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Paper money opinions animate U.S. history

Americans have a long history of arguing about what money is or ought to be. In Colonial times, Americans liked the idea of paper money. All the hard currency disappeared to England as individuals who bought things from there had to pay with specie.

Since the English didn’t buy enough to send the coins back the other way, the American economy was always starved for cash and capital.

Colonial paper issues unbacked by specie helped, but authorities often overdid it and inflation and other economic dislocations occurred. Benjamin Franklin printed paper money for Pennsylvania. He commented on the seeming benefits of paper money issues in his autobiography before pointing out the shortcomings.

Without unbacked paper money, the Continental Congress would have quickly run out of money, the Revolution would have been lost and we would be singing, “God Save the Queen” today.

But the Continental paper money issues got out of hand because the colonies did not like to tax their citizens to pay for the war.

Continentals fell dramatically in value. The public that still held the notes became very upset. Many veterans got their pay in notes that had been inflated to near worthlessness. Colonies that became states had run up large debts for the financial support that they gave Congress.

The distaste for state and Continental paper was so great that the Constitutional Convention wrote in Section 10 that no state could coin money or make anything but gold or silver coin a tender in payments of debt. This prevented the economic chaos of the 1780s recurring where various states had various currencies trading at different exchange rates.

Sole authority for money was invested in the U.S. Congress. Section 8 said that Congress should have the power to coin money and regulate the value thereof.

Many people confuse the two issues and think Congress is prohibited from making anything but gold and silver coin a legal tender. This confusion began at the founding of the Republic.

It took the Civil War to bring the issue to a head. Both the North and South issued unbacked paper money. The states on both sides during 1861-1865 did not like taxing their citizens for war any more than the generation of 1776 did. The South lost and its paper money and debts became valueless. The 14th Constitutional Amendment was passed to prevent payment of any Rebel war debts.

Northern paper had an easier time, but its constitutionality was challenged. The irony is the Chief Justice of the time was Salmon P. Chase, who was Treasury secretary of the North who issued all of the paper. He voted to rule unbacked paper money unconstitutional in 1870. Thanks to another case and two new justices, the decision went the other way in 1871.

It can be argued that without unbacked paper money, there could have been no United States, neither North nor South could have fought the Civil War and World Wars I and II could not have been financed.

The debate about what money is and whether unbacked paper money is constitutional continues in some quarters to the present day, but at least we have a country in which to hold the debate in.
And taxes are still unpopular.

More Resources:

• Subscribe to our Coin Price Guide, buy Coin BooksCoin Folders and join the NumisMaster VIP Program

2010 U.S. Coin Digest, The Complete Guide to Current Market Values, 8th ed.

State Quarters Deluxe Folder By Warmans

Standard Guide to Small-Size U.S. Paper Money, 1928 to Date

Strike It Rich with Pocket Change, 2nd Edition

 

 

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