guns-gold constituents.

The U.S. Treasury sells gold coins in exchange for Federal Reserve Notes at the market rate for gold. They sell Eagles (ounces and fractions) to a restricted list of large volumne wholesales. However, they also sell numismatic items with modest to hefty mark-ups over bullion. The bottom line is that the dollar is backed in gold at the market rate and those data are available for a mouseclick.

Yes, I see his bit about seashells-as-money is wrong.

I think his complaint about paying tax on gold is that if gold is used as coinage, its being taxed as if it were a commodity being exchanged is improper, doesn't that make sense?

I don't see the political principle you are advancing in your bit about arbitration.

= Mindy

[Brant Gaede]

No, the dolar is not backed by gold at the market rate. As soon as demand goes up the government can no longer or will no longer supply the gold for dollars. This just happened. The basic standard for a gold standard is banks, domestic and foreign, can go to the US government with billions of dollars at any time and exchange the dollars for gold at an established, fixed rate. A run on the dollar for gold in that context may mean the dollar has been inflated relative to the gold reserves. There are other possible reasons, some purely theorectical as they have never happened but are not necessarily impossible.

The basic problem is not a gold-backed currency yes or no, but the existence of the central bank. Money, the lifeblood of an economy, is socialism suffusing every aspect of a capitalist economy resulting in the present debacle. It's not this simple, of course, but the devil here is not in the details.

--Brant

[Michael Stuart Kelly]

There's something worse than fiat money. It is money created out of thin air with debt.

People are saying the 1.2 trillion dollars were lost on the stock market Monday when the bailout bill didn't pass. What does that mean?

When I lose 10 dollars, this is because someone else gets his mitts on it. So who got the 1.2 trillions dollars?

Nobody. That's who. It just disappeared, like it never existed.

What does that say about our currency when 1.2 trillions dollars can up and disappear in a single day?

Ghost money?

Michael

[Brant Gaede]

There's something worse than fiat money. It is money created out of thin air with debt.

People are saying the 1.2 trillion dollars were lost on the stock market Monday when the bailout bill didn't pass. What does that mean?

When I lose 10 dollars, this is because someone else gets his mitts on it. So who got the 1.2 trillions dollars?

Nobody. That's who. It just disappeared, like it never existed.

What does that say about our currency when 1.2 trillions dollars can up and disappear in a single day?

Ghost money?

Michael

It's phony. That's because many equity prices are made at the margins, especially in growth companies. A technology company that doesn't make much money can easily go down 90% for different reasons as the price of the stock chases the true value of the company down and hope is replaced by fear. A robust company like Altria (MO) that pays a big dividend simply hasn't got far to fall as it's better than a bond in this environment. In fact if it's not a short-term T-bill, bonds should NOT be owned, either individually or in a fund, especially "junk" bonds. Own a bond you own debt. You are a creditor. Do you want people to owe you money in this deteriorating economic environment? A bond-holder may get to feed on the carcass of a failed company while the equity holders are wiped out, but it's not likely to be a satisfying meal.

No one should own any equity in excess of 20% of one's equity/investment cash holdings. Especially not in a 401K if it can be helped. If it cannot, learn how to hedge it.

TD Waterhouse wants me to open an account with as little as $2000 and get 100 free trades ($1000 equivalent). If I had an account with TD and knew about such offers I'd get another brokerage pronto. It smells of desperation for money.

--Brant

Edited September 30, 2008 by Brant Gaede

[syrakusos]

No, the dolar is not backed by gold at the market rate. As soon as demand goes up the government can no longer or will no longer supply the gold for dollars. This just happened.

Baloney. Prove it.

[Brant Gaede]

No, the dolar is not backed by gold at the market rate. As soon as demand goes up the government can no longer or will no longer supply the gold for dollars. This just happened.

Baloney. Prove it.

Gold sales were suspended. A few weeks ago the price of gold went down to 750-800 dollars an ounce, but world-wide it was almost impossible to buy physical gold at the market price and the US stopped minting. I admit that maybe the government will have enough supply available next time to keep minting. And you're ignoring my main point that the government of France, say, cannot get US gold for US dollars in any substantial amount. There is no legal compulsion for the US to comply with any such demand from France. That you can buy X amount of gold at any time for Y amount of dollars is no more a gold standard than you can buy X amount of farm tractors at any time for Y amount of dollars means there is a tractor standard. All that means is that there is a price inflation/deflation standard.

You can adduce evidence and make reasonable suppositions. So all you really said was "Baloney."

--Brant

[algernonsidney]

Money has existed for thousands of years and always will. The free market chooses money in the absence of any state-sanctioned currency. Switzers have used the wir as an "alternative" currency since the 1930's.

Traditionally, gold has been a currency because it is hard to counterfeit. The market chose gold as a currency. Europe used gold as a unifying currency in the 1800's. The period from 1815 to 1912 was arguably the most peaceful time in European history.

The Feds have been persecuting many things like the Wir recently. They went after the Liberty Dollar. They have also went after E-gold.

In many nations, the dollar has been an alternative currency. That has been because of its reputation, which is currently collapsing.

Spanish money was often used as a currency up until 1857. In fact, it was more trusted than US dollars. The Spanish was divided into pieces of eight. The term has become obsolete, but _two bits_ would even be used to refer to a quarter. No doubt, this variety in currency lead to the tremendous growth that occurred before that time.

Up until the 1750's, colonial scrip was quite popular. This ended when the Brits passed the Currency Act of 1764. The economic growth of the earlier period ended. Ben Franklin actually said that the Currency Act was the main cause of the American Revolution.

[syrakusos]

Spanish money was often used as a currency up until 1857. In fact, it was more trusted than US dollars.

Indeed, it was! Spanish coins even appeared on the notes of banks in the USA. See here for illustrations.

The image below is from the STATE BANK OF ALABAMA for 75 cents -- as you note, "6 bits" -- and it shows a 2 reales and 4 reales, hence 6 (Spanish) bits.

[syrakusos]

Gold sales were suspended.

"Gold sales were suspended." All you did was repeat yourself. You provided no evidence for your assertion. You claim that it was almost impossible to buy gold at the market price. That is a fallacy of the stolen concept: the price it sells for -is- the market price, by definition.

In fact, I bought gold. For a couple who just got over being unemployed and homeless, we scraped up all the loose change and bought a coin. For the money I put on the counter, I was offered a $5 Liberty, a Quarter Ounce Eagle and a Quarter Ounce Maple Leaf (4-Nines fine: .9999) For the Quarter Ounce Eagle I paid a mere 7% over spot, not bad for a small retail purchase. I asked about silver and he said, "I don't have any for sale." I could see stacks of the stuff all over ... but apparently none was for sale at his store. About 1997 or 1998, gold fell so low that dealers upped their percentages so as not to lose money on gold inventory. How much did you buy back then?

What you think you are referring to is the suspension, first of Eagles, then of Buffalos at the US Mint (link to CNBC news story from September 26).

The Buffalo is a proof coin, not a bullion coin, but it was being sold for about 15% or 20% over spot, and it is a nice coin, so, of course, in the wake of hot news, it sold out for 2008. Realize, however that these are the 2008 coins. If you check the website, www.usmint.com/programs, you will see that they are selling year 2009 coins now. The Mint often runs out of promotional items by year later in the year. Buy early; buy often. But it is not a conspiracy or a default. When the US Mint ran out of Jefferson/Lewis and Clark/5-Cent-Nickels-in-Little-Leather-Pouches, no one cared, except collectors, who always want the Mint to make enough so that they can have one cheap but so few so that they become valuable as soon as they are purchased.

KYOTO, Japan, Sept 30 (Reuters) - Gold held by the New York's SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, jumped by around 30 tonnes on Monday, the second-biggest one-day rise ever, an industry souce said. -- http://www.kitco.com/

They bought 30 tonnes (30,000 kilograms; 100,000 ounces give or take). Seems to be plenty out there...

Edited October 1, 2008 by Michael E. Marotta

[syrakusos]

I think his complaint about paying tax on gold is that if gold is used as coinage, its being taxed as if it were a commodity being exchanged is improper, doesn't that make sense?

= Mindy

As noted, if you go to the bank and exchange a $100 bill for 400 quarters, that should not be taxable. Likewise, if you buy gold or silver, it should not be taxable. However, the fallacy is in "likewise."

• The US Mint (and others) sells platinum coins. Some collectors pursue this periodic table trying to get the new issues in iridium and other unusual metals issued by world mints, govenment and private alike. In addition to gold and silver, there are many monetary metals. So, why focus on gold alone?
  
• But the point of the income tax is that it does not matter how you got more dollars. They only care that you have more, hence earned income to be taxed.
  
• An economics professor asked my class if anyone would trade their one dollar bill for his quarter. No one offered. He said, "Suppose you had to make a phone call." Income is taxable.
  
• Other people do buy and sell money. I know about a farmer who sold a load of cabbages, got a check for $100,000 and went to his bank in town and negotiated for a CD. The bank happened to have an aggressive desk that sold and resold and resold that $100,000 overnight and overnight for half a percent over and over and made a nice profit on the buying and selling of federal money for federal money.
  
• Consider that the US Gold One Ounce Eagle coins says "Fifty Dollars" on it. Do you think that if you pay $1000 federal money for a $50 federal coin, you can declare a $950 loss? Neither reality nor the IRS is to be cheated.
  

Again, I agree with the initial (isolated) case: if you exchange money in one denomination for money in another, that should not be taxed... perhaps. But that is just because you and I do not like taxes.

The Big Problem of Small Change by Francoise Velde examines the history of coinage from the viewpoint of daily commerce. It takes as much work to make a big coin as a small one. The amount of precious metal is not that significant to the profit on a prodiction run. (Precious metal is more cost-effective than copper, however, also to the point.) So, governments and (and private mints as well) tended to make larger coins, not smaller, in precious metals, not copper. The result was that often, in the marketplaces, people paid a premium to get lots of small coins. So, you could make money by exchanging denominations within the same currency.

This also happened in the USA in the 19th century. Coins of silver and gold were supposedly interchangeable but the differences in market values of gold and silver made that difficult sometimes. In fact, in addition to silver dollars and gold dollars, there were silver 3-cent and nickel 3-cent; and there were silver half-dimes and nickel 5-cent. In some places, merchants found their tills awash with small change they could not get rid of except by selling at a discount. At other times and places, small change was scarce. You could make money buying and selling different denominations within the same currency.

Today, your bank pays an armored car service to deliver coins... and they had to be shipped from the Mint to staging companies. It costs money to deliver money. Consider Coinstar machines that pay out less than they take in. (You can make money exchanging denominations within the same currency.)

The point of all that is that we have come to expect to exchange moneys at no cost to us. Why?

If it actually costs to deliver a service -- as it must for any service -- and if you earn income at that, then, by the rules of taxation that income is taxable under law. Period.

See, I think that Dr. Ron Paul knows all of this and more. He just makes a lot of money by selling sound-bites and speeches to people who like being crushed by oppressive banking and defarious credit and Illuminati economics. For many, the enemy is socialism. For others, it is Jews. It does not matter what you fear, as long as you assuage your anxiety with a check to Ron Paul for Elected Office.

Edited October 1, 2008 by Michael E. Marotta

[Brant Gaede]

Gold sales were suspended.

"Gold sales were suspended." All you did was repeat yourself. You provided no evidence for your assertion. You claim that it was almost impossible to buy gold at the market price. That is a fallacy of the stolen concept: the price it sells for -is- the market price, by definition.

In fact, I bought gold. For a couple who just got over being unemployed and homeless, we scraped up all the loose change and bought a coin. For the money I put on the counter, I was offered a $5 Liberty, a Quarter Ounce Eagle and a Quarter Ounce Maple Leaf (4-Nines fine: .9999) For the Quarter Ounce Eagle I paid a mere 7% over spot, not bad for a small retail purchase. I asked about silver and he said, "I don't have any for sale." I could see stacks of the stuff all over ... but apparently none was for sale at his store. About 1997 or 1998, gold fell so low that dealers upped their percentages so as not to lose money on gold inventory. How much did you buy back then?

What you think you are referring to is the suspension, first of Eagles, then of Buffalos at the US Mint (link to CNBC news story from September 26).

The Buffalo is a proof coin, not a bullion coin, but it was being sold for about 15% or 20% over spot, and it is a nice coin, so, of course, in the wake of hot news, it sold out for 2008. Realize, however that these are the 2008 coins. If you check the website, www.usmint.com/programs, you will see that they are selling year 2009 coins now. The Mint often runs out of promotional items by year later in the year. Buy early; buy often. But it is not a conspiracy or a default. When the US Mint ran out of Jefferson/Lewis and Clark/5-Cent-Nickels-in-Little-Leather-Pouches, no one cared, except collectors, who always want the Mint to make enough so that they can have one cheap but so few so that they become valuable as soon as they are purchased.

KYOTO, Japan, Sept 30 (Reuters) - Gold held by the New York's SPDR Gold Trust, the world's largest gold-backed exchange-traded fund, jumped by around 30 tonnes on Monday, the second-biggest one-day rise ever, an industry souce said. -- http://www.kitco.com/

They bought 30 tonnes (30,000 kilograms; 100,000 ounces give or take). Seems to be plenty out there...

You are like a factual pinata, Michael. If you had simply asked for a reference instead of proof and were more specific about what you wanted it for, I'd have been obligated to try to provide it. Instead you did all the work. I really don't care if you're right or wrong about any of the particulars, but you kinda make me feel like Tom Sawyer.

My late step-Mother was an immigration judge, then called a Special Inquiry Officer. She presided over deportation hearings in NYC. (Her office was on the 14th floor of a Federal building right next to where they were constructing the World Trade Center when I visited her there in 1968. I looked down and saw the workers and equipment working deep in the foundation of what would become the North Tower.) I could never discuss immigration and its restrictions philosophically with her; she kept referring to the law. So I stopped trying. This seems to be much the same case here with you and me. At the least we seem to have little commonality of interests.

--Brant

Edited October 1, 2008 by Brant Gaede

[Michael Stuart Kelly]

Brant,

I don't mind phony. You can work around what you know.

What's bothers me is that everybody uses phony and only a small group really knows about it.

That's scary.

That fact certainly is shaping my own financial plans.

Michael

[syrakusos]

Money has existed for thousands of years and always will. The free market chooses money in the absence of any state-sanctioned currency. Switzers have used the wir as an "alternative" currency since the 1930's.

... Up until the 1750's, colonial scrip was quite popular. ...

Right, again, Chris!

It can be something of a fine line as to what is the "alternative" currency... During colonial times and into the 19th century, people passed homemade copper pence (not "cents" but larger) -- called "evasions" in America and "blacksmiths" in Canada -- and these circulated for a couple of generations.

During the Jacksonian Era, there were Hard Times Tokens (read here) that lampooned Jackson, Webster, and hte political issues of the times. Again, that these are inexpensive collectibles today, often found in circulated grades shows that they passed in trade for years.

Coal mines, lumber mills, canneries and other businesses have created their own tokens, chits, and scrip.

During the depression of 1893, bank clearing houses created circulating paper for large interbank transactions.

During the Great Depression of the 1930s, hundreds of communities created their own currencies. (Read here.) Perhaps the most consequential was the town of Tenino (10-9-Oh: 10,900 feet above sealevel) Washington, a lumber town that created wooden money -- slats at first, which became the ever-popular wooden nickels.

Private currencies continue today. In Berlin, Germany, there was "Bone Money." Many communities in America have "Time Dollars" and other alternative currencies. When I lived in Traverse City, I helped to create their "Bay Bucks" (read here).

The bottom line is that despite the rightwing populist rants of Dr. Ron Paul and other traditional conservatives, there are many alternatives to Federal Reserve Notes -- and you do not have to barter potholders for gasoline (though, of course, you are free to do so.)