Why the Price of a U.S. Silver Dollar is Higher than 1oz. of Pure Silver.

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The current price of 1 ounce of pure silver is approximately $15.21 USD [1]. The average going rate for 2020 Silver Eagle drifts between $20.00- $25.00 [2]. This is not accounting for any variance for any limited edition collector’s coins that command a higher price tag. We are looking at nearly $10.00 premium over an ounce of pure silver. The coins themselves aren’t 100 percent pure silver. They are typically 99.9 % pure. Due to the bonding agents uses to make it a usable coin. Why the premium over pure silver?

We could accept the Cost-of-production theory of value. It was favored by the Classical economists. Who doesn’t love reading a little bit of Adam Smith, David Richardo, or John Stuart Mill? The classical interpretation of value was insufficient for solving the Diamond-Water Paradox. Unfortunately, did not provide us with the precepts to invalidate the Labor Theory of Value. Some people view both theories of value interchangeably, I disagree with such wording. Labor theory in my perception focuses mainly on labor. Generally for the purposes of sowing anti-market bias.


Thankfully the fathers of the Marginal Revolution (Menger, Jevons, and Walras) provide us with a novel approach to determining prices and value. That is through the Subjective Theory of Value.  Meaning that the value of goods is determined by the subjective evaluations of the consumer. If you think about as much the costs of production may influence profits, if the price is too high in the opinion of consumers the product will not sell. I can spend $20.00 making handmade coffee cups with a 10 percent mark-up. Odds are no one will buy them because they will see the price as being too high. Ultimately, I would need to find a new supplier for higher-order goods or more efficient production methods. As the producer, I am at the mercy of the consumer. If I do not meet consumer expectations (in terms of pricing or quality) I will not be in business for long.


What does this have to with the U.S. Silver Dollar? We could say that the premium of a U.S. Silver Dollar over 1 ounce of pure silver is due to the costs involved in the mint processing it into a coin. However, if the general public is unwilling to pay the $10.00 premium the coin will not sell. What the consumer is really paying for is the convenience of silver processed into a coin. Portability is a characteristic of all forms of money. What you sacrifice in purity is made up for in portability. Transporting raw silver is kind of cumbersome. The consumer is also paying for the officiality of the coin. It has the government seal of approval. Versus the seal of some hair-brained, tinfoil hat-wearing conspiracy theorist. Its having status under legal tender laws instills some sense of trust in its value. Depending on your political beliefs of course. Most folks still find the U.S. mint to be a reliable source.