The mystique of "payment in gold"

[CaptHenway]

Here is a non-numismatic story from my home town about a cruise ship built for use on the Detroit River.

 

http://historicdetroit.org/building/britannia/

 

Notice the part where it says that the person who won the contest to name the ship would receive a prize of "$10 in gold." If the lucky winner took that gold eagle out and spent it he or she got the exact same value as a $10 bill, but receiving the $10 gold was apparently considered special at the time.

 

TD

[RWB]

Fun story -- Gold coins were not part of daily circulation in 1905, so having one as a prize was special. A good parallel was the use of a Silver Dollar" as a prize for a promotion, or on the TV show where the winner got to shovel silver dollars for 30 seconds. The coins were rarely seen in circulation and thus perceived as "special."

 

 

 

 

[BillJones]

At the time this award was given $10 in gold and a ten dollar bill were of equal value, but that was not the case for most of the 19th century. Before the Civil War virtually 100% of the paper money that was in circulation was issued by private banks. That money was only as good as the bank that issued it, and it almost always did not trade at 100% of its face value in gold.

 

During the Civil War virtually all of the hard money (gold and silver) was driven out of circulation and even the cents were hoarded. After the war it took 20 years to get the Federally issued paper money and gold back to where they were fully interchangeable. U.S. Grant bragged that he achieved that at the end of his second term as president.

 

Things went pretty well with paper and gold in the 1880s and early '90s, but then the Sherman Silver Purchase Act helped to start another crisis. There was a run on the U.S. Treasury's gold holdings, and the worry of the day was that the Government's stock of gold would dip below the $100 million level. There was also The Panic 1893 which was a very nasty, though not overly long economic depression.

 

Attitudes can die hard, and given the history before this gold prize was awarded, people had a reason to prefer gold over paper. Before the Gold Surrender Order of 1933, it was perfectly acceptable to include a "payable in gold" clause in contracts.

 

People and collectors today might think that old Aaron White was eccentric, but back in 1857, he knew what he was talking about. For his time, he made a good point with this piece. If you wanted to make you personal finances look like a dead hog on hook, take a bunch of paper dollars indiscriminately. Unwise acceptance of paper money was the road to personal disaster. They didn't call them "broken bank notes" for nothing.

 

[RWB]

To elaborate on Bill's comment: "During the Civil War virtually all of the hard money (gold and silver) was driven out of circulation and even the cents were hoarded."

 

The situation was such that at the Philadelphia Mint, the Annual Assay gold coins from San Francisco were sold to currency brokers for greenbacks. The currency was then used to buy supplies for the California mint. This increased the buying power of the Assay gold and benefited the Mint. (Documents are in NARA archives.)

[DWLange]

Though easily obtainable at face value after 1878, gold coins still didn't circulate in general commerce in most of the nation. Knowing that they could exchange their paper money for gold at any time, people chose to use paper. Only in the Far West, where paper money was always shunned, did gold coins appear in actual circulation. Even this ended after 1916, when gold coinage was suspended. Westerners got used to paper money, and gold coins circulated very little in the years leading up to their discontinuance.

[CaptHenway]

Human nature is funny. If people were forced to carry around $10 coins rather than paper they would have complained about the weight, but for a one-off prize the gold was PREFERABLE to paper!

 

I have told the story on here before about how my grandmother remembered one year getting a $2-1/2 gold piece in her pay envelope instead of the usual two one dollars (don't know if she normally got paper or coin) and either a half dollar or two quarters. This happened around 1908-1915 and she told me the story around 1970 when she found out I collected coins. There was no extra money involved, just an unusual form of payment at Christmas.

[RWB]

In 1917 the Treasury redeemed worn gold coins at full value on the West coast. The purpose was to rid the regional economy of poor quality coin, and to encourage circulation of paper currency - mostly FR notes. After the war, western demand for gold never returned to previous levels.

[BillJones]

People have been shown to prefer paper currency if they know that the paper is good. Today people have repeatedly rejected the various one dollar coins that the government has tried to circulate because a pocket full of them is heavier than wade of one dollar bills.

[brg5658]

People have been shown to prefer paper currency if they know that the paper is good. Today people have repeatedly rejected the various one dollar coins that the government has tried to circulate because a pocket full of them is heavier than wade of one dollar bills.

 

Unless you're going to a strip club, what use is a "wad of one dollar bills"?

 

People complain because they like to complain. At most, you'd have to carry four $1 coins before being able to just have a paper $5 bill instead. Given that fewer and fewer people carry any cash or coin at all, this is even more evidence that people just like to complain about perceived issues, like the weight of 4 dollar coins in their pocket.

 

[Conder101]

People have been shown to prefer paper currency if they know that the paper is good.

That is why I suspect that the period from 1840 to 1851 may be the only time in US History when the silver dollar may have enjoyed accepted circulation. During that period paper money was bad, but silver dollars were good. If at all possible you would want to spend your paper and get change back in silver. (Of course with the purchasing power of the dollar most people may rarely have ever had any larger notes to use that would get them back silver dollars in change.)

[RWB]

Even back then, the preference was for small state bank $1 and $3 bills. Mint officers knew this and only made silver dollars in response to depositor's demands (other than the two large mintages intended for foreign trade markets). By 1853, the double eagle was considered useless in domestic circulation, also.

 

Philadelphia

July 30, 1853

 

“…so far as gold is concerned, the coin should be of the smaller denominations. The double eagle may be considered as practically useless for the purposes of such a circulation as I refer to. It rarely passes beyond banks or sub-treasuries, or if it does so, it is returned forthwith.”

 

James Ross Snowden

Director

 

AND ---

 

Philadelphia

November 11, 1854

 

The superintendent of the Assay Office informs me that it will be convenient for that office to be supplied with say $10,000 in silver dollars to pay certain depositors of silver who have asked [for their] returns in that coin. I have endeavored as much as possible to avoid the striking of this coin, as it is no longer one of circulation; but as depositors, under the existing laws, have a right to ask for it, I have to request that you will cause a transfer draft to be issued in favor of the Treasurer of the Assay Office on the Treasurer of the Mint….

 

James Ross Snowden

Director

 

[Conder101]

I don't understand why people would want paper money of questionable value that they would most likely receive less than face value when they spend it rather than silver dollars of known solid value.

 

As for the second letter, I limited my time period to 1851 because by then the metal value in the dollar coin was beginning to exceed the face value. By the time of the 1854 letter they wouldn't be a coin of circulation. What is surprising is that depositors would ask for them. They would get back fewer dollars than the silver they deposited was worth. (Deposit $104 worth of silver and get 100 silver dollars in return.)

[Nutmeg Coin]

For every piece of paper money printed was there not hard money in the vaults to cover it until 1934 or thereafter?

[RWB]

Much of the paper issued by state banks was in small denominations - $1, $2, $3, $5. Equivalent coins were small and readily available only in large cities, west coast and the northeast states. Congress wanted to eliminate these "small change" banknotes, hence the addition of $1 gold - a very small and inconvenient coin - and the $3 gold.

 

Further, all the states regulated their banks and currency backing - just not very well in the long run.

 

Near the issuing bank, paper currency usually was at par. But as the same currency circulated in more distant locations, it's value decreased - usually in proportion to the difficulty in determining if the bank was reliable. A St. Louis $3 bill might exchange at $3 in that city, but only $2.00 in New Orleans.

[Conder101]

For every piece of paper money printed was there not hard money in the vaults to cover it until 1934 or thereafter?

No. When the government first started printing paper money, the Demand notes of 1861, the legal tender notes of 1862, and the compound interest notes of 1863, these were all unbacked paper. Silver certificates that actually had silver in the vaults to back them didn't start until 1878. Gold certificates backed by gold started in 1863, but were only for use by banks. Gold certificates for the peoples use were not issued until 1882.

 

Then there were the National Bank Notes starting in 1863. They were backed by government bonds, not precious metal

 

The early Federal reserve notes were not backed with gold, until after 1917. Even that was by gold certificates or gold certificate credits(whatever they are)., And they only had fractional backing of 25 cents per dollar. That was removed in 1968.

 

United States Notes (red seals) began in 1928 and were backed by government securities, not gold or silver.

 

So a very large portion of our paper money before 1934 was NOT backed by gold or silver. The Civil War was funded through unbacked paper money to the tune of hundred of hundreds if not billions of dollars. (On both sides)

[BillJones]

For every piece of paper money printed was there not hard money in the vaults to cover it until 1934 or thereafter?

 

No those precious metal reserves were only a fraction of what was in circulation. It's like you local bank they having enough money to honor your checking account according to their estimates a calculations. But if everybody came after them to close their accounts, there would not be enough money on hand to cover it. Their productive assets are in the form of loans and securities.

 

Today, of course, the Federal Reserve is there to cover banks in the event of a run, at least to a point.

[CSdot]

Even in Gone With the Wind the writer demonstrated the value of gold coin. There is a scene where the confederates are holding a ball to raise money for the cause. The leader takes bids for the first dance, and after a number of smaller bids $25, etc, Rhett chimes in with his bid of $150 gold to dance with Mrs. Charles Hamilton (Scarlett). There is some consternation, seeing as how she is a recent widow, but she accepts happily, for the cause of course.

[BillJones]

Even in Gone With the Wind the writer demonstrated the value of gold coin. There is a scene where the confederates are holding a ball to raise money for the cause. The leader takes bids for the first dance, and after a number of smaller bids $25, etc, Rhett chimes in with his bid of $150 gold to dance with Mrs. Charles Hamilton (Scarlett). There is some consternation, seeing as how she is a recent widow, but she accepts happily, for the cause of course.

 

I think that it might have been $200. I've been playing a game to see when I could get to $200 with the post August 1834 to 1861 dated gold coins in my collection. To date I'm up to $179. I could have done that long ago if I would have bought some worn pre-1862 double eagles, but I keep buying southern mint type coins and gold dollars.

 

I don't think that she "took one for the cause" when she accepted the dance with Rhett Butler. I think that she was bored with being a young widow who couldn't enjoy the social events. In the previous scene she was shown dancing under the table to the music. I also think that she was starting to "get the hots" for Rhett, although she wasn't willing to admit it.

 

So far the value of gold relative to the Confederate paper dollars goes, things weren't too bad in that regard at the time of the dance, which was just after the First Battle of Bull Run. (Dr. Mead announced the victory at the dance.) After that the value of Union and Confederate paper dollars began to go down fairly rapidly.

[CaptHenway]

$150 sounds right, and he did emphasize "in gold!"

[CSdot]

Rene Picard: Twenty dollars. Twenty dollars for Miss Maybelle Merriwether.

Tony Fontaine: Twenty five dollars for Miss Fanny Elsing.

Dr. Meade: Only twenty five dollars to give?

Rhett Butler: One hundred and fifty dollars in gold.

Dr. Meade: For what lady, sir?

Rhett Butler: For Mrs. Charles Hamilton.

Dr. Meade: For whom, sir?

Rhett Butler: Mrs. Charles Hamilton.

Dr. Meade: Mrs. Hamilton is in mourning, Captain Butler. But I'm sure any of our Atlanta belles would be proud to...

Rhett Butler: Dr. Meade, I said Mrs. Charles Hamilton.

Dr. Meade: She will not consider it, sir.

Scarlett: Oh, yes, I will.

[Aunty Pittypat faints]

Rhett Butler: [after the dance starts] Well, we've sort of shocked the Confederacy, Scarlett.

 

And yes I know she really wanted to dance with him.

[BillJones]

Rhett Butler: One hundred and fifty dollars in gold.

 

Oh good I can jump into my fiction - time machine and try to out bid Rhett Butler!!!

[CSdot]

Rhett Butler: One hundred and fifty dollars in gold.

 

Oh good I can jump into my fiction - time machine and try to out bid Rhett Butler!!!

 

Would love to see the gold collection. Have you already created a thread with the pics, or is a thread with the photos a future possibility?

 

?

[BillJones]

Check out my NGC registry collections. You can see it all.

[dcarr]

For every piece of paper money printed was there not hard money in the vaults to cover it until 1934 or thereafter?

 

No those precious metal reserves were only a fraction of what was in circulation. It's like you local bank they having enough money to honor your checking account according to their estimates a calculations. But if everybody came after them to close their accounts, there would not be enough money on hand to cover it. Their productive assets are in the form of loans and securities.

 

Today, of course, the Federal Reserve is there to cover banks in the event of a run, at least to a point.

 

 

In a nationally-broadcast fireside chat on 07 May 1933, FDR stated:

 

"Behind government currency we have, in addition to the promise to pay, a reserve of gold and a small reserve of silver, neither of them anything like the total amount of the currency".

 

FDR’s 1933 Gold Confiscation was a Bailout of the Federal Reserve Bank