A History of Money and Banking in the United States: The Colonial Era to World War II by Murray N. Rothbard Page B
Authors: Murray N. Rothbard
issues merely added to the “shortage” by stimulating the export of specie and the import of commodities from abroad. Once again, Gresham’s Law was at work. State paper issues—despite compulsory par laws—merely depreciated rapidly, and aggravated the shortage of specie. A historian discusses what happened to the paper issues of North Carolina:
In 1787–1788 the specie value of the paper had shrunk by more than fifty percent. Coin vanished, and since the paper had practically no value outside the state, merchants could not use it to pay debts they owed abroad; hence they suffered severe losses when they had to accept it at inflated values in the settlement of local debts. North Carolina’s performance warned merchants anew of the menace of depreciating paper money which they were forced to receive at par from their debtors but which they could not pass on to their creditors.21
Neither was the situation helped by the expansion of banking following the launching of the Bank of North America in 1782. The Bank of New York and the Massachusetts Bank 20See ibid., pp. 409–10. On the Bank of North America and on Revolutionary War finance generally, see Curtis P. Nettels, The Emergence of a National Economy, 1775–1815 (New York: Holt, Rinehart, and Winston, 1962), pp. 23–34.
21Nettels, National Economy , p. 82.
A History of Money and Banking in the United States 65
Before the Twentieth Century
(Boston) followed two years later, with each institution enjoying a monopoly of banking in its region.22 Their expansion of bank notes and deposits helped to drive out specie, and in the following year the expansion was succeeded by a contraction of credit, which aggravated the problems of recession.23
THE UNITED STATES: BIMETALLIC COINAGE
Since the Spanish silver dollar was the major coin circulating in North America during the colonial and Confederation periods, it was generally agreed that the “dollar” would be the basic currency unit of the new United States of America.24 Article I, section 8 of the new Constitution gave to Congress the power
“to coin money, regulate the value thereof, and of foreign coin”; the power was exclusive because the state governments were prohibited, in Article I, section 10, from coining money, emitting paper money, or making anything but gold and silver coin legal tender in payment of debts. (Evidently the Founding Fathers were mindful of the bleak record of colonial and Revolutionary paper issues and provincial juggling of the weights and denominations of coin.) In accordance with this power, Congress passed the Coinage Act of 1792 on the recommendation of Secretary of Treasury Alexander Hamilton’s “Report on the Establishment of a Mint” of the year before.25
22See Hammond, Banks and Politics , pp. 67, 87–88.
23Nettels, National Economy , pp. 61–62. See also Hammond, Banks and Politics , pp. 77–80, 85.
24As Jefferson put it at the time: “The unit or dollar is a known coin, and the most familiar of all to the mind of the public. It is already adopted from South to North, has identified our currency, and therefore happily offers itself a unit already introduced.” Cited in J. Laurence Laughlin, The History of Bimetallism in the United States , 4th ed. (New York: D. Appleton, 1901), p. 11, n. 3.
25The text of the Coinage Act of 1792 may be found in ibid., pp. 300–01.
See also pp. 21–23; and A. Barton Hepburn, A History of Currency in the United States with a Brief Description of the Currency Systems of all Commercial Nations (New York: MacMillan, 1915), pp. 43–45.
66
A History of Money and Banking in the United States: The Colonial Era to World War II
The Coinage Act established a bimetallic dollar standard for the United States. The dollar was defined as both a weight of 371.25 grains of pure silver and/or a weight of 24.75 grains of pure gold—a fixed ratio of 15 grains of silver to 1 grain of gold.26 Anyone could bring gold and silver bullion to the
In 1787–1788 the specie value of the paper had shrunk by more than fifty percent. Coin vanished, and since the paper had practically no value outside the state, merchants could not use it to pay debts they owed abroad; hence they suffered severe losses when they had to accept it at inflated values in the settlement of local debts. North Carolina’s performance warned merchants anew of the menace of depreciating paper money which they were forced to receive at par from their debtors but which they could not pass on to their creditors.21
Neither was the situation helped by the expansion of banking following the launching of the Bank of North America in 1782. The Bank of New York and the Massachusetts Bank 20See ibid., pp. 409–10. On the Bank of North America and on Revolutionary War finance generally, see Curtis P. Nettels, The Emergence of a National Economy, 1775–1815 (New York: Holt, Rinehart, and Winston, 1962), pp. 23–34.
21Nettels, National Economy , p. 82.
A History of Money and Banking in the United States 65
Before the Twentieth Century
(Boston) followed two years later, with each institution enjoying a monopoly of banking in its region.22 Their expansion of bank notes and deposits helped to drive out specie, and in the following year the expansion was succeeded by a contraction of credit, which aggravated the problems of recession.23
THE UNITED STATES: BIMETALLIC COINAGE
Since the Spanish silver dollar was the major coin circulating in North America during the colonial and Confederation periods, it was generally agreed that the “dollar” would be the basic currency unit of the new United States of America.24 Article I, section 8 of the new Constitution gave to Congress the power
“to coin money, regulate the value thereof, and of foreign coin”; the power was exclusive because the state governments were prohibited, in Article I, section 10, from coining money, emitting paper money, or making anything but gold and silver coin legal tender in payment of debts. (Evidently the Founding Fathers were mindful of the bleak record of colonial and Revolutionary paper issues and provincial juggling of the weights and denominations of coin.) In accordance with this power, Congress passed the Coinage Act of 1792 on the recommendation of Secretary of Treasury Alexander Hamilton’s “Report on the Establishment of a Mint” of the year before.25
22See Hammond, Banks and Politics , pp. 67, 87–88.
23Nettels, National Economy , pp. 61–62. See also Hammond, Banks and Politics , pp. 77–80, 85.
24As Jefferson put it at the time: “The unit or dollar is a known coin, and the most familiar of all to the mind of the public. It is already adopted from South to North, has identified our currency, and therefore happily offers itself a unit already introduced.” Cited in J. Laurence Laughlin, The History of Bimetallism in the United States , 4th ed. (New York: D. Appleton, 1901), p. 11, n. 3.
25The text of the Coinage Act of 1792 may be found in ibid., pp. 300–01.
See also pp. 21–23; and A. Barton Hepburn, A History of Currency in the United States with a Brief Description of the Currency Systems of all Commercial Nations (New York: MacMillan, 1915), pp. 43–45.
66
A History of Money and Banking in the United States: The Colonial Era to World War II
The Coinage Act established a bimetallic dollar standard for the United States. The dollar was defined as both a weight of 371.25 grains of pure silver and/or a weight of 24.75 grains of pure gold—a fixed ratio of 15 grains of silver to 1 grain of gold.26 Anyone could bring gold and silver bullion to the
Similar Books
Panacea
F. Paul Wilson
A Knight in Shining Armour
Jude Deveraux
Eternal Captive: Mark of the Vampire
Laura Wright
The Best American Essays 2015
Ariel Levy
Eyes of the Hammer (The Green Berets)
Bob Mayer
Broken Prince (The Broken Ones)
Jen Wylie
Beware the Solitary Drinker
Cornelius Lehane
Wedding Day Murder
Leslie Meier
Subculture
Sarah Veitch
What to Expect the First Year
Heidi Murkoff