*** economies United States America monetary history







United States Economy: Monetary History

American monetart history
Figure 1.--The San Francisco Mint is a unit of the United States Mint. The Constitution gave the Federal Government the authority to mint coins. A mint in San Francisco was opened a few years after California was acquired and gold discovered (1854). It minted gold coins from the mines developed during the California Gold Rush. It quickly outgrew the first small building and moved into a new larger one (1874). This building was one of the most substantial structures in the rapidly expanding city and became known as The Granite Lady. It is one of the few San Fracisco structures that survived the great 1906 earthquake. It was used until an even larger building was built (1937), one of many New Deal public works projects. The photograph here was taken in the 1900s, at about thetime of the earthquake. I;m not sure what the black boy is carrying. The boy on the rightis selling newspapers, presumably a spot near the mint wouls be a good site.

The monetary history of the United States, essentiaslly the history of the U.S. dollare is particularly pertinent as monetary policy and the soundness of the dollar is becoming an important political issue. When the United States Continental Congress declared independence from Britain (1776), it meant departing from reliance on the British pound and other British financial institutions. The dollars issued by the Continental Congress steadily declined in value. The Congress printed paper currency denominated in Continental dollars, but had no real taxing authority to support the currency. The phrase "not worth a Continental" expressed that decline. The need for a common currency became obvious, especially after the success of the Revolution (1783). The Articles of Confederation did not grant money powers to the Congress and money became a serious issue. There were a variety of coins (including gold and silver) circulating in the early United States, but it was an inadequate money base for a growing economy. States issued "bills of credit" which served as legal tender, but it was not clear what these paper bills were worth even within a state and trying to figure out what bills from other states were worth was a virtually unsolveable problem. Government at the time given the Revolutionary experience was seen as a threat. Thus for many, limiting the power and size of Governent was seen as the best way of preventing abuse of the public trust. Experience which state bills mase it clear that money had to be precisely defined. Without being so defined it could not play its central role as a meaningful unit of account. Without a precise definition, states could debase money for political reasons or to reduce debts. Thomas Jefferson wrote at the time, "If we determine that a dollar shal be our unit, we must say with precision what a dollar is" (1784). This was one of many questions addressed by the Constitutioinal Congress (1787). The framers in the Constitution limited legal tender coinage to gold and silver. Congress was authorized to coin money and "regulate" its value. Thast meant the vaue (number of dollars) of the coins issued. Congress was also given the authority to borrow money, but that was a fiscal matter unrelated to monetary (creating money) policy.

English Colonies (17th and 18th centuries)

Huge quantities of bullion (gold and silver) flowed from Spain's American colonies into Spain and on to the rest of Europe. Partly as a result, during the English colonial period, the Spanish Dollar coin was virtually an unofficial national currency in the American colonies. The actual term dollar originated from the Bohemian silver Thaler (15th century). Many countries minted Thalers and the spelling varied from country to country. Thalers and Thaler-sized silver coin were minted all over Europe with equivalent coins, including the crown, daalder (from which the English word dollar is derived), and krona. The Spanish began minting the 8 reales piece (1497). So much silver flowed into Spain that the Spanish 8 real piece was especially important, minted in much larger quantities than English coins. It had become a kind of international currenvy, but the term Thaler/Daalder was so prevalent in England and the English colonies that the Spanish coins were commonly called dollars. The colonists, however, had a problem. There was not enough money/currency of any kind. And currency was needed to facilitate exchanges. As the ancient Mesopotamians figured out thousands of years earlier, it is very difficuklt getting everything you need or wanted through bartetr. Inthe early days the cilonists bought far more from Britain than they produced and sold to he mother hand. This drained the colonies of what little money they had, leabing them without liquidity. This was want British investors and officials wanted. One author explains, "The mind-set was wealth should flow from the colonies to Brirain." [Weatherford] The early colonists thus created nonconventional money, including easily salable products riice and tobacco) or Native American money wampum (beautiful belts of beaded shells). They also used the Spanish coins called collars to the extent they were availanble. (Whichis why the term dollar and not opond became common. Americans including Ben Franklin began to realize that money was linked to economic health. Franklkin wrote that when any town or community obtained an infusion of money (especially foreign coins), the economy boomed. Merchants suddenly had a trusted way of doing business. Acciording to Franklin, money had an almost magical quality. "It is cloth to him who wants Cloth, and Corn to those that want Cloth." [Franklin] The Massachusetts Bay Colony was the first American colony to issue paper currency (1690). And war was the impetus, in this case battles with French Canada. The public was told the notes could be used to pay their taxes. It would not be until theRevolutionary War, however, that massive amounts of paper currency would be issued, but other colonies follwed the Massachusetts the precedent. Paper currency was needed because the supply of coins in the Colonies was inadequate to facilitate commercial transactionss. Public acceptance varied. The colonies issuing the paper currency were not always able to redeem it for gold or silver as promised. This varied from colony to colony and over time. One of the worst cases was Massachusetts which printed a huge quantity of notes (1744-48). They quickly depreciated 50 oercent. [Tarnoff] As a result, the value of the paper currency depreciated. The first conunterfeiter od any importance was Owen Sullivan, a Irishman who organized a counterfeiting ring in a disputed strip between New York and Connecticut. He was hanged (1756).

The Continental Congress and the Revolutionary War (1776-83)

As the Colonies moved toward independence, the Continental Congress authorized the limited issuance of paper currency (1775). These new notes, called Continentals, were denominated in dollars and backed by the 'anticipation' of future tax revenues, with no backing in silver or gold. They could be redeemed only upon the independence of the colonies. When the United States Continental Congress declared independence from Britain (1776), it meant departing entirely from reliance on the British pound and other British financial institutions. Continentals were thus an expression of America's new sovereignty. They pointedly did not feature images of the the crown or King. Some were printed from plates engraved by none other than Paul Revere to read "The United Colonies" and an image of colonial minutemen. The first Continentals with the the words 'The United States' were issued (1977). They bore the sinatures of notable revolutionary figures to lernd credibility. The Continental Congress substantially increased the issue of paper currency. This was the first attempt at national tender or currency. It was issued as a way of funding the the very expensive War with Britain. Congress issued some $200 million in 'Continentals'--a vast sum at the time. Some ardent revolutionaries though it a clever way and totally defenible step. One of the most ardent revolutionaries wrote, :"We are rich by a contrivance of our own." [Paine] Paine and others committed to the Revolution gave no thought to the economic consequenmces. The dollars issued by the Continental Congress steadily declined in value. The Congress not only printed paper currency in great quantities, but had no real taxing authority to support the currency issued. The phrase 'not worth a Continental' expressed the decline in the value of the currency. [Murphy] It became an economic disaster as inflation raged in the colonies. General Washington wrote, "A wagonload of currency will hardly purchase a wagonload of provisions." At the end of the War, despite the American victory, a Continental paper dollar was commonly worth only about a penny. In real terms, the people of the new United States had transferred their wealth to Congress which without taxing authority spent it on the War. Congress had learned one method of financing government. Most Americans, however, felt cheated and burned. The public, farmers, merchants, and workers alike, experience with Continentals gave rise to a lingering distrust of fiat currency paper currency, meaning paper currency not backed with bullion (silver and gold). The resulting inflation had wreaked havoc with the economy. This would be relected in he new Constitution.

Articles of Confederation (1783-87)

The need for a common currency became obvious, especially after the success of the Revolution (1783). The Articles of Confederation did not grant money powers to the Congress and money became a serious issue. Separation from Britain meant tht there was no national currency. There were a variety of coins (including gold and silver) circulating in the early United States, but it was an inadequate money base for a growing economy. States issued 'bills of credit' which served as legal tender, but it was not clear what these paper bills were worth even within a state and trying to figure out what bills from other states were worth was a virtually unsolveable problem.

The Constitution (1787-89)

Government at the time given the Revolutionary experience was seen as a threat. Thus for many, limiting the power and size of Goverment was seen as the best way of preventing abuse of the public trust. Experience which state bills mase it clear that money had to be precisely defined. The delagates at the Convention argued bout virtually everything. One of the few issues upon which there was almost unanimous agreement was the evils of paper currency. James Madison, commonly seen as the 'father of the Constitution, wrote 'nothing but evil' can come from 'imanginary money'. If there was going to be a national currency, the delegated agreed that it had to be gild and silver coins which had inherent value. John Adams reflected the view of the delegates, when he insisted that every dollar of printed paper, fiat currency was 'a cheat upon somebody'. Without being so defined it could not play its central role as a meaningful unit of account. Without a precise definition, states could debase money for political reasons or to reduce debts. Thomas Jefferson wrote at the time, "If we determine that a dollar shal be our unit, we must say with precision what a dollar is" (1784). This was one of many questions addressed by the Constitutional Congress (1787). The framers in the Constitution limited legal tender coinage to gold and silver. Congress was authorized to coin money and 'regulate' its value. That meant the value (number of dollars) of the coins issued. Coinage was less complicated than issuing paper money because the value of the coin was based on its metal cointent not on the credit worthiness of the government or bank issuing paper money. The U.S. Mint began producing coins (1792). Congress was also given the authority by the Constitution to borrow money, but that was a fiscal matter unrelated to monetary (creating money) policy. No thought was given to how the metal currency the Federal Governmen could issue was insufficent for the needs of a growing economy. The monetary provisions of the Constiytution, however, were a compromise. Whiole the Federal Government as not uthorized to issue paper currency, the states or more precisely financial institutions (banks) in the states were not prevented from doing so. This appears to have reflected issues of state rights more than economic theory.

Alexander Hamilton

President Washington chose Alexander Hamilton as the first Secretary of the Treasurer (1789). It was surely his single most important appointment. The credit of the Federal Government because of the policies of the Continental Congress was sorely in question. Hamilton established a Federal monetary policy that firmly established the goof dfaith and credit of the new govrnment, The Hamilton Plan was the payment of federal war bonds at face value, the assumption of state debts, and setting up a mechanism for collecting taxes. His program not only etanlished Federal credit, but tied the interests of war veterans and the emerging merchant class to that of the Federal Government.

U.S. Mint

A national mint was an important part of establishing arand new contry. A country needed a currency and in 1789, Americans were still using an odd collection of foreign coins. And in many rural areas in prt because of a shortage of coinage, livestock and produce often had to serve as a form of currency. Congress as auauthorized under the Constitution, passed the Coinage Act of 1792. The Act created the United States Mint which was founded in the same year. It was originally for some reason placed under the authority of the state Department rather than the treasury Department. The building in Phildelphia was the first building built by the new Federal Goverment. The Coinage Act funded construction. The Mint was made a separate agency (1799). It was not transferred to the Treaury Department until nearly a century later (1873). The silver dollar becamne the main unit of cirrency for America. The Act also established a decimnal curreny system. The first dollar coins were similar in size and composition to the widely circulated Spanish dollar. The Coinage Act specified a "dollar" to be based in the Mexican (Spanish) peso at 1 dollar per peso and between 371 and 416 grains (27.0 g) of silver (depending on purity) and an 'eagle" to be between 247 and 270 grains (17 g) of gold (depending on purity). Hamilton based the values on the basis of Spanish coins circulating in the United States at the time to maintain price stability. Secretary Hamilton's suggesteda fixed 15:1 ratio of silver to gold. Early American gold coins, however, were not given any denomination. They traded for a market value relative to the Congressional standard of the silver dollar. All of this was very important given the prevailing economic chaos. The new coins helped create the beginning of an American currency and along with Secretary Hamilton's credit policies, some level of financial organization fir the new country. Banking was a different matter.

Bank Charters and State Bills

There was fiscal loophole in the new Federal Constitution. While the Federal Government was not authorized to issue paper currency, there was nothing preventing financial institutions from doing so. Nor was there any authority for the Federal Goverment to regulate kinstitutions doing so. As a result, there was no shjortage of paper money in early Federal America. In fact there was a deluge of it. State Goverments in the early Federal period granted thousands of bank charters. Little attention was given to the financial standard of the banks chartered. Often the charters were obtained thriough bribes to legislators. As a result there were a huge number of entities issuing bills for circulsation and no regulation of those institutions. Some of the bills had real value or at least some value. Others had no value whatsoever. The currency issued by state banks were essentially IOUs, a bill that the bearer could redeam for real money It was a highly profitable undertaking for banks to print their own buills and vast quantuties of these bills citrculated througout the country. Unlike the Continentals of the Revolutionary period, these bills looke like money. The iconography used somethimes capitalized on the exubrant patriotic spirit of the era. There were lots of eagles. One Pennsylvania bank pictures the American eagle eating the liver of Prometheus meant to symbolize Britain. Otherbanks chose more bucolic scenes such as farming. One expert tells us, "You had depictions of agricultura life [most Americans farmed at the time], of domestic life. You get portraits of everyday people. You get deoictions of women, which you don't have today on Federal bills! You get pictures of someone's dog. [Feingold] There were an incredible 9,000 different bills issued by some 1,600 different banks in circulation. Given the profitability of printing money, it is somewhat surprising there was not more. The problem for Americans was what to trust. Individuals had no way of assessing the finncial strength of local banks, let alone banks in dustant cities and states. And how could people travel to those banks to redeam them. Thius often babks located at a istance were worth less than those printed by local banks. The issue of value was on the minds of every American whenever they accepted these paper dollars in trade. [Mihm] Sometimes unsrupulous ndividuals would set uop a bank, issue bills and then simply disappear with his illgotton gains. And the financial strength of the banks was only part of the problem. Countrerfitters were also active. It was so profitable in fact, that the best engravers in the country often worked for counterfitters and not the banks. The newspapers often reported on the latest forgeries. Often the counrterfitters did not forge bills, but created bills from entirely fictious banks that did not even exist. They commonly looked better than the real bills. In his enviromenment, rumors proliferated. And these rumors could cause devestating runs that could break real bnks.

Bank of the United States (1791-1836)

Congress chartered the Bank of the United States (1791). It operated until 1811. Congress then chatered the Second Bank of the United States (1816). Both Banks performed the functioins of a central bank. They were privately owned as was the approach in Englanbd and the rest of Europe. They had the authority to issue paper currency and serve as the financial agent for the Deferal Government. These two banks proved unpopular, especially with agrarian interests and America at the time was an agriculktural country. Western agrarian interests in particular wanted easy credit with the Banks did not provide. With the election of Andrew Jackson (1828) a conflict betweem Jack and Bank president Nicholas Biddle was set up. President Jackson vetoed the recharter of the Second Bank (1832).

Ante Bellum Monetary Situation

Antebellum America had a serious monetary problem which adversely affected the economy. Just how severely the impact was is difficult to assess. The oroblen was ghe shiortage of cirrency, bith coins and legitimate paper money. The Ante-Bellum monetary situation can be divided into two eras, before abnd after the presidencty of Andrew Jackson. The first era was the National Bank era. Banks chartered by Congress to act as a basic cebtral bankl. There were two national banks: the First Nationl Bank (1791-1811) and the Second National Bnk (1816-36). The second era was after President Jackson killed the Second Bank (1833-36) and a chaotic free banking system devloped.

Nation Bank Era (1791-1833/36)

Antebellum America had a serious monetary problem which adversely affected the economy. Just how severely the impact was is difficult to assess. At the same time that Americans were still just crossing the Apalachens settling the Ohio, Presiudent Jeferson on his own inisrive purchased Louisiana from France (1803). This nearly doubled the area of the United States. In Europe major wars were fought over small provinces like Silesia. Expansion on such a vast scale was accompanied by population growth. The absolute numbrs were still relatively small, butv the percenrage increases were substantial. Increasing population meant that more money was needed to facilitate economic activity. Here there was a serious shortage. One author suggests that in ghe 1930s there were more peoople in the United States than the number of small coins in circulation (half dimes, dimes, and quarters). An important economic activity was Federal Government sals of land. This had to be purchased with money. The Federal Government minted coins, but did not print paper currency--the result of thevcountry bad experience with Contuinental paper money during the Revolution. There was paper money in cuirculation, but printed by state banks without reserves to back it up. And if that was not bad enough, large quantites of conterfit currency circulated. President Andrew Jackson issued an executive order (the Specie Circular) (1836). It was pursuant to the Coinage Act and continued by his successor, President Martin Van Buren. It required payment for government land to be in bullion (gold and silver). The Federal Government refused to accept the often worthless paper currency in circulation. The result was one of the miost serious depressions in American history. The country desperately need coins. The primary miint was located in Philadelphia. (Small teporary mints were authiorized to coin gold coins near gold strikes in North Carolina and Georgia). The logistics of moving coins from the Philadelpia mint, especially to the frontier was a daunting propsition. Transportation was primitive and there were still hostile Native Americans. Coins were heavy meaning significnt tranportation costs. One sollution was opening a mint in New Orleans. Here coin could be distributed to the frontier using river boat transport (1836). New Orleans was thevfifth largest city in the nation and the primary port for foreign trade. (Before the railroads, the primary way tht people in the entire Misissippi Vally (including the Ohio Valley) could get goods to market was through the port of New Orleans.

Gold/Silver Ratio (1830s)

The United States slightly changed the gold/silver relationship (1834). The gold standard was changed to 23.2 grains (1.50 g), followed by a minor further adjustment to 23.22 grains (1.505 g) (1837). This meant a 16:1 ratio. Weare not sure just why these changes were made at the time.

Free Banking Era (1833/36-63)

The demise of the Second Bank of the United States and the Specie Circular ended the period of realtive monetary stability. What followed was three decadeds of monetary instability--the Free Banking Era. Essentially the United States no longer had a monetary system. The country's banking system became an unregulated hodgepodge of state-chartered banks. The chartering system in mony states was highly influenced by political influence. Many unsound banks were chartered. There was no federal regulations. State lawa and regulations varied widely. Sone states did not serious regulate banks. State Bank notes of various sizes, shapes, and designs appeard to fill the void created by the destruction of the Second Bank of the United States. Denominations varied from � cent to $20,000. Some of the the state bank currency was backed up by solvent, well capitalized institutioins. It could be redeemed at par value. Other state bank notes were worthless paper issued by poorly capitalized if not fradulent banks. Speculators and counterfeiters were active. As many as 8,000 different state banks were circulating 'wildcat' or 'broken' bank notes at the time the Civil War broke out (1861). The term 'wildcat' began to be used, referring to banks in remote, backwoods regions often had more wildcaters than customers. It was very difficult to know the real value of the paper currency in circultion. Some people found that they could not redeem their notes. Others found their currency worthless when banks failed which was a not uncommon occurence in the poorly regulated banking environment of the era.

California Gold Rush (1848-55)

he United States at mid-century was growing rapidly, but was hampered by a shortage of money. The impact of the money supply on an economy is well studied today, but largely unkniown at the time. There was no national paper money. Paper bills were issue by state chartered banks and unrelaible. This was the situation after President Jackson killed the Second Bank of the United States (1833). An economy based on private banks issuing paper curreny is and was a recipie for fraud. Greenbacks would not appear until the Civil War (1861-65). The Federal Goverment minted gold, silver and copper coins. The Constitutuion made only gold and silver legal tender for settement of debt. The shortage of gold in particular meant that the supply was inadequate for the growing economy. And just as the United States was acquired California in the Mexican War. a saw mill operator, James Wilson Marshall, saw gleaming specs in the tailrace at Sutter's Mill near what is now Sacremento (1848). His discovery set off a worldwide rush to a basically unpopulated California. (The Mexican and Native American populatuin was very small.) Marshall had set off the first major gold rush of modern times -- the California Gold Rush (1848-55). Marshall was ruined when hordes of crazed prospecting Fort-Niners forced him off his land. Getting to California was a major undertaking. Eastern United Stateswas separated frim California by the vast Great Plains, near desert areas, and the toweinhg Rocky Mountains. Thousands of individuals, and not just Americans, undertook the effort because of the alure of gold. About half came overland. There was no rail connection yet -- that would take another two decades. Crossing the country overland took months and could not even be attempted except in organized, well armed groups of slow-moving heavy covered wagons carrying supplies. This occurred in the age of sail, althhough steam ships were beginning to appear. There were two sail routes from the American East Coast. The shortest route was across the malaria-infested Istmus of Panana. The longer was around the Horn (Cape Horn/Magellan Straits). 'Round the Horn' is is today an idiomatic Anmerican expression. Finding gold was not the only impact. Only a few of the Forty-Niners got rich finding gold. But many stayed in Califirnia. Agriculture, ranching, forestry, as well as mining expanded to supply the growing population. San Francisco which was the port near the gold fields grew almost instantly grew from a non-discript settlement of about 200 people to a roaring boomtown of about 36,000. Roads, railoroads, churches, stores, workshops, and schools appeared as towns sprung up throughout California. Residents wrote a state constitution (1849). It was adopted by a referendum. A state government was elected and enpowered. California was admitted to the Union (1850).

Civil War: Two Currencies (1861-65)

It took another war for Congress to reserect a national currency. The Treasury began issuing paper money without the backing of bullion breserves (1862). Congress authorized the issuance of paper currency to help fund the Civil War (1863). And because of the growing size of the American economy ajhd the cost of the War, a cost unlike that of any previous war, bills called 'greenback' were issed in vast quantities. The newpapers reported on the avalanche of currency, but the greenbacks retained much of their value throughout the War in sharp contrast to the Revolutionary War. The Confeferacy also issued paper currency which came to be called greybacks'. Condeferate currency rapidly declined in value when Confederate officials ran the printing presses without any relationship to the bullion backing. Economic mimanagement and battlefield defeats futher undermined the Confederate dollar. A few people attempted to counterfeit Confederate currency. One of the most coloful was Sammurl Curtis Upham. Bored with New England, he joined the California gold rush, became a pickle vender, and sold newspapers before returning home and setting up a stationary shop in Philadelphia. Than he noticed a reproduction of a Condererate bill in the newspaper and printed some up to sell as a lark in his stationary shop. He had a strip at the bottom identufying them as a famsimile, but it could be cut off and some people did so. He claims to have printed $15 million in Confederate currenvy--3 percent of the Confederate money supply. [Tarnoff] Winthrop E. Hilton decided he could make money while at the same time undermining the Confederacy. The economy of the South was wrecked, not only because of the loss of slave labor and Federal naval blockade, but the collapse of the Confederate currency. The Greenback remained strong and was a major part of the Federal Governents ability to finance the Civil War. Counterfeiters found it even more lucrative to create greebacks and printed substantial quantities. The Federal Government contiued to issue money after the War. As a result of the Civil War experience, the Federal Government began to legislate a national banking system and created the Secret Service. Unfortunately it was not to protect the President, it as to protect the currency which is why it was part of the Tresury Department. They went after counterfitters.

Greenbacks (1860s-70s)

As a result of the green ink used by the Federal Government duriung the Civil War, the dollars issued became known as Greenbacks. The early bills produced were very easy to counterfeit. Historians estimate that as much as a third of the currency in circulation during and immeditelly followsing the War was counterfeit. This prompted the creation of the Secret Service. The Bureau of Engraving and Printing followed (1874). The Federal Government as a result of greatly improved financial strength restablished the link between paper money and gold and silver coins. It was inevitable given the immense expansion of the American industrial economy.

Greenback Party (1876-84)

The Greenback or National Greenback Party was founded in 1876 as American was emerging from the depression resulting from the Panic of 1873. Farmers focused on the currency as a cause of the Pacnic. Thus new fiscal policies were seen by some as the solution to the economic crisis. The Greenback Party advocated an expansion of the money supply by issuing paper money. Esssentially this was a policy of inflation as the money supply at the time was primarily a function of the gold supply. "Greenbacks" referred to the paper currency issued by the Federal Government in 1862 to help finance the Civil War. (The bills like modern American currency had green backs.) The Party maintained that a flexible supply of paper money would benefit working people. The also charged that limiting the issuance of paper money to that which could be backed by specie (gold or silver bullion) served the interests of the wealthy. This was a position that had been argued by Edward Kellogg well before the Civil WAr (1841). Alexander Campbell help popularize Kellogg's views on paper money during the 1860s. It was, however, not until the Panic of 1873 that Kellogg's and Cambell's ideas received substantial popular support. It was not understood at the time the extent that working people can suffer from monetary infation or how the savings of the middleclass can be undermined. Or how inflation can undermine job creation.

Free Coinage of Silver (1896)

A bitter controversy developed on the issues of 'free silver' and 'sound money' during the 1896 presidential election campaign. Democrats and Republicans made impassioned claims as to the impact monetary policy could have on the national economy. Bryan and the Democrats insisted that free silver coinage was needed. He famously cgarged that they 'shall not cruicify mankind om a cross of gold'. The Republicns maintained that adherence to the gold standard was essential to national prosperity. Many sawe it as a matter of national honor. Mckinnley was not as obsessed as Bryan or the Republican platform on the currency isssue. He did not want to be labelled a 'monometallist' or 'bimetallist'. As a result, he was charged with waffling. The issue became almost a religious crusade for Bryan who was not particularly concerned or understand with the actrtual economics. As a Nevreaska Congressman, Bryan was quoted as saying "the people of Nebraska are for free silver, so I am for free silver. I will look up the arguments later." While both candidates had previously been more concerned withb tariff than monetary policy, he turned his 1896 campaign into crusade for the free coinage of silver.

Gold Standard Act of 1900

Congress after considerable debate passed the Gold Standard Act (1900). President McKinley was a strong asdvocated for the gold standard. He rejected and Vice-President Theidore Roosevelt who seceeded him rejected the inflantionary 'free silver' proposals of presidential candidate William Jennings Bryan and many Democrats. President McKinley signed the Act inro law with a gold pen. The Act abandoned the bi-metallic standard. Congress in the Act established gold as the only standard for redeeming money. The Act defined the dollar as 23.22 grains (1.505 g) of gold, equivalent to setting the price of 1 troy ounce of gold at $20.67. Silver coins continued to be issued for circulation.

Federal Reserve Act (1913)

Congressman Carter Glass and Senator Robert L. Owen introduced a bill to create tge The Federal Reserve System. Modifications from the Wilson Administrated were incorporated. The bill provided for a regional Federal Reserve System, operating under a supervisory board in Washington, D.C. Congress passed the bill amd President Wilson signed it into law (December 23, 1913). The Act created "... Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes." The Act created a Reserve Bank Organization Committee that was authorized to set up 8-12 cities to be Federal Reserve cities. The country divided the nation into districts. Each Federal Reserve district was assigned one Federal Reserve City.

Ending the Gold Standard (1932-34)

A steady stream of countries withdrew from the Gold standard as a result of Depression following the Wall Stree Crash (October 1929). President Hoover clung to the Gold Standard. When Britain left the gold standard, it was no longer possible for America to maintain it. President Franklin Roosevelt upon taking office in the Depression crisis took two initial steps (March 1933). First he closed the Banks so regulators could determine their financial strength. He also moved to take the United States off the gold standard. The gold based dollar was pricing U.S. exports out of world markets. The Government confiscated privately held gold coins. There were exceptions. Dentists, jewelers, and coin collectors were exempt from the President's Executive Order and were as a resulty allowed to own gold. The actual langtage of the Executive Order read, �gold coins having a recognized special value to collectors of rare and unusual coins.� Congress the following year passed the Gold Reserve Act of 1934 which provided a legal basis for the President's confiscation of gold. This act actually criminalised gold ownership. The gold standard was changed to 13.71 grains (0.888 g). This essentially set the price of 1 troy ounce of gold at $35. Preident Roosevelt's New Deal was not very effectiove in ending the Depression. Other countries managed to recover nuch faster than the United States. The Depression in America continued untill war orders from Europe began to revive the economy. The two ininital actions, however, closing the banks to establish which banks were viable institutions and taking America off the gold standard helped to ensure that the Depression would not get worse. The theoretical $35 gold price standard would continue until 1968 by which time this significantly under valued gold. A variety of pegs to gold were put in place (1968-75). Finally the United States let the dollar freely float on world currency markets.

Ending Silver Coinage (1964)

Democratic presidenbtial candidate William Jennings Bryan crusaded for the free coijnage of silver (1896). It would be a Demoratic President, Lyndon Johnson, thst would end silver coinage. Silver coins continued to be minted and circulate in the Unites States until 1964. By that time, the value of silver in the coins exceeded their nominal value. All silver was removed from dimes and quarters, and the half dollar was reduced to 40% silver. Silver half dollars continued to be issued for a few more years. The last half dollars with silver content were issued for circulation (1969).

Gold Exchanges (1971)

President Nixon ended the ability of U.S. trading prtners to exchange dollars for gold at a fixed rate (August 15, 1971). As aesult the dollar declined in world warkets. There were notable declines in purchasing power of the dollar anf increased in gold prices. This meant that the Arabs were receivin less valuable dollars for their oil. Accustomed to a more stable dollar, they were not ar first sure how to respond. Te Yom Kippur War would orove to be a catylst for increasing oil prices and also a convient excuse for acting to compensate themselves for a e=weakening dollar. What transpired would be increases out of all portion to the decline in the dollar.

Petro Dollars (1975)

The Arabs began planning for a massive assault on Isral. The Soviets had provided massive military aid to Egypt and Syria and other Arab states, including weapon systems for which the Iraelis were unprepred. Calculating that the United sttes might intervne, Egyptian President Anwar Sadat met secrelly with Saudi King Faisal (August 23, 1973). They negotiated the use of the 'oil weapon'. The chain of events leading to the Petro Dollar began when Egypt and Syria along wih other Arab states invaded Israel (October 6, 1973). It was a surprise attack and the Arabs chose Israel's holiest day--Yom Kippur. The Arabs calculted that Israel would be least prepared. The ensuing conflict has become known as the Yom Kippur War. The Israeli Air Force was heavily damaged by Russian-supplied anti-airfcraft missles. Egyptian forces poured across the Suez Canal and Syrian tanks threatened the Golan Heights. Israel want on full nuclear alert (October 8). They were prepared to launch nuclear weapons if the country's existence was threatened. Henry Kissinger had been Secretary of state for only 2 weeks. The American response ordered by President Nixon was a massive resupply effort therough a strategic airlift. This allowed the Israelis to beat back the Arab offensive. The war was over with a truce (October 25). And the Israelis even gained territory. The Arab response was to punish the United states for aiding Israel. The Saudis anf Gulf oilstates raised oil prices a whoping 70 percent from $3.00 a barrel to $5.11. More increases followed. By the end of the year the price had exceeded $17.00. This was just part of the oilweapoon. The Saudis also decreased production, but also embargoed unfriendly nations. Arab oil producrs in what became known as the Oil Shock cut production 25 percent (November 5). A threatened additional 5 percent cut was implemnted (December 9). Gas lines formed in America and Europe. A recession began in America (November 1973). This was the most severe recession in america since the Great Depression of the 1930s. It did not end until for more than a year (March 1975). The Stock Market plumeted. The Dow Jones average fell more than a third (October 1973 to Septenber 1974). The Stock Market did not recover until 1982, mking the 1970s an economic lost decade.

Allowing Gold Ownership (1975)

Congress repealed the 1934 New Deal law criminalising gold ownership (1974). The new law became effective January 1, 1975. Repeal also resulted in the expiration of all regulations relying on criminalization to automatically expire. As a result, there is no legal limitation on gold ownenership.

North Korea

North Korea is a financial disaster. The country can not profduce enough food to feed its people and their are few profitable enterprises. One of the few such activities is printing high-quality conterfeit American notes. One source suggests that thry have printed $45 million in U.S. currency.

Sources

Feingold, Elle. Curator of ythe national numismatic collection at the Smithsonian Museum of American History, quoted in Clive Thompson, "In bitcoin we trust," Smithsonian (April 2018), 13-15, 86, 88, and 90.

Franklin, Benjamin. Pamphlet written before the Revolution urging the colonies to print paper money.

Mihm, Steven. A Nation of Counterfitters.

Murphy, Sharon Ann. Other People's Money.

Paine, Tom. (1778).

Tarnoff, Ben. Moneymakers (Penguin Press:2011), 369p.

Weatherford, Jack. The History of Money.










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Created: 5:59 AM 4/25/2010
Last updated: 1:23 AM 1/10/2023