5 Questions for A Law Professor

Written to Hilary Allen, Professor of Law at American University on February 28, 2025. 

https://www.american.edu/wcl/faculty/hjallen.cfm

In response to this video on how the cryptocurrency industry could be the source of the next great financial crisis: https://www.youtube.com/watch?v=I4vi75U0F0k

In just over a decade since Bitcoin emerged in response to the 2008 financial crisis, the cryptocurrency space has captured the attention of many Americans disillusioned with traditional banking and governance. It has brought together a unique blend of perspectives—skepticism toward government, the Federal Reserve, and banks, alongside strong beliefs in freedom and capitalism—challenging long-standing assumptions about money and power.

At the heart of my inquiry is a desire to understand this movement and its intersection with legal theory and governance. But before diving into specific questions, I want to share the philosophy that informs my approach.

Human cognition is both fascinating and deeply misunderstood. Our focus shapes our perception of reality—sometimes to the extent that we believe perception itself defines the world. Yet history repeatedly demonstrates that selective focus creates blind spots, leaving us vulnerable to crises. The Great Financial Crisis, the Bernie Madoff Ponzi scheme, the FTX collapse, Enron, and the Savings and Loan crisis all illustrate the same underlying pattern: people ignored reality, hoping that sheer willpower could override it. This is the fundamental flaw shared by both the conman and the victim—the belief that reality can be suspended simply by refusing to acknowledge it.

To avoid these blind spots, we must be willing to question everything, even the ideas we find uncomfortable. We must integrate our thinking fully with reality, allowing no irrational assumptions to take root. If we fail to do this, we invite the very crises we fear, falling prey to our own arrogance and wishful thinking.

With this in mind, I have several questions regarding banking and law:

1. What is a dollar?
Before 1913, a dollar was a defined measurement of gold. After 1913, it remained tied to gold but was managed through Federal Reserve Notes, which could be exchanged for gold on demand. In 1933, domestic redemption for gold ended, and in 1971, Nixon severed the connection entirely. Each of these changes was framed as an adjustment to the redemption of dollars, but in reality, they redefined what a dollar is. Today, I can hold a silver American Eagle coin marked as "$1" and a gold American Eagle marked as "$50." From a legal standpoint, what exactly is a dollar?

2. What constitutes counterfeiting?
The Coinage Act of 1792 made it a crime to alter U.S. coins, likely to prevent practices such as shaving metal from them. It seems reasonable that the same principle would apply to paper representations of dollars—making it illegal to issue notes promising a certain value in dollars without actually backing them. Can a private citizen manipulate the dollar by issuing a false promise of value? What is the legal reasoning behind this prohibition? And if this logic applies to individuals, should it also apply to Federal Reserve Notes?

3. What is the foundation of authority and governance?
Beyond historical precedent, what is the fundamental source of law’s legitimacy? People can enter into governance agreements, even abusive ones, yet we retain an innate sense of when an arrangement is unjust—whether in a family, a corporation, or a nation. What is the underlying standard by which we recognize justice? If knowledge and truth must be tested against reality, should the same be true for law and governance?

4. Is the Federal Reserve operating as a criminal enterprise?
If a system is built on deception and false authority, permitting theft and counterfeiting under the cover of law, does that make it criminal? The government prosecutes fraud in the crypto space while simultaneously engaging in monetary policies that, if performed by a private citizen, might be considered fraudulent. Has the government used non-objective law to legalize actions that would otherwise be deemed theft?

5. Are contracts based on Federal Reserve Notes legally vulnerable?
If financial instruments that misrepresent their value are fraudulent, does that mean contracts based on such instruments—such as mortgages or the national debt—could be challenged or nullified? If the Federal Reserve has issued $36 trillion in "dollars" to the U.S. government, but those dollars were originally defined as a specific weight of gold, does this mean the Federal Reserve remains in debt to the U.S. government? And if so, what are the implications for all loans made under this system?

I recognize that these questions are unsettling. They challenge assumptions that many—perhaps even entire societies—would rather not examine. But I believe that our reluctance to confront these issues stems from a deeper fear: the fear of what we might uncover. Each of us has blind spots we protect, avoiding difficult truths for the sake of comfort or security. Yet reality does not wait for our acknowledgment.

I understand the impulse to answer these questions pragmatically, but I ask that they be addressed philosophically and legally. Fraud, deception, and theft may be practical in the short term, yet they prove devastating in the long run. Likewise, honesty, virtue, and integrity may seem impractical in the short run but are ultimately validated over time. If we want to end these short-term scams, we must remove pragmatism from our reasoning and embrace truth as our guide.

I ask these questions because they matter. My goal is not to promote ideology or conspiracy but to live in alignment with reality. If we are governed by laws that most people do not fully understand, and if ignoring these realities leads to predictable crises, then isn’t it time we look more closely?

My Answers:

What is a dollar?

A dollar, originally, was a defined weight of gold or silver. This definition was stable, objective, and legally enforceable. Over time, the government redefined the dollar—not as a unit of weight, but as a government-issued note, first redeemable for gold, then backed only by legal decree. Each redefinition did not merely change how the dollar was exchanged but altered what a dollar is, moving it from an objective reality to a government construct.

If law is to reflect reality, then a dollar cannot be both a fixed weight of gold and an arbitrary fiat designation. The logical contradiction exposes a fundamental legal issue: either past contracts denominated in dollars were invalidated by this shift, or the government effectively engaged in systemic fraud by retroactively changing the meaning of all dollar-based agreements.

Yet, those who imposed these changes did not openly say, “We are redefining the dollar because we have the power to do so.” Instead, they spoke of stability, economic necessity, and monetary policy. This is significant. If government authority were purely a function of power, they would have no need to justify these changes in moral or economic terms. But they did. The very fact that they invoked justice and necessity reveals that they knew they were violating objective standards and sought rhetorical cover.

What constitutes a counterfeit dollar?

If counterfeiting is the act of producing false currency, then logically, any issuance of money that does not match its promised value is a form of counterfeiting. The Coinage Act of 1792 made it a crime to debase U.S. currency, recognizing that a medium of exchange must be stable and trustworthy to function. If a private citizen were to issue notes falsely claiming to be redeemable for gold or other real value, this would be fraud.

Yet, the Federal Reserve and the U.S. government engage in this exact practice. They issue money that no longer adheres to its original definition and inflate the currency supply, devaluing every existing dollar. If this would be criminal for an individual, why is it lawful for a government? The only justification is force.

However, those in power do not admit to legalizing counterfeiting. They do not say, “We create money from nothing, and you must accept it because we control the system.” Instead, they talk about monetary policy, economic growth, and ensuring liquidity. They justify their actions not in terms of raw power, but in the language of financial stewardship and justice—proving that they themselves recognize the need to obscure what they are doing. If they truly believed in rule by force, they would not bother with such justifications.

What is the true source of authority and governance?

Law, if it is to be legitimate, must be grounded in reality and reason. A just government derives its authority not from mere force but from the consent of the governed, rooted in the recognition of what is true and right. This is why tyrannical governments do not simply impose their will through brute strength; they go to great lengths to justify their rule in terms of justice, democracy, or social good. They seek legitimacy, because even they know that raw coercion is not true authority.

If governance is based purely on power, then there is no such thing as justice—only the will of the strong. Yet, no government openly admits to ruling this way. They claim to represent the people, to uphold the rule of law, to act in service of the common good. The contradiction between their words and actions reveals that they themselves recognize the difference between authority and control. A government that relied purely on force would have no need to appeal to truth or morality—but they always do.

Is the Federal Reserve and the modern U.S. government operating as a criminal enterprise?

If a private individual engaged in the same financial practices as the Federal Reserve—creating money without real backing, inflating the currency to benefit insiders, enforcing debts based on fraudulent value—they would be prosecuted for fraud, counterfeiting, and theft. The only difference is that the government has made these actions legal by decree. But legality is not the same as morality.

This leads to an unavoidable question: if law is merely the will of those in power, then there is no objective difference between government action and criminal enterprise—except scale. But governments do not speak as criminals. They do not say, “We manipulate money for our own gain.” They say, “We stabilize the economy.” They do not say, “We use force to maintain control.” They say, “We uphold democracy.” The fact that they must present themselves as acting for the public good, even when their actions contradict that claim, shows that they themselves recognize that deception is necessary to maintain legitimacy.

A criminal does not need to lie if he believes theft is justifiable. A government that believed in power alone would not need to justify itself in moral terms. The fact that they do reveals that they understand they are violating the very standards they claim to uphold.

Are contracts based on Federal Reserve Notes legally vulnerable?

If contracts are to be enforceable, they must be based on clear, stable terms. A contract denominated in “dollars” before 1913 referenced a weight of gold. A contract denominated in “dollars” today references a government decree. If the definition of the dollar has changed multiple times by government fiat, then it is reasonable to ask whether all contracts based on dollars were altered without the consent of both parties—thus making them legally suspect.

The argument that such contracts remain valid relies on pragmatism, not principle. The government insists that dollars today are the same as dollars in 1913, despite their clear difference in value and definition. If a private party altered the terms of a contract in this way, it would be fraud. But because the government has the power to enforce its definition, it continues unchallenged.

Yet, those in power do not say, “We change the meaning of contracts because we can.” They say, “This is necessary for economic stability.” They do not say, “We redefine debt obligations at will.” They say, “We uphold financial integrity.” Again, their need to justify these changes in moral terms—rather than admitting to brute force—demonstrates that even they recognize the illegitimacy of their actions.

Final Thoughts

These questions do not merely challenge economic policy; they expose the fundamental nature of governance itself. If law is based on reality, then the financial system as it stands is built on falsehood. If law is based on power, then there is no justice—only control. But those in power do not claim to rule by force alone. They constantly appeal to justice, truth, and the will of the people.

This contradiction is revealing. If they truly believed that might makes right, they would say so. But they do not. They pretend to rule by consent, to act in service of truth, because even they recognize that power without truth is illegitimate. Their words expose them.

Reality, unlike law, cannot be rewritten. And when law departs from reality, it will eventually collapse. The only question is whether we will see it for what it is before that reckoning arrives.