By Jacquie Foote So, in spite of the Founders having…
August 22, 2013

By Jacquie Foote So, in spite of the Founders having made the dangers of fiat money very clear in their writings, and in spite of…

By Jacquie Foote

So, in spite of the Founders having made the dangers of fiat money very clear in their writings, and in spite of the problems caused by the fiat money circulated by various states and the federal government during and right after he Revolutionary War, the federal government once again issued fiat currency during the Civil War to pay for the costs of that war.

The federal fiat money during the Revolutionary times was called a Continental. The troubles they caused led to the saying, Not worth a Continental. As the greenbacks fell in value*, they began to be looked at with the same derision as the Continentals had been. This was very disturbing to the Congress of the United States and beginning in 1865, measures began to be taken to bring respect back to American currency.

First, in 1865, gold certificates were issued by the Department of the Treasury against gold coin and bullion deposits. This was debit currency and had concrete value. These dollars were circulated until 1933.

At about the same time, the Department of the Treasury established the United States Secret Service to control counterfeiting. (At that time, one-third of all circulating currency was estimated to be counterfeit.) Then a year later, national bank notes, backed by U.S. government securities, became predominant, replacing state bank notes and the value of the currency stabilized for a time. In 1877, the Department of the Treasury’s Bureau of Engraving and Printing started printing all U.S. currency.

In 1878, the Department of the Treasury was authorized to issue silver certificates in exchange for silver dollars. (The last issue of these was the Series 1957.) That same year,

Congress promised to redeem the greenbacks in gold. This changed the greenbacks from cheap fiat money to debt money, redeemable at face value.

At first, there was a run on gold as people, not trusting that the greenbacks would long continue to be redeemable, traded in their greenbacks almost frantically. But when they found that they really could get the gold, and that once they had it they had to store it safely, many did not want it. They returned the gold to the bank and took back paper money instead, confident that the money had real value and that the gold would be available when and if they wanted it. Thus, the United States was on the gold standard and remained so until 1933.

Meanwhile, Congress worked to phase out the bank notes that were issued by state banks by putting a tax on them, thereby discouraging their use. In 1863-64, Congress passed a series of national bank acts, which set up a system of privately owned banks chartered by the federal government. These national banks issued notes backed by the U.S. government bonds, and these national bank notes became the country’s chief currency. When the greenbacks received gold backing in 1878, they moved up to a par value with the national bank notes.

Why did we get off the gold standard? And what about silver?

* Remember, fiat money is money that a government declares to be legal tender, although it is not based on or convertible into precious metal or other things of intrinsic value. Fiat money, therefore, depends on government decree to determine its value. Legal tender is currency that is valid for the payment of a debt and, by law, must be accepted by a creditor.

For information on the events at the Geauga County Historical Society’s Burton Century Village Museum, call 440-834-1492 or visit www.geauga

historical.org.