explain to me how seniorage worked prior to confiscation in 1933

[chad]

i mean, i understand what it is academically, but i don't get the practical application of it. they mint an ounce coin that isn't a full one ounce of gold, it has some stuff mixed in. the difference in what is missing is seniorage for the government, i get that. but how did it work to finance the government? id they take the missing 10% or whatever and make coins for the government out of that or what? i don't understand the execution of the academic nature of it.

i can't find any site anywhere that explains it, at all. all of them just tell what seniorage is, which i already know. i want to know how it made the government able to function without huge taxes, etc.

please don't tell me what seniorage is, i already know that. looking for how it was executed not in fairly tale bookeeping land but in the real world.

[osoab]

i think of it as this in a small scale and then just multiplied.

take 100 units of the pure stuff, add 10 units of non-pure stuff, take 10 units of the combined as seigniorage. 100 units circulation and 10 units to .gov

[Serpo]

http://3.bp.blogspot.com/-hOwk7G93LSw/TzhNjCi1uoI/AAAAAAAAAB0/KhGLpUX0IWk/s1600/too-hard-basket.jpg

[palani]

looking for how it was executed not in fairly tale bookeeping land but in the real world.

You would have to go to a source prior to the (un)civil war then.

http://books.google.com/books?id=J0BOAAAAYAAJ&printsec=frontcover&dq=seigniorage&hl=en&sa=X&ei=fDmGVMHyF4WcyQTbhoDwBQ&ved=0CCIQ6AEwAA#v=onepage&q=seigniorage&f=false

[Publico]

You'd go into the U.S. Mint with one ounce of gold, and they'd offer you a "one ounce" gold piece that was 96% gold and 4% silver, and they'd keep the other 4% of your gold. Or they'd tell you to return in 3 weeks for the "same" 96/4 gold coin made with your gold returning 3.5% of your gold (dust or whatever) with your gold coin (the other .5% they kept paid for the silver in your gold coin). At least that's the way it was explained to me.

[ShortJohnSilver]

http://en.wikipedia.org/wiki/Seigniorage has some good stuff.

Seigniorage is the difference between what is paid vs. what is given.

A mark-up if you will between what the "King" paid for the gold and what he was able to use it to purchase things for.

In the case of the US Mint, they had a number of different ways to make some money from it but the main one was charging a percentage of the gold or silver, to convert the raw but assayed PM into coins. I think for silver it was 2.5% or so. Assuming their costs were less than that for minting, then, the difference was profit, which is seigniorage.

Note that the 50 states quarters program, was specifically designed to generate collection, where people would pay 25 cents for each quarter but never use or spend it. Since it only costs the Mint 5 cents to produce each quarter, the 20 cents is seigniorage.

Note that before, with gold/silver, seigniorage was limited, and only occurred 1 time per coin. With fiat currency, paper note seigniorage benefits the Federal Reserve directly, but not the FedGov or us. The Mint still makes seigniorage from their coins in most cases.

[chad]

You'd go into the U.S. Mint with one ounce of gold, and they'd offer you a "one ounce" gold piece that was 96% gold and 4% silver, and they'd keep the other 4% of your gold. Or they'd tell you to return in 3 weeks for the "same" 96/4 gold coin made with your gold returning 3.5% of your gold (dust or whatever) with your gold coin (the other .5% they kept paid for the silver in your gold coin). At least that's the way it was explained to me.

okay, this makes sense to me. i forgot you could take your stuff in to the mint back then ad have it struck.

[Silver Rocket Bitches!]

Note that the 50 states quarters program, was specifically designed to generate collection, where people would pay 25 cents for each quarter but never use or spend it. Since it only costs the Mint 5 cents to produce each quarter, the 20 cents is seigniorage.


This has always been my understanding of government seigniorage. They produced the commemorative nickels for the same reason but that doesn't make sense to me since it costs more than 5 cents to produce a nickel. They're engaged in negative seigniorage at that point.

[ShortJohnSilver]

This has always been my understanding of government seigniorage. They produced the commemorative nickels for the same reason but that doesn't make sense to me since it costs more than 5 cents to produce a nickel. They're engaged in negative seigniorage at that point.

My view would be, that they had to produce some nickels in order to have a complete set - they make money on average. Selling a nickel (cost 8 cents) along with a quarter (cost 5 cents) means they spend 13 cents to make 30 cents.