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Final Table Champion 07

LOW DOWN DIRTY DIRTY!http://www.fda.gov/cder/drug/infopage/ppa/ Notes, National CurrencyNational Bank Notes, or "National Currency," were established by the National Banking Act of 1863. This was in part a device to raise money for the federal government, since it required that National Banks that wished to issue banknotes deposit United States Securities with the Treasury as backing for the notes. This effectively multiplied the money with which such securities were purchased, turning the money itself over to the Treasury, for its purposes, but then enabling the banks to issue currency against it. The desire of the federal government to monopolize banknotes is evident in the tax that was subsequently levied on all banknotes issued by State banks. This effectively eliminated them -- and incidentally inaugurated the federal practice of pretending to (constitutionally) tax things when its real purpose was to (unconstitutionally) forbid them. This dishonest device was later extended to opium, marijuana, etc.; so that today there is a general impression that the federal government can forbid anything.

The other rationale for the National Banking Act was to "protect" the public from fraudulent and poorly managed banks, whose banknotes might become worthless. The device of "National Currency" did make the notes obligations of the Treasury, which meant they were good even if the banks failed; but why the solvency of the banks otherwise was thought to be a federal concern, when the States were perfectly capable of regulating their own banks, is a good question. Indeed, aside from the evident self-interest of the federal government in raising money for the Treasury during the Civil War, the principal motivation seems to have been a political debt that the Republican Party owed to its Whig and Federalist Party antecedents. Nevertheless, while the Federalists had always wanted, and for a time had, a real Central Bank (the Bank of the United States), nothing of the sort was politically possible in 1863. The National Banking Act therefore simply chartered individual National Banks, whose bona fides and solvency could be supervised by the Comptroller of the Currency.

Large size National Bank Notes had displayed wonderful design work and are still avidly collected, both because of that and because of their association with local banks, many of which still exist. Designs were uniform for each "charter period," i.e. for each 20 year period after which the Banking Act had to be renewed (a provision now replaced by perpetuities). A $20 note [reverse] from the "third charter period" shows Hugh McCulloch, the first Comptroller of the Currency (1863-1869), with real inkpen signatures of the President and Cashier of the First Marine Bank of Erie, Pennsylvania. Small size National Bank Notes, however, were a miserable affair, indistinguishable in most design elements from other small currency. Even the characteristic traditional practice of displacing portraits and vignettes so as to center the name of the bank on the face of the note was abandoned.

If the problem during the Great Depression had really been that there was "not enough money," then it would be surprising that National Bank Notes were suppressed in 1935 -- the bonds that had been issued to secure banknotes were all discontinued. If, however, it is understood that the political answer to the Great Depression was that only the federal government can be trusted with power over the economy, banking, and money, then the move is self-evident. That the Depression dragged on for another four or five years has never been taken as evidence against this inference -- as it has rarely been noticed for any other purpose in American politics.

Since National Bank Notes were not directly backed by gold, the obligation, like that of United States Notes, stated that they were not for the "payment of duties on imports or interest on the public debt."

Silver Certificates

$1

1928

 

1934

1935

 

1957

$5

 

 

1934

 

1953

 

$10

 

1933

1934

 

1953

 

Silver Certificates

Silver Certificates were created by Act of Congress on February 28, 1878. This was a response to "Free Silver" agitation. If the partisans of inflation could not get paper currency, then retaining the monetary status of silver seemed like the next best choice. Putting the United States on the Gold Standard in 1873 (the "Crime of 1873") had set off the controversy. But while the United States was never formally off the Gold Standard, Congress did respond to Free Silver forces with various laws for the Treasury to purchase and coin silver (as dollars, on the 1837 weight). This continued for many years after 1878, though fatal blows were dealt against it by Grover Cleveland, who was a hard money Democrat, and the defeat of William Jennings Bryan in 1896. While Bryan contended that ordinary people were being crucified on a "Cross of Gold," he ended upon crucified on his Cross of Silver.

Although cowboys may have liked silver dollars, heavy coins were never popular with most people. Silver Certificates therefore allowed the Treasury to mint its silver dollars, let them sit, and just issue paper instead. Silver Certificates originally were in denominations up to $1000; but after 1896, notes were kept to $10 and under. The Series 1896 $1, $2, and $5 Silver Certificates were the stunning and celebrated "Educational Series," featuring various allegorical designs, such as "History instructing youth" on the $1 [& reverse]. These rare and valuable notes have probably the most elaborate designs (subsequently never repeated) of any United States currency.

Except for the rare 1928 $1 United States Note, all small $1 bills until 1963 were Silver Certificates. Starting in 1934, these simply said they were redeemable "in silver" instead of "in silver dollars"; and, strangely enough, they could be redeemed in silver at the United States Treasury all the way until 1968 -- the last hard money activity of the United States government.

The major change in design that took place in the history of Silver Certificates was that the reverse of the 1928 $l bill was replaced in the Series 1935 notes with the familiar Great Seal of the United States design, though still without "In God We Trust," which only appears starting with Series 1957.

Federal Reserve Bank Notes,
National Currency

Identical to National Banks Notes in form and function but issued by Federal Reserve Banks, these notes were retired in 1945.

This variety of notes was originally, as large notes, much more distinctive, sharing elements with the traditional design of National Bank Notes but unified in design with the new Federal Reserve Notes. Thus the Federal Reserve Bank Note $5 of Series 1914 simply displaced the portrait of Lincoln to the side from the contemporaneous Federal Reserve Note $5 and replaced it in the center, as in National Bank Notes, with the name of the bank. The reverses are identical, except that "National Currency, Federal Reserve Bank Note" replaces "Federal Reserve Note" and the obligations are different -- Federal Reserve Notes were redeemable in gold, while National Currency could not be used for duties on imports or payments on the public debt.

One of the most popular and valuable notes of all U.S. currency was the Series 1918 Federal Reserve Bank Note $2. The reverse of this note displays the picture of a Battleship -- hence the "Battleship $2." For many years, it was not clear whether the ship was intended to be the battleship Texas, which survives on public display at the San Jacinto Battlefield outside Houston, Texas, or its sistership, the New York. Recently the Bureau of Printing and Engraving, however, announced that the ship was supposed to be the New York. Why it was necessary to wait more than 70 years to do this is not clear. The companion Federal Reserve Bank Note $1 [reverse] is much more common.

The large Notes from the Federal Reserve Bank of New York will be seen to be signed by the Governor of that bank, Benjamin Strong, who powerfully influenced the policy and actions of the entire Federal Reserve System, especially the Governors Committee on open market operations, which was responsible for the purchase of securities (the principal means of expanding the money supply), until his death in 1928.

Evaluation of Strong and his role reveals the division in Free Market economists between the Monetarists and the Austrians. For Milton Friedman, Benjamin Strong's policy of maintaining price levels in the 1920's, during which there was no deflation despite tremendous economic growth, and his willingness to maintain the liquidity of banks during Panics -- both tasks accomplished through the open market purchase of securities by the Federal Reserve -- was precisely the job, and a good one, that the System had been created to do. Thus, Friedman quotes Clarence A. Woolley, one of the directors of the New York Federal Reserve Bank in 1932, as remembering, "Governor Strong had said further that if this power were used in a big way, it would stop any panic which might confront us" [Friedman & Schwartz, A Monetary History of the United States, 1867-1960, Princeton, 1963, p. 412]. But by the time the banking crisis started in the Depression, the leadership of the Federal Reserve System had forgotten the purpose that Strong understood so well.

On the other hand, Austrian School economists like Murray Rothbard have seen Benjamin Strong as a villain for expanding the money supply beyond its hard money base. Without that expansion, there could have been no credit collapse, no banking crisis, and the Depression would not have begun. This kind of criticism, however, is based on the ideas that (1) any kind of fractional reserve banking is fraudulent in the first place and (2) that inflation is not an overall rise in prices but any expansion of the money supply beyond a commodity base (specifically gold). These are both strange ideas. Fractional reserve banking cannot be "fraudulent" when there is nothing secret about it and when it is clear that people would have to pay for banks to hold their savings with 100% reserves, while banks will pay them for savings that can be (prudently) loaned to others. Similarly, redefining "inflation" not to refer to price levels ignores the importance of prices, especially the economic and political damage that deflation can cause -- as was caused by the 1865-1896 deflation and was avoided by the maintenance of prices in the 1920's. As Friedman would agree, expanding the money supply too much does cause inflation, and this has been the evident policy of the Federal Reserve System for decades now, constituting a continuing regime of theft by the Federal Government; but the maintenance of price levels by monetary expansion is not inflation and it actually prevents the theft which results from the deflation of debts, which bankrupted many people and businesses in the 19th Century and at the beginning of the Depression. Thus, although Rothbard has a perfectly valid criticism of the irresponsibility of the Federal Reserve in maintaining a regime of constant inflation, what he would prefer instead is really a kind of utopianism that ignores both the good faith, contractual validity of fractional reserve banking and the real economic damage done by deflation.

Perhaps the most noteworthy thing about the small Federal Reserve Bank Notes is that there is absolutely nothing to distinguish them in any of the ways that the large notes were distinctive. Even the names of the banks seem printed in a perfunctory way; and the pre-printed "President," to show where the name of the president of the bank is to be printed, is simply blacked out, since Federal Reserve Banks had "governors," not "presidents"!

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Federal Reserve Notes, until 1981

$1

 

 

 

1963

1969

1974

 

1977

1981

$2

 

 

 

 

 

 

1976

 

 

$5

1928

1934

1950

1963

1969

1974

 

1977

1981

$10

1928

1934

1950

1963

1969

1974

 

1977

1981

$20

1928

1934

1950

1963

1969

1974

 

1977

1981

$50

1928

1934

1950

1963

1969

1974

 

1977

1981

$100

1928

1934

1950

1963

1969

1974

 

1977

1981

$500

1928

1934

 

 

 

 

 

 

 

$1000

1928

1934

 

 

 

 

 

 

 

$5000

1928

1934