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Productivity gives value to currency

The numismatic hobby and my subscription to Numismatic News are both sources of many forms of pleasure and useful information. Unfortunately, reading the theories of amateur curbstone economists as they prattle on about the wisdom, or lack thereof, of paper or fiat currency, or indeed its alleged unconstitutionality, is not among them.

The numismatic hobby and my subscription to Numismatic News are both sources of many forms of pleasure and useful information. Unfortunately, reading the theories of amateur curbstone economists as they prattle on about the wisdom, or lack thereof, of paper or fiat currency, or indeed its alleged unconstitutionality, is not among them.


Weimar White’s book of collected essays on coin chemistry is a key part of my numismatic library. I doubt his writings on economics will soon join that volume on my bookshelf. Chemists need to do chemistry and leave economics to the economists, and certainly leave constitutional scholarship to appellate jurists. On the other hand, if you can combine a few pithy quotes from the likes of 18th century senators and cynical 20th or 21st century comics, and turn it into an alleged treatise on modern economics, why not?

My degree is in economics, earned from the same institution in the same year as that of the current chair of the Securities and Exchange Commission. Of course, that was from 1973-1977, entirely after the year 1971, when floating fiat currencies became universal and hard currencies drew their last metaphorical breath. Only in the historical memories of present-day “gold bugs” do they live on. If the fact that my education is from the floating fiat currency era disqualifies me from commenting on the nature of money, well then, turn the page to the ad on the next page. We needn’t waste each other’s time.

A few facts need to be absorbed and appreciated. Both White (Viewpoint, Numismatic News, March 30) and Bruce Walker (Viewpoint, Numismatic News, March 23) would do well to internalize these facts.

Fact 1. There are no hard currencies any more. Even the vaunted Swiss franc is a fiat currency, as are the dollars of several countries, the euro, the yen, the yuan, the won, the pound, the rand, the real, the peso, the ruble and the rupee. No one has ever been able to explain how a system wherein one hard currency would exist in a world of otherwise exclusively floating fiat ones makes any sense at all. It doesn’t make any sense. All it would do is make international trade even more of a mess than it presently is.

Fact 2. Gold is not money, nor is silver. They used to be money analogs, but they aren’t any more. They are commodities. They share more characteristics with coffee, frozen orange juice concentrate, West Texas Intermediate crude oil, pork bellies or diamonds than they do with money. Any commodity price can be seen to rise and fall over time against other ones, not just gold’s and silver’s. Yet we maintain our particular fetish over metals exclusively. Why?

Fact 3. While many fiat currencies “went to zero” when some currencies were “hard,” there is no fundamental reason why any fiat currency needs to go to zero in this modern world of exclusively fiat currencies, absent political or economic misconduct by national leaders. Yes, the Zimbabwe dollar has, and the Brazilian cruzeiro and Peruvian inti did years ago, but it needn’t be so.

Fact 4. There is no constitutional requirement that only gold and silver be money and there never was. It didn’t previously exist and was repealed. It never existed. Article 1, Section 10 of the United States has a title on it. It is “Powers Prohibited of States.” The constitution prohibits any state from making other than gold or silver coin a “Tender in Payment of Debts.” The states got completely out of the business of money creation more than two centuries ago. That’s Congress’ job exclusively. And by the way, the Constitution thinks so too. Article 1 Section 8 is where you need to look. It gives Congress the power “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.”

I don’t see the words “gold” or “silver” anywhere in there. Do you? As long as Congress does it, anything of whatever size could be made money theoretically. Or it could be nothing in particular at all. So let’s just stop it with the Constitutional argument, can we please?

So if gold or silver or pork bellies don’t give our currencies their values, what does? Our productivity does. Supply and demand do. The value of the dollar goes up when more people want dollars than have dollars to trade. What causes demand for a dollar to rise? People need dollars to pay for what we produce. If people don’t want what we produce, demand goes down. Of course, it’s even better if what we produce is tangible and not electronic bits of data that can be easily and copiously pirated.

Then there is supply. When a nation decides to pay its people lots of currency in exchange for little production, inflation will inevitably follow. Ask the Peruvians, Zimbabweans and Brazilians. They’ll tell you. In a manner of speaking, egalitarian socialism depresses a currency’s value, and producing lots of things the world wants to buy increases it, unless you’re China and you artificially keep your currency low through non-market manipulation.

Another interesting case of a change in demand for a currency is the recent history of the Swiss franc, which has lost some value lately even against our weakened dollar. The partial demise of the unique Swiss banking secrecy laws has lessened the demand for the franc and deposits in that denomination even though there has been no recent particular lack of fiscal discipline there.

So in short, dear fellow numismatists, if you want to help keep your beloved dollar strong over the long haul, the answer is not to tie its value artificially to that of an arbitrary commodity, or wax poetic about its long gone past, but rather to support policies and politicians that value and support industrial and other productivity and resist the urges of excessive socialism.

If you want to see your country’s currency go up in value, you need to create an atmosphere where people want to make things here and support a little “tough love” when it comes to paying the unproductive large incomes that haven’t come from their own previous thrift.

If you want to have an uncanny record in predicting future currency values, look first to where productivity is falling and socialism is rising, and bet that their currency will soon be falling. The key is not how much productivity and socialism they presently have. What counts is the direction of the change that is happening.

Another myth that needs to be exposed is the current one that the value of any commodity “can only go up from here.” In this case, you can find this alleged wisdom in a variety of radio advertisements for gold bullion products. No matter what the commodity, values can go up or down from here. In fact, by definition the current price is a statement by the marketplace that an equal number of “dollar votes” believe that the way from here is up as likely as down. Otherwise, the market price would already be different than it is.

I can remember two recent things that could “only go up from here.” One was technology stocks in the late ‘90s and the other was residential real estate about three years ago. How did those two work out for you? If the people holding and advertising bullion to you now were so certain that “gold can only go up from here,” why would they be selling it to you instead of holding onto it themselves to earn those nearly certain profits?

There’s one sure-fire way to get rich – sell things that appeal to people who think they understand economics better than those supposedly stupid economists do. Such amateur curbstone economists will seemingly fall for anything, and they keep doing it, over and over again.

And while it won’t necessarily make you rich, there’s a sure-fire way to maximize your chances of making a nice little profit on the numismatic collection you’re working on with new acquisitions – be a contrarian. Buy what’s not “hot” and sell what is “hot.” I’ve used it as a guiding principle for nearly 25 years, and it is working great. How is your plan working?

The key to understanding the dismal science of economics is examining and understanding the behavior of the herd. The key to success in any marketplace is understanding the actions of the herd and to the extent your resources allow it, doing the exact opposite whenever possible.

Economics is a subject about which everyone has an opinion, but most of them are dead wrong. That’s what makes sound policy making in economics nearly impossible. For better or worse, economic truth is not subject to the will of the majority, but policy making is. Meanwhile, as bad as economists are at predicting the future, non-economists are usually even worse.

V. Kurt Bellman is a numismatist from Lancaster County, Pa., and is a member of the Red Rose Coin Club of Lancaster. He is a research analyst for the Pennsylvania House of Representatives. Viewpoint is a forum for the expression of opinion on a variety of numismatic subjects. The opinions expressed here are not necessarily those of Numismatic News. To have your opinion considered for Viewpoint, write to David C. Harper, Editor, Numismatic News, 700 E. State St., Iola, WI 54990. Send e-mail to

More Resources:

• Subscribe to our Coin Price Guide, buy Coin BooksCoin Folders and join the NumisMaster VIP Program

2010 U.S. Coin Digest, The Complete Guide to Current Market Values, 8th ed.

State Quarters Deluxe Folder By Warmans

Standard Guide to Small-Size U.S. Paper Money, 1928 to Date

Strike It Rich with Pocket Change, 2nd Edition