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.
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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 him.
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.
He 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 state.
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.
June 20, 2009