By Jacquie Foote So far, we know that until 1789…
By Jacquie Foote So far, we know that until 1789 both gold and silver coins were currency and even the gold and silver coins from…
By Jacquie Foote
So far, we know that until 1789 both gold and silver coins were currency and even the gold and silver coins from foreign nations could be used as U.S. currency.
Then, in 1789, bank notes, called Demand Notes were printed, one reason being the paper currency was easier to carry and store than precious metal coins. A demand note could be turned in for either gold or silver.
1865 saw the issue of gold certificates, which could be turned in only for gold, and 1878 saw silver certificates, which could be turned in only for silver, issued. Then, between 1914 and 1933, each Federal Reserve Note could be turned in for either gold or silver.
In 1933, gold and gold certificates had to be turned in to the federal govern-ment and were replaced with demand notes that could only be turned in for silver.
In 1973, Americas government cut the tie between its paper currency and precious metals. So, from that time to now, all American currency is fiat currency.
Really, paper currency got its big chance thanks to the Civil War and its economic fallout. To pay for the Union Army’s campaign, the federal govern-ment issued $450 million in greenbacks, about $8.1 billion in 2011 dollars. This was fiat money, with no gold or silver backing it. These greenbacks may have technically been unconstitutional, but they worked, making it possible to buy equipment and pay soldiers.
The end of the Civil War, however, brought inflation and renewed attention to the constitutionality of paper money. Two Supreme Court decisions, in what became known as the Legal Tender Cases, stated that although the Constitution may not explicitly grant the federal government power to issue bills of credit, it had the implicit right to do so because governing a country would be flat-out impossible without it.
However, the paper’s value always depended, at least in theory, on the idea that one could exchange it for a weight of gold or silver. It was inconceivable to most that currency could have value without this link to metals. But, as we have seen, things changed. The end of the gold standard meant that currency became a total abstraction. Its value now comes from fiat, government mandate. It’s a Latin word meaning, let there be. In God we better trust.
The dollar, for a long while, has remained the anchor currency of the world. Other governments hold on to dollars and use them for paying debts, and in the aisles of the global supermarket of goods, most items are still priced in U.S. dollars. The greenback is stable because the U.S. economy is huge and the United States is a super power. That may be changing, though.
So, as you see, today, the American economy operates under a monetary system that many say is completely outside the Constitution. Its fiat money is continually manipulated both in value and quantity. This can have a devastating impact on its purchasing power. For example, in 2010, the dollars value was down to about 8 percent of its 1933 value. The decrease of the value of the dollar has eroded the value of savings, insurance policies, retirement funds and fixed incomes.
For information on the events at the Geauga County Historical Society’s Burton Century Village Museum, call 440-834-1492 or visit our website at www.geaugahistorical.org.
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