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09/17/2006 Archived Entry: "Liberty Dollar Irks Mint"
THE US MINT DOESN'T LIKE THE LIBERTY DOLLAR by Silver
Monopolies, which are invariably maintained by government force, hate competition. They aren't used to being challenged. Now the US Mint has warned that Liberty Dollars are not legal tender.
This is not news. Legal tender laws in the US make bits of colored paper the only lawful money. Using silver and gold, the metals selected by free markets for use as money for the past 60 centuries or so, is strictly verboten, no matter what the Constitution says.
What IS legal is barter. Anyone is free to try and convince a merchant or customer to accept an ounce of silver instead of a piece of colored paper eblazoned with "20" and an idealized drawing of a dead white politician. The Liberty Dollar website quotes a spokesthing for the Federal Reserve:
There is no law that says goods and services must be paid for with Federal Reserve notes. Parties entering into a transaction can establish any medium of exchange that is agreed upon.
The bluster in the Mint's press release about it being a "Federal crime to pass, or attempt to pass, any coins of gold or silver intended for use as current money except as authorized by law" is pure hot air. Our masters have decreed that it is illegal to try and fool someone into thinking that a silver coin is the same thing as a piece of paper or a tiny chunk of plated base metal alloy. No blind man would ever be so mistaken.
What is happening here is that the Mint doesn't like the Liberty Dollar people using the same or similar artwork on their coins. I can also imagine, based on a few personal interactions with Liberty Dollar boosters, that a few have become a mite too aggressive in their barter negotiations. It's a small step from saying "This coin is as good as money" to saying "This coin IS money." The Liberty Dollar people claim there are nearly a million coins and certificates in circulation. That doesn't make the coins legal tender, and each and every transaction requires a nuanced, effective sales pitch. You can't force anyone to take a Liberty Dollar. Trying to do so is not only illegal, it is wrong.
In my opinion, the Liberty Dollar program has fundamental flaws, discussed below and at some length in the 2004-vintage TCF thread Tell Me About Gold. That said, I welcome all who challenge the authority and expose the insanity of our government. Flawed or otherwise, the Liberty Dollar challenges federal hegemony over our money. Money is inextricably tied to freedom, and we will need real money to achieve Sustainable Freedom.
Seeing the Mint bark and fume about Liberty Dollars is good news; one more crack in the crumbling facade that hides the hideous, decaying corpse that is our government.
There are several problems with the Liberty Dollar (LD).
1) The premium on the coin is very high; currently a coin with 1 ozt of silver, worth less than $11 on the spot market, is valued by the LD folks at $20. Last Friday (the market is closed as I write) Goldmasters was quoting other free-market silver coins for $11.64, and official US Mint coins for $13.94. The market values US mint coins over private mints; the premium last Friday was $2.30 per coin. The market values a coin more than an ingot of questionable purity; the premium was $0.59.
This criticism always provokes a furious response from the LD people, they sputter about minting, storage, and distribution costs, and claim that they are educating people about real money. The cost arguments are silly; I would be deeply ashamed to sell a product that the US government can produce for far less. In any case, the same market processes that selected gold and silver as money have ruthlessly eliminated all the middlemen and inefficiencies associated with producing and circulating silver coins. It doesn't matter what it costs to produce something, what matters is what well-informed people on the margin will pay, and last Friday they would pay no more than $11.64 for a non-government stamped ounce of silver.
As for the education argument, you can teach people about metal commodity money with ANY 1-ozt silver coin. The ones getting the education are those who accept $11.64 in silver to settle a $20 debt; tuition paid to the school of hard knocks.
2) The attempt to tie the worth of 1 ounce of silver (or gold, there are LD gold coins as well) to a fixed US dollar amount is doomed by the very same Federal Reserve abominations that the LD claims to oppose. The FED was created for one purpose; to allow relentless inflation of the money supply. However many Federal Reserve Notes (FRNs) it takes to buy an ounce of silver today, it will take more in the future. The marking of 20 or whatever is called the "tale," see the Von Mises quote below.
The original LD carried a tale of $10, when silver coins were trading for $5-$8. When silver climbed above $7.50 and stayed for a pre-determined time, the LD was "re-valued" at $20. There was great hoopla among LD boosters, as their coins had "doubled" in value overnight.
Nonsense. Believing in money for nothing and letting some central planner set the value of a coin is exactly what got us in the mess we are in today. Markets set the value of silver and gold, not the FED and not self-appointed "monetary architect" Bernard von NotHaus.
There were immediate, practical ramifications as well. The existing stock of LDs, with a "10" stamped upon them, were recalled and re-minted with a "20"! This cost well over a dollar per coin in minting and shipping fees.
3) The LD people also circulate certificates for silver and gold held in storage in a vault in Idaho. There is nothing wrong with such certificates, but they require an extremely honest printer. We learned long ago that the odds of all or most certificates being returned for metal is extremely low. The people who issue the certificates almost invariably issue a few more, unbacked by metal, and spend them as if they were real. The FED started this way, but it was too slow and confining, so they did away with all claims of metal backing over 35 years ago.
There used to be a place on the NORFED website showing the results of periodic audits. The stock of certificates in circulation was compared to the stock of coins in the vault by an independent auditor. The NORFED site has been replaced by Libertydollar.org, but the audit trail is gone. At least I can't find it. Without third-party audits, the value of silver and gold certificates is extremely questionable.
4) I don't care for the "If you're not with us, you are against us" attitude of many LD boosters. If they are indeed an educational as well as mercenary organization, then honest questions deserve honest, forthright answers. Many people have noted that probing questions about the nature and price of the LD are answered with hostility. The Bushevecks have elevated attacking a person's integrity because they dare to question authority to an art form. LD backers who emulate that behavior risk being classified as arrogant bullies and thugs.
I can easily imagine a situation where LD boosters get in the face of merchants or other people who are uneasy with accepting their medallions in place of FED script. Barter requires salesmanship, while legal tender laws mean that creditors MUST take your FRNs whether they like it or not. Annoy or frighten enough people, and some of them will call the Mint, or another minion of the feds, and you get the kind of press release that prompted this essay.
The most plausible explanation is the LD producers and distributors see an opportunity to make very large profit margins on silver coins sold to uninformed consumers who lack knowledge of silver or commodity money. The LD producer sells to distributors at a very substantial premium above their costs; the distributors in turn attempt to sell to merchants and consumers after adding still another premium. This structure does give the distributors an incentive to promote the use of silver coins in commerce. However, it also encourages a number of prevarications about the nature and purpose of the LD program and commodity money in general.
There are plenty of similar enterprises selling non-government gold and silver medallions at prices far above the price of the metal. Collectible coins fall into the same category. There is nothing wrong or deceitful about these businesses so long as they are honest with their customers. The premium is charged for the alleged scaricity or beauty of the coin. Whether or not the customer will be able to find anyone else who agrees with their valuation, and is willing to trade the coin at the same premuim, is another question entirely.
Von Mises covered this topic throughly in The Theory of Money and Credit, Chapter 3, Section 4: The Commodity Money of the Past and of the Present.
It may be stated as an assured result of investigation into monetary history that at all times and among all peoples the principal coins have been tendered and accepted, not by tale without consideration of their quantity and quality, but only as pieces of metal of specific degrees of weight and fineness. Where coins have been accepted by tale, this has always been in the definite belief that the stamp showed them to be of the usual fineness of their kind and of the correct weight. Where there were no grounds for this assumption, weighing and testing were resorted to again.
Nevertheless, in defiance of all official regulations and prohibitions and fixing of prices and threats of punishment, commercial practice has always insisted that what has to be considered in valuing coins is not their face value but their value as metal. The value of a coin has always been determined, not by the image and superscription it bears nor by the proclamation of the mint and market authorities, but by its metal content. Not every kind of money has been accepted at sight, but only those kinds with a good reputation for weight and fineness.
The flaw in the LD enterprise is attempting to justify very large premiums while simultaneously claiming that the coin should circulate in commerce. History is very clear on this point; markets value commodity money according the underlying value of the metal, plus a very small premium for mint marks and other assurances of purity and weight. Margins of a few percent are the norm here; the LD trades at many times that premium.
The LD people need a major attitude adjustment, and lower costs, if they are to succeed at what they claim to be doing. If what they really want is to deprive fools of their money by selling overpriced medallions to consumers ignorant of the mechanics of commodity money, so be it. That market is shallow and will vanish along with the FRNs that created it.
Posted by Silver @ 09:32 AM CST