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.
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.
[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.
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