Mitchell’s Musings 4-25-16: Just Plain Bills

22 Apr 2016 11:34 AM | Daniel Mitchell (Administrator)

Mitchell’s Musings 4-25-16: Just Plain Bills


Daniel J.B. Mitchell



There is a great deal of excitement over the recent announcement that Andrew Jackson will be taken off the twenty dollar bill and replaced with Harriet Tubman. Although various images of the Tubman bill have appeared in the news media, the actual redesigned bill has yet to be, well, redesigned. There was also excitement over the decision not to take Hamilton off the ten dollar bill – apparently due in part to the influence of the current hit Broadway musical about him.


But here’s the thing. When the new Tubman bill does appear – news reports say the new bill will be unveiled in 2020 – it will be worth precisely two Hamiltons. That sum is the same value that Jackson has today. That is, despite the political and historical significance of exchanging Jackson for Tubman, there will be no monetary significance of the switch. Zilch. So with 20-20 vision, I can predict that two tens will be equal to one twenty when the new bill comes out. Why is that? Why is that true, now and then?


Is it because the twenty dollar bill says it is “legal tender for all debts public and private.” Actually, the ten dollar bill has the same wording. So that phrase can’t be the difference. Is the paper in the twenty worth double the value of the paper in the ten? No, it’s the same material. And unlike some foreign currencies where the size of bills vary from denomination to denomination, the size of the ten and twenty will likely be the same, as is the case now.


Is it because the twenty is “backed” with twice as much something (gold? silver? bananas?) as is the ten? No. The twenty isn’t backed by anything except two tens, or four fives, or ten twos (remember them?) or twenty ones.


Well, what about the coins you could get for a twenty? They are made out of metal(s) and metal(s) is (are) something. You could get 2000 metallic pennies for a twenty, for example. Indeed, in recent years, it costs the U.S. Mint more to make pennies (and nickels) than their face value.[1] So you might even say a penny is worth more than a penny.[2] In which case you might say a twenty (exchangeable into pennies) is thus worth more than a twenty, albeit by the same percentage that a ten is worth more than a ten.


OK, you get the point. Money in modern times is a social convention, although a very useful one. Money is used for exchange because everyone does it. Everyone in 2020 will know that with beginning-to-wilt Jacksons and newly-printed Tubmans both in circulation at that time, both will be worth the same amount and both will be worth two Hamiltons. The only real difference between a Tubman and a Hamilton will be that the former will be stamped “20” and the latter “10.”


It may seem odd that people compete for – and even steal and murder for – the obtaining of pieces of paper (or electronic representations thereof) which have value due to a social convention. But people do. And it is the same social convention that allows macro policy control of interest rates and exchange rates and thus the general pace of the economy.

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[1] The U.S. mint at present has negative “seigniorage” on pennies and nickels (the “profit” it makes on selling coins to the Federal Reserve) but makes it up on other coins. See https://www.treasury.gov/about/budget-performance/CJ14/20.%20Mint%202014%2004%20April%20FINAL%20ok.pdf.  Note that economists sometimes use the word seigniorage to refer to more complicated concepts such as implicit interest-free loans to the central bank.

[2] At present, the excess cost of pennies and nickels is not so high that it pays to melt them down. 

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