United States Coinage
When the United States government first made gold and silver coins, it did not make the coins for its own use. It did not make the coins so that it could use them as payments for its expenses. It made the coins for the people who brought gold and silver to the mint for the purpose of having the metal made into coins for their own use. They were the ones who would use the coins as payments to the government and to others.
The amount of coins minted by the government was limited to production from the gold and silver brought to the mint. That production was not sufficient to provide an adequate supply of the medium of exchange. That is why foreign coins circulated in large quantities until 1854.
The United States mint began making coins in 1794. Anyone, including banks, could and did bring gold and silver to the mint for the purpose of having it made into coins. The coins did not belong to the government. The coins were given to those who brought in the metal. They were the owners of the coins and could do with them whatever they wished.
But what happened! When the coins were minted, Congress immediately declared the coins to have a fixed legal tender exchange value. The result was that between 1794 and 1834 very few United States coins were in circulation. Not until 1853, when the fractional silver coins (coins with a face value less than one dollar) were made token coins by reducing their silver content by 7%, did an abundance of United States fractional silver [p. 84] coins circulate. The Spanish silver coins circulated until 1857.
Why, during those years, did the foreign coins circulate, although not in sufficient quantity, and the United States coins did not? Was it not the intention of the writers of the Constitution that the value of the United States minted coins be regulated in the same manner as the foreign coins? We know that the Congress did not regulate or adjust the exchange value, the legal tender value, of the United States coins in the same manner as it did the foreign coins. The Congress fixed the exchange value, the legal tender value, of the United States coins at the time it authorized the minting of the coins, instead of at the time they were used as a payment.
It probably did not occur to the members of Congress that the exchange value (the price} of gold and silver would change. Thus, the members of Congress, perhaps without being aware of it, did not follow the intentions of the writers of the Constitution. That is, they did not regulate the value of the United States coins as they did the foreign coins.
The United States Congress did not (of course, it could not) place an exchange value on the foreign coins at the time they were minted. The United States government placed on the foreign coins the market value of their metal content only at the time the foreign coins were used as payments.
It will serve us well to remember that when we either barter directly or buy and sell, the effective time for us to place an exchange value on the items to be exchanged is at the time the exchange is made.
Coins are items we exchange. They are not different from other items, unless a government unwisely declares them to have a legal tender value that is different from the market value of their metal content.
Instead of waiting to declare the market value of their metal content as the legal tender value of the first United States gold and silver coins at the time the coins were presented as payments, Congress set the legal tender [p. 85] value of the coins at the market value of their metal content at the time it authorized the minting of the coins in 1792.
By 1794, when the coins were first minted, and for many years thereafter, the market value, of gold and silver increased so that the coins were worth more as bullion than the previously set legal tender value. So the people exchanged the newly minted United States coins for the higher market value. That is why the coins did not circulate as currency. On the other hand, the legal tender value of the foreign coins was adjusted (regulated) so that it was equal to the market value of the metal content of the coins at the time the coins were used as a payment. That is why they did circulate as currency. There was no higher value for which they could be exchanged.
If the government had regulated the exchange value of the gold and silver coins to conform to the market value of their metal content at the time the coins were used as payments, just as it did with foreign coins, the coins would have circulated to this day because there never would have been a higher value for which they could be exchanged.
Whenever a person has justly acquired gold or silver coins, the coins belong to him. He is free to exchange them for other items at any exchange value that is acceptable to the person with whom he is making exchanges. It is not a function of the government to fix an exchange value on gold or silver coins until they are used as payments to the government or by the government.
In the Coinage Act of 1792, the United States Congress provided for the establishing of a mint and the authorizing of the minting of full bodied legal tender gold and silver coins and token copper coins. The exchange value of the coins was to be expressed in the unit authorized on July 6, 1785, namely, the dollar.
The silver dollar coin was declared to have a legal tender exchange value of one exchange value unit, that is, one dollar. So when the first silver dollar coin was [p. 86] issued in 1794, it had the words "HUNDRED CENTS, ONE DOLLAR OR UNIT" stamped on the edge of the coin. Thus, this large silver coin was designated as a dollar unit or dollar coin.
We must distinguish between the two meanings of the word "dollar." When it describes the coin, it is used as an adjective; when it is used as the name of our unit to express exchange value, it is used as a noun. It is correct to say that our largest coin is a dollar coin. In that sentence the word "dollar" is used as an adjective. It is also correct to say that the word "dollar" is the name of the unit we use to express exchange value. The word "dollar" is used in that sentence as a noun.
The gold coin unit was given a different name. It was called the "eagle." Gold coins called the eagle, double eagle, half eagle, and quarter eagle were made. The eagle was the name of the monetary (coin) unit for gold coins.
The government gave the eagle coin the legal tender exchange value of ten exchange value units, or ten dollars; a double-eagle coin twenty dollars; a half-eagle coin, five dollars; and a quarter-eagle coin, two and one-half dollars.
The eagle was not the name of an official unit of account, although the Congress could have made it so. The people themselves could have made it a unit with which to express exchange value by using it as such. Prices could be expressed in eagles and in fractions of eagles just as well as in dollars and in fractions of dollars.
When the Congress in 1792 authorized the mint to make the gold and silver coins full-bodied coins, the market value of the metal in the coins was equal to their legal tender value. History shows that such coins will be used as a medium of exchange only so long as the market value of their metal content does not exceed their legal tender value.
Gold and silver full-bodied coins would be very useful as a medium of exchange and they would stay in circulation if the weight of the metal was stamped on the coin [p. 87] and the government would not give the coins any fixed legal tender exchange value. If the government is to give full-bodied coins a legal tender value, it should declare the legal tender value of the coins to be the market value of the metal in the coins at the time the coins are used as a payment. In that way it would be following the Constitution by regulating the exchange value of the coins at the proper times, instead of fixing the exchange value of the coins at the time the coins are minted.
The first silver dollar coins minted in 1794 contained 371.25 grains of pure silver. That was the standard silver dollar coin to which all silver dollar coins had to conform. The government at that time set the exchange value of the coin for legal tender purposes at one dollar. That was the market exchange value of its silver content at that time. But, by 1804, the price of silver increased so much that some people and some foreign governments were offering a price higher than one dollar for the coin. The result was that the mint made no silver dollar coins from 1804 to 1835 because those coins that were made before 1804 were not being used as a medium of exchange. They were being exchanged for a higher exchange value as fast as they were being minted. Many were exchanged for the Spanish milled dollar coin, which contained 4.39 more grains of pure silver than the United States silver dollar coin.
The first gold coin Congress authorized to be minted was the eagle. It was to be made with 247.5 grains of pure gold. It was the standard gold coin to which all gold coins had to conform. The first gold coin actually minted by the United States mint, however, was the half Eagle in 1795. It contained 123.75 grains of pure gold. It was given a legal tender value of $5 or $1 for each 24.75 grains of pure gold. But the value of "5 D" was not stamped on the coin until 1807. The value TEN D was not stamped on the eagle until 1838.
The legal tender exchange value for the gold coins at the rate of $1 for each 24.75 grains of pure gold might have been the market value of the gold at the time the Congress authorized the minting of the coins in 1792, but a few years later the market value of the gold was [p. 88] higher than the legal tender value, so only a few gold coins circulated as currency.
In fact only a small number of half eagles were minted between 1795 and 1834. No eagle coins were minted between 1805 and 1836. In the Gold Bill of 1834 Congress increased the legal tender value of the gold coins to about the market value of their gold content by reducing the number of grains of gold for each dollar of legal tender exchange value from 24.75 grains to 23.2 grains.
In 1837, Congress slightly reduced the legal tender exchange value of the gold coins by increasing the gold content for each $1 legal tender value from 23.20 to 23.22 grains. Gold coins were then minted in quantity and circulated as currency.
Token coins are those coins that have a face value or a legal tender value which is greater than the market value of their metal content. They may or may not contain gold or silver. For many years before 1964 the United States silver coins had a high silver content but they still were token coins because the market value of their silver content was less than their face or legal tender value. Since 1972 all newly minted coins in circulation are token coins made with copper and/or nickel.
Before 1933 token coins were legal tender only for small payments, but they were exchangeable for full-bodied gold coins. In 1933 all coins were declared to be legal tender for large or small payments, but they were no longer exchangeable for gold coins.
Government officials can with honesty and with justice place token coins into circulation in two ways:
- They can accept and safekeeping for any person full-bodied gold or silver coins and give in exchange token coins as evidence of on demand claims for the gold or silver coins they are holding for safekeeping. Those token coins would be, in effect, warehouse receipts.
- Government officials can payout token coins as [p. 89] payments for goods and services, levy a tax for the amount paid out, and at taxpaying time redeem them as the payment for the then due taxes. These coins would be, in effect, tokens serving as tax credit certificates.
In both cases the token coins would be bona fide because they would be redeemable either in full-bodied coins or as payment for taxes. As long as government officials redeemed, the token coins, they would not cause an inflation of the currency and they would serve as an acceptable medium of exchange.
Congress Seemed To Declare the Dollar To Be a Specific Number of Grains of Gold
When a person deposits an item with someone for safekeeping, he expects to get back that same item when he calls for it. When you check your coat in a check-room, you are given a token with a number on it. That token is the evidence of your claim for your coat.
Before 1933, when a person deposited gold at a United States Mint or Assay Office and received gold certificates as the evidence of his claim for the gold, he expected to get back, when he or the bearer of the gold certificates called for it, the same number of grains or ounces of gold that he deposited.
When the government issued gold certificates, however, and when the Federal Reserve Banks and others issued notes that were payable in gold, those certificates and notes gave evidence of the claims in dollars' worth of gold. They did not give evidence of claims for grains or ounces of gold as bona fide warehouse receipts would have done.
Therefore, in order for the depositors and other claimants to reclaim or receive as payment the correct amount of gold by weight, it was necessary for government officials to declare by law the number of grains of gold that should be given for each one-dollar claim or payment.
From that it followed that all promises to pay in gold [p. 90] or in dollars' worth of gold meant that each dollar's worth of gold was a certain number of grains of gold. Although it may seem so, this is not equivalent to declaring the dollar, which is the unit we use to express exchange value, to have a certain number of grains of gold. What really happened was that government officials had by law declared a fixed price on gold.
Between 1792 and 1834 a dollar's worth of gold was declared to be 24.75 grains of gold, between 1834 and 1837 it was 23.20 grains, and between 1837 and 1934 it was 23.22 grains. After January 1934, it was declared to be 13.71 grains of pure gold for those who were allowed to buy or sell it.
The government had to establish a specific number of grains of gold as worth a dollar in gold certificates and other items used as currency which were payable in gold, or else the gold certificates and other items payable in gold would have had to be payable in grains or ounces of gold.
What the government did caused no injustice for those who had deposited gold with the United States government, but it may have caused injustice to borrowers of funds because they had to make future payments in gold at the price of gold at the time the payments were due.
Let us consider the two cases: In the first, when a person deposits gold with the government, or anyone else, it was fair for him to ask for and to expect to receive the same amount of gold that he deposited because the gold was his. He was justified in expecting it to be there. The cost of its production and transportation was completed.
In the second case, involving the borrowing of funds, the individual was expected to make payments over a period of years with a certain number of ounces of gold. The gold for those future payments may have to be mined and refined and transported at an unknown cost. The mine may become depleted and the cost for obtaining that number of ounces of gold from someone else for those future payments may become exceedingly high.
In such a case the lender by receiving his payments in [p. 91] ounces of gold instead of in dollars' worth of gold at the market price, may receive much more than his just payment by dint of the unjustly increased payments the borrower may be forced to make.
When the government sets a specific number of grains of gold for each future dollar payment, it may cause an injustice to the payer. If the government does not set a specific number of grains of gold for each future dollar payment, and the currency becomes inflated, it may cause an injustice to the payee.
Clearly, the moral here is: let both buyer and seller beware when they make agreements for future payments!
The items we use as currency serve to make indirect bartering (buying and selling) convenient. Generally speaking, in bartering or buying and selling we are expected to complete the transaction at one time. The currency we use is intended for that purpose. It might be more accurate to say that we should expect our items of currency to serve within the present time framework. There is no currency now available which would serve with certainty five or ten years from now as just payment for a debt incurred today. Governments have declared some currencies to be legal tender. By law, then, long term debts can be legally paid with legal tender, but in some cases such payments may be unjust settlements.
Let us postulate that we are using one-ounce gold coins as our currency and that at 1976 prices a single one ounce gold coin will buy 35 bushels of wheat, or four pairs of men's shoes, or 200 gallons of gasoline. Who can be sure how much of any one of these items that same one-ounce gold coin will buy five or ten years hence? If we cannot be sure that a one-ounce gold coin will buy the same amount of goods or services five or ten years hence, then what other type of currency would? [p. 92]
A bushel of wheat, a barrel of salt, a 1,000-pound steer, a gallon of gasoline, or an hour's labor may not have the same exchange value five, ten, or twenty years from now as it now has. Similarly, a document such as a warehouse receipt, giving evidence of a claim for any of those items also would not have the same exchange value five, ten or twenty years in the future. This shows us the problem we face when we attempt to make a contract for a just future payment.
It is generally said that future payments are to be made in dollars' worth of legal tender. History should have taught us that when government officials take it upon themselves to ignore the Constitution and declare anything they wish to be legal tender, people have no assurance what will be legal tender at some future date. We know the Congress of the United States has changed the laws regarding legal tender on many occasions.
We know that, ultimately, all payments are made with goods or services. Why, then, would it not be wise to make our agreements for future payments to be made in dollars' worth of goods or services?
For example, let us say, a farmer purchases some goods at a general store. The merchant allows the farmer to pay for the goods at a later date with farm produce. When the farmer brings in his produce as payment, the exchange value (the price) of the produce will be determined at its market value at the time the payment is made, not at the market price of the produce at the time the agreement was made.
Although no currency exists which is certain to serve as just payment in the future, a reasonably just arrangement can be made by agreeing to accept future payments in dollars' worth of goods or services, the exchange value of which will be their market value at the time the payment is made.
The only weakness in that idea is the fact that we allow inflationary currency and inflationary bank credit to serve legally as media of exchange.
If tax credit certificates and certificates of credit were issued in good faith, however, and were used as media [p. 93] of exchange, there would be no legal inflationary media of exchange.