It was in early 2011 that I discovered the website coininflation.com. Since then I’ve spent countless hours watching the melt values of gold and silver coins fluctuate as the governments of the world meddle with their countries’ money supplies. Most of the coin’s values that are monitored were minted prior to 1964 and can only be purchased in coin shops or on eBay. It would take some luck to receive a pre 1964 Washington Quarter in your change when buying a pack of gum at a 7 11. Although, there is one coin currently produced by the US Mint that I keep a very close eye. The Nickel is the only coin currently minted by the US government that has a metal value in excess of the face value.
My interest in collecting coins began immediately after I completed reading, What Has Government Done to Our Money?, by Murray Rothbard. In this classic book, Rothbard cuts through the confusion surrounding voluntary exchange and money. He explains the necessity, history, and power the commodity holds in our lives. Like so many of Rothbard’s works, the lessons taught in this book apply to the same issues our society struggles to comprehend today, including the importance of a sound money in voluntary exchanges and the detrimental effects government price fixing in money has on common folks.
Murray’s principles and his explanation of Gresham’s Law are invaluable in explaining current monetary developments in Canada and the United States concerning the values of Canadian Pennies and US Nickels respectively. This is especially true when considering the news that broke last week in Canada that the Penny is being phased out. The reasons behind this are not the least bit surprising, but are probably misunderstood by mainstream media. The Canadian government claims that they will save 11 Million dollars a year by halting production of pennies. In a press release the next day, the Royal Canadian Mint boasts, that due to the stoppage on production of pennies, every denomination of coin produced by the mint cost less to manufacture than the face value of the coin. The press release fails to mention that each coin minted is now worth less than the assigned face value of the coin, when compared to the base metal value of each coin.
A similar decision cannot be far behind in the United States. Currently, there is only one denomination of coin that has a higher melt value than face value, the Nickel. The composition of the nickel has been consistent since 1946. Nickels weigh 5 grams and are comprised of 25% Nickel and 75% copper. As of publishing time, a 1946 – 2013 Nickel had a metal percent of face value of 106.32%. This is actually lower than 2010 and 2011 when the price of copper was at record highs. In 2011 it cost the US Mint 11.2 cents to produce each Nickel. Due to these reasons, it cannot be long before the US Mint ceases to produce Nickels as they are currently composed. One thing is certain, when the US Mints starts producing Nickels made of less expensive metals, all of the 1946 – 2013 Nickels will be snatched up by those wise to coin inflation created by the government meddling in money. In chapter 7 of What Has Government Done to Our Money?, Rothbard explains why “bad money always drives out good”.
Champions of the government’s coinage monopoly have claimed that money is different from all other commodities, because “Gresham’s Law” proves that “bad money drives out good” from circulation.Hence, the free market cannot be trusted to serve the public in supplying good money. But this formulation rests on a misinterpretation of Gresham’s famous law. The law really says that “money overvalued artificially by government will drive out of circulation artificially undervalued money.” Suppose, for example, there are one-ounce gold coins in circulation. After a few years of wear and tear, let us say that some coins weigh only .9 ounces. Obviously, on the free market, the worn coins would circulate at only 90 percent of the value of the full-bodied coins, and the nominal face-value of the former would have to be repudiated. If anything, it will be the “bad” coins that will be driven from the market. But suppose the government decrees that everyone must treat the worn coins as equal to new, fresh coins, and must accept them equally in payment of debts. What has the government really done? It has imposed price control by coercion on the “exchange rate” between the two types of coin. By insisting on the par-ratio when the worn coins should exchange at 10 percent discount, it artificially overvalues the worn coins and undervalues new coins. Consequently, everyone will circulate the worn coins, and hoard or export the new. “Bad money drives out good money,” then, not on the free market, but as the direct result of governmental intervention in the market.
Start collecting Nickels immediately. In 30 years we will look back on this time period and wish that we had, like many today wish they could jump into a time machine and accumulate as many pre 1964 coins as possible. It is not often that the government gives us an opportunity to build wealth by hoarding coins currently being minted. Do not miss your opportunity. This could be the closest option there will ever be to a pre 1964 time machine.