Eight States Consider Gold Standard

Last Updated March 25, 2011

Eight state legislatures are considering legislation to allow gold and silver to be legal tender within their state. Several others are debating resolutions to request an audit or repeal of the Federal Reserve. These proposals are currently working their way through the slow legislative process, but should another economic crisis occur, these acts could be quickly dusted off and enacted.

If any state were to authorize gold or silver as a legal currency, Austrian Economics tells us the economy of that state would quickly stabilize and prosper. In the larger picture, such an act would contribute to a decline in the value of the dollar and an immediate increase in the demand for gold and silver.

Legal Tender Laws

The American Heritage Dictionary defines fiat money as "paper money decreed legal tender, not backed by gold or silver." The two characteristics of fiat money, therefore, are (1) it does not represent anything of intrinsic value and (2) it is decreed legal tender. Legal tender simply means that there is a law requiring everyone to accept the currency in commerce. The two always go together because, since the money really is worthless, it soon would be rejected by the public in favor of a more reliable medium of exchange, such as gold or silver coin.

There are several laws that have made government-controlled fiat currency our dominant currency. The US government currently has "legal tender" laws in place, which state that federal reserve notes must be accepted for many transactions. Also, national and local governments require that taxes, fines, and fees be paid in federal reserve notes. Additionally, any contract that isn't executed in federal reserve notes will not be enforced in US or local courts.

These laws are unnecessary for a stable economy because, if left alone, the public would always ask for payment in the most stable currency available. By forcing the public to use federal reserve notes, the government is protecting a currency that it can devalue to its own benefit.

As Representative Ron Paul said on September 28, 2008:

Gresham's Law states that bad money drives out good money. Meaning, if someone is forced to accept your bad money, it is to your advantage to pass it off, like a hot potato, in exchange for something of value. Any good money you have, you will hoard. Eventually, real money is driven out of circulation and under people's mattresses, so to speak. In the absence of legal tender laws, people are free to accept the medium of exchange of their choice, and are likely to insist on payment in something of real value.

As Stephen T. Byington wrote in the September 1895 issue of the American Federationist:

"No legal tender law is ever needed to make men take good money; its only use is to make them take bad money. Kick it out!"

The Value of Gold Currency Over Fiat Currency

To explain the history of the problems with fiat money and the benefits of gold currency would take more space than this article has. A more complete history can be found in The Creature From Jekyll Island. It is useful, though, to cover a few highlights.

Gold has held its value for thousands of years. Today an ounce of gold will buy you a tailored suit and pair of shoes, just as it could 2000 years ago. Using a currency with intrinsic value allows citizens to build equity in their lives.

The reason why governments prefer fiat money is because, since this currency is not backed by anything of value, the government is able to print as much of it as is desired for its enterprises. This allows the government to fund itself without raising taxes. The citizens still bear the burden of this hidden taxation, however, because this expansion of the money supply devalues the currency already in circulation.

The table below shows the equivalent amount of goods that, in a particular year, could be purchased with $1. The table shows that from 1774 through 2009 the U.S. dollar has lost about 96.4% of its buying power.

Buying power of one U.S. dollar compared to 1774 USD

Year

Equivalent buying power

Year

Equivalent buying power

Year

Equivalent buying power

1774

$1.00

1860

$0.97

1950

$0.33

1780

$0.59

1870

$0.62

1960

$0.26

1790

$0.89

1880

$0.79

1970

$0.20

1800

$0.64

1890

$0.89

1980

$0.10

1810

$0.66

1900

$0.96

1990

$0.06

1820

$0.69

1910

$0.85

2000

$0.05

1830

$0.88

1920

$0.39

2007

$0.04

1840

$0.94

1930

$0.47

2008

$0.04

1850

$1.03

1940

$0.56

2009

$0.04

Another problem with having the government manipulate the money supply is that it interferes with the normal signals of supply and demand that help an economy function properly. When a central bank sets artificial interest rates, this destroys the market information that would be available to the public if the economy was left to set its own interest rate. This loss of market information leads to boom and bust cycles in the economy since the market doesn't have the information it needs to naturally adjust. An example of this is the recent housing crisis.

A * designates a state considering legislation to enact a gold currency standard.

Utah*

Silver and gold coins are now legal currency in Utah! On March 25, 2011 the Utah governor signed HB 713 into law. This bill, known as The Utah Sound Money Act, allows official coins issued by the US mint (such as silver eagles, gold eagles and gold buffalos) to be accepted as valid payment at their current metal value. It does not require anyone to accept the coins as payment. It also exempts the coins from capital gains taxes.

Idaho*

Idaho has introduced two bills allowing gold and silver to be used as money. The first is HB 622, the Idaho Constitutional Tender Act, which was introduced on March 3, 2010. This bill authorizes the use of gold and silver as legal payment of debts, both in a physical and an electronic form. "…the state shall neither compel nor require any person to recognize, receive, pay out, deliver, promise to pay or otherwise use or employ any thing but gold and silver coin, in that form or in the form of a designated electronic ounce…"

HB 633, the Idaho Silver Gem Act, was introduced on March 5, 2010. This act requires the state treasurer to sell silver bars and medallions to the public at their market price, and it requires the state to accept the bars and medallions for the payment of fees and taxes.

Missouri*

HB 561, titled Electronic Gold Currency, was proposed in the Missouri legislature on August 28, 2009. The bill would require that the state establish an electronic gold currency which would be legal tender for debts within the state. Certain payments by the state and to the state would be required to be made in this currency. The bill was referred to the financial institutions committee and is currently not scheduled for any action.

South Carolina*

H 4501 was introduced in the South Carolina legislature on February 2, 2010. Under this bill South Carolina would not require anything other than gold and silver be legal tender for payment of debts.

Montana*

HB 639 was introduced in the Montana legislature in 2009. This bill would have allowed gold and silver to be used as currency in that state, but did not get out of committee. Another version, HB 513, was introduced by 20 representatives and got out of committee on March 18, 2011 on an 11 to 7 vote. HB 513 would require the state to create an electronic gold currency that would be legal for payment of debts. Certain payments by the state and to the state would be required to be made in this currency.

Indiana*

SB 453, known as The Indiana Honest Money Act, was introduced in the Indiana General Assembly on July 1, 2009. It was written to go into effect on January 1, 2010. Under this act, the State of Indiana would no longer be able to require anything but gold or silver be used to pay debts. The act would also require the establishment of an electronic form of gold.

Georgia*

HB 430, known as The Constitutional Tender Act, was introduced in the Georgia legislature February 17, 2009. This bill would authorize gold and silver coin as legal tender within the state and would require debts paid to or from the state to be paid in gold or silver. It would also require banks within the state to accept gold and silver as deposits.

Colorado*

HB 09-1206, titled the Colorado Honest Money Act, was introduced in the Colorado legislature January, 2009. The bill would require that the state establish an electronic gold currency which would be legal tender for debts within the state. Certain payments by the state and to the state would be required to be made in this currency.

Vermont

H 361 was introduced in the Vermont legislature and as of March 8, 2011 was in committee. This act would create a competing state currency to US currency, however, it would be debt based and not based in gold or silver. As a result it is arguably not constitutional, as the states are expressly forbidden from making anything but gold and silver as legal tender, and it is not included in our total count of states above.

North Carolina

HB 301 was introduced in the North Carolina legislature on March 9, 2011. This act would create a committee to study whether the state should create an alternative currency to that supplied by the Federal Reserve.

Washington State

House Joint Memorial 4010 was introduced in the Washington State legislature January 30, 2009, and reintroduced March 15, 2010. This statement would urge the national government to abolish the Federal Reserve system and return to a gold and silver backed currency.

Tennessee

On February 22, 2011 a proposal was filed in the Tennessee Legislature, SJR98, to create "a special joint committee to study the feasibility of Tennessee adopting an alternative currency in the event of a breakdown of the Federal Reserve System."

Virginia

HR 557 was introduced in the Virginia Legislature on January 13, 2011. This bill would commission a study of alternative currencies, including gold and silver. "…to serve as an alternative to the currency distributed by the Federal Reserve System in the event of a major breakdown of the Federal Reserve System. "

New Hampshire

HCR 13 was introduced in the New Hampshire legislature on January 9, 2011. Originally this was a resolution urging the US Congress to repeal the Federal Reserve. The acting committee revised it to merely support a comprehensive audit of the Federal Reserve, and it was "laid on the table" of the House on March 17, 2011.