Coin dealers and collectors are still reeling from the US Mint’s announcement that it had run out of American Eagle gold coins, writes George Selgin. But what ought to surprise every American isn’t that a government agency came up short. It’s that the US government should be making little metal discs at all. Now socialism is dead, but not when it comes to coining. So coin shortages keep breaking out, as they have ever since governments first monopolized coin making in ancient times. FULL ARTICLE
Source link: http://archive.mises.org/8895/get-government-out-of-coin-manufacture/
Get Government Out of Coin Manufacture
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You really don’t understand how markets work. Lets take an example of an IPO that comes to the market. Investors position themselves to buy into the new company, but just a select few get in on the IPO price and are left to buy the stock on the open market. Gold coins are just like an IPO with coin and gold dealers buying up most of the stock at the government set price. Then they mark up the dealer margins and sell them on the open market for a profit.
The other point I need to make is that if you are investing in coins, you want them to be rare. If you are investing in gold, go out and by a bar of it. At least with a bar, you don’t have to worry about the grade and quality of the coin! But if you really want a gold coin, buy a rare old double eagle.
Maybe we’ll see the increasing phasing out of physical money. Electronic money all the way, dude.
ditto for here in australia. the perth mint has recently suspended bulk coin sales, unable to respond to the swollen demand.
What I really don’t understand is how government thinks markets should work…
Sorry, short, inexplicable comment. Greg, your points are well-taken if we’re talking merely about coin collectors, or the collector’s market, but are there no other uses for coins? If the mint understands that limiting the available coins helps them maintain their value, then how come the Fed doesn’t understand that the same is true with our regular currency? Or is it that they don’t want our regular currency to maintain value and are inflating it deliberately?
And one last comment (okay, I’m a little scatter-brained today!). Why shouldn’t private companies make their own coins? Is the government afraid that people will start using them as money over their “oficial” currency? The existence of private money wouldn’t void the legal tender laws.
Michael,
Yes there are many uses for coins, but gold coins, not! Only a fool would go down to the bakery and by $20 worth of bread with a $20 gold piece. You buy a gold coin as an investment!
“Now socialism is dead, but not when it comes to coining.”
Come on.. get real… Socialism hasn’t been dead at all,
it’s growing year by year bigger and bigger.
As for coins, why worry about them?
Socialism is the big Gorilla in the room.
Not that I disagree with the author, but I’d think that it would be easier to counterfeit coins than paper money….
@greg:
Or someone who was starving might decide to go down to the bakery with their gold coins, because a wheelbarrow full of greenbacks could not buy a loaf of bread.
One can “invest” in rare coins the same way one invests in fine art, with the expectation that the scarcity of the objects will cause them to maintain their value, so that value can be traded in the future. This is the investment you speak of.
Or one can invest in coins the same way one “invests” in the wine in their cellar or the non-perishable sale items they find in the store. If you know that the price of that wine, rice, jeans, or soap will go up in the future, you buy it now to consume later, and “save money.” By “saving money” this way, what we really mean is to preserve or extend the value of our wealth, rather than allow it to be eroded by rising prices or falling currency value.
If individuals expect gold coins to preserve their wealth as our paper currency gets devalued, it makes perfect sense to buy the gold now in the form of metal discs for future use or “consumption.”
Metal discs are much handier than bars of bullion for negotiating a simple trade for small quantities of of consumable products.
If one expects that the paper dollars we now hold may seriously lose their “value” in the foreseeable future, buying gold and silver coins to use for barter trade is completely rational. People understand the value of discs made of precious metal, and can easily agree and negotiate based upon them. If you have no idea day to day what a basketful of paper currency is worth, those little metal discs are going to be very useful.
Whether silver or gold private coins are a good bargain to preserve their wealth is the individual’s free choice and decision, unless the government forbids them doing so.
It seems that our government has decided now to forbid it, as they have raided and shut down the private coin manufacturers.
If the government were in charge of producing “fine art,” instead of paper and metal discs, what do you think would happen to other artists?
My last point. There is no shortage of coins where the value of the metal is less than the face value. The shortage exist in government gold coins because they are selling them at the spot price of gold. If you don’t understand this, go out and buy a gold coin, hold it for a day and then go out and sell it. You will get a good lesson in dealer mark up!
Technologically, they are about the same. A simple scale to check weight and a chemical marker pen, like used today to test $20 bills, could be developed to check the integrity of coins. But that would unlikely be needed if we had private coinage.
The value of the coins would be backed by the integrity of the manufacturer. Does anybody attempt to “counterfeit” automobiles, or fine wines, or brands of soda? Of course not (at least not in this country), the cost of manufacturing them would not make it worth the risk of getting thrown in jail for fraud.
The same would be true of privately minted coins. If you do not trust the quality-control of a manufacturer, there are alternatives to choose from. This is not true when the government monopolizes the manufacture of coins.
Imagine Honda Dollars, Ford Dollars, Lexus Dollars, Yugo Dollars, and US Dollars having to compete side by side. Which would you prefer to use? Anybody driven a Yugo lately?
This shortage of coins is not at all about swollen demand and a physical incapacity to mint the required quantities of gold and silver coins.
Given the appearance of this “shortage” in different parts of the world, at the same time, it is clear – to me at least – that this responds to a policy adopted by the Central Bankers of the world, to limit the access of the population of the world to minted gold and silver coins. They wish to diminish the alternatives available to people who are worried about the possible collapse of paper or digital (banking) money. Reducing the amount of precious metal coins is one way they are trying to head off a mass stampede into precious metals.
The shortage is deliberate and not incidental to insufficient capacity.
HUGO SALINAS PRICE
Maturin,
You assume a lot of conditions for gold to be used in common place exchange. If the dollar becomes worthless, then gold could be an alternative. But I don’t see it today or in the near future. For example, I went down and got a hair cut and tried to pay for it with a double eagle gold coin, it didn’t work.
Gold is a strange commodity, there is no gold standard in the world today and the metal has very limited industrial applications. Jewlery is the only main user of the metal. So unless everyone would dress like Mr. T, there is very limited demand. Plus the supply of gold never goes down, only the shape changes.
Now I play the commodity on a limited basis and I buy calls when it ranges in the low $400 and I buy puts when people are lining up at the jewlery store to sell their gold rings. Basically I play the movement of people in the market, that is my choice.
But if you are investing in gold, INVEST in the raw material. Do not pay the extra to have it stamped into coin or made into a ring! And if the money system collaspes, any gold piece you use for exchange will have to be weighed.
Socialism dead? LOL right, sure it is with all this government bailout.
That said I see that South Africa ran out of KrugerRands.
I wish private companies were in charge of making gold coins.
I’ve been reading about shortage of gold coins and bullions in Germany, Switzerland, Spain,…
But the price of gold is falling!
Some people says it’s because Comex gold is not gold:
http://www.kitco.com/ind/Wallenwein/oct152008.html
Others say the central banks are manipulating the gold market and U.S. central banks may have less than half the gold they claim to possess in their vaults:
http://www.worldnetdaily.com/index.php?pageId=45782
http://gata.org/
What I can’t believe is that central banks are shoveling gold to the markets to keep the price down.
Best regards
Francisco
“Now socialism is dead…?” – I wish you were correct.
-Crippy
“this responds to a policy adopted by the Central Bankers of the world” I cannot speak for other mints, but the Perth Mint is under no instruction to “go slow”. We are operating at maximum capacity, 3x8hr shifts.
While governments are not the best at commerical operations, I think it is naive to think that privately run mints would be any better at not running out. There are currently privately run mints and refineries in existence and they are also experiencing demand in excess of their production capacity.
If anything, private operations would be tighter on capital expenditures than governments (for whom return on investment is not as much of an issue) and not want to run excess production capacity just to cover potential situations of high demand.
See http://goldchat.blogspot.com/2008/08/fud-fear-uncertainty-doubt.html for some of the commerical matters that private or government manufacturers have to deal with.
For example, I went down and got a hair cut and tried to pay for it with a double eagle gold coin, it didn’t work.
Are you serious? Whoever refused that exchange must be the world’s biggest idiot.
to bron suchecki:
in the absence of competition, all comments about efficiency are meaningless. the australian wool board always boasted about its efficiency before imploding. the australian wheat board, likewise, before it fell into disgrace. the west australian potato board assures us that they are efficient, the water board idem. every monopoly wheels out the same propaganda to rationalize their existence.
it’s counterintuitive to argue that more competition would have had no effect on customer satisfaction, though i can understand you taking a defensive stance on behalf of your employer. if supply has been inadequate, it’s because many nations constrain the coinage market.
I guess the government just can’t let go of control of anything, whether it makes sense to cling to it or not. Back when governments generally made coins out of precious metals, they could “create” wealth by debasing the content of the coins. Nowadays most coins are made of some kind of pot metal or something; I don’t know if they can be debased much.
Of course that could be the point; since good coins would drive bad ones out of circulation, we all know who would win the contest between public and private mints.
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