Can anyone here explain 19th century lack of legal tender?
Prethen
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My understanding is that most, if not all, of the change (coins) created by the Mints were NOT legal tender. In fact, they did not achieve legal tender status until 1965 (with the exception of the Trade Dollar). I don't completely understand the implication of this for the 19th century consumer. I guess that means that cent you had in your pocket in 1845, might be worth 1 cent, might be worth something to somebody because of its copper content, or might be worth more than 1 cent. What's more surprising is that I think there were federal laws that dictacted how much a coin could be used in trade. Couldn't a 2-cent piece be used for up to about 60 cents in trade? This boggles my mind. How did coins work in the average 19th century daily transaction?
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An item is only worth the sum of its parts (Metal Composition) or what another institution (Federal Reserve Bank) is willing to give you for it. No private institution is required to accept anything they don't want to, even FRB backed bills (Which aren't really backed by anything other than the government's word at this point, unfortunately). You can very well open a shop and only accept items in barter; this use to be somewhat common (Of course).
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The lack of legal tender status for copper and subsidiary silver coins had very little effect on most 19th century consumers. It affected businesses much more. From the time of the Civil War (aka "War of Northern Agression," "The Recent Unpleasantness," etc.) through about 1876, most retail purchases were conducted with notes. Even small purchases of a few cents used fractional notes. Even when silver coins reappeared in circulation in 1876, they were not legal tender in amounts of more than $5.00 per any single transaction (though everyone used them for shopping).
What's the big deal about legal tender status? If you were an importer paying customs duties or someone paying taxes, you had to use legal tender. Until early 1873 you could pay in silver dollars or gold (or notes backed by gold), and from 1873 through 1878 you could only pay in gold or legal tender notes. This became an issue when you had to buy gold or legal tender notes with greenbacks or silver since the latter were worth less than the former most of the time. (Silver dollars actually had more bullion value than a dollar in gold to late-1873). In the darkest days of greenbacks (1864), it took $203.30 in greenbacks to buy $100 in gold. While you could buy daily necessities at stores using greenbacks, it would cost you more than double the face value of greenbacks to pay $100 in taxes or duties.
By the time unlimited legal tender status was returned to silver dollars in 1878, the difference between greenbacks and gold was negligible. In other words, you could use $100 in greenbacks or silver dollars to buy gold or legal tender notes to pay taxes and duties or to pay contracts drawn in gold dollars.
Consumers used whatever money was available to make their purchases. The differing values of greenbacks, silver, and gold reltive to each other meant little more than that one would disappear from circulation once it was valued higher relative to the others. Merchants adjusted their prices for the inflationary effects of greenbacks, so it is not as if they priced all their wares with three different price tags (i.e. one for notes, one for silver, and one for gold).
Obscurum per obscurius
I have heard of such occurrences, I don't remember the actual bills used, but I was told of a situation where workers were normally paid in bills (gold I assume), but companies could buy silver dollars (coins) for 90 cents on the dollar and then pay their workers using the silver face value (in effect a pay cut).
I'm sure if you research the phrase legal tender, you'll run into this story.
In certain circles (in my neck of the woods), you can pay in cash or "cash equivalents" at many places (use mexican silver coins), I've even seen payment in Canadian currency (I'm not sure where they FX it).
Interesting isn't it?
-g
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Shiro -- thanks for the info!
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Basically, during the 19th century, copper and silver coins had limited legal tender status. For example, copper wasn't legal tender in the first half of the century, so that's why the trime had to be created when silver coins disappeared after the California Gold Rush. For one, post offices wouldn't accept copper coins for the purchase of stamps.
Silver also had various limited legal tender status - this reflected the confusion in the US about Bimetallism and the Gold Standard. As I recall, silver was legal tender up to $10 at one point, so if you had a larger transaction, such as Customs Duties, you had to pay in gold.
Dave Bowers, in his Silver Dollar Encylopedia, tells the story about businesses buying Trade Dollars (as bullion) and paying them out to their workers as dollars. The workers then had to sell the Trade Dollars for what ever they would fetch (bullion value) because they weren't legal tender. As I recall, Bowers says that this was like paying their workers 90 cents for each dollar owed. (A truly scummy trick!)
Neil Carothers covers all this very well in his book "Fractional Money"
Check out the Southern Gold Society
Trade dollars were issued with legal tender status of up to $5.00 per transaction. Originally it was to be a simple bullion piece with no legal tender status in the US, but promoters feared Chinese merchants would not trust a coin with no legal tender status in its country of origin. Its legal tender status was revoked by the Act of July 22, 1876. By the time Morgans were minted in 1878, the bullion value of trade dollars had fallen to 90 to 92 cents in greenbacks. Some factory and mine owners bought these from brokers for bullion prices and paid them out to workers at face value. Since banks would not receive them as deposits, government offices refused them, and merchants only took them at a discount, holders of trade dollars lost money trying to use them in purchases. Congress finally passed a bill in 1887 authorizing redemption of unmutilated trade dollars for standard silver dollars or subsidiary silver coins at face value. During the 6 month window of redemption, speculators who bought them from workers at a reduced price were the ones who profited most.
Obscurum per obscurius
<< <i>Are you asking "Why" certain coins had limited legal tender status or "what" the status of the various coins was? >>
Actually, I sort of wanted to know about both and it looks like I got some pretty good answers. It just kind of boggled my mind why a shopkeeper might accept a 2-cent piece as having a value of 60 cents for a given transaction. I guess it was all about the bullion and less about face value. Thanks.
<< <i> Actually, I sort of wanted to know about both and it looks like I got some pretty good answers. It just kind of boggled my mind why a shopkeeper might accept a 2-cent piece as having a value of 60 cents for a given transaction. I guess it was all about the bullion and less about face value. Thanks. >>
If minor copper coins were a nuisance, a shopkeeper may have asked that they only be used up to a certain amount and that silver make up the bulk of the amount. A shopkeeper wouldn't have accepted a coin as being worth more than face value unless he was hoarding gold or silver at the time and accepted them at bullion value. I can't imagine someone accepting a 2 cent piece as being worth 60 cents unless he were a collector.
Obscurum per obscurius
<< <i>
<< <i>I can't imagine someone accepting a 2 cent piece as being worth 60 cents unless he were a collector. >>
My mistake, it's noted in Breen (Ch. 21) that the 3 cent nickel was to be legal tender up to 60 cents and that 2 cent pieces up to 4 cents. Still bizarre.