Back in 2009, when the original Constitutional Tender Act was first introduced in the Georgia House of Representatives, it caused a bit of a stir in both the business and the academic community.
In fact, one of the first media outlets to report on the bill was the Atlanta Business Chronicle, with a long article that was apparently also published in sister business journals across the country.
Of course, as often happens in the media, there were misunderstandings of the bill. For example, it said that while “the state would accept checks or other payments linked to gold coin- or silver coin-backed accounts,” it could also “accept Federal Reserve dollars — the existing U.S. standard for nearly four decades — for other types of transactions.” That, of course, is incorrect; that section of the bill is referring to what everyone ELSE in the State (i.e., everyone besides the State) is allowed to do — they can use gold, silver, or even worthless pieces of paper with pictures of dead politicians on them. It’s their choice under this bill.
In fact, a true Constitutional Tender bill cannot allow for the State to accept or pay out Federal Reserve Notes — because FRNs are a “Thing” other than gold or silver coins, and Article I, Section 10 of the U.S. Constitution very clearly states that “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts”. If we were to include language specifically allowing the State to accept or pay out FRNs, that would itself be a violation of the Constitution — the very thing we’re trying to avoid and correct.
Also, as sometimes happens with members of academia, there were even more misunderstandings of the bill. Surprisingly, they came this time from Dr. George Selgin, who at the time was the “BB&T Chair in Free Market Thought / Professor of Economics” at West Virginia University (he’s now a professor of economics in the Terry College of Business at the University of Georgia), and whom the article called “an expert on the history of currency standards and monetary theory.” Here’s what he had to say:
Selgin said the challenges of re-introducing such a standard, if the bill became law, are numerous.
“We as a country walked away from gold to fiat money,” Selgin said. “It’s very hard to walk back.”
Selgin said he sees the bill, rather than attempting to re-introduce a now-defunct financial standard, as creating the artifice of one.
“Banks would have to meet two sets of standards, one for doing business with the state, and one for everyone else because everyone else uses another standard,” he said. “You’re asking them to create parallel systems, and that’s very difficult.”
OK, yes, “it’s very hard to walk back” to real money. No one is saying that would be something that could happen overnight. BUT, this bill would actually put us on that ROAD back to real money — by introducing competition in currency. By getting the State to obey the Constitution, and ONLY use gold and silver coin in receiving and making payments, we can begin to get people used to using real money again, because they’ll have to use it in their transactions with the State. Once they start doing that, they’ll be more willing to use it in their everyday transactions as well — especially as the fiat money continues its spiral downwards in purchasing power, and the gold and silver maintains its value. At that point, we can see “Gresham’s Law” work in reverse — good money will chase out bad money, because in a truly free market competition, good money will always win. (Gresham’s Law, which states that “bad money chases out good money,” only occurs if the bad money is given an unfair governmental monopoly advantage — namely, being declared “legal tender” and eliminating competition with good money like gold and silver.)
What is most unsettling, though, is that a prominent academic like Dr. Seglin is willing to look at a bill that attempts to make the State obey the U.S. Constitution in the area of money… and he calls it “a bit kooky.” Instead of making suggestions of better ways to make the State enforce the requirement for Constitutional tender, he dismisses it outright as just “creating the artifice” of a “now-defunct financial standard.”
This is especially disappointing when one learns that Dr. Seglin is one of the founders, along with Kevin Dowd and Lawrence H. White, of the Modern Free Banking School, which draws its inspiration from the writings of Friedrich Hayek on denationalization of money and choice in currency. He even calls himself a “Misesian.” (I presented my first paper on the Constitutional Tender Act at the Mises Institute’s “Austrian Scholars Conference” in 2010.) So he, at least, ought to know better. I’m hoping that he just didn’t actually read the bill, and was commenting “off the cuff.”
I’m not trying to disparage Dr. Seglin in any way here; he’s probably forgotten more about monetary theory than I ever even knew in the first place. But is this what “experts” in “free market thought” are teaching in the schools these days? Well, I’m a college professor, and I’m not teaching that — I’m teaching my students the clear and plain words of the Constitution: “No State shall… make any Thing but gold and silver Coin a Tender in Payment of Debts”.
William Greene is the author of the original Constitutional Tender Act, a bill template that can be introduced in every State legislature in the nation, returning each of them to adherence to the United States Constitution’s actual legal tender provisions. He teaches Political Science and Government at South Texas College.