History of counterfeiting America money
History of counterfeiting America money, Most everyone associates the word “dollar” as referring to a Federal Reserve Note (i.e. the green piece of paper featuring the portrait of a past president). Let's briefly explore why this association of terms is not only incorrect - it is a dangerous mistake.
A pound refers to sixteen ounces of weight. A foot refers to twelve inches of length. These are standards of measure. Similarly, the word "dollar" refers to a specific coin of a specific mass; one containing 371.25 grains of pure silver. A dollar is not merely worth some ever changing quantity of silver or gold – a dollar is defined as a specific amount of silver in the same way a foot is defined as twelve inches!
Today, the definition of “dollar” is frequently confused.This is largely based on the observable fact that one ounce of silver is exchanged on the market for approximately eighteen Federal Reserve Notes. Mistakenly, we tend to think that one ounce of silver is worth about eighteen dollars. Dollars do not refer to the same thing as Federal Reserve Notes. To make this point clear, we must first understand the history of the dollar as a unit of monetary exchange in the US and how the inaccurate terms and definitions have been smuggled into our vocabulary.
Origin of the Dollar in the US
During the late 18th century in America, the word dollar simply referred to the 371.25 grains of pure silver of the Spanish milled dollar coins . Our founding fathers did not arbitrarily decide to fix the exchange rate of our first dollars to silver. Rather, “dollar” was the term for a universally understood standard of measure.
The Coinage Act of 1792 , establishing a Mint and regulating the coins of the United States, used this already universally accepted definition to officially designate a dollar (as referring to a measure of 371 4/16th grains of pure silver) as the monetary unit of the US:
Section 9: “DOLLARS – each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver.”
Signed into law by President George Washington, the Coinage Act of 1792 established the dollar as the monetary unit of the United States of America.
The Rise of the Gold Standard
Gold and silver came to be accepted as money throughout the world by a process of free exchange on the market. In fact, Carl Menger and Ludwig von Mises have shown that not only does money originate in the market, it is impossible for it to have originated any other way. No government or king “created” money (but once money arises on the market, rulers have historically been quick to find means to expropriate it).
While the Coinage Act of 1792 defined one dollar as 371.25 grains of pure silver (.7734 troy ounce), the act also established a fixed exchange rate of fifteen units of silver for one unit of gold. The exchange ratio between gold and silver had historically tended to be around 15:1. However, as Larry Reed explains in an article about the events leading up to the Silver Panic in 1893 , the “....government decided it would "help out" the market by interfering to "simplify" matters. The result was another of the many well-intentioned blunders imposed on a populace by force of law."
Just like any other artificial price control, the pegging of gold to silver created a market imbalance that would prove to have significant economic consequences (1).
Gresham’s Law states that bad money tends to drive out good money when the government artificially fixes the exchange ratio between two monies ("bad money" referring to artificially overvalued money and "good money" referring to money which is artificially undervalued).
This is exactly what we observed with the artificial price fixing of gold and silver in the US. The market value of gold relative to dollars (dollars referring to a set quantity of silver) fluctuated even though the artificial exchange rate was fixed. Silver flowed into the mint and the quantity of gold in circulation decreased.
Instead of allowing gold values to be determined through a market of free exchange and repealing the artificial 15 to 1 ratio, Congress decided to remedy the imbalance by adjusting the fixed exchange ratio to 16 to 1. The Coinage Act of 1834 revised the ratio of gold to dollars, making the artificial ratio of dollars to gold an official $20.67/oz where it would remain for several decades. Only this time gold was overvalued and silver was undervalued. As Larry Reed noted , “Gold flowed into the mint, silver disappeared, and the country found itself on a de facto gold standard.” As we will see, this paved the way for the government to officially place the country on the gold standard at the end of the 19th century.
Although the artificial price controls instituted by the Coinage Acts of 1792 and 1834 created market imbalance between gold and dollars, the competition of foreign gold and silver monies in the US market proved to be an effective system for facilitating exchange and storing wealth. During this time it was quite common to find foreign coins of gold and silver being used as money in the US. Since the amount of precious metal contained in foreign coins was commonly known, monetary conversions were quite simple. Foreign coins from Europe circulated freely in America, and as Murray Rothbard notes, “...there is, indeed, no economic reason why they should not do so.”
The competition of gold and silver monies facilitated the growth of an increasingly productive, industrialized economy. America enjoyed a period of unprecedented growth in production after the War of 1812. The purchasing power of the dollar doubled in 35 years (1815-1850).
Free competition of stable money facilitates economic prosperity, but it also makes government manipulation of the money supply very difficult. “Perturbed at this slap to its sovereignty...”, explains Murray Rothbard in The Mystery of Banking , Congress passed the Coinage Act of 1857 outlawing the use of foreign coins in the US.
By outlawing the use of competing foreign monies in the market, Congress removed the first crucial obstacle that was preventing the State from taking monopolistic control of the nation's money supply. To eliminate the second obstacle, the domestic competition of bimetallism, Congress passed the Coinage Act of 1873 and later the Gold Standard Act of 1900 to demonetize silver and set gold as the official basis of US currency.
Section 1 of the Gold Standard Act of 1900: “Be it enacted . ., That the dollar consisting of twenty-five and eight-tenths grains of gold nine-tenths fine, as established by section thirty-five hundred and eleven of the Revised Statutes of the United States, shall be the standard unit of value, and all forms of money issued or coined by the United States...”
Conveniently, the Coinage Acts of 1857 and 1873 also corresponded with the panics of 1857 and 1873 (no good crisis should be wasted).Don't be surprised when the government uses the coming monetary crisis as an excuse to further centralize the control of money. They will.