A Stitch in Haste

One word: Seigniorage --

Amid the drama of American Indian drumming, singing and dancing, in the presence of the revered American Bison, United States Mint Director Henrietta Holsman Fore presented the new 2005 American Bison nickel to the American people in a Capitol Hill ceremony. [Image.]

"The 2005 American Bison nickel will look significantly different from any nickels you’ve seen," she told the crowd. "It marks the first time that the image of President Jefferson has ever changed on the nickel, and we have the word Liberty in his handwriting." Looking at Cody, the live Buffalo, she added, "There is a beautiful, strong, classic American bison on the reverse."

But wait, there's more:

The post office is giving a nod to the plants and animals of the Northeastern forests in a new set of stamps being issued Thursday. The 10-stamp set shows a forest scene with 27 plants and animals featured. The common and scientific names are printed on the back of the stamps. The Northeast Deciduous Forst sheet is the latest in a series detailing various environments across the country.

Talk about easy money -- just keep banging out new coins and new stamps and all those numismatists and philatelists will completely finance the government by feeding their addiction for new collectibles. So, through the magic of seigniorage, the (plain vanilla) money just keeps pouring in! Voila -- no Social Security crisis, no budget deficits!

Looking at some numbers: The United States Mint generated $1.65 billion in revenue in FY 2004 and contributed $665 million in earnings to the Treasury. So, since the total federal budget for FY2004 was $2.23 trillion, we only need to expand the U.S. Mint's seigniorage program by a factor of 3,352 to eliminate all federal taxes -- either come up with 3,352 times as many new coins like the buffalo bison nickel, or get 3,352 times as many people to start collecting coins.

Well, that was a nice little libertarian fantasy -- lasted almost 10 minutes.

In just one year, $2.23 trillion dollars spent by the federal government -- an awful lot of (buffalo) (bison) nickels and dimes (state) quarters.

(As for stamp collecting, unlike the braggarts at the U.S. Mint, the U.S. Postal Service is suspiciously secretive about how much revenue it derives from philately. I was unable to find any hard data on the topic.)

POST SCRIPT: Oh wait, the government could also start selling baseball cards to raise money! Oops, sorry -- that money flows the other way.

(Hat tip to Arkanssouri.)

Related Posts:
On Lotteries
Libertarianism on the Retreat!

A while back I joked that there was a fourth way to cure our federal budget woes beyond the traditional methods of raising taxes, cutting spending and monetizing the debt -- we could simply seigniorage our way into the black.

Well, apparently seigniorage is becoming less of a joke:

The House on Wednesday approved a new gold-colored coin bearing the faces of presidents to join the unpopular $1 Sacagawea coin in circulation, hoping a new design will spur use of dollar coins.
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The bill also creates what would be the nation's first investment-grade 24-karat gold bullion coin. Intended for collectors, it would carry portraits of first ladies and [would] have a face value of $10 but sell for many times that amount at fluctuating prices based on the price of gold.
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Officials at the Mint estimate said the new $10 bullion coin could help the United States grab a bigger share of the global market in gold collector coins. They estimate that the potential world market for 24-karat gold coins is about $2.4 billion annually.

I feel sorry for all the suckers numismatists out there -- so many new coins to buy! On the other hand, if it helps ease my tax burden, then I say coin collecting is “neat-o!”

Speaking of the Politics of “Neat-o!”, an important part of any addiction is to hook users at a young age. Addiction to coin collecting is no different, and Spaceman’s Abode has encountered the pushers:

I received my income tax refund today - so nice of the thugs in Washington to actually give back part of what they took from me! Even more exciting than the refund itself was when I learned from the back of the envelope the check came in about The United States Mint H.I.P. Pocket Change, “the hippest way to introduce kids to the world of coins.”

Exploiting innocent children with flashy ads -- the government should step in and do something about that!

The New York Times Magazine has a fluff piece today on gold bugs, who — unsurprisingly — have an embarrassing tendency to be libertarians:

Representative Ron Paul, a Republican from Texas who is gold's lonely advocate in Congress, put it to me this way: "We will go back to the gold standard, even if it takes the near-destruction of the dollar to get there."
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The Daily Reckoning is a freewheeling Web site for libertarians, gold bugs and doom enthusiasts of every stripe. Its editorial director is Addison Wiggin, and before we met, I pictured an "Addison Wiggin" as an ancient gold-hoarding Yankee, and the offices of The Daily Reckoning as a cinder-block bunker patrolled by Minutemen. I was wrong on both counts. Wiggin is a sober, black-clad 37-year-old who is active in libertarian circles.

One of the (several) ways that I fall short of being a radical libertarian is my impatience with gold bugs. The gold standard is an anachronism at best and tin-foil hat paranoia at worst.

Here's a synopsis of the gold standard I wrote a while back:

All the gold ever mined, whether used for bullion, jewelry, spacecraft or tooth fillings, would, if formed into a cube, fit within the dimensions of a baseball diamond. Does anyone honestly believe that the entire global economy and financial system, or even the American economy and financial system, could be anchored to that? And bimetallism ("we use silver for smaller transactions") is impossible in a free economy because of Gresham's Law.

There is nothing wrong with a modern, free economy using a fiat money system so long as the "fiats" are reasonable and obeyed. Specifically, so long as the central bank (e.g., the Federal Reserve) keeps the money supply stable (i.e., slow, steady, publicly-announced increases that match the rate of economic growth), without any attempt to monetize debt, and also allows freely floating exchange rates (e.g., no intervention to "shore up" a weak dollar), then the functions of money (store of wealth, unit of currency, medium of exchange, etc.) are preserved.

Some more thoughts:

--Throughout history, every nation or empire that fixated on gold for gold's sake collapsed in the process. The best example is of course the Spanish empire of King Philip in the Sixteenth Century. If you expend productive resources merely for the acquisition of a nonproductive resource (such as gold), the results are obvious, predictable and inevitable.

--How libertarians can in the same breath praise the gold standard while saying bedtime prayers to Saint Adam Smith is also inexplicable: the whole thesis of The Wealth of Nations was to demonstrate that mercantilism (i.e., the acquisition of inert wealth) was inferior to global trade (i.e., the exploitation of productive wealth) — "It was not by gold or by silver, but by labour, that all the wealth of the world was originally purchased..." Anyone who would, all else equal, rather own a gold coin than a share of stock is not a capitalist, and therefore cannot be a libertarian.

--"But Kip, it's not about us, it's about government — they abuse fiat money but they can't abuse gold!" As Michael said to Kay: "Who's being naive?" Wouldn't it make more sense to restrict the power of government, whether Congress, Treasury or the Fed, to abuse the fractional reserve banking system than to call for retrogressing to an archaic and unworkably primitive gold standard (which the politicians and bureaucrats would manipulate anyway)?

--By the same token, the price of gold, um, fluctuates. Or if you prefer, the dollar fluctuates against gold (the choice of numeraire is totally irrelevant). Which begs the question: What's so preferable about the dollar fluctuating against gold rather than against the euro, pound, yen or Swiss franc?

--Gold grew to become the first civilized currency for a variety of reasons, one of which was actually its relative uselessness (other than for jewelry). Stated differently, gold is essentially also "fiat money" the same way Federal Reserve Notes are fiat money. The only reason gold has any value at all is because people say it does. If tomorrow some kind of space-age alchemy made gold production costless, then it would quickly become as worthless as paper money with the printing presses working overtime.

--Related to the previous comment, one more quote from the Times Magazine piece:

There he picked up two coins and placed one into each of my hands. They were "Saint-Gaudens," named after the great American sculptor who designed them for Teddy Roosevelt. They had a face value of $20 and a value based on the amount of gold they contain — probably a few hundred dollars. But the ornate coins were impossible to stack, and had been discontinued after a short run. On the open market now, thanks to their rarity, the coins together might fetch $800,000.

So much for the "objective," unmanipulable value of gold as a currency.

Other thoughts, not consistent with mine, at LewRockwell.com and Mises Economics Blog.

Suggested Reading:

Article I, Section 8, Clauses 5 and 6 give Congress the power "To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures[.]"

Does that mean that Congress also has the power to prohibit the destruction or mutilation of money -- or its export outside the United States?

Soaring metals prices mean that the value of the metal in pennies and nickels exceeds the face value of the coins. Based on current metals prices, the value of the metal in a nickel is now 6.99 cents, while the penny's metal is worth 1.12 cents, according to the U.S. Mint.
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Under the new rules, it is illegal to melt pennies and nickels. It is also illegal to export the coins for melting. Travelers may legally carry up to $5 in 1- and 5-cent coins out of the USA or ship $100 of the coins abroad "for legitimate coinage and numismatic purposes."

Of course, one wonders whether the costs of extraction would keep such "reverse seignorage" from becoming profitable. I'm pretty sure it would.

One way or the other, the provision of legal tender is a public good, yet one can also argue that something that belongs to me belongs to me and that if I want to destroy it, then I have that right.*

So which is it -- anti-libertarian outrage or entirely legitimate exercise of government power?

More thoughts at Slashdot, Boing Boing.

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Rightly or wrongly, an answer has been around for almost a century:

Conceding the title of the owner of such coins, yet there is attached to such ownership those limitations which public policy may require by reason of their quality as a legal tender and as a medium of exchange. These limitations are due to the fact that public law gives to such coinage a value which does not attach as a mere consequence of intrinsic value. Their quality as a legal tender is an attribute of law aside from their bullion value. They bear, therefore, the impress of sovereign power which fixes value and authorizes their use in exchange. As an incident, government may punish defacement and mutilation, and constitute any such act, when fraudulently done, a misdemeanor.

However unwise a law may be, aimed at the exportation of such coins, in the face of the axioms against obstructing the free flow of commerce, there can be no serious doubt but that the power to coin money includes the power to prevent its outflow from the country of its origin. To justify the exercise of such a power it is only necessary that it shall appear that the means are reasonably adapted to conserve the general public interest, and are not an arbitrary interference with private rights of contract or property.

Ling Su Fan v. U.S., 218 U.S. 302 (1910)

That case involved Philippine coins back when the Philippines was a United States colony, but the constitutional reasoning is sufficiently robust to still apply.

For Discussion: How does the Necessary & Proper Clause strengthen or weaken the reasoning in Ling Su Fan?

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*Does the owner of a "priceless" piece of art have the right to destroy it rather than sell it? What about historic preservation of landmark buildings?