This is Part Twenty Two of a series showing how inflation, deflation, barter, tariffs, taxes, war, counterfeiting, history, banking, ‘free’ trade, famine, auctions, competition, religion, and education are combined into one great whole. Postage stamps reveal ready comparison of inflation over decades of time.
United States 1000 dollar legal tender note, ‘’This note is legal tender for all Debts public and private except duties on imports and interest on the public debt, and is receivable in payment of all Loans Made to the United States.’’ March 10, 1863. Civil War money.
Part Twenty Two. Why study silver certificates, bitcoins, bank certificates, business collapse, state rescues, scarcity of money, alternative money, auction and stock certificates, and competition?
In previous parts, the concepts of how barter is the slowest form of economic activity. Barter results from a lack of confidence in means of preserving value, which we call money. Silver was used in the time of Abraham, if not before, or 2 millennia before Christ. There have been certain items used for money, called specie in the past centuries. Specie was gold and silver in the west. The Romans included copper and brass for coins. The coins were useful to pay Roman taxes and mentioned in the New Testament, see Luke ch. 8 verse 8. United States 500 dollar Note, Legal Tender March 10, 1862, during Civil War. United States of America. This note is Legal Tender for all Debts Public or Private Except Duties on Imports, Interest on the Public debt and is Redeemable in Payment of all Loans made to the United States.
Here is the concept. If someone else will accept your pledge, your pledge is money. You can call it an I O U and a seller who accepts it, can sell you land or anything. You can’t pay your taxes with it, but most economic activity is not paying taxes. You can call it a marker (Guys and Dolls Broadway show introduced marker as payments among gamblers.) You can call it fishhooks, if fishhooks are a foundation to your fishing based economy.
You can call the money ‘skins,’ and some do. It used to refer to golf. It has passed into video games. I read an article in the ESPN monthly magazine. How Counter-strike turned a teen ager into a compulsive gambler gave an insight into computer game players, detailing a ‘game’ which sold 26 million copies for $15 each ($390 million). The game title is Call of Duty, and my description is it is the 105th generation up from the 1990s Pac Man videos. These games come out every few months, and followers, or gamers, bored with old games, buy new ones. ESPN explained that as players accumulated points in games, they points were previously lost as new games came along. But Counterstrike allowed its 10 million or more followers to save points. Then the points became skins, which were weapons to help gamers win. The skins can be bought outside the retail market, or sold, and trade among the skins. Online marketplaces provide an auction market. Counter-strike’s manufacturer is Valve. The explanation is thus.
‘’Valve controls the skins market. Every few months, it releases an update to Counter-Strike with new designs. It decides how many of each skin get produced and pockets a 15 percent fee every time one gets bought or sold on its official marketplace, called Steam. Valve even offers stock tickers that monitor the skins’ constantly shifting values.
But Valve also leaves a door open into the programming of its virtual world, one that allows skins to move out of Steam and into a murky constellation of gambling websites, where they’re used as currency. Some $5 billion was wagered in skins in 2016, according to research by the firms Eilers & Krejcik Gaming and Narus Advisors. While about 40 percent of them are bet on esports matches and tournaments, says Chris Grove, who authored a study for the companies, roughly $3 billion worth flows to a darker corner of the internet — one populated by fly-by-night websites that accept skins for casino-style gaming. Here, the games are simple, the action is fast and new sites open as soon as others close. Plenty of adults visit these sites, but with virtually no age restrictions, kids are also able to gamble their skins — often bought with a parent’s credit card — on slots, dice, coin flips or roulette spins. At least one site even has pro sports betting.’’
Ten million people in the Counter Strike community or sub culture, are a big enough country to have their own economy. Larger than half the nations in the United Nations, which includes children – Populations under ten million as of 2016 were Sweden, Hungary, Jordan, UAE, Austria, Switzerland, Israel, Togo, Sierra Leone, Denmark, Lebanon, Finland, Norway, New Zealand, Central African Republic, Panama, Qatar, Samoa, Iceland, and 90 more. Such is the skins story.
Gold Federal Reserve Note 5000 dollars. 1916 Bank of Cleveland Ohio. ‘’This note is receivable by all national and member banks and Federal Reserve banks and for all taxes, customs and other Public debts. It is redeemable in gold on demand at the Treasury Department of the United States in the City of Washington District of Columbia or gold or lawful money at any Federal Reserve bank.’’ Madison obverse. Reverse Washington Resigning his Commission, as Commander-in-chief of the Continental Army, by painter John Trumbull on December 23, 1783 to Congress, in the Maryland State House in Annapolis.
The concept of legal tender is that all debts are satisfied, including taxes. Limited legal tender has restrictions for which debts are paid. Meaning, even if you want gold payment, you have to accept legal tender, such as currency, paper instead of gold.
Skins brings us to the next concept of the ‘virtual currency’. The US department of the Treasury classifies bitcoin, and skins, and digital currencies as virtual because they are not legal tender under any sovereign jurisdiction. But the whole idea of a bitcoin is to generate a virtual currency on a computer program and sell it for a national currency, and so auction markets giving the price of bitcoin are publicized. The Money Services business has regulation and reporting requirements, such as large transactions and suspicious activities, such as money laundering, and speculation. Wikipedia reported theft and fraud on the bitcoin exchanges. It appears to be subject to the same counterfeiting as currency and money which has gone before.
Gold 1916 Ten Thousand Dollars. Federal Reserve Note. ‘’This note is receivable by all national and member banks and Federal Reserve banks and for all taxes, customs and other Public debts. It is redeemable in gold on demand at the Treasury Department of the United States in the City of Washington District of Columbia or gold or lawful money at any Federal Reserve bank.’’ Embarkation Of the Pilgrims, 1857 by American painter Robert Walter Weir in the United States Capitol in Washington D.C.
The history of silver in the western world is a history of over production, scarcity, conversion, substitution, and abandonment. Silver mines were worked before the Spanish arrived in the New World. At first, some silver was confiscated from the natives, melted down, and shipped to Spain as bullion – bricks. At least, what didn’t sink to the bottom of the Caribbean, in storms, or captured by pirates. By the time English settled in Virginia, early 17th century, the need for money persuaded the Virginians to use price things in pounds of tobacco. Thus an estate settled in Virginia, early 18th century, would list land, stock, buildings in pounds of tobacco. Why? Because there was not enough English money in circulation, the blood of economic life, to grease the frontier markets? Since Spanish Florida was, if not nearby, certainly closer than England, the Spanish mill dollar began circulating in the English American colonies. One Spanish silver milled dollar was a weeks wage. A lack of smaller denominations, lead to cutting the silver in half (the half dollar), then the half in half (the quarter dollar), and the half in half in half (the piece of eight). The piece of eight was a triangle sliver of silver, substantially mutilated, but useful as the piece of eight retained a few markings of the dollar – a portion of coat of arms, names, a part of a face. 1928 Gold This certificate is a legal tender in the amount thereof in payment of all debts and dues public and private Certificate. This certifies That there have been deposited in the Treasury of the United States of America Five Thousand dollars in Gold Coin payable to the Bearer on Demand.
With the Continental Congress, America’s new system of money adopted the dollar, with denominations above, the two and a half, five, ten and twenty dollar, and below, half, quarter, dime, half dime, cent, and half cent. America tried paper currency, until that was discredited and counterfeited (by the British) into disrepute (1775-1789). While the Federal government abandoned currency, the States permitted Banks to issue their own paper notes, which expanded economy, and lead to booms and busts, which would happen anyway. A discussions of how Illinois handled its collapsing banks notes from 1836 to 1846 is giver in a previous parts 20 and 21.
Then gold was recovered in a stream in California in 1848, by Mormons. This was after the Spanish had over three hundred years to find all the gold or silver in the Northern Mexican claims. Who knew the Americans would find it in less than a half decade of moving into the Rockies, Wasatch, Sierra Nevada, Mojave, mountains and deserts? First for religious freedom, the Mormons walking from the American frontier across the Continental divide. Prices for goods were high, every iron nail had to be carried thirteen hundred miles, or shipped around South America. Then the cry of ‘gold’ brought in the 49ers and hoards of treasure hunters. Even writers like Mark Twain, describe the mining in Ruffing It. What was handfuls of dust, turned into tons of the precious metals. The glut of silver and gold threatened to crush the commodity prices, so the mining interests prevailed on the US government to become the buyer of silver and gold of last resort, the ultimate customer. The first mint was Philadelphia. Mints were opened in Carson City Nevada, New Orleans, Denver, and San Francisco. Paper money called gold or Silver Certificates represented the cash of coins. Gold was minted and stored, until 1934 when Roosevelt ordered gold confiscated. Silver certificates continued until 1964.
Note the similarities in these two five dollar bills. Both have the same Lincoln portrait, the number 5 in each corner, the United States of America in a curve around the portrait. Five Dollars in the base, two ten digit serial numbers, the signatures of the Treasurer of the United States and the Secretary of the Treasury. Washington D.C. Lincoln. Note – ‘’ ‘’This note is legal Tender ** for all debts public and private **.’’ Certificate (blue) ‘’This Certificate is legal Tender for all debts public and private.’’ The seal of the Department of the Treasury, with shield, key, scales. Note the differences in these two five dollar bills. United States Note versus Silver Certificate. Blue ink versus red ink. Certificate (in blue) – ‘’This certifies there is on deposit in the Treasury – in silver payable to the bearer on demand.’’ And ‘’Will pay to the bearer on demand.’’ Note (in red)- ‘’This note is ** at its face value ** except duties on imports and interest on the public debt.’’
So we see that the government minted silver dollars by the tens of millions, (506 million from 1890 to 1936) and stored the excess in bags in vaults, and issued strips of colored paper in their place. But as the population increased and the economy increased, there just wasn’t enough gold or silver to back all the currency, without driving these metals to enormous prices, and deflating all the other products. So, after World Wars and a major depression in 2 generations back to back, the government gave up on gold in 1934 and then Silver in 1964, and copper in 1982.
2013 $2 Federal Reserve Note Legal Tender. This note is legal tender for all debts public and private. Bank of San Francisco California.
Private ownership of Gold was banned April 5, 1933 as hoarding of gold stalled economic growth, making the depression worse. Roosevelt Executive Order 6102. The 1933 Order was repealed December 31, 1974 by act of Congress, signed by President Gerald Ford. The Gold Reserve Act of 1934 made gold clauses unenforceable, and raised gold to $35 an ounce from $20.67, devaluing the U.S. gold based dollar. In 1971 President Nixon abandoned the gold standard for foreign exchange.
But what product could back up paper, retain the confidence of the public, and expand as needed? How about wheaties? Or Oaties? Or Cornies?
During World War Two (1941-1946), the expansion of the economy included agriculture, so much so that corn, for instance, as a hybrid , yielded six times the amount per planted acre as it did in the 1920s. This is discussed in the Parts on Tariffs, Part 19. After the European and Pacific wars, came the Korean and then Vietnamese wars. Farming continued, faster than America could eat the grains, so that the crops in the summers of 1950s would fill the silos in the grain states faster than the trains and boxcars could haul the grain away. In the late 1950s America had enough food stored to last a full year if nothing more were grown, or imported. This created a hang over the commodity markets, depressing the price of the grains, corn, wheat, oats, soy bean, and rice. So, the Government paid farmers not to plant, and whittled the national storage down to a 3 month supply. Supplemented by imports. We could go decades or generations with such a close food supply, but that isn’t what history has shown, with hail storms destroying crops, drought and famine, war and flood. So what to do?
I propose we have a ‘Wheaties’ to back the currency. Wheat Certificates.
- ‘’This certifies there is on deposit in the Treasury , in Wheat or grain substitute, payable to the bearer on demand.’
Then build silos in the dry,, or cold parts of nation, and ship the excess production, and store the food. As the food expanded, expand the currency. The wheat has a certain protein, and matching grains could substitute for the wheat by volume, weight, or nutritional content. That would maintain confidence world wide, and if anyone needed food, they could get it and redeem their ‘wheat certificates.’ This solves two problems, an unbacked currency and glut of foods depressing the farm economy. Joseph’s Egypt saved seven years of grain to eat during the famine recorded in Genesis 42. This has been done, and was very successful.
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