The Dollar's Deadly Laws That Cause Poverty and Destroy the Environment

• Publication year: 2021

98 Nebraska L. Rev. 56. The Dollar's Deadly Laws That Cause Poverty and Destroy the Environment

The Dollar's Deadly Laws That Cause Poverty and Destroy the Environment

Christopher P. Guzelian(fn*)

ABSTRACT

Laws associated with issuing U.S. dollars cause dire poverty and destroy the environment. American law has codified the dollar as sufficient for satisfying debts even over a creditor's objection (legal tender) and as the only form of payment that typically meets federal tax obligations (functional currency). The Supreme Court has upheld government bans on private possession of, or contractual repayment in, monetary alternatives to the dollar like gold or silver. Furthermore, since 1857 when the United States Congress began abandoning the silver standard in practice, the dollar has gradually been trending ever greater as a "fiat money"-a debt instrument issued at the pleasure of the sovereign-and, indeed, has been a 100% debt instrument since 1971 when the United States finally, formally, and completely abandoned gold and silver standards. States and municipalities also support these four legal aspects of the dollar despite a potentially contrary constitutional mandate.

This Article examines implications of these four legally entrenched aspects of the modern dollar-fiat money, legal tender, functional currency, and non-fiat money bans. As the first analysis in the academic legal literature to do so, this Article demonstrates that the combination of these four legal attributes leads to severe environmental damage and catastrophic impoverishment of a portion of the global population (in particular, those who are already abjectly poor). The Article shows that calls for digital currencies based on international fiat monetary alternatives to the dollar, such as Special Drawing Rights (SDRs), will not improve the environment and global economy and indeed may worsen

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them. The Article concludes by laying out possibilities for reform of laws supporting the dollar in its present form that would diminish both poverty and environmental destruction.

TABLE OF CONTENTS

I. Introduction .......................................... 57

II. A Relevant History of the Dollar's Laws ............... 59
A. Fiat Money ....................................... 59
B. Legal Tender ...................................... 61
C. Gold and Silver Bans .............................. 67
D. Functional Currency .............................. 70
E. States and Municipalities .......................... 72

III. Economic Insights into the Dollar's Legal Attributes . . . 72
A. The Fiat Money Thought Experiment, Part 1: From Raw Silver to Fiat Silver .......................... 74
B. The Fiat Money Thought Experiment, Part 2: From Fiat Silver to Fiat Notes ........................... 91
C. The Fiat Money Thought Experiment, Part 3: From Fiat Paper Notes to Fiat Electricity (Digital Currency) ......................................... 96
D. The Globalization of Fiat: Special Drawing Rights (SDRs) ............................................ 98

IV. Conclusion: Solutions for Reform ...................... 102

I. INTRODUCTION

This Article draws attention to how laws that accompany the modern U.S. dollar cause poverty and environmental destruction. In the modern world, almost all currency is now fiat, meaning that (1) the issuing government authority legally declares the currency to be money and (2) its proclaimed value outstrips whatever the intrinsic value the money content (metal, paper, or electronic, etc.) has. Prominent economists frequently assume that government fiat money is a helpful and good innovation.(fn1) But less attention has been given to ad-

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verse consequences of the coercive laws that ensure the public's use of the fiat currency.

In the first instance, one must draw a distinction between government notes and government fiat money. The former does not employ laws to coerce the public's use of the money; it is merely one of many debt instruments among those both public and private.(fn2) Government fiat, by contrast, is a lawfully anti-competitive currency. By legal design, it drives competing currencies out of the market, including gold and silver.(fn3) Some economists say that the legal enactments are necessary to create marketplace efficiency in the use of money. Without a uniform currency, the argument goes, transactions will be inefficient, as trading parties have to determine what the relative exchange values of their competing monies are.(fn4)

Without denying possible efficiency benefits to a legally anti-competitive currency, there are also oft-overlooked economic and environmental harms. This Article draws attention specifically to two such problems in Part II.(fn5) First, the laws that accompany fiat money impoverish people. Many are effectively shut out of the economy while, at the same time, they are paradoxically required to involuntarily participate in the exchange of fiat money. Second, these laws damage the environment. This is because the public must unsustainably over-extract resources to simultaneously try to stay financially solvent and comply with the laws of fiat money.

There are three laws accompanying most modern fiat currencies that cause poverty and environmental destruction. First are legal

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tender laws. These laws require any creditor to accept payment in a fiat currency from the debtor, even if the original contract called for payment of equivalent value in some other form of currency or exchange. Second, governments providing fiat currencies often enact non-fiat money bans, meaning it is illegal to possess or trade in currencies other than the exclusive government fiat currency. Third, government tax collection usually specifies that the fiat currency is the only "functional currency" (i.e., form of currency) acceptable for paying one's taxes. Part I of this Article reviews the history of the American adoption of these three types of laws.

Part II lays out a historical-theoretical framework to demonstrate that these three kinds of laws when combined with a fiat currency cause poverty and environmental destruction. Part II also discusses a current trend away from global reliance on the dollar and towards an international fiat currency.

Part III lays out four proposals for reform. First, legal tender laws should be repealed and forbidden.(fn6) Second, all non-fiat money bans, except those regulating counterfeiting and fraud, should be repealed and forbidden. Third, Congress should declare gold and silver in bar or coin form as functional currencies for U.S. tax and tariff purposes. Finally, Congress should declare any asset that exceeds a certain minimal threshold of common American monetary usage (say 66% of the population) as a functional currency until that asset's circulation declines beneath the 66% threshold. Part III also considers the possible need for redistributive justice to support those who have suffered through over a century's length of steady dollar devaluation and environmental destruction.

II. A RELEVANT HISTORY OF THE DOLLAR'S LAWS

A. Fiat Money

The creation of the Articles of Confederation in 1777 allowed the United States to operate as an independent national government for the first time. Princeton University Library curators relate well the manner in which the fledgling American government functioned monetarily in the years up until the 1789 creation of the U.S. Constitution:

Although it had authorized the issue of medals and the creation of a national seal in 1776, it wasn't until 1786 that the Continental Congress passed an

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ordinance to establish the coining regime for the new nation. In the meantime, the prevailing legislation was the provision in the Articles of Confederation of 1777 that "the United States in Congress assembled shall also have the sole and exclusive right and power of regulating the alloy and value of coin struck by their own authority, or by that of the respective states." The result was a monetary circulation that included old British coins, American and foreign imitations of them, coins issued by various states, and paper money issued both by the Congress and by individual states. There were also pattern proposals for a national coinage created in England and in America. . . . .

[A] proposal for a national coin, of unexpressed value, is known in silver, copper, brass, and tin examples from a few die combinations. It was produced by Elisha Gallaudet (ca. 1730-1779), an engraver in Freehold, New Jersey, who made the cuts for the paper currency bearing these same motifs based on drawings by Benjamin Franklin. . . . .

Although [an] ordinance of 1786 called for the establishment of a mint, the only national coinage actually issued under the Articles of Confederation was a copper cent produced on contract by a private minter. It copied, with minor changes, the 1775 proposal by Benjamin Franklin that had been used on paper money and the "continental dollar patterns" of 1776.(fn7)

Several states, notably Vermont, Connecticut, New Jersey, and Massachusetts, as well as private minters in New York, also issued their own coinage during the Articles of Confederation era.(fn8)

With the creation of the U.S. Constitution in 1789, the codified U.S. fiat money system emerged. Craig Elwell of the Congressional Research Service very capably describes the history of fiat currency creation in the United States beginning with the Coin Act of 1792:

The U.S. monetary system

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