Free Competition in Currency Act
Rep. Ron Paul introduced a bill in the last two Congresses that would bring the above benefits. This bill, called the "Free Competition in Currency Act," was reintroduced in this Congress by Rep. Paul Broun (Bill Number H.R. 77). It has three parts . . .
The Honest Money portion would repeal the legal tender law, which gives the Federal Reserve a monopoly over the money supply.
The Competitive Currency section would repeal the words of Title 18 Section 489 of the U.S. Code, which gives the United States government a monopoly over the creation of coins for use as currency.
The Tax-Free Gold component of the bill would prohibit federal and state taxes, such as capital gains, on precious metal coins and bullion.
You can read the full text of the bill on our Background page.
If you're well versed in economics you may already know how these simple changes could . . .
Help end both inflation and recessions.
Help to End the Fed, by creating a free-market alternative to the Federal Reserve money monopoly.
If so, you can ask your elected representatives to co-sponsor these bills using our Educate the Powerful System on the right side of this page.
If you don't know the significance of repealing the legal tender law, the coinage monopoly, and taxes on gold, or you're looking for good talking points to use in your message to Congress, please read the article that follows, titled "End the Inflation Tax" . . .
The Legal Tender Law Creates a Monopoly
Every paper dollar you own carries the words "Federal Reserve Note" (FRN). This means they were authorized for issue by the Federal Reserve System (the Fed), a national bank created by Congress. The legal tender law gives the Fed a monopoly over what you use for money.
When a currency is legal tender you are legally compelled to accept it in payment for debts, even if you've made a contract to be paid in some other currency or commodity, such as gold. The Free Competition in Currency Act would free you to use other currencies, gold, silver, or all of them at the same time, including FRNs and would make gold contracts legally enforceable in court.
If this seems like a strange new world to you, please realize that you already live in this world to a certain extent.
When you check-out at a store you can already pay using cash, check, debit card, or credit card. You probably also have different accounts you use for various purposes. Repealing the legal tender monopoly would simply extend this process, giving you more choices.
How the FRN Monopoly Works
Choice is good because it allows competition. Monopoly is bad because it leads to price-fixing. Monopoly control over what you can use as money provides the greatest price-fixing power of all. It impacts ALL of your economic transactions. The Fed can manipulate the price of everything by increasing the number of circulating dollars (inflation), or by decreasing that number (deflation).
How the Fed is like a counterfeiting ring
Counterfeiters also inflate the money supply. They use their fake money to get something for nothing, taking wealth from others without creating wealth of their own. It's stealing. But the long-term consequences of counterfeiting are even worse than the initial theft.
If the counterfeit dollars stay in circulation they will trick businesses into making a disastrous mistake.
Assume you're a widget maker. The extra circulating counterfeit dollars will cause demand for your widgets to rise. This increase in demand is actually an inflationary bubble, and that means trouble . . .
Your widgets will start to fly off the shelves faster than you can make them. This will cause you to increase prices to maintain inventories, and to invest in new production and staff to meet the heightened demand. But this increased demand is an illusion, because . . .
Everyone else will increase their prices too, for the same reasons you did. These rising prices will remove the perception of greater wealth and soak up the extra spending power created by the counterfeit dollars. The demand for your widgets will shrink back to its old level, but with a wicked twist . . .
The investment you made in expanded inventories and greater production will be exposed as unneeded. Your widgets will start to gather dust on the shelf and you'll have trouble paying your bills. The result?
You will lay-off recently hired employees and close your new production facilities.
First came the inflationary boom/bubble, and then the bust/recession.
Extra FRNs created by the Fed work exactly the same as extra FRNs created by counterfeiters. They allow those who get the dollars first to get something for nothing. The rest of us get a boom, and then a bust.
The Fed has numerous ways to create new FRNs out of thin air. Economists cloud these methods in complicated jargon, and the talking heads on TV make it all sound perfectly normal and even necessary, but the result is exactly the same as with illegal counterfeiting.
Given the above explanation it should come as no surprise that the greatest boom-and-bust cycle in American history happened immediately after the Fed's birth in 1913. Federal Reserve counterfeiting and credit expansion put the inflationary "roar" in the "Roaring Twenties," followed by the biggest bust ever, the Great Depression.
Other booms doomed to bust have been caused by essentially the same process, including the recent stock market and housing bubbles.
How You Can End This Con-game
Imagine what would happen if FRNs had to compete with gold, a form of money that can't be significantly inflated or deflated because of its scarcity and durability. . .
People would begin to have gold accounts that they would use to buy and sell. The ownership of the gold would be transferred back and forth using checks, debit cards, paper certificates (currency), and a few coins, just like with FRNs.
When you went shopping you might start to see two prices, one in FRNs and one in a certain weight of gold. If the Fed inflated the number of FRNs you would see the FRN prices rise while the gold price would stay roughly the same.
You would begin to prefer to pay the gold price, so you would want to be paid in gold too.
How could the Fed stop the flight to gold? Only one way. Stop inflating the number of FRNs.
Congressman Paul, now retired, hit upon the easiest way to end monetary inflation, and the booms and busts that follow in its wake. Simply repeal the legal tender monopoly enjoyed by FRNs, and the coinage monopoly held by the United States government. Stop taxing exchanges in commodity metals. Allow monetary competition. This would help end inflation. But that's not all . . .
Forcing FRNs to compete with gold will also confer one other benefit. Over time the prices you pay will tend to fall as increases in economic efficiency (for example, technological improvements) lower the cost of production and increase the supply of goods and services. A stable money supply tends to become more valuable over time, unlike an inflationary currency that constantly loses value.
Creating a free market money system would also have one other benefit. It could help to End the Fed, by making what the Fed does increasingly irrelevant.