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Source link: http://archive.mises.org/8840/private-coinage/

Private Coinage

October 24, 2008 by

The idea of private coinage seems so strange today that it is worth examining carefully, writes Murray Rothbard. We are used to thinking of coinage as a “necessity of sovereignty.” Yet, after all, we are not wedded to a “royal prerogative,” and it is the American concept that sovereignty rests, not in government, but in the people. How would private coinage work? In the same way as any other business. FULL ARTICLE

{ 12 comments }

Alex Peak October 24, 2008 at 10:11 am
Christian McMahon October 24, 2008 at 12:33 pm

The liberty dollar company has this working now however they say it’s not legal tender but rather a barter coin. Following their lead may be the way to get something like this up and running. I don’t like their pricing however as a 1 oz copper coin is trading for $100.00 US dollars. I don’t think copper is that expensive yet?

Christian McMahon October 24, 2008 at 12:37 pm

I was wrong it’s 100 1oz copper coins for $100 dollars. So you going to pay about a dollar each. If the banking system does collapse and I think it will, they are only spending more in washington, some coins with real value may not be a bad idea.

Greg October 24, 2008 at 1:09 pm

Christian,
They are selling copper coins at $6.25 a pound and the current spot price for copper is $1.68. What a deal! This is exactly why private coins will not work as you can’t take it to the baker and buy $6.25 worth of bread with a pound of coins. And because of the broker transaction the baker would have to go through to convert the copper to a legal currency, they can’t even give you $1.68 worth of bread.
If you want to invest in gold or any other metal, just buy
the metal in its pure form. A coin is like a ring, you pay for manufacturing which has no value. But you still have to pay high broker fees which makes it hard to break even. Just try buying a silver dollar and then sell it the next day. You will loose at least 25%.

Stanley Pinchak October 24, 2008 at 1:54 pm

Greg,
transactions costs are high because economy of scale is low and network effects work against the introduction of new monies. As you correctly point out, money in the form of coins entails a price over spot due to both manufacturing and maintaining high quality standards, essential to the acceptance of a commodity money. Currently the infrastructure to operate on a commodity standard is not in place. Rothbard has suggested that private mints would most likely guarantee only the fineness of their coins, not the weight. This protects the user from clipping and other weight debasements, but requires the transaction to involve accurate scales, something that not every retailer and individual possess. Proposals for micro coins laminated in a manageable form factor and having a weight and fineness guaranteed by the mint is another option. The protective enclosure would dissuade tampering and prevent abrasion. In any case, the removal of the monopoly of money production from the state is a necessary step. Government actually doing its job in prosecuting fraud would allow the market to establish a money incapable of systemic debasement by the state. The benefits that are associated with that are well worth the transition costs.

billwald October 24, 2008 at 4:46 pm

Thanks for the explanation of Gresham’s Law. I had it wrong.

Bottom line, then, is that the stability of money (whatever is used) is critical between the time the money is obtained and spent. Short time, very critical. Long time between obtaining and spending, moderate inflation can be compensated for by investing.

Peter October 24, 2008 at 6:21 pm

Just try buying a silver dollar and then sell it the next day. You will loose at least 25%

Obviously you’re buying and selling in the wrong places. You should be able to buy for about 8% over spot or less (but at the moment there’s a big supply problem and you’ll probably pay 20% and take delivery some time next year – the spot price is for paper, not physical silver), and sell for somewhere between 3% and 30% over spot. It’s possible you’ll make a small loss, but quite possible to make a considerable gain, too.

billwald October 24, 2008 at 10:01 pm

60 years ago, My Old Man liked to say, “An ounce of gold buys a quality man’s suit.” By that standard, the price of gold has doubled but wages have increased 5 or 10 times.

newson October 25, 2008 at 5:39 am

to billwald:
i think your father was right. in the good old days, suits were bespoke, and so a good measure of the cost of labour.

if you figure on two to four thousand dollars for a made-to-measure suit today, gold is probably about a quarter of what it should be.

Miekol October 25, 2008 at 11:32 pm

Murray N. Rothbard was right.

Human beings cannot be trusted, even if they believe what they believe to be true. They are victim of their own conditioning, their own education, their own ‘everything.’ unless they are privileged to think for themselves. Am I ? I’ve no idea :-)

Miekol October 25, 2008 at 11:33 pm

Murray N. Rothbard was right.

Human beings cannot be trusted, even if they believe what they believe to be true. They are victim of their own conditioning, their own education, their own ‘everything.’ unless they are privileged to think for themselves. Am I ? I’ve no idea :-)

Rubén Rivero Capriles October 26, 2008 at 3:36 pm

I think that backing up a currency with gold is a fine idea, but actually going to a store with gold or with any clumsy metal is cumbersome. It is much more convenient and safer to pay through bank debit cards (notice I am not saying credit cards), as you are much more protected against petty theft.

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