The Federal Reserve, which was created in 1913, began to issue paper notes as part of its aim to control the supply of money in the United States. Their long term goals however were to be developed in patient process, one step at a time.
Firstly, if the Federal Reserve wanted to make sure that its currency is used, along with the “lawful money,” (gold and silver in the Constitution, see here), a statute was needed to verify that Federal Reserve notes were legal tender, along with gold and silver. This occurred in 1933 when Congress declared that Federal Reserve Notes were to be considered legal tender (H.J. Res. 192 (1933)), even though they were not gold and silver. In fact, under this resolution, gold and silver were considered no longer to be backing dollars held by United States citizens. In other words, at this point, Federal Reserve notes replaced gold and silver as money in the domestic United States. In Milam v. U.S., (1974) the United States Court of Appeals for the Ninth Circuit “reviewed a judgment denying relief to an individual who sought to redeem a $50 Federal Reserve Bank Note in ‘lawful money’ (which meant gold or silver).” Relying on Juilliard v. Greenman (1884), the Ninth Circuit dismissed Milam’s request and informed him that “lawful money” includes the Federal Reserve notes (and does no longer includes gold and silver).
The establishment of the Federal Reserve Note as legal tender (now in the 31 U.S.C § 5103 (1983)) was the first step in providing the Federal Reserve with monopolistic powers over the currency and money in the United States. The second step that needed to be taken in order for the Federal Reserve to carry full control over the money was to outlaw competitive currencies and make it illegal for other private issuers to exist in the United States. There are two primary laws that currently prevent competing currencies from coming into existence to provide a market check on the Federal Reserve and their money issuing power. The first of such laws can be found in the United States Code Title 18 § 486. Under this law, any coined metal including gold or silver that was made with the intention of its use toward being a currency is strictly prohibited and whoever takes part in this action is to be imprisoned, fined, or both (18 U.S.C. §486). The second law is in section 489 of the same title and prohibits the act of creating an object with the “likeness or similitude” of a United States (or foreign) coin with the intent to sell or give it away in trade (18 U.S.C. §489).
These laws have created the environment where the Federal Reserve can issue and release money without any fear of other currencies competing against the dollar with strength that the dollar cannot match. The Federal Government has unconstitutionally allowed the Federal Reserve, a private banking organization, to single handedly control money in the United States. The unconstitutionality of the Government to allow a private business exclusive rights to a certain industry should in itself be enough to call for this system to be eliminated.
Of course, contrary to the “Greenbackers,” those who oppose the Fed and its actions simply because it is privately owned, the proper libertarian response is not to simply let the US Treasury take over the very same operations as the Fed. It is stunning that these “populists” as they like to call themselves, seek to rip the inflationary functions away from the crony business and give it right to the crummy politicians. As if our monetary problems come from the fact that our system is not socialist enough! It is the policy that is the ultimate problem, not the ownership. Hard money, 100% reserves on checking accounts, are the only thing which will heal the sickly economy. The monopolization of the dollar by the Federal Reserve represents a horrific and historical coup. But we must be wise in our solution.
The question should be this: why should any group have monopolization on the economy’s currency? The dollar sprang forth as the best choice in the 17th and 18th centuries among other currencies. We ought to let go of the legislative grip and let the money compete once more.