Does The U.S. Government Have A Monopoly On Issuing Money?

Article 1, Section 8 of the U.S. Constitution grants Congress the power “To coin Money, regulate the Value thereof, and of foreign Coin . . . .”  Article 1, Section 10 states “No State shall . . . make any Thing but gold and silver Coin a Tender in Payment of Debts . . . .”

Taken together, these two provisions authorized the federal government to issue coins (but explicitly not paper money), to set the standards of monetary value, and prohibited states from declaring anything other than gold and silver coins as legal tender.

These constitutional authorizations and restrictions did not grant the U.S. government a monopoly on issuing the nation’s circulating coinage. The states of Connecticut, Massachusetts, and New Jersey issued their own copper coinage in 1788, as did the Vermont Republic (which did not become a formal U.S. state until 1791).

The original U.S. Mint in Philadelphia, among other activities, accepted deposits of gold and silver to process and strike coins to return to those who brought in the metal. 

When gold was discovered in northern Georgia around 1830, jeweler Templeton Reid opened a private coining operation near miners in Milledgeville and then Gainesville in July of that year. With Reid being local, it meant that miners would not have to cease operations for at least two weeks to travel to Philadelphia to convert their ore into spendable coins.  Unfortunately, although Reid’s issues met U.S. government standards for weight, their purity did not. Consequently, Reid halted operations in October 1830, having struck a total of only about 1,600 coins.

Metallurgist Christoper Bechtler, with the assistance of his son August Betchler and nephew Christopher Bechtler, set up a private mint in Rutherford County, North Carolina, operating there and in Georgia from 1831 to 1852. Their coin issues did meet U.S government standards for gold content, where the coins circulated widely in the Southeast, and banks in North Carolina accepted them for deposit up into the early 1900s.

The Bechtlers took away so much business from the Philadelphia Mint that the U.S. government responded by opening branch mints in Charlotte, N.C., Dahlonega, Ga., and New Orleans, La., in the late 1830s. The first two of these mints only struck gold coins.

When gold was discovered in California in 1848, it led to another U.S branch mint being established in San Francisco in 1854.  By that time, several private California operations had begun to strike gold coins, of which some were found to have quality standards that met U.S. government standards, and some did not.

Clark, Gruber & Co. was established in Denver in 1860 to serve miners in that area. Because their coins contained slightly more gold than U.S. government issues of the same denominations, Clark, Gruber & Co. issues became the dominant currency in that part of the country. Clark, Gruber & Co. also issued paper money that was redeemable on demand for their gold coins. During the Civil War, the company’s paper money traded for as much as a 4 percent premium above the Greenbacks issued by the U.S. government. After the private company had struck $3 million in face value of gold coins, the U.S. government purchased Clark, Gruber & Co. in 1863 to turn it into the Denver Mint, which did not begin striking coins until 1906.

Clearly, the U.S. government did not initially claim a monopoly on issuing coins or currency.  Because of the horrible experience with hyperinflation of Continental Currency during the Revolutionary War, the U.S. government did not issue any paper money until the Civil War.  Before the Civil War, some states, cities, and private businesses issued scrip for circulation, some of which were fully backed by gold and silver and some of which were not.

What changed so that the U.S. government asserted a monopoly on issuing coins and currency?

The National Currency Act of 1863 established a national banking system to create a uniform, stable U.S. currency. The measure was adopted primarily to finance the costs of the Civil War by requiring banks to purchase government bonds to back their issued currency, called National Currency. The Act did not prohibit private currency issues but did impose a 2 percent tax on the face value of any such issues. By 1866, the tax rate increased to 10 percent of face value. This economic burden effectively ended the issue of paper money by anyone other than the U.S. government.

The Coinage Act of 1864 declared that any person or persons who “shall make, issue, or pass, or cause to be made, issued, or passed, and coin, card, token, or device whatsoever, in metal or its compounds, intended to pass or be passed as money for a one-cent piece or a two-cent piece, such person or persons shall be deemed guilty of a misdemeanor . . . .”  This has since been expanded to cover all coin denominations.

Ever since, the U.S government has been relatively strict about any other issuers of “U.S. dollars.”  While it has not challenged The Walt Disney Company when that company issued its Disney Dollars, it did aggressively prosecute Bernard von Nothaus for issuing metal Liberty Dollars.

Beginning with Utah in 2011, the states of Arizona, Arkansas, Florida, Indiana, Kansas, Louisiana, Oklahoma, South Carolina, Tennessee, Texas, Utah, West Virginia, and Wyoming have adopted some versions of a law declaring that offering to make payments in gold or silver to be legal tender. These laws make it voluntary to offer payment in such form, but do not require the recipient to accept it. There are nine other states with similar legislation pending.  These laws could once again create the possibility of competing circulating currencies in America.

Last time I asked— Which two signers of the Declaration of Independence had sons who became U.S. presidents? Among the signers of the Declaration of Independence were John Adams, America’s second president and father of John Quincy Adams, who served as the sixth U.S. president, and Benjamin Harrison V, father of William Henry Harrison, who served as the ninth U.S. president.

Here is this week’s question. Why did the Coinage Act of 1834 reduce the gold content in U.S. coins? Come back next week for the answer.

Patrick A. Heller was honored as a 2019 FUN Numismatic Ambassador. He is also the recipient of the American Numismatic Association 2018 Glenn Smedley Memorial Service Award, the 2017 Exemplary Service Award, the 2012 Harry Forman National Dealer of the Year Award, and the 2008 Presidential Award. Over the years, he has also been honored by the Numismatic Literary Guild, Professional Numismatists Guild, National Coin & Bullion Association, and the Michigan State Numismatic Society. He is the communications officer of Liberty Coin Service in Lansing, Michigan, and writes “Liberty’s Outlook,” a quarterly newsletter on rare coins and precious metals subjects. He now volunteers with the National Coin & Bullion Association as its Industry Issues Advisor.  Past newsletter issues can be viewed at www.libertycoinservice.com. Some of his radio commentaries, "Things You ‘Know’ That Just Aren’t So,” and “Important News You Need To Know,” can be heard at 8:45 a.m. Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio archives posted at www.1320wils.com).

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