In his Inaugural Address of 1933, Franklin D. Roosevelt warned his fellow Americans that "in our progress towards a resumption of work we require two safeguards against a return of the evils of the old order: there must be a strict supervision of all banking and credits and investments, so that there will be an end to speculation with other people's money; and there must be provision for an adequate but sound currency." Nonetheless, Roosevelt proceeded to promote an exceedingly unsound currency--with the seizure of most Americans' gold, devaluation of gold coinage, removal of domestic redemption of Federal Reserve Notes in gold, and the nullification of gold clauses in both public and private contracts (Vieira 2002: 867-1235).
Subsequently, this country moved even further away from Roosevelt's professed desideratum (ibid.: 1235-40). To be sure, Americans' right to own gold was restored in 1973, gold clauses were once again permitted for private citizens in 1978, and starting in 1985 the U.S. Treasury began to mint large quantities of gold and silver coins denominated in "dollars" and impressed with the character of "legal tender" (ibid.: 1269-1311). Yet, it cannot be said that the United States now enjoys "an adequate but sound currency" based upon silver and gold in the manner the Constitution requires (ibid.: 27-205). Rather, by providing financial aid and comfort to the overexpansion of the General Government, the operations of the Federal Reserve System--in particular, the use of Federal Reserve Notes, irredeemable in either gold or silver, as Americans' almost exclusive currency-- have validated the prophecy of Justice Stephen J. Field, dissenting in Dooley v. Smith, that the fallacious arguments the Supreme Court employed to rationalize the constitutionality of irredeemable legal-tender paper currency
tend directly to break down the barriers which separate a government of limited powers from a government resting in the unrestrained will of Congress... . Those limitations must be preserved, or our government will inevitably drift ... into a vast centralized and consolidated government [80 U.S. 604, 607-8 (1872)].
But exactly what corrective is now to be applied? At least two alternatives for dealing domestically with the present situation are available: (1) reforming the Federal Reserve System by introducing a redeemable currency somehow "backed" by gold, and preferably by silver as well, because no monometallic gold standard can exist under the Constitution; and (2) replacing the present monetary regime with an entirely new system of economically sound, honest, and especially constitutional money. In this article, I shall focus on the second alternative, as I have shown in detail elsewhere the unconstitutionality and imprudence of attempting to salvage the Federal Reserve System by returning its notes to redeemability in gold or silver (Vieira 2002).
Replacing the Present Monetaiy Regime with Sound, Honest, and Constitutional Money
Replacement of the present monetaiy regime would begin with the introduction of alternative currencies consisting solely of gold and silver to compete with Federal Reserve Notes. Here, three possibilities exist:
* First, the American people could fashion such currencies for their own use, under the aegis of the Ninth and Tenth Amendments to the Constitution, and of certain statutes, with the hope that the General Government and the States would then adopt those currencies.
* Second, the General Government could provide such currencies for everyone's use, through the exercise of Congress's power "[t]o coin Money, regulate the Value thereof, and of foreign Coin" in Article I, Section 8, Clause 5 of the Constitution.
* Third, the States could adopt such currencies for themselves and their own people (with the hope that the General Government would then follow suit), on the basis of the States' explicit constitutional duty in Article I, Section 10, Clause f of the Constitution not to "make any Thing but gold and silver Coin a Tender in Payment of Debts"--and therefore of their implicitly reserved constitutional right and power to "make ... gold and silver Coin a Tender in Payment of Debts."
Alternative Currencies through Private Action
The qualification ultimately to be recognized as official money by all public authorities takes into account that such a refonn could be initiated by private, rather than governmental, action. In Article I, Section 8, Clause 5, the Constitution delegates to Congress the power "[t]o coin Money, regulate the Value thereof, and of foreign Coin", and in Article I, Section 10, Clause 1 imposes upon the States the duty not to "make any Thing but gold and silver Coin a Tender in Payment of Debts," and through the latter duty reserves to the States the right and power to "make ... gold and silver Coin a Tender." Nothing in the Constitution, however, precludes Americans, as private individuals, from employing whatever honest media of exchange--in particular, gold and silver--as "Tender" in their private transactions. Indeed, besides the Ninth and Tenth Amendments, the very duty of the States to "make ... gold and silver Coin a Tender in Payment of Debts" guarantees that private right and power. For most "Debts" arise out of private contracts, are made payable in currency of some sort, and are enforceable in the States' courts. So diose courts are constitutionally required to enforce with the actual "Tender" of "gold and silver Coin" contracts that specify the payment of "Debts" in such "Coin"--no matter what other forms of currency Congress may have generated. The reserved duty, right, and power of the States to "make ... gold and silver Coin a Tender" plainly limits the reach of Congress's power "[t]o coin Money, [and] regulate the Value thereof" (or any other power, for that matter) because the Constitution cannot be read to license Congress to override the very duty, right, and power it simultaneously reserves to the States. (1) In addition, Americans enjoy a statutory right under Title 31, United States Code, Section 5118(a) and (d)(2) to enter into private contracts that contain gold clauses or silver clauses (2)--which die States' courts must enforce pursuant to Article VI, Clause 2 of the Constitution. Thus, as a matter of law, nothing precludes common Americans from adopdng gold and silver as their currencies in private transactions in preference to Federal Reserve Notes, even if the General Government and the States' governments were to continue to require people to employ those notes in financial interactions with public agencies.
As a matter of fact, however, powerful disincentives work against widespread adoption of alternative currencies by individuals on their own initiatives.
First, information costs. Before people can employ gold and silver clauses in their contracts, they must educate themselves about their legal rights and the economic advantages that might accrue from exercising them. Moreover, they must also learn how to draft legally binding and fully protective gold or silver clauses--or pay competent attorneys to do so.
Second, transaction costs. Economic actors who understand die advantages of gold and silver clauses must search out complementary partners who also know, or can quickly be educated, about those advantages; must convince them to consummate such arrangements; and must prepare die necessary documents to the satisfaction of various attorneys, accountants, corporate boards, and other supervisors and advisors. In addition, if those actors also enter into other deals pursuant to which they employ Federal Reserve Notes as their media of exchange, they must maintain complex systems of accounting which record receipts and expenditures sometimes in gold and silver, sometimes in notes, and which track exchanges of gold and silver for notes and vice versa.
Third, opportunity costs. In the absence of banks that pay interest in gold and silver on deposits of such currencies, people who employ gold and silver clauses can only "hoard" the gold and silver they receive but do not spend. This may prove economically disadvantageous.
Fourth, regulatory costs. Individuals who employ U.S. gold and silver coinage statutorily denominated in "dollars" as their media of exchange are typically required by tax gatherers and courts to report their gross receipts, incomes, sales, and other financial data, and to calculate and pay taxes, not on the basis of the face values of the coins in "dollars" as mandated by Congress, but instead on the basis of the much greater so-called fair market values of the coins expressed in Federal Reserve Notes (Vieira 2002: 1311-40). Although this requirement should be disallowed on both constitutional and statutory grounds, to challenge it is a costly and chancy endeavor. (3)
So, to expect individuals in large numbers spontaneously to adopt gold and silver as alternative currencies is unrealistic. Moreover, that many Americans did employ such alternative currencies in their private transactions would not by itself guarantee that the General Government and the States' governments would accept those currencies as media of exchange in the normal run of public transactions.
Alternative Currencies through the Federal Government
Pursuant to Title 31, United States Code, Section 5112(a)(7 through 10), (e), (h), and (i), the General Government already issues gold and silver coins as official currencies with the status of "legal tender." But it has not arranged for these coins to compete with Federal Reserve Notes in the marketplace on anything approaching equal terms (primarily because of the confusion surrounding how the "dollar" values of payments in such coins are to be determined). In the present political climate, the likelihood that any such arrangement will be made is essentially nil.
Moreover, although Congress has mandated in Title 31, Section 5119(a) that "the Secretary [of the Treasury] shall redeem...