Prof. Michael S. Rozeff recently wrote an article at LewRockwell.com entitled, “Changing to a Silver Economy“. It’s an excellent exercise in thinking about how to return to an economy based on sound money:
A libertarian in Columbia, South Carolina sent me a message recently. He works at a convenience store. He was interested in introducing silver as a means of payment or currency at this store. His specific ideas I thought would not work because of the taxes on silver. The government treats silver as a collectible subject to income taxes at ordinary rates. He had some ideas of buying bullion and then setting up a market in it by buying at a small discount to the spot price and selling at a small premium, thereby creating a bid-ask spread. He had some idea of getting people to transact in silver.
Instead I spun out the following proposal. It too has the fatal flaw that taxes on silver dealings occur, but thinking about this process is very useful anyway. It shows how stores might become 100% reserve banks and how the economy might transition from paper and slug coin currency to silver money. And, if this skeletal proposal has flaws, others can possibly improve on it. I merely want to demonstrate a degree of feasibility, so that the possibilities become more tangible.
The basic idea is that silver is the unit of account, but silver is not necessarily used as the medium that is used for redemptions.
Prof. Rozeff’s idea is a good one, but it’s also a little complicated and potentially legally hazardous – we all know how our wonderful federal government likes “competition” in currency, and the Secret Service and IRS are used quite effectively to squelch such attempts. So instead of trying to swim upstream like so many others have attempted… how about using the government’s own “legal tender” laws against it, as an alternative?
Step 1. Make the units of account (currency accepted) in the store both “legal tender” Federal Reserve Notes (FRNs) and “legal tender” Gold & Silver Coins (99.9% Eagles & 90% pre-1965 “junk” silver).
Step 2. Price everything in the store in both FRNs and Gold/Silver coins. This is not difficult; pricing in two currencies is done all the time at heavy tourist locations in Europe, the Caribbean, Mexico, and elsewhere. Exchange rates don’t fluctuate dramatically enough on a daily basis to change pricing too frequently; and in reality, it would only be the price in FRNs that would need to be changed.
Pricing is fairly easy to calculate: Go to the Solaris “Silver and Gold Payment Calculator” and simply enter the FRN cost to get the converted cost. For example, if an item costs $25 FRN, also label it at $1.25 pre-65-silver; if an item costs $5.99 FRN, also label it at 30¢ pre-65. More expensive items like TVs might cost $259; it can also be labeled at either $12.96 pre-65, or [$5 Gold Eagle + $6.30 pre-65], or [$5 Gold Eagle + $4 Silver Eagles + 70¢ pre-65]. (If a premium needs to be added, that can also be incorporated in the exchange rate.)
Step 3. Offer change in either FRNs or Eagles & pre-65 coins (again, calculated online). Since these are LEGAL TENDER coins under U.S. law, if they are used in actual purchasing transactions (and not just conversion transactions – in other words, “buying” gold or silver coins using FRNs), they have been specifically declared to be NON-taxable (except for sales tax, of course; that would be done based on whatever the final face value of the sale was, as always).
All the store is doing would be to follow the legal tender laws of the U.S. government in pricing, giving change, and paying sales taxes. No one HAS to pay in gold or silver; the store would stay in business with its FRN-using customers. However, those customers would also see the price in FRNs rising on a regular basis, while the price in gold & silver remains fairly constant from week to week. Thus, this would also be a hands-on method of educating the public on the benefits of sound money; you would likely see people going out and getting as much gold & silver coins as they could, knowing that a week later the price in FRNs would be going up, but they could still buy their goods at the store for the same amount of gold & silver that’s now worth more (instead of the FRNs which they would need more of).
To put it more simply: what we’ve done here is introduce competition in currency, between legal tender MONEY and legal tender pieces of paper. I believe MONEY will win.
A lot of this falls in line with what would most likely happen if a State passes the Constitutional Tender Act, which would require States to adhere to Article I, Section 10 of the U.S. Constitution, and use ONLY gold & silver coins in State transactions. Check out the paper “Ending the Federal Reserve from the Bottom Up” for a more detailed explanation of how this would lead to a “legal” gold & silver economy in the U.S.
ALL of these are the kinds of ideas that need to be “kicked around” as much as possible, as the present currency crisis descends upon us. Sound money is, of course, the answer; the question is, how do we get it re-introduced effectively, and quickly. The ConTen Act is most likely to achieve that goal.