How private coinage became illegalEverybody knows what’ll happen if you set up a private mint in your basement, stamp out a few coins and call them “nickels” or “dimes.” They won’t circulate for much longer than you will. Government doesn’t like competition in money — especially if it comes from somebody who makes a better product that keeps its value.
Most Americans today would likely recoil at the suggestion that coinage could or should be issued privately. They’re not aware that private coinage has a rich history in the United States.
The U.S. Constitution expressly forbids the states to print paper money and it grants the Congress the power to issue coinage but nowhere does it prohibit private parties from creating either paper currency or metallic coinage. For seven decades, Americans used gold and silver coin from both public and private mints and paper currency issued by private banks and companies.
Even today, private paper money is not illegal as long as you don’t break a few important rules: Don’t imitate the appearance of government notes (that’s counterfeiting) and don’t demand payment of dollar debts in anything but government dollars. A good example of privately issued paper money is the “Berkshare,” several million of which have circulated in western Massachusetts since 2006. The BerkShares Web site lists more than 400 local businesses that accept them.
The history of how private, metallic coinage came to be illegal is instructive. At the start of the Civil War, President Lincoln and the (Northern) Congress wanted to print paper money to help pay for the war. That didn’t make the conflict any cheaper, it just meant that Northerners paid for it in both higher taxes and higher prices as gushers of unbacked paper money plummeted in value. People spent the paper stuff and hoarded gold and silver as protection from the inflation, resulting in a severe shortage of coin.
It’s tough to do business if you have no cents. So businesses themselves came to the rescue, minting more than 25 million mostly one- and two-cent copper, lead or brass pieces, more than enough to fill the needs of trade in the Northern states. I own a small collection of these so-called “Civil War tokens.” They typically bear the name of a merchant like “Gustavus Lindenmueller,” a patriotic statement like “Stand By the Flag” or a slogan such as “Pro Bono Publico” (For the Public Good).
When Lindenmueller refused to allow a New York railroad to redeem his tokens for the promised goods, Congress responded in 1864 not by allowing the company to sue for redress but by banning private coinage altogether. That served the interests of the government, but it shortchanged American citizens.
Private coinage was banned by Congress not because it didn’t work, but because it did. Governments don’t care much for either competition or sound and honest money. That’s why your dollars ain’t what they used to be.
(Lawrence Reed, a resident of Newnan, is president of the Foundation for Economic Education in Irvington, N. Y., and Atlanta.)