THE BLOG
01/16/2013 03:02 pm ET | Updated Mar 18, 2013

Zany GOP Origins of the Trillion Dollar Coin

If the U.S. Treasury issues a trillion-dollar palladium coin and then sells it to the Federal Reserve System or deposits it as cash, maybe the debt ceiling would be legally bypassed via the Treasury's authority to issue collectible coins.

Where did all that come from? I ask as a student of economic history rather than a lawyer. It may surprise some to know that several key players have been Republicans -- Theodore Roosevelt, William Woodin, Richard Nixon.

Let's start with the authority for minting a trillion-dollar palladium, which comes from U.S. Code 31, #5112, subsection (v). Under this general rubric a $25 palladium coin was authorized in 2010. FYI palladium is in the family of "white gold" platinum elements, but has slightly different characteristics. The law in clause (v) (3) sets a minimum price for any minted coin, i.e., the cost of acquiring the metal and the cost of minting the coin, but it does not set a maximum price. Key parts of the U.S. Code from the excellent Cornell Law School website, are shown below:

(v) Palladium Bullion Investment Coins.--
(1) In general, Subject to the submission to the Secretary and the Congress of a marketing study described in paragraph (8), beginning not more than 1 year after the submission of the study to the Secretary and the Congress, the Secretary shall mint and issue the palladium coins described in paragraph (12) of subsection (a) in such quantities as the Secretary may determine to be appropriate to meet demand.
(2) Source of bullion.--
(A) In general.-- The Secretary shall acquire bullion for the palladium coins issued under this subsection by purchase of palladium mined from natural deposits in the United States, or in a territory or possession of the United States, within 1 year after the month in which the ore from which it is derived was mined. If no such palladium is available or if it is not economically feasible to obtain such palladium, the Secretary may obtain palladium for the palladium coins described in paragraph (12) of subsection (a) from other available sources.
(B) Price of bullion.-- The Secretary shall pay not more than the average world price for the palladium under subparagraph (A).
(3) Sale of coins.-- Each coin issued under this subsection shall be sold for an amount the Secretary determines to be appropriate, but not less than the sum of--
(A) the market value of the bullion at the time of sale; and
(B) the cost of designing and issuing the coins, including labor, materials, dies, use of machinery, overhead expenses, marketing, distribution, and shipping.

(4) Treatment.-- For purposes of section 5134 and 5136, all coins minted under this subsection shall be considered to be numismatic items.
(5) Quality.-- The Secretary may issue the coins described in paragraph (1) in both proof and uncirculated versions, except that, should the Secretary determine that it is appropriate to issue proof or uncirculated versions of such coin, the Secretary shall, to the greatest extent possible, ensure that the surface treatment of each year's proof or uncirculated version differs in some material way from that of the preceding year.
(6) Design.-- Coins minted and issued under this subsection shall bear designs on the obverse and reverse that are close likenesses of the work of famed American coin designer and medallic artist Adolph Alexander Weinman--
(A) the obverse shall bear a high-relief likeness of the "Winged Liberty" design used on the obverse of the so-called "Mercury dime";
(B) the reverse shall bear a high-relief version of the reverse design of the 1907 American Institute of Architects medal; and
(C) the coin shall bear such other inscriptions, including "Liberty", "In God We Trust", "United States of America", the denomination and weight of the coin and the fineness of the metal, as the Secretary determines to be appropriate and in keeping with the original design.
(7) Mint facility.-- Any United States mint, other than the United States Mint at West Point, New York, may be used to strike coins minted under this subsection other than any proof version of any such coin. If the Secretary determines that it is appropriate to issue any proof version of such coin, coins of such version shall be struck only at the United States Mint at West Point, New York.
(8) Marketing study defined.-- The market study described in paragraph (1) means an analysis of the market for palladium bullion investments conducted by a reputable, independent third party that demonstrates that there would be adequate demand for palladium bullion coins produced by the United States Mint to ensure that such coins could be minted and issued at no net cost to taxpayers.

If a trillion-dollar palladium coin is minted by the next Treasury Secretary (Jacob "Jack"  Lew's name is penciled in on the office door), he might thank his precessor under FDR, William Hartman Woodin, who created the special exemption for rare and unusual coins that continues in the U.S. Code. The original exemption was for gold coins.

Will Woodin, a life-long Republican, was FDR's first Treasury Secretary. He served through 1933 and consumed himself with work. He died March 1934 and FDR's second Treasury Secretary, Henry Morgenthau, served with FDR for remainder of his presidency.

A trillion-dollar palladium coin might be minted as a "pattern coin." To oversimplify complex numismatic terminology, a pattern coin is unique, minted as a trial or a sample, like an "artist's proof" before the numbered sequence, or a designer's sample created to get buyers to sign on for large orders.

Like artists' proofs, pattern coins can be very valuable. U.S. dollar coins were in the early years of the nation under the control of the different states. In 1792 the U.S. Mint was established in Philadelphia and the "half-disme" (five cents) was created that year. As the future of the U.S. money supply was debated after the Bankers Panic of 1907, Woodin saw the potential future value of pattern coins and purchased two of them. They were recalled by the Philadelphia mint and Woodin was persuaded to trade his coins in return for a substantial collection of pattern coins from the Mint. So there is a precedent for the U.S. Mint trading a pattern coin for something of comparable value.

Woodin became such an expert on pattern coins that 100 years ago - the same year the Federal income tax and the Federal Reserve System were created -- he co-authored a major book with Edgar Holmes Adams on United States Pattern,Trial and Experimental Pieces

A lifelong Republican, Woodin in 1898 he ran for Congress, losing narrowly. During the next two decades he took over leadership in the Berwick, Pa., railway car manufacturing business from his ailing father and after a series of mergers became key supplier of NYC subway cars. A fan of Theodore Roosevelt (himself an enthusiastic patron of pattern coins), in 1922 Woodin was appointed Fuel Administrator by New York Republican Governor Nathan Miller. He made some Democratic friends when he was reappointed by Miller's Democratic successor, Governor Al Smith in 1923. He came to know and like both Smith and his successor, NY Governor Franklin Delano Roosevelt. He  supported Smith for President in 1928 and FDR in 1932. Living two blocks from FDR at 67th and Fifth Avenue in New York City, Woodin knew FDR well as Governor and often continued to call FDR by that title for the year he was Treasury Secretary.

Woodin summered in "The Dunes" on Lily Pond Lane in East Hampton and became president in succession of the preeminent golf, yacht and arts clubs in that community. Will and his wife Nan attended the Fifth Avenue Presbyterian Church and the East Hampton Presbyterian Church with their four children and their children's children. His grandson Charlie Miner tells this story:

I once asked him: "Grandpa, why do we have to sit up front?" "Because," Grandpa answered, modestly, "I gave the church some money." I asked him: "If we give more money, can we sit in the back?" Grandpa roared with laughter.

A popular father and grandfather, Woodin composed music for Raggedy Ann's Sunny Songs, with the lyrics supplied by his friend Johnny Gruelle, whose characters include "Little Wooden Willie". Al Hirschfeld sculpted "Woodin Nickel" on a round piece of wood for the July 1933 issue of his magazine Americana, a brilliant idea and the only such sculpted art he was known to do (truly, a pattern coin!).

Besides pattern coins, Woodin collected drawings by Cruikshank and others. When grandson Miner was 5 years old, he was staying with his grandfather and started to read one of the valuable books in his collection. He says:

Grandpa objected: "Those are not to be read." I was puzzled: "What good are they, then?" After filling the air with explanations about rare engravings, Grandpa gave up and decided the joke was on him. "Maybe you're right, Charlie."

Woodin sometimes used his avocations to win new friends. Miner says that his Grandpa called on the King of Siam to sell some railway cars and was lectured beforehand on Siamese protocol, the importance of backing away facing the King, etc. But when the two of them had wrapped up their negotiations, they emerged arm in arm, the King entranced with Woodin's knowledge of rare coins.

The other candidate for Treasury Secretary that FDR was considering seriously at the time of Woodin's appointment was Senator Carter Glass of Virginia. Glass had been a key player in House when the Federal Reserve was created in 1913. Whether because Glass was needed in the Senate, or turned down an offer, or because Woodin was viewed as providing a better bi-partisan cover for financial reform, an aide sent a coded message to FDR confirming that the "wooden" design was preferred to the "glass". 

The Treasury Secretary's economic challenge was huge. The unemployment rate in 1933 was 25 percent. Public opinion was ready for sweeping action, because the Pecora Commission had for a year been stirring up public sentiment against Wall Street speculation with depositors' money in the 1920s. As FDR noted in his first Fireside Chat, hardly any banks opened their doors during the week of his Inauguration, because almost all states had imposed bank holidays to give banks time to obtain currency to pay out to panicked depositors.

Woodin's first job was to manufacture $2 billion more in greenbacks to restore liquidity. His business background was helpful as he focused on keeping the Treasury's Bureau of Engraving and Printing presses working nonstop. The new bills were packed in trucks and delivered to the banks, with movie cameras filming. The film clip was sent to cinemas around the country. Woodin also sent out examiners in 1933 to determine the solvency of each bank, beginning with the 250 cities with clearing-houses, prior to reopening the banks one by one. This was repeated with the "stress tests" of banks after the 2008 meltdown.

On policy matters, Woodin was cheerleader for the New Deal's programs for direct creation of public jobs and for the Glass-Steagall Act that created the wall around bank deposits and insured them. The deposit insurance portion (Rep. Henry B. Steagall's half) of the law is still standing, although Senator Carter Glass's wall was regrettably disassembled over at least a decade by bank lobbyists seeking to facilitate bank lending to investment banks.  

The one major policy matter where Woodin disagreed at first with FDR was on devaluation of the dollar. FDR advocated devaluation, as eventually happened -- the U.S. dollar's peg to gold was raised from $20.67 an ounce, where it had been for a century, to $35 an ounce, in the Gold Reserve Act of 1934. When FDR brought it up, Woodin would say "Oh no, not that again," according to grandson Miner. 

When FDR made clear he had decided to go ahead with devaluation, Woodin worked to make it happen, while extracting an exemption for "rare or unusual" gold coins, incorporated in FDR's Executive Order 6102 of April 5, 1933. Americans were required to sell their gold to the Treasury at the fixed rate from 1933 until 1971, when President Nixon allowed the price of gold to fluctuate

Woodin gave his nights and then his life to FDR's service. Constant stress and sleep deprivation set Woodin up for an illness that persisted into December 1933. He resigned as Secretary as of the end of 1933 and died March 3, 1934; Miner says the cause of death might today be diagnosed as a strep throat, for which there was then no cure. At Woodin's austere funeral service in the Fifth Ave. Presbyterian Church, the President, likewise challenged by illness, called Woodin "a martyr to public service."