The latest non-redeemable Federal Reserve System "Federal Reserve Note".
Why a Federal Reserve Note is not worth a Dollar.
This article is a layman's overview of United States of America money;
it is not intended to be an in-depth scholarly review, but it is fairly comprehensive.
Gresham's law, observation in economics that "bad money drives out good." If two coins have the same nominal value, but are made from metals of unequal value, the cheaper will tend to drive the other out of circulation. Sir Thomas Gresham, financial agent of Queen Elizabeth I, was not the first to recognize this monetary principle, but his elucidation of it in 1558 prompted the economist H. D. Macleod to suggest the term "Gresham's law" in the 19th century.
New Encyclopaedia Britannica, Micropaedia (1998), V. 5, p. 489.
I heard about Gresham's Law years ago, but never really thought about its practical effects.
One day, I found a "real" [pre-1965] 90%-silver quarter in my change. And what did I do with it? I immediately withdrew it from circulation and stashed it! And why did I do that? Well, because it was WORTH a little more than twenty-five cents because of the increase in the intrinsic value of its silver content.
If we accept the premise that any piece of metal having a "face value" (declared or defined worth) greater than its actual intrinsic value is a "token" [bus token, subway token, toilet-stall token, etc.]; then the "quarter dollar" token (the current cupro-nickel "clad" or "sandwich" quarter) [bad money] has sucessfully driven the 90%-silver quarter dollar [good money] out of circulation. How? Because almost everyone has done exactly what I had done:
we remove the remaining good money from circulation because we recognize its intrinsic value and save it; and leave the less valuable [or worthless] tokens circulating. We have done exactly the same thing with silver dimes, silver half-dollars, and silver dollars.
That is also what we have done with the circulating FEDERAL RESERVE NOTE paper currency (scrip or bills of credit?) we have been brainwashed into calling 'dollars': you won't often see a circulating United States Note, a Silver Certificate, or a Gold Certificate.
So while, on one hand, we are all 'ripping off' one another each time we exchange a FRN for something of value; on the other hand, the members of the private FEDERAL RESERVE SYSTEM are knowingly, willfully, and systematically 'ripping off' ALL of us each and every day.
As you may have guessed, I am a 'hard-money' proponent; I want my money to have an intrinsic value at least equal to its face value.
Once upon a time, in these United States of America, we actually had REAL money, i.e., money which was, in and of itself, both a measure of, and a unit of, value.
For example, from Bouvier's Law Dictionary (1856):
DOLLAR, money. A silver coin of the United States of the value of one hundred cents, or tenth part of an eagle.Wouldn't you think that the National Institute of Standards and Technology would have a physical THING called 'the Standard Dollar' that they could point to, pick up, show around, and say, "Yep, this is a Dollar."? OK; try to find it, I couldn't.
EAGLE, money. A gold coin of the United States, of the value of ten dollars. It weighs two hundred and fifty-eight grains. Of one thousand parts, nine hundred are of pure gold, and one hundred of alloy. Act of January 18, 1837, 4 Sharsw. Cont. of Story's L. U. S. 2523, 4. Vide Money.
MONEY. Gold, silver, and some other less precious metals, in the progress of civilization and commerce, have become the common standards of value; in order to avoid the delay and inconvenience of regulating their weight and quality whenever passed, the governments of the civilized world have caused them to be manufactured in certain portions, and marked with a Stamp which attests their value; this is called money. 1 Inst. 207; 1 Hale's Hist. 188; 1 Pardess. n. 22; Dom. Lois civ. liv. prel. t. 3, s. 2, n. 6.
. . .
3. The constitution of the United States has vested in congress the power "to coin money, and regulate the value thereof." Art. 1, s. 8.
4. By virtue of this constitutional authority, the following provisions have been enacted by congress.
1. Act of April 2, 1792, 1 Story's L. U. S. 229.
1. 9. That there shall be from time to time, struck and coined at the said mint, coins of gold, silver, and copper, of the following denominations, values, and descriptions, viz: Eagles; each to be of the value of ten dollars, or units, and to contain two hundred and forty-seven grains and four-eighths of a grain of pure, or two hundred and seventy grains of standard, gold. Half eagles; each to be of the value of five dollars, and to contain one hundred and twenty-three grains and six-eighths of a pure, or one hundred and thirty-five grains of standard gold. Quarter eagles; each to be of the value of two dollars and a half dollar, and to contain sixty-one grains and seven-eighths of a grain of pure, or sixty-seven grains and four-eighths of a grain of standard gold. Dollars, or units; each to be of the value of a Spanish milled dollar, as the same is now current, and to contain three hundred and seventy-one grains and four-sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver. Half dollars; each to be of half the value of the dollar or unit, and to contain one hundred and eighty-five grains and ten-sixteenth parts of a grain of pure, or two hundred and eight grains of standard, silver. Quarter dollars; each to be of one-fourth the value of the dollar, or unit, and to contain ninety-two grains and thirteen-sixteenth parts of a grain of pure, or one hundred and four grains of standard, silver. Dimes; each to be of the value of one-tenth of a dollar, or unit, and to contain thirty-seven grains and two sixteenth parts of a grain of pure, or forty-one grains and three-fifth parts of a grain of standard, silver. Half dimes; each to be of the value of one-twentieth of dollar, and to contain eighteen grains and nine-sixteenth parts of a grain of pure, or twenty grains and four-fifth parts of a grain of standard, silver. Cents; each to be of the value of the one-hundredth part of a dollar, and to contain eleven pennyweights of copper. Half cents; each to be of the value of half a cent, and to contain five pennyweights and, a half a pennyweight of copper.
5. - 10. That upon the said coins, respectively, there shall be the following devises and legends, namely: Upon one side of each of the said coins there shall be an impression emblematic of liberty, with an inscription of the word liberty, and the year of the coinage; and, upon the reverse of each of the gold and silver coins, there shall be the figure or representation of an eagle, with this inscription, "United States of America:" and, upon the reverse of each of the copper coins there shall be an inscription which shall express the denomination of the piece, namely, cent or half cent, as the case may require.
6. - 11. That the proportional value of gold to silver in all coins which shall, by law, be current as money within the United States, shall be as fifteen to one, according to quantity in weight, of pure gold or pure silver; that is to say, every fifteen pounds weight of pure silver shall be of equal value in all payments, with one pound weight of pure gold; and so in proportion, as to any greater or less quantities of the respective metals.
7. - 12. That the standard for all gold coins of the United States, shall be eleven parts fine to one part alloy: and accordingly, that eleven parts in twelve, of the entire weight of each of the said coins, shall consist of pure gold, and the remaining one-twelfth part of alloy; and the said alloy shall be composed of silver and copper in such proportions, not exceeding one-half silver, as shall be found convenient; to be regulated by the director of the mint for the time being, With the approbation of the president of the United States, until further provision shall be made by law. And to the end that the necessary information may be had in order to the making of such further provision, it shall be the duty of the director of the mint, at the expiration of a year after commencing the operations of the said mint, to report to congress the practice thereof during the said year, touching the composition of the alloy of the said gold coins, the reasons for such practice, and the experiments and observations which shall have been made concerning the effects of different proportions of silver and copper in the said alloy.
8. - 13. That the standard for all silver coins of the United States, shall be one thousand four hundred and eighty-five parts fine to one hundred and seventy-nine parts alloy; and, accordingly, that one thousand four hundred and eighty-five parts in one thousand six hundred and sixty-four parts, of the entire weight of each of the said coins, shall consist of pure silver, and the remaining one hundred and seventy nine parts of alloy, which alloy shall be wholly of copper.
9. - 2. Act of June 28, 1834, 4 Sharsw. Cont. of Story's Laws U. S. 2376. 1. That the gold coins of the United States shall contain the following quantities of metal, that is to say: each eagle shall contain two hundred and thirty-two grains of pure gold, and two hundred and fifty-eight grains of standard gold; each half-eagle, one hundred and sixteen grains of pure gold, and one hundred and twenty-nine grains of standard gold; each quarter eagle shall contain fifty-eight grains of pure gold, and sixty-four and a half grains of standard gold; every such eagle shall be of the value of ten dollars; every such half eagle shall be of the value of five dollars; and every such quarter eagle shall be of the value of two dollars and fifty cents; and the said gold coins shall be receivable in all payments, when of full weight, according to their respective values; and when of less than full weight, at less values, proportioned to their respective actual weights. ...
What I did find is Title 31, United States Code Annotated (2004), section 5102:
The standard troy pound of the National Institute of Standards and Technology of the Department of Commerce shall be the standard used to ensure that the weight of United States coins conforms to specifications in section 5112 of this title.Then I looked at 31 U.S.C.A. (2004), section 5112, which reads (in part):
(a) The Secretary of the Treasury may mint and issue only the following coins:Did you notice that the dollar coin in 31 U.S.C.A. 5112(a)(1) is the only coin that has no weight attributed to it? Would you say that a physical object with a fixed diameter and no weight was imaginary?
(1) a dollar coin that is 1.043 inches in diameter.
(2) a half dollar coin that is 1.205 inches in diameter and weighs 11.34 grams.
(3) a quarter dollar coin that is 0.955 inch in diameter and weights 5.67 grams.
(4) a dime coin that is 0.705 inch in diameter and weighs 2.268 grams.
(5) a 5-cent coin that is 0.835 inch in diameter and weighs 5 grams.
(6) except as provided under subsection (c) of this section, a one-cent coin that is 0.75 inch in diameter and weighs 3.11 grams.
(7) A fifty dollar gold coin that is 32.7 millimeters in diameter, weighs 33.931 grams, and contains one troy ounce of fine gold.
(8) A twenty-five dollar gold coin that is 27.0 millimeters in diameter, weighs 16.966 grams, and contains one-half troy ounce of fine gold.
(9) A ten dollar gold coin that is 22.0 millimeters in diameter, weighs 8.483 grams, and contains one-fourth troy ounce of fine gold.
(10) A five dollar gold coin that is 16.5 millimeters in diameter, weighs 3.393 grams, and contains one-tenth troy ounce of fine gold.
(b). . .
At the beginning of our Nation.A Caveat Against Injustice Roger Sherman's Argument against State-issued Bills of Credit (1752)
During The Revolutionary War, the Continental Congress authorized the printing of paper "money" called "Continentals", which depreciated in perceived value [inflated] so quickly and so badly that, soon, they were "not worth a Continental". There are rumors on the Internet which I cannot verify that Britain 'helped' depreciate the Continental by infusing thousands of counterfeit Continentals into America.
A typical "Continental".
During the pre- and post-Revolutionary War periods, the Colonies and these United States of America chose to use Spanish and Mexican Reales [called "Pieces of Eight"] as a currency, partly because they did not yet have their own coinage; because the Reale held its Value; because they had just gone through an unsuccessful experiment with paper "money" and its inflation; and because they definitely were NOT going to continue to use the English Pound (Sterling).
A typical Spanish Reale minted in Mexico in 1732.
After the States united under the Articles of Confederation created the United States of America under the Constitution of 1791, they delegated to Congress the complementary powers to (1) establish the Value of a Dollar and (2) to mint and circulate said Dollars.
Congress, in The Coinage Act of 1792, established, by definition, a Dollar as a certain weight of silver, shaped into a coin ["minted"], and placed into circulation; and authorized the minting of the first United States of America silver Dollars, gold 'Eagles', and silver and copper fractional coins.
A typical United States of America Silver Dollar, dated 1804.
A pre-Civil War United States of America Gold Dollar.
During the American Civil War, the Union government did not have enough silver or gold bullion to mint enough money [dollars] to pay the costs of the war in Lawful Money, so it unconstitutionally printed, not minted, the first United States of America paper currency: United States Treasury Notes (called "Greenbacks") under the Doctrine of "Necessity" [if we have to do it to survive, it is "necessary" and, hence, justifiable].
A typical Civil War-era United States $5 Treasury Note (Greenback).
You will notice that this piece of paper is NOT 5 Dollars; but it has the appearance of a conditional Promissory Note (a Negotiable Instrument); i.e., a Promise to pay 5 Dollars to the Bearer limited by the condition that the bearer may redeem the Note in lawful money at the United States Treasury in New York. And we do not know how much trouble it might have been to travel to New York during the Civil War.
To be legally valid, a Promissory Note must be in writing and must have these necessary elements:
1. A firm promise to pay [by the payor];
2. A Definite sum of money;
3. A recipient [the payee];
4. A definite date when such definite sum of money is due and payable; and
5. The signature of the Note maker [the payor].
The Civil War Era
"The Civil War represented a watershed moment in the history of American taxation. The quick, limited engagement both sides confidently predicted soon proved a chimera. Instead, the exigencies of protracted, destructive warfare "engulfing private property and civilian populations as well as commissioned combatants" demanded innovations in government financing. While the outcome of the conflict may be attributed to any number of contingent factors, the varying fiscal strategies undertaken by the Union and Confederate governments undoubtedly influenced the capacity of both societies to sustain the war effort. North and South employed markedly different approaches. The North's proved more efficacious in the long run....Theoretically, the present-day "income tax" may still be being used to provide security for the repayment of the United State's outstanding obligations and to soak up the inflationary pressure of fiat money. "Taxpayers" would then be being treated as the surety or collateral for the debts of the United States.
"Union War Financing
"In order for the bond program to be successful, the North needed an unrestricted currency supply for citizens to pay for them and a source of income to guarantee the interest. The Legal Tender Act filled the first requirement. Passed in February, 1862, the Act authorized the issue of $150 million in Treasury notes, known as Greenbacks. In contrast to Confederate paper, however, Congress required citizens, banks, and governments to accept Greenbacks as legal tender for public and private debts, except for interest on federal bonds and customs duties. This policy allowed buyers to purchase bonds with greenbacks while the interest accrued to them was paid in gold (funded, in part, by specie payments of customs duties). Investors enjoyed a bountiful windfall, since government securities purchased with depreciated currency were redeemed with gold valued at the pre-war level. Taxpayers essentially made up the difference. Because most bonds were acquired by the wealthy or by financial institutions, the program concentrated investment capital in the hands of those likely to use it, much as Alexander Hamilton's debt plan had sought to do. ...
The Internal Revenue Act of 1862, enacted by Congress in July, 1862, soaked up much of the inflationary pressure produced by Greenbacks. It did so because the Act placed excise taxes on just about everything, including sin and luxury items like liquor, tobacco, playing cards, carriages, yachts, billiard tables, and jewelry. It taxed patent medicines and newspaper advertisements. It imposed license taxes on practically every profession or service except the clergy. It instituted stamp taxes, value-added taxes on manufactured goods and processed meats, inheritance taxes, taxes on the gross receipts of corporations, banks, and insurance companies, as well as taxes on dividends or interest they paid to investors. To administer these excise taxes, along with the tariff system, the Internal Revenue Act also created a Bureau of Internal Revenue, whose first commissioner, George Boutwell, described it as "the largest Government department ever organized." ...
The first federal income tax in American history actually preceded the Internal Revenue Act of 1862. Passed in August, 1861, it had helped assure the financial community that the government would have a reliable source of income to pay the interest on war bonds."
After the Civil War, Congress recalled the Greenbacks from circulation and re-authorized the minting of silver and gold Dollars.
A typical United States of America Morgan Silver Dollar, dated 1899.
After 1913, the first Federal Reserve Notes were introduced into circulation.
A Federal Reserve Note, Redeemable in Gold, dated 1928.
A Federal Reserve Note, Redeemable in lawful money, dated 1934.
You will notice that these Notes were Redeemable in Gold or in Lawful Money.
Obviously, if something is Redeemable in Gold or Lawful Money, it is NOT, and CANNOT be, either Gold or lawful money.
Federal Reserve Notes may have been construed by the courts to be "Legal Tender" [see the United States Supreme Court "Legal Tender Cases": Hepburn v. Griswold, 75 U.S. 603, Knox v. Lee, and Parker v. Davis, 79 U.S. 457], but they are not, and cannot ever be declared to be, lawful money.
That is legally impossible, no matter what the Supreme Court might wish.
A second What is a Dollar?
When does money become money? Paul Gilkes article from Coin World, Dec. 16, 2002.
In 1933, Franklin D. Roosevelt cancelled (repudiated) the Redemption of Federal Reserve Notes in gold within these United States of America and forbid the private ownership of gold coins or bullion by Citizens, upon penalty of fine and/or imprisonment.
So the ignorant "responsible", "law-abiding" Citizens turned in their lawful money to the Treasury, which probably used that money to pay off debts of the United States.
However, Federal Reserve Notes were still Redeemable is gold outside these United States of America and the same Federal Reserve Notes were still Redeemable in silver upon demand within these United States of America.
A typical Silver Certificate, Redeemable in Silver, dated 1935.
This may or may not be why John Kennedy was murdered in 1963:
When these United States of America "went off the Silver Standard" in 1964, the Government again repudiated the Redemption of Federal Reserve Notes in silver coin (the last lawful money) and replaced the lawful money with cupro-nickel tokens. In a very real sense, the United States became insolvent. We then had Federal Reserve Notes which were "redeemable" only in other Federal Reserve Notes and "token" coinage having little intrinsic value, and also not redeemable in anything of value.
We now have a "Federal Reserve Note" which does not Promise anything, is not Redeemable on Demand in anything of intrinsic value, and which has been deemed (unilaterally proclaimed) to be "legal tender", but which is not and cannot ever be lawful money of the United States. While the current "Federal Reserve Notes" are not valid promissory notes; they may be "bills of credit".
Legally, such currency is called "scrip" or "fiat money".
In slang, such currency is called "worthless", "bogus", "fake", "funny money", etc.
What "obligation" could possibly attach to such a "Note" or to the use of such a "Note"?
I believe that, since no obligation [of Redemption in Value] can attach to the purported Issuer [the Federal Reserve Banks] or to the purported co-signers [the Treasurer of the United States and the Secretary of the Treasury] of such a "Note", no obligation could possibly attach to the first, nor to any subsequent, holder or user of such a pseudo-"Note".
And if it costs only 3-4 cents to make such a "Note" [no matter what the actual "face" denomination], isn't that production cost [paper, ink, and "security" strip] the only intrinsic value of the "Note"?
In other words, every the Federal Reserve System purporting to issue these "Federal Reserve Notes" as money to its member Banks and every member Bank issuing them to its customers is legally insolvent, because they cannot ever redeem such a "Federal Reserve Note" in lawful money of these United States of America. Further, they are also willfully committing Fraud upon their customers, because they know (even if their customers do not know) that they cannot redeem those "Federal Reserve Notes".
There may well be a sustainable analogy between the current irredeemable "Federal Reserve Notes" and the notes of the Confederate States of America as described here:
It was by this government [nt: the Confederate States of America] exercising its power throughout an immense terrritory, that the Confederate notes were issued early in the war, and these notes in a short time became almost exclusively the currency of the insurgent states. As contracts in themselves, except in the contingency of successful revolution, these notes were nullities; for, except in that event, there could be no payer. They bore, indeed, this character upon their face, for they were made payable only "after the ratification of a treaty of peace between the Confederate States and the United States of America." While the war lasted, however, they had a certain contingent value, and were used as money in nearly all the business transactions of many millions of people. They must be regarded, therefore, as a currency, imposed on the community by irresistible force.
(note added in brackets) Thorington v. Smith (1869), 8 Wall. (75 U.S.) 1, 19 L.Ed 361, 364.
[Note: Be careful; I have not found this case published in any official Reporter. Maybe you could get a copy by writing to the originating Court. Certainly it might disconcert that court.]
A Non-Redeemable One Dollar "Federal Reserve Note".
So, if the value of any "Federal Reserve Note" depends only on our collective perception or "confidence" in it, doesn't that make the whole "Federal Reserve System" and its "Notes" a "Confidence" game; i.e., a "con" game, or simply, a "con"?
If the information above has interested you, you may enjoy visiting these sites:
This article was produced by the Chicago Branch of the Federal Reserve [it is supposedly out-of-print]:
If the "commodity price" of gold or silver (in dollars) is falling, the FRN is supposedly worth more that day.
If the "Dollar" is falling against the "Pound" or the "Euro" or any other currency, the FRN is supposedly worth more internationally that day against those other fiat [imaginary] currencies.
Fortunately, since 1982, we again can buy and hold real lawful money of the United States of America.
That is, we can take the Federal Reserve System's "Federal Reserve Note" funny-money and exchange it for gold or silver coins at a coin dealer [of course there is also that "Sales Tax" depreciation in making the exchange].
The United States Mint is currently authorized to mint 1 Troy ounce coins of Silver and 1 Troy ounce, 1/2 Troy ounce, 1/4 Troy ounce, and 1/10 Troy ounce coins of Gold, which THE UNITED STATES GOVERNMENT is pleased to call "numismatic items" or "bullion coins." [Of course, those characterizations are designed to disguise the fact that these coins really are lawful money of the United States of America, rather than simply circulating legal tender tokens.] There are also platinum coins which I have not discussed because, so far as I know, platinum has never been authorized for use as lawful money.