As you likely remember from part 1 article, there were many instances where America had a difficult time with its currency from its foundation in 1776 through the civil war. Mainly, the difficulties arose around the areas of paper money, inflation, and fiat currency as we see Americas first attempts at these. After the civil war, we see many changes in paper currency and the public’s perception on it which eventually leads to the financial system of modern times; which is based upon government policy opposed to gold and silver. Silver Certificates Silver certificates were first produced by the government in 1878, and were produced until 1963. Unlike the greenbacks which were created during the civil war era; these notes represented physical silver and could be redeemed for such on demand until 1964. These notes circulated widely, and were very important in the devaluation of American currency because they vastly increased the public's trust in the government and paper currency as a whole. Additionally, the public accepted paper currency at an increasing rate during this time as inflation starts to have an effect on the size of peoples purchases in terms of dollar amounts, where start to find it much more convent to carry $10 in silver certificates than 10 silver dollars. Prior to this, people would not be spending $10 in the first place! Gold Certificates Similar to silver certificates; gold certificates represent physical coinage and could be exchanged for such on demand. Interestingly, they were produced well before silver certificates as they were authorized for production in 1863 as opposed to 1878! The main difference between these and silver certificates, is that they represented gold as opposed to silver where they were produced primarily to facilitate commerce between banks. Amazingly, in 1934 the government produced the highest denomination ever where a $100,000 note was created! The Federal Reserve Act of 1913 Amid the aftermath of the economic crisis and bank run of 1907, the federal government felt that they should create a federally operated bank that would be other banks last resort for borrowing money. The federal reserve act is very important in understanding the devaluation of American currency, because it created the federal reserve which changed Americas financial system forever. Amazingly, while creating this legislation it was determined that there was more paper currency in circulation than the gold that the government had in their vaults. This made it to where the requirement was changed to where the government only had to have enough gold in the banks to represent 40% of the paper currency in circulation! Additionally, the federal reserve provided the government with more tools to regulate the economy, where bonds from the government and paper currency from the federal reserve is currently the foundation of the money supply. The Gold Act of 1933 In order to bring the economy back from the great depression; in 1933 Franklin Roosevelt enacted Executive order 6102 which changed Americas economy and currency forever. This excutive order required every citizen to exchange all of their gold bullion, coinage (that did not have any recognized numismatic value) and gold certificates for paper currency where they were permitted to only keep the equivalent of five ounces of gold per person! This provided the government with the tools to follow popular economic theory of the time where they believed that increasing inflation could be used to help the economy. After all of the gold was confiscated, the government rose the price of gold from $20.67 an ounce to $35 an ounce, which was a crucial step in bring the economy back to where it was. Unfortunately, this legislation also made it to where individuals could not exchange their paper currency for gold, where only foreign nations could in order to keep the strength of the dollar up. Also, this brought the end to gold coinage in circulation, where all of the coins that people spent were either made up of base medals or silver Clad Coinage and the Coinage Act of 1965 One of the largest changes in American money occurred due to the coinage act of 1965. In the early 1960s, there was a sharp rise in the price of silver where it was becoming more and more difficult for the government to produce coins in a cost-effective manner. In fact, the price got to be so high that in 1963 there was a dollar worth of silver was equivalent to the amount of silver in a dollar coin. This caused the need for change in the nations coinage system, and the creation of the coinage act of 1965. Under this act, the federal government started to produce dimes and quarters about of copper and nickel “clad” instead of the 90% silver and 10% copper composition that was the norm ever sense 1794. Additionally, they made it to where silver certificates could not be exchanged for silver at banks where they could only be used in the same way all other dollar bills were. Interestingly, it was a requirement for the government to have an average of 15% silver in circulating coinage after this point, which was solved by producing half dollars out of 40% silver and 60% copper and nickel which were produced until 1970 1971- America is Taken Off of the Gold Standard. In 1971, the American monetary system changed forever with the presidency of Richard Nixon where America was taken off of the standard that was first enacted in 1933 by FDR. In the 1960s, France started to lack trust in the America monetary system which caused them to exchange their American dollars for gold; depleting the governments reserves extensively. After this point, money obtained value from various government policies that controls inflation and the money supply. Charge Cards, Credit Cards, and the Credit Industry Charge cards are the economic backbone that lead to the birth of the credit industry, where they were the first devices that allowed customers to purchase goods on credit without a formal loan. Obtaining a basic history of the credit industry is crucial, because it shapes modern societies perception on money and the economy as a whole. These cards were first produced in the 1890s, were relatively difficult to attain; first made out of metal, they were considered to be a status symbol by those who had attained them. Eventually, they became more and more popular until credit cards were first invented in the mid 1950s. As borrowing money became more and more popular, mainstream credit cards were produced in the 1960s and society was changed forever. Ever sense then, people have been purchasing goods on credit more and more, where small purchases do not seem to affect people because they simply do not physically see the money depleting from their personal reserves. This has led to increased amounts of credit card debt from society as a whole, where many people live in a social status that they simply cannot afford. Amazingly, right now only about 3% of the money supply is in a physical form while the other 97% is held electronically in banks. This, combined with interesting monetary techniques and a high federal debt is likely going to make the economy fairly unstable in the future. Fortunately, many other countries have also debased their coinage and devalued their currency, which in my opinion is the biggest thing that sets modern times apart from history. Primarily, we must keep in mind that the amount goods and resources in society is not changing any time soon, so as long as trade can commence and optimal situation will be found for all parties involved, and if the amount of money is limited in society we can help prevent economic trouble for everyone. I really hope that you enjoyed this article, and please keep on the lookout for a book that I am currently writing which will discuss subjects similar to this article! I hope that you great day, and have a good time collecting! Another great way to protect yourself from anything bad that could happen in the economy is to purchase gold or silver coins which are available from Let’s Start A Coin Collection thorough Facebook and Ebay!
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Author: Brandon Spiegel.
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