There’s been so much attention given to the soaring price of Bitcoin and the amazing gains in some heavily shorted stocks that other business stories are getting lost in the shuffle. But one of these, while not as immediate or as dramatic, is quietly gaining momentum and if this trend continues it will change the way we define money and, more important, the way we use it.
This story: making gold and silver legal tender. In other words, making it money again.
Years ago, US coins and dollars were made out of these metals and backed by them. Dimes, quarters, and half dollars minted from the 1920s through 1964 were 90% silver. That changed starting in 1965, when all silver was eliminated from dimes and quarters, and lowered to 40% in half dollars. All silver was removed from half dollars in 1970. The US went off the gold standard in 1973 and instead began using fiat money - paper money that had value, because the government ordered that it be accepted as a method of payment.
Although no longer used in money, gold and silver are still valued, collected, and hoarded by people and institutions around the world. A bill introduced in the Kansas House seeks to take this a step further. It wants to make gold and silver legal tender again, which would make it possible to use them in the transactions we make every day. It would also be possible to purchase these metals without having to pay any state taxes.
Contrary to a widespread impression, Federal Reserve Notes, the paper money everyone spends and accepts, are not backed by gold or silver. But if states across the country pass bills like the one in Kansas, gold and silver would once again be used as money all over. And this could usher in another change: The Fed would no longer have absolute control over the nation’s money.
Has this already started to happen? It may have.
Back To The Future?
In 2011, Utah became the first state in 80 years to recognize gold and silver coins issued by the United States as money. And since these metals are money, buying them is simply exchanging one form of money for another, which traditionally has not been taxable.
Utah was the first state to take this step, but others either already have climbed onto this bandwagon or are seriously considering doing so.
West Virginia eliminated paying state taxes on gold and silver bullion in 2019. Louisiana, Utah, and Texas have passed legislation recognizing gold and silver as legal tender. Bills introduced in Tennessee and Mississippi would repeal state taxes on these metals. Other states that have designated gold and silver as legal tender include South Carolina, Missouri, Indiana, Kansas, Oklahoma, Arizona, and Wyoming. Going forward, others may follow.
Efforts to monetize gold and silver are gaining support from “gold bug” investors and speculators. And people who believe in sound fiscal policies and who have no confidence in the Fed are adding their support to these efforts.
One of the most outspoken proponents of these views is Ron Paul, a former Texas Congressman and former Presidential candidate. Paul often speaks out against excessively large government as well as fiat (paper) money.
“We ought not to tax money and that’s a good idea, it makes no sense to tax money,” he said during testimony in support of the Arizona bill that repealed capital gains taxes on gold and silver in that state. “Paper is not money,” he added. “It’s fraud.”
Paul added that he is deeply concerned about the size and scope of government. “If you’re for less government, you want sound money,” he said. “The people who want big government - they don’t want sound money. They want to deceive you and commit fraud. They want to print the money. They want a monopoly. They want to get you conditioned, as our schools have conditioned us, to the point where deficits don’t matter.”
Others have compatible views. Writing on Schiffgold.com, Michael Maharrey notes that “eliminating taxes on the sale of gold and silver cracks open the door for people to begin using (these metals) in regular business transactions. This marks an important small step toward currency competition” with the Fed.
Professor William Greene, an expert on what the Constitution considers legal tender, said that when people in multiple states actually start using gold and silver instead of Federal Reserve Notes (paper money), it would effectively nullify the Federal Reserve and end the federal government’s monopoly on money.
“Over time, as (people) use both Federal Reserve notes and silver and gold coins, the fact that these coins will hold their value better than Federal Reserve notes will lead to a ‘reverse Gresham’s Law’ effect, where good money (gold and silver coins) will drive out bad money (Federal Reserve notes). As this happens, a cascade of events can begin to occur...as people in other states (will want to) bank with sound money. Eventually, there may even be an outcry against the use of Federal Reserve notes for any transactions.”
According to Greene, once things get to that point, Federal Reserve notes would become largely unwanted and irrelevant for ordinary people.
To be sure, we’re certainly not holding at that point now. But we may be moving toward it, in part because the dollar keeps shedding value. Numerous studies found that the dollar is worth only a fraction of the amount it was in 1913, when the Fed was created. The exact amount of value the dollar has lost varies with when the study began and the exact criteria used, but all have reached very similar conclusions.
For example, a Bitcoin-related study (among others) concluded that the dollar has lost more than 96% of its value since 1913; others show that it has lost slightly less than this but still an overwhelming percentage of its worth. I’m not aware of any financial gurus who predict that the dollar will regain any of this lost value any time soon.
It’s easy to understand why many people would prefer a currency that retains its value to one that steadily loses worth. At the same time, the powers that be obviously want fiat currency to continue. How will this challenge to the system ultimately play out? The answer is anyone’s guess.
Sources: assetstrategies.com; buybitcoinworldwide.com; coinsonline.com; in2013dollars.com; irenefranzeseblog.com; investopedia.com; mintstategold.com; soundmoneydefense.org; zerohedge.com