Some Platinum Coin Objections from the Mainstream: Part II

I began a lengthy critical reply to Philip Wallach’s reply to my earlier analysis of his paper in Part I of this series. There I covered some preliminary mis-characterizations of what I said and, more importantly, why the commonly recognized fiscal policy rule that, at least over a number of years, government revenues ought to match government spending is fiscally unsustainable and fiscally irresponsible in light of deductions from the Sectoral Financial Balances (SFB) model. In this Part II, I’ll cover some conjectures about political legitimacy Wallach offers about the consequences of minting a $100 T, some legal legitimacy issues, and some additional political legitimacy issues.

Conjectures about Political Legitimacy

Wallach offers this next comment on my earlier post:

Firestone criticizes my misgivings about the platinum coin option’s legitimacy as mere “conjecture,” and argues that minting trillion dollar platinum coins (or much higher values—more on that later) for seignorage purposes would be legitimate in both senses of the word: a valid and defensible interpretation of the law, and accepted by the public as a legitimate government action. Of course I must plead guilty to making conjectures—it is impossible to say with certainty what would happen if the government took such a radically unprecedented step. But it seems to me that my conjectures require much less imagination that Firestone’s.

Again, this is a not quite accurate characterization of what I claimed. What Wallach said was:

. . . the political dynamics of the debt ceiling standoffs make it so that any deus ex machina capable of extracting us from our current fights will strike people as deeply illegitimate, heighten political tensions, and potentially accelerate the constitutional crisis it is meant to ward off. A brief consideration of two of the most-discussed options shows why this is the case.

And I replied:

This is not really an argument, but a conjecture, and one that is a matter of opinion, certainly not backed by any empirical evidence, and not blindingly obvious to many people, including myself.

So my reply was in reference to Wallach’s general claim, not the more specific claim about platinum coins. I later mentioned consols as an alternative “deus ex machine.” And later on in his reply to my post Wallach speaks favorably about consols in such a way that his later comments about consols are in contradiction with his general claim about all “deus ex machinas.”

Nor did I say that Wallach’s claim was a “mere” conjecture, but, strictly, an untested conjecture lacking any empirical evidence, and also not based on a well worked out theory, either. How about his application of this conjecture to 100 T platinum coins?

Well, I didn’t say that was a “mere” conjecture either. What I said was that his argument for this was a questionable political judgment. Here’s the specific exchange:

This thinking is almost comically blind to the potential downsides of such a declaration, however. Congress, which has always worked to resolve debt ceiling confrontations in the past, would rightly see the executive branch (or judiciary) as attempting to usurp its constitutional borrowing power, now and forever after. There would be no way to de-escalate what would quickly become one of the most significant interbranch conflicts in American history, and it seems hard to imagine that Congress would have any other recourse than impeachment. As this epic battle played out, U.S. debt repayments would look less certain than ever and the country’s international reputation would (justifiably) plummet.

To which I replied:

This is another political judgment of questionable value from Wallach, because it would be a highly partisan Congress that would provide such an interpretation of the use of an extraordinary measure to lessen or eliminate the leverage in negotiation they gain from using the debt ceiling law in the way they have. The American people are very unlikely to back their view that a counter move to free the government from Republican hostage-taking was a usurpation of power by the Executive, since it is probably the majority view now that using the debt ceiling to extract cuts in Medicare, Social Security, and other entitlements is a usurpation of power by a Congress, which was unwilling to get this done through its control of appropriations, and was now coming back to take a second, illegitimate bite at the apple, in spite of the opposition of a substantial majority of people to such cuts as measured in poll after poll.

So, please keep in mind that his is an exchange about the likely political legitimacy of implementing the $100 T platinum coin option I favor, not any old platinum coin option, nor any option other than the one I propose. Nor is it an exchange about the legitimacy of using the platinum coin from a legal point of view, which in my book I discuss under the heading of legal objections. In reply to this in the quote above, Wallach says this:

“. . . accepted by the public as a legitimate government action. Of course I must plead guilty to making conjectures—it is impossible to say with certainty what would happen if the government took such a radically unprecedented step. But it seems to me that my conjectures require much less imagination that Firestone’s.”

So, he admits that his political judgment is just an untested one based on his intuition and background as a policy analyst and political scientist, and that he can’t say what would happen if the Government took a step like minting the $100 T coin, which he labels a radical one, and then concludes that his conjecture about the reaction of people to the President’s using the $100 T platinum coin requires less imagination than mine. So, put simply he’s saying believe him rather than me because his proposition is less imaginative than mine.

Is that really a recommendation? Is it really a compelling argument?

I really don’t think it is. Above, I quoted Wallach’s original points about the downsides of any deus ex machina, and replied to them with an alternative analysis of the political context I imagine for the minting of the platinum coin, But Wallach’s reply, doesn’t address my specific argument about why most people (other than the Washington, DC/New York political and financial elites, of course), would probably see this as legitimate, given the political context of what he said. But I don’t see a real reply in his latest post, but just a failure to review my argument.

Going further, I can make add two additional points now. First, His claim that Congress would see using the platinum coin as attempting to usurp its constitutional borrowing power, can’t be right in application to the option of minting the $100 T platinum coin, because that’s just not borrowing in the way that issuing debt instruments subject to the limit is. So, any claim by Congress that this is a usurpation of its borrowing power would just be clearly wrong.

And second, relative to the $100 T platinum coin option, Wallach’s point that “As this epic battle played out, U.S. debt repayments would look less certain than ever and the country’s international reputation would (justifiably) plummet”, also doesn’t apply; for the simple reason that the Treasury’s capability to pay off all the debt instruments as they fall due would then be clearly demonstrable by reference to the Treasury’s Daily Balances in the Daily Treasury Statement (DTS), and also the need for Treasury to issue new interest-bearing debt instruments would be gone, so US debt repayments would surely look more, rather than less certain, than they do today.

So it seems that’s Wallach’s underlying argument about political legitimacy among most of the people is a very weak one, based on what I conjecture is his immersion in the Washington/New York political class, giving rise to his intuition about how most of its members would view the President’s action. Such an intuition may well be a correct one. But their reaction to a “radical” $100 T platinum coin move is far less important than how most people, outside the political class, would react to it, when asking about the option’s likely legitimacy after the fact.

No one knows exactly what this reaction of most of the people would be. But I say it is very likely to be favorable, provided that the President moved to quickly pay off as much of the debt as he could pay off in a short time frame of a week or two, and advertised that “political accomplishment.”

That portion of the debt should include “buying the debt instruments” the Fed is holding (now about $2.5 T), and also any debt instruments “issued” to other agencies (now about $5.0 T) now accounted for in Treasury “Trust Funds,” for each federal agency involved. Altogether, that’s $7.5 T of pay off, and doesn’t include short term debt redemption occurring every month that would not have to be rolled over. Does Wallach really believe that the typical voter or citizen will be opposed to a President doing something unusual to pay down 41% of the debt subject to the limit in two months?

Please forgive me if I continue to think that most people will view her/him as a hero for such an action, especially after decades of propaganda by the two major parties, Washington think tanks, and various lobbies doing everything they can to persuade people that the “national debt” is something we all have to worry about, and, more recently, that every American now owes over $56,000 to America’s various “creditors.” After all, what’s not to like about a President lowering one’s debt from $56,000 to $32,000 or so over a couple of weeks and promising that eventually that debt would be reduced to zero?

Accomplishing this last bit of magic may include establishing sub-accounts of the Treasury’s spending account and earmarking these sub-accounts for use only to receive interest payments from the parent account, and to make transfer payments to the parent spending account when payments by the Treasury on behalf of the agencies having the sub-accounts fall due. These changes would be a matter of internal Treasury accounting, recorded at the Federal Reserve, really just marking up and marking down sub-account spreadsheets. This is just bookkeeping a bit different from what is done now; but, politically, it should put a stop to political messaging nonsense about “trust funds” not really existing because the Treasury has stolen revenue from places like Social Security.

I think this will be a matter of Treasury’s own decision about how to manage the “trust funds” in a different way; but, if Congress, for some reason, thinks otherwise, then it can always pass a law prohibiting this method of managing mandated “trust funds,” cancelling Treasury’s “pay-off” of the “trust fund” portion of the public debt, and forcing it to go back to ledgers that view the “trust funds” as “bond debt” subject to the limit. But if Congress does that, then it would bear the burden of adding more than $5 Trillion to the national debt overnight without any real rationale for doing so, provided, of course, that the President didn’t veto the legislation doing that.

Legal Objections to Using the $100 T Coin

Moving on to the law and the platinum coin option, Wallach says:

First let’s consider the law. Whereas I characterize any strategy of minting high value platinum coins as exploiting a legal technicality, Firestone thinks “one person’s ‘legal technicality’ is another person’s plain language in the law.” The language at issue is in 31 U.S.C. §§ 5111 and 5112(k) and does, on its face, appear to give the Secretary of the Treasury basically unlimited discretion to mint platinum coins of any denomination. All members of Congress who voted for this bit of legal text have averred that it was meant to facilitate numismatic offerings rather than a fundamental shift in our monetary paradigm—but that doesn’t worry Firestone, who says, “It is of no moment that no individual Congressman intended to give the Executive such broad authority.”

So Wallach agrees that the language of the law does appear to give the Secretary the legal right to act as I’ve proposed. But then he qualifies claiming that “All members of Congress who voted for this bit of legal text have averred that it was meant to facilitate numismatic offerings rather than a fundamental shift in our monetary paradigm. . . “

Now, as far as I know, no has surveyed all members of the 104th Congress to check their recollections about whether the 1996 law was intended for numismatic purposes only. So, I’m afraid I must ask Wallach for his link to the survey results documenting his statement.

I agree that Mike Castle, the Act’s sponsor and co-author has expressed that understanding of intent. But Philip N. Diehl, the Director of the US Mint at that time who actually drafted the law for Castle and is also its other co-author, flatly denies that the intent of the law was to authorize more commemorative coins, and says that the Law’s intent was to provide the authority to create new coins that would produce profits for the US Mint. Such coins are unambiguously legal tender. There’s no further evidence that Congress intended anything else in passing the law he drafted, except Castle’s recollection that the purpose was solely numismatic.

But, in Diehl’s comment linked above, he points out that:

More evidence that the law was not intended to authorize the minting of commemorative coins: the platinum coin provisions were part of a larger bill that included reforms of the Mint’s troubled commemorative program. After a decade of Congressional excesses with the program, we sought and won RESTRICTIONS on the number of commemorative coins the Mint was mandated to produce and sell each year. So does it make sense that the same bill would authorize MORE commemorative coins?

Both Diehl and Castle have their opposing party affiliations of course, and it is possible that these affect their recollections. Also, Diehl’s view of the purpose of the law has less formal status than Castle’s, because Diehl wasn’t a member of the Congress, while Castle was. But Diehl dealt with members in shaping the law, and his own view of the intent of the Act probably has some basis in his interactions with members of Congress at the time. Also, Diehl’s comment above is pretty compelling in pointing out the inconsistency of the claim that the intent of the platinum coin provision was numismatic.

In addition, Diehl certainly used the 1996 law to generate more seigniorage for the Mint, and no one has objected to this use by saying that it was contrary to Congress’s intent. So, there is that evidence too, apart from the text of the Act and what Castle and Diehl have said.

Next, when I said that “it is of no moment that no individual Congressman intended to give the Executive such broad authority”, I specifically had in mind Castle’s interpretation, and I still think it is of no moment by itself, and in the context of what the law says, and what its use has been. But, I also think that the really important point here about intent is that the text of the law gives more weight to Diehl’s view of it, and also that if his view of intent, saying that the intent was to create more seigniorage for the Mint, is correct then this validates the various platinum coin proposals including my $100 Trillion proposal and the much less effective “Trillion dollar coin” option as well.

The reason is that Congress cannot be expected to understand all the specific implications of the general provisions of each law it writes. But it can be expected to state a clear intent in the text of its bills, and this it has done in the case of the platinum coin legislation of 1996.

So, the fact remains that if Congress wrote this act intending to make it possible for the Mint to gain more seigniorage, but failed to see the implication that the Treasury would be able to fill the public purse (the Treasury spending account) with that authority; then Congress simply made a “mistake.” But that “mistake” is not due to excessive ambiguity and is perfectly consistent with the provisions it wrote. These do have the specific implication that platinum coins whose face values are specified at the discretion of the Secretary, however large those face values may be, are legal products of the Mint and the Treasury.

I’ll also mention here, that it is not uncommon that Congressional Acts have implications not anticipated by the individual authors of the bills that become acts. That does not mean that the Acts passed based on these bills are invalid or that applications not anticipated are illegal because they aren’t consistent with the explicit intent of Congress. That is, Congress makes mistakes, and it is not up to the Judiciary to correct its legislation, but for the Congress itself to do that if it later decides that it has made a mistake.

The authors of the Patriot Act, to their surprise and sorrow, found that out, as did the authors of PPACA. And such regrets are common through the history of the United States.
But that doesn’t mean that the implications of laws that their authors find regrettable or not in accordance with their individual intentions, are illegal or invalid. There is more to proving that a particular implication of a law is not in accord with its intent, than showing that individual Congressmen or Senators had something else in mind. Wallach seems to address this in the following passage:

One can make this sort of plain meaning textualist argument, but there is almost no serious student of statutory interpretation who would condone this level of indifference to the larger statutory context and purposes of the legislature. When the executive branch and judiciary seek to make sense of legislative enactments, they ought to do so with some sense of comity for the legislature. Finding text that can be manipulated and turned to purposes wholly alien to the legislators who enacted it is a gross distortion of our system of separated powers.

Looking specifically at the Platinum Coin Law a number of prominent jurists, certainly “serious students of statutory interpretation” including, but not limited to, Jack Balkin of the Yale Law School and Lawrence Tribe of Harvard, have said that using a platinum coin option would be constitutional, and I am also very sure that they and others are not indifferent “. . . to the larger statutory context and purposes of the legislature.” Nor do I think that original author of the platinum coin proposal Attorney Carlos Mucha, writing using the blog name “beowulf,” is at all indifferent to that same context.

In fact, if one reads Carlos’s original proposal about the Trillion Dollar coin you will see plenty of statutory and interpretive context. Finally, Diehl’s comment on intent above, focusing on the language in the whole 1996 bill shows that the specific claim about intent that it was only about numismatic coins is very likely false.

In part III, I’ll discuss other legal and political arguments offered by Wallach.

17 Responses to Some Platinum Coin Objections from the Mainstream: Part II

  1. The U.S. Mint has been issuing coins as net assets (equity): seigniorage = face (legal) value less expenses; since 1793 (see:, so there’s really no question of its legitimacy or precedent. Wallach must be misguided.

    • In the good old (joke) days, the seigniorage was conceived of as essentially zero. The metallic value was the face value. The 1792 act states: “Persons may bring gold and silver bullion, to be coined free of expense.” And for a small fee, gold or silver bullion could be immediately exchanged for an equivalent value of coin.

      A $1 trillion coin would in substance be a paper note (of negligible intrinsic value, compared to the face value), which is why the limit on issuing paper currency in substance applies.

      • True that ” the seigniorage was conceived of as essentially zero” – but only really “conceived of”. The seignorage was really always the other way around and nonzero. The state’s “fiat / tax-driven” money backed, created the “value” of the gold and silver, that would have been much less in the absence of this demand. Of course once it did this, paid say $35 for gold, then that is what gold would be worth and it would appear that seignorage would be zero. Monetary metals are only as valuable as they were and are because of their ancient but mistaken identification as money.

      • Doesn’t apply. Seigniorage has long been recognized as the difference between the face value and the value of material used to create money. That relationship pre-dates the Constiitution and certainly is enshrined in the law now, long after we’ve gone off the gold standard.

        • The fact that the 31 USC section 5115(b) limit is stated as to US notes is of course the reason why no one else has even thought to raise it as a controlling objection re issuing coins of arbitrary value. But you can be absolutely sure that the limit would be raised just as I have raised it, were there ever a legal challenge to your unilaterally issued $1 trillion coin. It gives statutory substance to the unacceptability that Wallach affirms. If there were no such limit re notes, a big barrier would be removed against your coin thesis. But then you wouldn’t be compelled to rely on issuing a platinum coin. You could just argue that the Treasury should issue a $1 trillion note. I see an inextricable intertwining.

      • Clifford, thanks for the information (and glad you were joking about “the good old days” of so-called “free coinage” (like so-called “free banking” it’s a bit of a misnomer: the “free banking” laws actually introduced a lot more banking regulations), and it wasn’t a good monetary system: human social and economic activity shouldn’t be artificially limited by the availability of particular clusters of atoms (Au or Ag on the periodic table), and, of course, the monetary value of Au and Ag was set by legal fiat: it was fiat currency, as all legally-accepted money, established as such by law, is (until demonetized, again, by law)).

        However, the link in my comment above refers to copper circulating coinage, for which, as far as I know, the legal value was not legally linked or limited to the weight of those particular clusters of atoms (Cu on the periodic table).

        “Money exists not by nature, but by law” – Aristotle


    • Wallach envisages a challenge based on “intent.” So that even if the language of the law plainly allows the minting of a coin with unlimited value, opponents will claim that allowing that couldn’t have been the “intent” of Congress.

  2. In arguing at such length “that minting trillion dollar platinum coins . . . for seigniorage purposes would be legitimate [and] a valid and defensible interpretation of the law, and . . . will [not] strike people as deeply illegitimate”; and especially in relying on the platinum coins sections of Title 31; I find it self-serving for you to fail to cite and address the single statute that particularly embodies the prohibition against such volumes of Treasury-issued currency, namely 31 U.S.C. § 5115(b), which limits issues of Treasury notes to $300 million. We have discussed the scope and purpose of this limiting statute previously. Your coin would fundamentally upset the manifest intent of that statute, and your failure TO EVEN MENTION the limit in your article–given that you are well informed of it–is a serious deficiency.
    Again, I agree that unilaterally issuing coins–or notes–ONLY in sufficient amounts to avoid default would be constitutional under the 14th Amendment’s public debt clause.

    • By the same token (coin), if Congress had wanted to include the platinum coin under the $300 million limit, it could easily have done so with a single sentence declaring that intention. That it did not make such a declaration indicates that it sees coinage as different than currency notes.

    • I think you’re off-base here. The limit placed on the Treasury’s creation of Treasury notes has since 1913 existed in the context of Congress’s grant to the Fed of the primary authority to issue currency. The Fed’s authority in this respect is unlimited.

      On the other hand, Congress never limited the Treasury’s authority to issue coins. Until 1996, it was impractical to issue trillions of dollars worth of coins to implement appropriated spending because it would have been too burdensome for the mint to accomplish that. So, the act of 1996 just created a balance between the Fed’s authority to create currency and reserves in unlimited amounts and the Treasury’s authority to create coins having unlimited face values. That makes a kind of sense to me.

      Apart from that however, the limit on Treasury’s creation of currency preceded the 1996 law. So, if the law newly authorized Treasury to create legal tender with huge face values that doesn’t mean than one should privilege the earlier currency limit as somehow a more valid indication of legislative intent than the plain language of the 1996 law authorizing the unlimited value platinum coins. Since that legislation came later, insofar as it conflicts with the currency limitation, I think it has to be viewed as repealing any implied limitation on coinage value.

      We have to remember that Congress did not consider money creation through coinage as the same as money creation in currency and reserves, because if it did then it would have given the Fed the authority to issue coins to the Fed too in 1913. The fact that it did not, argues that the limit on Treasury currency issuance that had existed since the Civil War, doesn’t speak to an intent to regulate currency value at all, but just indicates continuation of a limitation that had existed way before 1913.

      • The Treasury’s retention of the coinage monopoly (versus private bank monopoly over issuing paper money)represents the historic stand-off in what I call Ye Olde Seigniorage War. I’ve written up that war at length (unpublished). Lincoln crossed the line. Most recently, the war has even extended to suppression of the $1 US coin in favor of retaining the $1 Fed bank note. See Monetary Sovereignty? Give Me A Break (part II at–Giv-by-Clifford-Johnson-Banks_Coin_Dollar_Economy-150506-345.html) re the $1 dollar coin. Frankly, I’m disappointed but not at all surprised that you and no-one else have taken the trouble to analyze let alone repudiate the GAO’s public debt reporting re the benefits of the $1 coin. Who cares about a paltry $50 billion discrepancy?

        Given their resistance even to the $1 coin, do you seriously think the Fed and all its backers and minions wouldn’t be UP IN ARMS over a $1 trillion coin?

  3. It seems all to apparent that Wallach’s tendentious assumptions are naturally based on the pejorative,
    knee-jerk-narrative so often furnished up by “our” intrepid media messengers.
    Does anyone genuinely understand why the White House, the legislature, DOJ, Pentagon or financial elites bothers to spend money on official spokespeople?
    It’s such a redundant function given how many in the U.S. media (the likes of Wallach) eagerly perform that role.
    …there certainly appears to be plenty of documented case history for fawning, all the while hyping forecasts.

    • Philip Wallach is a think tank spokesperson who often has access to the media, and I’ll bet considers himself as completely independent of all political influences. 🙂

  4. Clifford, Treasury (U.S.) notes are not coins, so that (amendable) restriction doesn’t apply in the case of coins under the legal provisions that Joe is writing about.