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A free banking approach to the $1 bill

In the Wall Street Journal, Steve Hanke discusses the idea of eliminating the $1 bill, which has been proposed on the grounds that $1 coins are cheaper and would save the federal government money. He proposes instead that private issuers be allowed to issue $1 bills. People can then decide whether they prefer government $1 coins to private $1 bills. As I showed in a Cato Journal article some years ago, a provision in a reform of U.S. banking law in 1994 made it is legal for U.S. banks to issue notes. It is unclear whether the drafters of the law were aware that they were (re)legalizing private note issue. So far no banks have issued notes. At the Cato Institute's annual monetary conference a couple of years ago when the subject was discussed, my impression was that would-be private issuers of notes want additional assurance. The law lets them issue notes but they are concerned about the possibility of regulatory or other forms of harassment for doing so.

George Selgin has advocated privatizing the production of pennies, which the federal government has also talked about eliminating. Incidentally, from a quick review of the U.S. Code I did not see any explicit provision that minting coins is a government monopoly, though maybe I missed it and a reader can enlighten me. The monopoly has been enforced through the counterfeiting laws, including in the Liberty Dollar case.


  1. How about 18 USC § 486?

    "Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title or imprisoned not more than five years, or both."

    I see no good purpose for this statute.

  2. As far as I know the private minting of gold and silver coins in the United States has been against government regulations since a statute of Congress in the 1850s (aimed at destroying the private mints that dominated the West at that time).

    As for government fiat notes and coins that represent nothing (other than legal tender laws and tax demands) versus private notes and coins that also represent nothing (not gold, not silver – nothing), I think the correct response is indifference.

  3. I linked to that section in the word "the" in my post. What I was looking for was an explicit statement that coinage is a government monopoly, such as exists in the laws of some other countries. There doesn't seem to be one. Other minters could be authorized by law but aren't, so the source of the monopoly is the combined effect of the provision authorizing the government to mint and the counterfeiting law punishing unauthorized minting.

    1. Sorry, since your context was George Selgin's advocating privatizing the production of pennies, I thought you were just looking to see if there is a statute that does prohibit everyone other than the government from minting coins, and not a statute that does both that and authorize the government to mint coins. The authorization for the government is in the Constitution, so there won't be a statute authorizing that, though there likely is one establishing the bureau to do so.

      What's bad about 18 USC § 486 is that, although it is in the counterfeiting section, it is not directed at counterfeiting, but rather prohibits making any coins from any metal to be used as money, whether or not the coins resemble in any way coins of the U.S. or any other government.

  4. I think the stress on "pennies" is wrong – as they were always copper (or other such) coins (of little value).

    The real think to attack is the restriction on the private minting of gold and silver coins.

    After all in no State can anything other than gold or silver coins be legal tender (Article One, Section Ten).

    Indeed giving Congress the power to check "weights and measures" to make sure (among other things) that the "coin money" function does not lead to DEBASEMENT is specifically aimed at stopping the "not worth a Continental" fiat money of the Continental Congress (Article One, Section Eight). Otherwise (for example) the government could pretend that a one ounce gold coin (of a certain degree of purity) was really a two once gold coin (of a certain degree of purity). Thus debasing the coinage and making a nonsense of weights and measures.

    The Federal government (or "private" entities set up by it – such as the Federal Reserve) certainly do not have any Constitutional power to PRINT money – otherwise it is back to "not worth a Continental" exactly what the Constitutional Convention was set up to stop.

    1. I agree that we should not focus only on pennies when discussing lifting the prohibition on minting coins. But we also should not focus only on gold and silver coins. The prohibition on States making anything other than gold or silver coins legal tender is not really relevant. That prohibition does not require any State to make gold or silver coins legal tender, and it's better if the States don't make anything legal tender. Even if one or more or all States were to make gold or silver coins legal tender, that doesn't necessarily lead to any private minting.

      Sadly, a lot of Republicans and quasi-libertarians are trying to get States to make gold and silver coins legal tender – and even worse! Fortunately, they are bungling the job. Utah managed to pass a law that simultaneously proclaims certain gold and silver coins “legal tender” and says that no one has to accept them! What were they thinking? Some Republicans in Georgia tried to pass a law that would force everyone paying taxes or anything else to the State to pay in gold or silver coins, and would force the State to make all its payments to anyone in gold or silver coins, and force all such folks to accept such payment. Of course, they did this in the name of “liberty.”

      Pennies are actually a different case, in that I think "penny" in the U.S. refers to the one cent coins minted by the U.S. government (the word and related words like the German “pfennig” also refer to low-value coins once minted by several other countries). Counterfeiting laws should still apply, so no one should be allowed to mint coins that resemble (enough to appear to be) any coins minted by the U.S. government or by any other minter. It seems that George Selgin's proposal is to allow anyone to mint their own design one-cent coins, not to allow anyone to mint coins that have the same look as the penny.

      1. I agree that there should be no legal tender laws.

        What should be used as money should be a matter of private contracts between buyers and sellers.

        And if a buyer and seller really choose ink in a bank ledger (or light on a banker's computer screen) as money – that is indeed up to them.

        The problem is when a person thinks they are getting a commodity (such as gold) and the person they are dealing with (who is telling them that they will be paid in gold) only really has ink in a ledger or a flashing light on his computer screen.

        The confusion of money and credit is a fundamental one.

        George Selgin (unintentionally) gave a good example of it – when he started to explain how credit expansion produced real money, just as the same process could produce extra cows (the cows were his example – not mine, his).

        There are, of course, no real extra cows by this process – just as there is no real extra money.

        Just people with the (deluded) belief that they have extra cows – or extra money.

        Credit is not money, paper cows are not real cows.

        1. I don't think anyone chooses ink or light as money. The ink and light of which you speak are merely means of expressing a debt (of money) owed. They are not the money used.

          There would be a problem if "a person thinks they are getting a commodity (such as gold) and the person they are dealing with (who is telling them that they will be paid in gold) only really has ink in a ledger or a flashing light on his computer screen." But that rarely, if ever, happens. Maybe it's a problem now and then with an unscrupulous gold dealer. It certainly isn't a problem with our banking system. No one dealing with banks today thinks they will get gold from a bank (well, maybe there are some very confused and/or misinformed folks who think that). No one dealing with banks today thinks that when they bring money to a bank and deposit it, the bank merely holds that money in safekeeping for them, and they are still the owners of that money. Banks rent out safe deposit boxes for folks who want that. Or they could go to a warehouse and pay the warehouse owner to hold the money. Banks are not warehouses and people know that.

          George Selgin didn’t claim that there is more than one cow in his example. His point was that there is only one cow, yet the total debt among folks is two cows. He was not explaining how credit expansion produces real money, and he never said there were extra cows.. The issue was whether there could (or perhaps should) be more total debt than the total amount of money, raised by your saying “total borrowing (of all types) must never be greater than total real savings of physical money.” George Selgin was simply showing how easy and unproblematic it is for total debt to be twice the amount of whatever the debt is for (cow, in his example). It works the same with money or gold or anything. I lend you $1 or 1 oz. gold. You spend the $1 or 1 oz. gold to buy something from Fred. Fred lends the $1 or 1 oz. gold to Bill. There is now a total of $2 or 2 oz. gold in total debt (you and Bill each have a debt of $1 or 1 oz. gold), yet still only the $1 or 1 oz. gold, and no one has done anything wrong to anyone. In fact, total debt can easily be many times the total mount of money, without anyone having done anything wrong to anyone.

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