Legal Tender

By: Douglas V. Gnazzo | Sun, Oct 15, 2006
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Honest Money Gold & Silver Report

"When plunder becomes a way of life for a group of men living together in society, they create for themselves in the course of time a legal system that authorizes it and a moral code that glorifies it."


The understanding of legal tender is intrinsically bound up with the difference between the legal definition of money and the economic definition of money.

Money used according to its economic meaning refers to what society has agreed upon to be the common medium of exchange: that which is used to procure all other goods and services in the market place.

Money as legal tender refers to the medium that society, through its system of jurisprudence, recognizes and accepts as the legal medium in the payment of debt.

This is especially true in regards to what the government accepts and uses for the payment of debt, as well as for taxes, although taxes are not a debt in the pure sense of the word.


In a free market, whatever is determined to be the legal medium of payment (legal tender) first evolves as the common medium of exchange. Man by free choice determines what is to be money - the most commonly accepted medium of exchange.

A free government will only declare as legal tender that which society has already chosen as the accepted medium of exchange, according to its own free will and choice. A truly free and honest government would not have any legal tender laws, as Honest Money needs not to be forced upon the people. The people will freely choose to embrace Honest Money, as and for the unalienable right of monetary freedom and liberty it is the expression thereof.

As we have seen, the dollar was the unit or medium that was the most accepted then current medium of exchange, at the time the Constitution was written. The dollar was a specific weight and fineness of silver - the silver dollar.

Any alteration or deviation from the dollar of the Constitution requires a constitutional amendment, per force of the Constitution itself - the Supreme Law of the Land.

Private & Non-Private

The use of money is either between two private individuals, or between the government and private individuals. The first case can differ significantly from the second.

Legal tender in private exchanges is the medium that the law recognizes as the means of payment a creditor accepts from his debtor, as the means of payment of his debt.

However, private individuals can accept any means or type of payment mutually agreed upon in a written contract - they are not obligated to use legal tender between themselves if they both agree to such. Not so when the government is involved.

Transactions between private individuals and the government does not allow for payments in anything except legal tender. The Constitution and the Coinage Act of 1792 clearly state what is legal tender: silver and gold coin and nothing else.

Economic & Juristic

The issue of legal tender and the differences between the economic and juristic definitions of money clearly illustrate an inherent weakness in the hard money system of the Constitution and the Coinage Act of 1792.

Legal tender is an objective valuation that is set by law. It does not change without a constitutional amendment. According to the Constitution and the Coinage Act of 1792 it is a specific weight of silver: 371.25 grains of fine silver - the silver dollar.

In the same act it is stated that silver and gold are to exchange at a 15 to 1 ratio. Now is when the difference between the economic definition of money and the legal definition of money causes a problem. Both definitions (economic & legal) should be the same. Presently they are not.

Although the legal definition of money is a specific weight of silver, even in the early years of our new nation the economic or market exchange rates between silver and gold differed from the 15 to 1 legal tender ratio.

In other words, the free market economic exchange rate between the two metals was based on subjective valuations that continually changed, yet the legal tender or juristic definition stayed the same: a silver standard of one ounce of silver - the silver dollar, which is exchangeable for gold at the ratio of 15 to 1.

Gresham's Law

The difference between the two definitions or valuations of weight caused one metal to be dear while the other was shunned, and vice versa. Our early monetary history shows several periods when silver was desired over gold, and other times when gold was wanted over silver. This difference allowed Gresham's Law to wreak havoc - and it did.

It is exactly this difference between the legal intrinsic value of money based on an objective standard or defined weight of metal, versus the subjective value of the medium of exchange that changes according to the supply and demand of the marketplace, which precludes any system of bimetallic coinage that sets one metal as the standard and then declares the other metal to be exchangeable at a fixed rate of exchange - to be inherently doomed to fighting free market forces of supply and demand, continually requiring regulatory legislation and adjustment.

Free Markets

Such is not the workings of a truly free market, but of a contrived or fixed market. It would have been better if the two metals were allowed to fluctuate or exchange at market rates, as defined by honest weights and measures.

If Honest Money of gold and silver coin is to return to its rightful place as our monetary system, this issue will have to be dealt with by a constitutional amendment that changes the fixed exchange rate between the two metals.

The two precious metals must be allowed to float according to free market dynamics of supply and demand. There is no need for a coercive law of legal tender. Such is nothing more than the king's prerogative, sentencing his subjects to a life of debt servitude.

Legal tender is one of the fallacies of Honest Money, just as is fractional reserve banking, and the market intervention of the government and the Federal Reserve, which has been granted a monopoly of the money power, which should reside with We The People.

Different Interpretation

We differ with those that say that the use of money, regarding what is legally accepted as the means of payment of debt, is strictly the economic meaning or use of money, as the commonly accepted means of exchange.

The use of the word "legal" says it all. When money is determined by legal decree, even when used between two private parties, such is not truly free choice. The common medium of exchange is still decreed by the force of legal tender laws.

Legal tender is coercive and the antithesis of a free market, which is why it should be changed by a constitutional amendment as stated above. To confuse the two as being the same is incorrect - on any level, under any circumstance.

The days of the Kings are over, except of course in merry old England, which by itself is most telling. Long gone the kings. We The People need to stand up for our unalienable rights. People are the power - not the king. We The People are Sovereign. Act like it.

This concludes our discussion on legal tender. Next week we return to the seventh and final monetary clause of the Constitution. Following the week thereafter will be a synopsis of what we have discovered - and how it can be applied to return Honest Money as the sovereign of sovereigns.

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Douglas V. Gnazzo

Author: Douglas V. Gnazzo

Douglas V. Gnazzo
Honest Money Gold & Silver Report

Douglas V. Gnazzo is the retired CEO of New England Renovation LLC, a historical restoration contractor that specialized in the restoration of older buildings and vintage historic landmarks. Mr. Gnazzo writes for numerous websites, and his work appears both here and abroad. Just recently, he was honored by being chosen as a Foundation Scholar for the Foundation of Monetary Education (FAME).

Disclaimer: The contents of this article represent the opinions of Douglas V. Gnazzo. Nothing contained herein is intended as investment advice or recommendations for specific investment decisions, and you should not rely on it as such. Douglas V. Gnazzo is not a registered investment advisor. Information and analysis above are derived from sources and using methods believed to be reliable, but Douglas. V. Gnazzo cannot accept responsibility for any trading losses you may incur as a result of your reliance on this analysis and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission. Individuals should consult with their broker and personal financial advisors before engaging in any trading activities. Do your own due diligence regarding personal investment decisions. This article may contain information that is confidential and/or protected by law. The purpose of this article is intended to be used as an educational discussion of the issues involved. Douglas V. Gnazzo is not a lawyer or a legal scholar. Information and analysis derived from the quoted sources are believed to be reliable and are offered in good faith. Only a highly trained and certified and registered legal professional should be regarded as an authority on the issues involved; and all those seeking such an authoritative opinion should do their own due diligence and seek out the advice of a legal professional. Lastly, Douglas V. Gnazzo believes that The United States of America is the greatest country on Earth, but that it can yet become greater. This article is written to help facilitate that greater becoming. God Bless America.

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