By Richard Schwary, California Numismatic Investments

A return to the gold standard and circulating legal tender coins made from real gold and silver has been talked about since we stopped making gold coins for circulation in 1933 and silver coins for circulation in 1964.

Behind this talk was the notion that since we stopped making real money (specie) there was no precious metal backing to these coins or currency and so their value in purchasing power plummeted and created economic problems.

This violation of the legislative statue, so the story goes, which defines money in terms of real gold and silver is the reason all nations face problems today. Now this all sounds good on paper but do the facts bear out this economic theory?

In actuality the “old time” backing of American currency with gold was an illusion as there was never enough gold in Fort Knox, Kentucky to cover the paper money printed in the United States so the system was fractional at best. And if you look carefully at our nation’s real gold and silver coins there were serious problems from the very beginning with intrinsic weight which eventually brought havoc to proper distribution.

Weights had to be adjusted on a regular basis leading to the often quoted Gresham’s law (after Sir Tomas Gresham an English financier) which states in various forms that bad money will drive good money out of circulation.

A recent example of this can be seen in the early 1960’s when silver coins were actually made out of silver. At that time the price of silver began to rise and the cash value of the coin in your pocket was worth more than its legal tender or face value and so it was hoarded or melted instead of doing what it was suppose to do and entering the channels of commerce. And so over time the clad coinage we now use everyday took the place of real silver coins and the debasement was complete.

Today all American money is backed by the full faith and credit of the United States and has been since the Federal government first organized and took over the printing of money itself.

The first paper money as we understand it today made its appearance in 1861 and was called a Demand Note. The backs of these notes were printed using green ink as a counterfeit measure and so for ever more the term “Greenback” came into common usage.

Even though the US has never defaulted on any of this currency the old days and ways of doing things seem to have a regular bought with Lazarus. And the idea of going back to the old days is a bad joke as this “real gold and silver” money movement would create havoc not only within the US but though out the international community as well, as the US dollar is still the world’s leading currency.

The consequences of moving backward at this point will pose tremendous danger to everyone’s standard of living, which is why Steve Roach’s article in Coin World (Jan 24, 2010)” Georgia legislator introduces bill seeking role for gold, silver coins”  is so amazing,  because this “real money idea” is getting some traction:

“A Georgia state legislator recently introduced a new bill in the Georgia General Assembly that would require the people of Georgia to pay their taxes and other obligations to the state in gold and silver coins. In November, Rep. Bobby Franklin’s “Constitutional Tender Act” was among the first bills introduced in the 2011 session of the Georgia Legislation.”

Now before you laugh take a look at the web site Steve Roach has also provided which keeps track of similar bills in 10 different states: . The longer I’m in this business the more amazing and complicated it becomes.


  1. The constitutional tender act would allow states to stipulate that taxes must be paid using gold and silver. This would make it necessary for citizens to have accounts denominated in gold or silver. Having these accounts would give people an alternative to US Dollars, which enjoys a monopoly as legal tender. In the inevitable case of the destruction of the dollar due to either the US defaulting on its sovereign debt or hyperinflation, the hard money currency would be a god-send. You don’t have to mint such coins in dollar denominations. Doing so would defeat the purpose altogether as in the example you gave. Throughout history, one ounce of silver has held a remarkably stable value: a nice meal for two at a modest restaurant, a pair of shoes, you get the picture… subject of course to real fluctuations in the marketplace due to supply and demand.

  2. In the 1870’s we had gold and silver coins circulate at different rates alongside the Greenback. If a gold or silver currency were to be successful it would still have to be convertible to paper, like prior to 1879. So why not just allow today’s merchants to accept silver and gold US Eagles at melt value for transactions? Seems like the same thing they are trying to legislate.

    Unless – it is all just a ploy for votes. Ya, think?

  3. If you are not familiar with Fisher’s equation of exchange, you can look it up here:

    Replacing paper money by gold and gold backed money would cause an unprecedented fall in money quantity (M in Fisher’s equation), because there is by far not enough gold to cover the outstanding monetary mass. As the monetary velocity (V) is stable, the consequence would be that either prices (P) or growth (T) would have to come thundering down. The result would therefore be a few decades of stagnation and deflation, worse than what Japan has been going through for the last 20 years. Unemployment would go to at least 20% but would probably go higher and may reach 50%. Loss of production capacity would be staggering, poverty and misery more widespread than during the crisis of the 1930’s. Before you argue that lower prices are good, remember the stagnation and unemployment it causes and that economists do not know how to control deflation, while they do know how to control inflation.

    In other words, those who advocate gold or gold backed money are either ignorant of the consequences or cynical vote pursuers at any cost.

    One more thought. Gold has virtually no productive value. Its end use is limited to luxury goods (jewelry) and computer switches (tiny quantities). In a really bad crisis, you may therefore see its value drop to nil, while your income, food and housing prices determine your survival. Gold is therefore an inflation hedge only as long as other speculators are willing to, and have the means to buy it. In other words, gold is just as fiduciary as the paper it would replace.

  4. One point that is missed entirely in this article: the fact that Article I, Section 10 of the U.S. Constitution REQUIRES States to use ONLY gold and silver coins as payment for debts owed by and to the State. This bill simply brings the States back into compliance with the Constitution.

    Regarding the points made about Gresham’s Law: the definition is not simply, “bad money will drive good money out of circulation.” It’s properly defined as, “Where legal tender laws exist, bad money drives out good money.” A reverse of this would be, “In the absence of legal tender laws, when people are given the free choice between accepting good money or accepting bad money, bad money becomes less popular than good money, and is driven out of the marketplace.” And that’s exactly what we would get should the Constitutional Tender Act be passed: it would introduce currency competition with Federal Reserve Notes, by outlawing their use in transactions with the State. Ordinary citizens of the State, being required to pay their State taxes in gold and silver coins, would find it necessary to open bank accounts in those denominations. Businesses operating within the State, being required to pay their State sales taxes and license fees in gold and silver coins, would need to do the same; and in order to acquire such coins, they would begin to offer their goods and services in “dual currency” denominations, where customers could choose to pay in Federal Reserve Notes (which would still be necessary to pay Federal fees and taxes) or gold and silver coins (including checks and debit cards based on bank accounts denominated in such coins). Customers, having found the need to open such accounts in order to deal with the State, would be able to engage in commerce using those accounts.

    Over time, as residents of the State use both Federal Reserve Notes and silver and gold coins, the fact that the coins hold their value more than Federal Reserve Notes do will lead to this “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, including the flow of real wealth toward the State’s treasury, an influx of banking business from outside of the State (as citizens residing in other States carry out their desire to bank with sound money), and an eventual outcry against the use of Federal Reserve Notes for any transactions. At that point, the Federal Reserve system will have become unwanted and irrelevant, and can be easily abolished by the people’s elected Representatives in Washington, D.C.

    And I don’t even know where to begin with “Figleaf’s” assertions, except to recommend reading some good books on Austrian economics, and get that Keynesian silliness out of your head. :)

  5. Of course, all of us want a return to species. With enough hard currency in circulation. The treasury could once again issue gold and silver certificates for ease of transactions. Minting an $2000 one ounce Gold coin; along with a $100 one ounce Silver coin. Gives security and value to the American people. Since the FED is essentially a cooperative of private bankers. I say just let them sink or swim on their own. They made their own beds, the American people have no obligation to them.

  6. “Even though the US has never defaulted on any of this currency ”

    Try to exchange a silver certificate for silver. You won’t get the silver, so they have defaulted.

    “tremendous danger to everyone’s standard of living”
    We are deflating a credit bubble. The credit bubble allowed us to pull forward consumption so we could live beyond our means in McMansions. The only temporary solution for propping up unsustainable credit based living standard is to push more credit into the markets to overwhelm the deflating credit bubbles. The credit is rushing into commodities making food and energy more expensive.

    This is about fractional reserve lending and unsustainable credit bubbles.

  7. Consider:
    “Most importantly, this bill would protect the people of Georgia from the continued depreciation of the dollar and probable eventual hyperinflation!” (From the literature pushing the Constitutional Tender Act)

    If anyone on here actually believes that a gold backed dollar will prevent hyperinflation and deficit spending…..PLEASE REREAD YOU AMERICAN HISTORY LESSONS for your junior year in High School…….1861 to 1865

    The Confederate Dollar was a gold back currency…the gold was deficit spent overseas with the attending inflation domestically.