Rabbits
Money and Currency
 

1. Are Federal Reserve Notes counterfeit money?
2. Who owns Federal Reserve Notes?
3. Can debts be paid with Federal Reserve Notes or only discharged?
4. Does using Federal Reserve Notes place one within equity jurisdiction?
    

Are Federal Reserve Notes counterfeit money?

If so, then why do people use them?

Some people will declare that they use Federal Reserve Notes only because the notes have been declared legal tender, and all people are forced to use them. This response is only partially true.

Federal Reserve Notes are certainly legal tender. From 1933 to 1974, gold and silver coin could not be used as a medium of exchange, at least not in America. Gold clauses were outlawed. However, in 1974, those laws were repealed. So technically, people can once again use gold and silver in lawful contracts. Although Federal Reserve Notes are legal tender, the option of using gold and silver is once again available (although admittedly limited). Also, since 1976 for state banks, and since 1994 for national banks, banks could conceivably issue their own bank notes (the 10% tax was repealed in 1976).

What is the definition of counterfeit? Something that is counterfeit is something that has been created to resemble or imitate another object. A counterfeit is a forgery.

The bigger problem that lies underneath the “counterfeit” claim grows out of the fact the Federal Reserve Notes are no longer exchangeable in specie, that is, gold and silver coin. However, this “counterfeit” assertion is based upon a flawed concept that only gold and silver can serve as money. Money is anything that will serve as a medium of exchange. Federal Reserve Notes certainly serve this basic definition. That Federal Reserve Notes are no longer exchangeable in specie is irrelevant to the counterfeit claims.

Because of the non exchangeability, many wrongly believe that Federal Reserve Notes are counterfeit because there is nothing to “back” the paper. This is a flawed concept because even when FRNs were exchangeable, the paper only represented the storage of silver or gold in some vault. The paper was not “backed” by anything, only exchangeable. The money of account was still gold and silver coin and the paper was merely exchangeable for another form of currency. However, the paper was just as good for being used as currency as was the specie coin because the paper facilitated the exchange of wealth—goods and services. The same is true today. All currency, regardless of substance are backed by one thing only—goods and services. Specie and paper currency are merely different forms of claims on wealth.

There is one element to the counterfeit claims that we do acknowledge. When the government borrows currency through the printing press, and the creation of such new currency is backed by no goods and services, the creation of that currency is inflationary, and arguably counterfeit. Certainly such an action is similar to a person creating currency in his or her basement. Whether or not such an action can be correctly interpreted as counterfeiting, there can be no doubt that inflating the currency is criminal.
 

Who owns Federal Reserve Notes?

Some people would argue that technically, the Federal Reserve System, but does that really matter? The Fed certainly has a concern for “its” “private” notes, but technical ownership is not a concern when you have exchanged your property for FRNs. Those FRNs are yours and bank officials can’t take them from you without due process, a case any banker would be hard pressed to make!

The bottom line is that FRNs are used as currency and are used to facilitate the exchange of property. The Federal Reserve System is an unfair and inequitable system, but not fraudulent or conspiratorial. Let’s fix the inherent problems with the system and let the conspiracies disappear.
 

Can debts be paid with Federal Reserve Notes or only discharged?

This question creates a discussion much about nothing. Really!

Many will argue that when using a fiat currency one can never pay a debt, but only discharge the debt. This is misleading at best.

However, before continuing, please read the response to the question, “What makes Federal Reserve Notes valuable?”

Again, we must understand the essence or fundamental nature of money (which this web site provides much information about). All currencies, regardless of substance, represents an unfinished exchange of goods and services; an unfinished exchange of wealth. Currency therefore represents debt, not wealth. When speaking about wealth and currency, at best currency represents unclaimed wealth, but is not wealth in itself. Currency is therefore a mere claim check on wealth.

Unlike barter, currency represents an unfinished exchange of goods and services, of wealth. When used, currency always gets passed around from one person to another. Within any society exercising a high division of labor, using currency facilitates these exchanges of wealth. This passing around of currency is not “discharging” debt, but serving as an exchange of wealth. Any time currency is used, this will happen. There is no avoiding this process, even when specie currency is used.

The main difference between a fiat currency and specie is that specie also contains intrinsic tangible value as a commodity. Therefore, when specie is used, debt is paid immediately because the specie contains intrinsic tangible value. Because of this intrinsic tangible value, wealth is always exchanged for wealth. Something tangible is exchanged for something tangible. When a fiat currency is used, debt is tendered only because the currency has no intrinsic tangible value. However, if the recipient of either form of currency accepts the medium of exchange, then debt is paid in full.

Remember that even if gold and silver are used as currency, when used as currency the specie coin still represents a specific exchange value for wealth. The intrinsic commodity value of gold and silver becomes moot when the coin is used as currency. When used as currency, people keep the gold and silver coin under their bed mattress not because of the intrinsic commodity value, but for the exchange value to make a future claim on wealth.

Once a person uses any medium of exchange to make a claim on the total wealth of the society, the original exchange of wealth has been finally consummated. This final consummation or exchange of wealth then looks exactly the same as the final consummation in barter. That is, wealth has been exchanged for wealth. Unlike barter, the main difference when currency is used is that the time domain is introduced into the formula and the final exchange or claim upon wealth is delayed.
 

Does using Federal Reserve Notes place one within equity jurisdiction?

This is another question creating a discussion much about nothing. The answer is no.

Today, monetizing debt introduces Federal Reserve Notes (FRNs) into circulation. Some people will argue that whoever holds an FRN in hand is holding evidence of debt and therefore will always find him or herself in equity jurisdiction. This is misleading at best.

We provide a detailed discussion about the character of money in our Letters from College section and in Back to Basics—The Nature of Money (page 3). However, the short answer is that once currency is placed into circulation, the character of currency is lost. That is, nobody can determine who borrowed the currency or when. In fact, just because monetizing debt places most FRNs into circulation in no way means this method places all FRNs into circulation.

However, a contributing reason why many believe that using FRNs places a person under equity jurisdiction is the overwhelming presence of administrative law. A court that is moved under administrative law will look and act much the same as a court of equity because the court is serving in an administrative role. Because of a lack of knowledge about court procedures, many people believe that such a court is enacting judge-made law and circumventing constitutional protections.

When many people find themselves enjoined in administrative law they confuse the issue of currency with court jurisdiction mainly because FRNs are debt-based and they believe possession is prima facie evidence of debt, thus placing one in equity jurisdiction. Because administrative courts can very much be a “kangaroo court,” many look for reasons why justice is often difficult to obtain. The reason for the difficulty is not because one uses FRNs, but a lack of understanding of law. Many people fail to seek the nature and cause of an action and therefore never realize they are in an administrative court. They then attempt to raise numerous constitutional arguments and fail to understand that administrative courts are strictly statutory, strictly administrative tribunals. Silent adhesion contracts often provide jurisdiction. We do not deny or ignore corruption, but we prefer to emphasize ignorance of court procedure as the main root cause.

Using FRNs does not place one in equity jurisdiction. This is another big bouncing rabbit.
 

The Constitution provides that no State shall “…make any Thing but gold and silver Coin a Tender in Payment of Debts…” Doesn’t that statement render paper currency unlawful?

Not at all. The confusion arises simply how you read the Constitution.

Note that the words specifically state “make.” That word means no State can forcibly demand payment in anything other than gold or silver. However, note carefully that the Constitution makes no mention of other possible forms of voluntary payment. Nor should there be any mention in a free enterprise society.  That is, if a person offers payment in a form or substance other than gold or silver, the State can certainly accept such payments. Indeed, in the early days of the nation when currency was in short supply, payments were often made in actual goods and services.

We must also remember that the restriction is on the several States, not Congress.

And for what it is worth, federal reserve notes are not bills of credit. A bill of credit is an IOU. FRNs are not IOUs within the strict use of the word, only currency. So don’t chase that rabbit either.