Liberty, Freedom, and the U.S. Dollar

Cash is king. Few dispute the value of an established currency, but the limitations of physical currency are well-known. Innovators have digitized currency to avoid these limitations — but the introduced alternatives have their own restrictions, restrictions which diminish the currency’s value.

One of the most important properties of physical currency is its distributed nature. In the absence of a third party, anyone can transact at-will using cash. The lack of a need for an arbiter or overseer implies freedom and liberty in the currency: no one can stop another’s transaction out of spite or divergent moral principles.

This property is inherent to currency in its most natural form. So-called “commodity currency” has an intrinsic value (e.g., a gold coin) that is valuable outside of the scope of a sponsor nation. Indeed, many commodity currencies came out of situations where there was no nation to otherwise endorse a fiat currency, much like how gasoline was used to trade in post-World War II Europe. It’s only modern currencies that lack this property.

In the United States, transactions between individuals are often executed by the ACH (Automatic Clearing House). The process is convoluted and not for the faint of heart — both individuals need a bank account with a member institution, not to mention the Federal Reserve serves as a middle-man for each transaction. It processes $43 trillion every year and is complicit in the transaction censorship that plagues today’s currencies.

If we accept that currency was originally and naturally free, then blocking or restricting transactions between two individuals is an introduced phenomenon. This is the result of a centralization of power: ability enables action, and this centralization of power enabled transaction censorship in the first place. Due to the ACH’s centralized structure, the power over member banking institutions lies with the federal government in ways that are inconsistent with the original distributed model of currency.

To many — in this context, legislators — ability to do good implies a responsibility to do good. This perception has turned the U.S. banking system into one that no longer operates under the premise of a free currency. The responsibility to do good has transcended any belief in the liberty that defines money in its natural form.

Transaction censorship is no mythologized phenomenon. Under the Unlawful Internet Gambling Enforcement Act of 2006, selected participants in the ACH are legally required to block transactions related to illegal Internet gambling, a form of transaction censorship:

… requiring each designated payment system, and all participants therein, to identify and block or otherwise prevent or prohibit restricted transactions… (31 U.S. § 5364)

Where these “restricted transactions” are those that contribute to illegal Internet gambling:

… a bet or wager by any means which involves the use, at least in part, of the Internet where such bet or wager is unlawful under any applicable Federal or State law … (31 U.S. § 5362)

Because transaction restrictions like this are commonplace, the government can effectively control the flow of money throughout the banking system, either under threat of punishment (the UIGEA can carry a prison sentence of five years) or by seizing funds (as was done to 27,000 poker players, taking $34 million total). This transaction censorship devalues currency’s distributed nature. It enforces one’s morality on another — not by criminalizing the crime — but rather criminalizing the crime’s symptoms. To prevent gambling, the wager itself ought to be illegal as opposed to the surrounding events.

Today, online gambling is legal in many states and other countries across the world. These statutes are often passed under the guise of preventing money laundering, but the curtain falls when the crime’s legality is disputed, exposing the fiasco beneath.

One modern example of this is in the U.S. marijuana market. In the eyes of the federal government, marijuana is a Schedule I controlled substance with no accepted medical use. In a handful of states, marijuana is legal for recreational use. Federalism implicates a complicated answer, but one thing is clear: the banks don’t want to touch pot money.

The stories are plentiful. Someone successfully runs a prosperous business specializing in cannabis — only their finances are completely done in cash. Hundreds of thousands of dollars, kept on-site in a safe, are surprisingly common for these massive operations. They’re effectively living in the Stone Age, using the American dollar as it was first used hundreds of years ago. As a federally unlawful enterprise, transactions related to marijuana sales constitute a form of money laundering. Banks, often under the strict watch of the Federal Reserve and government committees, face serious repercussions when found in violation of these anti-money laundering laws.

Perhaps these regulations aren’t in practice what they were intended to be. Regardless, the nature of these laws makes this reality commonplace: one cannot necessarily transact with their own money. Based on the business at hand, banks and governments alike censor specific transactions according to their specific moral compass — often attaching the money associated with a crime to the crime itself. In this sense, the U.S. dollar isn’t a free currency, and the money in one’s bank account isn’t truly theirs.

When currency first appeared, it took the form of a naturally distributed commodity money with intrinsic value. Gold needs no state to approve its change of ownership, just as silver has no moral compass. Currency as a medium of exchange is an inherently free concept, one that is absent of external control. The U.S. dollar has effectively disposed of this meaning in favor of another, one based on imposing a subjective “good” on others. By regulating domestic financial institutions and subsequently centralizing immense power in the Federal Reserve and NACHA, our money is no longer free.