 Our next speaker has done nothing less than pathbreaking work in the area of intellectual property. He probably could be considered the Satoshi of IT, if you will. American intellectual property lawyer, libertarian legal theorist. He's created the website, the libertarian standard. He's created an academic journal, the libertarian papers. He's written a number of books including my favorite Louisiana civil law dictionary, but probably he is best known for a book called the really turned the libertarian world on its ear. This argument continues on, it rages on. He continues to debate any and all comers online, but he is, well, this is the perfect time in the cyber world to have a lawyer in the house, and he is our lawyer in the house. Please help me welcome Stefan Kinsella. Thanks very much Doug. I'm really glad to be here. I just flew in from Houston. I really like to thank Jeff for giving me the chance to speak on a non-IP topic, which I do enjoy. So my topic today is on legal tender. I'm going to explain briefly how I got interested in this topic and then go into some background. When I was in law school, 1989 or so, I was clerking at a firm in Baton Rouge. I was asked by the partner to research the question of whether it was legal or illegal to refuse to take a payment of cash under legal tender law. So if you owe someone a million dollars and you bring them a briefcase full of cash, can they say, I refuse to accept that offer? I want you to write me a check instead. So I started researching what is legal tender. If you look at your dollar bills, it'll say this note is legal tender for all debts, public and private. It's sort of a mysterious meaning. What exactly does that mean? How much money do you have to pay to satisfy a debt? So I started getting interested in it. A couple of years later I was in graduate school in law in London and I looked at the British Pound notes and they have other language which says, Bank of England, I promised to pay the bearer on demand the sum of five pounds or ten pounds or whatever the note is. So like a smartass, I walked down to the Bank of England one day in the middle of the financial district with a backpack dressed like a student and I walked in the front door and I asked, I said, can I redeem this for five pounds of whatever it is it's five pounds of? And they said, you have an appointment. I said no. So they sent me out and they said you have to have an appointment to come into the Bank of England. So they said, if you mind wanting to visit the Bank of England Museum around the corner. So I walked around the corner, I went to the Bank of England Museum, I was the only guy there and I started asking the curator these questions and he went to the back and he brought me a mimeographed. I think that's an old work for photocopy, right? A mimeographed sheet of typewritten papers explaining why that language doesn't mean that they really have to give you five pounds of silver or whatever it meant. They claimed that it just means that if you have an old note that's out of circulation now, we'll replace it. So five pound note, you get a new five pound note for it, so that's what that promise means. So over the years I've always been puzzled by this mysterious language which is omnipresent and yet no one seems to understand what it means. So as Bitcoin started heating up, I started thinking more and more about it and so Jeff and I talked and we thought this might be a good topic. So to research this, I researched a good deal of things, probably three of the primary things I relied on and if you find this talk of interest, you might want to look at some of these. Guido Holtzman has a fantastic lecture on the economics of legal tender laws at the last Mises University. It's online and I will post these slides on my website later. So SteppenConsola.com so feel free to look it up there. Hapa has a great article which I rely on heavily in this talk and also I found a 1903 fantastic old treatise on Google Books on legal tender. Okay, so I'm gonna back up for a second and try to put this legal tender issue in context before we get into the actual mechanics and issues of legal tender itself. And this is drawing on Hapa and others like Franz Oppenheimer. Franz Oppenheimer argued that there's only two ways of creating wealth. One's the political means and one's the economic means. One is cooperative and peaceful and one is coercive and exploitative. And this is what Hapa argues as well. He basically points out that there are only two ways to acquire wealth in the world that we live in. One would be homesteading production and exchange. So you find or you appropriate a resource that's unknown in the world. You increase the sum total wealth in the world and your wealth. Production means transforming these resources into more valuable configurations. So that's production. That's also a way of increasing wealth. And exchange is when two people exchange things that they own and they're both better off after the transaction. So the sum total wealth in the world increases that way as well. And then the second way is expropriating producers, appropriators and homesteaders and exchangers. So the first method gives rise to productive enterprises like firms and corporations and businesses. The second gives rise to governments and states. Okay, now if you think about private enterprise, private industry, productive enterprises, their growth is constrained by a couple of things. Number one, they have to have consumer demand for what they're making. And there's competition in the market. So that's a constraint on the growth of private firms. But the growth of an exploiting firm like the state is constrained mostly by public opinion. And the reason is because by its nature it coerces people and creates victims. And by its nature it's a small portion of society. So you have a small minority dominating the larger majority. So the only way they can get away with this is to somehow persuade the victims that the state is legitimate. So what is the state's goal? The state is a wealth maximizer just like we are. It just doesn't have any ethics. So its goal is to... And by the way, I don't know if this crowd is entirely libertarian, but that's fine. But you are listening to one and in fact I'm of the anarchist variety that thinks the state should be totally abolished. Just the libertarians here would know that already, but just fair warning. So the state's goal is to maximize its wealth that it can exploit from its victims. And it tried to do this by engaging activities to increase its public legitimacy so that it gets away with it. There's two main things the state does. It engages in ideological propaganda trying to persuade us that the world is not the way it really is, that taxes are really voluntary, that we would have chaos in the streets without the state, et cetera. And then the second thing the state does is it engages in a variety of redistribution measures by which it seeks to corrupt the people that it redistributes money to into supporting the state. Not just any redistribution will do, there are certain targeted types of redistribution that tend to work well for the state. Now these include the monopolization of the production of law and security, police, defense, the courts, judicial system, also traffic and communication because the state can't go around robbing people without control of the rivers, the roads, mail, telecommunications, the internet. Also education, of course, which feeds back to the first purpose of ideological propaganda. So the state controls these things. And also the state redistributes state power itself, especially the modern sense in democracy. So the bureaucracy is open to anyone who wants to apply for a job. So potentially all employers, employees of the state. And then by democracy, the state lets us believe that we're really the owners of the state. The state really is as you'll hear this nonsense promoted by the state all the time. Or if you complain that the government just put your brother on jail for smoking marijuana, you know, people say, well, don't complain, you are the government, you know, thanks. Small consolation. The final piece is the monopolization, the seizure of control of money and banking. And in a way, this is the most important for the state. And this is why we're going to get to legal tender. This is the easy way the state has to increase income. The state doesn't control money and banking. It has to get loans. It has to tax people. And that's difficult. Okay, so what does the state want in terms of control of money and banking? What it really wants is a pure fiat money monopolistically controlled by the state so that so that all barriers to counterfeiting are removed so they can print as much money as it wants to. But the problem state faces is that money arises in the pre market without the state as a commodity like gold or silver. And then counterfeiting of such a money can be noticed by people. It won't work. Even the state can't get away with that. So the state really has to destroy the gold system, the silver and gold commodity money system, so that obstacles to counterfeiting or overcome or removed. Okay, so how does the state do this? It systematically does this. First, the minting of coins gets monopolized by the state. And one thing this does psychologically is labels for money like an ounce of gold, an ounce of silver, or replaced gradually with state labels like dollar, drop mark, whatever. So people start to stop associating what money is with an amount of commodity. It's a label that the state grants to money. And then the state encourages the use of money substitutes like paper. Backed up by legal tender laws, which I will get to in more detail in a moment. Then the state monopolizes or carburelizes the banking system as we see in America in the Federal Reserve. Then it nationalizes gold as Roosevelt did in the 30s. And then cuts the tie to gold as Nixon did, giving it unlimited counterfeiting power. Okay, but it's not completely unlimited because there's not, there's more than one country in the world, more than one nation state. So all these countries have their own currencies and if anyone's stated plates too much, then there's a flight to other currencies. So the dominant state, namely the United States, has an interest in dominating and controlling the world's international money system. And over time we'll try to institute either a single world currency that it controls or that its central bank controls, or some kind of subtle but hidden system of interlocking agreements under the UN or various treaties that gives it control of the world's monetary system, which we see now. Hans-Hermann Hoppe's, you know, hypothesized that you know, one day we'll have a new UN currency dominated by the U.S. called the Phoenix or something like that. So you can see this coming. Okay, so now let's go back to legal tender. You see the role it plays in this process of state control of society and exploitation. So the word legal tender comes from the word tender, which comes from the Latin tinder, meaning to stretch. Right, think of the word like your tendons in your body, stretch, or the English word extend. Okay, so the word tender means to stretch out, to offer, to make an offer. Okay, like an offer to pay money. Okay, so the legal tender idea is a government rule or law that specifies that a given contractual obligation can be satisfied by the offer of a certain amount of money that the government declares to be legal tender, even if the contract specifies otherwise. Okay, so if you have a contract repaid in Swiss francs, then the debtor can still pay in U.S. dollars if U.S. dollars are legal tender. Okay, now this, the idea that you can pay a contractual obligation in money is not necessarily statused. In fact it makes a lot of sense for administrative purposes. This was, let me go to the, this is a better version of that. Under the Roman law two thousand years ago, allegations were held to be satisfied by a certain sum of money. Okay, the idea is that every service or every item on the market has a market price and you know even if you promise to give someone a goat or just saying if their kid's birthday party, if you fail to live up to your obligations, then a certain sum of money could compensate the the other party for that. That's not too controversial. You know if they don't give you the goat then you can get enough money to go buy a goat. So it works out pretty well. It's the idea of restitution. Right, now there are some exceptions to this. Certain goods that are unique like a piece of land. Okay, the idea is that a piece of land you have to, the courts will enforce that kind of contract. They will make the land transferred to the guy that it was promised to because the land is unique and where it's located, etc. Okay, so, so there's really not a big problem with the idea of paying off a debt in money. But then the question is how much money? Okay, and this is what legal tender laws almost always do. They specify fixed exchange rates. Okay, this is what the government's after. If the government merely said you can pay off any contract in but in dollars, okay, so if you have a contract in Swiss francs, well you're paid in dollars but you're paid in enough dollars is equal to that current value of Swiss francs so you just go buy the Swiss francs right after the deal's over. It's just a little inconvenience. It's not a big deal. Of course that's not what the government wants. The government wants to favor debtors usually itself. Usually the government is a big debtor. So what they want to do is specify an exchange rate that lets you pay off the debt at overvalued legal tender money. Okay, so it's a way of robbing the creditors. Okay, now this, this gives rise to a phenomenon called Gresham's law. I'm not going to do too much economics here but raise your hands if you've never heard of Gresham's law. I'm not going to ask the rest if you understand it. So Gresham's law is simply based upon the expression by I think Irving Fischer an economist who said bad money drives out good money. Now this is a little counterintuitive because usually on the free market good products drive out bad products right like Blackberry's tanking down the iPhone is doing well. That's maybe one example. And even in money right, gold and silver arises money instead of shells or leaves or cigarettes because they're superior. They're better money. So really on the free market we respect good products and good money to drive out bad products and bad money. Right, so really what Gresham's law is it's really not that bad money drives out good money it's that legally overvalued money drives out legally undervalued money. Let me give an example of this. Okay, imagine on the free market the ratio of silver and gold prices is 20 ounces of silver to one ounce of gold. Okay, so they're roughly equivalent on the market. So if you're offering to sell something for 20 ounces of silver if the guy pays you an ounce of gold you'll take that because they're roughly equivalent. Now the government comes in and establishes legal tender and says that one ounce of gold is equal to 40 ounces of silver. So you can see that in this case what the government has done is they they make gold legally overvalued and silver legally undervalued. Okay, so if I if I owe someone 20 ounces of silver I could pay them 20 ounces of silver which is worth an ounce of gold on the market or I can take my ounce of gold and go take half of it and buy 20 ounces of silver and pay off the guy that way. Right, so let's me stiff the guy. So what this results in is no one's going to use silver anymore because they're going to be they're going to be stiffed by this provision. So it would drive out the good money which would be silver in this case. Now in this particular example what would happen is that you would have a system where previously silver is used for small change and gold is used for for big big purchases. Right, but now if silver disappears you only have gold so what do people start doing to for small purchases? Well they start resorting to substitutes like tokens, coins, banknotes, etc. See where this is going? The government gets us used to paper money and things that don't really have let's say an intrinsic value but a commodity value of their own. So that's a question of law. This is one effect of legal tender laws. Now on the history of legal tender let's look at how it started being justified by the state say in England. So the crown the crown would say listen if you're coming to the state's courts to enforce a contract you're seeking justice from the king's courts then you have to submit to conditions we want to place on you. So if we say yeah we're going to help you enforce your contract but we're going to insist that you take payment in legal tender that we decree at a certain chain ratio. Now actually if you think about it this is selling justice. The courts are using their their the government is using its courts to sell justice to make a profit off of monopolizing the institution of justice and then selling the service which actually is a violation of the Magna Carta from 1215 in the Magna Carta the crown agreed to the to the Magna Carta which had a vision that says in Latin I won't read the Latin but the translation is to no one will we sell to no one will refuse or to delay right or justice. So they're not supposed to sell justice but they do it anyway with these with these legal tender laws which is one danger of the government controlling the courts and the law and the justice system. Now let's turn to the US now in the colonies before before the the revolution coins were scarce you know they couldn't bring a lot of coins on the ships over with them maybe they didn't have a lot of coins anyway. So they started using substitutes and these were declared legal tender by the various state the colonies the colony governments. Some may have heard of wampum before I never knew what wampum was but wampum is the Shelby money that the Native Americans used those were legal tender but black was worth something white was worth something else it was bizarre. Other things have been used for money legal tender corn bullets although you could only give someone so many bullets force them to take so many bullets tobacco, pitch, tar, pork and even country produce you can pay your service with country produce. In the year 1715 up to 17 commodities were legal tender to pay taxes in the colonies. Now we've got these little bit out of order. 1775 right before the Revolutionary War Congress was planning for war they knew war was coming they needed to raise money they knew that they didn't have any creditability as a new government to raise money by loans and they didn't have taxing power they couldn't raise a lot of taxes anyway. So what they did was they started issuing bills of credit but they were declared to be payable by the states so they expected the states to go out and raise taxes on their citizens with their taxing power the colonies I should say I guess there were states by then and pay off the the bills that way but Massachusetts and other states refused to do this they started issuing their own bills of credit and making them legal tender okay and this language here is striking shows you how seriously the government takes its monopoly over money and these legal tender laws they said that if anyone refuses to these notes and payment for a debt or even if you demand a premium in other words you think gold is better than a note that's denominated in gold but they really can't be redeemed in gold if you demand a premium like you say I'll take that note for a 10 percent discount because there's a risk that's illegal too and you would actually be deemed an enemy of the country and other states like Virginia, New Hampshire, Rhode Island had similar similar laws now 1781 turning to my top bullet there so the Articles of the Federation were finally ratified and it wasn't clear that Congress was granted the power to define legal tender it remained with the states turn turn forward a few years after the war is over constitutions ratified 1789 everything flips the states are denied the power to to coin money and Congress has granted the power to be the one in charge of legal tender etc well this was settled in the Supreme Court cases later but it's pretty clear now so right after this Congress passes an act 1792 all gold and silver coins which shall have been struck and issued from a mint shall be lawful tender and all payments and then there's a 1965 act which has similar provisions so that's where we are now now let's turn to uh I'm already talked about this let's turn to the use of gold in gold clauses so how could the states say in the U.S. cut the tide of gold well one way one way they could do it is they could set the exchange rate that's not market like using Gresham's Law as we mentioned before which is what the state did for a while you know they keep changing the exchange rate of gold it used to be one one uh one dollars or 20th of an ounce of gold then it was 30 one thirty fifth and nowadays it's it's a market rate um so just quickly go through the history of gold and gold causes 1933 Frank and Roosevelt issues in executive order criminalizing the possession of gold in the U.S. monetary gold so gold was seized by the government and outlawed and right after that the congress uh under Roosevelt outlawed um gold clauses a gold clause is a clause in a contract where if you're afraid of inflation in the dollar you could say you owe me a million dollars um well you owe me whatever the current dollar amount of 100 ounce of gold is in 10 years or whatever the term of the deal is that way if there's inflation you have to get dollars each of the paid dollars in the current paid to the price of gold okay so they were out they outlawed that of course because that's one way to do an in run around the government's legal tender system now in 1974 under president Ford the ban on gold ownership was finally repealed 1977 under carter gold clause over re-legalized for contracts enacted entered after october 1977 and Nixon cut the tie to gold okay so in this time all three things happen the dollar is no longer redeemable in gold there's no ratio anymore so the question is do we still have legal tender in the U.S. in a way i think we do not have legal tender right because you can have a gold clause you can pay your contract in gold it's not illegal you can own gold and the dollar doesn't have any fixed ratio just fluctuates so why isn't it just a mere inconvenience now well in a way it is so why hasn't gold reemerge this money well there's various possible reasons why it hasn't one might be that the dollar is not perceived by most people as being in the stage of hyperinflation so there's no big urgency to use gold clauses there's also Mises's regression theory which is the idea that money arises step by step and how always has a history so once something it's like a network in fact like facebook is more popular than google plus right now right so the same idea once something is money people keep using it unless something terrible happens also gold is subject to the trend of taxes sales tax and other types of taxes which money is not taxes have to be paid in dollars too that could be another reason and finally there could be fear of another state takeover like you know if gold clauses ever had an effect the state wouldn't let us use them they only let us do things that don't really threaten them so getting to bitcoin here what's the implications for bitcoin okay first let's step back and think what gold clauses are and what there's two types of monetary transactions that you can think about that are relevant to legal tender one is what's called an executed or maybe a a contemporary the contemporaneous transaction for example I walk up to a merchant and I say I'd like to buy that newspaper he says give me a dollar and I make the deal it's done it's done right there there's no future obligations on either party the second type is an executory contract sometimes called an executory contract that's one where there's an obligation in the future okay so we have a contract now you know I want you to build a house for me and when you're done building the house I will pay you $500,000 okay that's an executory contract and at the end of the contract the work done by the service provider if he's not paid he could sue in court to get the money he's owed okay and legal tender law kicks in only there because the obligation to pay him can be satisfied in whatever money the government declares to be legal tender so legal tender laws never have much in effect on contemporaneous transactions because if you walk up to some guy and he wants the artificial price for his goods he just refused to pay it he'll walk away he'll do the deal so legal tender laws only affect the second type of contract now as far as I'm aware I think bitcoin from what I've seen is used mostly for the first type of contract right now okay I'm not aware but I'm not even aware of a lot of gold clause contracts much less about where I'm aware of the practice of people entering into long-term significant contracts with bitcoin clauses are denominated in bitcoins so you know like not even an employment contract but a longer term contract like let's say alone okay I loan you a thousand bitcoins you need to repay me 1,100 bitcoins in in a year something like that for bitcoin to emerge as a full-fledged money it seems to me it needs to be start being used for the second type of monetary transaction as well and I suspect that it will as it gates the state and what it does the relevance of this legal tender discussion is that the state can do what it has done before with the gold clauses it could outlaw bitcoin clauses okay or any they would have to find a way to find it so that it covers litecoin and others as well right any kind of electronic currency they probably really go as gold clauses while they were at it and then the other way would they could they could declare a fiat exchange rate they could say one dollar is equal to one bitcoin right they could do something like that they would legally overvalue the dollar legally undervalued bitcoin so this is a conclude here this is the relevance of legal tender law this where I think it could be heading and the bitcoin community needs to be aware of this and try to keep an eye on the government thank you very much I'm not aware of that but I would I think they're probably unconstitutional under the under the constitution's prohibition of states interfering with that or at least be illegal because the government has preempted the field by by determining what legal tender is I can't imagine that survive a challenge in the federal courts the state we're in right now I know does not tax uh gold and silver so obviously coin coin shops operating along along the Georgia border you know have residents from Tennessee that come across to convert your fiat into uh gold and silver for uh you know savings um the vendors in Georgia have that advantage I remember that's one thing you spoke about is the some of the states are taxing the sale of gold and silver and that's something we're looking at pushing back against in the state of Tennessee to get that fixed well I I do think for for gold say to uh to ever become money again we have to remove these obstacles taxes one of course there's still federal capital gains tax which would apply um and who knows maybe the government's going to start trying to tax the states that tax gold sales might start trying to tax bitcoin sales I'm not sure uh yeah my name is Steven I think it's very interesting this question of uh legal tender laws because fundamentally it's only relevant if you're dependent on the state to enforce contracts it's completely irrelevant if you no longer are dependent on the state for the enforcement of contracts so I guess it's not so much a question as it is uh something food for thought um what does that when we're no longer dependent on the state for the enforcement of contracts no I absolutely agree and I think if we can come up with private arbitration measures or even some kind of anonymous contract enforcement system that would be one way to severely hamper the government's ability to impose legal tender because as I said they do it primarily through these executory contracts enforcement um a lot of the of course larger more established bear companies play very safe they're very conservative and they're going to be very reluctant to opt out of the state system at the current time I think so that's going to slow the adoption rate but uh yeah I agree I think that's our hope is that we can go to alternative systems there's a group called judge.me which I'm signed up to be an arbitrator for which we're trying to do things like that but it's still in the infancy and it's still uncertain of course yeah so at the beginning you mentioned you know um and somebody's got a contract and paid for a million dollars like you said like can I refuse a million dollars cash yeah I don't think you can answer that during the speech so like if somebody wants to pay for a million dollars cash can you say no in VJ? I actually was unable to find an answer when I did it back in 24 years ago but since then I've researched it and my understanding is that um you can it's hard to find but the problem is one other problem the good thing about a world full of free societies that we live we don't live by permission we don't live like in soviet union where everything that it's everything that's not permitted for bidden is supposed to be the other way around right we have islands of restrictions and an ocean of liberty we're supposed to have that right so you can't find a restriction in the law on some activity then the presumption is you're free to do it and I couldn't find a restriction but you never know if you've exhaustively looked at every one of the 17 shell feet of federal register rules so I couldn't find a restriction so my conclusion was I think you can do this but in the meantime I researched it and it looks like it's pretty clear that you can you can refuse a mode of payment if like it's too dangerous to receive a briefcase of cash you're not really fusing dollars you're just refusing the mode of payment so I believe that you can refuse it of course you can specify the contract ahead of time but you have to pay me some regular safe method of you know cashier's check or wire wire transfer I mean when you close on a house quite often they'll assist on a cashier's check you show for the personal check they will take it that's not really a violation legal tender law hi I wanted to ask you a question that I heard you asked recently at the property and freedom society about the raw volume conception of property rights in which all rights are property rights and all crimes and violations of property rights because it seems like in the bitcoin space either a passive observer of a bitcoin user of a careless bitcoin user or else a really smart mathematician can transfer someone's bitcoins involuntarily would you describe this as stealing and do we need to rethink our version of property rights into something that has more to do with societal norms so I this is my amateur opinion on this my layman's opinion I know they're experts on how bitcoin works its standards the code more than I am from what I've been told by people that know a lot more about bitcoin than I do like you it's actually not a violation of the rules of bitcoin to somehow discover someone's private key and use that to take bitcoins from their account for it to be against the rules you would have to you know you clicked on the terms of service or something like you do but that's contrary to the purpose of bitcoin being pseudonymous right so I don't believe there's any term of service anyone agrees to so it's actually not prohibited by any sort of rules that anyone agrees to and it's not a property right because a bitcoin is not a scarce resource it's a ledger entry it's just it's a distributed system that people agree to to use because it's useful and it basically associates some accounts with others and that could be useful so I don't believe there's a property right in it I think it's analogous to property rights the way it works and it may be even better than some property rights the way it works in terms of practical reliability on it so whether norms that arise that that you know people with their finger and they they uh at people that that somehow we're able to do that because it's so secure the only way I can think of doing it would be some kind of social engineering anyway I don't know how they're going to guess someone's private key or get it now if you break it to someone's computer you hack their computer or you break into their home to get their keys then that should be a crime because you're trespassing against their actual own property in order to get the information and then what you do with the information would be a measure of the damages that's owed to the victim of the trespass but I don't think Bitcoin is property a property right but I don't mean that as criticism I don't think that's a negative thing or a bad thing as we head to lunch a couple things to think about you need to take anything that's valuable with your computer's Bitcoin take it with you the the hotel here has a wonderful restaurant and I highly recommend the tomato soup if you are alone for lunch and you're sad about that just turn to the person next to you and invite yourself I guarantee you there is no one in this room who is uninteresting so you'll have a wonderful time thank you'll see you at 1 30 Peter Serda coming