Money - Then And Now
No, I didn’t stutter and strike the “1” key twice. George Washington was indeed the 11th president of the United States. He was the first president under our currentConstitution; however, there were 10 presidents before him under the Articles of Confederation that served one-year terms. Most history books do not teach, or just barely mention the articles of confederation. The articles of confederation were drawn up by the 2nd Continental Congress after the declaration of independence was written by that same body. It took until 1781 to fully ratify the articles of confederation due to boundary disputes between the separate states. The British army surrendered later that same year at Yorktown. It is interesting to note that the peace treaty with the British was actually between each individual state and England. A total of 13 individual peace treaties were signed at the end of the American Revolutionary War.
Before I get into the monetary aspects of this time period I would like to honor the first 10 presidents of the United States:
Samuel Huntington of Connecticut
Thoman McKean of Delaware
John Hanson of Maryland
Elias Boudinot of New Jersey
Thomas Mifflin of Pennsylvania
Richard Henry Lee of Virginia **
John Hancock of Massachusetts
Nathanial Gorham of Massachusetts
Arthur St. Clair of Pennsylvania
Cyrus Griffin of Virginia
It is worthy to note that Cyrus Griffin only reluctantly accepted the new constitution with the promise of the Bill of Rights to protect against the formation of a constitutional monarchy resulting in too much central power (It is almost as if he could see into the future!)
**Richard Henry Lee was also one of the first Senators from Virginia under the current constitution. His cousin Henry Lee also served in the Congress under the Articles of Confederation. Henry Lee later became Governor of Virginia and was also the father of Southern hero, Robert E. Lee.
At the time of the American Revolution the only coin in the colonies that was worth much was the Spanish dollar. The American Revolution was quite unique in many ways. One of which was the fact that there was no money to pay for the war effort! The 1st and 2nd Continental Congress that met to coordinate the independence movement had no authority to tax anyone. Indeed, the entire revolution was about taxation! England was taxing the colonies at a rate of approximately 1%! This was outrageous and men flocked to arms against such tyranny. (What would they think today about government confiscation of over half our income by our current socialist regime?) Each colony was sovereign, collected its own taxes and issued its own paper money. Various exchange rates existed between the colonies that changed daily. On May 10th 1775 one of the first acts of the 2nd Continental Congress was to issue notes (paper money) equal to 2 million Spanish milled dollars. Without the power to tax the only way to finance the war was to issue notes. The plan was for the states to redeem the paper notes with hard currency in late 1779. The plan did not spell out which state would be responsible for how much of the redemption. Several other issuances of notes were authorized afterwards. By 1780 it took 40 continental dollars to be worth one “hard” dollar. In 1778 General Washington complained, ”It takes a wagon load of money to pay for a wagon load of supplies”. The British had their hard currency that their army was using during the war. Many merchants gladly accepted the British “hard” money over the paper continental dollars. The British further compounded the problems of their enemy by liberally counterfeiting Continental dollars.
Eventually this fiat currency went the way of all fiat currencies since the dawn of time. Inflation slowly gained momentum until the paper finally became worthless.
Many statesmen in congress realized what was happening and in a way they considered it a tax on everyone because the depreciation of the currency caused everyone to lose a little value and therefore everyone contributed to the cost of the war. This is somewhat where we are today. Government can not tax the people more than the current rates so they resort to currency devaluation. It is just another “sneaky” tax that most people pay and never realize they are doing so.
In 1787 when the current constitution was being drafted the recent currency devaluation (or monetary inflation) was very much on everyone’s mind. The first paragraph in article 1, section 10 of our current U.S. constitution reads:
No State shall enter into any treaty, Alliance, or Confederation; grant Letters of Marque and Reprisal; coin Money; emit Bills of Credit; make any Thing but gold and silver Coin a Tender in Payment of Debts; pass any Bill of Attainder, ex post facto Law, or Law impairing the Obligation of Contracts, or grant any Title of Nobility.
The coinage act passed shortly after the constitution was ratified even went so far as to list DEATH to anyone guilty of debasing the money.
Neither the current Constitution nor the coinage act passed shortly thereafter has been repealed. It seems the current group in power simply chooses to ignore them as well as history.
As you might imagine there were many problems that came about concerning long term debt repayment. Debtors happily repaid Creditor with worth-less money. Payments of contract disputes were thrown into the court system and the courts in many cases decided the ultimate value of repayment. In most cases, however, the people realized what was going on and they held the money for a very short period of time before they traded it away for goods and services. My favorite story is concerning the gentleman who purchased a barrel of whiskey and shortly thereafter sold the empty barrel for more than the original purchase. It is a sad story that has played out many times in history.
The one constant in this and all currency devaluations is those who held their wealth in hard money (gold and silver) came through these difficult times with their fortunes intact.
Mark Twain stated that although history does not repeat itself exactly, it certainly rhymes.
Protect yourself and invest and save in real money instead of our current unlawful fiat.