Laws of Inflation

2004 Liberty Coin

When the FRN [Federal Reserve Notes] are mixed with the Silver Liberty, the acceptance rate is nearly 100%.  I’ve only been refused once out of a hundreds of transactions.  Second, when I get to the cashier, I say “I have the paper [show them the FRN cash], but I would like to pay with silver.  I then drop the $10 silver liberty in the cashier’s hand.  Then wait . . . . When they ask “is it real?”  I always answer, Yes, ounce of silver, 10 dollars.  Let them look at it as long as they like . . . . If they ask ‘Where did you get it?’ my first answer is ‘From a friend who collects them,  but I like to spend them.’ Smile.  This let’s them know it’s inherently valuable and that people collect them and some people spend them, in just one sentence.  It also lets them know that you’re not crazy to spend this money and that there are others doing it too.

On November 14, 2007 the Liberty Dollar offices were raided by the Federal Bureau of Investigation for competing with the U.S. currency, mail fraud, wire fraud, and money laundering.  In May of 2009 a Grand Jury indicted Von NotHaus, the monetary architect, and three others.  The claim from the U.S. attorneys was in essence that the Liberty Dollar  competed with the U.S. dollar, which they did, but also that they were making a profit from defrauding people by tricking them into accepting the liberty dollar.

California Liberty Coin

Von NotHaus filed a motion to dismiss claiming that the first amendment provided him with the right to create the liberty dollar.  He noted that on the warehouse receipts it stated this “is an exercise of the Bearer’s First Amendment right to petition the Government for a silver based currency as mandated by the U.S. Constitution.”  He also pointed out that the Government had nothing to fear as Gresham’s law assures us that bad money (Federal Reserve Notes) will drive out good money (Liberty Dollars).

Von Nothaus was convicted of conspiracy and two other coining related charges. Upon conviction, U.S. Attorney Tompkins said “Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism.”

Von Nothaus was convicted of of violating 18 U.S.C. section 485 which reads:

Whoever passes, utters, publishes, sells, possesses, or brings into the United States any false, forged, or counterfeit coin or bar, knowing the same to be false, forged, or counterfeit, with intent to defraud any body politic or corporate, or any person, or attempts the commission of any offense described in this paragraph–

Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title or imprisoned not more than five years, or both.

Ron Paul Liberty Coin

CONCLUSION

The case Hepburn v. Griswold, 75 U.S. 603 (1870) was the first of several legal tender cases decided by the Supreme Court.  In this case Chief Justice Chase while speaking for the majority of the Court in striking down the legal tender laws as being unconstitutional said:

There is a well-known law of currency, that notes or promises to pay, unless made conveniently and promptly convertible into coin at the will of the holder, can never, except under unusual and abnormal conditions, be at par in circulation with coin.  It is an equally well-known law, that depreciation of notes must increase with the increase of the quantity put in circulation and the diminution of confidence in the ability or disposition to redeem. Their appreciation follows the reversal of these conditions. No act making them a legal tender can change materially the operation of these laws.

The Chief Justice’s quotation explains that promises to pay (promissory notes) in gold or silver coin will never trade at the same price to physical gold and silver unless one can immediately convert the promises into coin.  He also explains that the more notes representing promises to pay that are in circulation, the lower the value of the notes will be, and that the reverse is also true.  He’s explicit in noting, that no act of Congress can change these natural laws.

The evidence demonstrates that Chief Justice Salmon P. Chase was correct.  In 1862 in order to fund the civil war Congress issued $150,000,000 of U.S. notes to be used in circulation for the general population.  Congress also established legal tender laws making these notes legally payable for all debts public and private.  Despite these laws, the notes depreciated in value hitting a low of $2.85 for $1.00 of coin in July of 1864.

In 1913, the year the Federal Reserve Act was passed; one troy ounce of gold was worth $18.92.  See nma.org. At the time of writing this blog, one troy ounce of gold is worth $1,417.30.  This is over a 98% devaluation in the value of dollars relative to gold in 98 years.  No matter what your definition of inflation, whether it is an increase in the money supply, or increase in prices, we have experienced massive amounts of inflation since the creation of the Federal Reserve (America’s Central Bank).

If we continue to depreciate the currency at the previous rate, in 30 more years one ounce of gold will be worth over $5,300.  I posit that so long as we continue to have central banking, inflation is going to increase at an ever increasing rate, far out pacing our experience of the past 98 years and sending gold far in excess of $5,300 by 2040.