Back in the old days, why did people use gold coins instead of paper notes?

[stinkycheese1]

For example, today people don't use half dollars very much because they are too heavy. But gold is VERY heavy, so why did people back in the 1800's and early 1900's use $20 gold pieces instead of paper money, like a $20 note. Is this why there are so many double eagles and gold pieces that aren't worn much, because it seems people would be more likely to use notes.

 

It just seems to be gold coins would've been too much of a burden to use. But they obviously were used.

 

So, were paper notes used more than gold coins?

 

[Zoins]

For the most part, people didn't use double eagles. They were used for inter-bank transfers.

 

Relative to a person's wages during the early 20th century, $20 then was about $660 today. Not too many people carry around $660 in cash today. This is based on some historical Mint wages that were posted here a while back.

[joejeweler-migration]

People don't use half dollars today because they don't have much buying power for the weight to carry them. But in the 1800's they could buy quite a lot. Certainly half a day or more in wages, i'd think.

 

I believe at one time a man would work for a dime a day at some jobs.............

 

 

..................almost like in China today!

 

Also,.....a paper $20 was not trusted by a lot of folks as much as the real thing,........much like the crowd today who lean toward hard assets and the precious metals.

[Zoins]

People don't use half dollars today because they don't have much buying power for the weight to carry them.

I'm not sure that buying power is why people don't use half dollars. People use two quarters all the time. One of the reasons given for the demise of the half dollar is that many people have fond memories of JFK and choose not to spend the coins. Many vending machines don't take them. Additionally, the diameter is a turn off to some people.

[warriorbassman-migration]

People don't use half dollars today because they don't have much buying power for the weight to carry them. But in the 1800's they could buy quite a lot. Certainly half a day or more in wages, i'd think.

 

I believe at one time a man would work for a dime a day at some jobs.............

 

 

..................almost like in China today!

 

Also,.....a paper $20 was not trusted by a lot of folks as much as the real thing,........much like the crowd today who lean toward hard assets and the precious metals.

 

Exactly what I was going to say, thanks for saving me the trouble!

[construct]

Early gold did not circulate much because the metal was often worth more than face value. The difference in value led to private melts and currancy trading overseas. Also, wages and prices were much lower. That meant that any gold coin represented quite a lot of buying power. Further, foreign coins were in general use during this period alongside U.S. coins.

 

After 1834, use of gold as opposed to paper varied by region. Gold generally was prefered in the West and eschewed in the East. Gold coins were being produced in San Francisco beginning in 1854 as a result of the California gold rush; so they were readily available. California also had a law forbidding paper money. In the East, people grew accustomed to the use of paper during coin shortages in the early 1850s and during the Civil War, and they continued to prefer paper once gold came out of the hoards. This trend became even stronger once gold, silver, and paper reached parity in 1879.

 

As for half dollars--three things killed the half dollar. 1) The design change to memorialize an assassinated President made people want to keep them as keepsakes. 2) The continued use of silver in halves dated after 1964 made them subject to hoarding. 3) Their non-use in coin-operated machines made them less useful than smaller coins. The notion (held by many) that a half dollar is too heavy is just dumb. It weighs exactly the same as two quarters, and I've never heard anyone complain about how heavy two quarters are.

[PerryHall]

I believe at one time a man would work for a dime a day at some jobs.

 

In the late 1800's a skilled tradesman (bricklayer, carpenter, etc) would make about $2 per day for a 10 hour day,

 

 

 

 

 

[BillJones]

The short answer is people placed a lot more trust in gold than they did in paper money. Most gold coins didn’t really circulate that much, but they were the preferred payment method of choice when the seller wanted to be assured that he was receiving full value for the good or service that he was selling.

 

Paper money had a very bad reputation during the 18th and 19th centuries. Before and during the Revolutionary War each of the colonies and later states issued paper money. This currency was rarely backed by gold or silver, and it was issued in virtually unrestricted quantities. As a result paper money usually lost its value. The best course of action was to spend it as fast as possible BEFORE it became heavily depreciated or worthless.

 

During the Revolutionary War the Continental Congress issued paper money that was collectively called continental currency. Like the states the Continental Congress issued far too much of this currency to finance the war. The continental currency became worthless, and those who had accepted it for payment, including Revolutionary War soldiers, ended up with nothing or virtually nothing. The phrase “not worth a continental” grew out of this debacle.

 

The U.S. Congress had a protracted debate on what to do about the continental currency problem, but the politicians were never able to resolve the issue in a satisfactory way. The only value that continental currency ultimately received was from collectors who purchased the notes has historic relics. Back in the 1960s, when I was young collector, one could still purchase some continental currency notes for less than their face value.

 

During the years before the Civil War banks were allowed to issue their own currency. There were few restrictions on the amount of currency that banks could issue, and accepting these notes for payment was bit like buying a bond or common stock in the bank. The notes were only as financially sound as the institutions that issued them. Collectively these currencies were and still are called “broken bank notes” although not all of the banks were insolvent or “broken.” It is interesting to note that the gold dollars issued before the Civil War are often seen in circulated grades like VF because they were quite popular. The reason was that a gold dollar was the most reliable type of dollar that was readily available for use in circulation.

 

It quite literally took a score card to value “broken bank notes.” Bank note value periodicals provided estimated values for each bank’s notes based upon the financial health of the institution. A note issued by a strong, well run bank might be worth 90 or 95% of its face value. A note from a shaky bank might have been worth 50 cents on the dollar or less. And some notes were worthless because the bank had gone under, or perhaps never actually opened.

 

During the Civil War and for a number of years after that there were really three U.S. dollars. Dollars in gold, silver and paper were used in the United States. Each had a specific value, and they were not interchangeable. And a paper dollar, if it were backed by gold, could be worth more that a silver dollar.

 

All of this uncertainty resulted in some contracts that called for payment in gold. Silver dollars or paper dollars were not acceptable because they did not have the same value.

 

This post has gone on for too long. But I think the thing you should get from it is that modern Americans don’t appreciate just how fortunate we are to have a stable currency. To our forefathers the word “dollar” meant a variety of values, not just one.

 

[physics-fan3.14]

This post has gone on for too long.

 

Bill, I do not think this is possible for you. Your posts are always informative, riveting reads. Thanks for the interesting history lesson.

[jtryka]

I think the closest comparison today to the status of gold and paper money a century ago it the current difference between cash and a check. Certainly, if I were to purchase a car from you (or any other major item), you would probably not let me drive off with the car and title if I just gave you a personal check. In the same way, if you were to buy a horse or a piece of land a century ago, the seller would probably have preferred being paid in gold rather than private banknotes or paper money.

[Oldtrader3]

Some workers, notably western miners, were paid with quarter and half eagles during periods of the 19th century. Additionally, many states had their own local bank currency issues that were usually discounted against silver and gold coinage.

[rrantique]

For example, today people don't use half dollars very much because they are too heavy. But gold is VERY heavy, so why did people back in the 1800's and early 1900's use $20 gold pieces instead of paper money, like a $20 note. Is this why there are so many double eagles and gold pieces that aren't worn much, because it seems people would be more likely to use notes.

 

It just seems to be gold coins would've been too much of a burden to use. But they obviously were used.

 

So, were paper notes used more than gold coins?

 

So You decide, this or THIS? (thumbs u ooops

I just can't slip nothing by Chad.

[MunkyMan95]

For example, today people don't use half dollars very much because they are too heavy. But gold is VERY heavy, so why did people back in the 1800's and early 1900's use $20 gold pieces instead of paper money, like a $20 note. Is this why there are so many double eagles and gold pieces that aren't worn much, because it seems people would be more likely to use notes.

 

It just seems to be gold coins would've been too much of a burden to use. But they obviously were used.

 

So, were paper notes used more than gold coins?

 

So You decide, this or THIS? (thumbs u

 

So, $15, or $45? I'll take the $45 all day long

[jtryka]

Besides, I would always trade a silver cert or a US note for gold of equal face value any time, and so would the people back in the early 1900s!

[Conder101]

Bill's answer is just about perfect. I just want to add some small comments.

 

Before 1862 there was no Federal paper money, just the questionable paper that Bill described. Naturally in that case people preferred to receive gold and pay with paper. Especially since there was no guarantee that the paper would be exchangeable for gold.

 

When the Federal paper came out it was during the Civil War and there was uncertainty whether or not the Union would prevail, and if it didn't then the value of the Union paper was likely to fall with it. This resulted in a lowering of the relative value of the Union paper so once again the gold was the preferable form of money to receive. Even after the end of the war it still took awhile before people came to trust the government paper and it wasn't until around 1874 that it finally traded at par with gold.

 

Once that trust was established though, and people felt comfortable with the idea that the paper would be readily a freely convertible to gold on demand, the money handling patterns began to change. Since the paper was "as good as gold", and gold was bulky and heavy, the paper money became the preferred form of money to use in commerce and gold was relegated more and more to just a "reserve fund". You will notice that circulated gold coins, especially well circulated ones, are much more common from before the mid 1870's than in the later years. By the 1880's AU and Unc coins are pretty much the rule.

[DaveG]

"Greenback" by Jason Goodwin is a very interesting, lively and fun-to-read book about the history of the dollar and US currency (and why people used gold coins instead of currency for much of the 19th century).

 

Used copies are readily available at an inexpensive price or you can probably borrow a copy through your local library.

[edmerlr]

I realize that most of this discussion is based on the ease of usage and practical value of paper money versus gold coins in the 19th Century.

 

...but as I read the discussion, I couldn't help but wonder how many people were fortunate to even own a quarter eagle or half eagle, let alone have time to worry about the coins' weights.

 

Below are the wages at the Mint in 1795. Perhaps, with inflation, the wages may have improved by the 1840's, 1850's, 1860's, etc.

 

I still cannot help but believe that most people, after 1836, were lucky to save a dozen silver dollars. I think anyone would have felt blessed to have a heavy, large double eagle to have to worry about carrying around.

 

 

(Sorry. Probably off the subject. ...but I couldn't keep my mouth shut.)

 

Bye,

 

Ed R.

[BillJones]

Back in 1795 America was very much like it was in merry old England. The average person seldom owned a gold coin. Most trade was by barter, and the most often used money was depreciated paper and lower than legal weight copper pieces. Gold coins were the wealthy and for large business transactions.

 

By the time my parents and grandparents were in their prime, things had changed. My mother told me that you could go to a bank and exchange currency for gold coins in much the same was as I went to the bank as a child and traded paper dollars for silver dollars. Gold coins were given as gifts for births, marriages and other special occasions.

 

When my father graduated as the valedictorian of his high school class, he won $75 in gold coins. Sadly he deposited those winnings in a bank that went belly-up during the Great Depression.

[just carl]

As to the use of Gold mostly already said. In the old West people just did not trust and in many instances did not even see paper money.

As to the half dollar. It is just like the new baby size dollars. Most vending machines I know of will not take them. In Illinois we have toll roads and I've tried a half and it was taken but not accepted so I lost a half dollar. Our communter train conductors carry a coin changer and it does not have a place for halves or the baby dollars. One conductor pointed at it when someone wanted to pay for a ride with the baby dollars. Stores do not have a slot in newer cash registers for halves or the baby sized dollars. The Chicago Transit train stations with turnstiles will not accept that stuff. My most imbarrasing situation happened when I left a waitress a few halves and one of those baby dollars. She said rather loudly "you left some of your kid's play money on the table, Sir."

Now if you want to have fun try spending a $2 bill.