Today we bring you Part IV of “A Brief Monetary History of the United States” from the Ron Paul Monetary Policy Anthology. The full series can be found at the following links:
Legal Tender CasesThe government understood the need to return to specie redemption, but was loath to let go of its issue of greenbacks. After all, greenbacks were an interest-free form of debt that circulated as money and could be used to pay off creditors, thus saving the government from having to use its valuable gold and silver. However, from the very inception of the Legal Tender Act, the constitutionality of legal tender paper currency had been called into question. That question was finally resolved after the decisions handed down in a series of Supreme Court cases known as the Legal Tender Cases.
Today we bring you Part III of “A Brief Monetary History of the United States” from the Ron Paul Monetary Policy Anthology. The full series can be found at the following links:
Coinage Act of 1857
As the 19th century progressed, the federal government sought to enhance its control over the banking industry and the monetary system. In 1857, Congress passed a coinage act which removed the legal tender status that circulating foreign coinage had until then enjoyed. All circulating foreign coins received by the Treasury were to be melted down and recoined. By driving foreign coinage out of circulation, Congress sought to ensure that only U.S. coins circulated, a step towards federal government dominance of the money supply. This was ostensibly to provide a uniform national currency, a stated goal of the federal government since the country’s founding. By “uniform national currency” the federal government did not mean adherence to a dollar defined as a specific weight of metal with coinage circulating by weight and valued in relation to that dollar. Instead, the federal government sought to ensure that only the United States Mint’s coins would circulate in commerce, regardless of what type of coins the market desired.
A further strike against market choice in currency came in 1864, when Congress passed legislation to prohibit private production of coins. The minting of any coins intended for use as current money was made illegal, even if the coins were of completely original design. This prohibition remains in force today, and was most famously used in recent years to prosecute the creators of the Liberty Dollar.
Inflation-racked Argentina is preparing to issue larger-denomination banknotes to alleviate critical shortages of cash in the country. What a difference between the Argentine government and most other Western governments, which seek to crack down on the use of cash.
Central bankers are experts in using monotone intonation and innocuous phrasing to advance controversial positions. But every so often something a central banker says is so egregious that it just jumps out and smacks you in the face. Those types of statements merit a response. Consider a speech delivered last month by Carolyn Wilkins, Senior Deputy Governor of the Bank of Canada. Barely a quarter of the way through her speech, she states that:
The form of money we know best is bank notes. They were issued primarily by commercial banks in Canada and the United States before those countries created central banks in the early 20th century. These privately-issued bank notes ultimately failed to provide what the economy needed and so central banks were given this responsibility.
Now, I realize that this wasn’t an academic address, and the audience probably wasn’t terribly knowledgeable about monetary history, but to gloss over the development of the monetary system in such a manner just blows my mind. The clear implication in Mrs. Wilkin’s speech is that privately-issued banknotes were tried and failed. Not addressing the fact that private note issuance faced insurmountable hurdles placed in their way by government displays either willing disingenuity, or ignorance of economic history.