When did our march towards fiat currency/coinage start?

[MikeInFL]

Please discuss...Mike

[Revenant]

When did we first print paper money? I would consider that the start. Beyond that I would look to the Gold Seizure Order.

[physics-fan3.14]

Continental congress, 1776. In my opinion, they set the precedent for future generations when they first issued currency, and then inflated it to the point of being worth not much.

 

After the actual government was founded, that is, after the constitution, for the first decades money was solidly based on the intrinsic value of the metals. So much so that they even had to plug silver centers into some copper cents to bring them up to one cent in value.

[John Martinez]

Continental congress, 1776. In my opinion, they set the precedent for future generations when they first issued currency, and then inflated it to the point of being worth not much.

 

After the actual government was founded, that is, after the constitution, for the first decades money was solidly based on the intrinsic value of the metals. So much so that they even had to plug silver centers into some copper cents to bring them up to one cent in value.

 

I'm in agreement.

Edited to read - If you are talking about modern times, Roosevelt, 1933.

[MikeInFL]

I did mean in modern times (say post 1800 when our coinage was based on the value of metals), but can appreciate the discussion of earlier times as the question was intentionally vague.

[physics-fan3.14]

Continental congress, 1776. In my opinion, they set the precedent for future generations when they first issued currency, and then inflated it to the point of being worth not much.

 

After the actual government was founded, that is, after the constitution, for the first decades money was solidly based on the intrinsic value of the metals. So much so that they even had to plug silver centers into some copper cents to bring them up to one cent in value.

 

I'm in agreement.

Edited to read - If you are talking about modern times, Roosevelt, 1933.

 

The progression to fiat currency was a long slow march. FDR might have fired the last shot (or one of the last shots), but the march really began when paper money was first issued. Yes, the silver and gold notes were redeemable in hard money, but you had to have "faith" that the hard money was there. The paper was just paper, until you went and converted it. That is why it had such a hard time getting passed in certain parts, because people didn't have faith. Once you could train the people to trust the paper money, it was just a matter of time before you could wean them off of hard money. Gradually, more and more people accepted the paper money. And then *poof*, the backing was no longer required.

[John Martinez]

The progression to fiat currency was a long slow march. FDR might have fired the last shot (or one of the last shots), but the march really began when paper money was first issued. Yes, the silver and gold notes were redeemable in hard money, but you had to have "faith" that the hard money was there. The paper was just paper, until you went and converted it. That is why it had such a hard time getting passed in certain parts, because people didn't have faith. Once you could train the people to trust the paper money, it was just a matter of time before you could wean them off of hard money. Gradually, more and more people accepted the paper money. And then *poof*, the backing was no longer required.

 

Has anyone here ACTUALLY seen the gold in Fort Knox (National Geographic Channel notwithstanding)?

[Revenant]

The progression to fiat currency was a long slow march. FDR might have fired the last shot (or one of the last shots), but the march really began when paper money was first issued. Yes, the silver and gold notes were redeemable in hard money, but you had to have "faith" that the hard money was there. The paper was just paper, until you went and converted it. That is why it had such a hard time getting passed in certain parts, because people didn't have faith. Once you could train the people to trust the paper money, it was just a matter of time before you could wean them off of hard money. Gradually, more and more people accepted the paper money. And then *poof*, the backing was no longer required.

 

Has anyone here ACTUALLY seen the gold in Fort Knox (National Geographic Channel notwithstanding)?

 

uhhhh.... no, not really, but is HAS to be there, right?

[John Martinez]

The progression to fiat currency was a long slow march. FDR might have fired the last shot (or one of the last shots), but the march really began when paper money was first issued. Yes, the silver and gold notes were redeemable in hard money, but you had to have "faith" that the hard money was there. The paper was just paper, until you went and converted it. That is why it had such a hard time getting passed in certain parts, because people didn't have faith. Once you could train the people to trust the paper money, it was just a matter of time before you could wean them off of hard money. Gradually, more and more people accepted the paper money. And then *poof*, the backing was no longer required.

 

Has anyone here ACTUALLY seen the gold in Fort Knox (National Geographic Channel notwithstanding)?

 

uhhhh.... no, not really, but is HAS to be there, right?

 

I'm not a conspiracy theorist, but....

(shrug)

[John Martinez]

The progression to fiat currency was a long slow march. FDR might have fired the last shot (or one of the last shots), but the march really began when paper money was first issued. Yes, the silver and gold notes were redeemable in hard money, but you had to have "faith" that the hard money was there. The paper was just paper, until you went and converted it. That is why it had such a hard time getting passed in certain parts, because people didn't have faith. Once you could train the people to trust the paper money, it was just a matter of time before you could wean them off of hard money. Gradually, more and more people accepted the paper money. And then *poof*, the backing was no longer required.

 

Has anyone here ACTUALLY seen the gold in Fort Knox (National Geographic Channel notwithstanding)?

 

uhhhh.... no, not really, but is HAS to be there, right?

 

 

What do you get when you cross an elephant with a rhino?

 

 

 

 

 

Keep going....

 

 

 

 

 

 

 

Go some more.....

 

 

 

 

 

 

 

 

 

 

ELEFINO

 

 

 

[physics-fan3.14]

 

Has anyone here ACTUALLY seen the gold in Fort Knox (National Geographic Channel notwithstanding)?

 

uhhhh.... no, not really, but is HAS to be there, right?

 

Actually, I have heard that it is not there anymore. Of course, they would want to keep this secret as many people still believe that the currency is backed by something more than "full faith in the government." So this might be a rumour, but I don't know.

 

And to be honest, the dollar is backed by people's desire for profit, and the desire to not lose everything they own. If all your money is in the dollar (or euro, or yen, etc.) then you are of course going to believe that it is money. Otherwise, you wouldn't have any.

[EZ_E]

...in 1913 with the Federal Reserve Act.

[TomB]

Many people seem to not realize that even when we used silver and gold coinage in circulation that the dollar value of the metal was sometimes substantially less than the face value of the coins.

[MikeInFL]

Many people seem to not realize that even when we used silver and gold coinage in circulation that the dollar value of the metal was sometimes substantially less than the face value of the coins.

 

Precisely! When did it start, and what was the first major step in that direction?

[RWB]

Re: Fort Knox Bullion Depository.

 

Did you purchase a gold “first spouse” coin or a San Francisco Mint gold commemorative? If you did, chances are that the gold came from what is stored in Ft. Knox. It was decided decades ago that the only use to be made of the Ft. Knox monetary gold was to produce commemoratives (but not the bullion items). In large part this decision was made because of the emotional attachment people seem to have for the Ft. Knox gold. FYI, there is (and has been since the NY Assay office was closed) more gold in the New York Federal Reserve Bank than at Ft Knox.

 

 

 

[AegisIII]

I would say it started no later than 1795, when the weights of large cents and half cents were reduced. Remember then that gold coins had their weights reduced in 1834, and then silver coins in 1853. I am in no sense an economist, and have great skepticism about any grand pronouncements on the subject, but I suspect the issue is that trying to hold assorted metal/currency ratios within certain ranges (especially when dealing with multiple metals) will basically never work for "long" periods of time.

[MAULEMALL]

I will have to say the Comstock strike was the biggest hit but when it first started

[MikeInFL]

Great responses thusfar -- thanks!

 

It seems to me that for our coinage, at least, the government tried to keep pace (with varying success) until the second half of the 1850s -- at which point they gave up and the fiat coinage began...

 

The first step, at least to me, was when the large cents were transitioned into FECs in 1858 -- this set an all all-time low in terms of bullion value. Then the 3CNs and nickels were similarly introduced in 1865 and 66, so this would (to me) be the second and third steps. However, our major coinage (10c and above) remained OK until the clad silver of 1965, so the fourth step in our coinage took a hundred years to take.

 

My (perhaps ignorant?) perspective is that prior to 1850 that our government tried to keep the value of the coinage relatively close to the bullion value.

 

Comments? Thoughts?

[Revenant]

Great responses thusfar -- thanks!

 

It seems to me that for our coinage, at least, the government tried to keep pace (with varying success) until the second half of the 1850s -- at which point they gave up and the fiat coinage began...

 

The first step, at least to me, was when the large cents were transitioned into FECs in 1858 -- this set an all all-time low in terms of bullion value. Then the 3CNs and nickels were similarly introduced in 1865 and 66, so this would (to me) be the second and third steps. However, our major coinage (10c and above) remained OK until 1965, so the fourth step in our coinage took a hundred years to take.

 

My (perhaps ignorant?) perspective is that prior to 1850 that our government tried to keep the value of the coinage relatively close to the bullion value.

 

Comments? Thoughts?

 

You make an interesting point. The government didn't start making "subsidiary" (sp?) coinage with a bullion value deliberately below the face value until sometime in the mid 1800s. From what I read, the official reason was to stop people from melting the coins everytime the value of silver and gold went up (which apparently happened a lot in the early days).

[TomB]

It is true that the US government attempted to keep the intrinsic value of coinage closely linked to the value on the pieces, but with various metals in circulation over many decades this is truly an impossible task in a free market.

 

If we look at a single denomination such as half dollars and use the London averages from 1794-1970 then at least one interesting thing is noted. Through the 1850s the silver value of a half dollar was essentiall fifty-cents, but the Civil War propelled the price of silver to such levels that by 1864 a half dollar had over one dollar's worth of intrinsic silver content. By 1870 this anomolous relationship between intrinsic value and denomination would return to the historic relationship seen from 1794-1850s. However, the 1877 the intrinsic value of a half dollar would begin a steady decline until, by 1932, a half dollar had nine cents of intrinsic silver value. Obviously, this recovered over time, but never again reached a 1:1 ratio of intrinsic value:denomination value.

 

Oddly, today's clad coinage contain over eleven cents of metallic value, which is greater than, or almost matches, that seen with our 90% silver coinage over several decades in the early half of the twentieth century.

[Revenant]

Oddly, today's clad coinage contain over eleven cents of metallic value, which is greater than, or almost matches, that seen with our 90% silver coinage over several decades in the early half of the twentieth century.

 

All that really demonstrates is how much the value of the currency has dropped.

[MikeInFL]

Here's another thought...

 

Since the cost to mint coinage, in some cases, equals or exceeds the value of said coinage, doesn't this increase our national debt, and/or inflate our currency?

 

Thus the financial viability of "on par" coinage is not so viable in the first place?

 

Perhaps the fiat currency is the RIGHT thing to do, at least in principal...Mike

[cpm9ball]

The progression to fiat currency was a long slow march. FDR might have fired the last shot (or one of the last shots), but the march really began when paper money was first issued. Yes, the silver and gold notes were redeemable in hard money, but you had to have "faith" that the hard money was there. The paper was just paper, until you went and converted it. That is why it had such a hard time getting passed in certain parts, because people didn't have faith. Once you could train the people to trust the paper money, it was just a matter of time before you could wean them off of hard money. Gradually, more and more people accepted the paper money. And then *poof*, the backing was no longer required.

 

Has anyone here ACTUALLY seen the gold in Fort Knox (National Geographic Channel notwithstanding)?

 

Except for the documentary that you mention, I would imagine there is nobody else who can talk about it. I'm sure that the employees are required to have security clearances, and similar to the military, they are probably debriefed upon separation.

 

Chris

[World Colonial]

Here's another thought...

 

Since the cost to mint coinage, in some cases, equals or exceeds the value of said coinage, doesn't this increase our national debt, and/or inflate our currency?

 

Thus the financial viability of "on par" coinage is not so viable in the first place?

 

Perhaps the fiat currency is the RIGHT thing to do, at least in principal...Mike

 

That would eepend upon someone's point of view. Those of us who view the institutionalized inflation under the current fiat money monopoly as a form of theft would not think it is the right thing to do.

[jtryka]

Re: Fort Knox Bullion Depository.

 

Did you purchase a gold “first spouse” coin or a San Francisco Mint gold commemorative? If you did, chances are that the gold came from what is stored in Ft. Knox. It was decided decades ago that the only use to be made of the Ft. Knox monetary gold was to produce commemoratives (but not the bullion items). In large part this decision was made because of the emotional attachment people seem to have for the Ft. Knox gold. FYI, there is (and has been since the NY Assay office was closed) more gold in the New York Federal Reserve Bank than at Ft Knox.

 

 

 

Technically, the first spouse coins are bullion coins, unlike commems like the SF mint which were minted to the same specifications of half eagles under the $20.67 gold peg. As for what is in Fort Knox, didn't some Congress people go down there in the 1970s in response to rumors about the gold? I know it hasn't been audited since the 1950s (good thing the Treasury is not regulated by the SEC). I have seen the gold at the FRB of NY, and from what I saw 15 years ago when I was there, most of that gold was merely custodial gold held for foreign central banks. Funny, I was just thinking last night as I looked at my FS coins, I wonder where they got the gold for this...

[IGWT]

The great economic expansion of this country in the early to mid-nineteenth century was based largely on notes issued by state-chartered banks. The banks promised to redeem their notes with specie having intrinsic value; but, of course, the banks held just a fraction of the value of its notes in reserve. The banks' promises to pay were, for all practical purposes, conditioned on no one seeking to enforce them. Counterfeit notes circulated widely (some historians estimate that as much as 50% of the 10,000 different kinds of paper in circulation were counterfeit) and also fueled the economic development of this period. When you think about it, there's little difference between a spurious promise behind a note and and a note that is counterfeit.

 

I suppose that this money came to be by "private" fiat instead of by "government" fiat. But, either way, the money was created out of thin air and took value only by virtue of public confidence. This country's earliest economy was a confidence game, and the game continues . . . .

[Conder101]

Precisely! When did it start, and what was the first major step in that direction?

If we restrict it to the current Federal government and not the Continental Congresses or the Articles of Confederation government then the first major step toward a fiat money supply took place in 1792.

 

The original proposals for the mint and coinage required the coins to contain almost their full face value in metal. The problem with this was the copper cent. At full face value the cent would contain 264 grains or 21.18 grams or 3/4 of an oz. It would have been 31.8 mm in diameter. (The half dollar was 32.5mm) This was going to be one heck of a big coin. The silver center cents were an experiment to try and reduce the coin to a reasonable size. They were the size of our current quarter and weighed 4.5 grams (56 grains). But this process was too difficult/time consuming. Finally it was decided to abandon to full intrinsic value concept for the cent. The weight was reduced to 168 grains and the profits gained thereby were to be used to pay the expenses of the mint. In 1795 the weight of the cent was further reduced to 136 grains when the rising price of copper began reducing the amount of the cent seniorage.

 

The next step came in 1851 with the Type I silver trime. This coin was both low in weight and below the standard fineness so as to be a fiduciary coin. (I don't think a lot of people realize that the type I trime was only .750 fine instead of .900 fine.)

 

In 1853 the weights of the half dime through half dollar were all reduced so as to make them fiduciary coins, and their legal tender was for the first time limited to $5.

 

The next BIG step came in 1862 with the introduction of the Union greenbacks. The silver and gold certificates issued for the first time were not really a fiat currency because they could be redeemed for gold and silver at full value upon demand, but the Greenback or Legal Tenders were mere promissory note with NO precious metal backing and the were not redeemable except for other paper currency. These note were COMPLETELY fiat currency and the only basis for their value was the trust and faith in the credit of the US government, just like todays Federal Reserve notes. That was why their value fluctuated so widely during the Civil War. If the Union lost some battles the value fell and if they won the value rose. They didn't finally reach par with the coinage until about 1874.

 

The change from the large cent to the flying eagle cent mentioned earlier in another post was not really a step toward a fiat currency because the metal value in the copper nickel cent was still eight tenths of a cent, higher than the early large cents were. (For the last few years of the large cent the metal value of the cent was actually equal to or higher than the face value of the coin.) The change to the bronze composition in 1864 on the other hand was a further step toward fiat because that reduced the metal value to less than half the face value. A new low for any of the coinage. The copper-nickel three and five cent pieces were also fiat, but not to the extent that the bronze one and two cent pieces were.

[BillJones]

If you really want to trace the start of fiat currency in the U.S. after the Revolutionary War, it would be during the Civil War when the Union issued paper money to pay for that conflict. There have been other steps toward it since then, but that was really the start of Federally issued paper money. (And yes, I know about the few notes issued during the War of 1812, but they hardly count for anything.)

 

You guys are getting a bit too hung up with the commodity theory of money. That theory states that money derives its value from its metallic content.

 

Economists have totally rejected the commodity theory of money. Money derives its value from its buying power in the economy. If the value of the metal in a coin exceeds its face value, the people and the government with withdraw those coins from circulation. U.S. 90 and 40 percent silver coinage is a prime example of that. If the prices for copper and nickel and get high enough, all of the nickels will be removed from circulation regardless of what the U.S. Government says about it. Conversely if the metal content of a coin is lower than face value it will remain in circulation.

 

Having gold or silver in a nation’s monetary system is not a magic bullet. All it does is place some limit on the amount of money that can be in circulation. At times the amount money can be too low as it was during the Panic of 1893. At that time the government was not holding enough gold to increase the money supply, which was sorely needed. At other times (late 1870s), when there was glut of silver on the market, allowing that metal to be turned into money with no restrictions would have resulted in massive inflation.

 

Monetary policy is a tricky business, and the current practitioners of it who are now running or have recently run the Federal Reserve Banking System are doing a great job.

 

[Keleum]

These numbers reported by the fed itself.

 

Citigroup: assets of $902.2 billion

 

Federal Reserve: $905.7 billion dollars in reserve

 

The fed, ain't what it used to be.

[John Martinez]

The progression to fiat currency was a long slow march. FDR might have fired the last shot (or one of the last shots), but the march really began when paper money was first issued. Yes, the silver and gold notes were redeemable in hard money, but you had to have "faith" that the hard money was there. The paper was just paper, until you went and converted it. That is why it had such a hard time getting passed in certain parts, because people didn't have faith. Once you could train the people to trust the paper money, it was just a matter of time before you could wean them off of hard money. Gradually, more and more people accepted the paper money. And then *poof*, the backing was no longer required.

 

Has anyone here ACTUALLY seen the gold in Fort Knox (National Geographic Channel notwithstanding)?

 

Except for the documentary that you mention, I would imagine there is nobody else who can talk about it. I'm sure that the employees are required to have security clearances, and similar to the military, they are probably debriefed upon separation.

 

Chris

 

My post was totally tongue planted firmly in cheek.

That said, I'm sure you are correct regarding security.