It may be true that our money is screwed up at the federal level, but there are actions we can take at the state level to counteract the lunacy. Jp Cortez of the Sound Money Defense League joins Tom Woods on the Tom Woods Show to discuss what can be done more locally to protect ourselves against the ongoing debasement of the dollar, sound money, inflation, legal tender laws, and more.
https://tomwoods.com/ep-2052-what-the-states-can-do-about-the-debased-dollar/
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Tom Woods:
Hi everybody, Tom Woods here. Jp Cortez is with us today. He is policy director at the Sound Money Defense League. He spends his time promoting the ideas of sound money, but particularly at the state level, looking for ways that the states can push back and try to promote the ideas of a money that cannot be manipulated by the regime. We increasingly see, if we didn't already, the importance of that idea. Jp, welcome to the show.
Jp Cortez:
Hey Tom, thanks for having me on.
Tom Woods:
I guess I've probably known you forever. I've seen you around the Mises Institute and stuff, and I don't think you've ever been on the show, have you?
Jp Cortez:
No, this is my first time. It's an honor. Yeah. I think it's been almost a decade since our first meeting at the Mises Institute so long ago.
Tom Woods:
I thought you were going to say it's been almost a decade since you've been snubbing me on the Tom Woods show, which I would've taken that in stride, if that's what you wanted to say.
Jp Cortez:
I've been waiting for my invite. You got Bob Murphy all over the place, but I can't get even a bone.
Tom Woods:
Oh no, you're doing really great stuff. Before we get into this state level stuff, which I find interesting, because I think so many people seem to be of the mindset that, and maybe it's only implicitly that they're of this mindset, that either it gets done at the federal level or nothing happens. Sometimes we have to come up with second best solutions because it's kind of hard to get things to happen at the federal level, given the cesspool that exists, but don't just give up, be creative. Think of other ways you can move your cause forward.
I want to get to the state level stuff in a minute, but let's talk about the issue in general. Ludwig von Mises said something along the lines of, when you talk about human liberty, we tend to talk about constitutions and bills of rights in terms of governments, but he said equally important as those things, and what deserves to be on their level is sound money. Now, first of all, what do we mean by that term? Sound money? Because I don't want to assume everybody just knows this stuff. Secondly, why is it so important?
Jp Cortez:
Sound money to me is sort of defined in that same Misesian, Hayekian, Austrian framework of it is a money that is not prone to severe appreciation, or depreciation, over the long term. That's only half of the equation. It has to withstand value, or hold value over the long term, while being subjected to some of those self-correcting mechanisms that are inherent in free market systems.
Mises had it totally right. He said a lot of things on this and some of it is incredibly profound when you consider that he groups it in categorically with the Bill of Rights. The understanding that sound money as a concept, it was devised as a protection against big government. That's entirely what it's supposed to do. As far as constitutional guarantee, or the Bill of Rights, sound money is just as important. It's just as impactful as the freedom of speech, or the freedom to own firearm arms.
Tom Woods:
I totally agree with that. It's unbelievable to me that sound money as an issue was pretty much not even on the table politically for about a hundred years, after the federal reserve was created, at least. In the 19th century, there were robust debates about this. People understood the connection between inflation and prosperity, and stability, economic stability, and sound money. Then in the 20th century, the view became, "Well, this is something for the experts to manage, and you're not really entitled to an opinion." So everybody dutifully decided, "Okay, I guess I'm not entitled to an opinion," but it's very important. We should be talking about it.
Jp Cortez:
Absolutely. I think you can look back and you can see from the beginning-ish of the country, till the civil war, when Lincoln passed legal tender acts and sort of created legal tender as it exists in the United States, there were periods of very benign deflation in those periods and prices were relatively stable. Something that costs a dollar in 1800 costs close to a dollar in 1880. That's not true anymore. The money of value, the purchasing power of people's money, is largely being sucked away. It's happening on a federal level to where it's very insidious. People don't even notice that it's happening many times. It's a slow wheedling away of the purchasing power of your money, your ability to save, your ability to plan for the future. It's criminal.
Tom Woods:
Not to mention it allows the federal government to get away with things that it might not be able to get away with, otherwise, if it had to pay for them entirely in ways that are above board. Well, above board in the sense that they're visible, not that they're morally acceptable, but in other words, borrowing or taxation, the effects of those things are pretty visible and immediate. Whereas, if they implicitly rely on the federal reserve, then they're able to tax people invisibly and suck the resources that they want away from private people and toward them in a way that not one person in a hundred would even begin to understand. You have an article that I'm going to link to several of your pieces, at tomwoods.com/2052, but you had an article recently about Afghanistan. You were laying out exactly what the cost of that had been both in terms of lives lost and in monetary terms. It's staggering what that amounted to. Yet, the average American has no sense that he paid for any of that.
Jp Cortez:
That's exactly right. That's what makes the inflation tax, I would say, even more morally abhorrent, or at least morally questionable, than some direct taxation. I think sound money, there are two main tenants. The one you just mentioned was the acting as a safeguard, or a [inaudible 00:06:33], against the government that otherwise might act recklessly or irresponsibly, with the power of the purse, with the power to control or manipulate the value of money. When that happens, when you take away any risk, when numbers become just arbitrary shapes and lines on a computer somewhere, the real cost of what any sort of war, for example, the cost of that is obfuscated. People are looking at these numbers and 3 trillion, 5 trillion, 10 trillion, those numbers don't even mean anything anymore. It allows people, criminals, politicians, to get away with these horrible, and many times, acts, crimes against humanity. These are horrible domestic programs.
Jp Cortez:
these are wars that they're fighting foreign and domestically, and they're paying, stealing from us to do it. As a question of sound money being as important because it acts as a defense against big government, the other one that I mentioned was the uncertainty of it. Sound money reduces uncertainty. That, as a concept, sort of means that the way that people choose to spend and save and invest, all of those things are largely influenced by the money that is circulating in any given space. Inflationary societies tend to incentivize spending, because you don't want to hang on to money for too long, less it be devalued. Long term investment, resource and capital allocation, the things that society needs to develop to increase standards of living, to reduce poverty, none of these things are able to take place because sound money has been done away with. When a society doesn't make sound money central to their platform, to their cause, it leads to horrible results, just a long and storied history of sound money being important, and frankly, a linchpin of a prosperous society. It cannot exist without sound money.
Tom Woods:
Just getting back to the details surrounding that Afghanistan example that you gave. You look at the figure, it's like six and a half trillion dollars, principle and interest, that's just staggering and mind boggling. It's just unbelievable. To keep on thinking, especially in this day and age, with all the assaults on us from our own government, that our freedom is to be secured by fighting in places most Americans don't even know where they are, and to spend six and a half trillion dollars doing it is astonishing. 172,000 deaths estimated. Since 2001, here's your point with regard to sound money, even if we assume that the measurements of money's purchasing power are accurate, that's at least debatable.
JP Cortez:
That's in question as well.
Tom Woods:
You're saying that the price level has gone up by one and a half times, which is a very significant amount because what tends to happen is, in this day and age, compared to the seventies, let's say, price inflation every year is said to be relatively low.
Tom Woods:
Anybody who's worried about it is a stupid crank and can't get with the times, but the point is that accumulates over time. If you're only able to buy two thirds now of what you used to be able to buy in 2001, that's very significant. Even if you say, "Well, don't worry, wages will keep pace with that." Well, maybe they will, maybe they won't. There's a lag period and people have to adjust and stuff, but also, the point is, people are trying to save for the future. If they put money in the bank and then suddenly it can only buy two thirds of what they used to buy, it makes saving seems stupid. It seems saving's just a waste of time. It encourages all the wrong types of behavior. It discourages people who are being responsible. The consequences of it are just horrendous. That's the thing, that even if they say, "Oh, it's only a little bit every year," a little bit every year adds up to a lot. I don't even have a question there. I'm just saying that.
Jp Cortez:
Yeah, no, you're absolutely right. It is frankly that at this point, because you're right, that the cumulative nature of it, you can look back 10, 20 years and really see, and really be astounded by the number that you're talking about, but we don't even have to look back, or look at it as a long term thing. This can be a very immediate thing. The truth is that this country is largely struggling with unaffordable rents, with cities that have massive homelessness problems, with drugs, with all of crime, all of these things, and the government, the federal government, by this action brought by this cabal of unelected bureaucrats, are pricing poor people out of life. If you already can't afford chicken, or Angus beef, or steak, or just food in general, medicine, rent, these promises of help, these promises of stimulus checks and social safety nets, and all of this help, those promises mean nothing to the single mother that is trying to afford food for her children and unable to do so because the prices of everything are going up. On a very moral level, this is making it more difficult for people to live. It is pricing poor people out of life.
Tom Woods:
I want to turn now to some of the work that you have been doing, other than your writing. Let's talk about what's going on in the states. Now, all this bad stuff is happening at the federal level with the federal reserve and its monetary policy. That's the real source of it, but man, that is one difficult source to go after. Every vested interest is in support of maintaining it, and of course, the whole economics profession is in support of maintaining it, except for the sensible ones and the people who aren't on the take. There's a really interesting study. I don't know if you saw it, maybe five or 10 years ago, that went through and looked at all the different ways the federal reserve has influenced the economics profession, whether it's through grant money or conferences or this or that. It's like four out of five economists have been touched by it. I'm not saying that they say to themselves, "Aha! Now I must keep the federal reserve in place." It's not even maybe that conscious. It's that they just come to associate their own wellbeing with the country's wellbeing. The federal reserve seems to be a nice enough thing. All our models tell us it works and all that. It's the federal level where the damage is being done. However, on the state level, there are some ways we can push back a bit. Can you describe what some of those are?
Jp Cortez:
Yeah. Absolutely. As you mentioned, the problem is largely a federal problem. The inflation wrought by the fed is something that is largely out of the control, out of the hands, of the state, but there are still things certainly states can do to mitigate some of that damage, some of that inflation damage. Among those things are taxes. Part of the reason that we don't use gold and silver anymore today in transaction isn't necessarily ... I mean, Gresham's law is there. There are convenience arguments to be made, but the big reason we don't use gold and silver as a medium of exchange today is largely because of the taxes and the regulations that govern it. In seven states here in the United States, when you buy precious metals, you have to pay a sales tax. When you use it, or when you sell it, you have to pay a capital gains tax.
Jp Cortez:
It is incredibly onerous. It's not a tenable position to use precious metals as far as exchanging, but even outside of the exchange, there's something to be said about just precious metals as an investment. There are no other investments that states charge sales tax on. Real estate, bonds, stocks, ETFs, whatever it is, cryptocurrencies, you're not charged sales tax. That's largely because of the difference between finished goods, and production goods, and states generally don't charge sales tax on non-consumable goods. Precious metals, and investments, Bitcoin, those are things held for resale. For that reason, sales tax on items like this doesn't make sense. There's the sales tax issue. There is the capital gains issue.
Jp Cortez:
Legal tender is a really interesting area that a lot of states are getting into because we are led to believe that legal tender is a good thing. The dollar is legal tender. We want to make gold and silver legal tender. Over the past couple of years, there have been a couple of states that have been pushing efforts like this to have the state reaffirm that golden and silver are legal tender, but the problem with that is that legal tender as a concept doesn't even make sense. It's a long studied, often disastrously imposed, sort of magic wand waving, where the government ascribes monetary properties to things that don't naturally have them. Real sound money, sound money that retains its value, sound money that markets choose, don't need, are not interested in the premature of the state. We're not here for the state's consideration, or the state's approval. Sound money is money chosen by the people.
Jp Cortez:
Between the taxes and the regulations, there's still a lot that states can do. With inflation becoming more of a hot topic issue, today more than ever, you've got states that are starting to look at sound money as a way to preserve assets. There are states, several states, all over the country that are thinking about, considering, and have actually put physical gold stored within their state or stored at a nearby state outside of the clutches of the federal government is, ideally anyway, that states can hold physical gold and silver in their own state taxpayer funds, reserve funds, pension funds, and that storing it in a depository in their state serves as a protection, a constitutional protection, against what potentially could be another federal overreach. States are doing a lot of these different projects where they're considering building bullion banks in their own states. They're considering pension funds, and mineral reserve funds, and trust funds. The list of state projects, the list of potential pro sound money legislation that we have active this year is massive. It spans over a dozen states at this point.
Tom Woods:
Taxes that exist on gold and silver are entirely collected at the state level?
Jp Cortez:
Sales taxes are because the federal government doesn't issue a sales tax.
Tom Woods:
Just because it's sales tax. Right. Right, right. It's not an excise tax or something like that.
Jp Cortez:
Right. But on the capital gain side-
Tom Woods:
Oh, but capital gain side. Right. There you go.
Jp Cortez:
Right? You're charged at the federal level, and then because most states use the federal AGI as a basis for the starting point on their own taxes, you're charged twice. You're hit with double taxation in many cases, on the front end when you buy, and then again, when you sell. It's almost as if the people in charge have a vested interest in making it difficult to use anything other than the federal reserve note.
Tom Woods:
Yeah. How interesting. You noted in one of your pieces that a lot of people tend to buy precious metals because they conceive of them as an investment and you pointed out there's no special tax on purchasing stocks, for example. That's clearly an investment. There's some kind of special treatment, and not favorable special treatment, being given to gold and silver. As you say, gee, I wonder why. I guess I don't fully understand the role of ... What the point of bullion banks would be, or states that are going to have a depository of gold or silver. How is that a step in getting us toward a better world? Could you spell that out? Pretend I'm seven.
Jp Cortez:
Sure. Yeah. In Texas, for example, maybe about 10 years ago now, they established a state bullion depository that was privately run, but governed by the state. The reason that that worked, or the reason that in theory it would have worked, is because the state already owned a billion dollars of gold. The Texas teacher pension fund had already a billion dollars of physical gold in a vault somewhere that was collecting storage fees in one of the big New York bullion banks. The state of Texas said I would rather store my own gold in my own state. I can't even confirm that it's actually in your vaults. I want it here in my own state, because on top of that, there's also precedent of the feds coming in and confiscating gold, as FDR did in 1933 with that executive order.
Jp Cortez:
States largely don't trust the federal government. This is, in many cases, an antagonistic, or at least a skeptical relationship between states and the feds in some cases. Some states are taking it upon themselves to protect their state assets, to protect taxpayer funds in sound money. In many cases, many of these states have long lists of what they call permissible investments. These are low yield, paper debt, dollar denominated, third world debt, emerging world debt. A lot of these things are doing worse than golden and silver, and they pay no question to safety of principle at the initial investment. A state pulling its own gold, and ideally its own banking system, out of the clutches of the fed, makes each state its own individual nation, no longer tied into a major banking system that has largely been abused, and manipulated, and made to work for the rich.
Tom Woods:
But they still have to reckon with legal tender laws that exist on the federal level that say they have to take the money that's generated by that corrupt system.
Jp Cortez:
Take the money, meaning what?
Tom Woods:
They have to use it. There's no state that can say you have to use, or you cannot use the dollar, or you're allowed to ... Not so much that you can't use the dollar, but you're allowed to reject the dollar in a contract.
Jp Cortez:
As far as rejecting the dollar in a contract, that's the specific performance, I think if ... Legal tender makes it to where the dollar is the basis for any sort of judgment on specific performance on a contract. The idea in places like Texas, and Idaho, and Oklahoma, these states that are considering these bullion banks, are not necessarily to completely disconnect themselves from the dollar. Obviously, there are a lot of benefits to the dollar. It is still the global reserve currency. There's an ease of use, the ease of familiarity that comes with all of that, but I think states, even outside of the individual transaction that comes with this, a state is allowed to protect their own money using physical gold and silver without any counterparty risk that doesn't exist otherwise. Today, if states want to invest taxpayer reserve money, they have to invest it in risky assets, and volatile assets, and things that move according to capital markets largely. This empowers a state to protect their own savings in sound money, and the money that is served as an inflation hedge for time immemorial. It gives the power back to the states to save, to protect their own assets, their own money, within their own borders.
Tom Woods:
Describe then, for us, what the Sound Money Defense League is and does.
Jp Cortez:
The Sound Money Defense League is a policy project that we started in 2015. We're a national nonpartisan policy group working on the state and federal level to remonetize, or restore, sound money, constitutional sound money. By that, I largely mean gold and silver, though we are big fans of Bitcoin here. The way to do that is largely to remonetize it, to remove all of the taxes and regulations that surround its use, its purchase, its sale. We go state to state finding pro sound money legislators, finding sponsors that are willing to champion these causes, and we introduce measures to eliminate sales tax, to eliminate capital gains taxes, to establish state bullion depositories, to protect pension funds. Various pro sound money actions that we work across the country to introduce, and ultimately get passed, that help the individual invest in sound money if they would like to. It also helps the state, at least gives them the option in many cases to invest in sound money because in many cases, states are not legally allowed to do that because of prudent investor rules and such. We introduce legislation. We work with legislators to remove the barriers around one of these inflation hedges that could serve to help people in this incredibly unstable and inflationary environment.
Tom Woods:
I think I can gather this from your writing, but what's the trend among the states? Has the trend been, relatively speaking, in our favor?
Jp Cortez:
Absolutely. There's no question. When we started in 2015, I believe there were somewhere in the low thirties of states that had done this. In the last five or six years, we have helped pass, as far as the sales tax goes, close to a dozen sales tax laws, we've expanded or worked on legislation. We've worked closely with these lawmakers for a while now. The victory is in our grasp. It is becoming ever more exciting to work in this field because as inflation becomes the issue, frankly of our time, state lawmakers and individuals are starting to see the woes, the massive holes in this Keynesian thinking central planning mind. It reminds me of that. Elizabeth Warren has been big on this lately and she's been tweeting up a storm about, it's the greed of the corporate companies, or it's the shortages, or it's the Kroger's profit margin is too large. It reminds me of those, this is your brain on drugs, commercial. This is your brain on central banking. The belief that anything and everything causes price inflation, except for the massive printing of new money, it's astounding.
Tom Woods:
Well, I'm glad you're doing this. I know the 10th amendment center is also interested in stuff like this, but they have a very broad range of topics that they are interested in. You guys have honed in on this in particular. Now, I guess also, there must be a part of what you do that deal with educational outreach to the public. For example, the articles of yours that you sent me.
Jp Cortez:
Yeah, we do. 10th Amendment Center is a great ally of ours. They've been doing incredible work for a long time on all state issues. We've worked with them closely on the sound money issue across the country. Obviously, the legislation takes up a big part of our bandwidth. This is a pretty small operation. It's mainly just me. The legislation takes up a lot of our work during legislative season, which is kind of January through May, but outside of that, yeah, we're constantly publishing articles, sharing articles that are written and published at places like Mises, mises.org, Zero Hedge, and these sort of financial minded, Austrian minded publications. We also have what we call the sound money index. I'm the lead author of the sound money index. It's an index that we created three or four years ago that ranks all 50 states using a variety of different indicators to determine which states offer the most pro and the most anti sound money environments in the country.
Jp Cortez:
It rates every state on its sales tax laws, its sales tax rates, its income tax laws, its income tax rates, whether it has reaffirmed that precious metals, that golden and silver are sound money, whether it has established a state bullion depository, so on and so forth. We keep an index that we update every year and we release our report card, and we use that, certainly, to incentivize the people towards the bottom of the list to let them know that, "Hey, on this issue, on this very incredibly important and topical issue, you are lacking. Your state is among the worst in the country on sound money. Let's fix this."
Tom Woods:
That's terrific. People, if they go to your website, they can find that report.
Jp Cortez:
Yeah. Absolutely. Soundmoneydefense.org. You'll find the sound money index. The index itself is on Money Metals Exchange. That is our partner business, the large funder of the Sound Money Defense League. You can find all of our information report cards, any sort of long form educational articles, or anything like that, you would find on Sound Money Defense League and Money Metals Exchange.
Tom Woods:
Okay, well, I'll link to that, as well as to the articles you sent me that I recently read. I'll put them up at tomwoods.com/2052. Well, thanks Jp for your time, and for filling me in on what you have been up to, filling all of us in, I suppose, but thanks for writing to me because this is an important topic and I'm glad you're out there working on it.
Jp Cortez:
Thanks Tom. This has been awesome. It's been almost a decade since we've met and getting to do this here with you has been great.
Tom Woods:
Thank you so much.
Jp Cortez is the Executive Director for the Sound Money Defense League, a non-partisan, national public policy group working to restore sound money at the state and federal level, and lead author of the Sound Money Index.
