Bank Notes, and Private Issues

Over the past few years, I am sure you have heard the term Bit coin, as a new way to conduct transaction on a global scale. Bitcoin allows you pay for your purchases without “governmental issued currency” and at today’s writing, 1 Bitcoin is worth $337.72 in U.S. Dollars. Associated with Bitcoin is the news this is a new way to “hide” drug money, money from illegal arms sales, to monies for human trafficking. Every governmental agency above third world status has tried to crush this form of payment and has met with opposition at every turn.

Who is allowed to issue money in the United States? The founding fathers made it clear that the power to create money would not be taken lightly. Their experiences with money and inflation during the Revolutionary War made them wary of paper money and conscious of the power wielded by those authorized to create it. They gave Congress the right to issue money and forbade the states from doing so. But the federal government isn't the only entity that has, in practice, issued money. Private Citizens and private companies have, too.

Picture from Old Currency . Com

In the 1800's, for example, much of the country’s paper currency consisted of notes issued by private banks. Nowadays, commercial banks don’t print their own notes, but they create money just the same—in the form of checking accounts. People and companies other than banks have also occasionally seen the need to create their own forms of money.

Private money—money issued by individuals or companies—can be seen as an innovation that arises to fill a void left by the federally provided money of the day. Studying various examples of private money that have arisen throughout U.S. history has taught economists much about the qualities money must have to be useful. In this Commentary, we describe some of the needs private money has arisen to fill and some of the problems people have encountered when making or using private money. We consider the lessons our experiences with private money imply for our money today and in the future. (Champ, 2007)

Merchant Token Picture

Now, if you step back and think about Private Issue Money, you can look at our previous post on Civil War Tokens, move to Merchant Tokens, Bus Tokens, Tax Tokens and the list goes into the thousands, part of which makes collecting fun.

CWT Society Picture

Old Time Passages Photo

In the 1800's the Treasury issued coins and occasionally a limited number of notes, but paper currency was also issued by state and national banks. Banks were prohibited from making small denominations by their regulating authority (the state legislature or the U.S. Congress), which made their notes hard to use for many purchases.

State banks originally could only issue notes in denominations of $1 or more. New York and Pennsylvania were the first of many states to increase the restriction to $5 or more. National bank notes could be issued only in denominations of $1 or more from 1863 to 1879, and after 1879, only in denominations $5 or more. By 1882, all smaller-denomination national bank notes had been taken out of circulation.

At the time, a denomination as little as $1 represented a large amount of money. In the 1830s, a newspaper cost a penny. In the 1880s, a laborer typically earned $5 per week. In 1890, a family paid about six cents for a pound of bacon. Trying to buy everyday items was awkward with state and national bank notes. (Champ, 2007)

In the last quarter of the nineteenth century, mining and lumber companies flourished. Often these companies were located in remote regions far from banks. The remote locations of these enterprises encouraged them to issue their own money, commonly called scrip. Scrip is often a localized currency, redeemable in the goods or services of the issuer. In the case of mining and lumber companies, scrip was typically redeemable in goods sold at the company store. Originally, scrip took the form of paper, but eventually durable metal tokens became widely used. If your looking for the most noted source for this type of private issue currency get in touch with Fred Holabird for an overwhelming education. Just click on his name for his site.

Courtesy Fred Holabird

By issuing scrip, mining and lumber companies could economize on their use of national bank notes, Treasury certificates, and coins—the forms of money accepted outside the local area at that time. Since scrip could be used only at the company store, workers often sold scrip at a discount for money that could be used for purchases elsewhere. Scrip was issued extensively. According to Dodrill (1971), 20,000 coal company stores in the United States, Canada, and Mexico issued scrip during the early 1900s. Examples of scrip from this era now in private collections number into the thousands.

Although the use of scrip was criticized at the time, the courts typically ruled that coal and lumber companies were not violating the 1862 and 1864 acts by issuing it, since it was not intended to circulate as money.

In this article I quoted Bruce Champ from the Federal Reserve Bank of Cleveland from a Commentary written in 2007. In the article he discussed the up and coming rise of electronic funds and other forms of currency. Seven years later it seems his thoughts have come true. Old currency and Bank Notes, tokens are ways to stay in touch with our past, as we advance into the future; I personally like the past for the flavors of currency issued for everything, I even miss the old slot machine tokens and the rumble they made when you cashed out.

Have Fun....

CJC

Reference:

Champ, Bruce (2007) "Private Money in our Past, Present and Future" Federal Reserve Bank of Cleveland - Economic Commentary; Retrieved from URL: http://www.clevelandfed.org/research/commentary/2007/010107.cfm