It was only in 1933 that you could no longer redeem your bills and coins
for their gold equivalent. For centuries coins contained their value in gold –
a $1 gold coin contained $1 worth of gold. When the value deviated
significantly upwards, so that a coin contained more than its face value in
precious metals, people simply melted them down and sold them as gold or
silver, realizing a profit. That all changed when the US Mint was no longer
legally obliged to convert bills for gold, and vice versa, and of course today most
circulation coins are made of base metals, with a melt value well below their
face value.
However, the Mint still issues gold coins, and since 1986 the American
Eagle gold and silver bullion coins have been legal tender. Of course, it would
be unwise to pay a bill with these coins, since their denominated value is
substantially below the value of the gold in them. For example, the American
Eagle gold coin contains one ounce of gold, valued today (06/17/19) at around
$1,345. But the face value of the coin is a mere $50, so who would use this as
legal tender? Yet several states have recently passed laws making these coins
legal tender for buying goods. We ask ourselves, why?
The answer is in the distrust of many people in fiat currency. It is the
same reason people hoard gold and silver – not just for some future possible Apocalypse,
but because they cling to the idea that only precious metals are ‘real’ money. ‘Fiat’
money – coins and bills that are given an arbitrary value and depend on our
mutual acceptance of that value – are seen by many people as the cause of our
economic woes. While they do seem to forget that there were economic cycles and
crashes during times when gold was legal tender, these supporters of gold have
succeeded in getting several states to pass laws making gold legal again. Most
recently, Wyoming passed House Bill 103, the Wyoming Legal Tender Act, which
made gold and silver ‘specie’ legal tender. ‘Specie’ are all coins with gold or
silver content, as well as pure bullion coins. Alabama has similar laws, and
Wyoming and Kansas are also creating similar laws.
If we dig a little deeper though, the real motives here seem to be two-fold.
The Wyoming law also removed all taxes on the sale of gold, while in Wyoming
there is a requirement for the state to diversify its financial holdings into
precious metals. The argument goes that the government, by taxing sales of
coins, is treating them as commodities, not money. Using money cannot be taxed,
otherwise you could pay a tax when you changed $5 bills into coins at your
local bank. This is the real battle – an attempt to encourage the use of metals
for exchange, and to undermine the Federal Reserve. A deeper purpose is to take
away from the Federal Reserve their monopoly on money, so that states can issue
their own currency, and perhaps people will return to using gold and silver for
exchange. If successful, we might see a return to a time when a quarter was
literally a gold dollar cut into four parts.
Whether these activists, like the Sound Money Defense League, can turn
back the clock remains to be seen. In one direction we have a desire for real
money, and in the other direction we have Bitcoin, and virtual money – who will
win out?