My Longacre question: Seignorage

mgoodm3

Seignorage is the face value - cost of production for coinage. SO my question is: what happened in say 1940 when the coins value was based on the metal content. Did they lose money on them? did the mint buy metals at a reduced rate? I figure that back in the 1800's it was a little different when coinage was based on depositing metal and I believe that they took a percent of the deposit to make their money on the coinage.

robertpr

<< <i>Seignorage is the face value - cost of production for coinage. SO my question is: what happened in say 1940 when the coins value was based on the metal content. Did they lose money on them? did the mint buy metals at a reduced rate? I figure that back in the 1800's it was a little different when coinage was based on depositing metal and I believe that they took a percent of the deposit to make their money on the coinage. >>



I believe the mint was a service which was paid for through taxation at the time.

MacCrimmon

In 1940 a dime had .0933 cents worth of silver (at $1.29 per tr. oz.).

That's slightly less than one cent for labor and overhead, not accounting for the copper content.

mgoodm3

So, they minimally shorted the coins metal content to pay for expenses.

IGWT

I thought that Seignorage was Consuela's husband.

Longacre

<< <i>I thought that Seignorage was Consuela's husband. >>




That is hilarious. As for the original question, I don't know the answer. In the 1940's, did a coin's face value track the metal content for the government's seignorage calculations?

BillJones

Seignorage is the "profit" that a (usually, it can be a private mint that is making offical government coinage) government mint makes from the producing it's product. It's the difference between the face value of the coins and cost of the metal in the coins plus strking (production) cost of making them.

I don't have an chart of what silver bullion values have been over a long period of time. I doubt that silver pirces were over the "magic" number of $1.29 an ounce in 1940. That was at the end of The Great Depression when there had been a general deflation and the price of everything, including most commodities dropped.

At any rate if the price of silver was above that amount, American citizens would have withdrawn the coins from circulaiton, just as they did in the late 1960s when the silver price finally hit that level. If coin's melt value exceeds its monetary value, it won't stay in circulation very long. That why the so-called "commodity theory of money" (money derives its value from the medal it contains or the metal for which it can be redeemed) is invalid.

mgoodm3

I just figured out the worth of gold in a $20. Based on the pirce of gold quoted at 20.67 and 0.9675 oz of gold in a $20, comes out at $19.998. By that it was costing them money to make money unless some other factor is involved.

BillJones

The "offical rate" for gold coinage was $20.50 per ounce for mid 1834 onward. If the realy price of gold was higher in paper currency, the gold coins did not circulate and were only traded at their "real value." This was the state of affairs for many years during and after the Civil War.

Conder101

<< <i>I just figured out the worth of gold in a $20. Based on the pirce of gold quoted at 20.67 and 0.9675 oz of gold in a $20, comes out at $19.998. By that it was costing them money to make money unless some other factor is involved. >>


The other factor is that at that time there was still free coinage of gold. Coins were produced from deposited gold of private citizens, mine owners, and government gold received in payment of customs duties (which had to be paid in gold) And there where some small fees charged for the coinage. Profits from the copper coinage was also used to offset any losses that might occur from the gold coinage.



<< <i>In 1940 a dime had .0933 cents worth of silver (at $1.29 per tr. oz.). >>




<< <i> what happened in say 1940 when the coins value was based on the metal content. Did they lose money on them? >>


Well in 1940 silver was under 50 cents an oz and the actual metal value was only $0.036 in a silver dime so no they didn't lose money on them.



<< <i>Did the mint buy metals at a reduced rate? >>


Actually from 1934 - 1935 the government bought some two BILLION oz of silver at well above the market price. Government purchases during that period caused a rise in the pice of silver from 43 cents an oz to 82 cents per oz. Then when they stopped buying the price dropped back to around 50 cents an oz. and continued to fall.

If you are interested in average prices for silver from 1792 to 1999 silver prices

PhillyJoe

Very interesting thread. Turns out the Mint had a bonanza year for seignorage in 1940/41.

"For the (fiscal) year 1941 $82,747,474. of silver certificates were issued against 64,000,000 fine ounces of silver bullion valued at $1.29+ per fine ounce. Such silver had been acquired at an average price of 62+cents per ounce. The difference between the cost of the silver held to secure such certificates and the monetary value of the silver is $43,027,216 and this constitutes seignorage."

"The regular income realized by the Treasury from the mint service aggregated $51,653,974 of which $46,467,922 was seignorage. Seignorage on subsidiary silver coin was $23,346,561 and on minor coin, $23,121,361."

-Annual Report of the Director of the Mint, 1941. p5-6.

Now you know why my signature is one of my favorites.

Joe

mgoodm3

I just picked 1940 randomly as a silver coinage year. Glad that it was a good year to pick. Thanks for the info.

RWB

Interesting info. Philly!!

For much of its history, the US Mint system has been a “cash cow” for the government. For example, in FY ending June 30, 1915,with the price of silver at 43 cents per troy ounce, the mint put $3,687,564.41 in profit to the government’s general fund on production of silver and minor coins. (1915 annual report.)

Only in 1918-1919 and 1964 did the market price rise to $1.29 where the silver became worth more than the face value of a subsidiary coin.

BillJones

A well run mint operation is always a "cash cow" for its government, even if they never sell a commemorative coin to the collectors. And there is really nothing wrong with that.