A Recipe for Awful Money -- LOCKED

[Famspear]

I posted part of this a while back, but now is a good time to show the entire sequence.

Letter from A.F. Davis of Cleveland, Ohio, to the U.S. Department of the Treasury, on December 9, 1947:

December 9, 1947

Honorable John W. Snyder
Secretary of the Treasury
Washington, D.C.

Dear Sir:

I am sending you herewith via Registered Mail one ten-dollar Federal Reserve note. On this note is inscribed the following:

"This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury or at any Federal Reserve Bank."

In accordance with this statement, will you send me $10.00 in lawful money.

Very truly yours,
A.F. Davis
Encl.
Registered Mail
Return Receipt Requested

Response by Treasury Department:

Treasury Department
Fiscal Service
Washington 25
Office of
Treasury of the United States
In replying please quote JLS:mw

December 11, 1947

Mr. A.F. Davis
12818 Colt Road
Cleveland 1, Ohio

Dear Mr. Davis:

Receipt is acknowledged of your letter of December 9th with enclosure of one ten dollar ($10.) Federal Reserve Note.

In compliance with your request two five-dollar United States notes are transmitted herewith.

Very truly yours
(s) M.E. Slindee
Acting Treasurer
Enclosures.

Reply from Mr. Davis:

December 23, 1947
Mr. M.E. Slindee, Acting Treasurer
Treasury Department, Fiscal Service
Washington 25, D.C.

Dear Sir:

Receipt is hereby acknowledged of two $5.00 United States notes, which we interpret from your letter to be considered as lawful money. Are we to infer from this that the Federal Reserve notes are not lawful money?

I am enclosing one of the $5.00 notes which you sent to me. I note that it states on the face,
"The United States of America will pay to the bearer on demand five dollars."

I am hereby demanding five dollars.

Very truly yours,
A.F. Davis
A.F. Davis: NW
Enclosure
Registered Mail
Return Receipt Requested

Response by the Department of the Treasury:

Treasury Department
Fiscal Service
Washington 25

Office of Treasurer of
the United States

December 29, 1947

In Replying Please Quote JLS:mw
Mr. A.F. Davis
12818 Colt Road
Cleveland 1, Ohio

Dear Mr. Davis:

Receipt is acknowledged of your letter of December 23rd, transmitting one $5. United States Note with a demand for payment of five dollars.

You are advised that the term "lawful money" has not been defined in federal legislation. It first came into use prior to 1933 when some United States currency was not legal tender but could be held by national banking associations as lawful money reserves. Since the act of May 12, 1933, as amended by the Joint Resolution of June 5, 1933, makes all coins and currency of the United States legal tender and the Joint Resolution of August 27, 1935, provides for the exchange of United States coin or currency for other types of such coin or currency, the term "lawful currency" no longer has such special significance.

The $5. United States note received with your letter of December 23rd is returned herewith.

Very truly yours,
(s) M.E. Slindee
Acting Treasurer
Enclosure.

---published in "A Dollar Is a Dollar Is a Dollar," American Affairs, Vol. 10, p. 88 (April 1948), as re-printed in Money and Banking: Theory, Analysis, and Policy, pp. 4-5, ed. by S. Mittra (Random House, New York 1970); also cited in Paul M. Horvitz, Monetary Policy and the Financial System, p. 28, footnote 3, Prentice-Hall, 3rd ed. (1974).

[Famspear]

In short, Federal Reserve notes today are both "currency" in the United States and "legal tender." While "lawful money" (or "lawful currency") and "legal tender" are, technically strictly speaking, separate concepts, the term "lawful money" as used in the Federal Reserve Act as originally passed in 1913, and as found in various places in the statute today (such as 12 USC section 411), no longer has real legal significance.

As DMVP contends mightily with windmills, so does our friend "Patriotdiscussions."

[Famspear]

From the December 29, 1947 letter from the Treasury Department to Mr. Davis, quoted above:

Since the act of May 12, 1933, as amended by the Joint Resolution of June 5, 1933, makes all coins and currency of the United States legal tender and the Joint Resolution of August 27, 1935, provides for the exchange of United States coin or currency for other types of such coin or currency, the term "lawful currency" no longer has such special significance.

From the current statute:

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.....

--from 31 U.S.C. section 5103 (emphasis added).

[Patriotdiscussions]

Why when they amend a statute do they not take out the words lawful money then?

417 was amended in 1968, but yet they left in lawful money, why?

http://www.law.cornell.edu/uscode/text/12/417



1968—Pub. L. 90–349, which directed amendment of “[t]he seventh paragraph of section 16 of the Federal Reserve Act, as amended (12 U.S.C. 417)” by inserting “, Special Drawing Right certificates,” after “gold certificates” in the first sentence, “Special Drawing Right certificates,” after “gold certificates,” in the second sentence, and “and Special Drawing Right certificates” after “gold certificates” in the third sentence, was executed by making the insertions in this section, to reflect the probable intent of Congress.



Nothing about removing the term that had no legal meaning for 35 years before they amended it.

Strange, why leave it in there?

[JamesVincent]

Because it's harder to remove something then it is to insert something? If you really were interested in laws that made no sense why don't you research in how many states it is illegal to drive a car without having someone carrying a lantern in front of it (hint: I know of at least two) or in the good old state of Kentucky why is there still a law requiring a person to take a bath one time a year. Answer: because it is extremely hard, close to impossible, to remove something from law since that would mean recalling every book that ever mentioned the law or section of law, purging the law from it by re-printing them, and issuing new ones. IIRC they did a study on how much it would cost to remove some of the antiquated laws that had been either superseded or rendered unenforceable and i believe it ran into several million dollars. Of course, they may have just figured that since precedent rendered the word salad moot, why worry about specifically removing it?

[Patriotdiscussions]

2. http://static.safehaven.com/pdfs/gnazzo_20091102.pdf

Is a good enough write up on the difference.

Three quick flaws come to mind, plus one observation.

First of all, Article I, Section 8 of the Constitution says that Congress has the power "to coin Money, regulate the Value thereof...." Whether or not you agree with the methods or the result, this is what Congress has done as far as our current monetary system is concerned.

Secondly, the "prohibition" clause of Article I, Section 10 says "no State".... This is because coining money had been a common activity of states under the Articles of Copnfederation, and Congress wanted to provide for a uniform medium of exchange throughout the United States. To put it another way : no state can make anything other than gold and silver a legal tender; but Congress can and has; and the Supremacy Clause means that the Constitution prevails over contrary state laws.

Third: the fact that today's bullion coins have a nominal face value (as do the bullion coins of other nations) takes them legally out of the realm of pure bullion (such as the bullion bars you might buy at your local coin shop) and makes them coins, since they are legal tender.

And, the observation: when you get right down to it, gold and silver no more have intrinsic value than any other commodity does -- they are simply commonly recognized as a store of value. Being a commodity, then, they are subject to fluctuations in price -- and manipulations of that price. If, say, the country of Pithwackistan wants to destabilize the world's gold-based currency, all they need to do is conceal that, within their borders is the richest gold mine in the history of Earth -- and then dump their bullion on the world market. If, on the other hand, demand for gold suddenly rises, too many people chasing a finite supply of gold can drastically inflate the spot price.

There's also the fact that, despite the existence of a monetary system built on gold for most of our history, there have been economic panics, recessions and outright depressions from time to time; and more than one person has suggested that, by trying to maintain the gold standard from 1929-33, the US government turned recession into depression, and that countries which abandoned the gold standard before we did suffered a depression which was less severe than ours. At any rate: the premise that a "hard money" system based on gold and/or silver is a panacea for economic ills is nothing more than a politically palatable fantasy.

First, we issue bills of credit, not exactly what coin money clause means buddy.

Beyond these simple issues, however, the scope of the federal government's powers under the Coinage Clause is unclear. In particular, although the Coinage Clause empowers Congress to coin money from precious metals, it is not clear whether the federal government could also issue paper money. Linguistic and conceptual usage during the Founding era distinguished between several different concepts: the power to "coin" specie money (i.e., money backed by gold or silver), the power to borrow money through the issuance of interest-bearing "notes," and the issuance of "Bills of Credit." Unlike coined money, whose value was inherent in the metal that composed the coin, and unlike "notes" that accrued interest, a bill of credit was non–interest-bearing paper money issued on the good credit of the United States with no tangible backing in precious metal


Under the Articles of Confederation, both the federal and state governments were guilty of rampant inflationary issuance of bills of credit to finance the Revolutionary War. In response to the revolutionary history, Article I, Section 10, of the Constitution expressly prohibits the states from issuing bills of credit. With respect to Congress's power, however, the issue is not as clear. At the Constitutional Convention, it was proposed to give the federal government the power to "emit bills on the credit of the United States," but the language was defeated as being too prone to abuse. As a result, the Constitution's monetary clauses expressly grant Congress the power to coin money and to borrow money by issuing "notes" (i.e., interest-bearing government bonds), but not to issue bills of credit. Given the Framers' general hostility to paper money (James Madison, for instance, bemoaned its "pestilent effects" under the Articles), it is likely that the Framers' intended to prohibit the federal government from issuing bills of credit, just as they expressly barred the states from doing so. Moreover, the Constitution itself created a government of enumerated powers; thus, absent an express grant, Congress lacked the power to act. In fact, both those who spoke for and those who spoke against the proposed language to grant this power to the federal government understood that striking the language amounted to a prohibition on Congress's power to issue paper money.

Second thing is, a power not given to the Feds, goes to the states, then the people. Next your going to tell me that even though it says no state shall emit bills of credit that it is ok for the Feds to do it right?

What else only applies to states? Can the Feds pass bills of attainder? Pass laws that impair the obligation of contracts?

A state can not grant a power that it does not have.

Where does the federal government get its power from? The states maybe?

Third, good luck trying to get a silver dollar for a candy bar my friend, it seems the only person who thinks the silver dollar is only worth a dollar is you.

Observation: most economists understand it was the easy credit of the early 20's and the reversal of easy credit by the fed that caused the depression.


In 2002 Ben Bernanke (then a Federal Reserve governor, today the chairman of the Board of Governors) made this startling admission in a speech given in honor of Friedman’s 90th birthday: “I would like to say to Milton and Anna: Regarding the Great Depression, you’re right. We did it. We’re very sorry.”


Unless you have info that Milton and Ben do not have perhaps?

[Patriotdiscussions]

Because it's harder to remove something then it is to insert something? If you really were interested in laws that made no sense why don't you research in how many states it is illegal to drive a car without having someone carrying a lantern in front of it (hint: I know of at least two) or in the good old state of Kentucky why is there still a law requiring a person to take a bath one time a year. Answer: because it is extremely hard, close to impossible, to remove something from law since that would mean recalling every book that ever mentioned the law or section of law, purging the law from it by re-printing them, and issuing new ones. IIRC they did a study on how much it would cost to remove some of the antiquated laws that had been either superseded or rendered unenforceable and i believe it ran into several million dollars. Of course, they may have just figured that since precedent rendered the word salad moot, why worry about specifically removing it?

Lol, I specifically choose 417 because they amended it by taking out the word gold, since they were doing that, you are going to say it was to hard to remove lawful money from the same statute.

Really?

The ideal that removing the terms would cost to much money is laughable in a country that can not stop spending tax money to understand the impact of cow farts on the ozone.

Hey you guys are the experts though, funny how words are taken out of the statutes all the time.

[.]

Gosh, maybe because Congress is sloppy?

They've been doing this sort of thing for 200+ years, despite the large number of lawyers who have been members.

Let us know when you get the USSC to agree with you.

[Famspear]

Hey you guys are the experts though, funny how words are taken out of the statutes all the time.

Yep. Funny how some words are taken out of the statutes all the time -- and other words are left in the statutes. Yet, you seem to be having a problem accepting that this is the case.

You don't have a lot of familiarity with the law.

[Famspear]

....a power not given to the Feds, goes to the states, then the people. Next your going to tell me that even though it says no state shall emit bills of credit that it is ok for the Feds to do it right?

Since you're struggling, let me help you out here. If you're trying to say that under the U.S. Constitution, the Federal Reserve System (including the process for issuance of Federal Reserve notes) is unconstitutional, then you're wrong.

What else only applies to states? Can the Feds pass bills of attainder? Pass laws that impair the obligation of contracts?

You still haven't answered my questions. So, no, we're not moving the goal posts.

A state can not grant a power that it does not have.

"The mud elephant
"Wading through the sea
"Leaves no tracks."

Where does the federal government get its power from? The states maybe?

You still haven't answered my questions. So, no we're not moving the goal posts.

Third, good luck trying to get a silver dollar for a candy bar my friend, it seems the only person who thinks the silver dollar is only worth a dollar is you.

"The mud elephant
"Wading through the sea
"Leaves no tracks."

Observation: most economists understand it was the easy credit of the early 20's and the reversal of easy credit by the fed that caused the depression.

Observation: You still haven't answered my questions.

In 2002 Ben Bernanke (then a Federal Reserve governor, today the chairman of the Board of Governors) made this startling admission in a speech given in honor of Friedman’s 90th birthday: “I would like to say to Milton and Anna: Regarding the Great Depression, you’re right. We did it. We’re very sorry.”

Unless you have info that Milton and Ben do not have perhaps?

I can't speak for others, but unless you answer my questions, I'm not going to be answering many of your questions.

[Famspear]

As is almost always the case with people like “Patriotdiscussions,” he seems to feel that he is qualified to discern the significance of legal materials without any training, credentials, or experience himself.

It is also telling that he cites, as his authority for ideas about the Constitution, and about the legal concepts of legal tender and lawful money, a document entitled “The Constitution On Legal Tender & Lawful Money” written by one Douglas V. Gnazzo:

http://static.safehaven.com/pdfs/gnazzo_20091102.pdf

Yet, at the end of the article, Mr. Gnazzo himself offers this disclaimer (reproduced in part):

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. [ . . .].

OK, that’s it?

In Patriotdiscussions’s mind, this qualifies Mr. Gnazzo as an authority on the U.S. Constitution? This qualifies Mr. Gnazzo as an authority on the concepts of legal tender and lawful money?

Oh, but wait.

Mr. Gnazzo himself offers this additional information in the disclaimer at the end of the article:

The contents of this article represent the opinions of Douglas V. Gnazzo. [ . . . ] The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. [ . . . ] Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional [. . . ]

The fact that Patriotdiscussions has trouble wrapping his brain around the idea that not all federal statutes are amended to remove terms that no longer have legal significance is not surprising.

[Patriotdiscussions]

12 USC 411 is archaic law, and is modernly meaningless as it refers to a variety of Federal Reserve Note no longer being issued.

Your question/statement is meaningless, since Federal Reserve Notes, the modern ones, the ones in circulation, are, by law, legal tender/lawful money.

If you want to "redeem" your FRN's, which is another term for exchange, you are certainly welcome to "redeem" them for other FRN's of same or different denomination, or coins, etc.

1. What variety were they and any source to back it up with?

A better question is: Do you think that money needs "something to back it up"? If I hire you to do work for me, and I agree to pay you $100,000 a year in Federal Reserve notes (not checks, not direct deposit to your checking account, but actual, physical Federal Reserve notes), would you agree to do the work?

again yes, money can not be based on debt notes backed by hot air.

If you believe your house is worth $250,000, and the appraisers value your house at $250,000, and you want to sell for that amount, and you find a buyer who expresses an interest in paying you $250,000 for the house, does the buyer ask "What source backs up the value of this house?"?
the asset is the land material and time invested to produce the home and is worth what someone is willing to pay for it, someone might offer you 300k or 200k
Why would an asset (whether it's money or a house or a dining room table or a tractor or a Mercedes Benz) need some other asset to "back up" its value?

an asset is worth what someone is willing to pay, the boomers are going to be finding that out very soon, when they try to offload their assets to retire.

2. Legal tender and lawful money are not the same thing, either back then or now.

That's actually correct, but I wonder whether you know what the term "lawful money" means as that term is used in the law. What do you think the term "lawful money" means? What exactly is the difference between "legal tender" and "lawful money"?

Lawful money is created by the treasury, legal tender is bank notes,checks,etc.

[Famspear]

I wonder whether Patriotdiscussions imagines that bazillions of people living today are significantly affected by the provisions of the Internal Revenue Code of 1939 (which was, for most purposes, replaced when the Internal Revenue Code of 1954 was signed into law by President Eisenhower on the morning of August 16, 1954).

Since August 16, 1954, the Code has been amended hundreds of times (and in 1986, its name was changed by Congress to the current name, "Internal Revenue Code of 1986").

Yet, with all the amendments that have been made by Congress, the current Internal Revenue Code still contains a provision stating that any provision of the current 1986 Code:

......which refers to the application of any portion of this title [i.e., the 1986 Code] to a prior period (or which depends upon the application to a prior period of any portion of this title) shall, when appropriate and consistent with the purpose of such provision, be deemed to refer to (or depend upon the application of) the corresponding provision of the Internal Revenue Code of 1939 or of such other internal revenue laws as were applicable to the prior period.

--from Internal Revenue Code section 7807(b)(1), separately codified as 26 U.S.C. section 7807(b)(1) (emphasis added).

That text has been there since August 16, 1954. In over sixty years, it has never been removed by Congress.

The mere fact that some now-largely-moribund verbiage in a statute has not been removed in over sixty years does not necessarily mean what you may think it means, Patriotdiscussions.

[Famspear]

Lawful money is created by the treasury, legal tender is bank notes,checks,etc.

Thank you for answering my question. Your answer is not exactly correct, but not completely incorrect.

I'm busy with the real world now, so we'll have to get back to this later.

[notorial dissent]

Why when they amend a statute do they not take out the words lawful money then?

417 was amended in 1968, but yet they left in lawful money, why?
The one had nothing to do with the other, 411 has nothing to do with 417.
http://www.law.cornell.edu/uscode/text/12/417



1968—Pub. L. 90–349, which directed amendment of “[t]he seventh paragraph of section 16 of the Federal Reserve Act, as amended (12 U.S.C. 417)” by inserting “, Special Drawing Right certificates,” after “gold certificates” in the first sentence, “Special Drawing Right certificates,” after “gold certificates,” in the second sentence, and “and Special Drawing Right certificates” after “gold certificates” in the third sentence, was executed by making the insertions in this section, to reflect the probable intent of Congress.



Nothing about removing the term that had no legal meaning for 35 years before they amended it.

Strange, why leave it in there?
Not at all when it has nothing to do with the legislation being changed.

First, much of the law that makes up Title 12 dates back a century and has been amended and altered repeatedly over that period, or has been largely ignored if no longer used. Each of the individual sections could well have started life as part of separate pieces of legislation that were all eventually consolidated in to what is now Title 12. As such, when the banking law is amended, only the sections involved are altered, not the entire body of law, so it is entirely possible for a piece of archaic law to remain a part of the law as a whole, and still have no current function.

[Pottapaug1938]

Second thing is, a power not given to the Feds, goes to the states, then the people. Next your going to tell me that even though it says no state shall emit bills of credit that it is ok for the Feds to do it right?

I'll respond to only one of your latest idiocies.

The power to "coin money" and "regulate the value thereof" is expressly granted to the Federal government by the Constitution. Doing things like recalling gold and gold certificates, invalidating the silver clause of silver certificates, and removing precious metals from our coinage falls under the latter provision.

[Famspear]

Famspear asked:

Do you think that money needs "something to back it up"? If I hire you to do work for me, and I agree to pay you $100,000 a year in Federal Reserve notes (not checks, not direct deposit to your checking account, but actual, physical Federal Reserve notes), would you agree to do the work?

Patriotdiscussions responded:

again yes, money can not be based on debt notes backed by hot air.

Thank you for answering my question.

So, my next question is: WHY do you believe that money has to be "based on something else" (such as gold, for example) to "back it up"?

Your house is an asset; it does not need to be "backed up" by something else (like gold, for example) in order to have whatever value it has.

Your car is an asset; it does not need to be "backed up" by something else (like gold, for example) in order to have whatever value it has.

But, apparently, you believe that your Federal Reserve notes need to be "backed up" by something else (e.g., gold or whatever) in order to "really" have their value.

1. If so, why do you believe your Federal Reserve notes are "different" from your house or your car?

2. If I offer to pay you $300,000 in Federal Reserve notes to drive my car for me -- to be my chauffeur -- for a year (and let's say that I even pay you the $300,000 in advance, so there's no worry about not being paid), are you going to refuse because the Federal Reserve notes aren't "backed up" by some other asset, such as gold?

[Famspear]

Patriotdiscussions wrote:

First, we issue bills of credit, not exactly what coin money clause means buddy.

Ah, so if the U.S. Constitution does not expressly say that Congress shall have power to enact laws providing for the national government to issue bills of credit, then such a law is (or would be) unconstitutional, in your mind?

If so, why would it be unconstitutional?

Would you say that the United States Air Force is unconstitutional? The Constitution talks about an army and a navy, but does not mention an "air force." The Department of the Air Force was created in 1947, separate from the Department of the Army and the Department of the Navy.

Would you say that having a bailiff, or a court reporter, or a court clerk, in a federal court room is unconstitutional? The Constitution talks about the judicial power being vested in the courts, but does not mention anything about the power to have bailiffs or court reporters or court clerks in a federal court room.

Are you one of those people who labors under the delusion that unless the text of the U.S. Constitution actually spells something out in a specific way that makes you happy, that "something" must therefore necessarily be unconstitutional?

[Famspear]

Lawful money is created by the treasury, legal tender is bank notes,checks,etc.

To clarify:

United States paper currency (a Federal Reserve note) is indeed physically printed (in that narrow sense, "created") by a unit within the U.S. Department of the Treasury.

In the United States, checks (even U.S. government checks and cashier's checks issued by commercial banks, etc.) are not generally legal tender. Generally, a note issued by a commercial bank is not legal tender. Federal Reserve notes (these are issued only by a Federal Reserve bank, not by commercial banks) are legal tender.

[Famspear]

On notes issued by commercial banks, there is an exception for "circulating notes" issued by "national banks".

Here's the statute (in part):

United States coins and currency (including Federal reserve notes and circulating notes of Federal reserve banks and national banks) are legal tender for all debts, public charges, taxes, and dues.....

--from 31 USC 5103.

However, I'm rusty on whether "circulating notes" of national banks encompasses ANY outstanding note of a national bank, or just certain ones. How much "circulating" does the note have to do, to be considered a "circulating note" for this purpose? I don't know.

When I was a bank auditor, one of the banks I audited (which happened to be a national bank) had issued debentures (unsecured corporate debt) to finance the construction of a skyscraper to be used as its new main office. But I don't recall whether the debentures were considered to be "circulating" for purposes of this statute.