It's now 100 years since fiat money was introduced to America, by the Federal Reserve Act. In that century, over 98.5% of its value has been destroyed.
Suppose you found a counterfeit bill in your wallet. Would you spend it? The recipient would hand over something valuable in exchange, but when he came to deposit the bill, it would be rejected, so he'd swallow the loss. So your action would hardly be ethical. Equally however, somebody did that to you; the bill didn't reach your wallet by magic. Why should you be the one to swallow it? It's like a game of musical chairs. Get rid of the bad money if you can, while you can, that's the game.
So in general, there's not much resistance to the use of bad money such as the Legal Tender Notes (LTNs) which are in your wallet and mine, by those who spend it; the problem comes from those who receive it, in exchange for useful goods. That's why LTNs are decreed to be valid and compulsory for acceptance; as it says in the Concise Oxford English Dictionary (1934) and elsewhere, "Legal Tender" is a term that means "currency that cannot be refused in payment of a debt." When some country's government decrees that specific kinds of currency are “legal tender,” those laws compel its acceptance by their use of that term. Surprisingly, the current Wikipedia entry about the term quotes the US Treasury as saying there is no statute on the books to compel the acceptance of LTNs; that may be quite true, but in making “dollars” “Legal Tender,” that's exactly what Congress did because that's the meaning of the term. Even so, it leaves open the question of why the Treasury should be interested in disguising the ugly truth. Are they ashamed of it? Do they plan some even more deceptive form of ”money”? Stay tuned.
Recipients are kept in business by the same decree. The banker with whom he deposits the accepted, bogus note is also compelled to accept it, and round and round it goes; everyone pretends bad money is good, to avoid getting stuck with it.
I have some coins upstairs, collected during my travels; a Swiss Franc or two, a French one, a Deutschmark (RIP), a Pound, some Kroner including a Danish one with a hole in it, etc. If I were to offer a Pound in payment of a $1 debt here in the USA, it would probably be refused--even though it's currently “worth” $1.60 or so--primarily because Her Majesty's corresponding Legal Tender decree doesn't run in these former colonies. The vendor could accept it, but probably wouldn't. The choice would be his. But if I offered a fine picture of George Washington, the choice would not be his. It's a wonderful thing, when the counterfeiter decrees acceptance and owns the courts and the prisons. Making money was never simpler.
The big spender who owns both bogus notes and real silver (or real silver certificates) could offer either, in payment of debts. But because he knows the worthless money must be accepted, he will certainly get rid of that first, and that's the paradox known as Gresham's Law: bad money drives out good, when its acceptance is mandatory. Once repeal the legal-tender status of the LTNs, however, and the situation is reversed; nobody aware of the repeal will accept them any longer and will sell useful goods only for real money, like silver. Bad, hot money will be driven out by good money – not by the spender but by the receiver.
Government is never going to repeal its legal-tender laws, for then its immensely useful fiat money scam would disappear and it would have to raise some serious taxes instead, and that would lose it the next election; so isn't the foregoing rather academic? Not quite. Repeal won't happen, but effective enforcement of those laws will cease – and that will have just the same effect.
Their enforcement will cease when any or all of four things takes place:
Those things will take place when a significant minority of the population has been re-educated. A minority will suffice (e.g., one in twelve on a jury will cause a mistrial and so terminate enforcement), but the re-education must be quite thorough and it must reach at least that many.
The only way that, in turn, can happen is for a freedom school to grow the number of its graduates exponentially--say, to double them annually. In that case, one or more of those four conditions will apply during the final four years of the Age of Government, as is easy to see; four years from the end one person in (24 =) 16 will inhibit enforcement, at three years out one in (23 =) 8 will do so, etc; so to empanel a compliant jury of twelve will become impossible between four and three years prior. Prosecutions for “victimless crimes” will then cease, like those for alcohol trading did around 1930.
At about the same time, LTNs will be losing value like there's no tomorrow – and for them, there won't be. The loss will result from a catastrophic reduction of tax receipts--which will happen when taxpayers realize that collections too are becoming unenforceable--followed by large-scale printing to make up the shortfall. Notice that this hyperinflation will not itself cause the demise of the LTN, but in that way will rather be a symptom or result.
There will even be ways to use the spiraling inflation to hasten the collapse of government and its banker friends; nominally large home mortgages may be paid off in full with a mere sack of paper, and any payments to the government may be made using paper checks (possibly post-dated?) sent by government mail. The delay of several days will slash the value, which will cause increased money printing, which will . . . .
As re-educated free marketeers (the “White Market”) discover each other in this exciting period, we will hasten the rout of fiat money; we'll try to trade with each other rather than with the rest of the world, and will use only real money – because, as the Legal Tender law is seen to be unenforceable, recipients in that market will decline to accept it and payers will understand and support that choice by spending paper money only where it is still, foolishly, accepted.
It will be a fun time, and one of its effects will be the very strange one that real money like gold and silver will dramatically increase its purchasing power, as I suggested here in “M” back in 2009. Not just their dollar exchange rate, but their value against real goods; and that will be an historic first-ever.
My Transition to Liberty predicts that these events will happen a lot sooner than some pessimists suppose. I wish they could happen sooner yet.