money and taxes -- 11/23/20
Today's selection -- from Aspen: The History of a Silver-Mining Town, 1879-1893 by Malcolm J. Rohrbough. For the first century or more of its existence, the United States was a hotbed for experiments in the issuance of different types of currency. There was no central bank as we now know it, since the First and Second Banks of the United States were essentially commercial banks and went away after 1836, with no central bank until the Federal Reserve Act of 1913. (That lack did not prevent the U.S. from becoming the world’s largest economy by the late 1800s.) There was no national currency until the Civil War, and local experiments in issuing scrip as money, especially in the West where money was often more scarce, continued through the Great Depression. Mining towns were often a place where scrip was used, and here we see the early results in the late 1800s in the new mining town of Aspen, Colorado:
"The raising of revenue [in the new town of Aspen] involved less consensus, for the tax and licensing fees affected the various elements of the community unequally. The standard targets of the licensing fees were those in revenue-producing businesses. Merchants were the most obvious. There was also a question of whether immoral trades should be subject to a 'moral tax' to discourage their practice. Saloons were a good case in point. Because their acknowledged profitability was an affront to some citizens, they became the logical targets of a tax against sin as well as a revenue-producing measure. Yet such businesses were part of the entertainment industry of mining camps, and necessary to some part of the camp's population. They met the needs of single men who would come to the camp in numbers, serving as a combination social club and entertainment center. Licensing fees also had to be paid by pawnbrokers, liquor dealers, 'shows and establishments' ($50 for three months or $10 for a single show), billiard tables, bagatelle tables, bowling alleys, peddlers, and public carriers.
"Taxes and licensing fees paid for services. The services that citizens had a right to expect were also standard, and the town trustees' first budget enumerated them: streets, sidewalks, crossings, bridges, ditches, and culverts were allotted $500; town printing, $500; stationery, furniture, books, and meeting rooms, $1,000; the camp jail, $1,000; the fire department, $200. Throughout the spring and into the summer of 1881, the trustees sifted bids, contracted, inspected, and paid for the improvements. But they paid grudgingly, as befitted a 'thrifty mining camp' and a treasury that was always on the verge of being empty. On October 15, 1881, the trustees announced that the town's debt stood at $1,262.59.
"If Aspen's permanence and prosperity were sure things in the long run -- and officials, entrepreneurs, and editors continued to insist that they were -- its immediate future was beset by financial difficulties. Ambitious plans by civic leaders, who saw themselves laying the foundation for a town of several thousand, could not be supported by the tax base of a few hundred residents with a barter economy. Aspen needed public improvements and services, and these plans rapidly outran the receipts in the town's treasury. The result was the decision to issue city scrip, notes of indebtedness that formed an underground circulating medium -- underground because no one wanted to accept them, certainly not at face value, and preferably not at all. In an economy in which cash was scarce, however, such notes increased the circulating medium, and they had a certain credibility because they were receivable in payment for debts due in town -- notably, taxes. The problem was simply that few people paid taxes and that those who did spent too much time contriving to reduce their obligations to the camp to the vanishing point. It was this cycle that had made scrip necessary in the first place. By the summer of 1882, the cash value of the camp's scrip had sunk to thirty cents on the dollar.
"Many Aspen businessmen and contractors found the camp an uncertain business proposition, but, in the tradition of mining camps almost everywhere, it was still the largest employer around. A leading contractor and trustee of the camp, R. C. Wilson, knew firsthand the opportunities and hazards associated with a client that printed its own money. Wilson contracted to build the jail. Soon after its completion, he petitioned the trustees for a liquor license and asked that the license fee of $25 be deducted from the sum owed him for work on the jail. He did not add, although he might have, that the town proposed to pay him in depreciated scrip for his work and to collect cash for the license fee. His fellow trustees objected, and in response Wilson read them a lecture on the mining-camp economy. He had built the jail for no profit, he told them, and had furthermore taken scrip supposed to be worth seventy-five cents on the dollar when in reality it was not worth over forty cents. The trustees backed down. Wilson received his license, a commodity far more negotiable than town scrip. Another contractor presented a bill for $60 in cash or $120 in scrip, and a reporter for the Rocky Mountain Sun noted that 'the novelty of the demand struck the worthy councilmen in a tender spot.'"