By Dave Doctor, Monetary Choice
At the 2012 London Olympics, the first place athletes seemed to win gold medals. Technically received gold-plated medals comprised of 93 percent silver, six percent copper, and only one percent gold. Well before the United States and many other countries abandoned their monetary gold standards, with regard to currency, the Olympic Committee abandoned its gold standard in 1914.
It could be worse. The gold medals might not have any precious metals. They could be made of tin or copper or other base metals, though still covered with gold plating. Roman leaders perfected this technique over a 200-year period during which they decreased the silver content of their silver coins by more than 90 percent. When a new leader came to power, the government melted down all coins to revise the design, mixed in metals of lesser value, and passed off the new coins as if they had the same amount of silver, thereby pocketing the removed silver. It’s called debasement.
In countries using gold coins, pretty soon people started biting the coins to see if they really were gold. Having a softer composition, gold will show teeth marks. That might be why it’s become a tradition for Olympic athletes to pretend to bite their medals.
But winning an Olympic gold medal primarily made of silver is better than winning paper. If Franklin D. Roosevelt had managed the Olympics, he might have forced the medal winners to exchange their gold for Olympic paper currency. Picture a victorious athlete with a red ribbon holding a green piece of paper, supposedly redeemable for a gold medal. In 1933, Roosevelt signed Executive Order 6102 forbidding the ownership of most gold and requiring Americans to turn in their gold for paper dollars, specifically $20.67 dollars for each ounce.
After Americans turned in their gold, Roosevelt increased the price from $20.67 to $35, thereby taking about half of every surrendered ounce of gold or $2.8 billion (in 1993 dollars) from the people. Roosevelt won the financial Olympics that year.
If the Olympic Committee was like most governments, once everyone was using paper dollars, the committee would inflate the currency by issuing more Olympic dollars than there are medals, and use those dollars to purchase sports equipment. But since there would be more dollars than medals, the value of the dollar would decline, as everyone would realize an Olympic dollar really wasn’t worth one gold medal. It would by Olympic inflation.
Before long, prices in and near the Olympic Village would rise since the dollar was worth less. The Olympic committee might mandate price controls, as Nixon did in 1971. Shortages would ensue because vendors couldn’t charge prices to cover costs. The dollar would collapse, the Olympics would come to a halt, and athletes would be living in the village streets.
The American athletes who didn’t turn in their medals and who decide to sell them would learn about the 28-percent capital gains tax reserved only for precious metals and collectibles, versus the 15-percent rate for other investments. Senator Marco Rubio introduced a bill to exempt medals from the federal income tax. He should add an exemption from the capital gains tax as well.
Olympic athletes are still better off than everyone else. They may train for hours every day, but if they win an event, they at least receive something of value, even if the gold medal is mostly silver. Everyone else in the U.S. and most of the world receives only intrinsically worthless pieces of paper for their efforts. If we used gold as money, everyone could receive gold medals.
Originally published on The Gold Standard Now.