The Liberty Dollar Question
Every libertarian should support full freedom in money production and use, and a great step toward sound money would be to scrap all laws against alternative currencies. I find it interesting how insistent the government is that we use its currency and no other: what is it that these people fear? So there is no libertarian grounds for prosecuting any company that is minting currency. Private coinage grew up with capitalism itself.
That said, one can't help but notice that many of the players that have been involved in this industry over the years have not always had the highest scruples. Maybe it's like prohibition of drugs and alcohol: you make something illegal and its draws people who do not place a premium on honest business dealings. I can think of several cases of this in the past.
I just read the warrant for the seizure of Norfed's assets, and it is not entirely clear to me what the mix here is between phony crime (competing with the dollar) as verses practices that would qualify as fraudulent in any free market system - not that theft by the police is an improvement. So perhaps readers can help. Here is the PDF of the document. See what you think.
Comments (55)
The Liberty Dollar is a joke. If you want gold, just buy gold; a shady company is unnecessary.
Published: November 19, 2007 9:15 AM
Several countries, including the U.S., have for many years minted gold and silver bullion coins. What is key is the weight of the commodity in the coin, and not who has minted the coin.
With that said, there should be no prohibition on the minting of coins by parties other than governments, and all legal tender laws and laws prohibiting individuals from negotiating commercial transactions based on whatever terms, including the final means of payment, that they believe are mutually advantageous should be repealed.
Published: November 19, 2007 10:02 AM
Is there a 'duh!' factor against alternative currencies even if it were legalised?
Gresham's Law.
When two currencies are being used people prefer to keep the valuable one and spend the weak one. If someone paid me $1000 in $500 of gold coins and $500 cash and I in turn wanted to buy something for $500 and save $500 why would I spend the gold coins? How long would gold coins in circulation last before people kept hoarding the gold coins and prefer spending the dollar bills? Similarly, since 10 cent coins around the world are pretty much the same size and suppose I receive a U.S. dime and the $A/$U.S. exchange rate is such that a dime is worth, let's say, 15 Australian cents, why would I spend the dime and lose 5 cents when I can use ordinary Aussie 10 cent coins (actually I'd more prefer to keep the dime as a lighthearted coin collector ;D)?
Published: November 19, 2007 10:07 AM
I was curious to see what the actual charges will be.
Liberty Dollar doesn't make sense as an actual business model. It is trying to swim against Gresham's Law. The participants seem to be in it to make a point. Even so, it doesn't look to me like they committed actual fraud, but they would have done better to avoid things like the word "dollar" and "$".
Published: November 19, 2007 10:16 AM
EP, if the Liberty Dollar is a joke then the market will dictate that. The whole point is to have competing currencies so consumers can choose which currency is more valuable than the other. The U.S. central bank or Federal Reserve negates this feature of the market so the thugs that use the money first benefit from a stronger currency. Norfed is run by an entrepreneur who may or may not have the currency-market right, however I would rather have a Ron Paul Dollar then a piece of fiat toilet paper. And I, as a consumer thank him for trying to provide a service better than the Nazi's at the Federal Reserve.
Gresham's Law is an important market mechanism to weed out weak currencies. No one wants to be left holding the bag. Weak currencies are not what you want to hold on to when you're trying to store value and it should follow that weaker currencies are the first that you would use before using a more solvent asset backed currency. Just because gold is hoarded doesn't mean its not serving its function which is a store of value. And further, what is wrong with hoarding?
Published: November 19, 2007 10:32 AM
This has hit most or all the Freedom Forums (as Mises Forum, The Mental Militia Forum, Strike the Root Forum, Stefan Molyneux's FreeDomain Forum, among many others) and starting one thread was a Freedom's Phoenix.com Feature Article as well (again one of many), noting the odd coincidence of several thousands (some two tons) of new Ron Paul medallions having been confiscated. It seems justly so that such "coverage" is widespread.
The warrant too has been linked. Perhaps it is legislative law and its enforcement that have become the joke, or even the tyranny.
Published: November 19, 2007 10:52 AM
all legal tender laws and laws prohibiting individuals from negotiating commercial transactions based on whatever terms, including the final means of payment, that they believe are mutually advantageous should be repealed
They're already unconstitutional.
But then again, expecting a government to abide by its own founding charter is pretty foolish.
Published: November 19, 2007 11:11 AM
The government does not want these coins because the merchants don't pay taxes on them. Do you really think people calculate the market value of the gold/silver/copper in the coins and send the government the sales-tax? I wonder if the states will go after the merchants to pay backloged sales-tax on purches with liberty dollars.
Published: November 19, 2007 11:21 AM
From a numismatic point of view, the Ron Paul Liberty Dollar has done extremely well.
$40+ for the $1 Copper piece
$200+ for the 1 oz Silver $20 piece
$3000+ for the 1 oz Gold $1000 piece.
http://cgi.ebay.com/Ron-Paul-Liberty-Dollar-NO-356-Rare_W0QQitemZ110194414060QQihZ001QQcategoryZ786QQssPageNameZWDVWQQrdZ1QQcmdZViewItem
Published: November 19, 2007 11:21 AM
Legal tender law only means that:
1. A particular form of money is deemed the "Dollar" in contracts for enforcement purpose, unless another form of dollar is explicitly defined in the contract. There was a time when the government refused to enforce gold clause in contracts, between 1933 and 1975, but the gold clause is once again enforceable; so are contract terms laid out in Canadian Dollar, Australian Dollar, etc. etc.
2. "Legal Tender" is useable for tax payment.
Gresham's Law doesn't apply to the Liberty Dollar, for two reasons:
(1) Gresham's Law only applies to competing forms of legal tender; e.g. in bimetalism, both silver and gold are legal tenders; when silver half dollar was still minted, both the silver half dolalr and the paper money were legal tenders. Liberty Dollar is not legal tender;
(2) Liberty Dollar is/was designed to rebase itself so the face value is always backed by less silver than equivalent face value amount of Federal Reserve Notes can buy in the silver bullion market. However, when re-basing takes place, the holder of older Liberty Dollar currency gets more newer Liberty Dollar. So far, only one re-basing has taken place. One 10-base Liberty Dollar became equivalent to two 20-base Liberty Dollar when the silver commodity price exceeded $10/oz.
As far as I can tell, the federal charges stem from three directions:
A. That it is pretending to be US Dollar. LD contends that their metal discs are barter tokens just like Disney Dollars and casino dollar chips, or for that matter monopoly money. Merchants who accept the Liberty Dollar do so voluntarily; those who spend the Liberty Dollar as if it were coins from the US Mint with the said face value without clarification with the merchant however enter a grey area.
B. The $1 Liberty copper coin does not have nearly as much metal in it as the face value. One of the charges is that the organization commits fraud if and when it touts all its medallions have enogh metal content in it to reflect the face value as equivalent US dollar value.
C. US Mint's assertion that it has the exclusive right to put the sign "$" on a metal disc; that and perhaps the words "Liberty" and "God" too.
Published: November 19, 2007 11:24 AM
This serves as a stern warning to any Americans foolish enough to think they still live in a free country.
That aside, a privately issued money should never be denominated.Just stamp weight and purity.
But this would be way less profitable,after reading the warrant you see that they had quite a profitable scheme going selling $15 in silver for $20.That's not illegal tho, if people want to pay a 25% premium thats up to them.
This seems like selective prosecution, as Phoenix Dollar has not been raided.But then Phoenix Dollar is not in the process of suing the U.S. Mint.....
Published: November 19, 2007 11:48 AM
Jim,
Was the $1 copper coin redeemable by Liberty Dollar for the proper amount of metal? I notice on their website they had silver certificates. I just wondered if the copper dollar was a token certificate.
Published: November 19, 2007 12:33 PM
TWLP -
Gresham's Law only applies when the law makes "bad" money equivalent to "good" money. That's not the case with alternative currencies like the Liberty Dollar. If people think Liberties are worth less than US dollars, they can charge a price higher in Liberties and lower in US dollars. Ex, a gallon of gas could be listed as costing $3 in US dollars or $3.50 in ALDs.
Legal tender laws prevent companies from saying "A gallon of gas will be $3 if you pay in Eisenhower silver dollars, or $5 if you pay in paper Federal Reserve notes."
Published: November 19, 2007 12:56 PM
Mr. Gaskell,
Yes, these laws are unconsitutional based on an objective reading and interpretation of the constitution's language. And you are correct in your comment that "expecting a government to abide by its own founding charter is pretty foolish."
Published: November 19, 2007 1:25 PM
Steve H, what is wrong with merchants commanding different denominations of currency for the same economic good? Wouldn't you pay a different amount of silver versus gold for a widget? Much more silver would be required to equal the value of gold for the widget. If you don't like it, don't do business with that merchant. Never should a government set out the requirements for an economic transaction, it negates liberty.
Published: November 19, 2007 1:29 PM
I am sure some creative interpretation of the law will make this seem like a legitimate act. After all, once one can 'creatively' interpret a document, anything goes, more or less.
Published: November 19, 2007 1:30 PM
Tom Whiston,
I didn't say there was anything wrong with it. I was just saying that is the effect that legal tender laws have, and that is why Gresham's Law does not apply.
Published: November 19, 2007 2:03 PM
> after reading the warrant you see that they had quite a profitable scheme going selling $15 in silver for $20.That's not illegal tho
lol, ironically I spent this morning trying to buy Canadian Silver Maple Leaf coins/rounds to gift to my family over the holidays, and that's exactly what I was going to be doing: spending $20 for $15 worth of silver.
Another crime that's okay when governments do it, I guess. :D
Published: November 19, 2007 2:11 PM
Various people are deriding Norfed for "selling $15 in silver for $20", but it seems to me that a 33% retail markup over the raw, bulk material cost is not all that unusual for any product. After all, you have to take into account minting, inventory, handling, overhead, etc.
This isn't only true of silver; a 1-ounce U.S. Gold Eagle presently costs about $850, but a 1/10-ounce piece goes for $120, not $85. Similarly, a 1-ounce silver round will tend to cost more, per ounce, than the 100-plus-ounce bars the spot prices are based on.
Published: November 19, 2007 2:55 PM
Mikey,
"But this would be way less profitable,after reading the warrant you see that they had quite a profitable scheme going selling $15 in silver for $20.That's not illegal tho, if people want to pay a 25% premium thats up to them."
I've been approached by people selling these coins, or coins like them, at special events. They hope that you'll purchase them in the excitement of the moment (like a souvenir) and not ask too many questions about things like premiums. I wonder what percentage of Norfed's clients were truly serious investors...
Published: November 19, 2007 3:41 PM
I think this is just the tip of the iceberg...
As for using alternate currencies, pay attention to the VISA commercials which make people who use paper money/coinage/checks look like idiots. I suspect that with the power of marketing, the use of currency for cash transactions will be replaced by plastic.
This would be a boon for the Government, as they would then be able to track all purchases, making the collection of a consumption tax far easier. And with a consumption tax, it'll mean that you'll be paying taxes on your Internet purchases as well.
Published: November 19, 2007 3:51 PM
Various people are deriding Norfed for "selling $15 in silver for $20", but it seems to me that a 33% retail markup over the raw, bulk material cost is not all that unusual for any product. After all, you have to take into account minting, inventory, handling, overhead, etc.
Good point, except that my local precious metal dealers sells one ounce pieces of silver for 2% over spot. The Northwest Terretorial Mint (a private mint in the state of Washington) sells their private label one ounce silver rounds for about 5% above spot. That beats the hell out of 33% above spot.
I feel that Liberty Dollar takes advantage of people's ignorance of the precious metal trade. Though I do agree with the saying "let the buyer beware," I have little love for shady businesses. In the end, let the market decide, of course.
Published: November 19, 2007 4:09 PM
http://austincoins.com/buffalo-gold-coins.htm
Let's also not forget the markup on US Mint-made gold coins. Currently the one ounce gold Buffalo coins are running at between $855 and $1015 (in perfect condition), while gold is around $780.
If US government coins can have numismatic value, why not liberty dollar coins?
Published: November 19, 2007 4:44 PM
The dollar token coin has the highest margin among coins from the US Mint (excepting of course proofs and rare collector's items like illegal coins from the US Mint; e.g. the infamous 1933 Gold Eagle). The production cost of the US Mint dollar coin less than 24 cents; material worth even less.
Published: November 19, 2007 5:07 PM
personally, i think the craziness for the liberty dollar was assigning a rather arbitrary value on the gold.
If one watches the ForEx and the Commodities markets closely for a few weeks (opening, closing, average prices, etc), then one begins to realize how abstract a "dollar" or "euro" or "yen" really is. We see oil exchanged for dollars, dollars for pounds, pounds for gold, gold for dollars, etc.
If I was in the business of minting coinage (though I am not), I'd sell coins of various precious metals with guaranteed purity in gauranteed weights: troy ounces and grams.
Published: November 19, 2007 5:10 PM
What is most conspicuous about the warrant is that the "crime" being investigated seems to be a violation of 18 U.S.C. § 486, the text of which I include below.
Uttering coins of gold, silver or other metal:
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.
http://www4.law.cornell.edu/uscode/html/uscode18/usc_sec_18_00000486----000-.html
The warrant doesn't mention this statute. Maybe they don't want people asking _why_ they outlaw commodity money.
Published: November 19, 2007 5:39 PM
Here is a link to a rather good article, plus two hilarious comments at the end.
http://groups.google.com/group/alt.politics.republicans/browse_thread/thread/19924f65ec4797a/e6e0ac489fe6f112?hl=en&lnk=st&q=liberty+dollar#e6e0ac489fe6f112
Published: November 19, 2007 6:21 PM
Jackson above was right. The State does not want alternative currencies because of the difficulty of collecting taxes. Let's say a completely worthless currency, say Brazilian Cruzeiro overstrikes from the 40's and 50's, have become so rare that the currency has become collectible. Each note has collectible, not intrinsic, value, so owners of these notes start circulating them in the US between themselves as a currency. Assuming we've switched from an income tax to a sales tax (and even if we don't) how can the State now collect taxes? Who values the obselete Cruzeiros for tax purposes and how?
Published: November 19, 2007 6:33 PM
I find it interesting how insistent the government is that we use its currency and no other: what is it that these people fear?
Except in Canada, where it is no longer permitted to pay federal taxes in cash.
Their greatest fear is losing their place on the taxpayer's teat and having to go out and get a real job.
Published: November 19, 2007 7:05 PM
Did anyone pick up the implication in the indictment that U.S. Mint precious-metal coins are a kind of legal tender that can be reasonably be expected to be used as money? That assumption is what a large part of the government's case is based upon. (See page 6 of the indictment for an illustration.)
Since the gummit evidently believes that U.S. Mint-issued precious-metal coins can be passed around in trade, what's to stop people from using them as such - at legal-tender value? The F.B.I has all but encouraged it with this indictment.
Published: November 20, 2007 12:27 AM
As a student of Austrian Economics and supporter of commodity money, I regard the assault upon the American Liberty Dollar (ALD) with alarm and sadness, but not surprise.
While nothing the ALD firm did was clearly criminal, in that no force or overt fraud was used, their tactics could charitably be described as sleazy. They were designed to trade silver medallions to the ignorant and unwary at premiums that were many multiples of the market norm. In doing so, they created unnecessary complexity and confusion about hard money.
Consider:
1) Appropriating the face of Ron Paul without so much as asking his permission. Yes, he is a public figure so the appropriation will not be considered criminal, but it is feels sleazy.
2) Erecting a multilevel marketing scheme that provides profits that have at times exceeded 100% to insiders. The tale (face value) of the ALD was raised from $10 to $20 when the market price for an ounce of silver crossed $7.50. ALD dealers split the $12+ profit with the ALD firm. I am not against profits, I seek them. But I know where I can buy 1 ozt silver medallions, including ALDs, at less than $1 over spot silver. Only the ignorant pay such exorbitant prices for silver coins.
3) Creating confusion and needless complexity by marking their coins with a dollar-denominated tale. Unlike countless other silver coins with tales denominated in STU (silver trade unit), WTU, Sovereign, or simply weight, the ALD was denominated in dollars, a figure reserved to government-issued, primarily US and Canadian, currencies.
Mises himself taught, in The Theory of Money and Credit "...at all times and among all peoples the principal coins have been tendered and accepted, not by tale without consideration of their quantity and quality, but only as pieces of metal of specific degrees of weight and fineness. Where coins have been accepted by tale, this has always been in the definite belief that the stamp showed them to be of the usual fineness of their kind and of the correct weight. Where there were no grounds for this assumption, weighing and testing were resorted to again. ... Nevertheless, in defiance of all official regulations and prohibitions and fixing of prices and threats of punishment, commercial practice has always insisted that what has to be considered in valuing coins is not their face value but their value as metal. The value of a coin has always been determined, not by the image and superscription it bears nor by the proclamation of the mint and market authorities, but by its metal content. Not every kind of money has been accepted at sight, but only those kinds with a good reputation for weight and fineness."
4) Exploiting the self-made confusion of the tale by crowing about the "doubling" of the ALD when they changed the tale from 10 to 20 “dollars” per ozt. "Immediately all Liberty Dollars, in specie, paper and digital forms DOUBLED. If you had Liberty Dollars before the Move Up you profited because the underlying commodity increased in value. If you had digital, your eLD doubled the next day. If you had paper Silver Certificates, you could redeem them for the new $20 Silver Libertys. If you had Silver Liberty in specie form, you were offered a special re-minting rate to exchange them for new $20 Silver Libertys." Liberty Dollar Doubles
Of course, nothing had changed, 1 ozt of silver remained 1 ozt of silver, and by marking their coins in "dollars" they were caught in the inflation of FRNs. Few "$10" ALDs were actually re-minted; they now circulate with all other silver medallions, currently at premiums of $0.60 to $1 over spot in small quantities (1 to 500 coins).
5) Slander of Walmart (big firm in Bentonville) and the implication that competing silver medallions are not pure in The Liberty Dollar Merchant Script.
6) Note also in that document the multiple referrals to "local business referral currency." The appeal is to autarky rather than free commerce, with more slander to the effect that "big box retailers are in bed with the big bankers."
The ultimate argument of the ALD firm boils down to this: A number stamped on an ounce of silver changes its value, and so determines whether it will or will not circulate. The explicit assumption is that "average" people are too stupid to know that a Liberty mint or A-mark 1 ozt silver coin with no dollar figure stamped on it and a norfed ALD with some fictional number of "dollars" stamped on it are really and truly the same thing: 1 ozt of fine silver with markings to prove that fact. Period.
The arrogant conceit that most people are too stupid to understand weight of metal without the assistance of a self-proclaimed "monetary architect" is breathtaking. History and present-day practice shows that always and everywhere precious metal coins are valued by weight and fineness (purity) with minor adjustments for being widely recognized, particularly beautiful, or other characteristics.
The aggressive tactics created by the ALD firm and taught to ALD dealers were designed to fool the unwary into believing that an ounce of silver was worth far more than the free market price. Indeed, some ALD dealers vehemently defend the large premiums attached to their products. In at least some cases, ALDs were passed to unsuspecting clerks with a casual “Oh, that’s the new twenty dollar coin.” Owners and managers discovered the deciet in the till only after the dealer was long gone. These tactics caused an increasing number in inquiries to government agencies, district attorneys, and police. It was not successful competition with FRNs that killed the ALD, it was attracting the attention of government agents with methods that had the look and feel of a scam.
The ALD firm did not deserve to be shut down, but if commodity money ever makes a return, it will do so in spite of ALD-created confusion and without multilevel marketing profit margins. In the happy future where silver and gold coins are used in daily commerce, the markups associated with minting and distributing the coins will fall to their historical norms of a few percent over melt value.
Published: November 20, 2007 4:57 AM
Silver, nice post..well done.
Published: November 20, 2007 6:14 AM
Jeff, the government’s action here is awfully heavy-handed, especially given the fact that there is on-going litigation (a declaratory judgment action, filed last year after the US Mint said that use of Liberty Dollar medallions was illegal, that the government has been trying to dismiss for lack of jurisdiction), that NORFED wasn't going anywhere, and the weakness of the government case against certificates and e-certificates (as opposed to the medallions).
While there a fair case as to whether NORFED's sale of the physical medallions violated 18 USC 486 (attempting to pass non-US coins) or 489 (counterfeiting coins), the first involves question of intent and the meaning of "current money", and in any case these sections are only applicable to coins and not to paper or electronic certificates, so that its business activities in these regards seem perfectly permissible. There is simply no case whatsoever that NORFED has broken any of the laws cited in the affidavit with respect to its silver certificates or electronic money.
Rather than substantively dealing with the existing declaratory judgment action, the government has essentially wiped out this business, seizing all assets, including computers, bank accounts, all books and records, all Liberty Dollars and stocks of certificates, two tons of silver and gold, and all promotional items. Investors in medallions have their inherent value and curiosity value; certificates still have curiosity value, but no other worth, and holders of electronic versions are tough out of luck. Anyone with any knowledge of how the feds and state police have abused legal process via forfeiture laws should have their hackles raised by the government's actions here.
Given the ease of civil forfeiture, NORFED, its investors and holders of NORFED's silver certificates and electronic currency probably will never see any of this value again, whether or not the government actually brings a case against NORFED or if its officers are acquitted.
The various federal and state police forces simply love to steal using forfeiture, as is well known in connection with our disastrous "drug war"; more here: http://www.theagitator.com/archi...ives/ 026952.php
http://www.reason.com/blog/show/...how/ 122449.html
http://www.fear.org/hadaway.html
http://www.cato.org/testimony/ct...t- rp072199.html
http://256.com/gray/presume/
Perhaps there is a case that some purchasers of Liberty Dollar medallions have been defrauded, but it is not self-evident. The Franklin Mint and even the US Mint also try to earn similar spreads. So the "wire fraud" and "mail fraud" claims are used to provide a jurisdictional claim, but are rather hollow. The "money laundering" claim seems like a farce - that allows the government to claim that all silver and gold sitting around, US currency and unsold Liberty Dollars are somehow the "proceeds" of illicit activities, rather than unsold inventory or physical assets being held for investors (the certificate holders).
An interesting side issue tangentially raised by this matter is the constitutionality of our paper money system:
http://en.wikipedia.org/wiki/Legal_Tender_Cases
Published: November 20, 2007 7:41 AM
Of course the federal action is extremely heavy handed, but that should surprise no one visiting this site, or attempting to board an aircraft. I doubt there will be convictions, although with the federal courts there is no telling. The intent was to destroy the enterprise; mission accomplished.
As to the legal tender question, at the risk of getting off topic, there are some interesting new developments. Congress, by creating 1 ozt gold coins with face values of $50, has created a loophole that cries for exploitation.
Entrepreneurs have found it, and tried it. They found themselves face-down on the pavement with machine guns pointed at their heads.
A four month trial ends in zero convictions out of 161 counts. After an investigation spanning years, a massive raid so brutal that it spawned RICO lawsuits against the DA and government agents, the government can't get a single conviction.
On a tax case. When was the last time you heard of such a massive failure in prosecuting a tax case?
Read the only MSM article I can find on the subject: Four-month trial ends with no convictions
The legal question is one I have asked several attorneys and accountants with no pretense of an authoritative answer:
If I pay employees $5000 in $50 legal tender American Gold Eagle coins, and report their income to the IRS as $5000, have I done anything wrong?
Apparently the jury in this case didn't think so. I was pretty sure machine guns would be involved, so I never did the experiment. Free country.
This is not just a gold bug question, but a question about whether the Congress created a problem by issuing $50 legal tender bullion coins.
Published: November 20, 2007 10:16 AM
Daniel M. Ryan: "Since the gummit evidently believes that U.S. Mint-issued precious-metal coins can be passed around in trade, what's to stop people from using them as such - at legal-tender value? The F.B.I has all but encouraged it with this indictment."
Why would anyone want to do that? Perhaps you haven't seen the U.S. Mint-issued coins, but a 1/10-oz. U.S. Gold Eagle has a face value of only $5. Such a coin would cost you over $100; I can't imagine anyone trading a $100+ coin for only $5 worth of goods.
On the other hand, "Silver" has an interesting point regarding the tax impact of such coins: it is the face value, or the market value? (Obviously one shouldn't even think of testing this unless they have an exceedingly high risk tolerance, or perhaps nothing to lose.)
Published: November 20, 2007 11:47 AM
@Silver: Thanks for the link and the update on that case.
@Jesse: That is what I was hinting at. The employment market is a market. I was also flying on memories of gas stations c. 1980 that sold gas for one silver dime a gallon.
These days, though, a sign that says "Price $5 in legal-tender gold, $100 in non-precious-metal legal tender" may be jumped on by the government.
Published: November 20, 2007 11:57 AM
Different forum, same stupid arguments from otherwise intelligent people.
First off, comparing spot price to silver rounds used for currency is apples to oranges, they are totally different. You can't walk into a store and pay in bullion, you need something stamped with a face value for simplicity. The "33% markup" is right on par for the cost of creating and marketing a something that has the convenience of being tradeable. The fact of the matter is, as Fed notes have LOST value over the years, ALDs have retained theirs because they're an actual commodity, and not just dirty paper.
After all, we accept $100 federal reserve notes as $100 even though they are written on paper valued at $0. Wow, what a markup!! The reason the fed is scared of Liberty Dollar is because more people are seeing the sense in having a $20 coin made of an ounce of silver over a $20 bill made of worthless paper.
Published: November 20, 2007 1:22 PM
What disgusts me about this case is that Iran and North Korea crank out trillions of dollars in counterfeit US$ and use those to finance the purchase of equipment for making nuclear weapons. Iran also used the money to finance terrorism through HezbAllah and Hamas. So who do the feds go after? Little Norfed!
Published: November 20, 2007 1:41 PM
I agree with “Silver” that “nothing the ALD [American Liberty Dollar] firm did was clearly criminal, in that no force or overt fraud was used”. I partially agree that “their tactics could charitably be described as sleazy”. I disagree that the Liberty Dollar project was “designed to trade silver medallions to the ignorant and unwary at premiums that were many multiples of the market norm.”
I take Bernard von NotHaus at his word that the Liberty Dollar project was intended to provide an alternative currency to compete with the Federal Reserve note. The ALD was denominated in US dollars to make it, like 19th century private banknotes, compatible with the existing unit of account, and thereby to make it easy for people to use it as currency. If ALD medallions or notes were denominated in “ounces”, a potential recipient wouldn’t know what dollar value to assign to them.
Denomination in US dollars does, however, conflict with the ALD claim that its paper notes and electronic claims are “100% backed” by silver. A $20 ALD note, backed by a one-ounce silver medallion in the Idaho vault, is “100% backed” only if we accept that the medallion is worth $20. Marked to market, as Silver points out, the medallion is in fact currently worth only around $15. On a marked-to-market basis, ALD notes are fractionally backed. And ALD one-ounce medallions, marked $20, are in fact tokens, not full-bodied currency.
I have no objection to fractional-reserve banknotes. 75% backing in silver does put a floor under the note’s future value. But I think ALD was misleading its customers by claiming that its notes are “100% backed”. It would also have been misleading if they suggested (did they?) that ALD medallions are worth their face value based on their silver content.
Btw, under the federal campaign financing laws, the ALD had to avoid asking Ron Paul permission before appropriating his image. Permission would have made the whole operation an adjunct to the Paul campaign and subject to campaign-contribution limits.
Published: November 20, 2007 4:10 PM
Jeremy Trudell:
The "33% markup" is right on par for the cost of creating and marketing a something that has the convenience of being tradeable.
One ounce silver rounds 5% above spot. 33% indeed!
Published: November 20, 2007 5:45 PM
Silver Medallions were not notes. Notes were the colored paper pieces, which were backed up by silver and gold, well, until the seizure.
Published: November 20, 2007 6:47 PM
Similarly, a 1-ounce silver round will tend to cost more, per ounce, than the 100-plus-ounce bars the spot prices are based on.
1000 oz, for silver. But 33% is way too high.
Published: November 20, 2007 7:02 PM
On the back of a 1914 series Federal Reserve Note in a space 1/4" by 3 3/4":
THIS NOTE IS RECEIVABLE BY ALL NATIONAL AND MEMBER BANKS AND FEDERAL RESERVE BANKS AND FOR ALL TAXES, CUSTOMS AND OTHER PUBLIC DUES. IT IS REDEEMABLE IN GOLD ON DEMAND AT THE TREASURY DEPARTMENT OF THE UNITED STATES IN THE CITY OF WASHINGTON, DISTRICT OF COLUMBIA ON IN GOLD OR LAWFUL MONEY AT ANY FEDERAL RESERVE BANK.
This is a legal document. No where does it claim to be legal tender.
On the front of a 1934 series Federal Reserve Note:
THIS NOTE IS LEGAL TENDER FOR ALL DEBTS, PUBLIC AND PRIVATE, AND IS REDEEMABLE IN LAWFUL MONEY AT THE UNITED STATES TREASURY OR AT ANY FEDERAL RESERVE BANK.
Notice, both series stated the Federal Reserve Notes were redeemable in lawful money. Since they were redeemable in lawful money, then they themselves could not be lawful money. What then could be lawful money? Gold and silver coin. The Constitution bestowed upon Congress the right to COIN money. There is no provision to print or create, as some claim, money, nor prohibition for others to coin money. People, those many years ago, understood that gold and silver certificates were warehouse receipts, and they were not money. The Constitution also forbade the States to make any Thing but gold and silver Coin a tender in Payment of Debt.
Reading in Florida Jurisprudence, it stated that "notes of a bank do not discharge a debt." Only gold and silver Coin could discharge a debt.
Money represent our labor. Gold and silver represent labor. It take labor to search, mine, transport, purify, and mint these metals. Whereas printing FRN's requires miniscule labor, and the same miniscule labor for the one or the one hundred dollar note.
Many years ago the dollar sign had two lines through the S. My dad was a typewriter repairman. In 1959, I remember him telling me about switching keys on typewriter from the double line to the single line. Being only ten at the time I did not understand, but I do now. The dollar was defined by Congress as a certain weight of gold or silver. Today it is a fictitous idea, instead of something tangible. NotHaus was correct in calling his coins money, they just could ot be called legal tender. The Federal Reserve is not correct in calling bank notes (look it up in a dictionary) money, and clearly unConsitutional as legal tender.
In the heading of the Federal Reserve Act, part of the reason for the establishment of the Federal Reserve Bank was to furnish an elastic currency. It took the banksters a little over fifty years, but they finally did it.
The government is clearly the criminal, both federal and state.
Published: November 20, 2007 8:21 PM
Maybe the feds noted that buying liberty dollars would be a good way to wash drug money.
Published: November 20, 2007 8:30 PM
One thing I am happy about is that my father taught me to appreciate the gold standard from a young age, even before I became an Austrian.
Published: November 20, 2007 8:56 PM
Reports of other federal busts involving electronic certificates backed by gold are here:
http://www.moneynetnews.com/authors/1/MoneyNet-Producer
Published: November 21, 2007 5:27 AM
Thank you, Professor White, for your thoughtful comments.
I make no claims about Bernard von NotHaus’s intentions, but I disagree with the means used to achieve those ends. The decision to denominate the coins and notes in “dollars” tied the ALD directly to the FRN that it sought to replace, and created intractable problems.
I don’t share the concern that denominating the ALDs in ounces, silver trade units, or any other unit would create confusion. Mises’s words quoted in my comment were not his opinion, but rather a reminder of the workings of free markets always and everywhere. Metal coins are valued according to the underlying value of the metal with minor adjustments for being more or less recognized as trustworthy. Notes, whether paper or digital, have the additional complexity of determining the backing, or lack thereof, in metal.
Vendors and consumers have dealt with the complexity of converting between different kinds of currency since the invention of money. Until recently, dollars were widely accepted in places where they are not the primary currency. I have traded with dollars in European shops, in Arab souks, at Singaporean food stalls. There was uncertainty to be sure: would this particular vendor take my paper? What is the exchange rate? But those were quickly and easily solved, without confusion, in every case. I might need to perform one extra step of mental (or calculator-assisted) multiplication, but surely a lack of facility with arithmetic is not the same as confusion, and not a significant barrier to trade. A dismaying fraction of American cashiers are unable to compute change or discounts without the aid of their computerized tills, but commerce continues.
Professor White and I agree that denomination in dollars conflicts with the ALD claim that its paper notes and electronic claims are “100% backed” by silver. But the problem with notes and claims is even worse. I do have objections to fractional reserve banknotes, although I agree that any backing is superior to a pure fiat currency. But the fractional reserve was not fixed at 75%, and further would change dramatically as the value of silver as measured in FRNs changed. The current ALD is based upon $20 per ozt of silver, but the original base was $10. The “move up” (ALD terminology) occurred when the 30-day moving average price of silver exceeded $7.50 for a certain period of time. At that point, the fractional backing was 7.5/20, or 37.5%, where as the day before it was 7.5/10, or 75%. The next “move up” from a $20 base to a $50 base, was to take place when the moving average crossed $16, reducing the fractional reserve from 80% to 32%. The bottom of the page found at http://www.libertydollar.org/ld/rco/rate-formulas.htm contains the rules.
One of the many problems with fractional reserve banknotes is determining the actual fraction, which historically has drifted rather far from the claims. Remember that Federal Reserve banknotes at one time had a reserve fraction greater than the present value of zero. The ultimate questions are who gets to set the fraction, and how is it enforced?
This debasement of the ALD currency is what underlies the claims in http://www.libertydollar.org/ld/about/liberty-dollar-doubles.htm. Money does not double, but a sudden decrease in the fractional reserve can indeed put more notes in the pockets of those who hold them. The new notes are certainly worth less to those who accept them, but unless they are exceptionally well informed that fact remains hidden.
Note that any confusion about fractions and reserves, and the need to continually adjust the "base" as the FRN price of silver changes, would vanish if the ALD had been denominated in ALDs or STUs. Then 10 ALDs would be redeemable for 1 ozt of silver, always and everywhere. Denomination in dollars is the crux of the problem.
Professor White asks whether ALD users suggested that ALD medallions are worth their face value based on their silver content. Visit “How to spend the Liberty Dollar” at http://www.libertydollar.org/ld/spend-liberty-dollars/howtospend.htm and find this in section 6:
When asked "Is it real?" Answer: "Yes, one ounce of silver PRIVATE currency valued at 20 dollars." This is misleading.
I am not an expert in federal election laws, so I can’t debate Professor White’s contention that the ALD firm was prohibited from asking Ron Paul’s permission to use his image. I note that LewRockwell.com renounced their tax-exempt status to avoid running afoul of these same laws. Tax-exempt status is a valuable privilege, and it was an act of courage and integrity to give that up in order to support what may well be our last best hope for liberty, peace, and freedom in our lifetime.
Finally, I must confess to a poor choice of words in my original post, when I used the phrase “multilevel marketing scheme.” Consulting Wikipedia convinces me that the ALD was NOT a multilevel marketing organization, just one with an elaborate and expensive distribution system.
Published: November 21, 2007 6:46 AM
Ha! Austrians confusing "value" with the printed/stamped MSRP. Classic.
ALD silver certificates are warehouse receipts for a 1 oz silver ALD medallion. Nothing more, nothing less (and, thus, 100% backed). Using the MSRP engraved on the receipt and stamped on the medallion to compare against the spot price of the raw material IF you held a seat on the New York Mercantile is to compare Apples and IBMs.
The "value" is purely subjective (as evidenced by the recent eBay auctions). If a merchant values his goods or services approximately the same in terms of FRNs or the MSRP stamped on a silver medallion, well then so be it. Caveat Emptor.
At no time prior to the raid did I value a 1 oz ALD medallion at the stamped MSRP. Now, since the value some collectors are revealing is much higher than the stamped MSRP, I'm pointing the idiot finger at the man in the mirror.
Published: November 21, 2007 11:29 AM
In regards to the "Price $5 in legal-tender gold, $100 in non-precious-metal legal tender" comment, I wonder what some readers would make of the introduction of this new method of payment:
The I-PASS.
In the Chicagoland area all tolls are about $.50 with I-PASS, but DOUBLE if cash is used.
I-PASS is a device put into your car which registers as you pass through freely through the toll block under the scanner. It then automatically withdraws from your checking account or credit card. So there is an electronic transaction recorded everywhere you go on the highway.
If you don't have I-PASS you have to stop for the toll and pay double.
Published: November 21, 2007 12:32 PM
"At no time prior to the raid did I value a 1 oz ALD medallion at the stamped MSRP. Now, since the value some collectors are revealing is much higher than the stamped MSRP, I'm pointing the idiot finger at the man in the mirror."
Brock- unless you have the powers of clairvoyance,you're being too hard on yourself.
Published: November 21, 2007 8:40 PM
Roger Daugherty- I am giving you a standing ovation for being an intelligent, well-informed American citizen. Nothing more needs to be added to your post. Good Job
Greg Kroll
Published: November 22, 2007 6:10 PM
I've read a number of enlightening posts on this blog. I'll add my two (copper) cents worth. Few who visit this blog would disagree that we are witnessing monetary history. We have been able (if you were born by then) to witness since the mid-nineteen-sixties the debasement of the money of the realm. We are now in the mold of all great declining empires!
There are a few comments relative to the discrepancy in the amount of raw silver value in the one ounce ALD (American Liberty Dollar). I wasn't aware that many Americans were trading 100 ounce silver bars in daily commerce. The argument was used when silver was only spot $4.50/oz. and the first ALDs were $10 exchange for one ounce silver currency. Look at all those unwary folks who bought ALDs at a discounted price of $8.50 to $9.00 per ounce when raw spot was $4.50.
This hindsight overlooks many ALD purchasers are also bullish on silver and precious metals, period. ALDs were designed by Liberty Dollar's founders as currency, not an investment precious metal (although raw silver's rising price in the market has been a secondary benefit). The ALD founders' project has proven that precious metals fight that scourge of monetary economics -- inflation.
The most difficult hindrance, in my opinion as one who has tried to circulate ALDs in my community voluntarily, is that few Americans have even the foggiest idea of the daily value of spot silver (or even what spot silver means). This is the failure of our school system and, even, college doesn't seem to care about basic economics education (some present company on these blogs excepted). The real strength of the ALD "project" is its attempt to educate the masses through daily commerce -- something the academic arena can't touch.
Even Hugo Salinas Price recommended in his noble effort in Mexico that the bank set a "target" value of the Libertad that does not fluctuate when the spot price of raw silver declines or advances. But if the spot price advances (long term trend) above the "target" one ounce silver monetary value, the monetary exchange value must be increased or Gresham's Law takes effect, destroying silver's monetary use.
This is why the ALD must be pegged to a higher "dollar" value than the underlying spot silver value. By the way, I thought that the U.S. "dollar" is defined as a weight and measure of silver. So does the Federal Reserve Note merely represent itself in terms of a dollar or has it actually become the measure of the "dollar"? If this is the case, how does one define debt as a weight and measure, especially since debt is a decidedly growing number?
I believe the ALD can serve as both a monetary item and a store of value (savings) even though it may not have the rate of return of a lower priced silver round. However, the silver round is almost impossible to work as a monetary instrument without a monetary target set by someone respected as a monetary authority and expressed in terms of a "dollar", whatever a dollar may be.
But maybe the Federal government has spoken that it wants only "debt" and "promises to pay" to be defined as a "dollar".
Published: November 26, 2007 10:36 AM
Does the U.S. Govt. Owe YOU Money?
Hearing about the raid on the national fulfillment office of the Liberty Dollar didn't put me in the fit of pink, but I learned to get over it by donating all of my interest in my unfulfilled orders (that were either curtailed or confiscated by the government on Nov. 14). And to encourage greater participation among bystanders, I've further divided my give-away down to as little as one penny provided that these tiny demands for refund be donated to the Liberty Dollar, Legal Defense Fund to help eliminate the logistical nightmare of the Liberty Dollar staff trying to disperse a mere penny to gazillions of people from the proceeds gained whenever the class action lawsuit is completed. But demands for refund which are greater than, or equal to, a dollar could go to the bystander. Since I can contract-out my property to anyone I choose, and further subdivide my give-away down to ridiculously small fractions, my feeble loss (as great as it may seem to me) can be magnified to potentially include lots of participation from anyone who isn't already involved, but who might now consider the possibility that more than just my rights have been violated, but their's as well.
For more details about becoming involved, go to:
www.I-Rob-You.info
Vinyasi, Liberty Associate of the San Fernando Valley....
Published: November 27, 2007 3:15 AM
It seems to me a significant factor showing that the ALDs were a scam comes from the look of the coin. I agree completely with the fundamental argument that a person can barter whatever they chose for anything the seller is wanting to accept. If the ALD program were not a scam then they could have printed the "fine silver" or gold coins as a simple slug of metal with wording to the effect "This is a slug of x grams of silver for trading purposes." Nothing would be changed as to the intrinsic value of the coin. The scam the Federal government shut down was that the coins looked like real money. How many people were confused into thinking they were receiving USD and are now sitting with ALDs they can't get rid of? This scenario means the seller duped by an ALD user has nothing of value to show for his transaction since he/she can't bank or deposit the ALD. NotHaus' business is over since even if he, by some miracle of God, won his court case (and stays out of prison), few people will ever use his ALDs again.
Published: November 27, 2007 11:43 PM
as far as selling an few ounces of silver at a price over its market value as a raw material: I fully agree with the earlier post regarding minting costs and the normal retail markup value of a product. Convenience stores sell items every day at %150 markup, even %300! a 33% markup is nothing. These liberty coins are not simply a lump of silver, they are a manufactured product, sold at a price people are willing to pay. A few shops are willing to accept them as currency, but essentially, they are a product.
Value is in the eye of the purchaser.
What I find amusing to think about though, is how the government seizure of these coins will affect their value. By seizing as many of them as they can, the government can only make them more rare, and by making a big deal out of it, more famous. (or infamous perhaps) Seems to me that rarity combined with media hype can only add to their value as collectors items. So, I would imagine that these coins must now have a value far beyond their mere weight in precious metal, or their exchange value.
I like to think that the creators of this coinage had exactly this scenario in mind, with the idea of making a point.
Published: October 10, 2008 12:07 AM