Remember When: Post World War II Numismatic Economics

By Harvey G. Stack, Senior Numismatic Consultant

I have been asked, “How different were the economic conditions for rare coins in the post World War II years and the decades that followed?” I think a happening in 1954 will give you an idea how economic conditions and coin values changed from the post war era to the early 1960s.

First, let me tell you that most dealers, large and small, had most of their money invested in inventory -- gold coins, rarities, world coins and ancients -- and were always considered to be inventory rich, but cash poor. I experienced this working for and being a member of the Stack family. The family had capital but there were times when they needed more cash, usually when a collection was offered for sale that they wanted to buy. This was best illustrated by our purchase in the late 1940s of the Col. Green collection of early and late date $5 and $10 gold, and the many smaller collections that were being offered. At the same time, as specialists in world and ancient coins of all metals, our capital was tapped purchasing inventory from the enormous hoards of coins that were arriving in the United States from Europe, South America and the Far East.

In addition, many people were using their personal funds to move from the wartime to the peacetime economy, purchasing new homes, cars and other luxuries that had not been available for years. This distracted numismatists and other hobbyists from adding to collections, which limited the amount of cash available to those in the coin business.

This became apparent in 1954 when Sotheby’s sold King Farouk’s collection in Egypt. Many dealers started to accumulate funds to go to the sale; combines were formed to pool money, as purchases were to be paid for on the spot with cash. With the civil disorder in Cairo, if you did not have the cash funds available, there was no reason to go.

As noted in a previous recollection, just before the Farouk sale, Stack’s was fortunate to purchase outright two great collections, the Davis Graves and Anderson Dupont Collections. However, these purchases used up the “nest egg” that would have allowed Stack’s to participate fully in the Farouk auction. We had plenty on our plates in New York, so we did not go to Egypt. We were able, after the sale, to purchase coins acquired by others who could not afford to hold them for a long time.

This leads to a story about my Uncle Joe, a leader in the hobby, who with my father, Morton, was responsible for Stack’s growth through the early decades, building the foundation for where we are today. During early 1954 our firm was offered a lovely paper money collection. At the time, many of the items were only worth face value or a bit more. Included was a splendid collection of early notes starting with 1861, covering most of the Gold, Silver, National and Legal Tender notes denominated from $1 to $20, as well as a few of the higher denominations up to $500. They were mostly in Very Choice condition and would have upgraded our working and retail stock five or tenfold.

The client wanted a one-time payment of $75,000 for the collection, as he was buying a house and wanted the cash to buy it outright. The firm had only $50,000 in working capital available and purchases earlier in the year had consumed their credit line at the bank. We had spent hundreds of thousands of dollars of our own money for these purchases, as coins and paper money, like art and other collectibles, were not considered good collateral.

My uncle went to the bank and presented his case. We would put up $50,000 toward the collection and would leave $30,000 in face value from the collection as collateral for a loan of $25,000. The banker considered the proposal for a moment and then agreed. Uncle Joe was excited, thinking he had made in-roads with the banker, and before the deal was done Uncle Joe asked, “where will you keep the notes I leave with you?”

“In the teller’s draw,” replied the banker.

In a shaky voice Uncle Joe asked, “Will they be separate?” The banker explained that the notes would be considered part of their cash on hand, and the larger-size notes, since they were not in circulation on a regular basis any longer, would be exchanged at the Federal Reserve for current notes. The banker continued, “You know Joe, we cannot loan money on money. We must consider it cash and handle it in our normal way.”

“You mean I won’t be able to get my original notes back when I pay up the loan?” Uncle Joe asked. “But these are collector items and have a premium value in the market.” The banker explained again that they were unable to lend money with cash as collateral; it had to be treated as cash on hand and as regular currency. He could not store it away in a safe deposit box away from the regular cash.

Uncle Joe was surprised that even after all the years of dealing with the bank, the bankers did not understand the value of collectibles. Instead, Stack’s went to a private collector, offered him a share of the profit, and he loaned the firm the money to acquire the collection.

Since that time, bankers have realized that in the collecting world, coins and currency have premium values in the marketplace, just like art and other collectibles. Now bankers manage trusts, collateralize all forms of collectibles, and this has led to growth in the entire collectible industry. Time has proven that there is a viable market for collectibles.