Transition to Clad—Under Sec. Barr’s Oral History, LBJ says “Joe that Sounds Crooked"- Long Post

JCH22

Warning—long post follows, as does an off color seigniorage reference.

Joseph Barr served as Under Secretary of the Treasury during the transition to clad coinage (1965-68). He also served a brief term as Sec. of The Treasury for the last month of LBJ's presidency. Barr sat for an Oral History interview in Washington D.C. on September 12, 1986 with Historian Mitchel L. Gillette.

Barr provided a wide-ranging recounting of the considerations which spurred that transition, and a colorful picture of the political scene, including LBJ’s reaction.

G: Let's talk about the coinage issue.

B: All right. That was one of the first things that I encountered when I came into the Treasury. First of all, the Treasury was in a big debate within itself, had a huge debate going on. And secondly, there was a debate going on in the country. The issue of course was that we were running out of silver. We simply did not have enough silver left in our--to mint the silver half-dollar, the silver quarter, and the silver dollar.

There had been no demand for the silver dollar for a long time, but the demand for the silver quarter and the dimes was incredible. It was very obvious we were going to have to stop it, the demand for silver in--silver's main use is in photographic equipment, in film stuff. Well, with the huge increase in photography, we were just eating up a lot more silver than we were producing, and the price of silver was held down artificially to that dollar-an-ounce level, or $1.39, I guess it figured out to that was the coinage value.

Strangely enough, you know, when I was a young man in graduate school in Harvard, I remember they used to teach us--and this was back in the 1930s--they used to teach us that one of the best examples of a vicious, money-grabbing senator, what they will do to keep getting elected, was old Senator [Pat] McCarran from Nevada. He was the one who forced the United States through his machinations--he'd been in the Congress so long--he forced the United States to buy all the silver that was produced and use it for coins. Well, of course, we couldn't use it for coins; we had this enormous silver stockpile that got bigger and bigger and bigger. And that was in the early days. Then all of a sudden with the demand with photography and the other demands, the demand for silver just outstripped all our production. We ate up into the stockpile and then we ran through the stockpile. What happened then was that--we had to keep some stockpile back for defense purposes, but then what happened was that it was very obvious that we were going to have to quit using silver in the coinage. So McCarran who it looked like had forced us to buy all this silver--a lot of it much cheaper than the $1.39--had really made a pretty good deal for the United States. We made a lot of money from the old senator.

Well, when it became obvious that we [were?] going to have to do something about the coinage, the big question was the quarter. That was the one that was heavily used--the quarters were used in all the vending machines. The argument in the Treasury was whether or not we were going to use a cupronickel alloy quarter or whether we were going to use a clad quarter that was a cupronickel on the outside and had a copper center. And the argument for using the latter was that it had the proper electrical properties to activate all the vending machines, and if you used the straight cupronickel it wouldn't.

They would have to change all the gadgets they use on all the vending machines around the United States. Well, this got so fierce that we finally--I was very, very dubious about using that clad quarter because it was ugly, I thought. Compared to the silver quarter, it was the ugliest thing I'd ever seen, but it soon became obvious that without tearing up the vending machine industry, that we were going to have to go to the clad operation which we did decide to do. And one way we got the--we finally got the bill through the Banking and Currency Committee, we got it all signed up. And one way we did it was to appoint a commission on silver and put Wright Patman [long term Texas House Rep.] and a bunch of the congressional people on that thing to help us make the transition from the silver coins into the new clad coins.

I'll never forget the day I had to take that coin over to show it to Lyndon Johnson. Did I tell you--is that in your notes?

G: No.

B: I had to take--when we finally had decided that this is what we were going to do, I had to take this coin over to show it to Johnson. I thought, "God almighty, he's going to go through the roof." He'll say, "You're going to get rid of those beautiful coins, and I’m going to be remembered all my life for this ugly monstrosity?" Well, there was one bit of accounting thing that I thought would cheer him up, and that was the fact that we were going to make about four or five hundred million dollars in the shift. That's in seigniorage. Seigniorage goes back to the old term that "le droit de seigneur," the right of the lord of the manor, you know. He had two rights in feudal days. One was to lay the help before they got married, that was one of his rights, and the other was to clip the coins. And so, the term seigniorage is the difference between what it costs to produce a coin and the nominal face value of that coin. That's the term seigniorage. Well, it didn't cost us much to make these copper clad quarters and we were going to make about a half billion a year on that thing.

G: Because of the metal component--

B: The metal component. When you compared the metal component--I don't know, with maybe a nickel or so--and here was something with a face value of a quarter. Maybe it was a dime, I don't know, but it was enormous. The production cost of making the coin and the face value of the coin--the difference was seigniorage, and it was about a half billion a year.

I went over and told that to Johnson, and he said, "Joe, that sounds crooked. I just don't believe that. I can't believe that anybody would have such a rule." I said, "Mr. President, this thing goes back to feudal times. [Inaudible] It may be crooked, but people have been doing it," and I said, "We have to account for this. We're going to be making these coins and we've got a cost of production of labor and materials and building the plants--we got a cost of production, and then there is the face value [inaudible]"--I said, "There's a difference. There's some place we're going to have to account for it, and the accounting is--it says that this is a receipt to the United States."

He said, "Joe, that sounds crooked to me. I want you to take all those documents and put a big secret stamp on every damn thing you've got and hold them until I check this out with a few people I trust. I'm not saying that I don't trust you, but this is too hard for me!" (Laughter)

And he did. I locked it all up. I don't know who he talked to--he had some people he talked to, like--oh, who was the Supreme--the guy he appointed to the Supreme Court?

G: Fortas.

B: Yes, old Abe. He probably talked to someone like Fortas, you know.

G: Ultimately, did he….

B: Ultimately, yes. He said "Fine." And you know, strangely enough, we were never criticized for the appearance of those coins. The thing that we had dreaded worst never came to pass. The coins worked just fine. If they worked in all the vending machines everybody could get their cigarettes or their bubble gum or whatever. So we made the transition in great shape.

G: There was some question initially that the cost of fabrication might be greater than anticipated, wasn't there? Did you….

B: Could have been, back in the early days. We didn't know. We brought in a fellow named Decker, from Corning Glass, who was an old pal of Fowler's [then current Sec. of the Treasury] He had retired from Corning, and he got that whole production operation under way. He did a marvelous job.

shortnock

Thanks. Nice reading!

TomB

Fantastic share of the transcription. Thank you.