Monday, January 16, 2017

What is “Legal Tender”?

Once again, this time on the Galt’s Gulch Online message board, my conservative comrades displayed a disappointing though predictable ignorance about money. For people who claim to honor the bourgeois virtues of trade and commerce, they collectively guard a treasury of incomplete, incorrect, erroneous, and falsified assertions.  In truth, objective investigation demonstrates that the government has the right, the need, and the obligation to define and create legal tender.
Gold. Coin-shaped. Issued by Congress.
Not Money. Not Legal Tender.
Last week (about January 8, 2017), this discussion was launched:
Posted by $CBJ 1 week ago to Economics

Several writers declaimed against “legal tender laws.”  So, I asked (rhetorically) for definition of “legal tender.” dbhalling, an attorney-at-law who specializes in intellectual property rights wrote this:
(cut and paste) Posted by  dbhalling 5 days, 20 hours ago [January 9, 2017 --mem]
Here is the exact statute. "Today the legal tender law in the US is 35 USC § 5103 which states: 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. Foreign gold or silver coins are not legal tender for debts. Why legal tender laws do not require government monopolies on money absolutely, they are almost always used for that eventually. You just wrong that any Legal Tender law is consistent with Objectivism..  (/cut and paste)

Of course, that is not actually a definition. As a lawyer, dbhalling only cares about what the law says. He does not need to investigate further. Moreover, he was not alone in claiming that an “Objectivist government” would not have the power to create legal tender. But if there were such a thing as an “Objectivist government” it would need to define legal tender, as does any government. 
Deed for Sale of Federal Land.
A valuable paper promise of the Government.
Perhaps negotiable. Not money. Not Legal Tender.
According to Ayn Rand’s Objectivism, and in line with much else on the libertarian right wing of American politics, the proper functions of government include operating courts of law. It is for the courts that the legislature defines “legal tender.” If the legislature did not define legal tender, there would be no way to know when a debt has been discharged, or when payment has been made.
One Dollar in Lawful Money.
Like much else in our traditional laws, the idea of debt is still mired in the agrarian feudal Middle Ages, and not yet enjoying the free air of commercial city life, i.e., civilization. In fact, very little trade is “cash on the barrel head.” It never has been. Since at least 2000 BCE, merchants have dealt at distances in both space and time, making and keeping promises to buy now and pay later. (See, for instance, The Kingdom of the Hittites by Trevor Bryce, Oxford University Press, 2005.) We now enjoy a vast global city. Cash is accepted – even preferred – on the street, but retailers buy from wholesalers who buy from manufacturers, all on credit and via debt.
One of the most valuable
coin-like objects issued by
the Federal government.
Not money. Not Legal tender.
Contrary to common myths, money did not evolve out of barter; and barter did not originate in the desire for economic gain. (See David Graeber’s “Debt: The First 5,000 Years” here.) Ritual gift exchange is taproot of commerce.  For tens of thousands of years, including two ice ages from about 35,000 YA to about 10,000 YA, strangers became friends by exchanging gifts.  Finally, after writing was invented to keep track of commodity promises, we abstracted “money” as a safety to mitigate risk.  If you promise a sheep, but all of your sheep have died, what can you give instead? 

Wheat was first. Then after about 2000 BCE, silver was accepted. The astonishing attribute of silver is that it is useless.  It is pretty when polished, but it cannot hold an edge without being alloyed.  (The same is true of copper, which is why the Bronze Age is a demarcation along our common advance. And we have archaeological evidence of large “oxhides” of bronze offered in trade.) Silver served as “legal tender” i.e., money recognized by the “courts” (king or temple).  Gold is likewise useless, but has the added value of not tarnishing, and being far less commonly found. 
Code of Ur-Nammu
 18. If a man knocks out the eye of another man, he shall weigh out one-half a mina of silver. 
19. If a man has cut off another man’s foot, he is to pay ten shekels. 
22. If a man knocks out a tooth of another man, he shall pay two shekels of silver.
24. [...] If he does not have a slave, he is to pay 10 shekels of silver. If he does not have silver, he is to give another thing that belongs to him.
The Law Code of Ur-Nammu, about 2050 BCE at Real World History here.
In modern times, the governments of the British American colonies created paper money. Whether and to what extent the new Federal government would be allowed to do that was debated. The Constitution did not forbid Federal paper money, and the necessities of commerce almost demanded it. The Federal government had the power to borrow money. That created the power to create promissory notes under the Necessary and Proper clause.  
Coinage Law of June 28, 1834 recognized several foreign coins
as legal tender. Laws before and after this also 

defined the legal tender status of foreign coins.
Moreover, in the USA until 1857, several types of foreign coins were commonly recognized by law as being “legal tender.”  The Spanish Dollar was the foundation of commerce, both for international and local trade. Bank notes from the early 19th century promise to pay fractions of a dollar, but display images of Spanish or Mexican coins.  (See “Spanish Coins on American Notes” here.)
Promises 25 cents. Offers 2 Reales.
(Hence, "2 bits" means a quarter dollar.)
Finally, all governments create a plethora of medals, medallions, certificates, promises, and warrants that may be valuable, negotiable, even fungible, but are not recognized in courts of law as legal tender. That is why a government must define the term in order for objective law to be possible.

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