Legal Tender Part One

November 18, 2004

There are three definitions of "tender," and we will take the second, which is, "To offer in payment of an obligation." So one can be tender with one's wife or gal, treat something tenderly, tender a resignation, or tender money for payment. A boiler tender is one who cares for a boiler. "Tender" then, has several meanings in the English lexicon. "Legal tender," has the following dictionary definition, the final phrase of which is very important. "Money that may be legally offered in payment of an obligation and that a creditor must accept." In other words, legal tender is 'money' which MUST BE ACCEPTED…BY LAW.

Legal tender laws, have always been a politician's way of wholesale theft from their constituency, usually without their being aware of the theft. Why would a politician steal from his constituency? Those who voted him into office? Is this a way of showing gratitude for a vote? Understand this, as the omnibus spending bill approaches a vote in the next few days. The word "omnibus" means, "a one volume collection of things," and that explains it all. Politicians must bring home the bacon or be voted out of office. This means that new highway, factory, government installation, or airport improvement must be obtained with a government handout. The constituents believe that Senator Snort has gotten them a big deal at no cost to them. "The government paid for it," they believe. Since each piece of bacon is good for a particular politician, they usually combine all in an "omnibus spending bill," which includes all the fat. If one votes against it, all go down, and re-election may be difficult. But to return to legal tender.

If the law forces one to use a particular type of "money," rather than the true monies of gold and silver, there must be a termite in the walls, and sure enough, there always is. When FDR made paper dollars "legal tender" in 1933, this meant that gold was no longer acceptable as payment for things owed. Ownership of gold was prohibited, and payment in anything other than paper money legal tender was illegal. Orders went out to turn in the gold, and many did. They exchanged the gold double eagles, eagles, half eagles etc, for brand new, crisp legal tender dollars. No one was ever fined, no one ever went to jail, and no one ever had their gold confiscated, but one could no longer use it for trade, payment of bills, or depositing in a bank.

Why would FDR do this? Because America was in the depth of a severe depression, (thanks to the federal reserve) and there was a 25% official unemployment. FDR wanted to get the economy going again by huge amounts of federal spending. He did just that. Spending that is, not getting America out of the depression. Hundreds of new post offices were built, as was the Hoover Dam, and the entire DC Federal Triangle complex of federal offices, plus hundreds more building projects. The Civilian Conservation Corps (CCC) was started, and thousands of men went into the forests and cut trees, building log hotels in National Parks, and other projects. Thousands of miles of new concrete highways were built, and many new branches of government were established, most of which are still with us…unfortunately. FDR wanted to spend his way out of the depression by putting people to work. He figured that since there was a depression, tax collections were low, and he needed to find a way to get the dough to do all this spending. He therefore passed "legal tender" laws, by the slimmest of Congressional vote margins. This went hand in had with the turning in of gold. If "legal tender" laws hadn't been passed, gold would still have been the real money, which it was and still is anyway. Legal tender laws made paying bills with gold illegal, and paying with paper dollars legal. Both had been legal before, but now legal tender laws made only paper money "legal."

Before the legal tender laws of 1933, gold was freely used to pay bills, and a bank's solvency was determined by the amount of gold it had in its vaults to back up the currency it issued. The difference between the two systems is enormous! Before 1933, banks issued their own currencies, and they were backed by gold. After 1933, only the federal government issued currency, and it's backing was supposed to be partially backed by gold in the vaults of the US government, probably at Ft. Knox. All the gold that bluff and threats could obtain, was sent to the US Treasury. Of course millions of gold coins weren't turned in, because owners of them suspected a ruse or fraud, and they secreted them away. If everyone had turned them in, coin shops wouldn't have them to sell today. FDR then raised the price of gold to $35 an ounce from its former $20.67 Why? Easy.

Since the dollar was still partially backed by gold, obviously if the price of gold were higher, more dollars could be printed! And they were. Thousands of the unemployed went to work…for government schemes. Did it get us out of the depression? No.

What did it do? Got a lot of highways built and a lot of post offices built, but the depression lingered on. The depression vanished when FDR, once again with a slim majority of the Democrat Congress, decided to supply war materials to Britain, causing Germany to declare war on us. On December 7, 1941 the Japanese bombed Pearl Harbor and the Pearl harbor bombing, causing us to declare war on Japan. (There is ample evidence in several noteworthy books which proves FDR practically forced Japan to attack by denying them petroleum, use of the Panama Canal, and refusing to sell them steel). At any rate, the depression was over. Back to legal tender.

Before 1660, in England, there was no paper money. All transactions were completed in specie…meaning gold and silver coinage and bars. It wasn't necessarily honest money, because the king had the same problem as did FDR and most politicians forever. He always wanted to spend more than he had. He would take the coins, and clip off a bit of gold or silver, and make new, smaller ones, declaring the new to be as valuable as the old. The king often would combine copper or brass with the gold to lessen the gold content, thereby debasing the coins, but declaring they had the same value. The value wasn't what the coins had in them, but what value the king said they had. These rulings by the king's courts came to be known as "legal tender rulings."

One of the first and biggest of legal tender frauds, was one William Paterson. Paterson got some friends together, raised 72,000 pounds in gold and silver, started a bank and printed up paper receipts for the gold and silver. The King was broke and needed money. Patterson's bank loaned the paper receipts to the king to fight his war. However, the king needed far more than 72,000 pounds. Patterson then printed up 1,200,000 in pound notes and loaned them to the king. The king had borrowed them, so he had to declare them valuable and "legal tender." Paterson's initial 72,000 pound investment, printed up to 16 2/3 times his investment, and charging 8 1/3% interest, meant his interest payments alone were 100,000 pounds per year, or an actual interest rate, based on his initial 72,000 pound investment, of 140% per year. Ain't "legal tender" grand? Thus began the Bank of England. More next week. Protect yourself.

Gold weighs 19.3 times as much as an equal volume of water.