Nick's Corner
Gold is Money
Friday, November 04, 2011
In July of 2011 Congressman Ron Paul asked Federal Reserve Chairman Ben Bernanke a simple question: "Do you think gold is money?" His answer: "No."
For a person like me, who has spent their career studying the history of money since the beginning of civilization, his answer struck me like a brick to the head.
Yet part of me was unsurprised. His answer is part and parcel of the mythology, carefully crafted, to turn bits of official-looking paper into "money" in the minds of the public. To admit to the obvious fact that gold is money would be to admit that the emperor has no clothes.
The founders of our nation would be astounded and appalled by Mr. Bernanke's declaration. When they created the dollar, they went to great lengths to define its value in silver and gold. A "dollar" was intended to represent a precise amount of silver or gold. When the federal treasury was established, they implemented rigid standards to insure that the dollar's value was maintained.
Washington, Franklin, Jefferson, Hamilton, all of them had first-hand experience with the difference between money and paper government promises to pay money. During the American Revolution our fledgling nation-to-be had no money to fund the war. Instead, the Continental Congress authorized paper notes, known as "Continental Currency", to pay for goods and services. The notes promised redemption in Spanish Milled Dollars, the real money of that era. As the war went on and the volume of notes grew, their value against the Spanish silver dollar sank. Even after winning the war, so much Continental Currency was issued that Congress had to repudiate their redemption. The notes became worthless.
For the next century, the phrase "ain't worth a Continental" was synonymous with anything of little or no value. Unfortunately, Americans have forgotten this history lesson.
History is filled to overflowing with this lesson. Consider the Roman Empire, for one. At the time of Julius Caesar, the Roman "denarius" had a carefully defined value in a fixed amount of silver. Over the next 400 years and a succession of Caesars, the denarius was slowly devalued. By the time of the empire's collapse, the denarius was a bronze coin coated with a thin wash of silver.
This is how governments rob their citizens of their wealth. By gradually removing a tiny bit of silver from the money, over time the Roman government enriched itself. Older, higher quality coins disappeared from circulation, replaced by the less valuable coins, a process known as "Gresham's Law".
As a ten-year-old with paper route, I remember collecting hefty silver Walking Liberty and Franklin half dollars from my customers each month. Sometimes I'd go to my local grocery store and trade a paper dollar for a big, clunky Morgan silver dollar.
Then in 1965 our government began a devaluation by stripping silver from them. First it replaced solid 90% silver with copper clad in a veneer of silver. The clear intent was to at least preserve the appearance of value. By 1970 it took away the last silver altogether, leaving holders of its coins with severely devalued imitations.
But one thing the US never needed to do, until the advent of the Federal Reserve in the 20th century, is to revalue the unit of gold measure--- the dollar--- against its defining unit of gold. Since the dollar unit has been decoupled from gold, its value has shrunk by about 98% through printing paper ersatz "money".
As a result, a US gold coin denominated at $20 dollars in 1911 (containing .9675 ounce of pure gold) should today be denominated at $2000, to have roughly comparable gold content and spending power.
Yet it is unlikely the US will issue a $2000 denomination gold coin. Why? Because, at the rate the government is now devaluing the dollar, we would too soon reach the point where the gold in this $2000 coin would again be worth more than the stated face "value" in dollars.
But never fear. You can still own real US money that is "sound as a dollar" (another phrase that has tellingly disappeared). It is immune to devaluation and debasement. US gold coins minted from 1795 through 1932 survive and are readily available. Of course, as the value of the dollar has decreased, the amount of dollars to buy these coins has risen. But that's the beauty of owning these coins. Moreover, over the years the value of rare and high grade examples of these coins has truly skyrocketed in the collectors market.
If you prefer newly minted US gold over the classics, you're in luck. Thanks to the Reagan administration, in 1986 the US Treasury began minting both silver and gold coins in convenient one ounce and fractional sizes. They are available now in both bullion and collector editions.
I prefer and recommend the collectible coins because 1) they're more beautiful, as the "best of the best"; 2) they're more scarce, which excites demand from the collecting market; 3) they're less subject to the daily ups and downs of the bullion market.
Perhaps Ben Bernanke should take a tour of the US Mint and look at the gold coins it is producing there before repeating his Never Neverland posture that gold is not money.
Nicholas Bruyer is the founder and Chairman of First Federal Coin. You can comment on this story by contacting him at nbruyer@amsi-corp.com
2011(S) $1 1oz. Silver Eagle MS70
2007 $1 Silver Koala NGC MS70
2010 America the Beautiful 5-oz NGC-GEM
2011 Silver Panda 1 oz. PCGS MS69
2011 $1 Silver Eagle MS70 Early Release
For a person like me, who has spent their career studying the history of money since the beginning of civilization, his answer struck me like a brick to the head.
Yet part of me was unsurprised. His answer is part and parcel of the mythology, carefully crafted, to turn bits of official-looking paper into "money" in the minds of the public. To admit to the obvious fact that gold is money would be to admit that the emperor has no clothes.
The founders of our nation would be astounded and appalled by Mr. Bernanke's declaration. When they created the dollar, they went to great lengths to define its value in silver and gold. A "dollar" was intended to represent a precise amount of silver or gold. When the federal treasury was established, they implemented rigid standards to insure that the dollar's value was maintained.
 |
| The Gold Standard for the dollar |
 |
| Ain't worth a Continental |
History is filled to overflowing with this lesson. Consider the Roman Empire, for one. At the time of Julius Caesar, the Roman "denarius" had a carefully defined value in a fixed amount of silver. Over the next 400 years and a succession of Caesars, the denarius was slowly devalued. By the time of the empire's collapse, the denarius was a bronze coin coated with a thin wash of silver.
This is how governments rob their citizens of their wealth. By gradually removing a tiny bit of silver from the money, over time the Roman government enriched itself. Older, higher quality coins disappeared from circulation, replaced by the less valuable coins, a process known as "Gresham's Law".
 |
| Where did all the "Walkers" go? Gresham's Law |
Then in 1965 our government began a devaluation by stripping silver from them. First it replaced solid 90% silver with copper clad in a veneer of silver. The clear intent was to at least preserve the appearance of value. By 1970 it took away the last silver altogether, leaving holders of its coins with severely devalued imitations.
But one thing the US never needed to do, until the advent of the Federal Reserve in the 20th century, is to revalue the unit of gold measure--- the dollar--- against its defining unit of gold. Since the dollar unit has been decoupled from gold, its value has shrunk by about 98% through printing paper ersatz "money".
 |
| Vintage US Double Eagle |
Yet it is unlikely the US will issue a $2000 denomination gold coin. Why? Because, at the rate the government is now devaluing the dollar, we would too soon reach the point where the gold in this $2000 coin would again be worth more than the stated face "value" in dollars.
But never fear. You can still own real US money that is "sound as a dollar" (another phrase that has tellingly disappeared). It is immune to devaluation and debasement. US gold coins minted from 1795 through 1932 survive and are readily available. Of course, as the value of the dollar has decreased, the amount of dollars to buy these coins has risen. But that's the beauty of owning these coins. Moreover, over the years the value of rare and high grade examples of these coins has truly skyrocketed in the collectors market.
If you prefer newly minted US gold over the classics, you're in luck. Thanks to the Reagan administration, in 1986 the US Treasury began minting both silver and gold coins in convenient one ounce and fractional sizes. They are available now in both bullion and collector editions.
I prefer and recommend the collectible coins because 1) they're more beautiful, as the "best of the best"; 2) they're more scarce, which excites demand from the collecting market; 3) they're less subject to the daily ups and downs of the bullion market.
Perhaps Ben Bernanke should take a tour of the US Mint and look at the gold coins it is producing there before repeating his Never Neverland posture that gold is not money.
Nicholas Bruyer is the founder and Chairman of First Federal Coin. You can comment on this story by contacting him at nbruyer@amsi-corp.com
2011(S) $1 1oz. Silver Eagle MS70
2007 $1 Silver Koala NGC MS70
2010 America the Beautiful 5-oz NGC-GEM
2011 Silver Panda 1 oz. PCGS MS69
2011 $1 Silver Eagle MS70 Early Release
Welcome to the new FirstFederalCoin.com
Tuesday, November 01, 2011
Welcome to Nick's Corner. And welcome to the new website for the First Federal Coin Corp.
I hope you visit as often as you can. This website is designed to be a one-stop resource for anyone interested in rare and collectible coins. It doesn't matter whether your passion is coins from the United States, or a particular country or region of the world.
The First Federal website is your home base. You'll find in-depth articles about all aspects of coins and coin collecting. From coin histories to grading to what you need to know about collecting, you'll find it right here.
In the months to come, I'll be writing about my travels to world mints, my thoughts on the precious metal markets, great opportunities for collectors and investors alike, and perhaps the most interesting aspect of my work: all the fascinating people I meet and the stories they share with me.
I've been in the world and U.S. coin business for more than 35 years. Yet I'm just as excited today as when I started.
So thank you for visiting. We look forward to seeing you again soon.
I hope you visit as often as you can. This website is designed to be a one-stop resource for anyone interested in rare and collectible coins. It doesn't matter whether your passion is coins from the United States, or a particular country or region of the world.
The First Federal website is your home base. You'll find in-depth articles about all aspects of coins and coin collecting. From coin histories to grading to what you need to know about collecting, you'll find it right here.
In the months to come, I'll be writing about my travels to world mints, my thoughts on the precious metal markets, great opportunities for collectors and investors alike, and perhaps the most interesting aspect of my work: all the fascinating people I meet and the stories they share with me.
I've been in the world and U.S. coin business for more than 35 years. Yet I'm just as excited today as when I started.
So thank you for visiting. We look forward to seeing you again soon.
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