When Private Money Becomes a Felony Offense

The popular revolt against a declining dollar leads to a curious conviction. 

By SETH LIPSKY

From the Wall Street Journal - March 31, 2011

The next chapter in the struggle over sound money may be the case of a newly minted felon named Bernard von NotHaus. Mr. von NotHaus was convicted this month of counterfeiting money by issuing silver coins called Liberty Dollars. His company's website says it's been taken down by court order, and absent a successful appeal he could spend years in jail.

Mr. von NotHaus was convicted under a section of the United States Code that makes it a crime to manufacture or pass "any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design." The law was enacted during the Civil War, soon after the Union began issuing the paper scrip known as greenbacks.

It is too soon to say what Mr. von NotHaus's grounds of appeal will be, but it is not too soon to say that his case will be one to watch at a time when so many believe our economic troubles are tied to the fact that the dollar has become a fiat currency, and when leaders world-wide are calling for a new reserve currency.

So alarming has been the collapse of the dollar that the legislatures in as many as a dozen American states are considering using their authority—under Article 1, Section 10 of the Constitution—to make legal tender out of gold and silver coins. Lest the ghost of Friedrich Hayek or any other advocate of privately issued money get any bright ideas, however, the von NotHaus verdict will stand as a warning.

The warning is contained in paragraph 33 of the indictment handed up against Mr. von NotHaus in a courtroom at Statesville, N.C. It said:

"Article 1, Section 8, Clause 5 of the United States Constitution delegates to Congress the power to coin money and to regulate the value thereof. This power was delegated to Congress in order to establish a uniform standard of value. Along with the power to coin money, Congress has the concurrent power to restrain the circulation of money not issued under its own authority, in order to protect and preserve the constitutional currency for the benefit of the nation. Thus, it is a violation of law for private coin systems to compete with the official coinage of the United States."

Yet a curious thing happened in the courthouse on the day before the jury went to deliberate. According to Aaron Michel, Mr. von NotHaus's attorney, the judge granted Mr. Michel's request to delete paragraph 33 from the indictment.

"That is a statement of law that, if it were to be put before the jury at all, should have been a matter of discussion between the parties as to the court's instructions to the jury on the law," Mr. Michel quoted the judge, Richard Voorhees, as saying. "In any event, it does not appear to the court to be a factual predicate that is supported by the evidence in the case."

The judge then asked one of the federal prosecutors, Jill Westmoreland Rose, whether she had "any comment on that." "No, Your Honor," Ms. Rose replied, according to Mr. Michel. So the copy of the indictment that went to the jury contained white space where paragraph 33 once was.

Yet after Mr. von NotHaus was convicted on March 18, the government issued a press release trumpeting the verdict and repeating the part of the original indictment that the judge had struck out. The release also went further, asserting that Congress's power to coin money under the Constitution was also meant to "insure a singular monetary system for all purchases and debts in the United States, public and private."

It again asserted that it is a violation of federal law for individuals—such as, it added, Mr. von NotHaus—"to create private coin or currency systems to compete with official coinage and currency of the United States." So much for the judge's view that the paragraph was unsupported by evidence in the case. The U.S. Attorney's office did not respond to a request for comment.

To be sure, there are advocates of sound money who believe that, while Mr. von NotHaus's scheme may have been visionary in principle, he made some mistakes under American law. He put a "$" sign on the silver he was issuing, and he denominated the units in dollars (albeit Liberty Dollars, or Liberties). Such facts may have helped convince the jury to find him guilty of counts involving the counterfeiting of coins.

It may also be, however, that the government has overreached in the von NotHaus case. It is indisputably clear that the power to coin money and regulate its value is one that the Constitution delegates to Congress.

 It's an enumerated power, and one of the big ones. It's also clear that the Constitution bars states from making coins other than gold or silver legal tender. But it is not clear that there is a constitutional basis or a logic for prohibiting individuals from making and selling pieces of gold and silver and using them, on a voluntary basis, as money—i.e., to "compete with" the official coinage of the U.S.

Certainly it's a loser's game to suppress private money that is sound in order to protect government-issued money that is unsound. For, as was once said by the same Abraham Lincoln who brought in the greenback to finance the great cause of the Union, you can't fool all of the people all of the time.

Mr. Lipsky is editor of the New York Sun.