IT’S ALL ABOUT MONEY

While money can’t buy happiness, it certainly lets you choose your own form of misery. ~ Groucho Marx  

Money makes the world go around. Money or currency is commonly defined as a generally accepted commodity used as a medium for making commercial transactions, a store of value and a means of stating prices, values and costs. Humans have used money in their daily lives long before the advent of written history. Archeological objects related to coinage have been found dating back over 100,000 years.

Long before 1869 when George Washington first graced his visage on our $1 bill, numerous items have served as money, including cowrie shells (Africa, Asia, Oceania, Europe), red ochre (Australia), wampum (Native Americans), whale teeth (Fiji) and very large carved limestone disks (Yap Island in Micronesia).

Sea shells have been used as a US currency far more recently. During the Great Depression, some drugstores in California provided change to customers in clam shells when cash was in short supply. Cowrie shells and Yap Island’s giant stone disks are shown below as examples of very old money. Cowrie shells may have been pocket change, Yap’s disks certainly were not. 

 Yap’s stoned money 

A fortune in cowrie shells

Economists classify currency in 2 distinct ways. First, as commodity money (like gold and silver coins, candy bars and cigarettes in WWII prisoner-of-war camps and peanut M&Ms for US troops in Afghanistan) are items that have intrinsic value in some other use. Precious-metal coins were initially used as money in several places about the same time, around 600-500 BCE; in China’s Yellow River valley, in India’s Ganges River valley and by the king of Lydia in western Asia Minor (modern Turkey).

Second, as fiat or token money that is an item designated as money by an acknowledged, trusted authority that is otherwise intrinsically worthless (like the “paper” we use for US bills composed of 75% cotton, 25% linen). Paper money banknotes first arose in China during the 7th century.

According to the Federal Reserve, the most recent value of all the currency in the US money supply is $5.8 trillion, which is almost 21% of our current GDP. The most valuable US banknote now in circulation is the $100 bill, otherwise known as the Benjamin because Benjamin Franklin’s face is on it. Over the past 5 years, Benjamins have become the most widely-circulated banknote, representing 34.3% of all circulating currency, overtaking the George (aka, $1 George Washington banknote). Circulation of the Andrew (aka, $20 Andrew Jackson banknote) increased significantly during the 1980’s when ATMs became broadly popular. The Andrew’s circulation is in third place, right behind the George.

What is the largest US banknote ever circulated? The Salmon P. Chase $10,000 banknote, first printed in 1918. It was never used much except for banks, given that its value was greater than the net worth of the average American for most of its history.

Mr. Chase was one impressive person: he was a governor and then senator from Ohio, served as Secretary of the Treasury under Abraham Lincoln, and became the 6th chief justice of the Supreme Court in 1864. He remains one of the few people to serve in all 3 branches of the federal government.

The Chase $10,000 banknote was purged from US currency in 1969, along with other large banknotes like the William McKinley $500, Grover Cleveland $1000 and James Madison $5000 bills. After this culling, the Benjamin became and remains the largest US banknote. 

Perhaps the most interesting coin produced by the US Mint is the silver dollar. The true “Silver Dollar” production began in 1794 and ended in 1935 as this was the last year that 90% silver coins were made for circulation. In 1975-76 the Bicentennial Dollar (with President Eisenhower on the face) was produced, but with a 40% silver content. In 2021 the mint began production of Peace Dollar coins, also with a 40% silver content.

Speaking of money, what is the most profitable US export? I think it is the $100 Benjamin banknote. Because there are 11 foreign nations that use either fully or partially US currency as their domestic currency, including Ecuador, El Salvador, Zimbabwe, Panama and Micronesia. That’s in addition to the 5 official US territories that use our currency: Puerto Rico, Guam, America Samoa, U.S. Virgin Islands, and Northern Marina Islands. 

Citizens in these 11 nations and their governments buy US banknotes at their face value, if not close to it. The US Treasury's cost to produce one $100 Benjamin is $0.086, which is an implied ”return” of 1,163 times its face value. Production costs for the $1 George are $0.028, an implied “return” of 35.7 times its face value. That's considerable "profit." 

According to the Federal Reserve Bank of Chicago, almost 80% of $100 US banknotes and more than 60% of all US banknotes are used overseas, a sizeable increase from roughly 30% in 1980. Such an increase in exported US banknotes is not only impressive, but likely quite profitable for the US Treasury. The Treasury’s foreign customers for US currency may soon include Argentina. Argentina’s new President Javier Milei campaigned to officially “dollarize” his nation. That may or may not happen, but if it only unofficially does, it could involve supplying South America’s second largest economy with more US currency’s fine crew lead by Benjamins, Andrews and Georges.

Money is said to be legal tender when the government requires it to be used in settlement of fiscal transactions, including tax payments. For example, you cannot settle your owed taxes with the IRS by paying in candy bars or shells, or for that matter with coins.^[1] Only US dollars will do via check, online payment or debit/credit card.

Congress established the US dollar as the basic unit of currency in 1792. The first coins were created in 1793 at the Philadelphia Mint and presented to Martha Washington. The US government did not issue paper money until 1861, when it helped finance the Union’s Civil War efforts.

Before our 1776 Declaration of Independence, the majority of currency used to conduct commerce in the American colonies was commodity money. Wheat is one example of a commodity currency that was used nearly 400 years ago in Massachusetts.

Before 1700, many students at Harvard College paid their tuition with wheat because hard currency – the British pound or Spanish real – was challenging to come by in the early colonies. The Massachusetts Bay Colony prices for standard items were stated in terms of bushels of wheat and corn, not British pounds or pence. Using such agricultural produce as a commodity currency in early America was not surprising. Throughout the 1700s, at least 90% of the American labor force was farmers.

No wonder paying with wheat made sense and cents at that time. Samuel Willis, Harvard class of 1653, its 13th graduating class, paid his tuition with wheat.

Here’s a current-day perspective about what a wheat-based Harvard tuition could be. Using a recent price of wheat together with Harvard’s 2023-24 tuition ($54,269 not including room and board), a student would need to provide Harvard College with 8,269 bushels of wheat for full tuition. This heavy tuition load of wheat would require a 167 acre farm to grow it and 2 big railroad hopper cars to transport it to Harvard’s Student Accounts Office in Cambridge. Surprise!

Wheat farmers have not been at all pleased with the market prices they are facing. Over the past year the average price of US wheat has dropped nearly 24%, which is not at all good if you’re paying tuition with your own-grown wheat, but no big deal if you are not a wheat farmer whose daughter is going to Harvard. Nevertheless, having to pay for tuition with 8,269 bushels of wheat would be inconvenient, to say the least.

All things considered it is very fortunate that Harvard, along with every other college and the rest of our economy, grew out of our 17th century wheat-as-commodity money habit. Hitching our fiscal wagons to fiat money’s US dollars makes sense.

 

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[1] Despite income tax protestors’ efforts, the IRS has successfully refused to accept tax payments with coins. So keep your pennies in your piggy bank, don’t include them with your 1040 form. 

 

REPARATIONS FOR K-12 STUDENTS

The Berkeley Unified School District’s (BUSD’s) Reparations Task Force (RTF) began meeting last April. The RTF has been tasked with determining how the BUSD could fund reparations, what form of reparations it would recommend to the BUSD Board and formulating a recommendation on how the Board could implement that program. No other school district in the US has taken it upon itself to cure the ravages of slavery. Berkeleyside, a local news periodical, recently published a story written by two RTF members, “Now is the time for reparations in Berkeley schools” attempting to justify their mission. I was not convinced.

Most school districts find it challenging enough just to keep their K-12 students educated in these challenging times of teacher and budget shortages. Nonetheless, other school districts are not located in Berkeley, California, a long-time nucleus for progressivism.

It is utterly unclear how the BUSD, or any local school district, is suitably equipped to remedy the damages caused by historical slavery. Most folks correctly understand people possibly affected by the ravages of past slavery are far more numerous than one community’s Black K-12 students.

From its outset, the RTF believed the BUSD has caused direct harms to some of its students from segregation, discriminatory policies and other legacies of chattel[1] slavery. Thus, it supports the district paying these students financial reparations for these harms.

Last year the State of California’s own pioneering reparations task force presented its assessment of the issue from a more apt, state-wide perspective. Its report recommended to the legislature that eligible, long-standing Black California residents each could be owed up to $1.2 million for repairing the damages of slavery and racism. Given the controversary surrounding reparations, this report seems to have been subsequently swept under Sacramento’s political rug. Neither the Legislature or the Governor have provided any meaningful public responses regarding paying for reparations.

The BUSD RTF has postponed until this summer making their recommendations about how to fund, plan and implement a reparations program in Berkeley’s schools. The RTF states that a majority of its members are descendants of individuals enslaved in the US. The RTF has undertaken one “community engagement survey” to solicit input on the types of reparations it should recommend. This survey seems to have been sent to 3 groups of people – descendants of enslaved Californians, students at BUSD schools and students’ caregivers. The reported RTF survey results published in Berkeleyside appear to be erratic, as shown in the chart below.

 

    Source: Berkeleyside, 3/23/2024 

This chart states there were 1,386 total respondents (All Respondents) for this question. But the sum of survey responses from the 3 groups – Descendant Families, Current/Former BUSD Students and Caregivers of Current/Former BUSD Students – adds up to 1,649 respondents, 263 more people than the total respondents. This makes no sense unless All Respondents includes none of the other groups. Or the RTF made a straightforward addition error. Or was there another group of 263 people who received the survey, but was not reported. If the All Respondents are a distinctly separate group, who are they? This inconsistency is a mystery.

The RTF has never stated that their survey was sent to people who were representative of Berkeley’s citizenry. It is thus unsurprising that an astounding 85% of all survey respondents said they were “in support of financial payments to students for educational purposes.” The surprise is that it was only 85%. 

These BUSD RTF results are very different from other reparations surveys. Past surveys have focused on possible remedies provided by the federal government, state governments or local governments. A 2021 Pew survey found that 75% of reparations supporters say the US federal government, not other government organizations like cash-strapped school districts, has all or most of the responsibility to repay descendants of enslaved people. Like other surveys, this Pew survey found that a large majority of Black adults (77%) think the descendants of people enslaved in the US should be repaid in some way and that only a slight minority (18%) of White adults agreed that reparation payments are appropriate. A 2023 poll by UC Berkeley’s Institute of Governmental Studies showed California voters opposing reparations payments by a 2-to-1 margin.

The RTF will likely advocate to the BUSD that fiscal reparations are wholly justified for every Black student who attends K-12 schools. Using the most recent available data, there are 1,134 Black students in the district’s 17 schools. They probably also will promote reparation payments be made to former qualified BUSD students as well. The bigger the proposed total reparations payments are for the BUSD, the more satisfied the RTF will likely feel. The RTF may have a larger target in mind for the reparations amount per qualified Black student to out-progressive the efforts of both the ill-fated San Francisco Reparations Advisory Committee (that recommended $5 million per qualified person) and the aforementioned California Task Force to Study and Develop Reparation Proposals for African Americans’ $1.2 million per qualified person.

So far, the RTF’s mandate apparently excludes addressing common-sense questions about why a local school district should even provide such reparations, or how the district could afford to pay such reparations, given its educational mandate. The latest Berkeleyside RTF story (March 27) mentions that they may recommend adopting a new Berkeley tax to provide funding.

The simple fact is neither Berkeley or the BUSD can afford direct financial reparations or other reparations-related expenditures. If the city and/or BUSD somehow decided to pay reparations, it would need to raise the needed substantial funding either through a new city tax or a public, general obligation (G.O.) bond. A new tax might only require a simple majority of voters to pass, the bond would likely require approval by at least two-thirds of voters.

No matter where funding would come from, getting Berkeley’s voters to pay for BUSD reparations would be a singularly fraught and divisive campaign. Currently, less than 8% of Berkeley’s population is Black/African-American, 12.5% of BUSD students are Black. Another possible, more politically-expedient option for the BUSD is to accept the RTF’s findings in June, then offer an honest, sincere apology for the harms to Black students it directly or indirectly created in the past, and say nothing with respect to financial reparations.

So far, this strategy seems to be what the California Legislature and Governor Newsom have adopted after the California Task Force submitted its 1,000 page report last May. Subsequently, public talk about state-funded reparations largely disappeared into Sacramento’s political ether. Also, San Francisco Mayor London Breed indirectly but publicly disagreed with her Committee’s direct reparations recommendations. Her office stated, “The Mayor does not believe that addressing the needs of the African American community requires adding more bureaucracy,” referring to the establishment of a proposed SF Office of Reparations.

Like many school districts, the BUSD is now facing mounting financial challenges because of continuing reduced student enrollment in Berkeley’s public schools. The BUSD’s fiscal future is cloudy, at best. In 2017, 10,340 students were enrolled in BUSD schools. In 2022, it was 9,073 students. That’s a 12% drop over the last 5 school-years. Making a similar calculation of the BUSD average student enrollment change during the last 3 school years, it’s a 7.8% drop. BUSD personnel have said that yes average student enrollment has fallen, but the rate of the drop is lessening. That’s true, but immaterial.

Reductions in student attendance presages diminished BUSD funding from the state because California expenditures for K-12 education are based on average daily student attendance in each district. Like other California school districts, it’s virtually certain that state education funding for BUSD will decline. In 2023 overall California state education funding shrank by $2.1 billion.

Last year the BUSD’s director of fiscal services cautioned that the coming 2024-25 school year could be a “reality check” for the district if the state’s funding formula for schools does not change. It’s California dreamin’ to believe this formula will change to benefit BUSD and other school districts. Why? Because last month California’s projected 2024-25 tax revenue deficit increased to a sizeable $73 billion. More state money going to school districts is an unlikely prospect, no matter how worthy.

Fortunately for the BUSD, last month Berkeley voters once again strongly supported the city’s Berkeley Schools Excellence Program (BSEP), a local property tax increase now responsible for 17% of the district’s budget. The district budget needs to continue rising. A growing proportion of the BUSD’s costs has been focused on providing support for “high-need” students. Evermore districts, like the BUSD, will be facing daunting “fiscal cliffs” due to 4 factors: no additional temporary Covid-related education funds are available now to school districts, shrinking K-12 student enrollments due to changing demographic trends, continuing inflation and appropriately-increased teacher/staff salaries. Because 83% of the BUSD’s budget are employee-related expenses, the impending fiscal cliff will result ultimately in school personnel reductions.

The RTF survey purposefully was not sent to a statistically-representative sample of Berkeley citizenry. It’s thus no wonder that an astonishing 85% of respondents said they were “in support of financial payments to students for educational purposes.” Do you think 85% of Berkeley voters will be willing to pay for cash reparations to the 12.5% of BUSD students who are Black? I doubt it.

The survey-based percentages presented by the RFT, as shown above, have nothing to do with whether all Berkeley residents believe it’s appropriate for the BUSD to pay reparations to K-12 students who have suffered from the impacts of chattel slavery and its legacy. Not being representative, the RTF survey results cannot characterize anything definitively beyond the survey subgroups’ respondents themselves.

Berkeley has been justifiably recognized as an honest-to-goodness mecca of progressive thought, but I question whether a majority of voters would say yes if asked to actually pay reparations to qualified Black BUSD students. After all, when the Berkeley City Council placed its biggest-ever bond measure (Measure L) on the ballot 2 years ago with hopes of funding a very broad array of activities, it went down in ignominious defeat.

The RTF’s public statements about school-based reparations payments confirms both their strong advocacy and that they hold an atypical worldview where providing sizeable direct reparations payments only to their small number of Black K-12 students will meet little resistance. Depending on the specifics, I can support indirect reparation remedies to qualified Black citizens. I cannot support the Berkeley school district providing direct reparation payments to its Black K-12 students.

 

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[1] Chattel refers to a human being considered to be property, an enslaved person.