Is silver money better than paper money?

In 1964…

In 1964 a quarter would buy you about a gallon of gas, about a gallon of milk, or about a loaf of bread.

In 2009, that same quarter will buy you about a gallon of gas, about a gallon of milk, or about a loaf of bread.

I can hear you now, you’re thinking “Joe, you’ve lost it, you’re off your rocker. You can’t buy a gallon of gas or those other things for a quarter. Are you mental?” Nope, I’m not mental, I’m just using the same 1964 quarter in both scenarios. You see, a 1964 quarter is made of 90% silver and is worth around $3.00 in 2009 dollars.

In 1964 (and earlier), most silver-colored coins that we used for currency (or “legal tender”) in These United States of America used to be made with silver (they were anywhere from 40% to 90% silver).

What if you decided to put $1,000 into an emergency fund in paper bills, and keep them in a safe or under your mattress? In today’s money you’d still have $1,000.

But what if, instead of bills, you decided to save the same $1,000, but this time did it in silver quarters? Today that emergency fund would be worth $3,000 $12,000.

That’s where things get confusing. Would the quarters that you saved way back then be “worth” more today? After all they were “worth” $1,000 dollars then, and are “worth” $3,000 now. But are they “worth” more?

Not really. You see, the coin could buy you the same amount of “stuff” back then as it does now. So the coin hasn’t gone up in value, it’s not really “worth” more.

But, the dollar, on the other hand, is “worth” less. Quite a bit less. It’s gone down in “worth” by about $2.75 in this example.

Now, I’m not here dolling out financial or investing advice, I’m just making observations about in the past when our money was actually “worth” something, versus now, where it’s worth a somewhat empty promise. Dave Ramsey might not agree with me on this one, but I want to walk you through the logic.

That leads me to the topic of this article

How can legal tender be illegal?

A man named Robert Kahre is facing up to 296 years in prison because the Justice Department feels that paying employees with “legal tender” is a tax-evasion scam.

No, I’m not making that up.

If, all of a sudden, $50 bills (Federal Reserve notes) could be traded in for, say, 1,000 $1 bills, what is the $50 bill “worth”? Is it “worth” fifty dollars, or one-thousand dollars? What do you have to pay taxes on? If your employer paid your wages with a $50 bills that you turned around and exchanged for $1,000 worth of goods or services (or other, smaller bills), what do you pay taxes on? What does your employer pay taxes on? Just the $50 bill, right?

But what if instead of a piece of paper with “$50” printed on it, your employer paid you a coin with “$50” stamped on it. Same thing, right? One would think.

What was Robert Kahre’s crime? He hired workers (on mutually-agreed terms), and paid them in gold and silver coins rather than in the paper dollars.

Some background:

• The face value of the U.S. Mint’s gold and silver coins are “legal tender”, meaning they must be accepted in payment of debt, just like a dollar bill
• A “Gold Eagle” coin has “$50” printed on it, meaning it is “worth” $50 as legal tender; its “market value” in gold content is “worth” about $1,000 in paper money (Federal Reserve notes)
• A “Silver Eagle” coin has “One Dollar” printed on it, meaning it is “worth” $1 as legal tender; its “market value” in silver content is “worth” about $20 in paper money (Federal Reserve notes)
• No law or IRS regulation that I know of requires that receivers of Gold or Silver Eagles (or other U.S. Mint coins) must report the “market value” of the coins instead of the “legal tender” value

After extensively researching the issue, Robert Kahre:

• hired workers as independent contractors, so he would not pay the payroll tax for their labor (nothing wrong with that)
• paid them in coins, rather than in paper dollars (again, nothing wrong with that)
• the coins he paid them with are minted by the U.S. Mint, and have a face value stamped on them in
• the face value (the legal tender value) of those coins was so low that the workers legally didn’t have to report it as income to the IRS (also, nothing wrong here)

For instance, if a worker was annually paid in gold coins with a legal tender face value of $2,000, the market value of the gold content in those coins could be $40,000, but only the legal tender face value of $2,000 would theoretically count as taxable income. That face value of $2,000 is low enough to be non-reportable to the IRS.

But, even though the coins Kahre used were legal tender, the Justice Department alleged that Kahre’s system was a fraudulent, tax-evading scam. Said another way, the Justice Department thinks that paying someone the “legal tender” value of a legal currency is a tax-evading scam become someone else is willing to trade that coin for more than its face value.

LUNACY!

The government called three accountants to testify. The defense asked each one, “What is the proper way to calculate income for purposes of the Internal Revenue Code if you are paid in a gold coin that has a $50 face value on it?” All three of them responded, “I do not know; I’ll have to research that.” — Mike Zigler, reporting on the 2007 case against Robert Kahre that ended in a hung jury

DownsizeDC.org and I agree with Jacob Hornberger who asserts that the federal government’s prosecution of Kahre is self-contradictory!

• If you owe $100 in taxes and pay with gold coins with face values totaling $100, the IRS will accept the payment at its face value of $100; it could then sell the coins on the market for twenty times that amount and keep the difference. The government will accept your payment as “legal tender”, as it is required by law to do.
• But if YOU receive gold coins from someone else in a private transaction, the IRS says you must report the “market value” of the coins, not the “face value”. In other words, the IRS says that YOU CANNOT TREAT THE COINS AS LEGAL TENDER.

Why is this a big deal?

I can only assume that the government fears that if more people took the law at its word and behaved like Kahre:

• people would demand payment in the U.S. Mint’s gold and silver coins and have far fewer reportable “dollars” in income, meaning fewer people would pay income taxes
• the market would soon prefer the coins produced by the Treasury Department’s Mint that are regulated by law – not the inflated dollars created by order of the independent Federal Reserve Board
• good money (gold and silver) would drive out the bad (paper Federal Reserve Notes and electronic keyboard strokes), whereas the federal government needs inflated, deficit-driven money to pay for itself

No wonder the government views Kahre as a threat, and is willing to made a mockery of its own legal tender laws to destroy him!

DownsizeDC.org, however, believes Kahre was on to something. That’s why they endorse the “Honest Money Act”, which would repeal the legal tender law that gives the Federal Reserve a monopoly over the money supply. This bill, along with the “Tax-Free Gold Act” and the “Free Competition in Currency Act”, is a plank in our End the Inflation Tax Campaign.

Repealing the legal tender law would foster the creation of HONEST free market money, and protect people from the Federal Reserve’s endless onslaught of legalized counterfeiting, which constantly reduces the value of your money.