Gold & Silver Coinage

Thomas Lee Abshier, ND
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by: Thomas Lee Abshier, ND

Gold & Silver Coinage
By: Thomas Lee Abshier, ND
11/15/2011

----- Original Message -----

From: John F.
To: Thomas Lee Abshier
Sent: Monday, November 14, 2011 7:53 PM
Subject: Value quote

Gold and silver, containing great value in a small compass, and being therefore of easy conveyance, and being also durable and little liable to diminution by use, are the most convenient metals for coin or money, which is the representative of commodities of all kinds of lands, and of every thing that is capable of being transferred in commerce - Noah Webster

On Mon, Nov 14, 2011 at 9:32 PM, Thomas Lee Abshier, ND <drthomas@naturedox.com> wrote:

John, what does that mean to you? Does that prove your theory? Does it disprove mine? Or, does it simply confirm what we both already knew and agreed about gold and silver and their use as monetary symbols, having both intrinsic and symbolic value, spoken by someone of great historical stature?

From: John F.
To: Thomas Lee Abshier, ND
Sent: Tuesday, November 15, 2011 5:02 AM
Subject: Re: Value quote

Just a cool quote, reminding us of those characteristics that are necessary for a substance to be accepted as money. If you are thinking that the gold and silver coins specified in the US Coinage act of 1792 were symbolic, I think by that people were willing to trade other stuff for them -- not that they symbolized anything else, physical or metaphysical or abstract.

From: Thomas Lee Abshier, ND
To: John F.
Sent: Sunday, November 20, 2011 6:28 AM
Subject: Re: Value quote

One thing to note about the Noah Webster quote is that gold and silver coins, “are the most convenient metals for coin or money.” This is important since the word “convenient” indicates the relationship between metal and money. Money is the symbol used to store value for eventual exchange and conversion into, or redemption in, various forms of tangible and intangible value. Noah was not saying that Money “must” be metal, he stated only that it is “convenient”.

The important question is whether Noah believed that money must be in itself valuable?

We have no way of knowing for certain what the people that wrote the Coinage Act of 1792 were thinking with regard to whether money itself must be valuable, but at that time there was already a history of paper money being printed. This means that the use of paper money as a symbol for something valuable was already part of the cultural paradigm of symbolic representation.

The concept of paper money was probably tied to the concept that the paper money could be redeemed for physical metal, as well as being redeemable for consumable value in the economy. But, there was no tight control of the money supply, such as is required in moral Central Banking, and wisely administered Fractional Reserve Banking. The value of the dollars printed at the time could have withstood a regulated increase in number, but no such moderation in printing was forthcoming, since the Revolutionary Army needed money to buy supplies, and the tax base could not withstand the expenditure.

Thus, due to the harsh realities of the need for consumption by the Army, the government resorted to printing money. This was simply counterfeiting by the Treasury and Mint/the officials put in charge of the the money supply. This was the theft. Printing money, and spending it in the economy to obtain supplies for the Army was theft by the Army. The vendors who supplied the goods and services to the Army thought they were receiving a symbol that could be redeemed for value commensurate with the value they gave to the Army.

But, since there was neither gold, of value commensurate with the paper money in circulation, and no contract to produce value for consumption associated with each dollar in circulation, “this money was a lie” to use your phrase. This was the creation of the imaginary money that you refer to so frequently. There was neither valuable metal in reserve that the paper could be redeemed for, nor was there contract to produce value associated with the dollars printed. The invisible hand of the market quickly evaluated the reduced value available for consumption associated with the paper money. The paper dollars became less and less valuable as the ratio of the consumable value to dollars declined. The paper money thus became less and less valuable with each release of notes, to the point they had only commodity value. Hence the phrase, “Not worth a Continental.” This is of course a warning to us in modern day to moderate the printing of money to an amount commensurate with available consumable value.

The Coinage Act established the percentage of silver, and copper in the various coins. Were they saying that the metal in the coins were valuable, and that people could trade the value of the coin for stuff of equal value? This was probably approximately the concept of the time, as was the concept that paper money was meant to be a certificate redeemable in valuable metal.

Gold is valuable (i.e. widely perceived subjectively to have value), and so are livestock, tools, crops, land, and natural resources. Gold, silver, and copper in constant weights are simply one type of value, whose ownership can be traded for ownership in another type of value.

The minted valuable coin money has two types of value: 1) Money has a face value, a symbolic marking giving it a denomination in dollars (multiples and fractions). The dollar is a unit of value, which is an intangible quality of goods and services associated with their utility and pleasure as perceived by the individual. Value is a market-established ratio, empirically determined by the market in live trade of goods and services for dollars. The denominational value of the dollar is determined by the current exchange rate of value per dollar. 2) When money is related to a gold/silver standard, then money has an officially decreed, quantified, measure of valuable metal. When the dollar is tied to redemption of gold or silver then the quantity of base symbol notes and coins is limited by the hard work of mining, refining, and coining and bullion storage.

But, the demominational face value of the valuable metal coin, and the trade value of the official metal-dollar quantity, quickly diverges in every market. This problem, of the metal being worth more than the denomination was a problem even in the early colonial times when there was no Central Bank, and no Fractional Reserve Banking. The problem was that the total of 1) store of redeemable value and 2) store of valuable metal (which served as an alternate refuge for redemption of value), of less value than the total face value of all money in circulation. Thus, the metal, even the early Colonial gold coins suffered the problem of being hoarded or melted to extract the underlying metal and the traded for the larger quantity of dollars.

Thus, under every gold/silver standard system, there will always be a dual symbolism of money: 1) the symbolic denomination of value terms of its value in trade for goods and services (which includes the metal used in coins and reserve bullion), and 2) the underlying value market value of the metal in each coin and the reserve bullion.

There will always be this disparity if there is an alternative money symbol (e.g. paper or digital money) in circulation besides valuable coin. Thus, we may say without fear of contradiction, that only by rare chance will metal in the silver or gold coin, or silver or gold certificates (officially redeemable in valuable metal) have a market trade value equal to the officially established dollar-metal exchange rate.

In other words, all currency, redeemable in valuable metal, represents a fractional reserve banking of a type. There will most likely be more or less silver/gold in reserve than the total redeemable paper money supply in circulation. Thus, even the best intentioned paper money system, will have a dual valuation, the symbolic value, and the weight of silver/gold/copper coin and value that it can be traded for.

Regarding the intent of the Colonists, the legal definition of silver per dollar was intended to be a definition of dollar and silver. The Spanish dollar was silver, and in common circulation in the Colonies. It was cut up into 8 pieces, and thus the phrase, “two bits” equaling a quarter. Money was intended to have inherent value, in terms of coin or reserve, as well as exchange value for goods and services. The Colonists were unable to keep the metal reserve equivalent to the money supply, and flagrant printing of notes by the government for purpose of officially sanctioned theft for the Army, debased their currency.

But, as far as the symbolic value of the money, the early adopters of the coinage, probably thought in terms of valuable metal for valuable goods and services. But, my point is that there is a deeper level of understanding to money than trading tangible value for tangible value. Trading gold/silver for cows is trading value for value, and is still a type of barter. But, that was probably as far as the theory of money and its symbolic store of value had gone for the men who wrote coinage act.

The theory of money as gone through the following steps: 1) Money as valuable metal, 2) Paper money as representative of metal, 3) Paper money as representative of valuable goods and services.

In this final evolution of money, fiat money is traded for valuable stuff. There is no alternate redemptive value that gives fiat money its value. Rather, the market gives fiat money its value in relationship to other currencies, commodities, bonds, and equities.

Fiat money, the symbol itself, the token used to symbolize value, has very little value in itself. Rather, the token symbolizes the abstract/metaphysical quality we call “value”. Thus, while I agree that the reference in the Coinage Act was referring to trading valuable metal for valuable goods and services, the understanding and theory of money has matured and become more subtle. We can not go deeper in our understanding of money and realize that the goal of money is not to have gold and silver, but to obtain that metaphysical quality we call value when we trade and work for money, and store money for future redemption of value.