by David Wolman
When, exactly, the Feds finally took interest in the Liberty Dollar is uncertain, but in 2004 von NotHaus appeared in a segment on the Learning Channel, filmed in Washington, D.C.’s, Constitution Garden, across the street from the temple itself—the Federal Reserve Board. In the clip, von NotHaus brags about the currency’s silver backing and public support. “After five years of doing this, people take the currency readily!” 16 To show the Liberty Dollar in action, the television crew filmed von NotHaus at a local sandwich shop. Leaning on the counter, hands clasped, he places his order.
“Hi. I’d like to have two turkey and Swiss and one ham and Swiss.”
Then he reaches his right hand toward his pants pocket, brushing back the bottom of his tan suit coat like a magician, and takes out his money: a Liberty Dollar and a wad of Federal Reserve Notes.
“I have a ten-dollar silver,” he says, smiling as he passes the coin to the woman at the cash register. The greenbacks stay in his left hand.
Her voice is somewhat muffled, but it sounds like the sandwich shop lady says: “We don’t accept—what is this?”
“It’s the new ten-dollar silver piece,” says von NotHaus.
The woman shouts to her co-worker to come and take a look at this thing.
The next thing you see is von NotHaus walking away from the counter and straight toward the camera, box lunches in hand. “Just like that. Used every day, throughout America.”o
If he was trying to provoke a reaction, he succeeded; it just took a couple of years. In September 2006, the U.S. Mint issued an unusual press release. The Department of Justice had determined that using Liberty Dollars as circulating money—as opposed to using them as, say, miniature coasters—was a federal crime. Copies of the warning were mailed to von NotHaus and the people at the NORFED office, who in turn shared the news with their Regional Currency Officers and the media. If any of them had concerns about the legal consequences of their actions, this would have been the time to bow out of the business and shelve their precious assets just like any other investment or keepsake.
They didn’t. Instead, they pursued a golden opportunity. In the fall of 2007, Ron Paul’s campaign for president was gaining unexpected momentum. The Texas physician and longtime statesman adamantly opposes the Federal Reserve system, and for this, gold bugs consider him a veritable deity. Von NotHaus saw the underdog’s campaign as a chance to advance the cause, a potential source for profit, or both. In the fall of that year, Liberty Services ordered thousands of copper, silver, gold, and platinum coins featuring the likeness of Ron Paul. If von NotHaus’s past media appearances and inflammatory rhetoric had been meant to needle the government, the decision to mint and distribute Ron Paul Dollars was like shoving a thumb in the Treasury’s eye.
On November 15, 2007, at the Evansville, Indiana, offices of Liberty Services, employees were readying to mail out the first batch of 60,000 Ron Paul Dollars when FBI and Secret Service agents arrived and shut everything down. Other agents descended upon Sunshine Minting in Coeur d’Alene, Idaho. Sunshine is the U.S. Mint’s primary supplier of planchets, those flat faceless metal discs that the government transforms into legal tender. The Idaho firm was also under contract to produce Liberty Dollar coins and safeguard bullion on site—the silver behind Liberty Dollar silver certificates. That autumn afternoon, when computers, cash, invoices, and order forms were confiscated from the office in Indiana, the agents in Idaho hauled away what von NotHaus says was more than $1 million dollars’ worth of silver, gold, and copper.
Paul’s campaign staff claimed to have no affiliation with NORFED or the renegade currency, but the spillover media attention had its benefits. Gold bugs, Paul supporters, and down-with-the-Fed types were galvanized by news that NORFED had been raided and the Liberty Dollars seized. At a campaign event, Paul said he believes in alternative currencies in general and would like to repeal legal tender laws, but that he didn’t know specifics about von NotHaus’s organization.p17
Reports of the raid made the front page of the Washington Post, but it would take a year and a half before charges were filed against von NotHaus and three of his associates. His trial was bumped a number of times, with mountains of evidence, new paperwork, and procedural tit-for-tat all helping to assure that the case of the Liberty Dollar would become a monstrous drain on Department of Justice time, manpower, and money. “I’m just on ice down here,” von NotHaus said of his legal limbo, the confiscated assets, and his customized sanction against minting.
BEFORE VON NOTHAUS’S TRIAL, I contacted two specialists to try to grasp the nuances of the situation. One of them was Walker Todd, a lawyer and economist who worked at the Federal Reserve Bank of Cleveland, and before that as a lawyer with the Federal Reserve Bank of New York. (For the record, Todd himself has advocated for a return to the gold standard.) The second is David Ganz, a coin specialist and longtime government legal consultant in matters of the U.S. Mint. In 1974 Ganz was lucky enough to be among a contingent of 120 members of the public who were allowed to view the gold inside the Fort Knox Bullion Depository.
“A lot of people will say that believing in gold instead of believing in fiat dollars is archaic or wacky,” said Todd. “But look what happened just yesterday with the announcement from the Fed.” This was late September 2010. In response to the suggestion that the Federal Reserve would soon inject hundreds of billions of newly conjured dollars into the economy, the price of gold shot up by more than $20 an ounce, on its way toward $1,300 an ounce, and $1,500 not long after that. “Some economists worry about the quality and quantity of money in the economy,” said Todd. “Bernard and the Liberty Dollar people are basically operating in that reality. But it’s distorted as they practice it.”
One prong of the government’s case against von NotHaus, Todd explained, is that the whole thing was a Ponzi scheme. Nestled within the discounts for signing up users, commissions, price differences between silver bought and sold, adjustable base value, and re-minting fees for a MoveUp are red flags that indicate, in the words of the prosecutors, “a scheme and artifice to defraud.” Von NotHaus vehemently denies this, of course, saying that the Liberty Dollar is a single-tier referral system, just like when people put an Amazon.com button on their websites and get a small percentage from referred sales. David Ganz agrees: “You’d have to be a moron to believe that the average person would be confused by this,” he told me, meaning tricked into thinking Liberty Dollars are government-issued currency.
But it’s the other prongs of the government case, said Todd, that could have more profound implications for our understanding of what cash and currency are, and just how much private innovation will be permitted by the state in the future. Paradoxically, von NotHaus’s first mistake was to forge his alternative currency out of such an old-fashioned technology: coinage. Few other private or alternative currency issuers bother with coins—only paper, if they supply anything tactile at all. This enables them to avoid tangling with the U.S. Mint, or running up against the Constitution’s clearer prohibition against (literally) minting money. Only the government can do that.
Metal is sort of the point with the Liberty Dollar, though, especially if you’re the mintmaster of the Royal Hawaiian Mint and an ardent gold and silver bug. “Bernard is not a counterfeiter by any definition,” said Ganz. Yet the fact that Liberty Dollar “coins” look somewhat like U.S. Mint coins is precisely how government lawyers would try to nail von NotHaus on the counterfeiting charge. There is precedent. In 1995 a U.S. District Court in Washington, D.C., rejected an argument made by lawyers representing J.S.G. Boggs, the artist who drew banknotes and transacted with them. Despite the fact that Boggs’s works were never used to defraud, and never functioned as an alternative or competing currency, the judge said Boggs was in violation of the law prohibiting the making of “obligations” in “similitude” of U.S. currency. It’s the currency version of Don’t tread on me.18
In Todd’s view, if NORFED had only issued Liberty Dollar silver certificates
, and then an electronic version of the same, it’s possible the group may not have faced legal challenges. “Private coinage schemes in the past usually ran aground when issuing notes,” he said, “because they didn’t have the silver or gold to back them. As far as I know, Bernard did have the gold and silver.” As long as that paper doesn’t look anything like greenbacks, it would probably be legal. Probably, but the boundary between alternative and competing currencies is starting to look fuzzy.
“I think where Bernard went off the rails was when he added the denomination,” said Todd. Von NotHaus may have been asking for trouble with the likeness of Lady Liberty, the phrase “Trust in God,” and even the familiar size of his coins. But it was denominations that signaled his intention for the currency to circulate in competition with the fiat currency of the land. Further indication of that intention was advertising materials (“it’s meant to be spent”) and von NotHaus’s own writings and media appearances, like the Learning Channel segment. Whether his personal hostility toward government institutions influenced law-enforcement officials is unknown, but printing and selling T-shirts that read “The U.S. Mint Can Bite Me” probably didn’t engender much sympathy. “He is a person who is annoying people in very powerful positions,” said Ganz.
One aspect of the case that is striking is how forcefully the government asserted, at least in its indictment, the Treasury Department’s supreme authority over money, and especially over the realm of coinage. “Say you decide to privately mint coins,” said Todd. “And say you’re mindful to keep any denominations or dollar signs off of them, and you only sell them at the fair-market value for silver or gold. That is basically what the Franklin Mint does.” Private enterprises like the Franklin Mint “skate inside the law” by referring to their products as medallions or collectibles , and avoiding features suggestive of circulating currency. “Many analysts would say that is legal, as long as it only contains the metal’s weight on its face. There shouldn’t be anything wrong with that.”
With the Liberty Dollar crackdown, however, even that activity may be called into question. “Treasury now seems to be arguing that it has the exclusive right to all coinage of any kind. This was surprising,” said Todd, as was seeing a nineteenth-century statute dusted off to support the argument. “That was like watching your grandfather’s old shotgun being brought out of storage and shot after 100 years.”
Ganz said he believes the Liberty Dollar is legal. “If Bernard can’t make a coin based on this theory, then the U.S. Mint can’t either.” A few times in the past, the U.S. Mint made coins that had not been authorized by Congress. Although they were soon canceled, the people behind this essentially illegal money were never considered counterfeiters. At the end of the day, said Ganz, this is about intimidation, about dissuading people from getting into the admittedly unusual business of monetary innovation. “If you had it in your head to do an alternative currency, would you do it now, knowing about this case? In that sense, [government prosecutors] have done what they set out to do.”
In the original indictment, prosecutors point out that Congress has the power to mint coins as money “and to regulate the Value thereof.” And they go on: “Congress has the concurrent power to restrain the circulation of money which is 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.” Strangely, though, the judge decided that the version of the indictment that went to the jury would not include this paragraph, suggesting, albeit subtly, that there may not be a constitutional prohibition against private citizens making and trading in their own metal coins.
Perhaps we should be thankful that government lawyers prosecuted von NotHaus to the fullest extent of the law. Could it be that the “incredible insight into multigenerational information” von NotHaus says he’s privy to courtesy of LSD and too many mushrooms really has bestowed on him enough power to singlehandedly torpedo the U.S. economy? If so, please put that man in a cage and banish his funny money. I’m all for alternative currencies, just as long as they don’t undermine faith in the monetary system we’re all now living with, for better or for worse.
Congress’s power to prohibit the circulation of money “not issued under its own authority” makes sense, especially in historical context. This law was solidified at the end of the Free Banking Era. To successfully carry out the transition from being a nation with myriad monies into one nation under the greenback, Congress had to enforce a tax on privately issued notes so that no one would want to use them, and the discounted national currency would become the dominant currency of trade. It worked, and the courts upheld the constitutionality of this power.
But where is the line between “protecting and preserv[ing] the constitutional currency for the benefit of the nation” and permitting alternative currencies used in farmers markets, or virtual currencies like Ven or Bitcoin? “Bernard went up to the line that Treasury permits, and he tried to push it,” said Todd.
During my conversation with Todd, I asked why the government decided to bust the Liberty Dollar when it did, in 2007, instead of years earlier—when von NotHaus was conducting his subversive transactions outside the Federal Reserve Board in 2004, for instance. He could only flip the question back to me: “It’s reasonable to ask if there was some publicity event that forced the Treasury’s hand.”
The day of the raids in Idaho and Indiana, just as all those thousands of Ron Paul Dollars were about to be shipped to Liberty Dollar members around the country, Bud Gregory, the machining expert in Honolulu who presses coins for the Royal Hawaiian Mint, got a call from the owner of Sunshine Minting in Idaho. Gregory knew of the guy, but they had never met. “He asked me sort of out of the blue how things are going. I said, ‘Uh, fine.’ Then he says, ‘Well let me tell you what’s happening here. I’ve got the FBI and Secret Service going through my place. Do you know why?’ I said no. He says the Feds are going through all of Bernard’s stuff from the Liberty Dollar and the Royal Hawaiian Mint.”
Gregory hadn’t been minting Liberty Dollars, so he and his business weren’t in jeopardy, and he never got his own visit from the Feds. Still, he was in shock. He immediately called a friend who’d been selling Hawaiian Dalas in his store, told him there might be trouble, and recommended that he pull the coins from his showcases. “My buddy starts insisting there’s nothing wrong or illegal about the Dala or the Liberty Dollars. I told him that’s not the point. ‘They’re about to become a lot more valuable! You don’t want to sell them now.’”
Sure enough, soon after the busts, Liberty Dollars were selling for hundreds of dollars on eBay. Some observers used the surging price to suggest that the government’s action had backfired. It brought attention to arguments about the potential weakness of government-issued currency, inspired contributions to Ron Paul’s presidential campaign, and added value to the very coins the Treasury was trying to exterminate. Von NotHaus also spins this piece of the story in a positive light. “The accusation that people are left holding the bag—that is crazy. People are selling Liberty Dollars for hundreds on eBay. They’re bidding up in a free market. It’s a free-market currency.”
But the high prices paid for Liberty Dollars auctioned online pose a fundamental problem for von NotHaus: they signal that people are buying Liberty Dollars as memorabilia, like Confederate currency or Olympic pins. Instead of spending them, people are putting them on the mantle or in a cabinet with other keepsakes. As the philosopher Georg Simmel put it, money must move. “When money stands still, it is no longer money according to its specific value and significance.”19
I’d brought this point up with von NotHaus when we went to see the coin press. “It isn’t really a currency if people are just buying it like a collector’s item, and not transacting with it.”
“Fuck you and your ‘it’s not a currency,’” said von NotHaus. “The only reason it’s not ci
rculating is because of the damn raid! And it’ll always be a currency. The government can send me to jail or run over me with a bus. That won’t change a thing. The Liberty Dollar reveals the lie about government money.”
ONE EVENING IN HONOLULU, after another seminar on von NotHau-sian economics, von NotHaus and I decided to walk from the offices of the mint down Seaside Avenue to the hotels and shops of Waikiki. The global credit crunch, recession, and lumbering recovery have been tough on Hawaii. When money is tight, vacations are one of the first things people decide to go without.
Yet the scene this evening in October 2010 is hardly so bleak. Droves of tourists stroll past restaurants browsing menus, posing for photographs next to illuminated palm trees, and spending their hard-earned dollars (read: yen exchanged for dollars) at Armani, Fossil, and Louis Vuitton. Not exactly the kind of scene to make people think about an imploding monetary system.q On the other hand, opening the Wall Street Journal this morning, it was hard not to be reminded of the prophecies that make gold and silver bugs so bullish. “Central Banks Open Spigot” and, on a later page, “Gold, Oil Lead Rally on Fear of Currency Devaluations.”20
The Hawaii von NotHaus knew thirty-five years ago is hard to envision, but one thing that is the same is Waikiki’s grand dame, the Royal Hawaiian. The pink hotel first opened in 1927, designed in the Spanish-Moorish style that has made it an architectural icon in all the ways that Oahu’s hotel towers are not. “Remember, I studied architecture in college,” says von NotHaus, inspecting ornately painted beams above archways facing out onto the Pacific.
Our table at the Mai Tai Bar is set amid tiki torches and a crowd of other visitors, many of them wearing newly purchased Hawaiian shirts. At the Sheraton next door, guests sit at white-clothed tables on the lawn, watching luau musicians and dancers. Tickets to the show are expensive, says von NotHaus, noting with pleasure that we get to “cockroach” the luau—his term for getting something without having to pay for it.