TOPEKA, Kansas (Feb. 11, 2024) – A bill introduced in the Kansas House would declare gold and silver specie as legal tender in Kansas, establish a specie-backed transactional currency in the state, and establish a state bullion depository.
Rep. Michael Murphy and a large coalition of cosponsors introduced House Bill 2729 (HB2729) on Feb. 7.
SPECIE LEGAL TENDER
Under the proposed law, specie legal tender would be defined as, “gold or silver coin or bullion, including, but not limited to, gold or silver coin issued by the United States.”
Under the proposed law, “Specie legal tender may be recognized to pay private debts, taxes and fees levied by the state or any political subdivision thereof.”
HB2729 includes a contract clause under which, “If a valid and enforceable contract expressly designates a type of specie as legal tender, the court that is asked to adjudicate a breach of such contract shall require, as a remedy for a breach, the specific performance of tendering the type of specie specified in such contract.”
In practice, if voluntary parties agree to be paid, or to pay, in gold and silver coin, the Kansas courts could not substitute any other thing, e.g. Federal Reserve Notes, as payment.
The legislation would also require the treasurer to “adopt rules and regulations to approve and allow the use of one or more electronic currencies as a valid form of payment within the state.” Electronic currency is defined as “a representation of actual precious metals, specie, or bullion held in a depository account that may be transferred by electronic instruction. Such representation shall reflect the exact units of physical precious metals, specie, or bullion in such depository account in its fractional troy ounce measurement as provided in this act.”
“Subject to the requirements of this section, the state treasurer shall adopt rules and regulations to approve and allow the use of one or more electronic currencies as a valid form of payment within the state. Such approved currency shall be legal tender in the state.”
Practically speaking, enactment of this law would allow Kansans to use gold or silver in both physical and electronic form as money rather than just as mere investment vehicles. In effect, it would put gold and silver on the same footing as Federal Reserve notes.
Passage into law would make Kansas the fifth state to recognize gold and silver as legal tender. Utah led the way, reestablishing constitutional money in 2011. Wyoming, Oklahoma, and Arkansas have since joined.
The effect has been most dramatic in Utah where the legal tender law opened the door for the development of a gold and silver market in the state. With some legal hurdles cleared away by the state, the United Precious Metal Association (UPMA) in partnership with Alpine Gold Exchange set up the state’s first “gold bank.” The Utah Specie Legal Tender Act has also led to the creation of Goldbacks, a local, voluntary medium of exchange. Goldbacks are notes made from fractions of an ounce of physical gold. The company created a process that turns pure gold into a spendable physical form for small transactions.
A similar legal tender bill is making its way through the Kansas Senate.
TAXES ON GOLD AND SILVER
SB2729 would effectively repeal all property and capital gains taxes on gold and silver specie.
(a) No bullion shall be characterized as personal property for taxation or regulatory purposes.
(b) The purchase or sale of any type or form of bullion shall not give rise to any tax liability.
The passage of this bill would build on a foundation set in 2019 when Kansas repealed the sales tax on gold and silver.
Repealing taxes on precious metal bullion takes a step toward treating gold and silver as money instead of commodities. Taxes on precious metal bullion erect barriers to using gold and silver as money by raising transaction costs. As Sound Money Defense League policy director Jp Cortez testified during a committee hearing on a similar bill in Wyoming in 2018, charging taxes on money itself is beyond the pale.
“In effect, states that collect taxes on purchases of precious metals are inherently saying gold and silver are not money at all.”
Imagine if you asked a grocery clerk to break a $5 bill and he charged you a 35-cent tax. Silly, right? After all, you were only exchanging one form of money for another. But that’s essentially what Kansas’s sales tax on gold and silver bullion does. By eliminating this tax on the exchange of gold and silver, Kansas would treat specie as money instead of a commodity. This represents a small step toward reestablishing gold and silver as legal tender and breaking down the Fed’s monopoly on money.
“We ought not to tax money – and that’s a good idea. It makes no sense to tax money,” former U.S. Rep. Ron Paul said during testimony in support of an Arizona bill that repealed capital gains taxes on gold and silver in that state. “Paper is not money, it’s fraud,” he continued.
BULLION DEPOSITORY
Provisions in HB2729 would authorize the state treasurer to establish and administer bullion depositories “to provide a secure location for the storage of bullion; or to contract with a third party to act as the administrator to manage the day-to-day operations of the depositories and implement the depositories’ security, storage and transactional and administrative procedures in accordance with the law.”
A depository account holder would be able to purchase, sell, deposit, or withdraw bullion. It would include “electronic systems” for the purchase and sale of bullion for depository account holders who cannot or choose not to travel to the physical location.
In a nutshell, through the depository, Kansans would eventually be able to deposit gold or silver and pay other people through electronic means. Private individuals and entities would be able to purchase goods and services using assets in the vault in the same way they use cash today. Doing so has the potential to open the market to sound money in day-to-day transactions.
The depository provisions are based on a similar law that was passed in Texas and signed into law by Gov. Abbott in 2015. The Texas depository received its first deposits in the summer of 2018.
By making gold and silver available for regular, daily transactions by the general public, a depository has the potential for a wide-reaching effect. Professor William Greene is an expert on constitutional tender and said in a paper for the Mises Institute that when people in multiple states actually start using gold and silver instead of Federal Reserve notes, it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.
“Over time, as residents of the state use both Federal Reserve notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve notes do will lead to a ‘reverse Gresham’s Law’ effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes).
“As this happens, a cascade of events can begin to occur, including the flow of real wealth toward the state’s treasury, an influx of banking business from outside of the state – as people in other states carry out their desire to bank with sound money – and an eventual outcry against the use of Federal Reserve notes for any transactions.”
Gresham’s Law holds that “bad money drives out good.” For example, when the U.S. government replaced silver quarters and dimes with coins made primarily of less valuable copper, the cheap coins drove the silver out of circulation. People hoarded the more valuable silver coins and spent the less valuable copper money. So, how do you reverse Gresham?
The key is to make it easier to use gold and silver in everyday transactions. The reason bad money drives out good is that governments put up barriers to using sound money in day-to-day life. That makes it more costly to spend gold and silver and incentivizes hoarding. When you remove barriers, you level the playing field and allow gold and silver to compete head-to-head with Federal Reserve notes. On an even playing field, gold and silver beat fiat money every time.
BACKGROUND
The United States Constitution states in Article I, Section 10, “No State shall…make any Thing but gold and silver Coin a Tender in Payment of Debts.” Currently, all debts and taxes in Kansas are either paid with Federal Reserve Notes (dollars) which were authorized as legal tender by Congress, or with coins issued by the U.S. Treasury — very few of which have gold or silver in them.
The Federal Reserve destroys this constitutional monetary system by creating a monopoly based on its fiat currency. Without the backing of gold or silver, the central bank can easily create money out of thin air. This not only devalues your purchasing power over time; it also allows the federal government to borrow and spend far beyond what would be possible in a sound money system. Without the Fed, the U.S. government wouldn’t be able to maintain all of its unconstitutional wars and programs. The Federal Reserve is the engine that drives the most powerful government in the history of the world.
Repealing taxes on gold and silver also takes a step in the process of abolishing the Federal Reserve system by attacking it from the bottom up – pulling the rug out from under it by working to make its functions irrelevant at the state and local levels, and setting the stage to undermine the Federal Reserve monopoly by introducing competition into the monetary system.
WHAT’S NEXT
HB2729 was referred to the House Committee on Financial Institutions and Pensions where it must get a hearing and pass by a majority vote before moving forward in the legislative process.
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