Saturday, August 20, 2016

Legal Tender



Nick Badalamenti August 19, 2016 at 10:22 AM

In all the discussions surrounding FRB and its evil, it always seems like what is ignored is the role that "legal tender" laws play in all of this.

Under a system in which people are able to choose what currency they can use without compulsion (tax), penalties, etc.

I believe your second sentence makes clear that it is more than legal tender laws that present an issue; further, I am not sure legal tender laws present all of the obstacles attributed to it regarding the issue of competitive currencies / etc.

Legal tender is currency that cannot legally be refused in payment of debt. The Coinage Act of 1965, specifically Section 31 U.S.C. 5103, defines legal tender as "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."

To my understanding, legal tender must be accepted for the reasons (and only the reasons) listed: all debts (public and private), public charges, taxes, and dues.

This does not preclude agreements for payment in other forms, nor does it force a vendor to accept legal tender in all cases for goods and service (where there is not debt to discharge):

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 requiring a private business, a person or an organization to accept currency or coins as for payment for goods and/or services. Private businesses may adopt their own policies on whether or not to accept cash as long it doesn't violate state law. For example, a business may refuses to accept payment in pennies or large denomination bills as a matter of policy. (Emphasis added)

One can certainly accept gold or anything else as payment, I am quite certain.  Of course, this raises issues that you mention in the second sentence (taxable event).  But this is not a legal tender issue, it is a tax issue.

To have a reasonably effective possibility of a competitive currency / money / credit / banking system I believe requires the following:

·        The government must end all monopoly-sustaining practices: government mandated central banking (private cartels will arise and I find these acceptable as long as private means private), government deposit insurance schemes, government regulation, etc.
·        The government must accept tax payment in any form – certainly at minimum in the form the income was earned / recorded.
·        Currency transactions are not taxable events.
·        End legal tender – the tool to force acceptance in a form of payment for debt, taxes, etc.

I suspect I am missing one or two items.

I regularly point out the monopoly as the problem because I believe it is the most pernicious component.  Without the monopoly protection the emperor will be exposed as naked.

18 comments:

  1. The legal tender laws are significant because they make FRNs something that MUST be accepted as payment. Such laws steer a society toward indebtedness, while allowing those in debt the ability to pay back in depreciated money.

    The (ahem) flip-side of the coin is the fixed price of hard money at a rate that's lower than the metals' floating prices.

    Between legal tender laws and Gresham's Law, the two ensure the use of FRNs, as well as debt-laden system.

    ReplyDelete
    Replies
    1. "The legal tender laws are significant because they make FRNs something that MUST be accepted as payment."

      From what I have read - and cite in this post - this is not true. If you can cite something different than what I have found, please share it.

      Delete
    2. Let’s give this a whirl:

      {Juilliard v. Greenman, 110 U.S. 421 (1884), was a Supreme Court of the United States case in which issuance of greenbacks as legal tender was challenged in peacetime. The Legal Tender Acts of 1862 and 1863 were upheld.
      Juilliard sold and delivered 100 bales of cotton to Greenman for $5,122.90. Greenman tendered $5,100 in United States legal tender notes and the rest in coin, but Juilliard would not accept the U.S. notes. The tendered notes were originally issued under an act of Congress passed on February 25, 1862 and March 3, 1863, during the Civil War. An act of May 31, 1878 provided to "forbid the further retirement of United States legal tender notes."
      In an 8-1 decision resting largely on prior court cases, the power "of making the notes of the United States a legal tender in payment of PRIVATE debts" was interpreted as "included in the power to borrow money and to provide a national currency."}

      And then there’s this case which cites Juilliard v. Greenman:

      {Milam v. U.S. (1974)
      U.S. Court of Appeals for the Ninth Circuit
      Jan. 29, 1974
      Appellant has filed a substantial brief and an adequate reply brief and has argued his full share of allotted time in support for a demand that his $50.00 Federal Reserve Bank Note be redeemed in "lawful money" of the United States, which he says, in effect, must be gold or silver. Appellant refused appellees' tender of an equivalent value in Federal Reserve Notes.

      Appellant's contentions, in our view, were put at rest close to a century ago in JUILLIARD v. GREENMAN, in which it was said:
      " . . . Under the power to borrow money on the credit of the United States, and to issue circulating notes for the money borrowed, its power to define the quality and force of those notes as currency is as broad as the like power over a metallic currency under the power to coin money and to regulate the value thereof. Under the two powers, taken together, Congress is authorized to establish a national currency, either in coin or in paper, and TO MAKE THAT CURRENCY LAWFUL MONEY FOR ALL PURPOSES, AS REGARDS THE NATIONAL GOVERNMENT OR PRIVATE INDIVIDUALS. . . . " (Emphasis supplied.)

      The power so precisely described in Juilliard has been delegated to the Federal Reserve System under the provisions of 12 U.S.C. § 411. Appellant's challenge to the validity of this legislation is meritless.}

      Yes? No? Maybe? (Ugh, that's too much legalese for a Saturday afternoon.)

      Delete
    3. Thank you for the info. I've thought this every time the comment about legal tender not prohibiting private individuals from accepting dollars in their place of business is made. All it takes is one SCOTUS decision interpreting legal tender as dollars must be accepted I'm all transactions and the yoohoos in Washington and those who vote for them will assume that's what the law was always meant to be. It may actually have been intended this way anyway.

      Delete
    4. Brutus, your reply is helpful. Thank you.

      Delete
    5. @ Steve: "All it takes is one SCOTUS decision..."

      From Wikipedia:

      {The United States Supreme Court, with Salmon P. Chase (former Secretary of the Treasury) ruled the practice of legal tender unconstitutional in Hepburn v. Griswold in 1869, but later reversed its ruling WITHIN A MONTH when confusion in the markets caused everybody not to accept "Legal Tender" notes at all. The Court held that paper money, even that not backed by specie such as the United States Notes can be legal tender, in the Legal Tender Cases, ranging from 1871 to 1884.}

      Sometimes all it takes is two. :)
      Has SCOTUS ever reversed itself so quickly? I think NOT. So much for stare decisis and all that.

      @ bionic mosquito: You're welcome. However, I do hope you'll make all this blotchy back-and-forth into a nice cohesive article. That's why you get paid the big bucks, after all.

      Delete
    6. Brutus

      I might do something more with this topic; it has long been buried in the back of my mind, yet is something I have found a bit difficult to grasp.

      In any case, for now I have two or three other posts on my mind...

      Delete
  2. I'm on vacation with the family and just checked in to see that you honor me with a well reasoned response BM.

    Can't a man on vacation get a break?

    :)

    Anyway, Brutus responded better than I could have- and I think it important to continue to point out that when you use any thing other than the US dollar as a currency- if that currency has increased in value it is a taxable event.

    That simple fact alone is a significant factor/barrier to gold, silver, etc. et al becoming a "currency".(for the reasons Brutus pointed out-even though many use them as a store of value)

    I agree with Brutus in that such a system actually promotes using a currency that depreciates instead of appreciates.

    ReplyDelete
    Replies
    1. See? You're on vacation... and he's got me using legalese on a weekend! Why do we even frequent this site?

      Delete
    2. Ha! I'm probably an addict when it comes to this place. Oh well- back to the beach I go.

      Delete
  3. Are you asserting that the state still has the ability to tax in this scenario?

    ReplyDelete
  4. BM: " The government must end all monopoly-sustaining practices"

    But the government _is_ a monopoly, by nature. :-)

    So why would an individual expect or demand it to act in ways contrary to its very nature?

    If you have a government in the first place you must have this monopoly.

    The monopoly might appear "limited" for a short time after that new monopoly is created, but that condition will not last for long, the monopoly must always expand/spread to other areas, including banking and currency.

    BM: "Without the monopoly protection the emperor will be exposed as naked."

    Which is one good reason why the monopoly on force known as "government" must always have a "legal" [i.e legally enforced] currency debasement system like the Federal Reserve.

    For the government, the scam must go on, at all costs.

    The Fed [and its systemic currency debasement] is absolutely essential to the governments continued scam operations [ wars, individual and corporate welfare etc. etc. ad infinitum ], and therefor to its very existence, and it knows this very well.

    Choices, Choices, Choices:

    It seems to me that the individual can either acknowledge /accept this unwholesome state of affairs, then learn to find ways to insure/protect themselves against it as far as possible, or they can continue to fantasize about having a government [ i.e . a monopoly] without it having a monopoly on banking and currency ["legal tender"], or on what ever else they might fancy that this particular monopoly should somehow _not_ monopolize.

    The choice is theirs, as always.

    Regards, onebornfree.

    ReplyDelete
    Replies
    1. OBF

      No one is writing anything otherwise. The point isn't regarding the wet dreams of fantasy; the point is to be clear about the precise issue.

      At least that is my point.

      You obviously have another point, one into which you attempt to stuff every sentence written by me and others and make fit.

      I will say one thing for you; you haven't changed (or added a single thing to the conversation) for the six or seven years I have known you.

      Who says consistency is something to be admired?

      Delete
  5. What if an American president with libertarian inclinations announced that he will pardon anyone convicted of violating legal tender laws and that he would instruct his DoJ to no longer prosecute such violations. Wouldn't the consequent emergence of private money be a death blow to the Federal Reserve without the need for a long congressional battle to abolish this agency? Wouldn't the Fed simply wither away, its FRN's shunned in favor of hard money?

    ReplyDelete
    Replies
    1. It will take more than this - I have listed my short-list in the post.

      Delete
  6. Nick mentioned it but it bears repeating. The world of high corporate and finance pays close attention to minimizing tax liability. Gold and silver will not be used as stores of value or for exchange, except in limited cases, so long as the holder is taxed on all realized appreciation at ordinary income rates.

    That "appreciation" could be recognized in every tiny sale. Take that away and you might star my seeing a real trend in monetary competition.

    One last point on "choosing" you means of payment as a private party. If the paying party refuses and a court renders a judgement, expect that to be denominated in US dollars, and not be an equitable remedy that provides gold/etc.

    ReplyDelete
    Replies
    1. "One last point on "choosing" you means of payment as a private party. If the paying party refuses and a court renders a judgement"

      To your point, gold clauses were actually struck down by Congress back in 33':

      http://faculty.chicagobooth.edu/finance/papers/repudiation11.pdf

      Delete