Earlier this year I wrote a piece with the title
"Dorothy's Silver Shoes", in which I proposed the re-monetization
of the Constitutional silver currency of the US; there is a significant
amount of this coinage still in existence.
Here's a "Thought
Experiment" regarding the re-monetization of the Constitutional silver
dollar, the silver half-dollar, the silver quarter and the silver dime.
The Thought Experiment:
At present, the old
silver currency of the US cannot circulate as money because the silver
content in the coinage is actually worth a lot more (fiat) dollars if melted
down into silver bullion bars. Everybody knows that, but you still can't use
those coins for everyday purchases because nobody knows exactly what they are
worth as money in commercial transactions such as purchasing groceries.
Enter the Utah State
Legislature, which has recently enacted legislation friendly to gold and
silver. Suppose the State Legislature of Utah decided to empower the Utah
State Treasury to establish a Federal Reserve Note (FRN) value for the
silver dollar and its subsidiary coinage - the silver half-dollar, the silver
quarter-dollar and the silver dime - for the purpose of receiving that silver
currency at the established FRN value in payment of taxes and other sources
of revenue payable to the State of Utah.
The gist of that job
would be to calculate, on a daily basis, the Federal Reserve Note value of
the silver in the silver dollar, which contains 77.3% of a Troy ounce of pure
silver; this FRN value of the silver in the silver dollar, would be increased
by 12%, and then rounded up to the nearest multiple of four. (Why the 12%
mark-up? Because the US Treasury is going to have to come into the act, a
little later, and it will require a margin of profit to carry out the minting
of the silver currency. So we provide that margin at the outset.)
Today's (October 28,
2011) value of silver bullion as shown on kitco.com is $35.29.
So, $35.29 X .773 = $27.28 X
1.12 = $30.55, rounded up to $32.00
of silver currency" should not be mentioned in any legislation! All that
is necessary is that the Utah State Legislature enact that the State Treasury
shall accept silver dollars in payment of taxes and other sources of revenue,
at a FRN value as determined from time to time by the State Treasury. Such
language avoids intruding upon the area of "money creation",
presently a monopoly of the Fed, and obtains the desired effect, for everyone
in the State of Utah will know that there is a "final buyer" for
the silver dollars, at a fixed rate: the Utah State Treasury. A telling mark
of money is that a State will receive that money in payment of taxes.
By doing this, The Utah
Treasury would make the Constitutional silver dollar worth - exclusively
in Utah, of course - $32.00 FRNs. And because 32 is a multiple of 4, the
half-dollar would be worth $16 FRNs; the quarter-dollar would be worth $8 FRNs, and the silver dime would be worth $3.20 - three FRN
dollars and two junk metal dimes.
What could be the practical
value of adopting this legislation, for the residents of the State of Utah?
The usefulness of this
former US currency would be greatly enhanced. Even if its monetary value in
FRNs were limited to the State of Utah, it would represent a highly desirable
alternative for the savings of residents. Besides this it could be used
for most - though perhaps not all - purchases within the State of Utah.
(Those readers who have the requisite knowledge may sort out the questions
regarding which enterprises might legally refuse payment in a currency which
the State of Utah will accept in payment of taxes.)
It seems to me that the
State of Utah would be fully within its rights in accepting the
Constitutional silver dollar (and its subsidiary silver coins) in payment of
taxes, at a certain fixed value in FRNs.
In the highly unlikely
case that the State Treasury should begin to receive large amounts of taxes
in the form of silver currency, it could dispose of the incoming silver by
using it to pay its bills and payrolls. I can see no impediment to the State
of Utah issuing silver certificates at some point, for the sake of
convenience in making payments - such certificates, based on silver actually
existing in the State Treasury, of course.
In this Thought Experiment,
the silver currency would circulate in parallel with the FRNs. I think the
case of the State Treasury receiving large amounts of silver currency in
payment of taxes is highly unlikely, because the residents of Utah would be saving
their silver currency and would be very reluctant to part with it. The silver
currency favors savings, desperately needed in a nation that is
As the FRN loses value
against gold and silver, the corresponding rise in the FRN value of silver
bullion on the market will bring the "mark-up" of the State
Treasury down to 10% (from an initial 12%); at that point, a new quote for
the FRN value of the silver dollar becomes necessary. The next price of
bullion silver which would trigger a rise in the FRN value of the silver dollar
would be $37.63. At that moment, the new FRN value of the silver dollar (in
Utah) would be: $36.00.
At this point, I should
mention that the Utah Legislation to give the silver dollar a FRN value
applicable in the payment of taxes and other sources of revenue should
include a provision in the sense that any FRN quote given to the silver
dollar by the State Treasury must be a quote which cannot be reduced once
issued. To wrap your mind around this strange provision, think of the FRN
quote by the Treasury as a sort of re-stamping of its value, upon the silver
dollar. All money must have a known, fixed value in order to be used as
money; that is why values are stamped on coins. But, in our world, silver
bullion will be going up, and up, and up, as the FRN goes down, and down, and
down in value; unless we can adapt the coin to the rising FRN value of silver
bullion, the coinage must go out of circulation as soon as its metal value
becomes higher than its quoted FRN value. Thus, the Treasury of the State of Utah
will be able to keep this currency in circulation in Utah, by raising its FRN
value to just slightly above its bullion value and fixing it there, until the
next rise in the price of silver bullion. The FRN value quoted by the State
Treasury would take the place of the normally stamped value.
Please think about this
before rejecting the Thought Experiment.
What if the price of
silver collapses? What would "back" the FRN quote given to the
silver dollar by the Utah Legislature? The "backing" would be a lower
FRN price of silver content, but there would still remain a valuable precious
metal content, whereas the FRN has no content whatsoever. So the silver
currency would still be more desirable money than the FRN, even in the worst
case. People would still prefer to save these coins, rather than FRNs.
(This is a "Thought
Experiment" - so, think about it!)
Article I, Section 10 of
the Constitution of the US says: "No State shall ….coin
money…. [or] make anything but gold and silver
coin a tender in payment of debts". However, the State of Utah would not
be coining money; it would simply be giving the Constitutional silver dollar
of the USA (371.25 grains of pure silver) a FRN value within its State
Borders for the purpose of collecting taxes and other sources of revenue. And
in the case of making payments in silver dollars, it would be following the
letter of the Constitution. What's to object about that?
When the Utah State
Treasury declares that the silver dollar is worth $32 FRNs in the State of
Utah for the purpose of receiving any taxes or other sources of revenue
payable to the State of Utah, the Utah Treasury is not creating another
currency, a move which would certainly raise huge objections in Washington.
It is simply saying that it will also accept payment of State of Utah
taxes in the old Constitutional silver currency, at a certain rate of
FRNs per silver dollar. The legal tender money of Utah remains the FRN.
Also, the State of Utah will not force anyone to take payment in silver dollars
with a FRN value quoted by the State Treasury. Whoever does not wish to take
silver dollars, will have the option of being paid in FRNs.
The Thought Experiment
goes on to say:
People like this monetary
measure, and they like it a lot. People are saying: 'Why didn't somebody
think of this before?' And what's this? A number of other States of the Union
are following suit along the same lines as Utah, and the usefulness of silver
currency increases as the area where it can be used to pay state taxes grows
from one state to another. The measure is accepted by leaps and bounds, since
the #OWS crowds are getting very nasty and the police are cracking a lot of
In a short time, silver
currency is back - without having replaced the FRN, just being used "in
parallel" with the FRN. And with the old silver currency back in the
hands of the people, the Joy of Saving in real money returns. The US is looking good, for a change!
With silver back in
circulation, popular pressure on the US Treasury to resume the minting of
silver currency increases. People want the silver dollars, half-dollars,
quarters and dimes; they are desperate to obtain them, but they are very
scarce. The Treasury is forced to mint more and more of this silver currency.
The US Treasury delivers its freshly minted silver coinage to the public
(through the banking system) at the FRN value as established by the State
Treasury of Utah and the State Treasuries of other States which have joined
Utah in accepting the silver coinage in payment of taxes and other sources of
Behold! The Treasury
reassumes its Constitutional mandate to provide silver currency to the
citizens of the US. The silver currency is provided by the Treasury, just as
the Constitution established. This is money that is not "Fed
money", not a creation of debt, as the FRN. Once in circulation, its
existence does not depend on the health, or even the existence of a banking
system. This is what real money always has been, and what real money always
will be. The American people do not have to pay a rental fee to the banking
system, in order to have silver money.
Behold! The Federal
Reserve, that huge banking cartel clam, is pried open.
The public has
experienced real money, once again. This has changed everything for the Fed,
whose existence for decades has been unchallenged because there was no
alternative to its FRNs. Now there is an alternative silver currency and
the people have tested it and liked it.
The evil spell of paper
money has been broken.
End of "Thought Experiment".