One Reason Dollars Ain’t Worth What They Used to Be
Everybody knows what will happen if you set up a private mint in your basement, stamp out a few coins, and call them “nickels” or “dimes.” You won’t circulate much longer than they will.
Most Americans today would recoil at the suggestion that coinage could or should be issued privately. They’re unaware that private coinage has a rich history in the United States.
The U.S. Constitution expressly forbids the states to print paper money. It grants Congress the power to issue coinage. But nowhere does it prohibit private parties from creating either paper currency or metallic coin. For seven decades, Americans used gold and silver coins from both public and private mints and paper currency issued by private banks and companies.
Even today, private paper money is not illegal as long as you don’t break a few important rules: Don’t imitate the appearance of government notes (that’s counterfeiting), and don’t demand payment of dollar debts in anything but government dollars.
Check out the Wikipedia entry for “private currency” and you’ll find that today “there are over four-thousand privately issued currencies in more than 35 countries. These include commercial trade exchanges that use barter credits as units of exchange, private gold and silver exchanges, local paper money (such as ‘BerkShares’), computerized systems of credits and debits, and electronic currencies in circulation, such as digital gold currency.”
A couple of million BerkShares (denominated in dollars) have circulated in western Massachusetts since 2006. The BerkShares website lists more than 400 local businesses that accept them.
Killing Private Coinage
The history of how private, metallic coinage came to be illegal is both fascinating and instructive. Within the first year of the Civil War, President Lincoln and the (Northern) Congress wanted to print paper money to help finance the conflict. Raising direct taxes too high, they figured, would risk stoking the fires of antiwar fever.
Printing paper didn’t make things any cheaper (and certainly didn’t make things any more honest, either). It just meant that Northerners paid for the war both in higher taxes and higher prices as the value of fiat paper money plummeted. People spent the paper stuff and hoarded gold and silver as protection from the inflation, resulting in a severe shortage of coin. By late 1862, true to famed Gresham’s Law (“Bad money drives out good if their exchange rate is set by law”), coins had all but vanished.
It’s tough to do business if you have no cents (pardon the pun). So businesses themselves came to the rescue. At first, and very briefly, merchants started giving change in the form of postage stamps, but their flimsiness wouldn’t do.
War Tokens and Emergent Money
Merchants then introduced “Civil War tokens.” They minted more than 25 million of the mostly one- and two-cent copper, lead, brass, or bronze pieces—more than enough to fill the needs of trade in the Northern states where they circulated.
This, indeed, is the story of money itself. It didn’t appear by some central command. Money is an invention of the marketplace of exchange, brought into being by traders who discovered that a reliable medium could facilitate trades that were more difficult or even impossible by barter alone. It developed from one form to a better one, one evolutionary trade at a time. Parliaments, congresses, and emperors came along later and stole it, pure and simple if not fair and square.
I own a small collection of those “Civil War tokens.” They typically bear the name of a merchant such as “C. S. Patterson, Druggist,” a patriotic statement like “Stand By the Flag,” or a slogan such as “Pro Bono Publico” (For the Public Good). Though many of them bear the words “One Cent” or “Two Cents,” one popular version stated “I. O. U. 1 Cent.” Another one said, “Value Me As You Please.” One even declared “Not One Cent” on one side so as to differentiate it from any government-issued coin.
In a famous case, token issuer Gustavus Lindenmueller refused to redeem his tokens presented by a New York railroad company. Instead of doing the sensible thing—protecting property rights by allowing the company to sue Lindenmueller—Congress banned private coinage altogether. The minting and use of nongovernment coins was declared punishable in 1864 by a fine of up to $2,000 (at least $50,000 in today’s dollars), a prison term of up to five years, or both.
In my collection, I have one of those “Gustavus Lindenmueller” tokens bearing his bearded image. While I wish old Gus had kept his word, my guts tell me it wouldn’t have mattered. Congress was going to monopolize the stuff sooner or later, one way or the other.
Private coinage was banned not because it didn’t work but because it did. Governments just don’t care much for competition or for sound and honest money. The Civil War ban on private coinage has remained the law of the land since June 1864—a hallmark on the shameful path of monetary debasement.
This, my friends, is one of the reasons your dollars ain’t what they used to be.
Lawrence W. Reed (firstname.lastname@example.org) is president of the Foundation for Economic Freedom. Used with permission of fee.org.