Coming Soon to a Bank Near You…the “Hoarders”
We sound money types lament the disappearance of “good” money like gold and silver coins from day-to-day business. There is something special about these ancient and honorable monies. No, it’s not some Goldmember-style fetish, some psychological affliction known only to “gold bugs.” It’s knowing that the value of your money cannot be inflated away by a desperate and treacherous government. Of course we are aware of some basic economic principles that explain the current monetary situation: namely, that when a government debases gold and silver coinage, and institutes fiat paper money in its stead, it must impose a legal tender law to force circulation of the new money. As sound money buffs are well aware, whenever legal tender laws force acceptance of a lesser monetary substance, that lesser substance will come to dominate official commerce—it’s Gresham’s Law. As Ludwig von Mises explains,
“Bad money, says Gresham’s Law, drives good money out of the country. It would be more correct to say that the money which the government’s decree has undervalued disappears from the market and the money which the decree has overvalued remains.” – Human Action
This phenomenon is reflected in prices: as Gresham’s Law sets in, the price of the old, “undervalued” money rises in terms of the new, “overvalued” money, hence the former is never used at face value for purchases, and it disappears from normal commerce. So it is with US gold dollars, the official basis of America’s monetary standard from 1792-1934: nowadays, a vintage gold dollar is worth around $70 in current, Federal Reserve brand dollars. Try finding one of those in your change!
But there’s still a chance for sound-money types to wrest some relatively hard money from the current fiat system at face value. What I’m talking about is the current situation involving certain common US coins that you probably handle on a daily basis. In case you didn’t already know, for US pennies minted up until 1982, and for all US nickels,inflation has driven the metal value of the coin above its face value. And while sound money geeks have been aware of these facts for several years, the mainstream media are just now starting to report on it. Gresham’s Law—a bona fide symptom of fiat money inflation—is back.
Many will scoff at the sums involved in this monetary arbitrage opportunity. Indeed, we’re talking pennies here—why bother saving up the “good money” coins when the values involved are so meager? Hoarding coins is not for everybody. But for those who learn the ins and outs, small gains, when multiplied, can make for tidy profits. After all, if you’re hoarding coins to profit from the decline of the (fiat) dollar, do you think the inflation that caused this situation in the first place is likely to continue or diminish? Coin hoarders have convinced themselves of the former. As long as inflation of metals prices keeps up with overall inflation, they’ll at least be protecting their purchasing power; if metals inflation races ahead of other prices, they stand to actually “win” from the flood of new fiat money.
A few weeks ago I posted an article here about signs of inflation. The coin hoarding phenomenon—now including nickels!—is definitely another item to mark on your inflation checklist. Watch for it at a bank near you.
Tyler Watts is an assistant professor of economics at Ball State University.
Image by Pixomar / FreeDigitalPhotos.net.
