Glenn Frye aside, what exactly is money? I think a fair definition would be that money is the mutually agreed upon means by which we assign, evaluate, store, and exchange value. If accounting is the language of commerce, money… dollars and cents… is the alphabet we use to construct each word, phrase, sentence and question. From the kid’s allowance to the weekly grocery bill, the mortgage payment, our retirement accounts, the week in Jamaica, or the cost of a new Ferrari, everything we can buy or sell, save or spend, we express in monetary terms.
Which should help explain why the phrase “mutually agreed upon” is the key part of any definition of money. For without a mutual agreement, and near universal acceptance of the means of valuation and exchange, even if it is grudging or implicit, there can be no valuation and thus no transaction. And at the same time, with a universal or near universal agreement, anything can serve as a medium of exchange… a coin, a piece of paper (elaborately printed or not), or even a couple of disciplined electrons.
Our current Federal Reserve central bank system has lots of agreement, however. At least if the international markets are to be believed. The US dollar… those pesky Federal Reserve Notes… are accepted quite nearly anywhere around the world. And most of the world’s financial transactions are still dollar-denominated. US government debt instruments are still the lowest priced and most over-subscribed, meaning that the “Full Faith and Credit” of the United States is still the most trusted in the world. And despite the efforts of some on the Left to the contrary (Sarbanes-Oxley), the US still leads the world in commercial transactions as well. It wasn’t Yen or Euros that HAMAS and the North Koreans were counterfeiting… it was US Federal Reserve Notes (FRN).
But if our Federal Reserve central banking system, and our currency are so universally accepted, why change them? The arguments, as detailed last week, center on two key points: the question of Federal Reserve constitutionality, and the purported volatility of value of our non-specie-backed currency, which, it is argued, causes inflation and an erosion of the dollar’s so-called “buying power.” Both arguments are at best ill-informed and at worst disingenuous.
The question of our currency’s constitutionality have been around far longer than has our Federal Reserve system. The premier court case, known as The Legal Tender Cases (1884) 110 US 421, held that Art. I sec.8, cl.5 of the US Constitution gave Congress the authority “to coin money and regulate the value thereof”, and this gave Congress exclusive authority to determine that Federal Reserve Notes are legal tender everywhere.
As we might expect, there is a pestiferous host of cases arising from the efforts of some to avoid all manner of taxes and fees by attacking the legality of the Federal Reserve and the currency. One learned critic calls this argument “a long-favored hobby horse of cranks and mountbanks who argue… that tax and counterfeiting laws cannot be applied to paper currency.” The cases are numerous, arising from nearly every state and jurisdiction. Some are more than a little amusing:
In US v. Grismore (10th Cir 1977) 564 F2d 929 certiori.denied, 435 US 954, the court found that paychecks and other checks received by Mr. Grismore are indeed taxable income, notwithstanding that checks can be converted only into FRNs and not into gold or silver as Grismore had claimed at his trial.
In Lowry v. State (Alask.App 1982) 655 P2d 780 the perpetrator, Mr. Lowery, refused to pay his license fees in FRNs because FRNs are not gold or silver. In ruling against Mr. Lowery, the court noted that he had NOT attempted to pay his fees and fines in gold or silver either.
In US v. L.G. Anderson (10th Cir 1978) 584 F2d 369 the court said, “… the US Congress is the only entity empowered to declare what shall be deemed legal tender. Congress has so declared. 31 USC sec. 392 provides that FRNs shall be legal tender for all debts and taxes. This unique and broad power of Congress to declare what shall be money and to regulate its value for all purposes has been constitutionally recognized.”
Finally, in Horne v. Federal Reserve Bank of Minneapolis (8th Cir 1965) 344 F2d 725 the court actually ruled that citizens and taxpayers lacked standing, as such, to bring suit to challenge the validity of the Federal Reserve Act.
I’m not without sympathy for the view that the Court may have erred constitutionally in its Legal Tender Cases decision… at least as an intellectual exercise. But that error was not some far-fetched notion that the nation’s currency should not be centrally controlled, or paper, and should always be tied to gold and/or silver, but contracts based instead. It is what it is, and the weight of inertia is clearly on the side of the Fed.
Next up, inflation… AND deflation.