The Liberty Dollar: An Update


Bernard von NotHaus, creator of the Liberty Dollar, was convicted in federal court in Statesville, N.C., on March 18. The Justice Department said he was found guilty — not of counterfeiting or of fraud, neither of which he was accused of, but “of making coins resembling and similar to United States coins; of issuing, passing, selling, and possessing Liberty Dollar coins; of issuing and passing Liberty Dollar coins intended for use as current money; and of conspiracy against the United States.”

Readers of this story in Liberty (“Attack on the Liberty Dollar,” March 2008) would have had little doubt of the outcome. The federal code, 8 U.S.C. 486, says:

“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.”

Von NotHaus always asserted that Liberty Dollars were lawful, arguing that the Constitution’s grant of power to Congress to coin money was not exclusive; that in the 1800s private mints were allowed to issue precious-metal currency, and that Liberty Dollars were not “coins” because they were not legal tender. Given the law cited above, none of these arguments was likely to persuade a federal court. In that sense von NotHaus was much like the tax protesters who argue that the federal income tax is illegal, or unconstitutional, or that it’s voluntary, and who try to win their arguments by asserting in a louder voice and a higher tone that they are right. These people invariably lose. It takes a while, because the government is slow, but it eventually gets them.

In announcing its victory, the Justice Department made its own political statements. According to US Attorney Anne Tompkins, “attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism. While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country. We are determined to meet these threats through infiltration, disruption and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.”

Trying to trade a privately minted coin of 999 fine silver for goods or services is hardly terrorism. Who would be terrified by it?

Liberty Dollars were indeed an attempt to undermine the public’s faith in US dollars, but they were never a “clear and present danger” to the Treasury, because no bank ever accepted them, and under the regulated system we have, no bank was ever going to accept them.

Von NotHaus’ organization was an economic venture set up to earn money — US-dollar money. It could sell Liberty Dollars at a profit into the collectible market, because the coins are beautiful and are of pure metal, and because of the political statement they make. (Several versions replace Miss Liberty with the head of Rep. Ron Paul.) But as a circulating currency, the Liberty Dollar was a failure. Probably it had the most success around Asheville, NC, where it had a diligent agent who is now facing prosecution as well. But he made such a poor living at it that he had to give up his storefront and operate out of his house.

The Liberty Dollar was a political act, a statement by a libertarian that he would offer the people a currency of valuable metal, now that the Treasury no longer did. Von NotHaus said as much, and he ambitiously named his company the National Organization for the Repeal of the Federal Reserve and Internal Revenue Code. He did this openly. An act of civil disobedience? Yes. But a conspiracy? My dictionary defines conspiracy as “a secret plan to commit a crime or do harm, often for political ends.” There was nothing secret about the Liberty Dollar. Von NotHaus took as much publicity as he could get.

For all the various counts he has been pronounced guilty of, Von NotHaus, 67, could be sentenced to as many as 25 years in prison and a fine of $250,000. The federal government is also asking the court for the 16,000 pounds of copper and silver Liberty Dollars and precious metals it seized, said to be worth nearly $7 million.

As I write, the “buy it now” price on eBay for a 1-ounce 999 silver Liberty dollar denominated at $20 is $50.

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The Fed's Easy Money


The Federal Reserve has heeded calls for more “quantitative easing.” It will create still more high-powered (bank-reserve) money by buying more government bonds. That is a bad policy.

Perhaps untypically, the current recession is not of a sort that more easy money would remedy. A liquidity shortage is not the problem, and worries about actual deflation are curiously short-sighted. Already the banking system could multiply the stock of ordinary bank-account money on the basis of the stock of reserve money already greatly expanded by the Federal Reserve. That could and would happen if bankers and borrowers had confidence in business and regulatory conditions.

Two words used above need explaining. “Recession” means more here than just the downward phase of the business cycle. Even after the economy has hit bottom and has begun recovering, it is still in recession as long as subpar business conditions drag on. This is the popular use of the word. The word “untypically” draws a contrast between the current recession and most earlier ones. Those apparently did trace to a slowdown or reversal of money-supply growth.

Actually, too loose a Federal Reserve policy seems to have figured in the background of the current recession, along with artificial pro-home-ownership policies that contributed to a speculative housing bubble. The latter was a real factor — “real” in a sense contrasting with “monetary” and more fully explained below.

Now, notoriously, businesses and consumers are hanging onto money and near-moneys (cash and equivalents) instead of spending them at a rate that would restore prosperity. The velocity of money — the income to money-supply ratio — has fallen, whatever one plausibly counts as money. This demand to hold money has strengthened only passively, however. Individuals and companies, by and large, are not deliberately restraining their expenditures to build up cash balances they consider inadequate. Instead, they are postponing expenditures for lack of attractive opportunities. Meanwhile, they are left holding cash and equivalents by default.

These sources of uncertainty are real, not just monetary. Real factors explain why some countries are economically advanced and others economically backward.

But why this postponement? Worry about how long a recession will drag on is an old story.  Now, moreover, uncertainty prevails about how government policies will raise business costs and erode job and profit prospects. Health care, financial regulation, cap and trade, various “green” pressures and subsidies, taxes, deficits and debt, widespread economic ignorance, and a perceived hostility toward big business are causes for concern. One hears about this crippling uncertainty from all sides (as from business executives interviewed by Charles Gasparino).

These sources of uncertainty are real, not just monetary. Real factors explain why some countries are economically advanced and others economically backward. These real factors determining production and growth include more than just material ones such as labor supplies and skills, natural resources, and technology. They also include entrepreneurial alertness, competitiveness, mobility of labor and other resources among employments and places, taxes and regulations, and various other institutions and policies that promote or impair intersectoral and intertemporal economic coordination. Real factors determine the “natural rate of unemployment,” the frictional unemployment that persists even during prosperity.

Now, a sound old tenet of monetarism — the monetarism of Warburton, Friedman and Schwartz, Brunner and Meltzer, and others — is that monetary policy cannot remedy real impediments to prosperity and growth (except perhaps only temporarily and unsatisfactorily, as noted below). Far from celebrating any wondrous potentials of monetary policy, monetarism warns about the damage that bad policy can cause and often has caused. It warns against destructive stop-and-go oscillation between fighting unemployment and (belatedly) fighting inflation. Monetary policy should concentrate steadily on what it can do, on preserving the value of money.

Admittedly, a sufficiently expansive monetary policy could offset a fallen velocity of money, even of the present fear-based passive sort. People’s willingness to accept and just hold money is not unlimited. The Federal Reserve could make the economy so awash with money that people would spend it even though they worried about real conditions and because they feared inflation. Banks would activate their ample idle reserves, so creating more money.

The equivalent of Milton Friedman’s metaphor of helicopters dropping bale upon bale of freshly printed money could reinforce the great potential for money creation and spending expansion that already exists. But how unsatisfactorily! More monetary expansion would threaten severe price inflation, causing distortions and discoordinations of its own. At worst the dollar would collapse as foreign central banks unloaded their great holdings of US bonds.

Finding the proper dosage and timing of aggressive monetary expansion would be a hopeless challenge. Already it is hard to see how the Federal Reserve might find an “exit strategy” from its swollen balance sheet.

In summary, easy money (like fiscal “stimulus,” by the way) is no cure for “real” defects of economic structure and policy. Bewailing the lack of jobs, though amply justified, is no diagnosis and no remedy. Lack of a politically easy way to undo bad policies is no excuse for making things worse.

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