are gold and silver money?

Good discussion. I would make two comments.

In the definition of "coin" there is a need for a denomination and a mark of authority. PM by itself can never be that, since it never circulates for face value even if there is one. "Money" is more nefarious, but to me PM fails as money also since it is not standardized, meaning every time you use it it will be a barter transaction, since the person accepting it needs to convince themselves it is authentic, and then negotiate the transaction. So, to me, (and I know a lot here disagree), PM is definitely a store of value, but not technically money. ASE, if in the future circulated freely and everyone was used to accepting them for transactions, would be money though.

Regarding dollar purchasing power, its always a poor decision to compare dollar purchasing power from years before to now. Why? Because "dollars" over the years should be assumed to be placed in an interest bearing account. A dollar in 1964 is not a dollar today, its a dollar plus 47 years of interest. We live in an inflationary environment, so any nominal comparison is simply silly since you already know the outcome before you start. You do NOT know the outcome if you adjust the nominal dollar for interest, but that would be the real comparision. Also, comparing your dimes in the 60's, did you discuss how many hours of work had to be performed back then for a dime versus today? That is pretty important to understand the REAL value of a dime, no? If you had to work 10 times as long then for a dime versus today, that also affects your comparison of a dime's purchasing power.

I do not consider myself a PM bear, and do not think silver is going back to $8 soon, (if ever), and have always advocated all PM as part of a portfolio. I just want to keep the comparison playing field level, as I dislike rigged financial comparisons.

Chris

 

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Ahh we're getting into the woods now So riddle me this, did things like M2 money supply exist back when the Constitution was written? I mean, if they are stamping out a coin, isn't that creating the money since coins were the money? They didn't have computer systems back then to punch a number into to create new money like is done today. They obviously didn't have FRN's before 1913. So what exactly was the money creation process?

A lot of the things we take for granted as being the norm today were not even a twinkle in the idea conceiver's eye back then. I'm not saying you are wrong, because I don't know the answers to these questions, but to answer them in the appropriate context requires a mental time machine.

 

In the early days of the republic, the Mint coined money in whatever amount of metal was brought to them, so the people effectively controlled the money supply. But this didn't work perfectly due to the fixed exchange rate between gold and silver, and foreign speculators had a field day with it. There was no M2 and nobody really thought to measure the money supply. There tended to be boom times when money was plentiful and busts when there was a shortage. Adam Smith explained the solution with his real bills doctrine, but even though he was widely read, nobody really paid attention to him.

 

I disagree - Interest is compensation one receives for the risk of and forgoing the use of ones own money and allowing another to use it for a specified period. Therefore only a portion, not all, of interest received is attributable to inflation.

 

Yes, I was thinking either inflation rate or T-bill rate as a proxy for risk free return. The point still is that a dollar in 1964 is not a dollar today, and comparisons showing that are meaningless since we already know that. Adjusted for a T-bill rate or similar, then the comparion has more validity.

 

So there were no banks in Colonial America? I thought M2 included savings accounts.

 

I think this thread questions the meaning of "cash".. is having a years salary in $100 bills good policy?

 

My remembrance of economic history is that prior to the big depression there was no federal reserve as a consequence the money supply expanded exponentially ... The federal reserve requirement limited the funny money to real money to 4:1 .. lately it has gone to somewhat more than that due to "stimulus actions" and revisions of federal reserve policy. But I speak of more than I know.. How does that affect this thread.. well personally it means that maybe if i am collecting coins for fun I might as well be collecting gold coins.

 

But... I have a related question.

Gold is not money but are Gold Coins money?

This is not a trivial inquiry.. if I am allowed to take say $3000 in cash on an airplane can I take it in $50 face value coins?

 

Yes agree and also when doing such comparisons that although on the surfaces products mean seem the same over a period of 47 years they are more than likely different. Even regular gasoline is not the same product now as it was in 1964.

 

This is like the cent vs penny debate. It's all good as long as others know what you're talking about. In this case, there are various definitions of money, so everyone is right.

 

I think you'd be hard pressed to find an M2 calculation pre-1800 unless someone just flat-out made it up. It's an interesting question, though, to figure out if the colonies had savings accounts. I don't know when the modern savings account was invented, and I wouldn't assume that it was always part of banking in the colonies. I know banks would store money, lend money, provide letters of credit, and discount bills for businesses.

 

I think this whole thread is missing the point. When people start getting cynical about "fiat" money. And talk about gold as money, what they are really calling for is a return to a gold standard.

Anyone who advocates a gold standard should be called on to explain how we are supposed to escape the dilemma the Bretton Woods Agreement put us in.

My opinion, of course.

 

I agree there wasn't an M2 calculation, but the fact remains there was an expanded money supply over and beyond bullion, not even counting all of the bills floating around. That was my point. The M2 defination was not even defined until much later.

 

This really is it. I know its hard on this board since everyone here is so aware of PM, but most Americans have no desire to own, and do not care the least about, any PM. To them, it would never be "money" unless forced upon them.

I readily would say that any type of PM would be money to everyone on this board, (I will sell you a vf bust half for 2 ounces of silver, etc). We are a tiny population, though, and are not representative of most Americans, or world citizens.

 

We only need look to the top of the Washington monument to see the danger of faith in hard money. And take a look at the Hunt Brothers silver run. We then realize what can happen when suddenly a precious metal just falls out of the sky by some new manufacturing process.. Gold reserves off the coast of Japan dwarf the amount in all the stockpiles of the world. The amount disolved in sea water might make Gold so common we use it to make lawnmower housings and tire rims like we did magnesium in the 70's

 

ps the money supply is a misnomer.. what we are really talking about is the Credit Supply..

 

I'm not sure that if you don't count all of the bills floating around that the money supply would be much different from the coinage since that's the way banking was done in the colonies -- with bills. I don't think there was much in the way of fractional reserve banking as we know it until much later.

 

You are correct in the sense that the leverage is so great and things are so far gone that there can be no direct return to a gold standard. If gold [and silver] coins were declared to be the only money, every mortgage and commercial loan would have to be repaid in gold coin, and this is clearly impossible.

To avoid argument, I'll say up front that I know gold and silver coins will never be used as money again, but that doesn't change the fact that they have characteristics that make them suitable for money and they served this function for a long time.