The Day Money Died
J. WESLEY SULLIVAN is news editor of the OREGON STATESMAN, Salem, Oregon, and is a former Niernan Fellow of Harvard University. This is his first appearance in the ATLANTIC.
The trading-stamp explosion began in the 1950s. By the end of the decade, competition was fierce. Hardly anything could be bought without some form of trading stamps being thrown into the package.
In 1961, the first clearinghouse for trading stamps was opened at Utica, New York. People from all over the nation sent in stamps they weren’t saving and exchanged them for ones they were —– for a slight fee. At first, the clearinghouse fees were collected in money. Then, later, they were collected in trading stamps, which should have been a tip-off as to what was coming.
It was in the pre-Christmas season of 1963 that an Omaha clearinghouse began to realize the full potential of the trading-stamp business. The first loan department was established. Thousands of people needed just one or two more books of stamps to get the premiums they needed for Christmas presents. The Omaha Stamp Bank was flooded with loan requests.
Nearly an equal number of stamp savers were saving for the big premiums a year or two away. It was estimated that the average American family had a reserve of ten books of one kind or another. At an average value of $3.00 a book, S$1.5 billion in unclaimed assets was lying in dresser drawers across the United States. With the promise of 4 percent interest in trading stamps, millions of these books poured into tradingstamp savings accounts, which began springing up in connection with the loan departments.
This brought on an unexpected crisis. The clearinghouses simply weren’t prepared to handle the volume of books which descended on them. Handling and storage were the big problems. Guarded warehouses were used at first. Bushels of books were trundled about by forklift trucks. The ridiculousness of the situation soon became apparent.
By arrangement with the tradingstamp companies, book-burning centers were established. Under supervision, carloads of the books were burned each day, and the tally recorded on chits. These chits, certified by the clearinghouses, became the accepted substitute for the stamp books.
At about the same time, the housewives’ rebellion began. The job of pasting stamps in books became such an annoyance, it was thought for a while the stamps might be abolished.
The stamp receipt system was devised as a compromise. Each place of business was provided with a metering machine, similar to the postage metering machines used in larger business firms. As each purchase was made, the buyer was handed a trading-stamp receipt as a substitute for the stamps. After a time, the stamps themselves faded completely from the picture, with the receipts serving as a substitute for the smaller amounts and the chits for the larger number of full books.
Back in the summer of 1961, the first wages began to be paid in the form of trading stamps. In the beginning, the stamps were given in the form of bonuses, in addition to regular money. Before long, the trading-stamp clause became a part of every union contract. It was argued that the clause was noninllationary. It served as a substitute for raising wages. This seemed plausible at first. Each year, wages remained the same, but the tradingstamp allotment was raised.
Before long, the trading-stamp allotment was a sizable fraction of the paycheck. It was in this era that businesses began accepting stamps in payment of bills owed. After the wage earner bad paid his money for the things for which payment of money was mandatory, such as mortgage payments and insurance, he oft times had nothing left with which to pay the grocer except trading stamps.
If it was a question of stamps or nothing, the businessman took stamps. After all, he could turn right around and give them back to the customer with purchases.
Size began to tell in the stamp industry. Federated Trading Stamps, Inc., was formed as a merger between two old-line companies and a handful of the smaller firms, and achieved a dominant position in the New England states.
As competition grew more intense, companies piled premium upon premium. Speculation in the tradingstamp company stock reached a feverish pitch in the summer of 1969. Its crashing climax came at the end of September, when Sav-a-Stamp closed its premium centers throughout the country and refused to redeem its books. Long lines of people waited in vain outside the redemption centers as eighteen other major stamp companies took the plunge.
On October 2, J. P. Smiley, board chairman of Federated Trading Stamps, called a meeting of the stamp tycoons in New York City. Present were officials of thirty-seven companies, representing 95 percent of the stamp business in the nation. Smiley locked the doors and announced that no one was leaving until the stamp panic had been resolved.
Operating, it was learned later, with a direct phone line to the Justice Department in Washington, he outlined a plan for three major stamp companies to be formed from the mergers of the existing companies. Skirting the edge of the antimonopoly law, each company would be dominant regionally, as his firm already was in New England. He demanded, also, that each company pledge enough securities in stamps to ensure that every premium of every stamp company in the nation would be redeemed.
The stamp panic passed in the fall of 1969, and three companies, Federated. Amalgamated, and United, were left in control of the stamp business. The earthquake caused by the stamp panic was not without its aftershocks, however. Conservative elements in Congress demanded government regulation of the stamp companies. To this end, the Stamp
Act was introduced in the 1970 session of Congress. In effect, this gave the Securities and Exchange Commission the same power over stamp trading as it had over stock trading. It also formed a Federal Stamp Bank to regulate the stamp clearinghouses, which now had assumed all the functions of normal banks, including the mortgaging of homes and auto financing, all with trading stamps.
Proponents of the act hit hard with the argument that trading stamps were assuming the functions of money, thereby usurping a right of the government.
Although the Stamp Act was enacted into law, it carried with it the seeds of its own downfall. The political argument over its passage divided the country as no other issue had in recent times. When the political lines were cleanly drawn, it was money versus trading stamps. The proponents of money were branded as the “idle rich.” and the trading stamps were given the political label of the “money of the people.” It was “government monopoly" money against “free enterprise” money.
After the election of 1972, it became obvious that opposition to trading stamps was political suicide. In the entire nation, not one candidate who opposed trading stamps was re-elected. With the virtual collapse of political opposition, J. P. Smiley called another locked-door meeting of the tycoons. Included this time were leaders of government.
On March 4, 1973, a bill was introduced into the Hlouse of Representatives providing that, within the domestic economy, trading stamps were to be accepted as legal tender, on a par with the money of the government of the United States. A call for debate in both the Senate and House was met with almost deathly silence. Upon the virtually unanimous approval of the act, a test case was rushed to the U.S. Supreme Court,
The 5-4 decision provided that trading stamps were not money but a substitute therefor, and did not infringe upon the prerogative of the federal government, as stipulated in Article I, Sect. 8 of the U.S. Constitution, “To coin money, regulate the value thereof. . . .”
And thus it was that, on April 1, 1973, the federal government began paying off the national debt, in trading stamps.