Will Radically Different Banking Plans Work? Not until we abolish legal tender laws

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Until we abolish legal tender laws, all attempts
on the part of entrepreneurs to set up gold and silver banking institutions
will be labeled as "a tax evasion scheme to hide income."

If you don't believe me, ask Franklin Sanders. He
is a man who knows first-hand, that when you try to question the
government's role in our monetary affairs, you don't have a chance.
How can one man win in a battle for economic freedom against the
government, when the government has vast monetary resources through
its control of the printing press and armed attack squads that can
use brute force against anyone who challenges government decrees?

Mr. Sanders fought gallantly given the impossible
circumstances in which he found himself. He ran a gold and silver
bank for more than a decade, serving customers in Mississippi, Arkansas
and Tennessee. His hope was to run his business as a truly free
bank, such that he would exchange Federal Reserve notes for gold
and silver — and here is the kicker — he tried to do that without
charging sales tax on the exchanges. It is true, what Mr. Sanders
was doing was entrepreneurial suicide, but you have to give him
credit for showing courage and tenacity.

In 1980, he opened his doors for the first time, selling
physical gold and silver. According to his fascinating autobiographical
essay, available on his website: www.the-moneychanger.com,
he did his best to cover his bases with the local authorities:

First thing I did was, write to the Arkansas Attorney
General to explain that I thought exchanges of gold and silver
money for paper money weren't subject to the sales tax, since
they were exchanges of money for money.

Even though no one chose to respond to him, he continued
to contact local political officials to confirm that his business
was not violating state law. He even wrote to the Commissioner of
Revenue to inform him of what he was doing — to no avail. He never
got a response from anyone, at least not until Revenue officers
and IRS criminal Investigation Division (CID) agents came to harass

During the time he was left alone, his bank did
very well. He attracted depositors from all over. The government
brought a swift end to his business, however. First, they forced
him to move to another state, and then, they scared all of his customers
away by requiring that they send records of their exchanges with
him to IRS CID agents, threatening to issue subpoenas to whoever
refused to comply. After his first dramatic escape from IRS hounds,
Sanders opened his doors in another state:

I moved my business to Tennessee, doing the same
thing, exchanging gold and silver money for Federal Reserve notes.
By this time I had realized that although every American had a
constitutional and legal right to gold and silver money, the problem
was, you couldn't use them in everyday business. We had the right
to sound money, but no means. We needed an interface between the
paper system and gold and silver. So in May, 1984 I opened a gold
and silver bank. I attracted depositors like wildfire, but somebody
didn't like my idea.

After years of harassment, Sanders was eventually
arrested. As Murray Rothbard repeatedly reminds us, the government
reviles anyone that challenges its monetary monopoly. The harsh
treatment of Sanders illustrates this point. "My bond was set
at $150,000, fully secured. For comparison, that same day they arrested
a child molester and set his bond at $10,000, not secured."
A powerful quote that accounts for Sanders' treatment came directly
from the agents of the government: "The assistant US attorney
here told one lawyer that I was u2018the most dangerous man in the mid-South.'
In a four and a half year investigation the government spent $5–$10
million, maybe more."

According to Sanders, the government was desperate
to claim that he was the mastermind behind a cluster of illicit
activities. Foremost among them was "delaying and depriving
the state of revenue to which it was lawfully entitled at the time
it was lawfully entitled thereto." The government's inch thick
indictment claimed that a total of 26 people, with Franklin Sanders
at the helm, were part of a "conspiracy to defraud the government,
willful failure to file, and divers other malefactions. The government
claimed that the gold and silver bank was a tax evasion scheme to
hide income."

Sanders tried to use the law in his defense, but
his points went unanswered. "On the money issue, the real heart
of the case, the court dodged and denied all my arguments."
They obviously had no historical or theoretical background that
would open their eyes to the truth of his arguments. If Austrian-Libertarian
leaning individuals heard his arguments they would cheer in approval.
Take this statement, for example, in which he brilliantly states
what Austrian economists have been trying to convey to the public
for decades:

They were charging me with not collecting sales
tax on exchanges of gold and silver money for paper money. You
know — like when you go to the bank, and give the teller a twenty
and she gives you back a ten and two fives, less sales tax. What?
She doesn't charge you with sales tax? Of course not, because
it's an exchange of money for money.

attempted to battle in court for his right to exchange what he considered
to be "money for money." Yet, he was trying to fight a
legal battle in "Legal Never-Neverland: monetary law."
In his fiercely direct style, he explains the dilemma that anyone
faces when they try to argue with the government over monetary freedom.

neither the state of Tennessee nor any other state
can admit that gold and silver coins are money. If they do, they
will admit they are operating outside the law. The monetary emperor
is naked, and state officials from the Chief Justice of the Supreme
Court to the governor to the second assistant tire checker are
afraid to tell him. They should be afraid, because the monopoly
on money creation is the jugular vein of the American fascist

He understands how dangerous and perverse the government's
control over our monetary system is. He tried to battle the government
with the best legal arguments he could muster, but since the government's
legal bureaucrats would never address the money issue, he lost his
case, after fighting a legal battle that lasted for 15 years. That
takes fortitude! To those who would question his sanity for pursuing
an obviously unwinnable legal battle, he says:

Why keep on fighting? After 15 years, why not
just put down the load and forget it? Because the fiat money system
is both the strength and weakness of America's tyrants. It bleeds
the people's wealth and labor, but it also threatens to collapse
under its own weight — or whenever the scales fall off the people's
eyes. With its green engravings of famous Americans, electrons
whirling around in bank computers, and loans created out of thin
air, it is one vast confidence game.

Franklin Sanders' story reminds us that the future
of private enterprise in money has no chance until we abolish legal
tender laws, and remove all forms of taxes on commodity money. This
type of change will require a political revolution. Unless we witness
a mass political movement demanding monetary freedom, I do not see
any way forward for a market-driven substitute to the government's
monopoly over money. We have to gather and inspire enough political
will to abolish legal tender laws and all taxes on commodity money.

20, 2009

Betsy Hansen
[send her mail] is a
summer fellow at the Mises Institute. See
her site

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