"I remember a German farmer expressing as much in a few words as the whole subject requires; 'Money is money, and paper is paper.'" - Thomas Paine
America's monetary situation is becoming fairly ridiculous. This Monday, the Wall Street Journal carried "Will Nickel-Free Nickels Make a Dime's Worth of Difference?" on its front page. The article shares the government's dilemma that minted each $100 box of nickels costs very close to $200, and that the metal content of the coin is worth more than the face value of 5 cents. The penny, which was already debased from almost 100% copper to 2% copper in 1982 also costs more to mint than its face value. The pre-1982 pennies are now worth over double their face value.
The nickel's mass is 5 grams and consists of 25% nickel and 75% copper. It is the only US coin to never have been devalued by using cheaper metals since it was first minted in 1866. At that time, both the penny and nickel were worth far, far less than their face value, but were used as placeholders for gold and silver coins. America's dimes, quarters, half-dollars were all 90% silver up until 1964 when the silver content became worth more than the face value. Today's dimes, quarters, and half-dollars are nickel plating - done on purpose to resemble silver - sandwiched over a cheap copper core.
While the WSJ hems and haws between substituting wood, plastic, aluminum or zinc in the coins, one of the issues with "toy money" or devaluing the coin currency is that it could cause a psychological trigger as citizens realize Congress and the printing operators at the Federal Reserve intends to pursue its permanent monetary policy of inflation, which is a hidden, insidious tax on all Americans who hold dollars.
From my overseas experience in China, one oddity is bank accounts and many restaurants or shops still issue receipts with two decimal places, even though there is no coin in wide circulation that is worth 0.01 yuan. These coins stopped being used by the public simply because this amount no longer has any practical purchasing power. A similar situation now exists in the USA today.
The most sensible solution for Congress to pursue is to halt the inflation and stop minting pennies and nickels altogether.
However, Congress is not sensible. For reasons briefly outlined here, Congress will continue inflation for as long as it can to maintain this charade of "desperado economics." Note the gold price rising to all-time record highs yesterday in dollars, British pounds, Swiss Francs, and Euros. However, gold's value is not really rising - it is just the devaluation of the dollar becoming more and more visible to the general public as posted recently in "The Haunted House of Fiat Currencies."
Today's dollars are mere shadows of what America's money once was. Money made with a printing press is nothing new - Thomas Paine and the rest of the founders were aware of the dire dangers - the phrase "worth less than a Continental" refers to script currency Washington issued the troops which quickly became worth nothing. This campaign has specifically about the nickel debasement two weeks ago, again in January, and well before this campaign started way back in August 2008 when I was just beginning to figure out what the government has done to our money.
While the masses will eventually catch on, forewarned is forearmed. Here is a snippet from Chapter 17 of Human Action written by economist Ludwig Von Mises:
"The course of a progressing inflation is this: At the beginning the inflow of additional money makes the prices of some commodities and services rise; other prices rise later. The price rise affects the various commodities and services, as has been shown, at different dates and to a different extent.
This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.
But then finally the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against “real” goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.
It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German Mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last."
[Suggested further reading: the campaign's Federal Reserve plank, Sound Money and Jobs plank, and "One Step Clower to the End of the Yellow Brick Road" Towne is one of the few writers brave enough to address the transition to sound money here. While the end result of the crack-up boom predicted by Mises is as above, during the path towards it anything can happen as the amount of credit could be contracting at a faster rate as I wrote about in "'Credetary' Inflation and Deflation" and "Bring Light to Dark Derivatives!!" last year.]May 13, 2010
Jake Towne is running for U.S. Congress in Pennsylvania's 15th District in the 2010 election as a citizen unaffiliated with any political parties.
We the Peopleof the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.
As always, unlike the NFL, the author grants full permission to allow any accounts of, rebroadcasts, retransmissions, repostings of this article to your blog or anywhere else in order to promote the Restoration of our Republic.
Veritas numquam perit. Veritas odit moras.Veritas vincit. Truth never perishes. Truth hates delay. Truth conquers.
Tu ne cede malis sed contra audentior ito.Do not give in to evil but proceed ever more boldly against it.
Disclosure: No positions.