"Government’s Greatest Con Job"
by Brian Maher
Editor’s note: On certain days we feel compelled to remind you, our reader, of a colossal swindle the United States government has perpetrated upon you. Today is one such day. Here is the evolution of the swindle.
"United States dollar: “A cotton-linen bill or clad copper coin, and monetary unit of the United States, equal to 100 cents.” Thus the dictionary defines the dollar. Yet questions present themselves at once. If one dollar equals 100 cents… what then is a cent? The answer is one-hundredth of one dollar. And what again is one dollar? 100 cents. And so you have an infinite chasing of the tail - one dollar is 100 times one cent. One cent is one-hundredth of one dollar.
Yet it is clarity we seek. We must therefore turn to the Coinage Act of 1792: "The money of account of the United States shall be expressed in dollars or units … of the value [mass or weight] of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure … silver."
That is, the dollar was defined by weight - some 371 grains of pure silver. The Gold Standard Act of 1900 likewise defined the dollar by weight. Here is the central lesson: Defined in silver or defined in gold… the dollar was nonetheless defined by weight. Today the dollar is defined by a philosophical fallacy, an infinite regression. That is, in cents - themselves defined by dollars.
In today’s reckoning, we track the evolution of a mighty swindle… We begin with this $10 banknote, dated 1928:
The 1928 $10 note bears this inscription: “Redeemable in gold on demand at the United States Treasury, or in gold or lawful money at any Federal Reserve Bank.” In those antique days, a fellow could lumber into a bank. He could hand the clerk a slip of paper, a slip of paper illustrated above. He could then demand the denominated amount in gold coin… payable on the nail.
The system imposed a reasonable discipline upon banks. Federal Reserve banks were required to keep a 35% reserve of “gold or lawful money” on hand - lest they make a liar of the United States Treasury secretary - in this case, the Hon. Andrew William Mellon. In effect, the private citizen locked the banking system behind golden bars.
Now jump ahead a bit. One Great Depression, one New Deal and one world war later… we come now to a $10 banknote, dated 1950:
In appearance, it is nearly a perfect twin to the 1928 model - with one infinitely telling exception. Can you sniff it out? Recall, the 1928 note claims it is: “Redeemable in gold on demand at the United States Treasury, or in gold or lawful money at any Federal Reserve Bank.”
But here reads the 1950 version: “This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury, or at any Federal Reserve Bank.” The fine print disguises a vast mischief: Gold redemption was stricken from the record. The bankers had broken free from their golden prison. No longer could a private citizen bring them to honest account.
But what about “lawful money”? What is it? In 1947, a certain gentleman - A.F. Davis by name - dispatched the following note to the United States Treasury, accompanied by a $10 note: "I am sending you herewith via registered mail one $10 Federal Reserve note. On this note is inscribed the following: “This note is legal tender for all debts, public and private, and is redeemable in lawful money at the United States Treasury, or at any Federal Reserve bank. In accordance with this statement, will you send me $10.00 in lawful money?"
The acting treasurer, M.E. Slindee, responded after this fashion:
"Dear Mr. Davis,
Receipt is acknowledged of your letter of Dec. 9 with enclosure of one ten-dollar ($10.) Federal Reserve note. In compliance with your request, two five-dollar United States notes are transmitted herewith."
That is, Mr. Davis received by mail two $5 bills - two $5 bills bearing the identical pledge to redeem in lawful money. But this Davis fellow would not be so easily shooed off. He returned one of these $5 bills, once again demanding lawful money in exchange. Finally, Mr. Slindee threw up the sponge:
"Dear Mr. Davis:
You are advised that the term “lawful money” has not been defined in federal legislation. It first came to use prior to 1933 when some United States currency was not legal tender but could be held by national banking associations as lawful money reserves.
Since the act of May 12, 1933, as amended by the Joint Resolution of June 5, 1933, makes all coins and currency of the United States legal tender and the Joint Resolution of Aug. 27, 1935, provides for the exchange of United States coin or currency for other types of such coin or currency, the term “lawful money” no longer has such special significance.
The $5 United States note received with your letter of Dec. 23 is returned herewith."
In 1963, all promises to redeem notes in lawful money were stricken from United States currency. Here, in graphic detail, is the devolution of American money:
Below, Jeffrey Tucker shows you how the United States government is perpetuating the swindle. He claims it is a “story of corruption and decay.” Read on."
"The Great Coin Shortage"
by Jeffrey Tucker
"You have surely seen the signs. They are all over the country. “Please use exact change. We have a coin shortage. Thank you.” Somehow it just seems inevitable. Coin shortages have long afflicted economies in crisis or otherwise experiencing the throws of some government screw up.
In the 18th century, this was a common problem in Britain. Coins were the only money around. The Crown minted only large denominations suitable for lords and merchants. But the workers needed to be paid too! What happened? Private enterprise got involved. As George Selgin has thoroughly documented, button factories got to work to retool their manufacturing to make private money in a variety of forms, if only to serve the cause of local enterprise. And it worked. The results were beautiful and effective. Eventually, of course, government cracked down and re-nationalized coinage again. Nothing new under the sun!
What’s with our own coin shortage? What if anything can be done?
Reason One: The Lockdowns. The Fed explains this well actually: "There is currently an adequate overall amount of coins in the economy. But business and bank closures associated with the COVID-19 pandemic significantly disrupted normal circulation patterns for U.S. coins. This slowed pace of circulation reduced available inventories in some areas of the country during 2020.
The Federal Reserve continues to work with the U.S. Mint and others in the industry to keep coins circulating. As a first step, a temporary cap was imposed in June 2020 on the orders depository institutions place for coins with the Federal Reserve to ensure that the supply was fairly distributed. Because coin circulation patterns have not fully returned to pre-pandemic levels, caps were reinstated in May 2021…. Since mid-June of 2020, the U.S. Mint has been operating at full production capacity. In 2020, the Mint produced 14.8 billion coins, a 24 percent increase from the 11.9 billion coins produced in 2019."
Now, this is true but typical of a government press statement. It wildly understates the issue. For many months huge swaths of economic activity came to a grinding halt! Also absurdly, people came to believe (thanks to the goofy CDC) that coins had Covid on them and so people did not want to use them or take them. True story. That began the habit of inadvertent coin collecting.
Reason Two: Hoarding: Once people came to believe their coins had Covid and they weren’t allowed to go anywhere anyway, the long habit of tossing coins into a can grew and became universal. The stores that were open dispensed coins but then coins did not circulate. They ended up in people’s drawers, never to be touched again.
There is another factor here too. We’ve seen many ways in which the collapse in the velocity of money has affected the demand for cash. It affected the demand for coinage too. In a scary crisis like the one that began two years ago, people start doing strange things, some rational and some completely irrational. The irrational in this case was stocking up on coinage for fear of the future. Spending in general crashed especially for those people who don’t have bank accounts and credit cards (22% of the public). There is some strange psychological benefit that derives from looking at a big jar full of coins in the midst of high uncertainty.
Reason Three: Demonetization: In the sequence of events, this low circulation of coins was compounded by rising inflation. Coins are often regarded as little more than an annoyance. People throw pennies in the trash, and nickels are barely noticed. Only quarters get much attention and that’s mostly for laundry machines and car washes.
It’s such a sign of our times. We used to have “Dime Stores” and say “penny for your thoughts.” But in the age of inflation, coins are very nearly demonetized. The wild inflation of the last 12 months, growing by the day, has accelerated this trend.
Reason Four: Money Shortage: It’s truly one of the strangest features of inflationary times is that there is a tendency toward a money shortage. It was certainly true in Weimar Germany. No matter how much money the government prints, people still complain that there is not enough to pay people and give change. We are nowhere near that point yet and may never be. But the coin shortage today is a symptom of this larger problem.
Today, industries that serve retail customers are begging the Treasury to circulate more coins. The banks are doing the same. But right now, they are operating at full capacity. So there’s no chance of that. Regardless, this is hardly a crisis of epic proportions but it is a telling sign of our times. It reveals the discoordination, the confusion, the imbalances, and the losses of our times. Every bit of it traces to government malfunction and terrible policy decisions.
Corruption and Decay: It is also symbolic of something else. The destruction and near-demonetization of coinage is a story of corruption and decay. You can see it in the course of the 20th century, during which time coins went from having intrinsic value to the point where they are made of the cheapest-possible metal. A dealer I know called them “baloney sandwich coins” but that was before the price of baloney also soared up so high. Now such a thing would be far more valuable than present-day coins.
The nickel today is made only of 25% nickel, and the rest is copper. Now have a look at the price of nickel, which is actually massively important in producing the batteries for the electric vehicles that government says is our future. There is just no escaping economics and the laws that govern it! Government officials can preen and pronounce but the laws of supply and demand ignore every press release.
It costs the US Treasury fully 8.5 cents to make 5 cents today! Maybe you know the feeling based on the value of your salary last year compared with this. It’s likely that the composition of the coin will change. To what? Find anything not soaring in price and there’s your candidate. So we can see here that there might be a point to saving your nickels after all.
Final note: did you see that the city of Los Angeles has fined a grocery store $160K for selling eggs in 2020 at “illegal prices”? The anti-gouging law requires that stores cannot raise prices above 10% unless justified by costs or production. So the authorities snagged some small store and have now rendered a judgment."
"Feels like Soviet times."