On the subject of legal tender status.

[Afterword]

If a legal tender note or coin is authorized by the stroke of a pen, can that authorization be expunged by another stroke of a pen? Say, before the actual distribution of the hypothetical note or coin?

[DaveG]

Of course - "The Government giveth and the Government can taketh away".

 

That essentially happened to the 1964-D Peace dollars - they were authorized and produced and then the Government changed its mind and the coins were ordered destroyed.

 

It's also common, among other countries, to demonetize old currency after it has been withdrawn from circulation.

 

That is not something that has happened here in the US, but it probably could.

[Afterword]

"That essentially happened to the 1964-D Peace dollars - they were authorized and produced and then the Government changed its mind and the coins were ordered destroyed."

 

If one of these coins somehow survived, would it be legal tender?

 

[DaveG]

I imagine that its treatment would be similar to that of the 1933 Double Eagle, so I would say "No."

[CaptHenway]

Of course - "The Government giveth and the Government can taketh away".

 

That essentially happened to the 1964-D Peace dollars - they were authorized and produced and then the Government changed its mind and the coins were ordered destroyed.

 

It's also common, among other countries, to demonetize old currency after it has been withdrawn from circulation.

 

That is not something that has happened here in the US, but it probably could.

 

Well, the gummint did demonetize the Trade Dollar, but it's Legal Tender status has been restored.

[DaveG]

I'm no expert on the Trade Dollar, but considering it wasn't intended to be American money when it was created, when and under what circumstances was it monetized (i.e., given Legal Tender status) originally?

 

I recall reading that in the 1870s or 1880s or so, some employers would sometimes pay their employees in Trade Dollars as a means to cheat them.

 

(The employers would pay out the Trade Dollars as if they were worth a dollar, but since they weren't legal tender, merchants would only accept them at their silver bullion value, which happened to be less than a dollar at the time.)

[coinman_23885]

 

I recall reading that in the 1870s or 1880s or so, some employers would sometimes pay their employees in Trade Dollars as a means to cheat them.

 

I thought trade dollars had a higher precious metal content than contemporaneous Morgan and Seated Dollars. How would that be cheating them?

 

Edited: Oops, I see the other paragraph now.

[BillJones]

I'm no expert on the Trade Dollar, but considering it wasn't intended to be American money when it was created, when and under what circumstances was it monetized (i.e., given Legal Tender status) originally?

 

 

When Congress passed the law that created the Trade Dollar, it was not intended to be used in the United States, but it was given legal tender status up to $5, I believe. This was probably done as a matter of convenience. This same thing exists for cents, which are legal tender up to 50 cents. The trouble was it led to abuse.

 

When Trade Dollars started to appear in circulation, especially on the west coast, they represented a threat to U.S. monetary system. In those days you could take silver a U.S. mint and have it converted into Trade Dollars, which were then supposed to be shipped to Asia. Using hypothetical numbers if the silver in a Trade Dollar was worth 50 cents and you could spend it for in the United States as a dollar it posed a threat to the value of the dollar. People would continue to put Trade Dollars into domestic circulation until the value of the U.S. dollar fell to the value of silver via a massive increase in the money supply and the resulting price inflation for goods and services. This was the doomsday result if the "free silver" people had gotten their way and had been able to have silver turned into money in unrestricted amounts.

 

This is why the Trade Dollar was de-monetized within the United States. The trouble was to most people, especially new immigrants, the coin looked like a nice big piece of silver that had real worth. It did, but only up to its melt value after it was de-monetized. Therefore you had the cycle of where employers paid their workers with Trade Dollars who later found out that they were worth only a percentage of a dollar. After they were spent the employers bought them at a discount paid their employees with them, and the cycle started again.

 

I thought trade dollars had a higher precious metal content than contemporaneous Morgan and Seated Dollars. How would that be cheating them?

 

 

The Trade Dollar did have a little more silver it than the standard Morgan Dollar, but the western silver mines were pumping out silver faster than the economy could absorb it. As a result the low price of silver left the Trade Dollar with an intrinsic value that was far less than a dollar. Therefore without legal tender status the Trade Dollar was not worth a dollar.

 

In the 1896 and 1900 presidential race "comparative" Bryon dollars like this were issued to show how large a silver dollar needed to be to be worth a dollar. This piece was made of coin silver (90% silver, 10% copper), and it illustrated the "Trade Dollar problem" that had existed 20 years before that.

 

[DaveG]

Bill,

 

I really love that Bryan Dollar!

 

From a theoretical economics viewpoint (never my strong suit), I'm not sure how much of an impact spending Trade Dollars would have had on the money supply.

 

I think that the losers would have been the working men, who were obliged to accept the Trade Dollar at the value of a dollar by their employers, but who could only spend them at their bullion value, as I believe that merchants and banks would have refused to accept them at "face" value.

 

(Carothers discusses such refusals by merchants and banks of the flood of subsidiary silver coins when they returned to the US in the 1870s.)

 

I think the economic impact would have been to reduce the cost of Labor (paid in Trade dollars), but not to increase the money supply as much (as the value of the Trade Dollar dropped significantly once it was passed on to Labor).

[BillJones]

From a theoretical economics viewpoint (never my strong suit), I'm not sure how much of an impact spending Trade Dollars would have had on the money supply.

 

If the amount of silver converted into Trade Dollars that were placed in circulation in the U.S. had not been stemmed, it could have caused a lot of trouble. Think of it this way. Let's say you have a paper and ink factory that could produce an almost unlimited amount of product, and let's say you could those materials to the Treasury have require it to convert that paper and ink into paper money. You would take advantage of that to the max. In the mean time up goes the money supply faster than economic growth, up goes inflation and down goes the value of the dollar.

[RWB]

The Congressional debates relating to the Trade Dollar indicate that it was thought of as a bullion piece to facilitate trade with Asia. The legal tender limit of $5 was added so that it would be protected from counterfeiting. (Counterfeits would have destroyed credibility of the new coin with oriental money changes, and caused considerable problems for US merchants.)

 

BTW - there is no "single stroke of a pen" arrangement in making or revoking legal tender status. There were many organizations and people involved in making the decisions.

 

For a 19th century/early 20th century coin to be legal money, it had to be accepted by the Coiner as meeting legal descriptions, and it had to be delivered and accepted by the Mint superintendent. In practice, it was the Coiner's decision and he could and sometimes did change his mind. (That is not the same as being a legal tender.)

 

[BillJones]

I really love that Bryan Dollar!

 

That one was issued in 1900 when the "free silver" issue didn't work very well for Bryan because the economy had recovered for most people. As a result, not many of those 1900 pieces were issued and some of them were melted.

 

Estimates are only about 20 of those pieces exist today. The die variety is Schornstein 10

 

Here is a much more common one from 1896. A previous owner had his name engraved on it, which does not seem to a huge negative for these piece. This one is a Schornstein 6.

 

 

And here is another from the 1900 campaign which made the same point, but it is the same size as a Morgan dollar. It is said to be "common," but I've not see a lot of them. This one is Schornstein 12.

 

 

There pieces are also listed in the So-Called Dollars book.

 

And here is a button from the 1896 campaign where the issuer gave Bryan an IQ test, sort of like "Alfred E. Newman."

 

[coinman_23885]

 

 

This is very neat; I have never seen one of these. Thanks for sharing it with us.

[RWB]

The Bryan tokens also illustrate a fundamental problem. A "standard" such as silver cannot change in relative value from day to day. If dollar coins were struck under those conditions, their dimensions would change daily as would their commercial value.

 

World governments and central banks had plenty of problems holding a narrow range for the price of gold. Imagine the difficulty if they also had to keep a fixed commercial ratio between gold and silver?

 

[coinman_23885]

This is why the Trade Dollar was de-monetized within the United States. The trouble was to most people, especially new immigrants, the coin looked like a nice big piece of silver that had real worth. It did, but only up to its melt value after it was de-monetized...

 

The Trade Dollar did have a little more silver it than the standard Morgan Dollar, but the western silver mines were pumping out silver faster than the economy could absorb it. As a result the low price of silver left the Trade Dollar with an intrinsic value that was far less than a dollar. Therefore without legal tender status the Trade Dollar was not worth a dollar.

 

So here is the $64 question:

 

Could the Chinese have over struck the Trade Dollar "virgin planchets," which were initially "monetized" as legal tender, with the Morgan Dollar design and circulate them legally?

 

( I'm clearly being facetious in jest).

 

 

[DaveG]

Bill,

 

Of all the Bryan Dollar designs, the Wagon Wheel is my favorite!

 

As far as increasing the money supply goes, I would agree with your point more if the Trade Dollar retained its "full" value. For example, the employer pays the employee dollar-for-dollar and then the employee is able to spend the Trade Dollar dollar-for-dollar. This would have a big impact on the money supply.

 

However, in the case of the Trade Dollar, the inability of the employee to spend the Trade Dollar dollar-for-dollar significantly reduces the impact on the money supply that there otherwise would have been.

 

No matter what material one uses for currency (even ink and paper as in your example - and our current reality), it's the ability of the recipient to spend the currency for "full" value that makes for the full impact on the money supply.

 

It's a bit like a magician's trick: I show you a dollar, I give you a dollar; however, you then look in your hand and only see a half-dollar.

[BillJones]

The Bryan tokens also illustrate a fundamental problem. A "standard" such as silver cannot change in relative value from day to day. If dollar coins were struck under those conditions, their dimensions would change daily as would their commercial value.

 

World governments and central banks had plenty of problems holding a narrow range for the price of gold. Imagine the difficulty if they also had to keep a fixed commercial ratio between gold and silver?

 

This is why the bi-metallic system failed in The United States as well as in England. There is no "magic ratio" between silver and gold like 16 to 1. It moves constantly and as a result usually either gold or silver coins were being hoarded, exported or melted. The two could not circulate side by side based upon their intrinsic value because their intrinsic values were constantly moving targets.

[Afterword]

"BTW - there is no "single stroke of a pen" arrangement in making or revoking legal tender status. There were many organizations and people involved in making the decisions."

 

 

 

 

So there is no one person or body (like congress, etc.) that makes the final decision? All parties involved must concur?

 

 

[CaptHenway]

Some nice Bryan pieces there!

[RWB]

One or more people might sign the final document, but it is not like an executive order where only the President makes the decision. If you look at the 1887 Harvard Law Review document you will see how complicated the process was.

[Afterword]

"One or more people might sign the final document, but it is not like an executive order where only the President makes the decision. If you look at the 1887 Harvard Law Review document you will see how complicated the process was."

 

 

 

 

Yes, I read the review when it was posted. It is quite the tangled affair.

 

I presume it will be even more involved in the advent of currency and coinage cessation. However, I suspect that coinage will likely fall beneath the political axe well in advance of currency, so it should not be as challenging as it would be otherwise - but challenging just the same.

 

[Conder101]

I'm not sure how much of an impact spending Trade Dollars would have had on the money supply.

There was also the problem that as the price of silver fell all the trade dollars that had been shipped out of the country were now worth more as money here than they were as "bullion" overseas and they were now starting to be shipped back to the US. Dropping the legal tender status was a move to help keep them from coming back home.

 

But if the repeal of the legal tender status was accomplished by legislation, it doesn't become law and active until the President's "stroke of the pen".

[BillJones]

But if the repeal of the legal tender status was accomplished by legislation, it doesn't become law and active until the President's "stroke of the pen".

 

Or Congress overrides a presidential veto with a two-thirds majority in both houses which happens once in a blue moon.

[KPARKE]

I was told that in Thailand or Laos, I do not remember which. Have people that lend money to other people and buy as much as they can just before the government declares the mandatory exchange. In that way, They lend you 100 Dollars, and the government says that for every 100 you get back 50. Now you owe that person you borrowed from twice the amount of money than you did before. These people have inside information as to when it is going to happen. Just makes you sick. Greed is every where. I have read that our government is toying with the Idea of digital currency.

Hold on to your hats! I am not sure that it can be pulled off, but never say never.

[Conder101]

Have people that lend money to other people and buy as much as they can just before the government declares the mandatory exchange. In that way, They lend you 100 Dollars, and the government says that for every 100 you get back 50. Now you owe that person you borrowed from twice the amount of money than you did before. These people have inside information as to when it is going to happen.

Commonly when a government makes such a currency revaluation they also include a clause that makes the new exchange rate applicable to existing contracts both public and private. In that case the 50 in new money would satisfy the original 100 loan obligation. (Of course trying to convince a loan shark of this would be useless, but for banks and other legal loan sources it would apply.)