Your Money is Illegal (and Stupid)

Of course, the title is meant to grab people's attention, and to be fair, I should clarify. "Your" money, is meant for the vast majority of Americans who use Federal Reserve notes as their medium of exchange. If you're using Bitcoin, Steem, Ether, or some other digital currency - that title wasn't for you. Also, if you trade primarily in precious metals like gold and silver, that wasn't for you either.

The title bears explanation. What do I mean when I say "illegal"? Well, I mean that Constitutionally, it isn't legal. Seriously, read the Constitution - Article I, Section 10, Clause 1 -

No state shall enter into any Treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debt; pass any Bill of Attainer, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.

The key there is that currently States regularly pay their debts in dollars, NOT gold or silver. At one time, the dollar was indeed backed by gold, but in 1971 Richard Nixon "temporarily" suspended the gold standard. Our dollars are no longer redeemable in gold, and states using them to pay debts is unconstitutional.

Even the Federal Reserve itself, which prints the bank notes that we all use today is unconstitutional. Article I, Section 8, Clause 5 -

[Congress shall have the power] To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures

A lot of people mistakenly assume that "coining money" is the same as printing money, which is what the Federal Reserve does. However, at the time the Constitution was written, "money" MEANT GOLD. "Coining" meant stamping. The Federal government had the power to stamp pieces of gold and circulate them as money. It does not have the power to print pieces of paper, accept them as legal tender, and have them backed by nothing.

So what if the US Dollar is illegal? Obviously no one has brought this up in a convincing enough way for the Supreme Court to rule on it. Plus, the Constitution is old. Who cares? Well, your money (the dollar) isn't just illegal. It's stupid too. Here's why.

Carl Menger, one of the founding fathers of Austrian economics, wrote in The Origins of Money, that gold and silver were chosen as money for a handful of specific reasons. Precious metals had attributes that paper money doesn't have - primarily that it has a use other than a medium of exchange. Gold and silver separated themselves from other commodities (like cattle, eggs, apples, seashells, etc) because of other attributes they had - small, widely distributed geographically, doesn't tarnish, rust or wear out, easily divisible, etc. Commodity backed currencies beat fiat currencies, and precious metals beat all other commodity backed currencies.

We're now in an interesting time, and I have yet to come to a decision on how I feel about Bitcoin and other cryptocurrencies. It seems that Bitcoin has answers to a lot of the problems with the dollar - it is decentralized, not controlled by a government, it is relatively limited in a way that mimics gold. However, unlike gold, it has no use other than a medium of exchange.

I'm divided, and many libertarians are as well. Peter Schiff is adamant that Bitcoin is a bubble, while Jeffrey Tucker sees Bitcoin as the future of all commerce. Any predictions? Let me know in the comments below!