May 13, 2019

Robert Graboyes on Monetary History of Small Coins

A Macro Musings Transcript
David Beckworth Senior Research Fellow , Robert Graboyes Senior Research Fellow

David Beckworth:  Our guest today is Robert Graboyes. Robert is a senior research fellow with the Mercatus Center and formerly worked for the Federal Reserve Bank of Richmond and Chase Manhattan Bank. While Robert worked many years as a monetary economist, and is here today to discuss some monetary history with us, he is currently working as a health economist here at the Mercatus Center. Bob is also a colleague of mine and a great hallway conversationalist. Bob, welcome to the show. 

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Robert Graboyes: Delighted to be here Dave. 

Beckworth:  Glad to have you on. We've had some fun hallway conversations. You know a lot, you speak many languages. You've gone from monetary economics to health economics, done a lot of interesting things. So you have a very interesting career path, so why don't you give us that kind of a brief overview of how you ended up where you are now. 

Graboyes: Sure. So I guess the genesis of it is in college, I was an English literature major who never took a drop of economics. So what do you do with that? I don't know. You have a friend who's a newspaper editor who hires you to do some of that, so I was briefly a news writer. I was always frustrated because I knew zero economics, and I knew I needed to, to do a good job of that. So anyway, after about a year of that I decided I'm going to go take a couple of economics classes, get a Masters in something. I just immediately fell head over heels for it, and within a year I was at Columbia pursuing my doctorate in economics. I had taken a slew of courses. So I studied at Columbia, eventually got my doctorate. 

Graboyes: In New York, I worked for five years as Sub Saharan Africa economist for Chase Manhattan Bank, which had a sizable presence there. Turns out that the reason I was hired for that was because I had zero experience in Sub Saharan Africa and the guy who hired me was sick to death of everyone who did have experience. He wanted someone to think unconventionally, so he turned to me. So I worked there, and I loved it. It was a great thing. Eventually, I got really tired of New York City. I’m from just south of Richmond, Virginia, and I just couldn't take the city any longer, especially after we had our son, so we moved back. So what are you going to do in Richmond? So I ended up working for the Fed. I worked there for 12 years. It had some high points. It had some interesting points, but it didn't sing to me, shall we say. 

Graboyes: About midway through, my wife said, "I've noticed something about you." She said, "When we go on vacation, not once have I ever seen you take a book that had anything to do with the Fed or monetary policy, why is that?" I said, "I don't know, because it's dull." And she said, "But every time we go on vacation, you're reading about health care, why is that?" I said, "Because it's interesting." She said, "Well, why don't you change? Why don't you be a health economist?" I thought about it for a day or two and said, "I'm going to take you up on that." So I said, healthcare will be in utter turmoil for the rest of my working life, and given what I know about Social Security and Medicare, it's going to be a very long working life. So I did that. I ended up getting my doctorate. I went to teach at the University of Richmond for six years. 

Graboyes: About 12 years ago, there was a job with a trade association up here in DC, right as the whole wasn't called Obamacare yet. No one knew who Obama was at that time then, but it was that debate that was brought up. I worked on that for six years and six years ago, I came to Mercatus, so here I am. 

Beckworth:  Very interesting. Now, you did some work on monetary economics before you made the transition, including some articles I read on the currency union, so you are a hardcore monetary economist, as well as a health economist. And moreover, you had a great graduate school experience you've told me about, and that is you worked for Don Patinkin, who was a very influential monetary economist. For those who don't know, he had a book called Money, Interest and Prices published in 1956, very, very influential book for a long time. And you actually worked for Don Patinkin, you knew him. Tell us about that, because I've never met him, obviously, and he's someone who's very influential on my profession. So what was it like? 

Graboyes: Oh, I knew him very well. So I was grad student, and they were doling out research assistantships. Department administrator, a little bit sheepishly came to me and said, "We've got this visiting professor, would you be willing to work for him, Don Patinkin?" I said, "Oh, I’d love to work for Don Patinkin. Why wouldn't I?" She said, "Well, he can kind of drive people crazy. He's very demanding, very nitpicky, very precise.” I said "I don't care. I'd love to work for the guy." Well, anyway, I did and I loved working for him. The first day I went in there, he was working on a book which I have sitting right here called Anticipations of the General Theory? In which he was trying to figure out what were the streams of thought that led to John Maynard Keynes. His first assignment was, he wanted to know whether Keynes's book- 

Beckworth:  The General Theory. 

Graboyes: The General Theory, was there a comma after the second of the three words, was the Oxford comma present in the first edition, first printing? 

Beckworth:  That's a very precise request. 

Graboyes: Very precise. So I hit it off. This was long pre internet, which meant that you had to crawl through all sorts of dingy, dark libraries all over Manhattan hunting for this. I finally found a first edition, and I brought it to him. I was just as happy as could be. He looked at it and he got sad and said, "No, this is first edition, but it's not first printing. I need a first printing." I said, "Well, okay, I'll keep at it." And he said, "You might not be able to find it, because they're very rare." So I went all over Manhattan and finally stumbled on one in some library somewhere. I brought it to him and his eyes lit up, and he said, "Where did you find this?" Anyway, so he was very happy. 

Graboyes: So I said to him, "Do you mind if I ask you something?" I said, "Keynes obviously didn't care too much about the comma because some of the printings had it, and some of them didn't, he must not have cared very much. Why do you care so much?" He looked at me and he put his finger into the air and said, "Because in Paris, at the Cathedral of Notre Dame, hundreds of feet up in the air, there are these intricate carvings of gargoyles, and all sorts of mythological beasts, and centuries ago, when they were carved, the artists knew no one is ever going to see these things again. But they did their very best to make them things of beauty, to make them intricate and beautiful." He said, "That's why I care about the comma." He said, "I want to be as careful as they were." As you know, that story became the basis for an article I wrote this week after the catastrophic fire at Notre Dame. 

Beckworth:  And we will put it on the web page, so our readers can take a look. But that speaks to precision and sticking with something and working through to the end. He was like that in general? 

Graboyes: Yeah, he was like that absolutely, totally in general. Actually, I guess my proudest moment was when I realized that the type ... his handwriting wasn't that easy to read, and some type setter had replaced the word now with the word not all through a chapter, which would have been a disaster because it reversed the meaning of every single thing he was saying. But anyway, he had a long history, many decades he worked with all of the greats, all of the University of Chicago School. He was really one of the very early ones there. He had this long history in theory and empiricism. 

Beckworth:  What is his legacy? I mean, for those who are younger and may not appreciate, can you speak to his legacy? 

Graboyes: I think he was kind of a bridge. I don't know that people read his stuff at this point. I've been away from monetary economics long enough, I don't know. He was in some ways an interpreter and refiner of the things Keynes and others were saying, he elucidated. Slogging through Keynes is not an easy matter, Don Patinkin could be very clear. There's a view that while his book did not have IS-LM diagrams in it, that he more or less described IS-LM, that became later the basis for the diagrams. So a lot of the way mid-century monetary economics and macroeconomics was thought of was elucidated by Don Patinkin. But anyway, by the time I met him, he was working on doctrinal history. Economists hate doctrinal history. They don't even know it exists. 

Graboyes: As I said in my article, they think that the present state of economic theory existed at the time of the Big Bang, and will be there till the sun goes out. So I said, "Given your legacy, why are you doing doctrinal history?" And he said, "I'm doing it because no one else likes it." And he said, "And when no one else is doing it, it's easy to be the very best in the field." So he spent a lot of his later years looking at history of thought and how economics got to where it was. So knowing him was a great thing. 

Beckworth:  Okay, well, let's move from doctrinal history to monetary history. I want to let our listeners know that Bob is something of a numismatist, which means in a fancy way, you're a coin collector, a bill collector, and you know the history of mainly the coins and bills you've collected. So we've had some hallway conversations, as I mentioned before, where Bob has explained to me some of the history behind these coins and bills, and very interesting ones. There's lessons for us surrounding some of the histories of these coins. I thought it'd be great for you to come on the show Bob, and explain it to our listeners. And so we're going to work our way through history. You've got these coins here in front of us, and we'll attempt to get pictures of these up online as well. 

Beckworth:  I want to go all the way back, starting with Diocletian, the emperor of Rome. Almost 2000 years ago, I believe 301 was the famous Edict on Maximum Prices. Tell us the stories behind that and the coin that you have. 

Graboyes: Sure, and I'll just start by saying, I really got into this because I inherited a little box of coins from my grandfather who died long before I was born. He was an immigrant, and I think some of them he must have collected on his way over to America. He lived in early Key West for a while, which was a major seaport, and I imagine he had a store there. I just imagine some of the sailors who came to town gave him these coins in trade. But anyway, so Diocletian, and this is actually a recent acquisition. I don't have a big collection, but I like to make it an interesting collection. Diocletian is a remarkable story. Actually, I wrote a piece today that will mention him and the story. So he was emperor from I think, 284 to 305, and has a remarkable fact that he was one of the few who abdicated and went home and relaxed after being emperor. 

Graboyes: I think he died in his own bed, which is extremely unusual for Roman emperors. 

Beckworth:  A peaceful death, huh? 

Graboyes: Yes. But anyway, the inflation had been roaring for a while and continued to roar basically, it was an old story. They were debasing the currency. They were cutting down on the metallic value. The intrinsic value of the coins was dropping well below the face value. 

Beckworth:  And just to be clear for our listeners, let's go through that process. So the emperor or the government of Rome would collect the coins, melt them, take the precious metal out, recast the coin, and put some cheaper metal in. Is that how it worked? 

Graboyes: I guess, or they were stamping out new coins. 

Beckworth:  Oh, stamping out new coins, okay. 

Graboyes: So I don't know if they were melting the old ones down, but it's an old story and has ruined many a country where they debase the currency. But anyway, as the coins got less and less valuable, of course, the prices of all the goods were rising and rising and rising, because who wanted a cheap debased coin? "Okay, I'll give you the merchandise, I will sell you this chicken, on the other hand, you're going to give me 10 of those debased coins rather than two of the good ones." Well, this bothered Diocletian and in the end he blamed greedy merchants, that it was greedy merchants that were doing this problem. And so he issued the Edict on Maximum Prices, which was a set of price controls on somewhere over 1000 goods. 

Graboyes: It stands as probably the most remarkable story of the impotence of price controls, in that the penalty for violating the edict was death. Death for both the merchant who was selling the goods and the customer who was buying them. Well, it appears that it had almost no effect. People just kept inflating and inflating and more or less ignored this. Every time they sold a chicken for the wrong price, they were committing a capital offense and theoretically could be killed for it. One of the most powerful kings in the history of the world still couldn't stop it. Supply and demand conditions are a lot more powerful than even the strongest emperor or king. So it's a nice precautionary tale, and every time some government decides to do wage price controls, the story gets dredged up. They don't learn from it, but anyway, they ought to. 

Graboyes: So anyway, I have this nice little coin. I don't think anyone even knows what the name of this coin is or what denomination it was, because the empire was just pouring out these junk coins that no one really wanted 

Beckworth:  We have a case of the quantity theory at work in the Roman Empire. 

Graboyes: Yep. 

Beckworth:  And a reminder that wage and price controls really don't work. Let's move forward in time to another coin you have. You've got something from Henry VII, is that right? 

Graboyes: Yes. 

Beckworth:  What was the time range of this? 

Graboyes: So Henry VII was in the late 1400s, early 1500s. He was heir to prior kings but sort of tossed out the ones that were in there. He was the last king of England to take office by battle, by overthrowing and killing his predecessor, Richard III. Who, by the way, showed up underneath a parking lot in England in 2012. No one knew what happened to him and they found him. 

Beckworth:  Surprise, surprise, there he was. Well tell us about his currency or his coin. 

Graboyes: Yeah. I have to think about it, but I think it was his great-great-great-grandfather, Edward III, created a hammered bronze currency. English kings found that when they debase the currency, they got weaker, when they kept the currency strong, they were stronger. And under a number of kings, they had kept quite tight quality control over the precious metal content, the size, the weight, the shape. So what I have here is called a Groat, G-R-O-A-T, which is a four pence piece. It's bronze and it's hammered, which means that someone would make a planchet. You would take molten bronze, pour it into a mold, and while it was still good and hot, you'd take it out with tongs, you'd put a dye over it and you would slam it down with a sledgehammer to make this. 

Graboyes: I've only owned this for a few weeks, but it is my most beautiful, stunning coin. I’m stunned by just the beauty and the condition of it. Anyway, Edward III was something like seven or eight kings before Henry, and for the well over a century among those kings, this coin, basically, they would change the picture of who was on it and the name, but basically the coin, the design did not change. It was very important. You had an illiterate population, they became accustomed to the looks of a coin, the feel of it, and it was very important to them. So this coinage basically lasted virtually unchanged for well over a century. I think after Henry VII, maybe after Henry VIII it began to change. 

Graboyes: If you look at it here, it's got a very rough, crude edge. This was not precise. One of the really big technological changes in coinage that came later, probably with the invention of the steam engine is the very precise, clean, circular planchets that we now have, that our coins are stamped on to. So the problem with coins like this is it was possible to scrape a little bit of the metal off the edge of it, and therefore the next time you were paying someone it was with a little bit less metal and these things would become debased over time. Now, this had enough inscription around it, and it made it sort of difficult to do that. I did run across a king of Denmark, Eric V I believe. A lot of these kings at that time had a name, so it'd be William the Conqueror, Edward the Confessor. 

Graboyes: This Danish King was Eric Klipping, and I was wondering what that meant. I looked it up and it turns out the procedure of snipping a little bit of silver or gold off the coin to cheat the person you're going to buy is called coin clipping. And this particular King was thought to be a thief and a piece of trash, and the Danish people started calling him Klipping just to indicate that this guy is unscrupulous and will rob you blind. 

Beckworth:  What a legacy. Now coins we have today just by contrast, they tend to have those ridges around the edge, did that emerge from that practice as a way to check the clipping or shaving of the coins? 

Graboyes: Yeah, if you take a current coin, it would be awfully obvious if you clipped the edge of it off and try to snip a bit of the metal out. 

Beckworth:  Of course, the metal today probably isn't worth as much as these coins. 

Graboyes: The metal today isn't worth anything. It's worth a couple of cents, no matter what coin. And we'll get into that because at this time, the intrinsic value of the metal in the coin was the key to its value. We are obviously in a very different period where it's fiat value. It is valuable because someone says it's valuable. And why that works is still something of a mystery. While I said I found a lot of the Fed stuff to be kind of dull, I really do kind of like the monetary history. 

Beckworth:  Mystery of money. 

Graboyes: Yeah. 

Beckworth:  I still debate it. Alright, well, let's move forward in time. Let's move up to the 1800s. I'm going to move to something called a trade token that you have collected around the 1830s. Tell us about these trade tokens. What are they and how are they used? 

Graboyes: Yeah, the ones I have here I think are probably from a later era than that. They're probably from the late 19th century, but the type ... So in US history, there have been several periods where coinage vanished for various reasons. One would be if you had silver coins, that the silver in it, the melt value was high and the face value was low, you would end up with situations where people said, "I may as well melt the coin rather than spend it for its face value." And so during these periods, when the US was going through cycles of inflation and deflation, coins would vanish for a while. A lot of them would in fact be melted down. Sometimes they would just go away until conditions got better. But you ended up with situations such as, I think it was the 1830s or '40s, where you had a tremendous shortage of small change, and you don't realize how difficult life becomes until those things are gone. 

Graboyes: There was some quote about, for want of a penny someone would have to walk across town rather than riding in a coach, because the smallest thing you had would have been a $1 paper currency. In today's money, that's the equivalent of maybe $20, $25, at a time where $20 or $25 was an enormous sum. I would have to think about what a week's income would be, but you're really talking about sort of in our life if you imagine, if the smallest money you had available was $100 bill, how would you go about your daily life? You find it very difficult to buy a newspaper or a meal or a ride or anything else you wanted. So stores began producing their own tokens. It would say, good for trade, good for five cents at this particular one, which again, I think is later than this period is from Cooper's store, wherever that is, I'll have to look it up online. 

Graboyes: It would say, good for five cents and trade at the store. The thing is that people wouldn't just use it at the store. People would use it for everything. So it's okay, I don't have any need to buy something from that store, but I'll take it anyway, because somebody I run across will have. And you get to some point at which it becomes a freely circulating medium. The expression, don't take any wooden nickels, that was part of this too. Some companies would make a wooden nickel, good for five cents at this cigar store. And as long as enough people in the population we're using these things, you can circulate them quite generally. 

Beckworth:  And there were coins that circulated widely. Is that right? 

Graboyes: You mean these non-coins? 

Beckworth:  Yeah. 

Graboyes: Yes, they circulated quite widely. Some of the odder examples, out West, there were a lot of these. There were shortages of coins out there, it was just sort of sparse anyway out there. But not to be indelicate, but a number of brothels would issue tokens, good for trade there. Most of the population was not using the services of those brothels, nevertheless, the tokens would circulate as money because again, somebody in town will want this thing. They would show up in church collection plates, and that was fine. The closest I've had to that is, and I'm going to jump to this one, from the 1980s a New York subway token. And in that time, I knew lots of people who didn't ever use the subways and buses, but you could always, always give them a New York subway token in place of $1. Because somebody would want it and they knew that they would have absolutely no trouble getting rid of it. 

Graboyes: After I left New York, I went to Richmond where there was a highway, a toll road that also had tokens. You could not possibly use those, just because not enough people were interested in using that highway. So for a non-money to become a virtual money, there have to be enough people out there using it, that you don't have any trouble trying to get rid of the thing. 

Beckworth:  So there must have been enough people using the brothel token. 

Graboyes: It is, absolutely. 

Beckworth:  For it to get accepted at church, that must have been a sight. The pastor picking up the offering plate and there's a number of brothel tokens on the offering plate. This speaks to one of the debates about money, what drives money, right? So one of the stories is kind of a state theory or the chartalist theory of money, it has the backing of government. Of course the Diocletian story kind of underscores or maybe is evidence against that, but this also would be a case for the network effect is more important. Kind of an emergent order story where you get enough people using it, then you will use it. 

Graboyes: So the next coin I have is a really good example of that. Again, during the Civil War, there was another of these massive disappearances of coins, and it was for two reasons. One was Civil War finance meant there was a big inflation, so that you would have these coins which intrinsically were very valuable because they all contained gold, silver, copper, but also the war time metal needs. You needed metals to make cannonballs and bullets, and so there was a real scarcity. The intrinsic value of metals was rising for the war needs. So all the coins just vanished, and the presumption was that the silver and gold ones probably had gone, had been melted down into ingot. So you needed small change. So some of these were trade tokens, but there appeared, and that's what I'm holding here. It's called a Civil War token. 

Graboyes: These look like the store tokens, trade tokens, but they promised you nothing. They simply said things like, "Union forever." I can't read in the dark here, but it has some patriotic slogan on it. Some of them said, "Not one cent." They look like American pennies, but this one says, "Union forever." But some of them said, "Not one cent." But it circulated as a cent and people would accept these, and they circulated as coins even though there was no backing, no promise. They weren't legal tender. You couldn't pay your taxes with it, and yet, they circulated as valuable pieces, and people would accept them. Why is that? I think it's a fascinating mystery. I don't know why they would take them other than there was some sort of an implicit social contract that said, "We'll accept these and you can use them, because otherwise, society will be a mess without any coinage." 

Beckworth:  Who were issuing the tokens during the Civil War? Stores, businesses? 

Graboyes: Yeah. I don't know. Folks. Someone who had a metal business would stamp these things out and circulate them. I don't know how they got into circulation. I don't know if they sold them or if they just tossed them out there. I don't know. It's an interesting story. This has prompted me to figure out. There are specialists in the coin collecting world who are token collectors. They are a special breed among themselves. 

Beckworth:  So either one or two things or both things happened. One, there was enough of a network effect was developed, there's some threshold was crossed. Enough people we're using these tokens that you would use it. And maybe some of the firms or institutions, people issuing this, maybe they had some backing. I can imagine like a large store or firm may have helped get it going at first. So instead of having government backing it, you got some entity backing it. But a mix of backing and network effects must have propelled these tokens forward. 

Graboyes: Yeah, absolutely. 

Beckworth:  Okay. All right, let's go from the tokens of the Civil War, and let's move to something else that's interesting that you've shared with me previously. And this is the postage stamps. They were also a form of coin or quasi coins, is that right? 

Graboyes: Yes. So US law prohibited the government from issuing paper currency smaller than $1. So when coin shortages appeared, people would get very creative. They would issue those store tokens, they would issue Civil War tokens later. Before the Civil War, there was a bout of this. People needed small change, so what they started doing was taking postage stamps and encasing them in some transparent, I assume it must have been mica. You would have these, it looked like a coin with a window, and inside of it was a postage stamp. I guess in theory, you could always pull the stamp out and stick it on a letter, but whatever it was. These things circulated for a while, some stores put them out. I'm trying to remember one, maybe it's Macy's may have been one of them. 

Beckworth:  Oh, interesting. 

Graboyes: Some well-known department store was issuing some of these, because they had to keep their commerce going, and if no one had any small change, they were going to lose a lot of business, so the stores themselves helped produce this. At some point, I forget the exact year when this happened, the federal government needed to produce small change, but they couldn't. Again, because the metallic value was higher than the face values and so everyone would melt them, but they needed change. Now, they couldn't produce a currency note smaller than $1, so what they did was they took these pieces of notepaper, and they would for instance print on it five, 10 cent stamps. Now, they were sort of overlapping. 

Graboyes: You couldn't actually cut them out and use them as stamps because they were overlapping, but the government said, wink, wink, nod, nod. "This is actually five stamps, it's not a piece of currency." And people said, "Okay, well I'll take the five stamps, and I'll circulate them around." 

Beckworth:  And this was a workaround to what laws, to make coins? 

Graboyes: Whatever currency acts governed the production of currency, they did not allow the government or anyone else, I believe, to produce fractional notes explicitly at that point. 

Beckworth:  So this is a workaround to the rule that said you can't make anything less than $1 on paper. 

Graboyes: Right. And so they would say, "This is not a piece of currency, this is a postage stamp," or, "This is five postage stamps." 

Beckworth:  This seems so blatant. No one ever said anything or everyone realized there was a need, let's just kind of wink, wink and move on. 

Graboyes: Well, I can't remember if this was under his tenure, but Salmon P. Chase was involved in some of these things. And Salmon P. Chase, he as treasury secretary pushed through Legal Tender Act. 

Beckworth:  Right, greenbacks. 

Graboyes: Right. Then Lincoln appointed him Chief Justice to the Supreme Court, and maybe three years later, I think he was the primary author of a ruling that said that practice is unconstitutional. 

Beckworth:  Which is a bit of a puzzle. 

Graboyes: Yes. So he had both created the thing and then couple years later declared, "I had no right to do that. No one can do that." 

Beckworth:  Interesting twist. 

Graboyes: Yep. 

Beckworth:  Was he part of the currency stamp notes that the government issued? Was he part of that story too? 

Graboyes: I think he was. I'd have to look at my book to see that. 

Beckworth:  Well that would be consistent with his creativity in issuing money. So the greenbacks, which is well known for the Civil War financing, as well as these currency stamps, which were technically stamps, but effectively currency. So yeah, you have a problem and humans find a way around that problem, even if there are legal obstacles to doing so. Well, let's look around that time as well at another form of coin or money, and that's a 20 cent piece, tell us about that. 

Graboyes: There have been lots of experiments in American currency history. So for a while we had a half cent piece back in the 1700s and early 1800s. Eventually, that became judged too small to be necessary. For years there have been people pushing to abolish the penny in American commerce, and there's some odd stories on that. When we get to discuss Alaska, remind me to tell you about the sort of mythology of small coins. But we had two cent pieces. We have several types of three cent pieces. We had two different kinds of five cent pieces. We have the nickel, which we have now. There is also a teeny tiny thing called a half dime, which was half the size of a dime and very unpopular because it was really easy to lose them. 

Graboyes: And so the physical properties could determine what is a useful coin or not. So this 20 cent piece that I recently acquired from 1875, notice it's a little bit smaller than a quarter. It kind of looks nickel size, and it got to be very unpopular because it looks too much like other coins and people would use the wrong coin in making change, and realize either that they kind of got stuck. They spent too much or they received too little in exchange. So the 20 cent piece vanished very quickly. No one wanted it. It's kind of like in recent years, in the 1970s, they introduced the Susan B. Anthony dollar, which was a small dollar that was just slightly larger than a quarter, and it was a colossal flop. 

Beckworth:  I think I have some of those sitting at home. 

Graboyes: No one in American history since 1792, no matter how they've designed $1 coin, no one, with one big exception, has ever wanted to use them. Britain, they use the one pound coin, but to do that, and Canada did the same, they had to get rid of the $1, the one pound note. Not until you get rid of the note do people say, "Okay, I guess I'll have to use the coin." And we've never managed to get rid of the $1 note, so the $1 coin has never been popular. I have in my files a document that only some bureaucrat could have written. It was the US Treasury talking points for the Susan B. Anthony dollar, and it had said, "Convenient to use as it weighs almost exactly one third as much as four quarters." Which is just a sentence that could only have been written in Washington, DC. 

Beckworth:  Ridiculous comparison, right? 

Graboyes: Yes. It also said, "Easy to hear when dropped." So anyway, we tried, they put a sort of goldish coloring on the Sacagawea. 

Beckworth:  I still see some occasionally around, for example, I've gotten change back from a vending machine, one time I had to put a big dollar bill, like a $5 bill in and I got a bunch of those coins back. I didn't want them but they were given to me. 

Graboyes: Yeah, I remember when I was at Chase in the '80s, I had a roll of dateless buffalo nickels. They were to warn to see the date, which means they're worth basically a nickel. So I had them, and I thought I'll have some fun, I'll use them in vending machines. And one of my colleagues came running in all excited and said "You'll never guess what I just got out of the vending machine." I said, "A buffalo nickel." He said, "How did you know?" I said, "Because I just put it in there." And it took the air out of the conversation. But there was one group in American history, one or two groups, but really one predominantly that used ... And I'm now holding an 1880 Morgan design silver dollar. It was used quite heavily by African Americans. 

Beckworth:  Interesting. 

Graboyes: This is in a period where most of them were freed slaves or children of freed slaves, and lots were illiterate or semi-literate. It had been illegal to teach them to read when they were slaves, so there was a struggle. At the time, currencies were put out by banks, they were put out by the government. There were all sorts of currencies, and it was very easy to be taken in by a counterfeit, because you had to really know precisely what the thing said and who put them out. But a silver dollar, there was one design there, and as long as you had this you knew, yes, the federal government put it out. The other thing is that the recently freed slaves had seen the Confederates’ wealth go up in smoke when the Confederate currency collapsed. And so there was just this natural, we don't trust paper currency, because it's easy to counterfeit and because we've seen how quickly it can vanish. 

Graboyes: So it became something of a tradition in the African American community at the birth of a child to give a silver dollar as a present. And in fact, the one I'm holding came from an African American gentleman who did some work with my father back in the 1960s. He knew I was interested in coins, and he would bring me these silver dollars and I retain this one from his kindness. 

Beckworth:  Very interesting. 

Graboyes: I never knew these stories back then, but I'm presuming that was part of why he gave it to me. 

Beckworth:  Okay, about the same time as that silver dollar you were just talking about, there were also trade dollars issued, which was a very fascinating story I hadn't heard about until you mentioned it. Please tell our listeners about it. 

Graboyes: Yeah, it was actually something of a miserable failure of a US coin. It was created in the 1870s by an act of Congress and was discontinued a few years later, and actually was the only coin in US history that was demonetized. It ceased for a while to be legal tender. I think they reversed that later on, but this was $1 coin that was designed only to be used outside of the United States. 

Beckworth:  Outside, huh? 

Graboyes: Yes. They did not want them circulating in the US. In fact, the primary market was in China. China was opening up, there was a huge amount of trade going on. A lot of it was opium trade. I look at this trade dollar I'm holding and I wonder what was purchased with it, but I'm guessing- 

Beckworth:  Some drugs. 

Graboyes: ... somewhere in its life it bought some opium. The reason for it was Chinese merchants did not like our silver dollar. It's slightly smaller than the trade dollar. It weighs slightly less. The silver content was slightly less. They were used to dealing with coins like the Mexican reales, which were roughly the same size. They were slightly larger than the US dollar, and the Chinese merchants were happy with the size of it. They used a couple of other silver coins, roughly the same weight, same denomination, same size. They didn't like our dollar because it was too small, and also we had changed designs a few times. The Chinese merchants, probably for the same reason that African Americans distrusted all of these conflicting paper currencies, they did not like changes in designs. So Mexico made a big error when they had the Emperor Maximilian, who was the unfortunate ruler of Mexico. 

Graboyes: They decided Mexico needed to be an empire. They needed to bring European royalty in to rule it, and Maximilian became the emperor. He was the brother of the emperor of Austria-Hungary, and I gather he was sort of a well-meaning guy, but he didn't work out well and they shot him. He was lined up and executed in 1867, I think. But during his tenure, he decided he was royalty, he needed to have his picture on the coins, so they put him on the reales. At which point the Chinese merchants just stopped taking them, because the design changed, and they were unaccustomed to the new design. And it created something of an opening for other coins to take the place. So Congress decided that they needed to create a special trade dollar, and it says on here, "Trade dollar." Something that would appeal to the Chinese merchants. 

Graboyes: It would never change in its design. Senator John Sherman of Ohio, brother of William Tecumseh Sherman, put ... And again, in this light it's hard for me to read the exact, but it has an inscription telling exactly how many grains it weighed, and how fine silver content was. It was thought that's actually kind of a funny thing to add because basically, very few Chinese merchants would have any idea what it said or what it meant. But he insisted on it being on there, so it's on there. I will have to admit, in preparation for talking here, I tried to do some educating myself. I've never quite understood some of the weirdness of this coin. So it is slightly larger and has slightly more silver than a standard US dollar did, but some of them made their way back into the US, which the Treasury hated the idea. They didn't want them here. 

Graboyes: For some reason, they circulated at a discount even though the silver content was higher. As an economist, I have absolutely no idea what the logic of it was. 

Beckworth:  That's fascinating. 

Graboyes: It was unpopular, and- 

Beckworth:  Maybe it was larger, more cumbersome to carry around. 

Graboyes: Yeah, I don't know. I have read many descriptions, none of them make any sense to me. 

Beckworth:  Let me ask this about the Chinese, so they preferred silver, right? 

Graboyes: Mm-hmm (affirmative). 

Beckworth:  And then later they were on the silver standard. Milton Friedman talks about how they did not experience the great depression because they were on a silver standard when the rest of the West was on this gold standard which caused much pain. So that's part of the story here is they like silver in China. 

Graboyes: Yeah. I may be confusing stories, but I believe the emperor during this time, who gave this very florid endorsement of this coin, and said merchants must not distrust it, and they must accept them and revere. It was a very florid praise of the trade dollar. I think he had been the emperor who introduced the bimetallic standard there, so that silver became a very important part of the Chinese trade. So yes, they liked it very much. 

Beckworth:  It was accepted and widely used in China. 

Graboyes: Yes. In fact, there are none on this one, but many of these have what are called chop marks, C-H-O-P. And what this is, is that Chinese merchants would have a little tiny metallic metal die with a Chinese character on it representing the name of their business. They would take a trade dollar, and they would stamp these Chinese characters on them. So some of them are sort of defaced by having Chinese writing. Just a lone character and maybe several different ones from several different merchants. I don't know if they were advertising or sort of marks of authenticity, "I weighed this and it works." They used to be disliked by collectors. I think at this point collectors actually kind of like the chop marks because it's just such an odd piece of history. 

Beckworth:  Let me ask one more question on this and we'll go to the final coin related to Alaska. On this coin, you mentioned the emperor really plugged for it, really made a pitch, was his promoting the coin a pivotal driver behind it being accepted or was it been accepted already? 

Graboyes: I don't know. 

Beckworth:  Okay. 

Graboyes: I really don't know. 

Beckworth:  I was just wondering for the case of the governments backing it, make it acceptable, or was it kind of against ... The story between government backing versus kind of network effects driving its use. 

Graboyes: Yeah. Apparently, one of the aspects of this was that the Treasury really didn't want these things circulating. They weren't the same weight. They weren't the same size. You could end up with some sort of aggressions loss situation where the high silver content might drive out regular dollars. And some of them started making their way back into the US. I think the Treasury really wanted these things to go to China. You'd buy your goods, your rice, your opium, whatever, and the guy on the other end would just then melt it down, so these things would sort of vanish. But it had a somewhat troubled history, which I wish I understood better, but I've never found an explanation that makes any sense to me. 

Beckworth:  Okay, well, let's move on in the time we have left to the Alaska bingles. Tell us about that, and you mentioned earlier the mythology of small coins. 

Graboyes: Yep. And I don't own any of these, I need to get them there. There are a lot of fake ones for sale out there, so I have to find a reliable token dealer. In 1935, the federal government created an agency, the ARRC, The Alaska Rural Rehabilitation Bureau or Board, I forget, I think it was Bureau. And the purpose of it was to sort of airlift people out of the Dust Bowl of the Midwest, the Oklahoma Dust Bowl and whatever, and move them to Alaska and set them up as farmers up there. So this was just one more of the alphabet soup New Deal programs. It still exists. I think it's the original- 

Beckworth:  Really? So if I wanted to move to Alaska, there's some government program to subsidize my move? 

Graboyes: I think it's a loan agency, one of those farm loan agencies. I didn't realize that, I just looked it up and they still have a website. So they also set up commissaries around Alaska, where you could buy, I'm sure you needed to buy tools, you needed to buy plows, you needed to buy seed and those sorts of things. And for whatever reason, the federal government decided they needed to have their own currency. They made these little aluminum coins which I'm not sure anyone knows why, became known as bingles. They are really plain and unadorned, stamped on aluminum, and they circulated there. They had various denominations, and this became again ... The federal government made it legal tender in Alaska, so you were guaranteed to being able to spend these things. 

Graboyes: Anyway, they eventually fell out of circulation and they disappeared, and so they're now just for collectors. I don't know when they demonetized those that were not official US currency. Trade dollar was the only demonetized, but I think these things ultimately were no longer legal tender, but I don't think they ever had been outside of the territory of Alaska. So the Alaska settlers were, in some ways, a peculiar lot. People who went up there, it took a special type of person. 

Beckworth:  It's a hard life, that's for sure. 

Graboyes: It's a hard life, especially back then. 

Beckworth:  It's interesting, from the Dust Bowl in Oklahoma to the frontier life of Alaska, one hard life to another hard life. That's a great story. 

Graboyes: There were others who went from Minnesota. The reason Sarah Palin sounded like Sarah Palin is because that whole valley was settled by people from Minnesota who- 

Beckworth:  That is a good point. 

Graboyes: Yeah, so it's the same accent basically that you'll find in Minnesota. But anyway, another odd aspect of coinage in Alaska at that time, there were loads of saloons, and the saloon keepers did not like any coins smaller than, I think it was smaller than a quarter. Maybe it was a dime, but I'll say a quarter because I think that's what it was. And if you bought yourself a beer and you plunked a couple of dimes on the bar as a tip, the bartender would take his hand, sweep it off onto the floor. And the reason was because they had this perception that small change pushes wages down. That if you only have bigger coins, wages will have to stay higher as a result. I think because you won't be able to cut the wages by less than a quarter. So they basically would not accept small change, and they got really irritated when people would use it. 

Graboyes: In recent years, there have been people who've advocating getting rid of the penny. And one of the arguments which I think is entirely erroneous is if you do that, wages will rise because you won't be able to pay someone $9 and 33 cents an hour, you'll have to pay them 9.35, and somehow it also works in the other direction. But anyway, people have these mythologies, superstitions about what denominations work. 

Beckworth:  Very interesting. Well, with that, our time is up. Again, we'll have pictures of these coins on the web page or links to them at least. Our guest today has been Bob Graboyes. Bob, thanks so much for coming on the show. 

Graboyes: Thank you so much. It's been fun. 

Beckworth:  Macro Musings is produced by the Mercatus Center at George Mason University. If you haven't already, please subscribe via iTunes or your favorite podcast app. And while you're there, please consider rating us and leaving a review. This helps other thoughtful people like you find the podcast. Thanks for listening. 

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