Currency Competition

I wrote the following to my Congressman yesterday, urging him to support H.R. 4248, The Free Competition in Currency Act:

I am writing to ask you to support H.R. 4248, The Free Competition in Currency Act, introduced by Representative Ron Paul on December 9, 2009.

The act would do three things: 1) abolish federal legal tender laws, 2) end prohibition of privately operated mints, and 3) eliminate capital gains taxes on gold and silver.

Although this may seem like an obscure issue, I can assure that none is more important. The role of money in modern society is critical. Without it, an individual would be forced to produce his or her own food, clothing, and shelter, or barter for it, hoping that the person that has what one needs, needs what one has to trade. Money introduces a common medium of exchange to facilitate economic transaction.

Sound money is critical to the long-term health and well being of a society. Although consumer prices have remained relatively stable in recent years, there has been considerable inflation in the money supply. Regardless of your view on the necessity of the two economic stimulus packages (one passed at the end of President Bush’s term and one passed at the beginning of the President Obama’s term), the money for this largess in federal spending comes largely from newly borrowed and newly printed money. In other words, this spending further inflates the money supply and will ultimately devalue the U.S. dollar. In addition to economic stimulus and other government programs you may deem valuable, this readily inflatable money supply also provides a means to finance wars. It is hard to believe that President Bush could have prosecuted an unpopular war in Iraq for so long if he actually had to confiscate wealth from citizens to pay for it.

A year ago, we saw how dangerous dollar devaluation could be when rising fuel prices, related to a weakening dollar, put a real pinch on working Americans. Not only did fuel prices rise, but this caused a subsequent rise in food prices and played no small role in precipitating the collapse of the housing bubble as more and more Americans could no longer afford to put gas in their cars, food on their tables, and make their mortgage payments all at the same time.

Congressman Paul’s bill would not eliminate Federal Reserve notes as currency, nor would it change the authority of Congress in the coinage of money, nor would it return the United States to a “gold standard.” What it would do is allow individuals choice in what to use and accept for payment. It would allow contracts to be written in other media of exchange besides Federal Reserve notes (i.e. precious metals or other commodities) and, more importantly, it would allow more Americans worried about the loss of their accumulated wealth and the diminishing of their buying power, due to inflation and devaluation of the dollar, to choose to use gold or other commodities as a medium of exchange or to protect their savings.

The first provision of H.R. 4248 would end the federal government’s monopoly on currency and give the consumer choice in his or her medium of exchange. The second provision would allow private companies to manufacture gold and silver coins, making the use of commodity-based money practical by introducing easily portable and transferable commodity money. The third provision is, in my opinion, the most important. Currently investors in gold and silver pay capital gains tax when the price of their gold and silver goes up. However, the rise in price of gold and silver is usually caused by devaluation of the dollar. We simply have to stop penalizing Americans for trying to save their wealth in a more stable asset. Furthermore, without this repeal, individuals using commodity money would pay a tax just to use it every time the Federal Reserve dollar lost value.

In the course of this letter, I have pointed out some of the problems with the Federal Reserve fiat currency. However, if the current U.S. dollar is truly superior to commodity money, if people continue to have confidence in it, and if the federal government pursues policies that strengthen it, then the U.S. dollar has nothing to fear from competition. On the other hand, having choice in currency will allow working Americans to protect their savings, protect their buying power, and use currency that everyone can have confidence in. As debate rages about whether to allow government to compete with private health insurance companies, I urge you to support competition in currency as well. Americans should no longer be forced to use devalued Federal Reserve notes and should have the choice to use sound money that retains its value.

Thank you for your attention to this very important issue.