Last December 31st, it became possible for Americans to own gold bullion, for the first time since 1933. It is about time this prohibition were repealed; it should never have been imposed. Once more, Americans who do not trust their government's monetary policies have a safe refuge from them.
The world is steering between the Scylla of depression and Charybdis of hyperinflation. After 40 years of inflation, it is inevitable that the world will go either into a severe depression, or into a hyperinflation greater in scope than that of Germany in 1923. Whichever way the future goes, the result will be a period of chaos, and we will see much of our savings destroyed. Indeed, many Americans and Britons have already seen a large portion of their savings wiped out.
Not only is it important to preserve our savings for our own futures, but it is important to see that others have as much opportunity to preserve their wealth as possible. A deposit account with 100,000 Swiss Francs in it won't do you any good if there is nothing for you to spend it on. A simple way of investing in gold should be available to the average American with only a few hundred dollars to invest. This, then, is part of the reason for my coinage proposal.
Another reason is this: after whatever economic disaster happens, there must be a sound currency to provide a base upon which a new, surer economy can be built. This, too, requires gold coinage, which would circulate to provide a stable currency.
A MODEST PROPOSAL
My proposal is this: the United States should mint two new gold coins, containing one ounce and one-half ounce of gold. The two coins, which I like to call the von Mises and the Jefferson, would have no face value and would not be legal tender. Initially, they would be coined out of the present U.S. gold stock, but they would be sold only for gold bullion. Naturally, the coins would be sold for a premium over the bullion value of their gold content, the premium to go to pay for the costs of minting.
The most novel aspect of the von Mises and the Jefferson is the lack of any face value. Yet, the dollar's depreciation against gold, and the volatility of the market require that no value be put on the coins. Indeed, they would be obsolete before they could be introduced if they did have a face value! However, in this respect, the von Mises and the Jefferson are patterned after the Krugerrand, a South African coin which has no face value. The Krugerrand bears the legend, "Sud-Afrika • South Africa" and a portrait of President Kruger on one side, and, on the other, the legend, "Krugerrand • Fyngoud 1 oz. fine gold," the date, and a springbok, or South African antelope. The Rand itself is pegged to the dollar, so for the South African government to have put a face value on the Krugerrand would have encouraged hoarding.
If a gold coin has a face value, then it will circulate only as long as the face value is not less than the bullion value of the coin. We have seen what happens when the coin is worth more as bullion than as currency: it goes out of circulation and into hoards. We saw this here in America with the silver coinage and the gold coinage before it, and we almost saw it happen with our humble copper coinage. Even with a face value of $300, eventually the von Mises would end up in hoards as the price of gold exceeded that level.
Rather, without a face value, the von Mises would circulate much as the Krugerrand does in South Africa. There, where it is legal tender, the Krugerrand is valued by the free market. The merchant who is presented with a Krugerrand is required to accept it, but the value is set between the merchant and his customer, with the Reserve Bank of South Africa as the final word in case of dispute. However, since the von Mises and the Jefferson would only be bought from the Treasury with gold bullion, there would be no need for the Treasury to set a daily gold price, and the value of the coins in terms of the dollar would be set from the commodity markets in Chicago, New York, or London. This procedure also has the positive benefit of removing a possible source of government interference in the marketplace.
The coins would have no legal tender status. All that a legal tender law means is that whatever the government declares to be money must be considered money. This is a rather peevish attempt to usurp one of the more important functions of the market, to determine what people will accept as money. Since the market prefers a stable money to an unstable one, one can see that the only possible use that the government can have for a legal tender law is to impose on the market an unstable currency—say, a fiat currency.
However, the lack of legal tender status would not interfere with the circulation of the coins. The fact that checks and credit cards are not legal tender has not bothered Americans in the least. Checkbook money now comprises some 38 percent of our money supply (the rest being savings and other time deposits, and currency in circulation). In addition, credit cards, such as Master Charge or American Express are now accepted in stores all over the world. If the marketplace is willing to accept checks and credit cards, then there is no reason why it should refuse gold coins just because they don't have the legal tender imprimatur of the government! Indeed, this means that those people who do not understand or appreciate the monetary nature of gold will not be forced to accept the "barbarous relic"!
But the reason for not making the von Mises legal tender is even more long-ranged. It is a first move toward the possibility of repealing present legal tender laws. If we are to legalize free trade between consenting adults, then not only must the government refrain from telling you what you may or may not buy, but it must refrain from telling you what you may buy it with!
TAPPING FT. KNOX
If the United States is to mint these coins, then it would be fair that the initial stock of gold for these coins should come from the U.S. Treasury's stocks. Certainly, after having just tried to unload 2 million ounces of gold, the Treasury shouldn't object to minting a lesser amount into coins for sale to the public. And, if the gold was in the form of one ounce coins, they might possibly sell more than if it were in the form of 400 ounce bars of dubious purity.
The Treasury's stocks of gold are dangerously low, however, and if the U.S. is ever to return to a convertible currency (not necessarily the dollar), then it will need every ounce of gold that it has. It was recently announced that most of the gold in U.S. stocks is coin melt; i.e. 900 fine instead of pure, since it was made from melted coins and never refined. This gold is useless for commercial uses and unacceptable to foreign central banks because it would have to be refined to 995 fine or purer before it would be useable in industry.
My proposal provides a partial solution to this problem as well as that of the limited stock of gold in any form. Rather than have purchasers buy the new coins from the Treasury with dollars, the Treasury's customers would pay for the coins with gold bullion of at least 995 fine or purer. The old coin melt would be used to mint the new coins (after assay to be sure of the fineness) and the new gold bullion would become part of the stocks of gold which the U.S. will need in order to return to a gold bullion standard.
This procedure has the advantage that the Treasury will be able to exchange its old gold in an unacceptable form for bullion which is acceptable without having to refine it, which will save the taxpayers quite a bit of money.
PAYING THE PIPER
There are costs in all this and I do not propose that they should be borne by the general taxpayer. No, indeed; he has enough burdens already! Therefore I would have the price of the coin set slightly above its bullion content in order to cover these costs. Thus, the von Mises might sell for, say, 1.05 ounces (a five percent premium). This would appear to require odd sized bars of bullion for the small traders, but this problem could be met by settling the differences in dollars, provided that the amount of gold being delivered to the Treasury is at least as much as the amount going out.
Alternatively, a large dealer or bank could go to the Treasury with a 100 ounce bar, say, and (assuming a price of 1.05 oz. per von Mises) come away with 95 coins and a certain number of dollars change (100 divided by 1.05 equals 95.238). The amount of change would be determined by multiplying the surplus (here, .238 oz.) by the daily price on a specified commodity exchange's spot price. At a price of $200 an ounce, the change here would be $47.60.
This, of course, would require that the Treasury know exactly what it was getting. Rather than assay the newly acquired gold, in most cases, especially where it is gold which has a commodity exchange's seals still intact, it would be possible simply to store the bullion with its seals intact. This is the standard procedure with central bank "good delivery" bars (400 ounces, 995 fine or purer), but there is no reason aside from government distrust of the market why this procedure cannot be used with other gold as well.
The Secretary of the Treasury, or whatever appropriate official he might designate, would be able to change the premium in order to meet changing market conditions. The general policy would be to mint and put into circulation as many of these coins as possible, consistent with the needs of paying for the costs of minting. However, there might be times when production of new coins might not offset a high demand, and there would be a shortage of the coins (i.e. they would sell at a price much higher than their bullion content, as the U.S. $20 gold piece does today). Under these circumstances, the government could temporarily dampen demand by increasing the premium while it prepares for increased production to meet the high demand.
Nor should this proposal be overlooked as a means of raising revenue for the government. Last summer, South Africa doubled its Krugerrand production, to 3.5 million coins a year, and even so the Krugerrand was selling in Europe for as much as 18 percent over bullion. This premium only came down when South Africa doubled production again, to the current rate of 7 million coins a year. With the Krugerrand, the high profits were reaped by middlemen, but there is no reason why some (not all) of this profit couldn't accrue to the government. In fact, there is no reason why such profits cannot be put toward the inflationary national debt.
And the coins will certainly sell! Collectors will be interested in the first U.S. gold coins in forty years, and the first one ever with no face value. Also, the bullion coin buyers will be interested in having a U.S. coin available to them. Certainly the high premiums to which hoarders have driven even common date double eagles are indicative of the value which they place on a U.S. coinage over the Hungarian restrikes or the Krugerrand. Even the common date St. Gaudens or Liberty double eagles have become enormously over-priced because of this factor.
However, the Treasury must avoid the temptation to overprice the new coins, as it did with the Eisenhower dollar fiasco. The price of the von Mises must be competitive with other bullion coins, and then, only if the demand is insatiable, the premium might be raised, to be lowered later with increased production.
I chose to name my proposed coins after Ludwig von Mises and Thomas Jefferson because of the contributions which each has made to the cause of liberty in this world. Jefferson's Declaration of Independence is much better known than his other works, but his writings on the nature of money and banking and debt are well worth reading today.
Dr. von Mises is perhaps one of the greatest minds of the twentieth century. His contributions to economics were swept under the rug by the "Keynesian revolution," but, as the Keynesians themselves reexamine the usefulness of their policies and theories, von Mises' works are beginning to assert themselves again. His works on economics are the counterpart of Jefferson's political ideas in defense of liberty. It is appropriate that the first U.S. gold coinage in forty years should bear their names and images.
Charles Curley is the author of The Coming Profit in Gold(Bantam), and was a founding member of the National Committee to Legalize Gold. He lives in Los Angeles and works in the investment field.