One of the most interesting private money experiments in recent years is the Liberty Dollar, a private mint that operated with considerable success in the United States untilthe U.S. Government shut it down.
The Liberty Dollar was designed by Bernard von NotHaus, the founder of the National Organization for the Repeal of the Federal Reserve and the Internal Revenue Code, and launched in October 1998. His objective was to “be to the Federal Reserve System what Federal Express was to the Post Office” by providing a “private voluntary barter currency” as an alternative to Federal Reserve currency. The new Liberty Dollar was based primarily on gold and silver coinage (the coins however were always referred to as ‘medallions’, because the term ‘coin’ is legally privileged) and its precious metal basis was to provide protection against the inflation to which the inconvertible greenback is prone, thanks to the Federal Reserve’s loose monetary policies. It also issued paper certificates redeemable on demand in specie stored in a warehouse in Idaho.
The Liberty Dollar was highly successful and became the second most popular currency in the U.S. Over 1998–2007, Liberty Dollar issues totalled perhaps $85m in value. Over this same period, it was distributed to perhaps 250,000 customers.
Since the Liberty Dollar was periodically rebased to keep in sync with the precious metals, its value rose substantially over time against the depreciating greenback. For example, someone who bought a $10 Liberty in 1998 would have had an investment that more than kept up with inflation, whereas someone who held onto a $10 greenback would have seen their investment lose about half its value.
The attitude of the government towards the Liberty Dollar was initially one of tolerance, but then hardened: in 2006 the U.S. Mint issued a press release stating that use of the Liberty Dollar was a federal crime.
In March 2007, von NotHaus filed suit against the Mint seeking a declaratory judgment that these allegations were untrue. The government responded with a raid by the FBI and the Secret Service in which they seized everything they could, including coins, paper certificates and computers.
A federal indictment was then brought against von NotHaus. He was arrested and charged with counterfeiting, conspiracy against the United States, fraud and sundry other offenses.
The first charge is risible: counterfeit 101 is that a counterfeiter makes some attempt to make the ‘fake’ currency look like the ‘real’ one: yet the Liberty Dollar currency was very different in appearance from official currency. The coins differed in obvious ways: they had an image of Ron Paul, an 0800 phone number and even a URL. They also differed from official U.S. coinage in being made from precious metals instead of base ones. To quote his subsequent motion for acquittal:
He stands convicted of … counterfeiting. The irony of this is that if anything is clear from the evidence, it is that the last thing he wanted was for Liberty Dollars to be confused with coins issued by the government. That would have defeated the whole purpose.
He has always operated out in the open. The verdict conflates a program created to function as an alternative to the Federal Reserve system with one designed to deceive people into believing it was the very thing he was protesting in the first place.
A second reason is that any charge of counterfeit implies fraud and intent to deceive, and yet there was never any evidence of fraud or misrepresentation.
If the Liberty Dollar is sufficiently similar to official currency to constitute a federal offense, then the government should by rights go after anyone who issues anything that could be construed as similar to the official currency. After all, there are many other private organizations that issue alternative dollar currencies even within the U.S. These include: issuers of travellers’ checks, such as American Express; Parker Brothers, who make the board game ‘Monopoly’; and Disney Corporation, whose Disney Dollars are obvious counterfeits signed off by Scrooge McDuck.
His defense was that he did not steal, defraud, misrepresent or force anyone to hold Liberty Dollars or do anything else illegal, and that his customers were satisfied because the value of the Liberty Dollar had risen considerably over time.
However, von NotHaus was convicted of most charges in March 2011. He faced a potential sentence of up to 22 years in federal prison.
The suspicion that von NotHaus was singled out because he was seen as subversive would seem borne out by a gloating victory statement issued by the U.S. Attorney’s Office on the day he was wrongly convicted, March 18th 2011:
“Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism” and “represent a clear and present danger to the economic stability of this country.”
These must surely go down as some of the dumbest claims ever made by a prosecutor in the history of American jurisprudence.
Unlike any other terrorist ever, Bernard used no violence at all. He just offered people choice of currency and they liked it. As Bernard himself observed, liking him to a terrorist was absurd:
“This is the United States government,” he told the New York Times. “It has nuclear weapons, and it’s worried about some ex-surfer guy making his own money? Give me a break.”
And since when is competing against an inefficient governmental organization such as the Federal Reserve an act of terrorism? By the same logic, Federal Express must be guilty of terrorism because it competes with the U.S. Post Office. This puts FedEx on the same level as Al-Qaeda.
So Riddle Me This, Uncle Sam: if undermining the legitimate currency of the United States is a crime, then why isn’t the Fed in jail: since the Fed was founded in 1914, the U.S. dollar has lost over 96% of its value thanks to Federal Reserve monetary policy.
The guilty verdict was greeted with widespread disbelief. One blogger commented that it must be “a funny kind of counterfeiting operation” when a one-ounce silver coin marked $20 was now worth $38.50 on silver content alone. Another remarked, “If we are not free to voluntarily exchange goods and services for gold and silver, then indeed US currency is backed by bullets.”
Leaving aside the absence of any sense, the U.S. Attorney’s comments betray an elementary misunderstanding of the competitive process: in the provision of currency as with anything else, having a single monopoly provider leads to poor quality, and you only get good quality if you open the field up to competition.
And it was exactly this public service that the Liberty Dollar was providing when it started to compete against the currency provided by the Federal Reserve, which by any reasonable standard is of low quality, because it is depreciating all the time.
The root fallacy here is the old idea that ‘money’ is something best provided by an inefficient government monopoly that needs to be protected from competition — and by brute force if necessary.
In the Land of the Free you are still just about free to do a lot of things, but you are not free to mint your own coins, however good they might be.
And what about Bernard? He was lucky: the judge was lenient and gave him 6 months’ house arrest and 3 years’ probation. But I hear that he might be up tohis old tricks again.
“In my book Private Money: History and Modern Times (2000), I refer to cases indicating that, precisely when the US regulatory and law enforcement system bulldozed right through Liberty Dollar and its creator, dozens if not hundreds of private currencies existed in the United States based on local exchange trading systems (LETS) with no issues whatsoever. Now, the question is: why was it Liberty Dollar that was subjected to such rigorous public flogging? Could it be because its creator relentlessly criticized the Federal Reserve System’s decisions concerning the issuance of fiat money?” comes a rhetorical question from professor Artem Genkin, expert in monetary economics whose doctoral thesis focused on private monetary systems.
By Kevin Dowd