by David Wolman
The groundswell of interest in alternative currencies has also created unlikely alliances. The private currencies E-gold and GoldMoney, for example, are online accounts from which people can make payments against gold bullion stored in a company vault. The founders of these and similar businesses have partnered with a group of Muslim businessmen to promote their currency in the Islamic world, under the name E-dinar. As one proponent of this e-styled return to a gold- and silver-backed medium of exchange told Wired, suicide bombings aren’t the way to fight Western capitalism. “You want to be radical? You don’t need to blow up the bank, just burn your bank account. And for that you are going to need an alternative.”8
But unless gold somehow manages to reclaim (redeem?) its status as the backbone of the international monetary system, it will remain a mere commodity. Owning it means vulnerability to its market price, which makes digitally accessed gold accounts a new money scheme that isn’t new at all—except for the online part. But if you’re convinced that an oversupply of money in the system is a plague on the financial system, then maybe gold is your thing. For alternative currencies like the Ithaca HOUR, the risk of a mismanaged money supply is alive and well, and a misstep, or confidence trouble resulting from the outbreak of war in upstate New York, could suddenly cause the HOUR’s value to plummet. National currencies run this risk too, but those who handle the state money supply have more tools at their disposal for maintaining stability, like being able to buy up hundreds of billions of dollars’ worth of foul-smelling mortgage-backed securities.
Local currencies, by definition, have limited utility in a global economy. Unless people start accepting them far and wide, you won’t have much luck using them if you ever travel outside of town or want to buy something over the Internet sold by a company located thousands of miles away. In the case of online currency exchanges like Superfluid, the limitations aren’t geographic so much as the kinds of exchanging you can do. Should you run out of trading partners willing to accept your graphic design consultation, freelance copy-editing, or massages, which seem to be the bulk of the business offerings, at some point you’ll have to find a way to earn some money denominated in a currency acceptable to your power company, landlord, and pharmacy, at least for the time being. Ven are starting to show more widespread applicability—some people have bought cars with them, for instance—but the jury is very much out on these projects.
One sign that alternative and virtual currencies are gaining in popularity is how many people look to them as a preferred means of payment. As one analyst recently told Bloomberg News: “We have to stop differentiating between the virtual world and the real world. The virtual world is very real.” Money and currency don’t discriminate between what we might describe as real versus virtual currencies, the way an online avatar is virtual but a hole in your roof is real. Currency is simply that which is accepted as payment, and its legitimacy and global reach is only limited by the extent of that acceptability. Getting paid in airline miles suits a travel addict, just as getting paid in Disney Dollars may be exactly what parents planning an Orlando vacation need, especially if using them at the theme park confers some kind of discount. Getting paid in the virtual gold coins traded in World of Warcraft may be what your mechanic prefers for payment in exchange for car service, but the two of you don’t yet have the killer apps to make that transaction as seamless and trustworthy as today’s predominant methods of exchange. They are coming, though.
As far as government authorities are concerned, your alternative currency adventures—whether with units of energy, goods in cyberspace, old-fashioned paper, or holographic representation of those giant stones from the Micronesian island of Yap—won’t be a problem as long as your currency doesn’t look like government-issued notes and coins. Don’t use it to conceal income, and don’t advertise it as a competitor to your national currency, especially if your national currency is the U.S. dollar.9 So if Bernard von NotHaus’s Liberty Dollar is a “private voluntary barter currency,” why is he facing up to twenty-five years in prison and a $750,000 fine?
IN 1998, VON NOTHAUS and a handful of supporters launched—nay, “issued”—their Liberty Dollar: “a private voluntary free-market currency backed entirely by silver and gold.” One of the organization’s brochures lays it out in simple language. “It is real gold and silver money that you can use just like cash wherever it is accepted voluntarily for everyday purchases at your grocery store, dentist, or gas station.”10 It’s also “100% moral, legal, and constitutional.”
Von NotHaus trumpeted the kind of community-minded ideals that have boosted efforts like Ithaca HOURs, but the group’s primary selling point, popular among the far right, was about protecting oneself against the shrinking value of the U.S. dollar. Liberty Dollars, they declared, are better than worthless government paper because “Liberties” are made from, or backed by, precious metal. The “$” stamped on them was like an exclamation point. Or a middle finger.
One afternoon in Honolulu, I meet von NotHaus at the offices of the Royal Hawaiian Mint, on the seventh floor of the Waikiki Trade Center, a drab office building just blocks from the beach. Over his desk hangs a framed drawing of a faux greenback, with a portrait of a dinosaur and, in the same font that we’re so accustomed to seeing “United States of America,” the words “Hypnotized State of America.” The serial number is UOOOOOOME.
Within minutes after my arrival, von NotHaus shows me an album full of famously worthless Weimar Republic banknotes. “You can read all this Austrian economics crap, but they all lack a real-world solution. I’m not a hairy fairy intellectual do-nothing asshole. I’m just an everyday asshole—a regular guy with a great idea. And it’s totally legal!” When the Liberty Dollar started, silver was trading at around $5 an ounce. Von NotHaus was stamping $20 on his one-ounce silvers, though. Coining adds value to the spot price of a metal because coins are prettier and easier to carry. He added the denomination, he says, to give the pieces a “suggested face value” that would get people comfortable transacting with this novel currency.
In the parlance of Wall Street, von NotHaus is what’s known as a gold (and silver) bug, a devout believer in the value of precious metals. Mainstream bug theology rests on the conviction that detaching the value of the dollar from a real substance was a horrible decision. Without anchoring money to something tangible, the value of paper and cheap coins is no more real than a unicorn. Gold and silver, they argue, have been used as money for so long that they essentially are money. Or, in the words of titanic British philosopher John Locke, “silver is a matter of nature different from all other.”
Many bugs stop there, content to invest heavily in gold or silver because they view precious metals as a safe haven for assets, especially when the economy is struggling and currency values teeter. But others go further. In their eyes, we need to return to the gold standard. They believe fiat currencies backed only by government promises are essentially garbage—“only the ghost of money,” as Thomas Jefferson put it. Because governments have historically failed to limit the supply of money in the system, these critics say “fiat trash” invariably erodes the population’s wealth by diminishing the purchasing power of the bucks people have. In a word: inflation.
At various points during our conversations, von NotHaus impresses upon me the notion that silver and gold equal “real money.” His most memorable attempt to emphasize this point goes like this:
“Are you real, David?”
“Yes.”
He then gestures to the silver bullion bars, spread out on his office table at right angles like dominos of various sizes.
“If I grabbed one of those silver bars and clocked you in the face with it, what would you do?”
“Bruise,” I said, unsure whether this was the answer he sought, but fairly confident it was correct.
“OK, yes. And?”
“Retaliate?” I said.
“Yes! We live in a physical plane, David. The markets—they are physical . You c
an order a shirt online, but the damn shirt still has to get shipped to you.” I nod quietly, deciding not to mention the estimated $3 billion spent on virtual goods last year.11 In a way, it’s not wrong to say that metals, corn, or other commodities possess intrinsic value because it’s so supremely unlikely that their market price will ever be $0, and because some of them can be eaten or used for making or doing things in the real world. But they’re still just forms of money with fluid value like any other. As with banknotes, physicality alone says nothing about an object’s value.
Ignoring the fact that the majority of economists today would echo, in one way or another, economist John Maynard Keynes’s opinion that the gold standard is “a barbarous relic,” and Adam Smith’s declaration that gold and silver are “utensils, it must be remembered, as much as the furniture of the kitchen,” and never minding that money is really more like a verb than a noun, von NotHaus and millions of metal-heads across the globe still believe precious metals are value incarnate.m
Not to suggest that this is an absurd idea. Central banks own about 18 percent of all the gold ever mined. In recent years the central banks of India, Russia, China, and other countries have been gobbling it up, although no country owns nearly as much of the shiny stuff as the United States—8,133 tons, according to the Treasury, socked away at Fort Knox, the New York Fed, and probably some secret bunker alongside Dick Cheney’s G.I Joe collection .12 In the spring of 2011, Utah actually legal-ized gold and silver currency. You can now take your silver $1 American Eagle to Salt Lake City and spend it on something worth $1 or less. “You’d be a fool,” U.S. Mint spokesman Tom Jurkowsky told the New York Times. “But you could do it.” You’d be a fool because the silver content makes that coin worth about $38.13
A return to the gold standard, or a gold and silver standard, is one of those perennial ideas that may sound throwback-ish, until you remember that we’ve only been ticking along with a fiat currency system for about a century, and only forty years with the complete separation from gold. It’s also something of a puzzler that fiat currencies are the way of the world, yet central banks themselves hoard so much gold.
Still, even distinguished economists who are gravely concerned about the dollar and the global economy’s dependence on it say that a return to the gold standard is a bad idea.14 For one thing, there just isn’t that much of it, a limitation to reviving the gold standard that could, theoretically, be overcome if we were to transact digitally in ever-smaller fractions of an ounce. More fundamental and technical criticisms of the gold standard have to do with the inflexibility that handicapped economies of old. You can’t easily feed the beast of the money supply if there’s a finite amount of money.
Another concern about the gold standard is that it can make prices drop when the economy is chugging along. That can make the money in your wallet more valuable to you than spending it, which could create dangerous deflation. The key here is not that the gold standard itself is a wacky idea, but that a return to it would be akin to a monetary Hail Mary pass. On the other hand, it’s bizarre, if nothing else, that one of the most oft-touted advantages of fiat currency is that it can be used to rescue countries from financial ruin, and not necessarily that it’s a stable vehicle carrying us into a more prosperous tomorrow.
The dystopian worldview held by hardcore gold (and silver) bugs usually falls short of an invocation of Satan, but like those who believe going cashless is a harbinger of the End of Days, reverence for precious metals and a return to the gold standard is reinforced by the conviction that a Weimar-scale hyperinflation is just around the corner. Von NotHaus gives us a year, maybe two. Monetary doomsayers have been saying this for many years now, if not decades, but gold bugs cling to this vision of collapsing empire as if the forecast itself was a gold ingot. Then again, since the crisis beginning in 2007, when trillions of dollars’ worth of value suddenly vanished, such dire predictions of calamity no longer feel like Nostradamus nonsense.
Von NotHaus’s original aim was to capitalize on the belief that precious metal in your hand is the only true form of wealth, as well as that renewable resource known as antagonism toward government. (In 2009 he also started minting and selling Tea Party Dollars.) “People are unhappy with the government, but they don’t necessarily know why,” he says. “It’s not the Democrats or the Republicans. It’s the fucking money! Period. They’re taking the value of the money! That takes the values out of society, and before you know it you have massive debt, which means massive criminality. Immorality.”
His fury over fiat currency makes it that much more insulting, and tragically ironic, that von NotHaus faces charges of counterfeiting. He says it took him twenty-three years to engineer precisely how the Liberty Dollar would work. “Do you have any idea how hard it is to develop a private currency based on a commodity with an ever-changing price?” His goal seemed straightforward enough: make it inflation-proof and rescue the nation from self-destruction. “This is an important step to give people power to control manipulations of currencies,” he says.
That public-spirited line is reminiscent of what PayPal co-founder Peter Thiel is said to have told his employees in the early days of the company, when they were trailblazing a new online system for sending and receiving money. By having one’s money in an online account, Thiel claimed, people would be able to bounce between currencies. “It will be nearly impossible for corrupt governments to steal wealth from their people through their old means [a.k.a. devaluation or stealth taxes] because if they try, the people will switch to dollars or pounds or yen, in effect dumping the worthless local currency for something more secure.”15 Yet few people would consider Thiel to be some kind of clown.
The Liberty Dollar combines money in the time-tested sense of tangible worth, a specific weight of gold or silver, with more modern features, including membership discounts, an eLibertyDollar option, and a mysterious mechanism called a “MoveUp” for keeping pace with the market price of metals, even if those prices happen to move down (a prospect von NotHaus does not like to discuss). The reason for the MoveUp is that if the price of raw silver or gold soars so far above the face value von NotHaus has stamped on the coins, no one will want to spend them. They’ll just hoard them, or sell them for their intrinsic metal value.
So von NotHaus came up with some special rules—it’s his currency, after all—whereby the value of the Liberty Dollar is hooked to a base figure. One ounce of silver equals $20, for example, which was the working base value for a while. If the market price of silver goes up high enough and for long enough, as it did a few years ago, von NotHaus bumps up the base accordingly. Following the MoveUp, owners of Liberty Dollars have the option to mail in their coins and, for a small minting fee, have a one-ounce $20 coin transformed into a one-ounce $50 coin. Snap: you just more than doubled your money. If you don’t send in your Liberty Dollars, you’re essentially cheating yourself out of free money, while giving a monstrous tip to someone in the future who accepts your $20 coin as payment and then promptly mails it in to have it turned into a $50.
Ask von NotHaus what happens if the price of silver or gold goes down and his explanation goes serpentine. “The currency can’t be used if it doesn’t have value. You can’t barter a car for a chainsaw if you can’t measure their worth.” What I think he means is that people need a commonly recognizable unit of account; we think in dollars, at least for the time being. But that hardly suffices as an explanation of the full ramifications of a MoveUp that actually moves down. I press the point, and this time von NotHaus starts yelling about real value and the “giant gorilla” of government.
Since its inception, the Liberty Dollar has been run by a nonprofit called NORFED, short for National Organization for the Repeal of the Federal Reserve and the Internal Revenue Code (later renamed Liberty Services). Von NotHaus was the point man, but the upstart currency had an office in an Indiana strip mall, where a few employees filled orders for coin purchases and filed paperwork for people who wanted to hold L
iberty Dollar warehouse certificates for silver or gold stored at a facility in northern Idaho.
New users join the club when they pay a fee to become Regional Currency Officers, a privilege that allows them to buy Liberty Dollars at a discount, say $18 for a Liberty coin denominated as $20. They in turn recruit “associates” and local merchants to participate by accepting the currency as payment. When using the Liberty Dollars, though, the idea is for participating merchants to make change based on that $20 face value, which means the silver coin you just bought for $18 (in greenbacks) now has buying power equivalent to $20.
For the first five years or so of its existence, the Liberty Dollar flew under the radar of both the government and the public at large. In scattered communities around the country, usually small towns, transactions were being mediated with these shiny silver rounds. How many users is impossible to say, but von NotHaus enjoys proclaiming that the Liberty Dollar is America’s second most popular currency. He says upward of $50 million worth of Liberty Dollar–denominated silver and gold pieces were circulating by 2007, with more than 250,000 supporters. But bear in mind, the source of these figures is a man who believes the 9/11 attacks were a government operation, and that a mysterious “frequency machine” can cure all diseases.
Still, from Arkansas to Illinois to California, citizens were buying and using the Liberty Dollar. Some may have accepted it just for novelty’s sake, and the majority of Liberty Dollar transactions probably had little to do with monetary insurrection. The pieces look stately, adorned with Lady Liberty, “USA” and “Trust in God” on one side, and the liberty torch and lots of official-looking text on the other.n If people weren’t tricked into thinking the coins were government money, they might have been taken by the idea of owning a little silver or gold. Or maybe a friend or neighbor was atwitter about this newfangled currency, and, so, what the heck? Why not trade it for your proffered haircut, pizza, or an antique lampshade? It’s not like doing so is going to matter in the grand scheme of things, right?
