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Whose Mug on the Paper?

Mises Daily: Thursday, June 24, 2004 by

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There's a movement afoot to place a portrait of our nation's fortieth President, Ronald Reagan, onto one of the denominations of our currency. The last two changes, putting first Susan B. Anthony's countenance, and then Sacagawea's on the $1 coin, proved to be failures. The prior two changes, putting President John F. Kennedy's face on the 50¢ coin, and President Dwight D. Eisenhower's face on the $1 coin were also failures. While the motivation to put Reagan onto the currency is understandable, why has the track record been so poor?

Originally, the money of the United States was the Spanish (silver) Dollar, or – as pirates referred to it – the Piece of Eight. Arrr!  Gold, originally mostly in the form of Spanish Doubloons, played a supplemental role, but usually was exchanged at its market value as distinct from its official monetary value. When, several decades later, the U.S. government got into the business of minting coins, the U.S. Dollar featured the American Eagle. Still later, our coins came to be adorned by the god of Liberty, usually depicted as a beautiful European-American woman as in the Saint Gaudens relief on modern U.S. gold coins, and sometimes depicted as a Native American, as in the old buffalo nickel.

When, during the Civil War, the U.S. government issued the first legal tender paper money, prominent politicians began to be displayed, including, on the $10 note, the then sitting President, Abraham Lincoln. Notice that this bill also featured the other two formerly popular symbols on our money, the American Eagle and the goddess of Liberty.

By the early 20th century, U.S. currency was more-or-less standardized in its portraiture as follows:

$1 – George Washington
$2 – Thomas Jefferson
$5 – Abraham Lincoln
$10 – Alexander Hamilton
$20 – Andrew Jackson
$50 – Ulysses S. Grant
$100 – Benjamin Franklin
$500 – William McKinley
$1,000 – Grover Cleveland
$5,000 – James Madison
$10,000 – Salmon P. Chase

Collectively, these men are known as the "Dead Presidents," although, in fact, three of them never served as President.

Regarding our coins, the transition to Dead Presidents began with the Lincoln penny in 1909, and was completed with the short-lived Eisenhower dollar in 1971, as is shown below:

Penny        1909 Lincoln
Nickel        1938 Jefferson
Dime          1946 FDR
Quarter      1932 Washington
Half           1948 Franklin         1964 Kennedy
Dollar         1971 Eisenhower    1979 Susan B. Anthony      2000 Sacagawea

The transition of the symbols on our money to Dead Presidents is strangely appropriate. Originally, our money was a measure of silver. Later, it was a measure of gold (in addition, there was subsidiary silver money and a prescribed amount of legal tender paper money). Paper money, as in the original Federal Reserve Notes, was not money per se, but was nevertheless useful as a medium of exchange because it was redeemable for lawful money. But, to make a long story short, in 1971, the last connection of the U.S. Dollar to gold was severed.   All that is left to our money is the smile of the Cheshire cat.

Our money, nowadays, has no commodity value, and has a market value only insofar as the political authorities that supply it keep it limited in its supply. In theory, our paper money can have a stable value but, in practice, paper money has always resulted in inflation. For example, consider our own country's experience with paper money following the disconnection of our money from gold. During the 1970s, the rate of inflation accelerated from creeping into galloping, interest rates rose up to double-digits while real rates of return went negative, our business cycle worsened, the price of energy quadrupled and there were energy shortages and gas lines. It was a time of diminished expectations, middle-class stagnation and rising poverty.

Then, from out of the west, came a leader who, they say, "restored our confidence."  Excuse me, but our confidence was not restored because Ronald Reagan was such a charming person but only because, in relation to the late 1970s, some measure of stability returned to the monetary system.

The connection of inflation to capital consumption, and of the lowering of inflation to a resumption of capital accumulation, contradicted one of the tenets of Keynesian economics. According to the doctrine of "forced savings," inflation supposedly favored business, but, correct economic theory indicated, contrariwise, that this was "a serious blunder" (see Human Action, pp. 548-550).

Speaking of symbols and money, this is why Ludwig von Mises favored the Gold Standard because, when he wrote, it was the symbol of late 19th Century economic liberalism involving hard money, balanced budgets, free international trade, and the rule of law. But, today, our money supply does not emanate from the market in the commodity or set of commodities by which our money is defined. Our money results from political decisions. Thus, our productivity, wages and standards of living, our money and our wealth, are continually at risk. If good decisions are made, we will prosper, and if poor decisions are made, we will suffer.

Let us consider the major contributions of our Dead Presidents to what I will call the constitution of money, including its evolution from being defined as so much gold or so much silver, to its being nothing but paper money. It can be seen from the highly stylized summary provided below that some of our greatest Presidents had what can charitably be described as "mixed records" in this evolution.


1¢, $5  Abraham Lincoln

Legal tender paper money; and, federally-chartered banks.

5¢, $2  Thomas Jefferson

Not particularly noted for money matters (although he generally favored hard-money); nevertheless, it should be noted that, as President, he substantially paid-off the Revolutionary War debt.

10¢  FDR

Devalued the dollar; confiscated domestic gold; abrogated the gold clause; redistributionism; deficit-spending; tried to "stack" the U.S. Supreme Court; and, led the nation during a world war against totalitarian fascism.

25¢, $1  George Washington

Not particularly noted for money matters (although we might suppose he favored the positions of Madison and Hamilton).

50¢  JFK

Not particularly noted for money matters.

$10  Alexander Hamilton

Defined the dollar as a measure of silver; instrumental in the state-chartered Bank of New York and in the federally-chartered First Bank of the U.S.; and, organized the Revolutionary War debt.

$20  Andrew Jackson

Shifted the dollar from silver to gold; issued the specie circular; vetoed the re-chartering of the Second Bank of the U.S.; paid-off the War of 1812 debt; and, appointed Taney to be Chief Justice of the Supreme Court and, thus, endorsed paper money issued by state-chartered banks.

$50  U.S. Grant

Appointed two associate justices to the Supreme Court to declare legal tender paper money to be constitutional; and adopted "grow to gold" strategy to facilitate resumption and the eventual paying-off of the Civil War debt.

$100  Benjamin Franklin

Foremost proponent of thrift and self-help enterprises; and, advocate for and main printer of Pennsylvania's colonial paper money.

$500  William McKinley

Defeated William Jennings Bryan when Bryan emerged as the foremost advocate of silver agitation and other radical policies during the late 19th century.

$1,000  Grover Cleveland

Last of the hard-money Democrats.

$5,000  James Madison

Father of the U.S. Constitution (which made only gold and silver to be legal tender, prohibited states from issuing bills of credit, and prohibited bills of attainder and ex post facto laws).

$10,000  Salmon P. Chase

Proposed legal tender paper money as Lincoln's Secretary of the Treasury; and, as Chief Justice of the U.S. Supreme Court unsuccessfully argued that it was unconstitutional.

(The Dead Presidents who are obviously missing from the above list are Woodrow Wilson, who signed the Federal Reserve Act into law, and Richard Nixon, who closed the gold window.)

What were the contributions of Ronald Reagan in money matters, and how do his contributions compare to those of the other Dead Presidents? Well, on the plus side, he lowered inflation and cut taxes; and, on the negative side, he presided over growing deficits.

To be sure, Reagan did not change the constitution of money, but operated within the paper money regime to which we have evolved. His accomplishments, therefore, cannot be projected with much confidence into the future. They will depend on the continuing support for the economic policies of sound money, balanced budgets, free international trade and the rule of law. It is one thing for this support to be forthcoming while the memory of the stagflation of the 1970s remains relatively fresh. But, what will happen when the 1970s become part of a history unlived by decision-makers of the future?  Having Ronald Reagan's face on the front of our money would not be as effective as having gold or silver or something else real value behind it.

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Clifford F. Thies is the Eldon R. Lindsay Professor of Economics and Finance at Shenandoah University (cthies@su.edu). Comment on the Blog.