Wednesday, November 14, 2012

Asymptosis: "Different kinds of dollars could have different values"

From the Asymptosis post:
In the normal course of things, a (physical or electronic) dollar has the same designated, ascribed, agreed-upon value as “the dollar.” But as Miles Kimball points out in what he describes as “the most important thing I have ever said about monetary policy,” this need not necessarily be true. A physical dollar can, conceptually at least, have a different value than an electronic dollar. (Once again I would say that each of these is a financial asset, an embodiment of money or exchange value, with particular properties and characteristics which may be in greater or lesser demand — and supply — at different times.) Different kinds of dollars could have different values, as designated in dollars!
From Standard Catalog of United States Paper Money, 9th edition:
Beginning in May, 1775, the Congress of the newly unified former colonies began the issue of Continental Currency to finance its fight for freedom.

The Continental Currency was plagued, though, by increasing public distrust. The Continental paper dollar was able to hold its value at par with a specie dollar only until October, 1777, by which time widespread counterfeiting by British, Tories, and opportunists conspired with the natural inflation of a printing press economy and increasing uncertainty as to the outcome of the war to push the exchange ratio of the Continental Currency to $11 in paper for $10 in specie.

After that point the devaluation accelerated. By the next year, October, 1778, the ratio was 4.66 to 1.

The low point was reached in April, 1780, when a dollar in silver or gold was worth $40 Continental. And these were the official exchange ratios adopted by the Congress...

Issued current with the Colonial and Continental currencies were numerous privately-sponsored paper monies emitted by banks (as early as 1732 in Connecticut), utilities, merchants, individuals and even churches.

These issues continued after the Revolutionary War, and proliferated in the 19th Century...

The tens of thousands of privately-issued bank and scrip notes of the 1800s ranged in denomination from one-half cent to several thousand dollars. While today their collector value depends on a combination of rarity, condition and demand; their value when issued was solely dependent on the reputation of the issuing authority -- be it bank, railroad or Main Street apothecarian.


Gene Hayward said...

Art--- I am responding to your comment on my last entry. You were not even in the margins of my thinking when I wrote that. I love your writing, research and your critique on all things economics. The New Atthurian is good in my book! You have your point of view but I don't believe you are an ideologue. I highly appreciate the feedback you give. Makes me a better teacher. That is my end game. I am just a high school econ teacher trying to instill SOME knowledge and appreciation of the topic in young people. I was speaking to/about those who disagree for the sake of disagreeing and doing it in a spiteful way. That is what makes me crazy. Keep up the god work and you have my permission to keep me honest in my neophyte analysis. ;)

Gene Hayward said...

Haha! "good work"not "god work"...however, you may disagree with that. :)

The Arthurian said...

Haha... Gene, I do what I have to do. If god likes it, so much the better :)

Luke Smith said...

Robert Clower said "money buys goods and goods buy money but goods don't buy goods". I assume he meant that money can buy money, as in a floating exchange rate. Things get turned up another knotch when parity between electronic and physical (paper) dollars is not 1:1.

Similarly, JP Morgan was quoted as saying that credit was synonymous with character, and that he would give no man a loan of any amount of money if he did not find him in good character - even for all the money in the world.

Somethings don't change but perhaps are forgotten.