The Free Competition in Currency Act: Member Of Congress Does Not Understand Economics And US Monetary History
By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com …..
Last week, a customer of mine forwarded to me the text of a letter he received from the US House of Representatives member for his district. The August 28 letter was in response to our customer’s request that this Representative support H.R. 77, the Free Competition in Currency Act.
I won’t identify either our customer or the member of Congress. However, the following text in the letter indicates that this Representative either does not understand economics and is ignorant of US monetary history or is simply lying to the constituent.
The second paragraph of the letter reads, “As you know, H.R. 77 would dramatically alter the way currency is created and exchanged in the United States. The legislation would eliminate legal tender laws which require the dollar be accepted as a form of payment. It would legalize private mints, opening the way for anyone to produce their own currency, and would further increase the deficit by eliminating the tax on precious metals, such as gold.”
The first sentence of the next paragraph reads, “H.R. 77 would create chaos not just in the U.S., but in every world economy that relies on the stability and reliability of the U.S. dollar.” The balance of the letter outlines the process the bill would follow and then a statement that this particular Representative would not vote for the bill.
Apparently this member of Congress does not realize that any stable and reliable currency has little to fear from the prospect of competition. The only serious competition for the U.S. dollar would come from currencies that proved to be more stable and reliable. Inferior competing currencies would not represent any threat to the “stability and reliability of the U.S. dollar.”
However, if a privately issued currency did prove to be more stable and reliable than the U.S. dollar, that would impair the utility of the dollar for domestic and international transactions. This status could only be achieved by superior performance in the market, as the private issuer would not have any ability to force other parties to accept its money.
If the U.S. dollar were actually stable and reliable, the federal government should not fear competition. If, on the other hand, the U.S. dollar is not all that stable and reliable (which I consider to be the case) then the appearance of a superior money would actually facilitate greater trade and promote economic growth in the U.S. and worldwide. The bad news for the federal government is that the U.S. dollar would probably become obsolete.
As for U.S. monetary history, apparently the Representative is not aware that foreign coins circulated alongside American issues up until the Coinage Act of February 21, 1857 deprived foreign coins of their legal tender status in the U.S.
There are other examples of successful private competing money in U.S. history. From the 1830s to the 1850s, the Betchlers issued gold coins in Georgia and the Carolinas. Some of their issues have a higher gold content than U.S. Mint issues of the same denomination. These coins were accepted by North Carolina banks at par up to the first decade of the 20th Century!
Clark, Gruber & Co. in Denver issued gold coins in 1860 and 1861. At the same time, they also issued paper money backed by their gold coins. During the Civil War, their paper money traded for more than face value because their issues were considered to be more stable and reliable than those of the U.S. government.
In 1861, E. H. Gruber of Clark, Gruber & Co. accompanied Colorado Territorial Representative to Congress Hiram P. Bennett to Washington, DC. They went to Washington to urge the Congress to establish a branch Mint in Colorado. While there, Treasury Secretary Salmon P. Chase consulted with Attorney General Edward Bates, and then reported to President Abraham Lincoln that no law had been violated by Clark, Gruber & Co., in producing private gold coins.
Apparently, my customer’s Representative does not know that the U.S. government formerly allowed foreign and private coinage to compete in the U.S. When they did, there was no “chaos” that impaired the stability and reliability of the U.S. dollar.
In sum, I interpreted the Representative’s letter as protecting the U.S government’s interests over those of the American people. It is my hope that, by writing this article, more members of Congress might get their consciousness raised about economics and U.S. monetary history.
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster ( under “News & Articles) and at CoinInfo. His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com. He is also the financier and executive producer of the forthcoming movie “Alongside Night” (trailer posted at http://www.youtube.com/watch?v=sTZ8vn45Cds).