Tuesday, October 19, 2010

Money before Lincoln

Excerpts from the Introduction

Standard Catalog of U.S. Paper Money

Ninth Edition

by Chester L Krause and Robert F. Lemke

Robert E. Wilhite, Editor

With states denied the power to issue money by the Constitution of the United States, and the powers of the Federal Government to do so left unspecified; various private issues of banks, railroads, utilities, and even individual citizens, cropped up, with varying resources to guarantee their value, until the Government halted the practice in 1863.

Beginning in May, 1775, the Congress of the newly unified former colonies began the issue of Continental Currency to finance its fight for freedom.

The Continental paper dollar was able to hold its value at par with a specie dollar only until October, 1777, by which time widespread counterfeiting by British, Tories and opportunists conspired with the natural inflation of a printing press economy and increasing uncertainty as to the outcome of the war to push the exchange ratio of the Continental Currency to $11 in paper for $10 in specie.

After that point, the devaluation accelerated.

...by October, 1787, amid speculation that the Continental Currency might never be redeemable, it was selling at the rate of $250 paper for $1 specie. Eventually, the Government issued 6% interest bearing bonds at the rate of $1 for every $100 of Continental Currency turned in.

Issued current with the Colonial and Continental currencies were numerous privately-sponsored paper monies emitted by banks (as early as 1732 in Connecticut), utilities, merchants, individuals, and even churches.

These issues continued after the Revolutionary War, and proliferated in the 19th Century.

...an entire industry sprang up to supply banks and merchants with accurate, timely information about which notes would pass current, which should be accepted only at a discount, and those from an issuer who had gone "broken."

The only restraints on the issue of paper money at that time were those which the individual states cared to apply, and such restraints were infrequent and ineffective.

The Federal Government put an effective end to these halycon days of currency free-for-all in 1863, by imposing a 10% tax on outstanding notes; and later through the 14th Amendment to the Constitution, forbidding the private issue of circulating media of exchange altogether.

I picked up the United States Paper Money book years back, at a coin shop. The introduction contains some of the best history of money I ever read.

LINKS: Krause Publications (Coins and Paper Money) Reprinted with permission.

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