New Hampshire Returning to Gold Standard?

New Hampshire House Bill 1342 (2004) would return the state a monetary gold and silver standard. I must emphasize that this bill is dead already ("inexpedient to legislate") but I'm surprised and pleased that it was introduced at all.

The United States Congress has relinquished its responsibilities that were delegated to it by New Hampshire and the other sovereign states. These delegated responsibilities are recorded in Article 1, Section 8, Clause 5 of the United States Constitution. The responsibilities the Federal government has relinquished are those of minting money and setting the value thereof. Currently the United States Congress has relinquished its minting responsibility by having delegated this responsibility to a foreign controlled power. Therefore, in this legislation New Hampshire is taking back its sovereign right to mint and set the value of our money to ensure that our money is lawful and is compliant with our constitutions.

The "foreign controlled power" is the Federal Reserve, which is nominally a private institution. In practice, of course, it isn't.

The State of New Hampshire shall mint and introduce into circulation gold and silver coins of the State of New Hampshire in the face amount of $50,000,000. The coins shall contain one ounce of fine gold or silver, must be alloyed to 90 percent fineness and must bear the great seal of the state of New Hampshire on one side and the words "Contains One Troy Ounce Fine Gold" or "Contains One Troy Ounce Fine Silver", as applicable; "New Hampshire Legal Tender"; the year of issue and "In God We Trust" on the other side.

Their hearts are in the right place, but this legislation wouldn't work. Without returning to a definition of the dollar as a specific quantity of gold, the face value of the coins would not match their gold or silver content except by accident. The coins would trade as gold bullion with a fluctuating exchange rate just as bullion coins do today.

It would be far better to omit any mention of "dollars" on the coins at all, and simply let them trade as bullion. The only assistance government could or should provide would be to make all exchanges involving gold and silver legally equivalent to exchanges in dollars. (i.e., equivalent tax treatment.)

The legislation doesn't state what the face values of the gold and silver coins would be, but it does state that they would be legal tender.

If the face value of the gold coins was $50, they would be equivalent to the Gold Eagle bullion coins produced by the United States Mint. You haven't seen any in circulation, have you? That's because their face value is much lower than their gold value. Because the dollar is no longer defined as a quantity of gold, the price of gold fluctuates, making transactions in gold as much of a hassle as transactions in any foreign currency. (Digital gold banking and payment systems such as e-gold try to reduce this hassle, but so far are less convenient than checkbooks and credit cards.)

If New Hampshire's coins carried a face value lower than their gold value, they wouldn't circulate for the same reasons that gold eagle bullion coins don't circulate. If their face value was greater than their gold value, the creation of these coins would entail significant inflation. A government could make this stick — at significant damage to the economy — due to its legal tender power. Without legal tender status, this inflation problem has been an obstacle for private currencies such as The Liberty Dollar. Why pay a huge premium for a bullion coin, when you can buy bullion coins for near spot?

The digital gold currencies have the right idea. Let gold trade as gold and silver as silver. Have a floating exchange rate rather than a fixed face value. They'd get my money, if only they were more convenient to use.

There's also a serious error in the legislation, §2.III:

If the number of coins subject to the control of the state treasurer diminishes to 500,000, the state of New Hampshire shall mint additional money in accordance with paragraph I, in the face amount of $50,000,000, unless the total face value of the coins already minted is $500,000,000, in which case the state of New Hampshire shall mint no further money without prior approval of the New Hampshire general court.

It should read "face value" rather than "number". The legislation nowhere fixes the ratio of gold to silver coins that should be minted…