The Satoshi Revolution: A Revolution of Rising Expectations.
Chapter 1: Listening to the Past (part 2).
by Wendy McElroy
How did ratification of the United States Constitution in 1788 affect private money?
People assume the United States Constitution grants Congress a monopoly ‘right’ to issue money. The assumption comes from Article 1, Section 8, Clause 5 of the Constitution which delegates to Congress the power “[t]o coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” People are incorrect.
In his pamphlet, “Unconstitutionality of the Laws of Congress Prohibiting Private Mails” (1844), the legal scholar and private money advocate Lysander Spooner (1808-1887) explained,
“[T]he powers of Congress…’to coin money’, are in reality exclusive, only as against the State governments….The constitutional prohibition upon individuals, to coin money, extends no farther than to prohibitions upon ‘counterfeiting the securities and current coin of the United States’. Provided individuals do not ‘counterfeit’ or imitate ‘the securities or current coin of the United States’, they have a perfect right, and Congress has no power to prohibit them, to weigh and assay pieces of gold and silver, mark upon them their weight and fineness, and sell them for whatever they will bring, in competition with the coin of the United States.”
The Constitution addresses the regulation of “foreign coin” because another coin demonstrates why private issue remained so popular in early America: the Bechtler.
The 19th century saw a wave of gold rushes. In the late 1820s, both Georgia and North Carolina experienced a huge gold rush and an accompanying dilemma. There were no government mints in the area. Shipping gold to the main mint in Philadelphia was problematic because it cost a great deal to ship and insure the gold which risked being stolen. A local paper explained the miner’s plight:
“Since the State Bank has limited her issues and is drawing into her vaults the notes which have been loaned to our citizens, in the settlement of her outstanding accounts, great inconvenience has been let in business transactions with the Bank, and also for the common purposes of commerce. How far this scheme [having a private mint] will succeed in effecting these objects, we have yet to learn. The risk and expense of sending gold to the [Philadelphia] mint is such that the owners of the mines often find it difficult to dispose of the products of the mines at a fair value, as things now are. The urgent petition to Congress for the establishment of a branch of the US Mint in the ‘gold region’ having failed, and the gold produced being in a fair way to entirely disappear from the country and fall into the rusting hoards of Europe, this scheme has been resorted to…”
Gold miners approached the well-respected watchmaker and goldsmith Christopher Bechtler Sr. (1782-1843) for a private solution. Because he was also a metallurgist and an honest man, Bechtler was a perfect candidate to strike coins. The first Bechtler gold coin issued in 1831, followed by advertisements declaring that Bechtler would mint any miner’s gold for 2 ½ percent of the bullion.
Government’s reaction to competition can be gauged by the fact that the United States Treasury lost little time in testing the new coins, probably in the hope of discrediting them. Alas, for the Treasury, the Bechtlers were purer than government issue. Indeed, the Federal Mint bought $294,000 worth of Bechtlers and used them to pay debts and for trade with Europe. Suddenly, the government was motivated to open its own Federal mint in Charlotte, North Carolina which was about 80 miles from the Bechtler one; it began to produce gold coins in 1838.
Considerably more than one million Bechtlers circulated widely, especially in the southeast. When the Bechtler Sr. died, however, the relatives who assumed the business were less than conscientious or perhaps dishonest. Consistency and purity declined and the market responded. The mint closed a few years later.
But the original Bechtlers continued to circulate. They were so popular that, during the American Civil War (1861-1865), the monetary obligations of the Confederacy were specified as being payable in Bechtler gold, not Confederate or any other government-issued currency.
The Bechtler coin is both an inspiring and a cautionary tale. It speaks to the consequences of integrity and of debasement, both of which are non-issues with bitcoin because it is trustless and cannot be altered. The Bechtler story also demonstrates how the free market outperforms government in terms of moving swiftly into an empty niche and in the quality of goods and services it delivers. Just as today, free-market currencies out compete government issue, especially with current inflation; if they cease to do so, the currency fails. Just as today, the government uses the currency while trying to undercut the competition it represents.
Government resistance to competition did not begin or end with the Bechtlers. In his essay “Hard Money in the Voluntaryist Tradition,” historian Carl Watner traced the course of a mint in San Francisco during the California gold rush: Moffat & Co. Watner wrote, “Moffat & Co. was apparently the most responsible of the private concerns minting money, for when, “the businesses of San Francisco placed an embargo on all private gold coinage except issues by Moffat. The remainder of the private issues were soon sent to the U. S. Assay Office to be melted down or else were passed only for their bullion content in trade.”
Initially, the firm issued gold ingots in direct competition with the U.S. Assay Office; no state Assay Office then existed. According to the reference site Coinfacts, “The official government assay of these ingots proved them to be worth more than the amount stamped on them.” In other words, Moffat out competed the government.
The ingots’ denomination was too large for normal trade, however, and merchants demanded smaller coins. Moffat & Co., which contracted with the U.S Assay Office, asked for the authority to strike coins as well. When permission was not forthcoming, Moffat began minting coins under its own mark and authority in 1849. The firm’s high reputation and its policy of redeeming coins at face value allowed their issue to become a norm in circulating currency.
Government obstruction did not stop with a refusal to authorize coinage. On April 20, 1850, the State Assayer, Melter, and Refiner of Gold of California was established by law. A companion bill was passed at the same time with the goal of reining in private minters. Along with an earlier measure on April 8th, the bill represented a compromise. Coinfacts explained the original position the government had taken toward minters such as Moffat. “It was during the first part of 1850 that there was serious agitation against private coinage. The California Legislature considered a bill… which would have branded private coiners as counterfeiters, and which urged subjecting ‘the makers or passers of such coin to the penalty imposed upon coiners and counterfeiters’. The bill would also have forced the private mints to redeem their coins in ‘lawful money’. The Alta California printed the proposed bill along with a supportive editorial. The editor further pointed out the inability to use private coins in payment of customs.”
The next day, the Alta California ran an open letter from Moffat through which he appealed to the people of San Francisco. He acknowledged that the state could not legally issue coins due to Constitutional restrictions, but private individuals had no similar constraint. He pointed to the Bechtler mint which continued to strike coins even though the business was only 80 miles from the federal government’s Charlotte branch. Moffat powerfully reminded San Francisco that no one had ever been defrauded by purchasing or accepting his coins.
The first compromise bill of early April prohibited the private issuance of gold pieces weighing less than four troy ounces. This was an awkward size for normal commerce and almost guaranteed a limited circulation. By contrast, the state Assay Office was allowed to cast gold ingots of two troy ounces. Coinfacts observed, “The State Assay Office of California was a unique institution in our nation’s history. It was the only mint to operate in this country under the authority of a state, after 1789. Its issues (though never challenged in the courts) may have been illegal under the United States Constitution, which forbade any state to issue coins or currency.” The state used the sleight-of-had of striking ingots which were not mentioned in the Constitution but which circulated as the equivalent of coins.
The April 20th companion bill further hobbled private minters by requiring them to redeem their coins at face value for government issue upon demand.
A complicated back-and-forth between Moffat and both the state and federal assay offices ensued. Moffat received a coining contract with the state and sought federal permission to strike smaller coins, which was denied. Eventually, Moffat resumed issuing its own coins in smaller denominations whereupon the government granted permission to issue official $10 and $20 coins for the Assay Office.
The federal government changed tactics in 1852 when the U.S. Customs House suddenly refused to accept Moffat’s $50 ingots even though they had been issued under the direct authority of the U.S. Assay Office. Paying customs was a primary use of the ingots, but federal law now required duties to be paid in coins of 900/1000 fineness rather than the California standard of 884/ to 887/1000. The Treasury Department took the remarkable step of refusing to accept coins issued by its own Assay Office, thereby invalidating its own coinage.
The history of Moffat & Co. lays bare the government’s resolve to eliminate competition in currency and the basic tactics it uses to do so. One strategy is to prohibit the currency by criminalizing it as the California legislature attempted to do through the accusation of counterfeiting. Another is to absorb and control the competition as the Assay Office did by contracting with Moffat. A third strategy is to place huge obstacles in the path of free market currencies which amounts to a de facto ban or, at least, a decided advantage handed to government money.
It worked. Watner explained, “By October 1856, the Federal mint was apparently able to meet all demands for coins in domestic circulation and for export, so that private issues of gold coin quietly passed out of existence. There is no record of any further private minting in California after this time.”
The history of private minting in early America is deep, pervasive and intimately tied to the nation’s economic success. Fraud was certain present but so, too, was meticulous honesty. The mints with high reputations and good business sense not only succeeded but also outperformed their government counterparts, which were reduced to using force in the form of law to gain the upper hand. Government did not act on behalf of the public. If it had, it would not have attacked honest firms that provided desperately need services to miners, merchants and purchasers. Government acts on its own behalf to line its pockets and strengthen its power.
On June 8, 1864, Congress passed An Act to punish and prevent the Counterfeiting of Coin of the United States. It read, in whole, “That if any person or persons, except now authorized by law, shall hereafter make, or cause to be made, or shall utter or pass, or attempt to utter or pass, any coins of gold or silver, or other metals or alloys of metal, intended for the use and purpose of current money, whether in the resemblance of the coin of the United States or foreign countries, or of original design, every person so offending shall, on conviction thereof, be punished by fine not exceeding three thousand dollars, or by imprisonment for a term not exceeding five years, or both, at the discretion of the court, according to the aggravation of the offence.”
The private minting of currency ceased in America.
The Act was undoubtedly sold as necessary to protect the public from fraud. There is no question that fraud in the form of ‘light’ coins was a constant worry with both private and government mints; without excusing the fraud or suggesting it not be punished, caveat emptor applies. An entire category of business should not be criminalized because some participants are dishonest.
The claim of preventing fraud is disingenuous on its face. It does not explain why the government went after coins and companies it knew to be reputable, like Moffat & Co. And why did the government itself preferred to use private coins on occasion? Nor does the Act acknowledge that many private miners went into business at the behest of a public whose needs were ignored by the Treasury Department. Only one explanation makes sense; the government wanted to eliminate the competition not because it was fraudulent but because it could win.
Mark Twain reputedly said, “History does not repeat itself, but it rhymes.” To some, private coinage in early America may seem to have little in common with cryptocurrencies but there is a common theme. Government is threatened and wants monopoly. Cryptocurrencies and their advocates can expect the same treatment from governments around the world: a mixture of banning, obstacles, absorption and punishment. History is beginning to rhyme loudly.
[To be continued next week]
Wendy McElroy has agreed to ”live-publish” her new book The Satoshi Revolution exclusively with Bitcoin.com. Every Saturday you’ll find another installment in a series of posts planned to conclude after about 18 months. Altogether they’ll make up her new book ”The Satoshi Revolution”. Read it here first.