By Jacquie Foote So … after the Revolutionary War, the…
By Jacquie Foote So ... after the Revolutionary War, the United States worked hard to solve its money problems, getting its currency stable and respected.…
By Jacquie Foote
So … after the Revolutionary War, the United States worked hard to solve its money problems, getting its currency stable and respected. And it did, settling on gold and silver coins.
When it comes to paper currency, there are two kinds: the first is debt money, which can be redeemed in silver and gold on demand. The other is fiat money, which is designated by the government as legal tender, but cannot be redeemed for anything. Its value is whatever the government says it is.
As one knows, after an extensive discussion, the Founders decided they couldnt risk debt currency. As for fiat money, this was so abhorrent to the Founders that they didnt even discuss it.
But, except for minor transactions, people do not like to conduct business with precious metal coins. Theyre too heavy, too bulky, and in substantial amounts, dangerous to transport. (And not so easy to store in large amounts either.) How much more convenient and safe it is to use paper currency. The Founders realized this, and expected the banks to issue notes, redeemable in gold or silver, which would fill this need.
Then, over the objections of Jefferson and Madison, Alexander Hamilton persuaded Congress to approve a private bank to function as a depository for the United States and to collect taxes. It issued redeemable bank notes, which circulated as currency. Soon, other private banks did the same. By 1798, Alexander Hamilton decided that this procedure was a mistake and that, if currency or bank notes were to be issued and circulated as money, it should be done by Congress. But, by then, approximately 1,600 state-chartered, private banks were issuing paper money. These State bank notes, with over 30,000 varieties of color and design, were easily counterfeited. This fact, along with the habit of banks of issuing currency beyond their means to redeem, led to bank failures, confusion and currency circulation problems.
Unfortunately, no steps were taken to remedy the problem. So, by 1860, with thousands of banks issuing thousands of different kinds of bank notes, the whole system began to falter.
Then came the Civil War, which required vast new expenditures. On the brink of bankruptcy, in 1861, Congress saw no alternative but to authorize the United States Treasury to issue paper money in the form of non-interest bearing Treasury Notes called Demand Notes (fiat money by any other name).
A year later, Demand Notes were replaced by United States Notes (again, fiat money). Commonly called greenbacks because of the green tint introduced to discourage photographic counterfeiting, the last of these was issued in 1971. The Secretary of the Treasury was empowered by Congress to have the notes engraved and printed by private bank note companies. The notes were signed and affixed with seals by six Treasury Department employees.
By 1863, the design of U.S. currency incorporated a Treasury seal, the fine-line engraving necessary for the difficult-to-counterfeit intaglio printing, intricate geometric lathe work patterns, and distinctive cotton and linen paper with embedded red and blue fibers. No matter how fancy, these greenbacks could not be redeemed in gold or silver and were limited somewhat in the things for which they could be spent. People thought of greenbacks as being dollars, but their value soon dropped to around 35 cents each.
What happened to the Gold Standard? Or the Silver Standard?
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.
