By Charles Morgan with Hubert Walker
On February 21, 1857, the United States Congress passed An Act relating to Foreign Coins and to the Coinage of Cents at the Mint of the United States. The Act set the rate at which foreign coins would be accepted by the Treasury, ended the Treasury’s practice of redistributing foreign coins, and called for the recoining of these foreign coins once they were in the custody of the Federal Government. The Act repealed the long-standing practice of allowing foreign coins to be used as legal tender in the United States, overturning An Act regulating the currency of foreign coins in the United States passed on April 10, 1806[i].
The Act also changed the face (literally) of U.S. coinage by eliminating the half cent and ending the production of the “large cent”. Rising production costs had eaten into the Mint’s profits and Congress instructed Director of the Mint James Ross Snowden, to submit a new cent design to the Treasury Secretary. The new cent was to measure seventy two grains (4.67 grams) down from the 168 grain mass of the Coronet cent (1837-1857).
The design that was chosen was a modified version of Christian Gobrecht’s Flying Eagle pattern, with a wreath reverse designed by Chief Engraver James Barton Longacre. In patronage to Pennsylvania industrialist and nickel producer Joseph Wharton, an alloy of 88% copper and 12% nickel was chosen. Wharton’s influence over the production of coins continued as he was able to lobby the introduction of two additional coins in nickel: a three cent piece (produced from 1865-1889), and a new heavy-weight five cent coin which debuted in 1866 and became known as “The Nickel”.
The fact that such new denominations of coinage were introduced in the 19th century speaks not only to the importance of U.S. coinage but also to a Congress that took a proactive stance towards the country’s monetary policy (even if that meant political payoffs to the well-connected). In total, six new denominations were introduced. Compare this to the total of new coin denominations in the 20th and 21st centuries – zero – and you begin to see the problem at hand.
When the half cent and the large cent met their shared demise in 1857, the United States was producing a total of 13 coins, ranging in value in 2012 dollars from 17 cents (the half cent) to just shy of $700 (the double eagle). It‘s worth noting that this period was known as the “Free Banking” era, when the Federal Government did not have a central bank and didn’t print paper currency. Therefore, all paper currency produced during this period was privately made and issued through state-chartered banks against specie, making the higher denomination gold coins necessary for the conducting of business in the broader economy.
|1857 Coin Denominations compared to 2012 Coin Denominations|
|1857 Circulating Coins||2012 Value[ii]||2012 Circulating Coins|
|Half Cent||$0.17||Cent, Nickel, Dime|
|Dollar (Silver/ Gold)||$34.87|
|Three Dollar Gold||$104.63|
When compared to currently circulating coinage, the 1857 half cent was worth more than the 2012 cent, nickel, and dime combined. Our current quarter dollar, the heavy lifter of contemporary coinage, is worth less than an 1857 cent, and our scarcely circulating dollar coins carry slightly less value than the 1857 trime (three cent piece).
The fact that an 1857 cent was worth more to its contemporary consumers than our largest heavily circulating coin, the quarter, serves as a stark condemnation of the failure of our government to adapt and change coinage to meet the demands of the modern world. And while the government, even in the 19th century, has never had a particularly good track record introducing and supporting new denominations, there has never been a more obvious need to reinvigorate U.S. coinage than right now. Refusal to act will result in the continued diminishment of the role of coins in commerce and to the eventual obsolescence of the Nation’s first currency.
A Proposal for 21st Century American Circulating Coinage
My advice to Congress is to think rationally, not emotionally. Many observers assumed that 2009, the 100th Anniversary of the Lincoln Cent, would be the last year of production for the now nearly valueless denomination. Instead, Congress enacted legislation to redesign the cent’s reverse to the current “Shield” pattern.[iii] The new “Shield” reverse looks like an afterthought, and the coin has never looked as “cheap” as it does now. Eliminate the cent and transition the country into rounding all transactions to the nickel.
Since a nickel now costs almost twice as much as its face value to produce, a change in composition is due. The Mint is testing an aluminum alloy that would be cheaper to produce. If the new alloy works out, it will breathe new life into the five cent denomination as it begins to carry the burden left to it by eliminating the cent.
There’s no need to change the dime or the quarter, but the half dollar, awkwardly large for a coin with no intrinsic metallic value, needs to be reintroduced into the circulating stream. Perhaps it can be resized and re-metalled; if the new half was made roughly the size of a quarter, colored somewhat similarly to the dollar coin, and given a thicker crimped or some otherwise different style rim, it would circulate better and not be a nuisance to those who don’t want to deal with the larger, heavier version.
Speaking of the dollar coin, it has struggled in large part because it has to compete with the dollar bill. The cost benefit of using long-lasting dollar coins, as opposed to the dollar bill and its shorter lifespan, is tremendous. A bold Congress with a clear strategy for the future of our circulating money should be able to make these things happen. Eliminating the greenback without such a plan would simply be a propaganda defeat for the Dollar globally.
I also recommend the elimination of the non-circulating two dollar bill and the creation of new circulating quarter eagles ($2.50), along with the production of collector’s-only half eagle ($5.00) and eagle ($10) coins. The three new denominations would signal Congress’s and the Mint’s commitment to the future of U.S. Coinage. The new quarter eagle would circulate well after the elimination of the dollar bill and be a powerhouse denomination for vending-machines and change-making.
By creating collector’s-only half eagle and eagle coins, the Mint and the Treasury could begin the process of reintroducing large denomination coins to the public by first capturing the imagination of collectors and hobbyists. When, in the future, it becomes necessary to circulate these larger coins, the public will already be familiar with them.
However, even if Congress does authorize the production and distribution of a new circulating eagle coin, that coin would have less purchasing power than an 1857 half dollar. Think about that the next time you rifle through your pocket for loose change.
|Charles Morgan and Hubert Walker’s Proposed Circulating Coinage Chart|
|Nickel||Change in composition, same size|
|Half Dollar||Resized, recolored in a new metal composition|
|Quarter Eagle||New circulating coin|
|Two Dollar Bill||Eliminated|
|Half Eagle||New collector’s-only coin (initially)|
|Five Dollar Bill||New collector’s-only coin (initially)|
[i] The entirety of the Act can be read at The Library of Congress’s American Memory website, http://memory.loc.gov/cgi-bin/ampage?collId=llsl&fileName=011/llsl011.db&recNum=184.
[ii] Figures are derived using Tom R. Halfhill’s Inflation Calculator. Tom’s Calculator can be accessed at his website, http://www.halfhill.com/inflation.html.
[iii] The Shield Cent was authorized in the Presidential $1 Coin Act of 2005. Full text available here: http://www.gpo.gov/fdsys/pkg/PLAW-109publ145/html/PLAW-109publ145.htm
About Charles Morgan:
Currently Charles is working with his colleague, Hubert Walker on The Coin Collector’s Registry Set Guide and a children’s coin collecting primer, Curious Coins. He is also working with Rob Ezerman of the Ike Group on Gradeview™: Eisenhower Dollars.
What “non-circulating two dollar bill”?
There have been three printings of it in the last 16 years, and it’s still being circulated by the Treasury and Federal Reserve.
I’ve got a whole bunch right now. Mostly Series 2003A, which I understand was a large batch printed in 2006. I’ve used them in some vending machines, and even the self-service checkout lanes at supermarkets take them.
three printings is a far cry from the printing and distribution of other denominations. Two dollar bills, sadly, are as non-circulating a denomination as they come these days.
I have given this much thought. I propose to eliminate both the penny and the nickel. Because transactions will then have to be rounded off to the nearest dime, I would replace the quarter with a 20-cent coin. So the denominations conform to the following pattern: 10c, 20c, 50c, $1.00, and $2.00. Paper currency would begin at $5, and continue up to the $1,000 bill. Therefore, we would have to create 5 coins in total, with the smallest no smaller than the current dime, and the largest no larger than the current half-dollar. This could be done in 3mm diameter increments, and .2, or .3mm thickness increments. The new 10, 20, and 50-cent coins could be made of copper, and the $1 & $2 dollar coins could be made of nickel.
For even greater efficiency, we could get rid of the 20 or 25 cent, and the 2 dollar coins altogether. then the pattern would be: 10c, 50c, $1.00, $5.00, and paper currency starting at $10, and going up to $50, $100, $500, and finally $1,000, for a total of 9 different denominated coins and bills.
If inflation has increased prices 10-fold, then it makes sense to eliminate coins that have only 10% of their former purchasing power, and introduce denomination notes that are 10-fold higher than are currently circulated.
A full 1-2-5 system is mandatory for efficient use of decimal currency. It can be shown arithmetically that change-making requires the smallest number of coins when all denominations are divisors of 10. That’s why nearly every other major country has adopted the same scheme.
The quarter is a holdover from the days of chopping Spanish milled dollars into “bits”. As difficult as it would be to replace the coin with a 20¢ piece, retaining the denomination means nickels will still also be perpetually needed for reasonable change-making.
That’s also the reason that a $2 coin is far preferable to a quarter-eagle, because the latter denomination also doesn’t fit into a true decimal system. It was created in the 18th century as the 10-fold analogue of a quarter for the same obsolete reason of compatibility with Spanish coinage. The only similar mixed-denomination coin I can think of is the old British half-crown. It was valued at 2 shillings and sixpence, and caused endless problems with calculations. Remember, the middle of the 19th century saw the US create double eagles and $20 bills, not $25 coins or $25 bills. Canada did try a $25 bill in the 1930s and quickly discontinued it in favor of $20.
Finally, leaving out a 2-unit denomination would actually be less efficient because it doubles the number of 1-unit coins or bills needed to make change. That’s the problem with current proposals to use $1 coins instead of bills. While I’m a strong supporter of the move, it needs to be accompanied by a small $2 coin or a modernized $2 bill to avoid exactly what the naysayers predict, pockets full of dollar coins from breaking $5 bills. Remember that England tried a 1-5-10 system when they first went decimal in the period 1968-71. There were so many complaints that a few years later the Royal Mint had to introduce 20p and then £2 coins. I was in London the day that the 20p coin entered circulation and you could hear people saying how glad they were they wouldn’t be handed four 10p coins in change anymore.
All good points, thank you.