Silver back into coins

Wow! People have more options now for spending their dosh, much more so than is necessary than at any other time in history. Frankly I look at what my parents had when I was born, and they got by with far less - but then they did not even have a colour television, or practically any other of the trivial and sundry "necessities" that we now in the early 21st century cannot even fathom living without - cellphones, internet, personal computers, iPods. Even in the second and third world countries I have travelled in, people have far more now than Americans did 40 + years ago.

If you cannot fathom this, I have a 1975 Sears Catalog in some box somewhere, the prices of clothing, TV's, tools, everything was very high by comparison to what wages were then all those years ago. TV's frankly cost more then in real dollars, and more when adjusted for inflation than they do now. Practically everything cost more in terms of relative spending power then than it does now.

 

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People have attempted in vain to fight inflation since blokes were going around in furry clokes and clubs and trading mere shells. Nothing has changed, nor will it. Some degree of inflation is a necessary component in the natural growth of human development, in fact a mark of success.

 

I think part of the reason for the disagreement in this thread is that different people are talking about different things.

Sure, it's possible for silver to circulate alongside paper. It did so in the U.S. from the 1870s through the 1960s. That "Hunt brothers" example wasn't hypothetical at all; it's the history of the U.S. silver dollar--which was worth $1 in melt value when it was first created, but closer to sixty cents in melt value by 1900 due to a drop in the price of silver. The coins continued to circulate at face value, just as Cloud proposes. We had fiat silver and fiat paper; one had higher intrinsic value than the other, but both had intrinsic value so far below face value that Gresham's Law never really kicked in during a period of eighty years or so.

What broke the system was the price of silver rising to the point that the coins were intrinsically worth nearly face value. Once that happened, we had Gresham trouble, because suddenly one form of money looked a lot better than the other. The hoarding started well before the silver was actually worth *over* face value; it started when many people began to think there was a chance of the silver *becoming* worth over face value.

The same would apply today. If we created one-ounce silver coins denominated $50, they'd probably circulate just fine for the forseeable future. (Well, assuming anybody wanted a $50 coin, which they probably wouldn't judging by the way most of them don't want $1 coins, but that's a separate issue.) But if we created one-ounce silver coins denominated $20, they'd probably get hoarded just like silver did circa 1962. And if we tried to create one-ounce silver coins denominated $10, nobody who got hold of one would ever spend it (well, nobody with a clue).

So if all you want to do is make fiat coinage with slightly higher intrinsic value than today's fiat coinage, then yes, we could do this and it would "work". The trouble is that I'm not really seeing what's accomplished by such a plan: we've raised the Mint's production costs, and gained...what exactly? a warm fuzzy feeling?

On the other hand, if you want to make non-denominated silver coins that circulate at their bullion value, that would probably "work" too (well, as long as everyone was willing to put up with the resulting calculations at every transaction, but in this day and age the cash registers could probably connect to Kitco and automate that...). Indeed, we don't even need government action to create such a system--just ask your local merchant if he'd be willing to trade you some goods for your silver rounds. So I don't think it'd distort the markets much if the government started requiring merchants to accept such payments when offered. But again I don't see why such a government policy would be better than what we've got now.

Money can serve as a medium of exchange, and also as a store of value, yes. Under our current system, the two functions are somewhat separated: your medium of exchange pretty well has to be fiat paper if you're going to interact with the rest of society, while your store of value probably shouldn't be fiat paper if you're going to hold it for a long period of time. That's okay; just go buy some silver rounds if you're planning on burying your savings in your backyard. There's a transaction cost there, but it's pretty small if you're thinking long-term.... And even under a system where silver bullion circulated alongside paper, that transaction cost wouldn't go away: banks would probably charge fees for changing silver into paper or vice versa, just as they now charge fees for exchanging currencies, even in countries where multiple currencies circulate. So what exactly is the benefit of the circulating silver?

 

Actually there are clueless fools that steal or otherwise appropriate ASE's and their brethren and avail themselves of unloading them in convenience stores all the time for necessities of life, alcohol, tobacco etc.:headbang:

 

Oh, okay. So it's like the U.S. silver coins I mentioned above, except that in the sixties, instead of giving up on silver, we declare all the silver certificates to be legal tender for $1.50 now (and proportionally for other denominations).

If you literally do it that way, there's going to be an issue with the discreteness of the valuations. One day a silver coin is worth $10 in paper, the next day it's $15: nobody's going to spend silver if they think there's likely to be a legal increase announced soon. Gresham times guessing game equals chaos.

But even if you give up on the "round to a multiple of 5" and let the legal value of the silver coin be defined as exactly the highest melt value it's ever had--or even, say, 110% of that value--you've got the 1962 problem whenever silver is near a price record. If the value of the silver coins is (probably) about to go up, then people won't spend them if they can choose to spend paper instead.

So you have a choice. You can either make sure that there's enough paper in the system that transactions can still take place at times when nobody's spending silver--in which case, you've got a paper-based system fundamentally the same as we've got now, so you can't really talk about "sound money", now can you? Or you can try to have a really truly silver-based system--in which case, everyone else in this thread is right, there ain't enough silver in the world to make a go of it.

In other words, any form of your proposal which would be feasible would also be pointless, as everything would in practice still work just like it does now....

 

It's a hard case for you to make, that technology is the product of the inflation in the currency caused by the use of fiat money. I think the mistake is in thinking that because two events happened in the same time period, there must be a cause and effect at work. The decreases you witness in real prices are due to increases in productivity, not the printing of money.

 

If you wanted to increase the purchasing power of paper money, I suppose you could draw another zero on it, but the problem remains to choose something as a benchmark against which to value it. Would you use gold? Silver? Some sort of index? Would the increase in the number of zeros on your paper just translate into more inflation and undo what you attempted? No, it can't be done. It's been tried in various times and places like Weimar Germany and failed.

You can dictate the face value of paper money, but not the purchasing power. During an inflationary period, the purchasing power will drop. With a coin, you can vary the face value with the underlying purchasing power of the metal during an inflationary period and the owner is better off RELATIVE TO the fiat currency against which it is measured.

Also, silver has value because of the properties of the metal that give it so many uses. I would think this is obvious.

I guess the difference between us is that you would be equally happy to hold a paper $20 bill, or a silver coin with $18 of silver content and a $20 face value. I would take the coin. If prices are stable, we are both even. If prices decline, we are both even. If prices increase a lot, I have a better chance of coming out ahead.

But this has been a valuable discussion, and gives other readers both sides of the discussion for further investigation and to decide for themselves. So it has been worthwhile.

 

I'm glad you responded. I wanted to, but just didn't have the energy.

As I recall, the government paid a $1.50 redemption fee for $1 silver certificates. Once they were turned in, you couldn't get them back. I was pretty young at the time, but that's what I recall (please correct me if I'm wrong).

As far as having PMs in our coinage...I couldn't care less. However, I would like to see silver in our coinage as an antibacterial/antiviral agent.

It would be ridiculous to walk around with ASE size coins in our pockets...but a $50 coin the size of a half dollar with maybe 40% silver might not be so bad.

That's better than carrying around everyone's dirty handkercheives in our pockets. Paper money is disgusting!

There was an article a few weeks ago that says 90% of ALL paper money in the Washington D.C. area has detectable traces of cocaine. That also means it has detectable traces of someone else's boogers, too. dd:

 

After reading all the posts to my original question, I am now more confused then I was before, but than again at my age that is not hard.
Granted I understand and get the point that if price of silver goes up or down than that changes the value of the coin that was minted, IE if you mint dimes with silver in them and the price drops to a point below what is the dime, then the coin deflates in value. Thus the reason we went away from silver in coins to begin with. The price of silver rose to a point where he dime/quarter/half dollar was actually worth more than the coin itself.

Right now as far as I can recall basically all countries use gold for money as it is. I don't recall the bank in which the gold is at, but I do recall that it is in NY City. When any country buys anything from another country and order is sent to the vault to move said amount of gold from country A's area to Country B's area. As an Example lets say the Saudi buys 10 million in spare parts for Jets from the US. An order comes through and the 10 million worth of gold is moved from the Saudi's area of the Vault to the US's area of the vault.

Now what confuses me or I have to question is. Isn't this basically a gold standard for money already? Do they look at the spot for that day or for the time the order comes through and than move that amount of gold. Or do countries have a set price at which they value gold to do trade between them?

Like I stated in my original post/question the US had a set value for silver. I don't recall the exact amount but it was like 2.00 an oz. for when they did their inventory to calculate how much they had in reserve.

Thanks
Dave

 

Dave, you are correct that it is complex, and interesting. Nations stopped using gold to settle international balance of payments in [I think] 1971. Now it is all paper pushing [or electronic]. It's worth your time to study it. It wasn't a silly question at all.:thumb:

 

That and the expense is exactly why they will never do it again.

 

What would be the purpose of having silver in coinage? It could be made of lint for all I care, so long as it's spendable.
Guy~

 

Prehaps if you handled silver coins instead of paper bills you wouldn't be sick. :thumb:

 

In my post where I said

"Commodity based money backed by fiat currency - sounds sorta like modified fractional banking to me. "

I meant - "modified fractional currency" - my bad.

The money supply of each form of currency would have to be maintained at a specific ratio something like (1 to 1) so citizens will easily move from one form of currency to the other. Each time the Libertad's value is increased - the fiat money supply would have to be increased accordingly. Else you'll have hoarding of one of the currencies.

To make matters worse - since there is no downside banks would intuitively hold the majority of their reserves in the commodity based currency. As the pegged value of these reserves increase the banks will extend fiat currency credit accordingly. Once the commodity based currency reached it's high water mark any movement down in the price of the commodity on the world market would devalue the country's currency exponetially.

 

Regarding the first statement, dollars and euros and francs and yen and yuan are not maintained in a specific ratio of 1 to1, but the currency markets make the conversion easy and transparent for international commerce. I do this all the time at work and it only takes a phone call to the bank to make the conversion. It would be no different.

Regarding the second, this is true just as currencies move in relation to each other today. The US dollar used to buy 400 yen and now it buys about 90 -- a 78% decline. Similar declines occurred in other currencies. But over the very long term, measured in multiple decades, do you think gold/silver money would do worse than that? Would the expected change be more than we have already experienced in the past?

 

Doug, the question was asked, "If there's no economic reason to reintroduce silver into coins, what other reason is there?" The answer is that there are really good health reasons for doing so. Seems like that's germain to the conversation.

 

Right here http://www.ask.com/bar?q=Hugo+Salin...iA6G4IASKJuNPLJzjAttUEqY8s=&tsp=1255813823868

 

dd: