In 1789, the Constitution of the United States was ratified by the original thirteen states. Hooray! A new country had been born. And what does every self-respecting country need? Why, its own money, of course. When you go to the tavern for a brewski after a hard day of nation building, you'd like to pay with something that reminds you of what you've accomplished.

It was especially important because England had forbade the minting of coins in the colonies, so some coins that said UNITED STATES OF AMERICA on the back would really drive home the point that things had changed. On the other hand, you didn't want to confuse the situation too much, bearing in mind that everybody already had some kind of coins jingling in their purse. And what were they? They were likely Spanish Milled Dollars (or halves, quarters or eighths of one; the coins, with a value of eight reales, were often literally chopped into bits so as to be useful to pay smaller debts. A wedge of one eighth of the whole was one bit, making two bits a quarter.)

Minted in many Central and South American Spanish colonies, the Dollar had been in wide circulation in the colonies for many years. The new Congress decided to make it the basis for the US dollar. With the Constitution giving them the power to coin money, and remembering the disasters of the money issued by the Continental Congress which had been inflated away, they passed the Coinage Act of 1792. Having sampled many Spanish Milled Dollars, they in that legislation defined the US dollar to be equivalent to 371.25 grains of silver, and declared the dollar as the money of account of the United States. While they were a day late, passing the bill on April 2, they threw in a joke at the end, Section 19 of the law, establishing the death penalty for debasing the coins produced by the new Mint.

That's why those dollars in your pocket contain about three quarters of an ounce of silver.

What? Oh, you've got the paper dollars. The ones that say "redeemable upon demand by the bearer for one dollar in silver".

Oh, that's right; they stopped saying that decades ago. Oh dear, what do you have in your pocket?

You've got Federal Reserve Notes. A representation of debt owed to the Federal Reserve. And I'll bet you thought you had money.

Let me check what's in my pockets: in the right I have 6 debased dismes and one Silver Liberty with a face value of 10 dollars. In the left are one Federal Reserve Note with a face value of 10 dollars, and four more with a face value of one dollar. They carry no explanation of what that means or what I can do with them. Let's see, there are also two pinkish and four brownish fancy looking pieces of paper that say American Liberty Currency. The pink ones say 5 Dollars in the corner, the others say 1 Dollar, and all say REDEEMABLE BY BEARER ON DEMAND at the bottom. Writing in the middle informs me that these are receipts for silver stored in a warehouse in Coer d' Alene, Idaho, and on the back are instructions for how to redeem them.

The five dollar silver certificates have a large overprint on the back saying 1/2 OUNCE while the 1s say 1/10 ounce. Well, that jives with the silver Liberty in my right pocket, which is one ounce of pure silver.

So, what are they, and where do they come from? The Liberty Dollar is the brainchild of Bernard von NotHaus, who in 1998 created the system after years of thinking on the question of how a private currency could be introduced alongside what we're using now, and gradually supplant it. He founded NORFED, the National Organization to Repeal the Federal Reserve Act, which is the distributor of new Liberty Dollars in its specie, warehouse receipt, and digital warehouse receipt forms.

The silver is stored in a bonded warehouse in Idaho, and receipts are issued by the warehouse to NORFED as silver is bailed in. Each ten dollars of Liberty Currency is backed by one ounce of silver. The specie, of course, is not backed by silver because it is silver. The receipts and specie are then sold by NORFED and thus start their way into general circulation. Well, not so general :), since most people have never seen or heard of them. But in some towns, especially in the South, virtually everybody in town accepts them (merchants for service and merchandise, customers as change from their purchase.) In each city, it started with one person spending them, and it snowballed (or didn't) from there.

What would make a person attempt to introduce a new currency when everybody already uses the "standard" one? Two things: first, of course, he probably understands the importance of sound money and the damage that has been wreaked upon the United States since we stopped using it. Second, … profit! An incentive to spend the money into circulation is that if you become a Liberty Associate, you can buy the money from NORFED at a discount.

Liberty Associate? What's that? That's part of the genius of the system that LibertyDollar.org set up. In addition to having Alice buying Liberty Dollars and spending them, you also want her to get her friend Bob in on the act. Bob becomes a Liberty Associate by sending US$250 to NORFED. For this he receives one hundred Liberty Dollars, a bunch of educational and promotional materials, and the right to buy Libertys at the Liberty Associate price. What about the other hundred fifty dollars? Fifty dollars goes to NORFED to support their operations, and a hundred dollars goes to Alice, the Associate who referred him. So Liberty Associates have great incentive both to spend the money into circulation and to get more people to do so.

And never fear, it's not MLM or a Ponzi Scheme. Alice may refer as many new Associates as she can, receiving a hundred dollars each time, but she gets nothing when Bob or Bill refer their own. And the referral bounty comes right out of the fee paid by the new associate, so there'll never be a problem there.

The big problem everybody realizes is that the US dollar loses value pretty much continuously, while silver pretty much doesn't. A ten dollar Liberty that's on par with ten US dollars today should be worth more five years from now. Bernard built in a way to accomodate that. In one corner of the receipts is a hologram that says $10 Silver Base. That indicates that it was issued when a one ounce Liberty was worth ten dollars. In accordance with a function of a moving average of the US dollar price of silver, the silver base may change. At some point it will probably change to a $20 Silver Base. At that point, newly minted silver Libertys will have a face value of $20. Newly issued ten dollar silver certificates will be redeemable for half an ounce of silver, and the hologram will indicate the $20 Silver Base. Does that sound like inflation? My original ten dollar certificates were receipts for a full ounce of silver! But of course, they will no longer spend on par with 10 US dollars, people will demand 20 dollars for them. But to make it simpler, a LD$10 certificate with a $10 Silver Base can then be redeemed at no cost for a LD$20 certificate with a $20 Silver Base. Because they're of equal value, each being backed by one ounce of silver in the warehouse. The backing and redeemability of certificates are not affected by changes in the silver base.

The Liberty Dollar. Sound money. Inflation-proof. And each one that enters circulation is another small bite taken out of the control that the Federal Reserve has over us. And that's happened over five million times so far.


P.S. I told you what I have in my pockets. On my desk is an illustration of what happens when people lose confidence in their fiat currency. I have a one thousand Reichsmark note printed in Germany in 1922. A thousand marks was a goodly amount of money. I have another Reichsbank note, printed in 1923. Its face value is 500 million marks. Sound, commodity-backed money will never cause its owner to see his entire life's savings burned in an evening just to keep warm.


Sorry, folks, I'm impelled to add more after reading the writeup following this one, which raises some points that mine does not address. (Some of these statements have since been revised in the other writeup.)

Why should I pay US$10 for a certificate redeemable for 1 ounce of silver … which is, as of this writing, worth US$6.72

This is very simple. Regardless what your broker says or what you read on the web, you cannot buy an ounce of silver for $6.72. That is what is called the spot price; for silver, spot is the price of a five-thousand ounce bar of silver delivered in New York. Anything less than that bar and the price goes up. Several months ago, when silver took a plunge, I bought a one-thousand ounce bar. Spot was $5.84, and I paid $6.66. (I could have paid $6.62 at a different merchant.) You can look up the spot price of orange juice also, but don't expect to be able to buy it for that at the grocery.

The Liberty Dollar is a currency, not an investment, and the intrinsic value of a currency is always less than its face value. Think about it: if you have a coin in your pocket that says One Dollar, but the material it's made of is worth two dollars, why in the world would you spend it? In fact, the United States Mint does make a silver coin with a face value of one dollar; it's called the Silver Eagle. It contains one ounce of silver (same as the Liberty Dollar LD10 specie) and you can buy one for around nine dollars. You've never gotten one in change from a store, because nobody has ever spent one. The face value must be higher.

And, because the Liberty Dollar trades at par with Federal Reserve Notes (otherwise it would never have achieved the usage it has), the silver specie must have the same face value. If NORFED said "We can recover our cost and run our organization and still sell one ounce of silver for nine dollars" and ran out and minted LD9 specie, how well do you think that would have worked?
NORFED is a business, … needs to make a profit … 33% original exchange fee

NORFED is a non-profit organization. From the previous point, you can see that the 33% figure is based on an irrelevant number. The actual "profit" to NORFED is much smaller than that. (I don't know the actual number.)

And if you want to talk about original exchange margins, think for a moment about a US$100 "bill", which costs about four cents to print. That's a two hundred fifty thousand percent markup, if my math is right. Why do you not complain about that? Good thing they don't make $500 or $1000 bills anymore, since it would cost exactly the same to print them as it does to print a $1.

Further, if NORFED goes bankrupt, they say you'll still be able to trade in your paper LDs for silver and gold. While I'm sure that's true, I can guarantee you they won't be worth what you paid for them. So much for safety

NORFED's solvency is irrelevant (at least to the question of redemption) because the silver and gold backing the receipts is neither owned by them nor in their custody. It's owned by the person holding the receipt, and is in the custody of a bonded, insured warehouse, in accordance with the Uniform Commercial Code. The point, as isogolem is well aware, is that the receipt is redeemable for exactly what it says, and the government will enforce that redemption at the bearer's demand, unlike their own receipts that they used to issue, which they simply repudiated. That's the advantage of being the government, you can do that. At least until the people won't stand for it anymore.

As far as your "guarantee", I'll make one of my own: I guarantee that the $10 bill you receive today is not worth what the one you got a year ago was. Even though they're of "equal value".

only two things control the exchange rate of Liberty Dollars to other currency and back: on the low end, they must be worth at least value of their backing (which has fluctuated widely in the last 15 years), but on the high end, NORFED can charge whatever they want for them

NORFED cannot charge whatever they want for them (and get it). An absolute upper limit is obviously the face value. NORFED also mints LD1 and LD5 specie (which, in accordance with the LD10 silver ounce, are one tenth and one half ounce of silver respectively, as opposed to Federal Reserve Notes which are all identical). Because of the realities inherent in my first point above, they have a list price well in excess of their face value. It costs NORFED more than a dollar to mint a one-tenth ounce Silver Liberty, and it's priced at two dollars. Surprise, nobody buys them, despite that everybody would like to have specie smaller than the full ounce.

If the US Dollar goes into a tailspin, … , the question foremost on your mind won't be where to go to redeem your Liberty Dollars.

If? The US Dollar has been in a tailspin for decades; relative to its value in 1913 or 1933 or whenever you want to count from, it has very nearly hit the ground already.

As isogolem said above, gold and silver make great money. Which is why people used it for years. If the world financial system collapses, people who have it will be very glad that they do. In that case, of course, it will no doubt be better to have specie LDs rather than receipts.

In fact, the receipt will be worth as much to you as the ounce of gold itself, because you can't make clothing, food, or shelter out of either of them.

That is just an unbelievably ignorant statement. Yes, you can't eat gold; you can't wear LD receipts (though it was popular to make clothing of Continentals as they become more and more worthless); and you can't build a house out of Federal Reserve Notes. That is not at all the same as saying that money will disappear if the US dollar becomes worthless. People will continue to trade, and most likely gold and silver will be a preferred medium, as they were for thousands of years before the US dollar came on the scene.

Wow, I didn't mean to go off at such length :)

Liberty Dollars are an alternative currency offered by a company called NORFED. If you want to know what they have to say about themselves you can read their website1. For the short form, you can read C-Dawg's excellent writeup above. I've looked at various alternative monetary systems over the years, and the idea has always intrigued me. Pretty neat stuff. Stick it to the man. Fight the power. Return to sanity and the good old days.

However, as I looked through their site, something about this particular system bothered me. I couldn't quite put my finger on it, but they obviously get this reaction from a lot of their visitors - a signifiicant portion of their site is devoted to answering all sorts of questions and concerns.

For example, I wondered why should I pay US$10 for certificate redeemable for 1 ounce of silver ... which is, as of this writing, worth US$6.71. Did I miss a meeting? No, they have an answer for that one: That's a wholesale spot price for merchants, and NORFED pays more than that. So, let's say they pay $8 for each ounce of silver, where does the other $2 go? They've covered this too: As a non-profit corporation, they use that money to cover the costs of printing, distribution, staff salaries, marketing, and and so on. Thinking about it I realized, Credit cards and PayPal work the same way, only they charge a transaction fee to the seller instead of the purchaser, so most people don't think about it.

A 20% original exchange fee still seems a bit steep to me, but sticking it to the man has always been pricey. Besides, Liberty Dollars are backed currency that you can redeem at any time (at one warehouse in Coer d' Alene, Idaho2) for actual silver (or gold). In the case of the specie, they are the actual metal. Stable, safe currency. Now I just need to convince the people in my area to accept them in exchange for goods and services that I need. "Seriously, it's a real silver coin." I'm not sure what I'd buy that would require a gold coin. What if I've only got certificates on me? Maybe I have better things to do with my time.

The cold hard truth is NORFED is a business. They sell what might be termed a service called Liberty Dollars. They stay in business by convicing people to buy LD's. How do they do that? By telling people that LD's are the only currency available that is truly safe - backed by something real and tangible, not like those silly, weak, devalued, unsafe, US Dollars. And why is NORFED doing this? For the good of the country, of course! This is the only way to save us from the certain doom of fiat currency! ... Oh, you actually looked up the value of silver? Well, NORFED is a "non-profit corporation" which needs to cover it's costs, and we have a pie chart to explain how that works3. That pie chart includes a section for "NORFED Staff". I wonder if the founders are "Staff" - "executive staff", maybe? How much do you think they pay themselves? Do they use Liberty Dollars for that?

Why should I pay "some guy" to let me fight "the man"?

The way I see it, NORFED offers a service based around convincing you you're in danger and then selling you a solution that they say will make you safe. Another name for that is fearmongering. Assuming they're right, does their service solve the problem? Not really. Look at the events before and after Hurricane Katrina. When the chips are down, people fall into one of two camps: the "haves" and the "have-nots", neither of which will have have any use for LD's. If you are one of the "haves", you'll have other resources to help you escape or pull you through. And if you're one of the "have-nots", no one will care whether your money is backed or not: You can't make weapons, clothing, food, or shelter out of little slips of paper (or even coins for that matter).


Sources:
1 http://www.libertydollar.org
2 http://www.sunshinemint.com
3 http://www.libertydollar.org/html/profit.asp

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