Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20
THE STOCK MARKET BIG PICTURE - Video - 19th Nov 20
Reasons why Bitcoin is Treading at it's Highest Level Since 2017 and a Warning - 19th Nov 20
Media Celebrates after Trump’s Pro-Gold Fed Nominee Gets Blocked - 19th Nov 20
DJIA Short-term Stock Market Technical Trend Analysis - 19th Nov 20
Demoncracy Ushers in the Flu World Order How to Survive and Profit From What Is Coming - 19th Nov 20
US Bond Market: "When Investors Should Worry" - 18th Nov 20
Gold Remains the Best Pandemic Insurance - 18th Nov 20
GPU Fan Not Spinning FIX - How to Easily Extend the Life of Your Gaming PC System - 18th Nov 20
Dow Jones E-Mini Futures Tag 30k Twice – Setting Up Stock Market Double Top - 18th Nov 20
Edge Computing Is Leading the Next Great Tech Revolution - 18th Nov 20
This Chart Signals When Gold Stocks Will Explode - 17th Nov 20
Gold Price Momentous ally From 2000 Compared To SPY Stock Market and Nasdaq - 17th Nov 20
Creating Marketing Campaigns Using the Freedom of Information Act - 17th Nov 20
ILLEGITIMATE PRESIDENT - 17th Nov 20
Stock Market Uptrend in Process - 17th Nov 20
How My Friend Made $128,000 Investing in Stocks Without Knowing It - 16th Nov 20
Free-spending Biden and/or continued Fed stimulus will hike Gold prices - 16th Nov 20
Top Cheap Budgie Toys - Every Budgie Owner Should Have These Safe Bird Toys! - 16th Nov 20
Line Up For Your Jab to get your Covaids Freedom Pass and a 5% Work From Home Tax - 16th Nov 20
You May Have Overlooked These “Sleeper” Precious Metals - 16th Nov 20
Demystifying interesting facts about online Casinos - 16th Nov 20
What's Ahead for the Gold Market? - 15th Nov 20
Gold’s Momentous Rally From 2000 Compared To Stock Market SPY & QQQ - 15th Nov 20
Overclockers UK Quality of Custom Gaming System Build - OEM Windows Sticker? - 15th Nov 20
UK GCSE Exams 2021 CANCELLED! Grades Based on Mock Exams and Teacher Assessments - 15th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Changing to a Silver Economy

Commodities / Gold and Silver 2011 Jan 14, 2011 - 06:07 AM GMT

By: Michael_S_Rozeff

Commodities

Best Financial Markets Analysis ArticleA libertarian in Columbia, South Carolina sent me a message recently. He works at a convenience store. He was interested in introducing silver as a means of payment or currency at this store. His specific ideas I thought would not work because of the taxes on silver. The government treats silver as a collectible subject to income taxes at ordinary rates. He had some ideas of buying bullion and then setting up a market in it by buying at a small discount to the spot price and selling at a small premium, thereby creating a bid-ask spread. He had some idea of getting people to transact in silver.


Instead I spun out the following proposal. It too has the fatal flaw that taxes on silver dealings occur, but thinking about this process is very useful anyway. It shows how stores might become 100% reserve banks and how the economy might transition from paper and slug coin currency to silver money. And, if this skeletal proposal has flaws, others can possibly improve on it. I merely want to demonstrate a degree of feasibility, so that the possibilities become more tangible.

The basic idea is that silver is the unit of account, but silver is not necessarily used as the medium that is used for redemptions.

Step 1. Make silver the unit of account. Price everything in the store in silver. This means price it in units of a known weight of silver. Each item costs so many grams of silver. If people prefer something with a name, then choose a name like the Ag. Set 1 Ag = some number of grams of silver. Then price everything in Ags.

Step 2. When customers pay in Federal Reserve dollars or U.S. slug coins, translate the amount into silver or Ags at the going rate of exchange. Those who want dollars and U.S. coins for change, give them that.

Step 3. After receiving any dollars or slug coins that people want to be in the Ag unit, convert them right away into physical silver. Store this silver.

Step 3. Offer to "give" people their change in silver units, but not physical silver. (This can be changed if this company or some other wants to mint silver coins.) This avoids taxation at this step.

Step 4. The store doesn’t hand over silver. It credits people with Ag units. These units are good for future shopping at the store. If several merchants got together, then the units could be used at any of them. This widens their circulation.

Step 5. Set up a deposit account for people who want this account in Ag units. When this is done, the store needs physically to set aside silver in the amounts being credited to people. It gets this silver by using the dollars that have been given to it that are in excess of the purchase prices, i.e., the change that the store owes people. This means there is no fractional reserve banking going on at all.

Step 6. Whenever a person with an account wants to spend out of it, the store deducts Ag units from their account using the silver prices in the store.

Step 7. The circulation of Ag units can be enhanced, at some cost, by allowing people with them to write checks to others that are denominated in Ag units.

Step 8. Do not allow any overdrafts. Make no Ag loans, for if that were done, it introduces fractional reserve banking. The store explicitly makes the account of the person a bailment owned by that person. The store will not lend what it does not have.

Step 9. If the store does wish to make Ag loans or allow people to buy on credit, it has to do that in a separate and segregated account that is financed by the store’s own capital.

Step 10. Have a daily audit of the silver under storage that is in the store’s bank. The amount in the bank should equal the debits on it that are outstanding. Post this audit for public view.

Step 11. If possible have a secure vault that's open to audit or inspection or sight so that people can see the silver. Another possibility that's perhaps less costly is that the store post a bond for the amount, or get insured for it. There can be several layers of protection for deposits.

Suppose that people decide to take their business elsewhere. They want to withdraw their deposits. The store is obligated to redeem them. In our existing world of taxes, the store could avoid burdening the customer with tax records and payments on silver transactions by letting them withdraw their deposits in merchandise. If they take silver, they are forced into a taxable transaction if they resell it.

The store then finds that it has excess silver in storage. When it sells it, it will be subject to taxes in our existing world. This is one sure flaw in this whole scheme. But it shows clearly how the taxation of silver transactions acts as a severe impediment to anyone starting up an alternative currency in silver. Maybe if the whole scheme were done in units of Jack Daniel's liquor, this could be circumvented; but it wouldn’t be long before the Feds brought a law suit and argued that it was evading taxes.

One bottom line here is that alternative currencies arranged in the manner described are being seriously thwarted by existing tax laws that treat silver and gold as collectibles and tax them at ordinary income rates. These laws should be abolished.

The main bottom line is that if the laws are altered, this opens up all sorts of possible alternative currencies in all sorts of situations where currency is now used. There would be nothing to stop manufacturers who supply stores with retail goods from paying their employees in Ag units that the employees then use to buy goods from the stores. The free market economy can quite easily transition to a silver economy or to an economy with multiple currencies based on other units of account or redemption, and they can all be on a 100% deposit or 100% fractional-reserve basis.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York. He is the author of the free e-book Essays on American Empire.

http://www.lewrockwell.com

    © 2011 Copyright Michael S. Rozeff - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules