HSP: If silver is currently $36 dollars an ounce, a one-ounce silver coin can be successfully placed in circulation with a monetary, numeric face value of $60 dollars, which overvalues the silver contained in the coin.
These coins would be very useful to the population and would be eagerly snapped up in vast quantities. The population would save these coins and use paper money for transactions - Gresham's Law; individuals would dispose of their silver money only in situations of great need.
BM: I must not be reading this correctly, because it seems absolutely backwards to me. If I have a coin with one ounce of silver content, and on it is stamped “$60”, while an ounce of silver trades at $36, WHY would I NOT trade the coin in for 1 2/3 ounces of silver?
Additionally, the definition of Gresham’s Law is incomplete (and therefore applied incorrectly), as it often is when used by people who write on this subject. The law, more accurately stated:
“Gresham's law is an economic principle "which states that when government compulsorily overvalues one money and undervalues another, the undervalued money will leave the country or disappear into hoards, while the overvalued money will flood into circulation." It is commonly stated as: "Bad money drives out good", but is more accurately stated: "Bad money drives out good if their exchange rate is set by law."”
Gresham’s Law will result in exactly the opposite of what HSP suggests. The overvalued $60 coin will be eagerly driven into circulation, driving out other forms of money that are artificially undervalued by government decree. The undervalued money will be hoarded or driven underground.
HSP: How can we return to such a sound and realistic economy, where precious metals become once again money itself, because people think in terms of quantities of precious metal, either silver or gold?
First, we do not believe any change can be effected by a decree of any sort. The change must come in a roundabout way, insensibly. The problem of an overnight change, from the whole world's way of economic calculation by simple numbers, to calculation by quantity of precious metal is simply overwhelming.
BM: HSP states “First, we do not believe any change can be effected by a decree of any sort.” Then he goes on to make a decree. In fact, he makes a very bold statement: “There is only one way to achieve this.”
Please, just leave it to the markets. All that is necessary is to remove legal tender laws, remove tax consequences based solely on the type of money used in a transaction, and do not classify currency gains and losses as taxable events. The market is quite capable to figure this out in a manner and time far more efficiently than anyone person can imagine or decree.
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