I am often asked about the face value when I’m speaking to a merchant, potential currency officer or customer about AOCS silver and the AOCS model. Where does the “fifty” come from anyway? Who decided to value an ounce of silver at fifty and why do we need to even bother with a face value? Sometimes these questions are followed by a stated conviction that we should let the free market decide what our silver is worth.
The method for face value determination is explained here: http://www.opencurrency.com/valuation.php When the 30 day moving average on the spot price of silver reaches a certain amount for a certain amount of time, the face
value is adjusted accordingly. Our face value will move from 50 to 100 once the 30 day moving average of silver reaches 41.50 and stays there for 60 days. And once AOCS moves the face value up, we never go back down because we do not devalue our currency. Anyone who follows the 30 DMA of silver can predict if and when the face value will move up in the foreseeable future.
Now that you know how the face value is determined, you may still be wondering why we have one. Here are the six reasons why we absolutely and unapologetically insist on our face value.
First, the face value allows for seamless financial recordkeeping for a business who continues to accept Federal Reserve Notes and barter currency as payment for goods and services. When a merchant accepts an ounce of AOCS-approved silver in payment for goods and services, he is providing the customer with $50.00 worth of product in today’s pricing. When the merchant pays his dues to Uncle Sam, he reports that ounce as $50.00 worth of sales without thinking twice. In our ideal world, the currencies of choice for customers and businesses will be silver and gold, a
nd prices will be denominated in units of silver or gold. However, the reality is that right now the preferred currency is the “dollar”, i.e., Federal Reserve Note (FRN), and all recordkeeping, taxation, and prices are denominated in FRNs. Most people who spend and receive money do not want to think about it too much. For silver barter currencies to gain widespread use, those currencies for the time being need a set value that can be mentally converted into a set amount of dollars or FRNs.
Second, a face value makes the transaction convenient for the buyer and seller. I have seen instances where people trade products at the spot price of silver and think this is how business ought to be conducted. One particular video available on YouTube (http://www.youtube.com/watch?v=Z5mZBSrfnuM) shows a young man taking his junk silver to a local general store to trade it for some groceries. The proprietor takes the various coins, multiplies the spot price by the percent silver content, and when he’s accepted the amount of silver that matches the young man’s bill, he’s sold the groceries. I’d like to see the same video where the proprietor is making all those calculations when he’s the only one in the store and there’s a long line at the cash register. Who, other than a hard core patriot, is going to go through all that trouble just to buy or sell $25.00 worth of groceries? As much as I love sound money, when I buy groceries with my three young children in tow, I want to be able to pay for them easily and quickly and get my family back home.
Third, a face value brings stability to the currency allowing people to accurately predict their expenditures. In the above example, the grocery store customer will make out very well should the spot price of silver happen to be high the day he chooses to shop. But if he missed the high and bought his groceries after a substantial drop in the spot price, the poor guy will have to fork over more silver for the exact same amount of groceries. Let’s say this young man acquires a fixed amount of silver each month and he can spend some of it on groceries. How in the world can he possibly make a budget when every day the amount he has to pay for groceries changes? It would be the same if I bought the same groceries every week at the store, only one week it cost me $50, another week, $45, and a third week, $100. That might not bother me if I have money to burn, but most of us aren’t that lucky.
Legislatures in several states, including my own state of Colorado, have considered honest money bills, which would require certain types of taxes to be paid to the state in gold so that the state in turn could pay some of its employees in gold. I used to work for Colorado State University, so let’s pretend I’m back at work earning $3000 a month and getting paid on the last day of every month as all state employees do. Let’s say the honest money bill also allows me to get paid in silver, and that’s what I choose. At the AOCS face value, I will get paid 60 ounces every month (3000/50=60). As long as I can spend it for all my needs at the same face value, my purchasing power is intact. Naturally, before I opted to take my entire paycheck in silver, I would need to make sure I could also pay all my bills in silver. Until then, like many merchants in our network, I will have to opt to take part in silver and part in FRNs.
At the current spot price of silver, plus applicable premiums on silver rounds, an ounce of silver runs right around $20.00. If I got paid at that price instead, at the same $3000 monthly salary, my paycheck would swell to 150 ounces. Wouldn’t I prefer that? At first, I would find that very nice. But let’s suppose Colorado is the very first state to implement an honest money law and I’m one of the first state employees to opt to get paid in silver. For a while, my meager salary has no impact on the price of silver and it continues to stay low for the next six months while I happily collect 150 ounces every pay period.
But then the honest money concept really catches on not only among other Colorado State employees, but in fifteen other states as well. Now there are thousands of people getting paid in silver, which places a higher demand on the silver suppliers, who respond by raising their prices. The spot price of silver doubles and it now costs me $40.00 an ounce. I get paid at the end of this month but this time it’s only 75 ounces (3000/40=75). Wait a minute. I worked just as hard and got just as much accomplished as I did last month, and for my efforts I get a 50 percent pay cut! Why? Because despite my payment being in physical (or digital) silver, my salary is still denominated in FRNs and the FRN price of silver just doubled.
Since the price of silver doubled, I should be able to pay all my bills with half the amount of silver so what’s the big deal, you ask. Why should I care that I got less silver this month? As long as all my creditors are religiously following the spot price of silver, and the spot price of silver doesn’t change too much in the next 30 days, I should be fine. However, those of us who do follow the spot price of silver know that it changes minute by minute and can shift substantially from week to week or day to day. What happens if on the day I get paid, the spot price goes through the roof, but then it drops the next day and stays low for the rest of the month? With all the state employees getting paid at the end of the month, the demand for silver will be especially high on that day. Wouldn’t it follow that the spot price of silver would also be especially high on that day? Might the state governments who are paying all these employees in silver be tempted to manipulate the market just a teensy weensy bit to keep the spot price of silver high on payday? What happens to me when I’m paid at a spot price of silver at $40 per ounce but am then forced to pay my bills at a spot price of $20 per ounce? I just lost 50% of my purchasing power between the day I got paid and the day the rent came due. Most of us cannot live like that. Until my state switches to paying me on a daily basis (a payroll nightmare to be sure) I won’t be willing to accept silver in payment as long as I have to take it at the daily spot price. The spot price is just too unstable and therefore too risky. I want to know that I will always earn a set amount of silver each month and know that I can spend that silver at the same value I earned it at. A face value on the pieces of silver gives me that kind of stability. It allows for both the buyer and seller to agree on the value of a product without tying the transaction to the ever changing spot price of the currency’s metal.
Fourth, a face value provides incentive to actually spend the silver. In our ideal world there would be no fiat money and everyone would buy and sell using silver and gold. However the reality is that FRNs are still the preferred currency. Most of us still get paid in FRNs and most of the places we shop still only accept FRNs. While I can buy advertising, web design work and a luxurious spa treatment with silver, it will be a while before I can also pay my utility bills in silver. In other words, in the best of circumstances I and everyone else will need to deal with both FRNs and silver barter currency. Whenever I make a purchase where the store accepts silver, I need to make a choice as to whether I will actually pay for it in silver or FRNs. FRNs are a fiat currency to begin with and there’s talk about hyper inflation and the dollar devaluing. Silver, on the other hand, has an intrinsic value that won’t change. So which do I choose?
Personally, I would rather hang onto my silver. Tomorrow, my cash could be worthless but my silver will always have value. So I opt to unload my cash unless there could be a direct benefit to me to spend my silver instead. If I’m buying and spending silver at the spot price, I had to pay a premium to buy the silver but can only spend it at straight spot. I’ll actually lose money on the transaction, but even if I didn’t, there is absolutely no incentive for me to spend my beautiful piece of silver as long as the merchant will still accept the fiat money. In order to persuade me to actually part with my silver there needs to be a direct benefit to me in doing so. Our current face value of fifty provides that built-in incentive to spend it. I can buy the silver piece for $20 but spend it at $50, increasing my purchasing power by 150%. There’s my incentive. Whenever money is brought into circulation, there needs to be an incentive to do so. Currently, it’s the banks that profit by putting new FRNs into circulation. With AOCS, it’s the people who buy silver who profit. That means you, your friends, and anyone else who purchases AOCS silver. Our face value provides the built-in incentive of improved purchasing power to motivate people to actually circulate silver.
Fifth, a face value brings stability to the overall network. Let the free market determine the value of the silver, you say. But we have to consider the ramifications. Maybe Merchant A believes the free market values an ounce of silver at 35, Merchant B values an ounce of silver at 65 and Merchant C values an ounce of silver at 20. All these merchants are in the city where I shop. If Merchant A, B, and C offer the same products, then it’s an easy decision–I shop with Merchant B who will give me the most value for my piece–a slam dunk for the free market. But more likely, they each offer different products, and I have to deal with the fact that the very same one ounce piece of silver varies widely in its worth depending on where I spend it. What kind of mixed message does that send to the consumer and general public about the stable and intrinsic value of silver? What about the merchants who accept silver at one value and then have to spend hours figuring out where they can spend it to get the most out of it? All the “free market” will do is drive the value of the silver down to the point where it is accepted at the spot price and then it is no longer a true barter currency, but a mere commodity. People will lose the incentive to spend it because it’s too much trouble with no direct benefit to sustain it.
There can be no silver barter network without a consistent face value. It is really that simple. Those of us who spend our work days maintaining the network, prospecting new merchants and servicing existing merchants need to be able to support ourselves and our families. We earn a small commission on the initial sale of the silver while still reserving the bulk of the financial benefit for the silver customer through the increased purchasing power he gains from spending the silver at face value.
While we understand that many merchants are not yet in a position to accept 100 percent of their payment in silver, we do ask them to honor the face value while making adjustments in other ways. For example, merchants can accept partial payment in silver, they can accept payment in silver for certain products but not others, they can raise their prices, they can decide to limit the number of silver transactions they complete in a given time period, they can even decide they will only accept silver on the eve of the full moon when the sky is clear. AOCS silver customers will happily honor whatever terms the merchant sets. We just ask that the merchants respect the face value because it is foundational to the ability of the barter network to continue to exist and function. By extension, the face value is foundational to the movement to return the nation to the use of sound money.
Seventh, with the face value, the AOCS barter network can succeed without legislative support. By this I mean we obey the laws of the land, but we can accomplish our mission without honest money bills or any other kind of legislation that in any way mandates people to pay in gold or silver. As long as the expectation behind sound money is that silver and gold will be used in commerce at the spot price, the only way to implement it is through legislative mandates. For example, an honest money bill if passed will order cigarette taxes to be paid to the state in gold. The cigarette dealers will buy their gold at some percent over spot and pay the state at spot, losing money on the transaction. They will only do this because they now have to. With the AOCS model and face value, when you use silver to pay for something, you benefit directly through increased purchasing power, and therefore you will do it all by yourself with no one holding the law over your head. People all over the country will spend their silver because it benefits them and before we know it, we will have sound money.
I am not categorically opposed to legislative support. I would certainly welcome a bill that would allow me to pay my taxes in AOCS silver at the face value. However, because of our face value and the built-in incentive it provides, I don’t have to wait around for the politicians to get behind sound money in order to have sound money. As far as I know, to date all honest money bills have failed. There is heavy governmental resistance to auditing the Federal Reserve. In general, the political climate is not yet favorable to any kind of sound money legislation, and it might take years before that changes. Thankfully, AOCS silver has a face value so you and I don’t have to wait that long to bring sound money to our nation.
So next time you are asked “What’s the value of an ounce of silver?” smile and say “Fifty.”