Stop the $ X00 Million Legal Tender Crime

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Stop the X000 Million Dollar

Legal Tender Crime



You have seen this sentence numerous times –

whenever you handled paper money —

but did you really read the fine print?

Did you ever think about it,

its consequences and the alternatives?

Please look into standard textbooks of economics:

Dozens, even hundreds of them in a row,

do not realize and explain the direct causal relationship

between Legal Tender and paper money inflation —

although this is one of the best proven findings of economics.

A hundred years ago, their authors would have failed

their economics examinations for this unawareness — to put it mildly.

Today, they are considered as experts —

whilst they support the worst type of money in the world!












1. Summary 4

2. Does Legal Tender Really Matter? 6

3. What Is Legal. Tender? 10

4. How Wrong Is Legal Tender? 13

5. How Harmful is Legal Tender? 19

6. Is Legal Tender the Basic Cause of Inflation? 22

7. How Do Currencies Function without Legal Tender? 29

8. How to End the Rule of Legal Tender: 34

9. Appendix . Dr. F. A. Hayek & Samuel Brittan on Legal Tender: 36 + 5, 9, 18, 28 & 33

lO. Annotations 39 - 48 & 5, 5, 18, 28, 33 $$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

Monograph No. 1 of the RESEARCH CENTRE FOR MONETARY AND FINANCIAL FREEDOM, written, printed and published in the PEACE PLANS series, as No. 19A, by John Zube, 7 Oxley St. Berrima, NSW 2577, Australia. 500 impressions. Include postage when ordering.

Address in 1999: 35 Oxley St. or P.O. Box 52, Tel. (02) 48771 436




Although mostly ignored or misunderstood, Legal Tender is one of the greatest destroyers and wrongs. It leads to inflation, unemployment, dictatorships, even wars. To achieve economic and political freedom it must be repealed.


Legal Tender is here attacked as the enforced circulation of an exclusive currency at a forced paper par value, a currency against which competition is outlawed and as a currency which any creditor may demand.


It manipulates a very important standard and the basic tool for the division of labour and exchange. It makes a mockery of The Law, is despotic, allows legal forgery, expropriates people, drives them into bankruptcy. It is an unjustified monopoly and privilege, breaches contracts, enforces dishonesty, amounts to a fraud, a vast and rigged game of chance, a crime, robbery, even enslavement to some extent. It is a totalitarian means leading to totalitarianism.


It leads to officially forged money, monetary inflation, also to money shortages. It brings taxation without consent. It is a confiscatory means. It leads to over- and under-issues and often to both together. It misdirects the people's opposition against monetary malpractices and brings about industrial unrest. It outlaws the price mechanism for currencies and allows the bad money to drive out the good. It even allows the financing of unjust wars and despotic regimes. It is one of the most anti-social acts any government could commit.


Without Legal Tender NO paper currency could inflate all prices, never has and never will. With Legal Tender, any paper currency can be inflated and usually is.


Currencies freely issued and competing against each other - and this would require free market rates for all of them - would preserve their values precisely because they could suffer a price fall. Then only good managers could issue them successfully and in their self-interest would keep them sound. Moreover, the people themselves could safeguard their rights against any bad issues simply by refusing to accept any depreciated currencies. Good money Would then drive out the bad.

At least local currencies and private money tokens could then be issued whenever and wherever needed - by all productive people who want to clear their services or goods freely and easily. Thus our monetary difficulties would disappear, inflation and deflation would become impossible and even fraud and forgery would be reduced to a minimum.


We will have to resist the government's monetary policies by something like a "monetary revolution". We might have to combine this with a tax strike and sometimes even with a general revolution.

For the time being monetary enlightenment is the first requirement.


John Law's paper money was Legal Tender from 1718 - 1790.

American Revolution, Continentals, L.T. from 11.1.1776 - March 1781

French Revolution, Assignats etc, L.T. from 18/8/1788 - 4/2/1797 (31.3.97?)

US Civil War, North, Greenbacks, L.T. from 25.2,62. Reduced & finally eliminated by resumption on 1/l/78.

Germany, Imperial Reichsmark etc., L.T. from 1.1.1909 - November 1923.

Weimar Republic Reichsmark and Nazi Reichsmark, L.T. from 1924 - 1948.

Federal Republic (W. Germ.), D-Mark, L.T. from 1949 - now

Australia, Central Bank's notes, L.T. from 1910 - now

England, Bank of England notes, L.T. from August 1914 - now.

USA, all government money, L.T. from 1933 - now.




Was it an achievement when money issue and regulation, value standard determination and regulation, were taken from the market and fully centralized and unified in the hands of the governments?

Was it an achievement or a great disadvantage when unions gained the authority to demand wage payments in government money only, i.e. in inflated or deflated paper money with Legal Tender? Think about it!

I predict that in our lifetime Legal Tender will finally and permanently be repealed and that thus inflations will become impossible. I assert and attempt to show that Legal Tender is one of the greatest destroyers - and this largely because it has remained mostly incognito or ignored.

Property rights are frequently defended today - by an enlightened minority - but not the Legal Tender assault on property rights. In most cases it isn't even realized as such an assault.

There is possibly nothing in economics that can so easily be verified as the close and causal relationship between Legal Tender and inflation. (See below.) And yet, hardly any other economic truth is more ignored. Most people still consider Legal Tender as necessary, even rightful, or as harmless and neutral - in spite of all the evidence against it.

This essay tries to make it believable that when a government insists on Legal Tender, it wants to inflate sooner or later and go to war. (1)

I assert that the over-supply or Legal Tender money, possible only through the Legal Tender coercion and fraud - is the root cause of paper money inflation (while the under-supply of Legal Tender money, possible only through the exclusive nature of Legal Tender money, is the root cause of unemployment.)(2)

Is it possible that without Legal Tender the Welfare State would soon be bankrupt and a tax strike forthcoming? - that it does provide the oil and grease for the bureaucratic machine?

You probably doubt this but I invite you to check it out by pondering Legal Tender in all its implications.

Please do also compare Legal Tender with other compulsory practices: Compulsory education conscripts your youth, compulsory taxation your property, compulsory army service your life - while compulsory acceptance and forced value (Legal Tender) conscripts your exchanges - all under the pretence of taking care of you, all in the service of myths and power. All do more or less collectivize you and destroy your individualism, your liberty, and persuade you to patiently suffer these chains and give the consent of the victim to these measures and the myths(3) behind them.

Compulsory education, taxation and army service have by now been discussed almost enough, at least in libertarian circles. (There remains the job to spread the message.) But, contrary to this, Legal Tender was never discussed at comparable length. Even among Libertarians there exists still a deplorable great apathy, ignorance and prejudice on this subject. I hold that there is no excuse for this.

I consider it a high priority job to describe the importance of Legal Tender to libertarians, to state what it really is and what it is not, how wrong it is, how harmful it is and how it ties up with the current economic and political mess. Then one can consider the theoretical and practical alternatives - down to technical details - to make them as believable as Legal Tender is now -and how one could get rid of Legal Tender. But first things first: Know your enemy. Don't grant him the consent of the victim.

A government's refusal to supply Legal Tender paper money - while it outlaws all alternatives and while the victims do not know the alternatives or how to realize them fast, happens to be also a mighty weapon in the arsenal of communist totalitarians - as the suppression of the East German uprising of 17/6/1953 showed.(4) Quite generally, totalitarian communism wants to realize its aims with the aid of Legal Tender. Go back to its original source for confirmation of this. (5)

I have often wondered why faithful Marxists - as well as their opponents - did not follow up his suggestion of alternatives. As unlikely a student of monetary freedom as Karl Marx was, he has indeed said:

"... observers who studied the phenomena of money circulation exclusively on the examples of the circulation of legal tender paper money, had to overlook the inherent laws of monetary circulation." (6) - Doesn't this remark remind you at least of Milton Friedman?

For me it is a riddle - why so few people studied the i n h e r e n t economic laws of money circulation, at least scientifically and speculatively, for an assumed case where there is no government intervention in this sphere, where there is no Legal Tender. Have we allowed the laws of the land to confine even our thinking? (7)

This essay does not deal at length with the excuses for Legal Tender money. They are all untenable although I cannot prove this here. I will mainly attempt to deal with its flaws. But let me just remark shortly on one excuse for Legal- Tender: that it would facilitate debt settlement for a debtor and prevent chicanery on the side of a creditor. This excuse is too far-fetched because:

"Cases of refusals of non-inflated paper money are extremely rare, precisely when there is no Legal Tender. In the German Bank Enquete of 1908, only a single case could be confirmed." (8) As few cases have no economic significance and, least of all, require legislation against them.

I for one have no tender feelings for Legal Tender and believe that whosoever falls for the name "Legal Tender" is likely to fall for almost anything - and often does.

This essay is mainly exploratory and explanatory, often even dogmatic. I am aware how few and often incomplete references have been given and how few of the common errors, objections and assumptions in this sphere have been answered or even noted. Space didn't permit it and I must refer you to future publications and to my Peace Plans series, especially to issues 8-11. A book-length study of Legal Tender ought to be finally compiled and published, one documented in every respect. Is anyone willing to participate in the work involved?

Why aren't YOU interested in Legal Tender? Have you got any excuse to offer? Is your excuse a Legal Tender or may I refuse it? Has it got any market value?

I consider this pamphlet as "Legal Tender" against you, for you may refuse it or ignore it only at your peril and my debt to you (my obligation to try to enlighten you on such an important subject is paid in full by putting it into your hands. One can lead the horse to water but one cannot make it drink. (Only to this extent is this not "Legal Tender".)

If you are unwilling to CONSIDER AT SOME LENGTHS BY WHAT TECHNICAL MEANS (here Legal Tender) FREEDOM IS TAKEN AWAY FROM YOU and how you could regain it (here: the free issue and market rate for all means of payment, free clearing and free choice of value standards)- then you will - I assert - let freedom slip out of your reach.

Free enterprise, I hold, will not be really free as long as there is Legal Tender. No market can be fully free under Legal Tender rule. If you do not realize what Legal Tender means then you don't know what totalitarianism in the sphere of money means.

Legal Tender is one of the main weapons of despotism and dictocrats (a fine phrase coined by L.E. Read of FEE). It is also its Achilles Heel. People who know how to exchange without it and better than with it, are already far on the way to emancipate themselves and others from Big Brother. They could, I assert, almost over-night, in a non-violent monetary revolution, get rid of inflation, unemployment and the financial burdens imposed by despotic regimes. (9)

Legal Tender has so far cost you thousands of dollars. Isn't it time you learned and did something about it?



Legal Tender is only very rarely made the butt of jokes. It is too unnoticed a target. After many years of searching I found only three instances and even they do attack it only obliquely :

1. "A government never goes bankrupt, only its creditors do." - said an

Austrian banker with regard to its several paper money inflations.

2. "Inflation has been called a period in which debtors relentlessly hunt down

creditors and ruthlessly pay them off." ("reason", Oct. 73.)

3. "Only the government can take things as valuable as paper and ink and turn

them into worthless scrap." - This remark has been ascribed to L.v. Mises.

Please consider how few people there are who fully understand and can draw the right conclusions from this kind of humour.



I hold that Legal Tender is the expression of monetary despotism, the ideal of value astrologers, vulgar economists, neo-comics and dictocrats.

Contrary to this, one of the usual definitions runs: "Currency which may be lawfully tendered and offered in payment of money debts and which may not be refused by creditors." (10)

As all currencies are now Legal Tender and as sound competing currency alternatives are all too effectively outlawed, nobody gives such definitions much thought, no matter how wrong and incomplete they are. The above conventional, nominalistic and juridical definition is typical. It shows no understanding at all of the moral implications and economic consequences of the institution of Legal Tender. The way this one is worded, it seems to be just another and rather trivial procedural clause. It implies something good and lawful which everyone should be duty-bound to accept.

But, Legal Tender is not, after all, merely a legal offer but really an enforced acceptance at a forced value. (A non-coercive tender or offer would indeed be just and so would be a contractual obligation to accept.) This definition does also overlook the discount possibility. Discounting an exclusive and depreciated currency is not a refusal.

Another misunderstanding on Legal Tender is often expressed when there is reference to the Legal Tender "quality". There were never any real difficulties in paying debts with honest and non-coercive currencies. These are only very rarely refused and then only out of ignorance or prejudice. (See page 8.) Precisely, when people's suspicions against a state paper money are only all too justified and people are inclined to refuse its acceptance - if free to do so - then, historically this paper was given the Legal Tender characteristic. It is not a quality at all but rather a camouflage for a severe flaw, an immoral, anti-economic and coercive privilege which should disqualify such money economically and morally.

The "legal" in Legal Tender is not part of "The Law" but refers to an arbitrary decree of men in power. Rational men could not have given their consent to this clause. The "tender" in this misnomer is not an "offer" which may be freely refused but rather an assault or a robbery.

"Legal Tender" is indeed a very misleading term. It does not make other means, e.g. cheques, illegal, but it does enforce the acceptance at par of Legal Tender paper money - and makes all other means of payment dependent upon it.

Let us now look at explanations with more "teeth" in them:

Why do we have to take the government's depreciating paper money? Why does it inflate our prices? - Because the government forces us to take it! It forces us by making it Legal Tender and by outlawing all honest, private, alternative currencies:

"Legal Tender is the general legal obligation within a country to accept a currency - usually the State's depreciating paper money or the notes of its central bank - at their nominal value, no matter how much their real value (purchasing power and market rate has fallen, is falling or is expected to fall."

And another:

"Legal Tender is the legal obligation of every creditor to accept paper money (or coins of less metal value than their nominal value) at an UNCERTAIN, fictitious, fluctuating and usually depreciating value: their nominal paper value, "measured" in an exclusive and manipulated paper" standard".

Prof. H. Rittershausen once went so far as to call Legal Tender "the war money characteristic of the Central Bank's notes." Ulrich von Beckerath commented upon this: "Legal Tender is for the economy what the power to make war is in politics."

Legal Tender, according to these more realistic definitions, does obviously interfere with the right of everyone to refuse acceptance of suspicious, unknown or deteriorated means of payment, means one has not issued oneself and is not contractually obliged to accept. They point out what Legal Tender really means in most instances: forced acceptance, forced circulation, a forced value, a coercive meddling with property, trade, enterprise and the market in general.

If one looks at the whole picture and not just the selected section the lawmakers provided with inscriptions on the notes and prettied-up names and definitions, then "legal Tender" is revealed as a misnomer, an intentionally chosen cover-up name. A much more revealing name would be "FORCED CURRENCY", i.e., a currency whose acceptance as well as whose value is enforced and which has also the PRIVILEGE OF EXCLUSIVENESS. Such an honest wording would state its moral and economic flaws. This is why it isn't being used. The proper term, "forced currency", describes all too clearly how and why a central bank of issue can inflate a paper money and why afterwards all prices - which, naturally, must also be expressed in this currency - must seemingly go up, while in reality, reckoning in a stable value standard, they remain stable or as stable as goods and service prices usually do, while the value of the inflated and coercive paper currency falls.

Legal Tender is thus "legalese" for a government-sponsored robbery of all creditors from which the government benefits most, in the short run.

Legal Tender, as practised, generally, today, declares a paper money to be both at the same time and inseparably: a standard of value and also an exclusive exchange medium, no matter how mismanaged both are. Thus a true measurement of the exchange medium against the value standard has become impossible. Through Legal Tender this bad currency can then drive out all good alternative currencies, as Gresham stated. Without Legal Tender this process would be reversed.

Actually, there are a considerable number of different types and mixes of Legal Tender, some very wrong and harmful ones, some relatively harmless, some neutral and some which are really right and helpful - although they should not be called Legal Tender nor would they require special legislation. 19 of these are listed under note (11).

I am not dealing in this essay with Legal Tender's relatively harmless, neutral or beneficial variations. Legal Tender, as here understood and attacked, is that characteristic which turns a currency into a forced and exclusive one which every creditor must accept at face value and which he in turn may demand in payment from every debtor. To that extent it outlaws the right to issue, to discount, to accept, to refuse to accept, to contract, to exchange, to measure values freely and to clear. IN SHORT, WITH LEGAL TENDER THE GOVERNMENT OUTLAWED GOOD MONEY & FORCED ITS OWN BAD MONEY INTO CIRCULATION.


"We are forced to "be satisfied with paper money, and its purchasing power diminishes with inflation." - said Aslam Effendi.(13)

Legal Tender, combined with the note issue monopoly, has indeed made illegal the tender of most sound standardized and typified means of payment, all those that could and should be provided privately and cooperatively.

Why should anyone have to accept the government's inflated paper money at its nominal value regardless of purchasing power losses? Fancy, imposing a manipulated and continuously changing and usually deteriorating standard' as a general measure of value. This is what legal Tender does. Imagine the imposition of a bad and exclusive means of exchange and the outlawry of all other money issues, no matter how good they are or could be. This is the second aggressive feature of our Legal Tender laws.

Legal Tender is a legal monstrosity. It is the decree enforcing the government's monetary religion. Protected by the hypothesis that the government cannot or will not do wrong in monetary matters - no matter how often experience has refuted it - the government is still allowed to pass or uphold Legal Tender or Fiat Money laws. The Legal Tender thus provided allows a government to FORCE its own FORGED NOTES into circulation. Legal Tender means that the authorities not only can over-issue and thereby depreciate money, but that they can also force people to accept this depreciated money at face value and in full payment. Something more hypocritical and unjust is hard to imagine.

This was already realized 200 years ago by some advanced thinkers and yet how few are fully aware of it now? Adam Smith, speaking of paper money which had less than its nominal value said (14)

"To oblige a creditor, therefore, to accept this as full payment of a debt of a hundred pounds actually paid down in ready money was an act of such violent injustice as has scarce, perhaps, been attempted by the government of any other country which pretended to be free. It bears the evident marks of having originally been, what the honest and downright Doctor Douglas assures us it was; a scheme of fraudulent debtors to cheat on their creditors.... No law, therefore, could be more equitable than-the Act of Parliament, so unjustly complained of in the colonies, which declared that no paper currency to be emitted there in time coming should be a Legal Tender of payment."

Similarly, the Constitution of the USA, Art. 1, See. 10, runs:

"No state shall ... emit bills of credit; make anything but gold and silver a tender in payments of debts; ... "

None less than Madison commented upon this: "The extension of the prohibition of bills of credit must give pleasure to every citizen, in proportion to his love of justice and his knowledge of the true springs of public prosperity. The loss which America has sustained since the peace from the pestilent effects of paper money on the necessary confidence between man and man, on the necessary confidence in the public councils, on the industry and morals of the people and on the character of public government, constitutes an enormous debt against the states chargeable with this unadvised measure, which must long re-main unsatisfied; or rather an accumulation of guilt, which can be expiated no otherwise than by a voluntary sacrifice on the altar of justice of the power which has been the instrument of it." (15)

If economics had already become a true science then these voices of wisdom of the past could not have been overlooked or ignored for so long and so extensively.

Legal Tender laws give a special privilege or licence not only to the government but to all other debtors, a privilege not to pay fully but to cheat instead. Legal Tender turns every credit transaction into an unjust one by preventing its just settlement - and this under the pretence of achieving it! All this is also considered as one of the "law and order" preservation measures of modern governments.

Legal Tender destroys voluntarism in trade. It enforces "consent" in otherwise, possibly, quite free trading transactions and thereby riggs them. It breaches contracts : "The government... does not recognize a man's right to make his own contracts, for it en-forces legal tender laws." - said Carl Watner. (16)

Sturtevant (17) maintained that the government issue of Legal Tender money was:

"utterly destructive of the property rights of the creditor. A government can never make its promises to pay a tender in the payment of private debts, without violating the fundamental law of all exchange, the free consent of both parties."

Legal Tender legalizes dishonesty in payments: Legal Tender laws outlaw refusals to accept deteriorated paper money (either altogether or at face value). It must be taken in full payment. Honest currencies in full and honest payment may not be insisted upon instead. Honest money would not need Legal Tender to circulate. Only dishonest money needs it to keep itself in circulation.

By means of Legal Tender you can legally deprive your creditors through offering them deteriorated paper money in full payment, for debts of a much higher purchasing power. Thus, indirectly, Legal Tender not only prevents the full repayment of debts, it also prevents credit.

Legal Tender legalizes fraud: During an inflation it allows every debtor to defraud his creditors and in a deflation it allows every creditor to over-charge his debtors. Money isn't money when Big Brother merely says it is. Then it is nothing but a legal fraud.

Legal Tender forces all to gamble all their assets expressed in fixed money denominations, e.g., bonds, on the value of a paper money which is almost continuously and intentionally deteriorated -thanks to "full employment" policies. But this inflationary policy does not and cannot bring about the desirable full employment of all those able and willing to work for market wages, It is useful only to the monopolistic issuer and to debtors and politicians - to help them welsh on their obligations.

Legal Tender is one of the greatest swindles - and one practised by all present governments. It amounts to legalized robbery by establishing a compulsory legal pretence of fair trade and payment - precisely when both are absent. Thus Legal Tender grants debtors the privilege of robbing their creditors under the pretence of paying them. (In the more common case of inflation.)

LEGAL TENDER IS A CRIME. Whosoever offers Legal Tender in payment as Legal Tender is to that extent a crook - although not always a voluntary one. Legal Tender, on its own, turns the whole economy into what Bastiat called a "plunderbund". The worst offender is, naturally, the Government, which issues the Legal Tender and has made this possible in the first place through its Legal Tender legislation. (18)

Legal Tender makes everyone a criminal for in modern society every-one must frequently make payments and in every payment he becomes a participant in the Legal Tender based robbery. It outlaws the offer of honest means of payment and even penalizes it. Thus it is immoral to the highest degree.

Legal Tender is a very important means for the government to get something for nothing - and this on the path of causing least resistance: The over-issue of Legal Tender money (and without Legal Tender no large-scale over-issue would be possible ) amounts to imposing a tax on every transaction which uses money:

"The tax collector has no intention of earning the property he takes from the market. His object is something for nothing; and in monetary matters the most instant process is to create a fiat money and declare it "Legal Tender" in place of the money chosen by traders." - said Paul L. Poirot. (19)

Through Legal Tender the government taxes you without even a pretence of having gained your consent first.

One might ask why the government, if it acts criminally anyhow, doesn't rob banks. The answer is simply that through Legal Tender it can easily and even with public approval*(20) rob every creditor anyhow, including its own. (21)

Legal Tender turns every sale to some extent into a forced sale. (22)

It also turns our whole monetary exchange and credit system from a relatively free and equitable one into a gigantic lottery system and a rigged one at that, where everyone wins as debtor and loses as creditor - in times of inflation - while winners and losers change positions in times of deflation and both sides lose in times of "stagflation" which at least to some extent always exists under this coercive and exclusive system.

Legal Tender is a tool for expropriation. To some extent it expropriates everybody and it does so quite legally, pretending that full payment has been rendered by offering Legal Tender. Thus Legal Tender notes have something in common with requisitioning certificates. In other words, Legal Tender amounts to one of the most obvious (read the inscription on every note) and yet least realized and discussed assaults against our property rights. (Compare how sparse literature references on this subject are compared with the treatment of most other economic subjects.)

It constitutes a totalitarian claim against all assets in a country. Looked at it this way, Legal Tender laws are a declaration of war against all property owners and creditors, including all sellers of goods, services and labour. They all must accept Legal Tender currency at face value, as if it were still full value, no matter how much it has been deteriorated, no matter how low, consequently, its purchasing power has fallen.

At present, government paper currencies are so bad that, obviously, none of them should be circulated and valued through Legal Tender. Good private, honest and stable currencies would not need Legal Tender to be widely enough accepted. Full value money does not need Legal Tender because it is voluntarily accepted. Thus Legal Tender is only used to force a kind of money on people which they would not take voluntarily, at least not at its face value, money which is worth less than its face value. This is why Legal Tender is upheld - and why it must be stopped.


When the government outlaws your money and through Legal Tender forces its own bad paper on you, then it TAKES PART OF YOUR LIVELIHOOD, i.e., PART OF YOUR LIFE FROM YOU.

Legal Tender and freedom are too contradictory to coexist. The Free Market, Free Enterprise and Free Trade require its repeal. Right now it is as legal as slavery once was - and it is as wrong.

Legal Tender makes everybody to a certain degree either a slave or a slave master. Let us abolish this kind of slavery also.

Men who will let their standard of value be deteriorated and their exchange media be monopolized and manipulated by the government and who unresistingly accept the abuses and wrongs involved, are likely to accept also all other kinds of despotic and enslaving government actions as natural, inevitable, even desirable. They have to be emancipated, at least monetarily.


"... the medium of exchange should be market-originated and market-regulated - not government-originated and government-regulated. This means that the value of money should be determined on the free market - not dictated by government decree." - Paul Stevens, in THE FREEMAN, August 1973.

"An undesired efflux of money can never be anything but a result of State intervention endowing money of different values with the same Legal tender. ALL that the State need do and can do, in order to preserve the monetary system undisturbed, is to refrain from such intervention..." - Mises, The Theory of Money and Credit, p. 349, quoted in from THE FREEMAN, March 1972.

"Only when money and its regulation and control is taken from government and left to the market, only then can entrepreneurs and consumer enjoy the blessings of private ownership and competitive enterprise, specialized industrial production, and free trade. And free trade in gold is the key to sound money and sound business procedure." - Paul L. Poirot in THE FREEMAN, Aug. 1969.

"A free market economy cannot permanently operate on a politically manipulated paper money standard. Free men need a market-selected money." - Percy L. Greaves, Understanding the Dollar Crisis, quoted by Henry Hazlitt in THE FREEMAN, Jan. 74.

"Freedom in monetary matters means no political manipulation of our medium of exchange," - Leonard E. Read in THE FREEMAN, July 1973.

"... the market may be trusted to provide the best transportation communication recreation, business service of all types, charities, and even the best money that can be had within the limits of available resources and human understanding.' - Paul L. Poirot, in THE FREEMAN, July 1973.

ONE CONCESSION: "Inflation is not entirely impossible (without Legal Tender) "namely when the public believes that the notes have Legal Tender. This was obviously the case from 1871-1873 regarding the notes of the Prussian Bank - according to Wagner - System of Banknote Policy." - runs a note by Ulrich von Beckerath, dated 24/7/1955.

"Legal Tender money ... obeys completely different laws than the real turn-over banknotes of private payment communities described by us. In particular, it can be multiplied without limits and thereby it brings an extreme danger of inflation." - Prof. H. Rittershausen, Der Neubau des Deutschen Kreditsystems, Stilke, BerLin, 1932, p. 39.



"Men must discover what money is NOT. They must understand that by accepting a monetary unit of value by decree, they are not only condoning theft but are sanctioning the instrument of their own monetary and economic destruction." - said Paul Stevens.(23)

Making paper money Legal Tender is really one of the worst things any government could do to its subjects.

Through Legal Tender the government makes money out of your goods and services, taxes you without your consent, usually even without your knowledge and also destroys the economy in the process.

One of the severest condemnations of Legal Tender ever put into print was expressed by Adolf Wagner. (24) Please note that in his time, when an economist spoke of paper money, he always meant not only an inconvertible but a forced paper currency:

"What a terrible financial power can the issue of paper money be in the hands of a ruthless government. Compared with it, what are the highest taxes and forced loans and the comprehensive powers a government has for the realization of these two? Legal Tender, or paper money is a much more powerful and yet much simpler screw to squeeze out the goods wanted by the government. Legal Tender, by mediating production and sales processes and the formation of prices, that is by the common economic laws, makes available to the authorities all the possessions of the people, nay, even plays them formally into their hands."

Legal Tender prevents people from realizing - in case of over-issues - that an over-issue has taken place, that the goods have not become dearer but that the money has become cheaper. It thus misdirects their anger. It does indeed, effectively, cover up a depreciation of money for most people - at least for a time. This is why it has been chosen by all governments. This is what turns it into one of the biggest frauds. It misdirects the people's anger against those who, due to Legal Tender, have to increase their Legal Tender paper money prices. This is one of the major reasons why it must be done away with. Legal Tender could even keep uncovered cheques in circulation and could thus lead to a flooding of the market with them. Thus it must be generally repealed and especially for state paper money.

Legal Tender is no better than a fixed price for shares. Matter of fact, it is worse. It meddles with all everyday exchanges as well. Legal Tender invades and disturbs all peaceful trading relationships, barter ones excepted. Sometimes it even reduces trade to barter by virtually destroying all monetary exchanges.

Legal Tender outlaws the price mechanism for currencies. It outlaws, with regard to currencies, what the thermometer does with regard to body temperature and the barometer with regard to air pressure. Smashing the instrument, here the free market rate for currencies, does not change reality. It only makes it harder to observe it and to cope with it.

By identifying the exchange medium with the standard of value, it deteriorates the latter with every over-issue of the former and over-values it with every under-issue. It truly integrates a paper means of exchange inseparably with a paper standard of value and turns the latter not into a stable standard but rather into something like a rubber band, subject to all kinds of expansionary pressures and contractionary pulls. Through this foul and intentional mix-up, every change in the circulation of exchange media has also a harmful effect on the prescribed paper standard of value:

"The difficulty with Legal Tender lies in this that under Legal Tender one cannot recognize when the economy is saturated with the necessary means of exchange. As a result of Legal Tender there is no free market rate for means of payment. Thus the barometer which should indicate an over-supply of means of exchange has been removed: They can never suffer a discount" - said G. Holzhauer. (25)

At the same time, by establishing an exclusive currency, Legal Tender laws ensure a frequent shortage of exchange media through pre-venting the additional issue of exchange media until the shortage is overcome - which would be indicated by the notes beginning to suffer a discount in the free market. In these ways do Legal Tender laws prevent the Law of Supply and Demand from working freely and effectively in the sphere of money.

In the absence of a free market rate of exchange media against a sound standard of value, it becomes impossible to stay on the narrow line between inflation and deflation. The whole economy becomes condemned to fluctuate frequently between the two, nay, even to suffer both of them at the same time - at least in different places and circulation channels. (26) With Legal Tender one cannot walk the straight and narrow path between deflation and inflation - as it has made it invisible. Thus both disasters become unavoidable - in this context.

Legal Tender prevents competition against the worst type of money. It allows the bad money to drive out the good while free market rates would allow the good money to drive out the bad. (27)

It makes it possible to tax and overtax us without any form of "consent" being required.

It leads to depressions and mass unemployment. (See Peace Plans 10) It prevents proper clearing - while lastly the division of labour and all monetary exchanges are based on clearing.

Through its large and exclusive circulation area, Legal Tender does also encourage private forgeries - apart from the government-run forgery involved in issuing Legal Tender money.

It leads to continuous union agitation and strikes for higher nominal wages - just to preserve their purchasing power.

It also results in numerous mal-investments and in the destruction of capital.

It even allows to finance wars and dictatorships, no matter how unpopular these are.

It is, moreover, the causal factor bringing about all the other harmful effects usually listed under inflation and deflation.

In short, Legal Tender is dangerous to your moral and economic health and the development of your fortune. It outlaws (in the monetary sphere) free exchange, free trade, free enterprise and the free market and thereby prevents their full development.

If Frederic Bastiat was right when he said that "Society Is Exchange"), then Legal Tender is really a destroyer of society.

When you look objectively at the socially destructive results of inflations and deflations and how these two man-made disasters tie in with Legal Tender then you will find this to be right.(5 & 28)


The inflationary effect of Legal Tender legislation is so important that it is here treated separately from the previous section.

I can give you a good tip: You can bet a fortune on Legal Tender being the basic cause of inflations - although right now you have practically bet your fortune and possibly even your freedom and your life on premises assuming that this is not the case.

When you check for the primary premise for inflation, you will find "Legal Tender". Inflation is caused by governments FORCING their exclusive national currencies into circulation - by means of Legal Tender legislation:

"The essence of inflation consists in the following: As many notes with forced acceptance and forced value are issued that under a free market rate the people would not accept them at par ... "Inflation is a condition of monetary transactions in which paper money is taken without limits and at its prescribed value only because it is Legal Tender, which makes it legally impossible to accept it only at a discount." - said Ulrich von Beckerath.

Legal Tender, by means of allowing and promoting over-issues and forcing everyone in a country to reckon in the over-issued paper, reduces the value of all this paper money and inflates the prices of all goods which have to be expressed in this money. Almost 100years ago, Prof. Dr. Felix Dahn saw this clearly when he wrote:

"The arbitrariness of no one, not even the fiat of the State, can determine the value of money. The State which has no credit finds no acceptors for its 'state paper money', and if it gives it Legal Tender, then the vendors of real values demand a corresponding premium until this is prohibited, too, and then the offer of goods in the interior stops and they stream rather to other countries where metallic money circulates." (29)

There was NEVER a paper money inflation without Legal Tender. Under a free market rate a paper money nay be depreciated - to some extent, until a general refusal to accept it sets in - but it cannot drive up all prices.

LEGAL TENDER does not permit stable or market pricing. By prohibiting all creditors to accept a depreciated money only at its market rate (against whatever stable value standard is used in pricing by the various vendors), IT LEAVES THEM NO OTHER WAY OUT THAN TO INCREASE THEIR PRICES, NOW EXPRESSED IN DEPRECIATED FORCED PAPER UNITS. This effect is then commonly called "inflation".

The government forces all to use its fraudulent paper value standard and the coercive paper notes expressing it - by making both, in combination, Legal Tender. This is the main cause of inflation. WITH THIS POWER ANYBODY COULD AND ALMOST ANY MODERN POLITICIAN WOULD INFLATE THE CURRENCY.

Legal Tender is not only one but the only way for the government to force its over-issued currency into circulation. (The issue monopoly is part of it.)

A general price inflation is only possible when the acceptance of an over-issued money is enforced. Only Legal Tender money can really flood the market permanently and raise the level of all prices - as only then do they HAVE to be reckoned in that money. Then, INEVITABLY, the more over-issued and thus the more depreciated the Legal Tender money becomes, the more do the prices marked and paid IN IT go up.

Legal Tender makes money come and come and come, pushes it into circulation and keeps it in circulation and with this flood its value goes down and down until it is finally all gone. (30)

Through Legal Tender laws the government forcefully links the standard of value to the exclusive general (31) exchange medium and makes the standard of value thus dependent upon every fluctuation and manipulation of the circulation of the exclusive ex-change medium. (Please note that only to this extent is the Quantity Theory of money right. If, e.g. under monetary freedom one among 6 major note issuers could over-issue so as to increase the total circulation hundred-fold, he could not increase all prices hundred-fold. They would virtually remain the same, reckoned in the remaining sound currencies. His money would be totally refused and he would be at least out of the note-issuing business.

Legal Tender laws outlaw refusals to accept deteriorated paper money, sometimes, as in the French Revolution, even with capital punishment, and thus make it possible to force almost any quantity of paper money into circulation - until its value becomes reduced to a tiny fraction. (30).

It leaves only two final natural limits for further over-issues: the printing facilities and the printing costs. Both were revealed in the German 1914 - 1923 inflation. (32) Another, a political limit, was then also reached: Some provinces of the Reich, instead of merely repudiating Legal Tender, were considering and threatening with secession. E.g. the Mayor of Hamburg did.(33) (And Hitler made his first grasp for totalitarian power in this year, 1923. -J.Z., 1999.)

Legal Tender laws, by enforcing acceptance at par for paper money and cheap metal coins, set a fixed, nominal and enforced price for them, even when their market value has fallen, even when their purchasing power has been reduced to a fraction of their original nominal value. It leaves sellers of labour, services and products only one way out: to increase their prices reckoned in the deteriorated currency.

This is indeed the only remaining legal way to defend yourself to some extent against Legal Tender: increase your prices reckoning in it. But this is then blamed on you as if you had "inflated" your prices or wages voluntarily and without good reason. In reality, goods and services and labour remained stable - if prices are reckoned in (relatively) stable units. Only reckoned in bad and depreciating money did they go up. Prices, real ones, remained largely the same. Only the coercive and exclusive money went down in comparison with them.

This defence does, naturally, not defend you in credit relationships, when a time factor is involved. When Legal Tender is strictly enforced, then gold clauses etc. are also strictly outlawed.

If everyone could issue Legal Tender money, everyone could cause an inflation. If anyone could reserve this power to himself then you could safely bet that he would sooner or later inflate his note issues. Power does corrupt, There is no other motive for the forced currency power, only weak excuses. But if, instead, no one could issue Legal Tender money then no one could cause an inflation. As it is, only the government can impose and uphold the Legal Tender power. No private person or company without any legal privileges could do so.

If my notes or cheques were, by government edict, given the Legal Tender power, then I, like the government, could cause an inflation, With Legal Tender, every fool can inflate all prices - and every politician does. Without Legal Tender, neither a fool nor a politician could. So why continue it?

If you allow the government to force inflated banknotes on the population, you might as well allow it to force government bonds upon savers, at a fixed rate. (34) Obviously, for both only the market rate and non-coercive tender are suitable. As e.g. shares are not Legal Tender, nobody can be forced to accept them at face value. Thus they can be depreciated but they cannot inflate all prices. The same applies to money.

For many it is hard to believe but it is nevertheless true that the government, while pretending to prevent privately caused inflations (as if they were possible), is actually enforcing monetary inflation (the only real inflation that is taking place), by FORCING its over-issued and exclusive notes into circulation. This is what Legal Tender makes possible. Not surprisingly, the government then looks for scapegoats and accuses e.g. the unions and employers of charging "excessive" wages and prices and thereby "causing" inflation - while they merely reflect and express it in their wage and price demands.

It is misleading to speak during an inflation of "inflated" prices. The Legal Tender money value has gone down and due to Legal Tender only the deteriorated money may then be officially used for pricing (including wage settlements). Thus, reckoned in the deteriorated forced currency, prices seem to have gone up indeed, while in reality only the value of the money has gone down, or its "price" has come down, if we consider it as measured in goods or services. Unfortunately, this would be clearly revealed only if Legal Tender were repealed and if alternative sound accounting, pricing, standards and media were allowed. It can also be seen on the black market, to the extent that it deals not only in inflated and exclusive paper money but also in black market money, in honest media and standards. (Legal Tender does indeed turn every honest transaction into a black market transaction.) Then and there, reckoned e.g. in gold or silver weight units and paid in them or in their equivalents, prices may very well go down instead. This is even likely due to technological progress and due to the increased demand for gold and silver during a widely noticed inflation.

Most people also fail to distinguish a "DEARTH" due to a goods shortage from a monetary price "INFLATION" due to a coercive injection of over-issued and deteriorated money. The latter remains. It is the only problem. Only it should be called "inflation". The other, the Dearth, is self-correcting and is even required to overcome a goods shortage in the fastest possible way.

Another unchecked premise is the belief that inflation is "obviously" caused by excess government "SPENDING". But to any inflation there belong at least two groups of people: those who issue the inflated money and those who accept it at the nominal value. Now, somebody who realized that he is going to be defrauded by being paid with depreciated money, would not consider the payment in such money at par as a full payment. Consequently, he would not consider such payment as "spending". On the contrary, he would realize that the other does not want to "spend" honestly what is his own but, instead, wants to get something for nothing. Under freedom, he could then refuse to accept the other's depreciated notes. Only Legal Tender can achieve "acceptance" at par of over-issued paper money. Thus, under Legal Tender, he would accept, but he would still not consider the "payment" of the other as honest "spending". He would know that he has been "got at" and would in-crease his future prices, reckoned in the depreciated Legal Tender money, seeing that this is the only way for him to avoid more such losses.(35) (I see here another confirmation of a remark by Ulrich von Beckerath that their language is the worst enemy of the people.)

The fact that a Legal Tender currency inflates the prices only within the national borders, where it rules, and not in foreign countries, where it does not hold sway, does also reveal Legal Tender as the culprit.(This fact is somewhat obscured by the fact that most of the other countries inflate their currencies at a similar rate, based on the same myths on monetary manipulation.) Nevertheless, Legal Tender, powerful as it is, cannot raise prices

a) reckoned in honest currencies (e.g. on the black market, except to account for the (imposed) risks involved),

b) outside its area of jurisdiction and

c) indefinitely. (It will be refused at a late stage of a progressive inflation, usually too late to prevent great harm.)

Until all inflations are stopped, it can hardly be said too often: There never was, there is none and there never will be a general and unavoidable paper money inflation without Legal Tender laws enforcing the acceptance at par of the over-issued money.

Legal Tender laws, including the legally imposed exclusive currency condition, are the essential condition for making inflation possible. THERE WAS NEVER A PAPER MONEY INFLATION WITHOUT LFIGAL TENDER. What a challenge this is to historians and economists! They are not worth their salt if they do not take it up.

Without Legal Tender nobody could inflate. At most he would make his own over-issued or under-covered currency almost worthless. When alternative currencies are not allowed or issued, people would continue to accept it but they would do so only at its market rate i.e., all prices and services would still remain the same as they could easily be priced in a stable standard or reckoning unit. Only his paper would then deteriorate.

The government could not issue as much money as it likes if it were NOT Legal Tender and if we were free to use or issue alter-native exchange media and value standards. Even with the worst intentions, a means of payment without Legal Tender cannot be inflated. Without Legal Tender any over-issue is almost immediately revealed in a discount against a stable unit and stable pricing, in stable units, could go on.

If you want inflation, decree or preserve Legal Tender. If you want to stop and prevent it, repeal Legal Tender. It is as simple as that: "... as long as the government has power to declare that paper is legal tender, there is little prospect that the economy may be free of inflation and socialism." - said Paul L. Poirot. (36)

Inflation is just a symptom of the Legal Tender "sickness" of our monetary system. It is the prerequisite of every inflation. With its repeal we would repeal inflation. Without Legal Tender one cannot inflate. Without it, good money would drive out the bad.

To speak about inflation without mentioning Legal Tender is like speaking about paper money without mentioning paper.

Just check how many of today's economists are guilty of this culpable error!

I would like someone to list the supposed explanations by "experts" of inflation, experts who totally omit to mention the essential precondition : Legal Tender. (I have probably handled and checked on this thousands of economic textbooks. I would also like someone to compile an honours list for the relatively few, who have seen the connection. The latter listing could easily be derived from my collection of Legal Tender definitions when it is completed. Please send in your contributions!


"The Lack of money rationale and the universal confusion on the subject existing throughout society from the grass roots to the academies and parliaments is due to the acceptance of a basic error, namely, that money is a creation of the State and must have a Legal Tender status and political reputation. If one accepts this false premise, only confusion can result, as has result, as has resulted in the entire literature and jurisprudence of money. If we reject this postulate, we free our we free our mental processes and easily master the subject." - E.C. Riegel, The New Approach to Freedom, Valun Institute, N.Y., some time after 1948.

"So violent an outrage upon credit, property, and liberty as this compulsory paper currency has seldom been exhibited by the alliance of bankruptcy and tyranny, at any at any time or in any nation." - Edmund Burke, Reflections on the Revolution in France, quoted in THE FREEMAN, Feb. 73.


"... Legal Tender Laws are not necessary. ALL that is necessary is that men possess the right to contract." - Paul Stevens in THE FREEMAN, Aug. 1973.



If you don't trust bad and depreciated money you should be free to refuse it. But the government does not allow you to do this. By means of Legal Tender it imposes its bad currency upon you.

We could end inflation and unemployment, price and wage controls and various forms of rationing quite easily: by repealing all Legal Tender clauses, including the ones establishing the issue monopoly of the central bank. It is as simple as that. The Legal Tender laws outlaw the solution. They take the natural brakes off the money supply.

Let us be free to refuse to accept or to discount inflated money and let us keep our goods and service prices expressed in stable reckoning units. If all of us were free to refuse bad money then it could not cause any trouble to us. If the Australian Dollars were not Legal Tender, we could either refuse to accept this inflated currency altogether or we would accept it only at its market value, e.g. against gold weight units. Then, quite obviously, the currency would depreciate during over-issues whilst all prices, wages and other debts reckoned in alternative sound standards would remain unchanged, that is, would not be inflated by being expressed in a deteriorating currency.

Without Legal Tender and a monopoly for standardized means of payment an inflation of all prices is not possible. Private exchange media subject to a free market rate could not inflate all prices since they would be accepted in general circulation - if at all - only whilst they are still at par, i.e., while their market value would be equal to their nominally stated value. Otherwise, they would and could circulate only in a very limited sphere and possibly only at a discount - which would again prevent them from inflating prices expressed in stable units. Moreover, people would accept them only when they are sufficiently covered by a large selection of the goods and services desired by consumers (shop foundation) or when these means of payment permit debtors to pay other debts with them at par (debt foundation - in the terminology of the German advocates of monetary freedom.).

Without Legal Tender the popular version of Gresham's Law ("Bad money drives out the good.") would actually be reversed and the good money would drive out the bad. (37) (I find it hard to understand why the moralists and ethical teachers of this world have not yet take up the case of the good money against the bad money, seeing that the popular view on the subject is one of the very few seeming exceptions of the moral law.)

The Quantity Theory, asserting a proportional relationship between the quantity of "money" and the general price level, applies also only to Legal Tender money. Money subject to a free market rate can be depreciated by over-issues (to some extent, before general refusal to accept sets in) but it cannot drive up all prices proportionally because it cannot drive up those expressed in stable and honest units and most prices would be so expressed because most people, very predictably, would prefer this.

What a revolution would be brought about if unions, during their next "industrial" "actions" demanded wage settlements reckoning in gold units and were to consider as acceptable any means of payment which

a) would reckon in gold weight units and

b) would stand at par with its nominal gold value in free market exchanges, daily quoted!

Without Legal Tender, an over-issue can harm the issuer but not the general economy. It would be comparable to a cinema owner issuing many tickets, more than there are seats. Apart from likely court actions, he might end up with many of his seats smashed up and his place a shambles. Moreover, he would have difficulties selling tickets in the future. If nothing else, then this would keep him sufficiently honest. Apparently, this is an effective deterrent and explains why almost nobody ever issues more tickets than he has seats or at least standing place to offer. (The over-issue of airline tickets may be a special case and the air line has to make up for it by alternative offers. - J.Z., 1999.) Naturally and obviously, the general price level would be unchanged through ANY kind of non-coercive ticket issue.

Over-issues could be continued to some extent at a below par market rate. But this, on its own, would already severely limit the number of acceptors. Moreover, the issuer would have to accept his issues immediately and at par from anyone who owes him something. Thus he would have a certain and immediate loss to the extent that he is indebted. As this is easily predictable, over-issues would be extremely rare.

The issuer and only the issuer should, if necessary, be forced to accept his own deteriorated money always at face value - regardless of the rate at which it is accepted in the market. It should have "Legal Tender" only towards him. Thus he would be held responsible for any mistake he made in his issues. (For this no special Legal Tender LAW would be required. It would be merely a JURIDICALLY enforced "Legal Tender" against the issuer, since justice demands that everybody fully recognizes his own IOUs in all payments due to him. - J.Z., 1999.)

In short: the money of monetary freedom has free market rates, that of monetary despotism has Legal Tender.

Once Legal Tender is repealed, it doesn't have to be replaced by another exclusive currency, like e.g. a gold or 100% gold covered currency. Gold does not need Legal Tender and ought not to be given the Legal Tender privilege. (38) Private contractual clauses on acceptable means of payment and standards of value could satisfy the most discriminating creditors.

Clearing money does not need Legal Tender, either, to achieve a wide circulation. No money needs nation-wide or universal circulation to be widely ENOUGH acceptable. The fact that any money has been given the Legal Tender power proves usually that it has no longer a proper clearing foundation which issuer and acceptors could rely upon. No honest money needs Legal Tender to be acceptable and accepted at least within its own natural sphere.

A government without Legal Tender powers could even be more powerful and more popular, both in a positive sense, than a government with Legal Tender powers. Napoleon I, at least for a few years, set one of the most famous examples. (So did Bismarck, in his war against Napoleon II, in 1870/71. - J.Z., 1999.)

The true alternatives to Legal Tender paper money would be various private competing banknotes, clearing certificates, purchasing orders, goods warrants etc., mainly with "shop foundation" (i.e. acceptance for ordinary consumer purchases, like the various shop currencies in Australia - which are unfortunately confined in their issues and acceptances to consumer credits only.) and also other forms of "debt foundation" or "reflux foundation", most of which would be reckoning in gold weight units - without promising redemption in them - and all of them would be subject to free market rates and thereby inflation-proof.

Even with criminal intentions they could then only be depreciated themselves - because they could not force the consumers to reckon only in them. Thus prices and wages, reckoned in stable and honest units, would remain the same and very soon everybody would reckon only in such units. The bad ones would be driven out by widespread refusals to accept them. They would be replaced by good currencies, profitably issued, gladly used and willingly accepted by almost everyone.

Then, those who over-issued and thereby depreciated their issues, would hurt only themselves instead of others (coerced acceptors). This is inevitably so because any private currencies which are over-issued and have consequently fallen in price below par, would still have to be immediately accepted in all payments by their issuers and at par at that. So that they (the issuers) would lose out on the reflux of their notes. Their creditors would be safe by being able to discount the notes of the issuers. Their debtors only would gain the benefit of the discount of this money - when they buy it up cheaply and pay their debts with it. The issuers would thus cancel part of their debtors' obligations. Moreover, a considerable discount would severely limit the sphere of circulation for their notes and the number of acceptors. Thus there are several self-correcting factors involved: the pricing system as applied to currencies and the justified buyers' (potential acceptors') resistance towards doubtful media and standards, as well as the self-interest of the issuers. Monetary freedom would provide a free price for any currency - for all but the issuer. The issuer would not be allowed to get away with fraud. It would be fraud if he himself would not accept his own IOU's at their face value but only at a discount. Towards him all his own notes should continue to have "Legal Tender". It would do him no wrong. It would do him justice - and protect everyone else.

No kind of money or money token should be a general Legal Tender. All should be subject to the possibility of suffering a rise in price (premium) or a price fall (discount) in order to teach issuers and acceptors alike the right limits for issues, and to toe the narrow line between minimum and maximum issues. Legal Tender would not permit the discovery and the use of this knowledge.

Thus let us rather have discountable competing currencies than depreciating Legal Tender paper notes. Let every currency survive only on its merits. Grant none of them the Legal Tender privilege. This would lead to an almost complete and voluntary acceptance of the best currencies, in their spheres, either world-wide, country-wide or locally.

I am not ashamed of having repeated myself, repeatedly, in the above. Compare, for instance, the libraries that have been written on the right to vote - and yet how few writers have realized all its implications, e. g. that it does imply the right to secede or opt out and organize autonomously, exterritorially, as the maximum vote. In this respect we are all disfranchised still. The free market rate for means of payment is a basic principle of similar importance and it is similarly overlooked. It cannot be talked about too much at this stage. If repetition were not necessary then the few truthful remarks so far publicized on Legal Tender would have spread over the whole literature of economics; they would have become effective already, would have sufficiently enlightened people on their monetary rights.

Actually, a more rational question than posed in the heading above would be: "How could currencies properly function WITH Legal Tender? – J.Z., 2.7.1999.

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"Mutual Money will not be Legal Tender. No one is forced to take it in payment of a debt. Thus there can be no over-issue and, consequent prices will not be affected by it. If at any time a member of the Mutual Bank should have more money on hand than he immediately requires, it would have no more effect on prices than extra sheets of postage stamps in his desk would have on the price of carrying letters." - Clarence Lee Swartz: What is Mutualism? Modern Publishers, Indore, India, 1945, pp. 96/7.

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There are two obvious cures for Legal Tender: repeal it or ignore it.

To ask a government to repeal it is like asking it to repeal its taxing powers. Ignoring this legislation might also prove somewhat difficult when severe penalties are provided, going up to capital punishment. (The Australian Currency Act of 1959 provided a daily penalty of $ 10.000.) It would at least require a well developed "black" market and might even require a monetary revolution (as described in Peace Plans No. 8).

One of the first steps would have to be to spread the idea of monetary rights and freedoms and popularize it through a new declaration of human rights. (39)

Let us replace the supposed duty to accept by the right to refuse acceptance. Seeing that Legal Tender is an aggressive act against the whole economy, one might well speak of a duty to resist this aggression by a refusal to accept. Naturally, no duty goes beyond the ability to fulfil it.

In the last resort one would have to get rid of a government which does not get rid of Legal Tender but rather protects it and its consequence, an inflated paper money. For who is the culprit? The government is. For only the government can give an exchange medium the Legal Tender power. (It must be admitted, though, that most of those enacting any such legislation are nothing but the High Priests of the monetary religion of the people. This is where monetary enlightenment comes in.)

The first step must be to realize what is wrong with Legal Tender. Then, in a democracy, one could consider a repeal by referendum and, for a dictatorship, an organized refusal to accept it - as part of a tax strike and a general revolution. This leads, naturally, to the question whether today, and monetarily, every country ought to be considered as a totalitarian dictatorship.

The most opportune moments for starting a monetary revolution (40) against the stranglehold of exclusive and coercive Legal Tender currencies would be:

a) the last stages of a progressive inflation and

b) times of large-scale unemployment.

In both cases, sound, alternative exchange media with sound standards could be issued with relative immunity and could solve these problems in a short time. (41)

Up to then one would have to start a creditors' resistance movement, embodying, for instance, wherever it is still outlawed, black market gold reckoning and gold clauses in private contracts - which would also have to be privately enforced when required.

Another promising approach would be to combine this reform with the general tax strike movement. Repeal of Legal Tender would be part of a complete tax strike. Taxes are by now unpopular enough. Only the alternatives are not yet clearly enough envisioned by most taxpayers. To stop ordinary taxation, one would have to refuse to pay money. To stop "taxation through inflation", one would have to refuse to accept payment, if offered in deteriorated Legal Tender money, and this would require the issue of sound alternative private money. (42)

In short: Only the government can establish Legal Tender and it has a vested interest in its preservation. The government is extremely unlikely to repeal it voluntarily - although this has happened in a few honourable occasions in the past. So we are talking about resistance against a government and a change in government. We must not wait for a galloping inflation to end it, temporarily, for us, without any extra effort by us, once most of the damage and wrong are already done. Even if a government did repeal Legal Tender, this kind of government concession would not establish a genuine peace in this sphere (based upon justice and freedom) but merely another armistice between wars. Not until people are monetarily emancipated enough will currencies be safe from further government intervention. This emancipation ought to start somewhere and with some people, with you, the reader, perhaps. It could spread even from the smallest community, for instance, in one of the new countries of the Libertarian New Country Movement. (43)


One of the greatest living economists has lately come out clearly against Legal Tender. His views, if we had an objective press, searching for and publishing truths, should have made world headlines. Instead, they were so far published or mentioned only in some relatively obscure papers. I quote from these here without bothering to obtain reprint permission. To repeat as important truths should not require copyright permission. To prevent the spread of their knowledge cannot be against the rational interest of the authors, at least not if done on as small a scale as is done here. Others may have said it as well or perhaps even better, long before. But we all suffer under the popular prejudice that only "modern" opinions really count.(44)

Dr. Friedrich A. Hayek:


"We cannot hope that any authority which has power to determine the quantity of money in a country will long resist the pressure for, and seduction of, cheap money...

"Our only hope for a stable money is to protect money from politics ...

"... we cannot entrust to government any dangerous instruments... money is certainly too dangerous an instrument to leave it to the fortuitous expedience considerations of politicians..

"But why should we not let people choose freely what money they want to use? And by people I mean the different individuals who ought to have the right to decide whether they want to buy or sell for francs, pounds, dollars, marks, or ounces of gold. I have no objection to Governments issuing money, but I believe their claim to a monopoly, or their right to limit the kinds of money in which contracts may be concluded within their territory, or to determine the rates at which different moneys can be exchanged, to be harmful....

"All the governments of the Atlantic Community, should bind themselves not to place any restriction on the free use within their territories of each other's - or any other - currencies, including the purchase and sale of them, at any price the parties decide upon, and their use as accounting units....


"Therefore, let us deprive Governments or monetary authorities of all power to protect the money they issue against competition; if they can no longer conceal the fact that their money is becoming bad, they will have to restrict the issue....

"But the point which apparently even today is not understood is that Gresham's Law operates ONLY if both kinds of money have to be accepted at a prescribed rate and that exactly the opposite will happen when people are free to exchange the different kinds of money at whatever rate they can agree on...

"Shopkeepers, so long as they knew that they could turn it instantly at the current rate of exchange into whatever money they preferred, would be only too ready to sell their wares at an appropriate price for any currency...

"The malpractices of Government would show themselves much more rapidly if prices rose only in terms of the money issued by it, and people would soon learn to hold the Government responsible for the value of the money they were paid in.

"What would be chiefly affected would be not so much the use of money in payments as the willingness to hold that money; and it would mainly be the tendency of all business and capital transactions rapidly to switch to a more reliable standard which would keep national monetary policy on a straight path...

"The convenience of use is all in favour of a currency which can be expected to retain an approximately stable value, and if Governments have to compete in inducing people to hold their money, and make long-term contracts in it, they will have to create confidence in its long-run stability...

"I am proposing the freeing of all dealings in money in preference to any sort of monetary union...

"... monetary nationalism ... is turning increasingly into a monetary socialism. The best that any Government has ever done in this field, private enterprise would probably have done better."


"Professor Hayek... after a lifetime of adherence to fixed exchange rates and the gold standard, he has come out in fav6ur of the much more libertarian alternative of abolishing the legal tender Laws and allowing people to make their own choice between currencies freely circulating on the market...

"The idea of repealing the legal tender laws so that, people could carry out business in dollars, marks, ounces of gold, EEC "Europas" or anything else may seem removed from everyday experience. But before long it will be necessary to take it very seriously indeed....

"Competition.... makes for better performance in money, as in most other things. If people have a free choice of currencies to hold and use, a reverse Gresham's Law is likely to operate, with good money driving out the bad. The essential need is to deprive governments of their monopoly in deciding which currency can be used, or in determining the rate at which one kind of money can be exchanged against another. This approach has the great advantage that it does not require a strong authoritarian government to implement, as would either a fixed money supply rule or a return to gold. If governments debased one kind of money, people would turn alternatives. ...

"Historically, the circulation of more than one kind of money has been the rule rather than the exception...

"The origin of the legal tender laws was not the wish to make trade more convenient for citizens, but the desire of sovereigns to reap monopoly profits from the minting of metals into coins. This motive was later reinforced by the attempt to force their subjects to use debased coins on the same terms as the full weight variety ...

"The time may come when union leaders will ask for payment in a currency that they can trust. Indexation, although a good second best, has the disadvantage of divorcing the every day unit of account from the standard of value for long-term contracts ...

"If official payments were made in a depreciating national currency to which there were alternatives, the public authorities might find it difficult to get anyone to work for them, which would at least be a novel dilemma . Similarly, the real value of tax receipts would shrink. Perhaps these trends might do more than any pseudo-gold standard to prevent governments from inflating ..." (46)

A N N 0 T A T I 0 N S

1 . Sometimes, as in the German Bank Enquete of 1908, before introducing Legal Tender in Germany, this is even officially confirmed.

2. This latter fact is perhaps least recognized in libertarian circles - the German one of the thirties excepted. See Peace Plans 9-11.

3. Dr. F. A. Hayek, in his essay quoted above, called the present system one of "monetary socialism".

4. The Central Bank blocked all wage payments, the workers ran out of money within a few days and their resistance collapsed. By the way, the East German regime had also an effective way to end hunger-strikes among its political prisoners: It withheld another kind of liquidity: water.

5. Karl Marx, in his 'Manifesto of the Communist Party", spoke of paper currencies (which are Legal Tender) as means to establish communism and to destroy the market and property rights:

"The proletariat will use its political supremacy to wrest by degrees all capital from the bourgeoisie ... Of course, in the beginning this cannot be effected except by means of DESPOTIC INROADS IN THE RIGHTS OF POOPERTY and on the conditions of bourgeois production by means of MEASURES, therefore, which appear ECONOMICALLY INSUFFIENT AND UNTENABLE..." (My stresses, JZ.)

"5. Centralization of credit in the hands of the State by means of a national bank with state capital and an exclusive monopoly."

In a leaflet of the Communist Party of 1848, this was further clarified in point 10, to remove any doubts- "A state bank the paper money of which is legal tender, will replace all private banks."

6. In: "Zur Kritik der Politischen Oekonomie" (Critique of Political Economy), S. 129 of the Dietz, Berlin 1951 edition.

7, The works on monetary freedom reprinted in Peace Plans 9-11 did not make this mistake. (All but No. 11 are out of print.)

8. In: "The Practical Realization of Milhaud's Proposals, p. 98 of the Peace Plans edition, in PP 9.

9. See Peace Plans Nos. 8 and 13.

10. The Sun Herald Encyclopaedic World Dictionary, Peter Hamlyn, 1971.


The following Legal Tender variations are not listed in any particular order but just as they came to mind. Please arrange your own classification scheme, if you want any:

a) Compulsory acceptance in general circulation, at face value: the worst type. Compare type (o) for an extreme variety.

b) Compulsory acceptance in general circulation and at face value - but only up to certain amounts. This applies largely to coins issued for small change and it is relatively harmless.

c) Compulsory acceptance enforced through the issue monopoly for standardized exchange media or the exclusive currency characteristic. This enforces acceptance by all who desire monetary exchanges but it does not necessarily enforce this at face value. If people still remained free to use in all pricing and accounting a sound alternative standard of value then this would be much less harmful than case (a).

We should keep in mind that the issue monopoly for standardized exchange media gives the government's currency an exclusive privilege, a coercive characteristic, which may well be considered as a Legal Tender feature also, if not by name then by function. Legal Tender does imply an exclusive currency and the prohibition of alternative value standards. It drives out alternatives - until, in the extreme and final stages of a progressive inflation, it is generally ignored and the authorities become unable to enforce it, even with the most severe penalties. Thus the issue monopoly clauses can also be considered as Legal Tender Laws, as indirectly they do also enforce acceptance, although not at face value.

The explicit Legal Tender Laws do state that acceptance is compulsory at par. The monopoly causes make acceptance, in practice, compulsory also - unless one prefers to go back to primitive barter, which is rarely the case and is rarely possible. There is a mutual feedback effect. The nominal Legal Tender provisions - without the issue monopoly clauses - do also support the issue monopoly. By virtue of the Legal Tender clauses all other sound exchange media are more or less rapidly and completely driven out even when there is no forma[ issue monopoly. On the other hand, due to the issue monopoly, people have no alternative to accepting Legal Tender money.

Moreover when a creditor may at any time demand Legal Tender (see under t.), although already otherwise paid (see e.g. the anti-truck legislation and jurisdiction), then no debtor (in case of wages the employer) can afford to

pay in anything else. Thus the money monopoly and the right of creditors to demand an exclusive currency, are supported by, support, and may be considered as part and parcel of the Legal Tender legislation.

d) Acceptance at par - enforced only by custom. Custom can be rather powerful but it can also be cast off relatively easily and by individuals on their own. Whatever gold "inflations" may ever have taken place, would have been of this type. (The usually quoted price increases after gold discoveries are possibly nothing but price increases due to increased markets. They were not permanent and were followed by long-term price falls. I plan to write a separate essay on this - one day. If people had wanted to, they could, in these instances, have agreed upon various value protecting clauses.)

e) Legal Tender towards the issuer only and not at all in general circulation.

This kind of Legal Tender need not be legally prescribed. It is a basic requirement of honest private trading contracts, of honest clearing, of the general obligation to pay one's debts, of the obligation not to cheat and defraud others. It is morally and economically unobjectionable, nay even desirable.

f) Legal Tender - due to private contracts. This is then no longer a "legal" tender but merely a private, voluntary and contractually accepted obligation - which is and should be juridically enforceable.

g) Legal Tender may also mean that unless private contracts have determined otherwise, whatever local currency exists, where a debt has to be paid, must be accepted by the creditor in debt payments, for as long at least, as its market value has not fallen below its nominal value. This is also morally and economically unobjectionable. But the government need not give any currency this quality. Trade jurisdiction by itself would develop in this direction.

h) Legal Tender may be given to gold or silver only. This is mono-metallism and could be combined with an OTHERWISE free economic system.

i) It might be given to both together at a fixed rate to each other: bi-metallism, which creates a double standard and brings Gresham's Law into operation.

j) Or it might be given to gold and silver or other rare metals at no fixed but instead at the market rate against each other: a parallel currency, which is, apart from Legal Tender, so rightful and beneficial that it certainly does not require the backing of Legal Tender in order to be customarily or contractually accepted. Thus even this currency should not be given the Legal Tender privilege.

k) Naturally, Legal Tender might also be given only to a currency which is either fully redeemable or to some extent redeemable in rare metals. In the former case it is again superfluous, in the Latter it creates a double standard. The best short criticism of this redemption system - as an exclusive one - is found in Dr. Walter Zander's "A Way Out Of The Monetary Chaos", pp. 89-96 of the Peace Plans No. 9 reprint.

m) The redemption of a Legal Tender paper money may be optional as practised by the old Scottish Note issuing banks, with a delay of up to 6 months or at a varying gold price, as Henry Meulen suggested, which would make paper and not gold the actual value standard. Henry Meulen's work "Free Banking, 429pp Macmillan, London 1934, is otherwise excellent, invaluable on English and Scottish Banking, is still available from the author at 31 Parkside Gardens London SW 19. - He is also the publisher of a lively libertarian newsletter, THE INDIVIDUALIST 6 time p.a., L 3, postage free. "Free Banking" costs L 2,50, post free. (Meulen died and his THE INDIVIDUALIST ceased in 1978.)

Over several decades Henry Meulen has put such an intellectual effort into ma-king a case for redemption at a varying gold price that it would require at least a long essay to criticize his proposals sufficiently. Here it must suffice to point out that the German monetary freedom school, to which I subscribe, would reckon, account and clear in gold weight values - not exclusively, either - but would refer all gold coin, bullion and redemption demands to the free gold market.

Redemption may be hedged and restricted in many other ways. A survey of all the various gold standards possible, with their pro and con, in chart form, is being prepared by me. Likewise a chart of proposed and experienced exchange media, with all their diverse foundations and other characteristics. Contributions are welcome.

n) (A slip in the manuscript. And I am not going to correct this whole list!)

o) Legal Tender may also be given to a currency redeemable in nothing but tax receipts and private creditors' receipts. This is close to the worst and the most common type. It was indicated under (a) but without this "tax foundation" feature. A proper tax foundation would require the absence of Legal Tender - and it could also be used for a system of voluntary taxation or contributions.

p) A Legal Tender money may also be Legal Tender in all payments from and to the government but not in private dealings. It is not quite as bad and wrong only for official payments to private people.

q) If Legal Tender has the above-mentioned tax foundation then it might be accepted in SOME tax payments but not in others.

r) A Legal Tender money may be discounted even by the government which has issued it, in the taxes it raises. Instead of being accepted at its face value by its issuer, it may then only be accepted at its gold value on the market white at the same time private acceptance may still be enforced at par, as far as possible, by the same government. This is probably the lowest type of Legal Tender and, luckily, a rare one and one already close to the total collapse of the particular Legal Tender currency.

s) Legal Tender may also be given to some types of paper money but not to others, meaning that there is no absolute issue monopoly, that some choice between some alternatives is left, or that the monopolistic issuing authorities do issue several exclusive standards side by side, not all of them with compulsory acceptance and compulsory value. This happened particularly when some of them had some form of metal convertibility.

t) Another very important distinction, one overlooked by practically all authors except those of the German School o Monetary Freedom and by Prof. E. Milhaud, occurring when dealing in gold coins or other rare means of exchange or with any kind of exclusive currency, is the following:

Legal Tender as

something which a CREDIT MAY DEMAND in debt settlements from a debtor, no matter how bad the debtor and the general market may be supplied with it, and

something a DEBTOR MAY LEGALLY USE to dissolve a debt with, and which the creditor must accept in payment, something a debtor will offer only if and when he is well supplied with it.

If the second type were given to gold only then it would be relatively harmless. Very few would consider themselves wronged if paid off in full value gold coins. But if it were given to a paper currency instead, it could be very harmful and wrong.

If the first type were given to gold or paper money, i.e., if the creditor could DEMAND it, and if there were a money shortage of both, then this could be very embarrassing and even bankrupting, firstly to debtors and secondarily to their creditors.

Instance: The unchecked premise, of all anti-truck regulations for wage settlements, was always that employers could easily acquire a sufficient number of rare metal coins or state paper money notes for wage payments and that a shortage of them in their hands - or those of their customers - would never induce them or rather force them to lay off workers.

The authority of creditors to demand Legal Tender does also force all debtors to accept Legal Tender themselves, when they are creditors, and it acts thus supplementary to the direct legal compulsion to accept Legal Tender. The coercion of Legal Tender works both ways between creditors and debtors. (No wonder - we are, all both, alternatively and simultaneously.) The legal claim of creditors to be paid in Legal Tender makes inflations easier and depressions worse. It often bankrupts debtors who could pay off their debts if they were free to clear them against their products and services. This claim of creditors should therefore be repealed - as a legal claim, and replaced by the right of debtors to clear their debts in any form - but as favourable as possible for their creditors. This would often require a considerable premium to be paid by the debtor paying in his own clearing certificates to make up for any inconvenience and delay which may be involved.

Only special private contracts should oblige them to attempt to supply the creditors with a particular currency. Here we should keep in mind that this offer of something not yet obtained (here: sufficient cash for all one's future payment obligations) is, in fact, a speculative dealing in futures which has many of the risks involved in such trades. Only Ulrich von Beckerath appears to have clearly recognized this particular flaw in all conventional credit transactions involving the authority of creditors to demand a particular means of payment.

Note that there are probably more bad Legal Tender provisions than those listed here. I do not believe that there are any more harmless ones. Human ingenuity in messing things up is almost unlimited.

Please remember also that none of these definitions is Legal Tender. Do accept discount or refuse any or all of them, according to their merits. But make sure, also, that you neither over- nor underestimate them. It might cost you.

12. A collection of all Legal Tender definitions so far made and their critical appraisal is in process. Send in your contributions to the author of this essay.

13. In: "reason", 2/73.

14. In: "Great Books of the Western World" edition, p. 141.

15. In: "The Federalist", No. 44.

16. On L. Spooner, in "reason", 3/73.

17. In: "ECONOMICS", pp. 83/4.

18. The supposedly independent Central Bank is subject to government legislation and with all its privileges actually no more than a front organization for the government. Even if it were not, Legal Tender powers would be just as wrong and harmful in its hands.

19. In: "THE FREEMAN", Oct. 73.

20. Who doesn't approve "full employment" policies and who isn't ignorant about the means used and their consequences?

21. Moreover, e.g. through its coercive reserve deposit scheme, through interest regulation and, naturally, through taxation, it does also rob banks.

22. It is a forced sale, a) through enforced acceptance in payments, b) through the forced value privilege of Legal Tender money and c) through the exclusive currency feature of Legal Tender money.

23. In: "THE FREEMAN", 4/73

24. In: "Die Russische Papierwaehrung" (The Russian Paper Currency).

25. In: "Barzahlung in Besetzten Gebieten" (Cash Payments in Occupied Territories), Fischer, Jena, 1939. The title allowed him to discuss the principles of monetary freedom while Living under Nazi rule. The part of his manuscript dealing with financing revolutions and military uprisings was unfortunately not published and may be lost. The author died in WW II.

26. That such channels exist has in recent years been somewhat recognized and expressed to some extent by the otherwise misleading terms "public sector" and "private sector" and a "starvation" of one or the other.

27. A monograph on the right and wrong wordings and interpretations of Gresham's Law is being prepared. Contributions are welcomed by the author of this article.

28. The relationships between unemployment and an exclusive and forced currency and between unemployment and inflation will be discussed in separate papers.

29. In: "Deutsches Rechtsbuch" (German Law-book), Beck, Noerdlingen, 1877, S. 326/7.

30. E.g. one U.S. Dollar was finally equal to 4 billion (4.000 million) Reichsmarks, in the Germany of November 1923.

31. Even today, under monetary despotism, there are others, e.g. cheques, bills of exchange, IOU's, bank cards, traveler's cheques etc., but they are not standardized and typified in money denominations. Moreover, they are all, unfortunately, through the right of creditors to demand Legal Tender, tied closely to the exclusive currency, which is Legal Tender. But they have at least the advantage of not being Legal Tender themselves and can thus not act inflationary - regardless of the various hypotheses on private money "creation" which will be dealt with in a separate essay. Here, only a short note must suffice:

Most of these theories of "creation" overlook that

a) even the worst type of cash can be, is and legally has to be the "backing"

of numerous clearing transactions,

b) clearing transactions inherently need no such backing,

c) a small amount of cash can be the sound basis for a sound system of medium and long-term investments all payable and repayable, in this small amount of cash, over a period.

Even in case (c) the supposed money "creation" is not a multiplication of money at all but a circulatory and repeated use of the same money. Dangers arise only a) in a currency shortage, when all creditors demand cash and want it rather than clearing, thus increasing the demand for cash precisely when there is less available, and b) when daily withdrawal of long term invested funds is promised to depositors. (More on this and related subjects will be in separate papers.)

32. By November 1923 almost all German printers were doing overtime printing notes and printing costs were at that time amounting to no less than 48% of the value of the newly printed notes. Thus the inflation couldn't have gone on much Longer.

33. Only few men ever noticed this limit. Ulrich von Beckerath was among them. It would be fully realized through freedom for individual, exterritorial & autonomous secessions.

34. Regarding savings banks and trustee-act funds it does already do so.

35. If one really "spends" money then one doesn't take exchange values or any part of them away from others but one PAYS instead. For that reason one cannot realty spend a forced currency. It is at least in parts - to the extent that it would be discounted in a free market - no more than a requisitioning certificate, a note which gives nothing for something - which is definitely not SPENDING. Only money subject to a free market rate can be truly spent, does not offend against voluntarism and property rights.

When a government first issues Legal Tender into circulation, then at that stage its Legal Tender issues amount least of all to "spending". It is then almost totally issued as a requisitioning certificate. This becomes clearer when its foundation is considered: reflux in taxes or acceptance in payment of all taxes and dues extorted by the government.

In other words, a government could not over-spend or deficit-finance itself into inflation, unless it has first of all declared its paper money to be compulsorily acceptable at face value in all payments for all debts. With this clause the dykes against inflation are breached. No safety valve is left except the limited one of charging more and more in the depreciating money for current sales of goods and services - what is commonly called inflation.

To call this coercive flooding of the market with trash "spending" and "financing" is conceptually the same as calling a private forger "a big spender and financier". This prejudice wrongly assumes that the government really gives something, that it really pays when it forces its inflated paper notes into circulation. What it really does is to take a slice of every creditor's claims and then it hands this over to its own creditors as "Payment". This is not spending and financing but rather a part annulment or repudiation of debts - all under the fraudulent pretence of paying them! Nothing could be more misleading than calling this process spending. Libertarians should cease using the camouflage words of the enemy. The concept of "fiat" money is critical of the "spending" idea but is, in itself, conducive to misunderstandings e.g. on the "creation" of money.

36. In: "THE FREEMAN", Jan. 72.37. See note No. 27.

38. Here the harm would tie mostly in giving it an exclusive currency status, the status of a currency a creditor may demand at any time, no matter how insufficiently his debtors are provided with IT.

39. See the draft in PEACE PLANS No. 4.

40. This was discussed at some length in PEACE PLANS No.8.

41. Proofs for this assertion can only be given in a separate paper.

42. Details are given in the tax strike article in PEACE PLANS No. 13 and in the free banking reprints in PEACE PLANS 8-11.

43. For the current most promising attempt of this kind see the newsletters of the Phoenix Foundation, P.O. Box 700 Carson City, Nevada 89701, USA on the NA GRIAMEL secession from the New Hebrides in 1795. It is the first country ever to declare itself explicitly, in its constitution, in favour of monetary freedom.

If you want to know technical details on monetary freedom. then you should at least read the writings of Ulrich von Beckerath, Dr. Walter Zander and Prof. Heinrich Rittershausen on the subject. The most important writings of the first two were reprinted in PEACE PLANS 9-11, of which only No. 11 is still in print. (All and much more are now available on microfiche, permanently and very cheaply. - J.Z.)

44. I have quoted Dr. Friedrich A. Hayek's views here from "RESEARCH REPORTS", 23.2.76, published weekly by the American Institute for Economic Research, Great Barrington, Massachusetts 01230, supplied to me by Mark Frazier. Thanks, Mark.

45. Samuel Brittan has been quoted from a photocopy of an article in THE FINANCIAL TIMES, Feb. 19th, 1976, sent to me by Robert Carnaghan. Thanks, Robert.

46. Since this essay was written, Dr. Hayek's original address, entitled "International Money", delivered to the Geneva Gold and Monetary Conference on 25/9/75, at Lausanne, Switzerland, has been developed in a 46pp. booklet of the Institute of Economic Affairs, 2 Lord North St., Westminster, London SWIP 3LB, U.K., occasional paper No.48, with commentaries by Arthur Seldon, Ivor F. Pearce, Harold B. Rose Douglas Jay, Sir Keith Joseph and Sudha Shenoy. The booklet is available in Austratia from LIBERTARIAN REVIEW, P.O. Box 236 Mona Vale, NSW, 2103, for $ 3.

On pages 10 & 11 Dr. Hayek confessed that for a long time he withdrew from this debate in the face of the "near-unanimous views of the orthodox phalanx". -I rather wish he had followed L.E. Read's attitude on speaking one's mind at all occasions.

On pages ll & 12 he gives an - admittedly very qualified - consent to "desperate" means as justified in a situation in which Dr. Bruening found himself in Germany in 1932. Rather than "desperate" measures, "radical, fast, effective, rightful and sensible ones were required then as now. Bruening came very close to realizing such proposals of the German Monetary Freedom School. One of is main advisors, Oberlandesgerichtspraesident i.R., Dr. Best (My memory may have deceived me here. It may have been Dr. Munzer. - J.Z., 1999.), a member of this school, had already put the very well developed "Vier Gesetzentwuerfe" (4 Law drafts), which would have introduced monetary freedom in German, on his desk. All that was required was his signature to get them passed as an emergency regulation - when his government was brought down, What other course would history have taken - if he had remained in office for a few more days?

I intend to publish these drafts and comments on them in a future essay.

On page 12 - and in many of his other writings - Hayek shares the error of Milton Friedman, and of almost all other libertarians, in considering unemployment as an "inescapable consequence of the mistaken policies of the past as soon as inflation ceases to accelerate." He as well as the others are not yet aware that precisely the monetary freedom that he now advocates would prevent this consequence and that it is "inescapable" only within a system of monetary despotism. This understanding, of the most acute importance for today's policies, will be developed in a separate paper. Wrong orthodox views like these give economics in the eyes of the public the impression of a "dismal science" and hold up the victory of libertarianism.

On page 17 he still puts up a limited defence for Legal Tender: "... IF the government does issue money, it must also say what must be accepted in discharge of debts incurred in that money." - Our safety consists in the government leaving that to the market. The essence of the repeal of Legal Tender is precisely this that in general circulation no money, and especially no government money, has the Legal Tender privilege. Government money, if issued at all, must be issued without Legal Tender, must circulate on its merits, i.e., without Legal Tender. If any doubts arise, then they must be privately adjudicated, through a commercial arbitration system. Only when they stream back to the issuer, the government or its central bank, must compulsory acceptance at face value come in. Everything else would open the' doors widely to continued abuses.

His second qualification is also unjustified: "And it must also determine in what manner certain non-contractual legal obligations, such as taxes or liabilities for damage or torts are to be discharged." Taxes should be payable, at face value, in the government's own "tax foundation" money. Other liabilities ought to be determined in accordance with the relevant contracts which, in future, will contain clauses expressing the right to choose a standard of value and a means of exchange. Cases of doubt can again be settled by private arbitration.

We must get government out of all business except its own - and this must rest entirely on voluntary individual consent or rational and non-aggressive citizens. Otherwise, his essay is "the candle that could light a million others."

Prof. Ivor Pearce, in his comments on pages 25 and 26, reveals only his ignorance. In his case it would indeed be "temerity" if he claimed to find a fault in Hayek's reasoning. He argues that hoarding will ca use unemployment but only temporarily and that the hoarded money should not be replaced by new money as this would cause inflation. He is right only in saying that in this situation new government money (if issued as now – not, I assert (if issued on the "real bills" doctrine) would bring about inflation in the long run. He omits to add that even this could happen only under Legal Tender. He overlooks that short-term private note issues subject to free market rates could easily fill this gap and that they would be self-liquidating and could not cause inflation. He does not, as yet, understand monetary freedom at all. He speaks rather of "control by a revitalized and independent Bank of England" and that "some kind of watchdog must be appointed..."

Some people never learn. He is unaware of the self-control inherent in free market pricing for currencies and that with the right to refuse acceptance, everyone becomes a watch-dog.

Prof. Harold Rose, on p. 26, thinks wrongly that free external exchange rates would be enough. We had this, mostly, during the Large German Inflation. He speaks of "the costs… inconvenience and uncertainty" in the absence of Legal Tender - without offering any proof but his assumption and forgetting about the cost, inconvenience and uncertainty which almost every Legal Tender currency has brought about in the long run and on a large scale. The ignorance of most professors of economics on Legal Tender is enormous and unforgivable,

Douglas Jay - with a string of qualifications - excels the other commentators by managing to squeeze at least 8 errors into 3/4 of a page on pp 27/8. I will not waste my paper and money answering him here. Those who refuse to see, or rather see hallucinations than the reality, are worse off than the blind.

Sir Keith Joseph, pages 28/9, generally supports Hayek and at least keeps an open mind on the implications. There is no obvious error in his contribution.

Sudha Shenoy, pages 30-44, starts her comments, which in general are very worthwhile, by repeating an old error of Ludwig von Mises and stresses it as an "essential point":

".. a currency is used as a medium of exchange not because it is declared to be Legal Tender but because it is generally acceptable."

This is right only in so far that a currency does, indeed, not require Legal Tender, when it is sound, to be acceptable, at least in its own natural sphere. But the opinion is wrong concerning most government paper money as she should have concluded herself from her later reference to the French Revolution in which Legal Tender was enforced by the death penalty. This Legal Tender penalty did indeed enforce a widespread – although not a voluntary – acceptance. Those who dared to comment on this robbery usually added some other choice "bon mots" on the "liberty, equality and fraternity" offered by this republic and ended up as a result, on the guillotine. I know only from hearsay (through Ulrich von Beckerath) of a French dissertation, written by a man who had read the details of thousands of these old death sentences, that refusal to accept the Assignats, reckoning and pricing in gold rather and ignoring the associated price control laws led to about 3/4 of all the mass executions during the Red Terror. The death penalty is indeed not 100% effective but neither is it as ineffective as Mises and Shenoy assumed. On page 31 she talks as if the legal issue monopoly did not exist, as if everyone were free to create a new means of exchange for himself. It is surprising how many economists never read the monetary legislation.

She also wrongly assumes that the state must recognize private value preservation clauses. Reality has very often and very widely deviated from her opinion. (She is, approvingly, quoting Mises on this.)

When Mises, in 1911 or 1912, wrote: "… the state… must recognize the common business medium of exchange as money...", he had forgotten about past and present instances of monetary despotism and could not yet imagine to what heights it might rise. (Page 31.)


To drive home the severity and comprehensiveness of the laws of monetary despotism, I offer here, perhaps for the first time in an English translation, the text of a regulation by the military government of Germany, dated 1/7/47. (Source: Mai issue 1954 of Dr. Hermann Zickert's "SPIEGEL DER WIRTSCHAFT", Vaduz.):

"Any obligation, whether secured or unsecured, expressed in Reichsmark, Rentenmark or any other legal currency expressed in Marks, expressing Goldmarks or merely Marks, whose nominal value is determined, on the due date, either through a sliding scale or in any other way referring to the prices of other rare metals or goods or securities or foreign exchange (value preserving clauses), regardless of paragraphs 157, 242 and 607 of the German Civil Code and the contents of any other German law, is payable, marks for marks, by Reichsmarks or the Military Banknotes of the Allies. For this it is irrelevant whether the due date falls before or after this regulation comes into force.

The creditor is obliged in all cases to accept Reichsmarks and Allied Military Marks at their face value in full payment.

Without permission by the Military Government nobody may contract or conclude a business or offer such a contract or business, if the payment is prescribed in or delivery is promised of something else than Mark currency."

This is one of the severest legal restrictions on value preservation clauses - upholding the Legal Tender characteristic. It gets much more involved and voluminous in the relevant jurisdiction.

By the way, by this means the Allies just about managed to treble the inflation the Nazis had undertaken during WW II, if my memory is right on this.

A similar restriction on all kinds of private note issues, the order of 30/10/1931, signed by the Minister of Finance, H. Dietrich, (RGBl. p.669), in fulfilment of one of Bruening's emergency acts, on 6/10/31, was reprinted in full on pages 55/6 of PEACE PLANS No. 9.

Before reading such legal clauses nobody should venture opinions or pious hopes on the remaining monetary freedom.

Back to "Choice in Currency", p. 33: A quotation from Mises: "If the government sticks to the original money, its Legal Tender Law is superfluous and unnecessary." He should have added, but did not believe: "but harmful if it means a creditor can claim this money during a currency famine."

The footnote to this also overlooks the right to clear in gold values when fulfilment in gold coins becomes impossible or unfair. If you cannot remember or imagine a naturally occurring currency famine (They are all rather unnatural because they are based on the authority of creditors to insist on specific currencies.), then, please, imagine that all Australian creditors, from tomorrow morning on, would be legally or juridically entitled to demand and obliged to insist upon payment in gold coins only. Obviously, the gold coins available tomorrow morning would not suffice and even private mints would take at Least days if not weeks to get organized. Thus, at least for a few days, most cash payments would come to a stop.

Shenoy also reprinted (page 34), without comment, Hayek's earlier relevant remarks in: "The Constitution of Liberty", Univ. Of Chicago Press, 1960, pages

520-521, in which he came out in favour of central banking and Legal Tender but, at the same, time favoured peace-time freedom of transactions in any kind of money. Such freedom would be precisely interdicted by any central banking powers and Legal Tender would tend to drive the good alternatives out. His thinking has much advanced since then. - John Zube.

(Rear cover):



"A disordered currency is one of the greatest political evils. It undermines the virtues necessary for the support of the social system, and encourages propensities destructive to its happiness. It wars against industry, frugality, and economy, and it fosters the evil spirits of extravagance and speculation. Of all the contrivances for cheating the laboring classes of mankind, none has been more effectual than that which deludes them with paper money. This is the most effectual of inventions to fertilize the rich man's field by the sweat of the poor man's brow. Ordinary tyranny, oppression, excessive taxation, these bear lightly on the happiness of the mass of the community, compared with fraudulent currencies and the robberies committed by depreciated paper. Our own history has recorded for our instruction enough, and more than enough, of the demoralizing tendency, the injustice, and the intolerable oppression on the virtuous and well disposed, of A DEGRADED PAPER CURRENCY, AUTHORIZED BY LAW, OR ANY WAY COUNTENANCED BY GOVERNMENT." - Quoted in CONGRESSIONAL RECORD, March 4, 1946, taken here from George Seldes -"The Great Quotations, a collection of man's best thinking."


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