Chapter V
When Is The Exchange Value Of Currency Determined?
We know that most goods have exchange value. And we know that when goods are exchanged by direct barter the exchange value is determined by agreement between the persons making the exchanges at the time of each transaction. Parties to a transaction may agree on the exchange value of a certain item on one day and a few days later both parties may agree to a different value for the same item.
Likewise, currency, such as coins and Federal Reserve notes, has exchange value. We know that the exchange value of currency changes. We see it every time we see a price change. These changes in the exchange value of the currency take place by agreement between the persons making the exchanges (buying and selling) at the time of each transaction. The exchange values of the items, including currency, are agreed to [p. 46] only for the transaction taking place at that particular time, just as is done in direct bartering. Other parties may have an entirely different exchange value for the currency and other items exchanged; but they are not parties to the transaction we are referring to.
Perhaps we can learn a little more from an example: The one-dollar silver coin is still legal tender at its face value of one dollar. So, if a person offered a silver dollar coin as a payment for any city, county, state, or federal taxes, it would be accepted as a payment for one dollar's worth of taxes. It also would be worth one dollar as a payment for private debts.
However, if a person offered the one-dollar silver coin to someone who wanted to use it for its 371.25 grains of silver content, he would probably receive $3 worth of Federal Reserve notes for it. (Assuming the price of silver is $4.50 per ounce.) Or if the one-dollar silver coin were offered to a coin dealer, the coin dealer may give in exchange four or more dollars' worth of Federal Reserve notes for its numismatic value.
The point we wish to make is that for whatever amount the one-dollar silver coin is exchanged, the exchange value of the coin will be set by agreement between the parties making the exchange at the time the transaction takes place.
The government has the right, as a party to a transaction, to agree with the other party to the exchange value of an item of currency only at the time it is paying it out or receiving it as a payment. If the government pays out a $10 tax credit certificate or a $10 note in exchange for $10 worth of goods or services, it then has the right and the duty to receive that $10 certificate or note as a $10 payment for taxes.
If token coins were issued and paid out as tax credit certificates, their exchange value would be set in the same manner as it is done for tax credit certificates.
The reason full-bodied coins have not served well as currency is because governments attempt to fix the market value of the metal content of the coins at the mint as the legal tender value of the coins for all future [p. 47] transactions. No one, not even government officials, can succeed in setting the market value of anything, including full-bodied coins, for a future time.
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