What Has Government Done to Our Money?
Starting in 1793, shortly after the Continental Dollar was printed into oblivion, the United States minted copper coins, followed by silver (1794) and gold (1795) coins. The government had learned its lesson about fiat currencies and how easy it was to hyper-inflate them. They continued to mint the gold coins for the next 138 years, until they were discontinued by then-president, Franklin D. Roosevelt (FDR).
In 1913, the U.S. Government established the Federal Reserve Bank to act as a central bank for the United States. The Fed had the power to create more dollars out of thin air, but it was expected to back those paper dollars with (40%) gold. This made the paper dollars “as good as gold” until…1933, when FDR used the great depression as an excuse to confiscate Americans’ gold, and immediately thereafter, to raise the price per ounce from $20.67 to $35.00, effectively devaluing the dollar by 69.33%. Not only did this give the U.S. government a windfall profit, but by making gold ownership illegal, it also saved the government from having to produce more gold coins going forward. This effectively removed gold from circulation and eliminated it from our money supply. It also made it easier to print more paper dollars.
By 1964, the U.S. government had printed enough paper dollars and consequently lowered the value of the dollar to the point that it was no longer economical to produce dimes, quarters, and half dollars out of 90% silver. In other words, the dollar had depreciated to the point that the silver in a dime, quarter, and half dollar was worth more than ten cents, twenty-five cents and fifty cents, respectively. Rather than minting coins at a loss, they changed to sandwich coins that were made of copper with a nickel coating.
Unfortunately, the spending didn’t stop then, and by 1971, the U.S. government had spent more money on the Vietnam war and welfare schemes (guns and butter) and was obliged to cut the dollar’s ties to gold altogether. On August 15, president Nixon closed the gold window to the rest of the world and declared the U.S. dollar to be a fiat currency.
As the rampant spending continued, the same problem we saw with dimes, quarters, and half-dollars eventually arose also with pennies. 1981 was the last year pennies were made of 90% copper. Starting part way through 1982 until the present, pennies are made of zinc with a copper coating.
And today, it’s becoming uneconomical to mint coins at all. Soon, we’ll eliminate coins and just use paper bills and/or plastic cards. In another 10 years or less, it won’t be worth it to print paper bills. We’ll just use computer-generated currency units that are disseminated via re-loadable smart cards or are deposited directly into one’s bank account.
At some point, the value of these currency units won’t be worth any more than the cost to produce them, which is zero. When people lose faith in the value of those currency units, it will be “game over.” We’ll have to start a new game. Perhaps we’ll do like the founding fathers did back in the 1790s and use something of value in exchange for something of value. Who knows? It could even be copper, silver, and gold.
For a more complete history of the U.S. dollar, click here. For a discussion by Murray Rothbard of what government has done to our money up through 1963, click here. For a vivid description of how governments ultimately “manage” fiat currencies, click here to read Fiat Money Inflation in France, by Andrew Dickson White.
Robert F. Sennholz