How Do They Force You to Participate?


The dollar is called a fiat currency. Fiat means force. It is true that we are forced to use the government’s paper scrip for our money. Apologists for the status quo will object and say that no one is forced to keep his savings in dollars, or even to accept dollars in payment for merchandise. This is also true. Nevertheless, force and only force is the reason why we use the dollar. Let’s look at the various mechanisms for this.

The Legal Tender Laws target lenders. Notice that on each dollar bill it says, “This note is legal tender for all debts public and private.” This means that no creditor has a right to demand repayment in gold. No matter what a lender and a borrower agreed to in advance, the borrower can pay in dollars if he wishes. The creditor must accept it. The economy depends on lending to productive business, and the legal tender laws ensure that this is only possible in dollars.

The Accounting Laws force all taxpayers to keep their books in dollars. It is perfectly legal to keep another set of books for internal use by the taxpayer but it is a lot of effort and it can get complicated. Keeping the books in dollars encourages everyone to think that a gain in dollars is a profit. People must operate their businesses and trade the markets for gains in dollars, which can give distorted results. If you balance sheet has dollar liabilities, then keeping gold as an asset is risky because the price can fluctuate.

The Tax Code adds another complication to those who would use gold as their unit of account. Picture a business that bought inventory for 10 ounces of gold and sold it for 11 ounces. In gold terms, it makes a 1-ounce profit and it would be happy to pay a tax on that ounce. But what if the gold price in dollars has doubled in between buying inventory and selling it? In dollar terms, the company bought inventory for $14,000 and sold it for $30,800. It made a profit of $16,800 and must pay a tax on that. After tax, it will have less than 10 ounces of gold. In gold terms, it will lose money.

The Capital Gains Tax forces anyone using gold or silver to keep track of the price they paid when they bought their metal. Any use of the metal in trade is considered a sale of the metal at the current market price. Even if there were no other obstacles, this one would stop the use of gold and silver coins dead.

The Schools train young minds to think that the dollar is money, and money means the dollar. This kind of thinking cannot deal with the fact that the dollars is merely one possible unit of account, or numeraire. Gold and silver are other possible units of account. While there is no force of law (after one graduates from school) this may be the strongest possible chain. Even advocates of the gold standard can sometimes get stuck on what is the right “price” of gold, as if value cannot be possible unless it is measured in dollars.

There is No Interest Rate in Gold. The only way to save in gold today is to hoard it. There is nothing else one can do. However, storing pieces of metal creates no wealth, and this is obvious to most people. Only an interest rate will encourage people to take gold out from under the mattress and put it to productive use in financing new business.