While both have historic and faith value, only gold has a minimum value at least equal to the cost of producing the gold.

This assumes that value is a product of the labour effort expended during production. This is a Marxist fallacy. In practise you will generally be correct but only because if the value of gold drops below the cost of production then production will cease until the situation changes. Gold can however drop dramatically in real value. It did during the plagues of medieval Europe when large quantities of the population died and the economy shrunk relative to the gold in circulation.

Finally, I must further highlight the impossibility of maintaining a gold coin with face-value exchangability with fiat. Since fiat is always inflating, the value of gold in fiat notes will also always increase. Any dollar value stamped on the face of a coin will be too low in very short order.

How is it impossible? The coin will still exist whatever is stamped on it. The real issue is whether it circulates as money or resides in a locker as bullion. Gold coins stamped with a higher fiat value will be good insurance against subsequent fiat inflation. This should make them popular coins relative to alternatives. The more the fiat value drops the more popular such coins will be until finally they don’t circulate at all because people hold onto them (Greshams law). Gold coins that are stamped with a monetary value below or equal to their commodity value won’t circulate. Which means they make a lousy medium of exchange. The reason paper money circulates is because nobody wants to keep the stuff. It’s like a game of hot potato. Which means paper money makes a super medium of exchange.

Gold is a great unit of account. Paper is a great medium of exchange. A gold standard brings both together to form a product that is a superb unit of account and a superb medium of exchange.

I just ran into this on the interweb tubes.

I would like to cover a couple of points:

There is no way to convert gold into fiat currency units. While both have historic and faith value, only gold has a minimum value at least equal to the cost of producing the gold. Fiat currency, without faith, has no value – particularly in the case of digital representation of that currency.

All else follows from this.

Clearly then the Dollar value marked on notes and coins other than gold is a falsehood and a fraud. Dollar markings on gold are truth, and the unit is circulatable currency.

If a group of people, say in a small somewhat self-sufficient town, choose to go with constitutional money (and yes, it is in the australian constitution too) then all they would need to do is hold a town meeting agreeing to use that as their local standard of measure, and to get a gold bank set up to handle savings and loans, and issues of gold-guaranteed paper contracts (claim chits for gold, otherwise known as paper currency).

Ideally it would be best to deal in a coin that was designed for circulation, ensuring that the buy-in cost was lower (valueless fiat still has to be worked for, and why work for paper money you will only exchange for numismatic value?) The US has just suck a coin in its gold eagle issues – marked with a nominal dollar value, and designed as circulating currency, the US government is constitutionally bound to produce as many gold coins out of US mined gold as are demanded by the public. Incidentally, from recollection the last year of minting they produced as many coins as the previous three years added together, or something like that.

Back on track… If this little town were able to go on a gold coin standard, even though the fiat value of the metal is much higher than the marked value, then they would have the added benefit of lowered property values and lowered wages. Most would not even have declarable wages.

I know the Robert Kahre case did not end well (and I am writing an article about this), they did it all wrong.

The individuals charged and later convicted were declaring their wages in gold coin face value, but they were declaring income for loans in the sale value of those coins – in other words they didn’t trade in the coins. If they traded in the coins they would have both protected themselves from punishment, and they would have been advancing the case of liberty and proper, constitutional money.

Kahre himself declared that he was paying wages in gold coin, but in fact never held sufficient coin to properly cover payroll obligations – so this too was a falsehood.

A small town with a gold bank would solve these problems.

Ideally, the town would have no way of redeeming fiat for gold or vice-versa (no other traditional bank) – anyone who did so (or at least if they switch gold for fiat without declaring the fiat value as income or capital gains), would be opening themselves up to taxation issues.

If the town has no way of redeeming coin, they could legitimately turn down fiat notes since there is no local banking institution that will handle them (I am not sure how this sits with the law… legal tender is horrible).

In the US, acquiring coin is easy, and poses no risk. The buyer simply redeems a set dollar value in legal tender fiat notes in exchange for a gold coin with a much lesser dollar value. If that coin is then exchanged at face value for goods and services, then no harm is done.

Clearly then the larger risk is in cashing out of a gold system, so long as the dollar value on the coin is always lower than the fiat value of the coin.

Finally, I must further highlight the impossibility of maintaining a gold coin with face-value exchangability with fiat. Since fiat is always inflating, the value of gold in fiat notes will also always increase. Any dollar value stamped on the face of a coin will be too low in very short order.

For this reason it is important for the coin to at least be of a known fineness and weight. If this is the case, there is no harm in also stamping the fineness and weight on the face of the coin – thereby forever linking the physical properties of the coin to a dollar representation – as it is/was in the US Constitution.

My rant here is incomplete, was not edited before posting, and is probably riddled with inaccuracies, typos, gramatical errors, etc, but I believe this system would work, and possibly spread.

Users of the system would be protected from property taxes, rates, income tax, payroll tax, would pay about the same GST, wouldn’t have to worry about inflation, would be wealthier, and would likely attract business back into their area – if it is done carefully and properly.

Criticism welcome.

To retrieve something I will just make the point that if the old ones did not have a silver content they would have still been worth only 50cents

I do remember though, talking to a mate who was a bullion dealer, in about 1983, when a guy came in with a couple of bags of 50c peices, for sale and he got a nice price for them. I dont ramember how much now but it was probably over a couple of dollars each.

I wished I had stashed mine.

Regards Jim

If the silver content was only ever in the round version of the coin then I think that it was discontinued much earlier than you imply.

http://en.wikipedia.org/wiki/Australian_50_cent_coin

As inflation took its effect, people hoarded these, as they were obviously going to be worth more than their face value. Eventually the govenment changed to the current coin, either because they could’nt keep up to demand, or because they became uneconomical to produce.

Either way they have never used coinage of any genuine value since.

I am not old enough to remember the pre-decimal currency in the USA.

Our old currency coins were silver in the 3d, 6d, 1s,and 2s denominations and apart from antique value, would probably be worth more than face value.

(Shows what an old fart I am dosent it?)