JP Koning at his always interesting blog “Moneyness” has a post on the Greenback era that is well worth reading As some readers may know, I have a longstanding research project on the antebellum United States so I found his post very interesting. As may be expected, I have some disagreements with his post.
The most obvious point I would make is the one associated with my project- antebellum bank notes are themselves a clear example of tax driven money. I don’t want to dig up my sources here (I’m through about ⅓ of the tax receivability laws of each state and have been stuck there for a while) but you can check out Bray Hammond’s classic in the field for some details. In my view american history is rife with clear examples of tax driven money which shouldn’t be surprising because I’m a committed neo-chartalist. You can also check out my columns related to american money before the revolutionary war here. An ancillary point here is that it's inaccurate to say that Greenbacks were “the first government paper money emitted since the Second Bank of the United States had been wound up”. Treasury notes, which were tax receivable, were issued multiple times since the second bank lost its federal charter, most notably during the Mexican-American war.
Overall though, the discussion in his post is good… until the end. In my view his recourse to the “metallist” point of view doesn’t make very much sense. First of all, if intrinsic value were in play or some kind of explicit commitment to some “price level” mattered, why would receivability for dues keep up the value of demand notes relative to greenbacks? Why would receivability be able to mimic intrinsic value if receivability in payment of debts of all sorts weren’t a main driver of monetary value in the first place? There is something radically inconsistent here. Which leads me to the next point- why would we think of Gold and Silver in the 19th century as being driven by intrinsic value?
In point of fact, the logic Koning provides regarding demand notes relative to greenbacks can be extended to understanding demand notes relative to gold (or more likely, to pound sterling). Gold, from my neo-chartalist point of view, was the dominant money (perhaps sharing dominance with the british pound at this point) because it was receivable in payment for taxes in very many countries and receivable for all sorts of private debts. It is at the top of the pyramid not because of intrinsic value (at least not by the time we get to the 19th century if you need a way to rationalize this with a barter “origin story” for money) but because it is receivable for the most debts. The only thing limiting gold's dominance was the cost and uncertainty involved in transporting gold.It should also be noted that this sort of argument does the best job of explaining why it was possible for gold to be so rapidly demonetized in the 1970s.
You may think this is some wild new idea that I’m imposing on disparate and obscure facts. In point of fact though, you’d be wrong. No less than crucially important 1810's Treasury secretary William Harrison Crawford makes precisely this argument in a report to congress:
"It is proper to observe, that gold and silver derive part of the uniformity of value which has been ascribed to them, from the general consent of civilised states, to employ them as the standard of value. Should they cease to be used for that purpose, they would become more variable in their value, and would be regulated, like all other articles, by the demand for them, compared with the supply in any given market. It is presumed, that, if they should cease to be employed as the standard of value by several states, their uniformity of value would be in some degree affected, not only in those states where they were considered as mere commodities, but in those where they were still employed as currency."
I haven’t been blogging as much as I wanted to be. My problem with my writing is I’m attracted to “high concept” pieces that take a lot of work but often don’t have the time to finish them “in one go”. Then, once I stop working on them, it becomes difficult to return to them. Thus, starting today, I’m going to make sure I post once a week on what I’m reading. I’m always reading papers, articles and dissertations and I go through much more material than I ever comment on publicly.