By Richard Schwary, California Numismatic Investments
A return to the gold standard and circulating legal tender coins made from real gold and silver has been talked about since we stopped making gold coins for circulation in 1933 and silver coins for circulation in 1964.
Behind this talk was the notion that since we stopped making real money (specie) there was no precious metal backing to these coins or currency and so their value in purchasing power plummeted and created economic problems.
This violation of the legislative statue, so the story goes, which defines money in terms of real gold and silver is the reason all nations face problems today. Now this all sounds good on paper but do the facts bear out this economic theory?
In actuality the “old time” backing of American currency with gold was an illusion as there was never enough gold in Fort Knox, Kentucky to cover the paper money printed in the United States so the system was fractional at best. And if you look carefully at our nation’s real gold and silver coins there were serious problems from the very beginning with intrinsic weight which eventually brought havoc to proper distribution.
Weights had to be adjusted on a regular basis leading to the often quoted Gresham’s law (after Sir Tomas Gresham an English financier) which states in various forms that bad money will drive good money out of circulation.
A recent example of this can be seen in the early 1960’s when silver coins were actually made out of silver. At that time the price of silver began to rise and the cash value of the coin in your pocket was worth more than its legal tender or face value and so it was hoarded or melted instead of doing what it was suppose to do and entering the channels of commerce. And so over time the clad coinage we now use everyday took the place of real silver coins and the debasement was complete.
Today all American money is backed by the full faith and credit of the United States and has been since the Federal government first organized and took over the printing of money itself.
The first paper money as we understand it today made its appearance in 1861 and was called a Demand Note. The backs of these notes were printed using green ink as a counterfeit measure and so for ever more the term “Greenback” came into common usage.
Even though the US has never defaulted on any of this currency the old days and ways of doing things seem to have a regular bought with Lazarus. And the idea of going back to the old days is a bad joke as this “real gold and silver” money movement would create havoc not only within the US but though out the international community as well, as the US dollar is still the world’s leading currency.
The consequences of moving backward at this point will pose tremendous danger to everyone’s standard of living, which is why Steve Roach’s article in Coin World (Jan 24, 2010)” Georgia legislator introduces bill seeking role for gold, silver coins” is so amazing, because this “real money idea” is getting some traction:
“A Georgia state legislator recently introduced a new bill in the Georgia General Assembly that would require the people of Georgia to pay their taxes and other obligations to the state in gold and silver coins. In November, Rep. Bobby Franklin’s “Constitutional Tender Act” was among the first bills introduced in the 2011 session of the Georgia Legislation.”
Now before you laugh take a look at the web site Steve Roach has also provided which keeps track of similar bills in 10 different states: www.constitutionaltender.com . The longer I’m in this business the more amazing and complicated it becomes.