Copernicus and the Platinum Coin

Fun fact: Copernicus was a monetary theorist. Yes, the astronomer extraordinaire who worked out a theory of the revolution of celestial spheres also turned his attention back down to earth to consider currency reforms in his native Poland. At the time (early 16th Century), Poland had three different types of currency. All were made of precious metals, but were subject to frequent debasement, since the state could alter their value by decree.

Copernicus explained that Gresham's law was at work. When multiple coins are in circulation, those with cheaper metallic content relative to their value will be used for payment, while those with more expensive metallic content will be melted down for their metal and disappear from circulation. In short, "bad money drives out good." Copernicus also was an early developer of the quantity theory of money, that prices vary directly with the size of the money supply. He thought that the government needed to stop minting so many coins if they wanted to solve the inflation problem. He published his monetary ideas in Monetae cudendae ratio in 1526.

Copernicus focused on coins whose value derived from their metallic content. Today, of course, our paper currency does not get its value based on the value of the paper itself; it is not commodity currency, but fiat currency. What about the trillion dollar platinum coin we keep hearing about in the debt ceiling discussions? It would not get its value from its metallic content either. The government does not actually have a trillion dollars worth of the commodity platinum to mint into a coin. The coin would just use a small amount of platinum, and have its value by fiat. It is just as if the President were allowed to print a trillion dollars of paper money, which he's not. (That's why the platinum coin scenario is called a loophole.)