As the United States prepares to commemorate its 250th anniversary, Americans will celebrate the nation’s founding with pageantry, parades, pomp and patriotism.
Loving one’s country of birth and taking pride in its independence-inspired origins, praiseworthy accomplishments, and laudable legacy is a natural inclination and respectable trait.
Similar celebration and reverence shouldn’t apply to the dollar, the nation’s debased and debauched fiat currency. Even though Federal Reserve Notes feature portraits of prominent American patriots and U.S. presidents, including George Washington and Thomas Jefferson, the founding fathers weren’t fond of unkept paper promises and currency not redeemable for silver or gold.
A decade after the Declaration of Independence was signed on July 4, 1776, Washington expressed his concerns about paper currency to Jefferson. In a letter penned Aug. 1, 1786, the president-to-be noted some of the original 13 states were “falling into very foolish and wicked plans of emitting paper money.”
Six months later, Washington expounded on the economic degradation and moral degeneracy that arise from corrupt, defective and dishonest fiat currency.
“Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice,” Washington wrote in a Jan. 9, 1787 letter to Jabez Bowen, then chancellor of Brown University in Providence, R.I.
Jefferson, chief author of the Declaration of Independence, condemned paper currency as well. He considered silver and gold superior forms of money. He believed precious metals have intrinsic value because of their scarcity and trusted them as a reliable store of wealth. Unlike paper notes, the monetary metals couldn’t be printed in unlimited quantities by banks and governments.
“Paper is poverty, that is only the ghost of money, and not money itself,” Jefferson wrote in a 1788 letter to Edward Carrington, a fellow Virginia lawyer, planter, patriot and politician.
After his retirement as the nation’s third president, Jefferson reiterated his support of gold and silver over unbacked paper bills.
“The trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals . . .,” he wrote in a letter to his son-in-law John Wayles Eppes on June, 24, 1813. “[Paper currency] is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted.”
Based on the historic record of unredeemable, government-decreed paper currencies, Jefferson’s words were accurate and profound.
Fiat Lessons Learned
As military and political leaders, Washington and Jefferson witnessed, experienced and endured the perils and pitfalls of the nation’s original paper money.
Authorized by the Continental Congress in 1775, the Continental currency, which ironically helped the fledgling nation secure independence from Great Britain, was printed to finance the Revolutionary War and specified redemption in silver or gold at a prescribed rate.
Called “bills of credit,” the paper notes were used to outfit and pay the Continental Army, to purchase military equipment and supplies, and to fund operations of the provisional American government.
Problems arose when copious quantities of the paper currency were printed and counterfeited. Because newly-formed government didn’t have taxing authority or sufficient silver and gold to back the bills, they rapidly lost value, which later inspired the phrase “not worth a Continental.”
“A wagonload of currency will hardly purchase a wagonload of provisions,” Washington reportedly remarked about the hyperinflated promissory notes while he commanded the Continental Army.
Faced with massive domestic and foreign war debts, irate citizens and resentful soldiers, and prospects of an economic collapse, the nation’s early leaders learned painful and valuable lessons about fiat currencies.
In particular, they discovered precious metals were desired as money and unbacked paper currency was despised, both during the war and for decades after the nascent nation won its independence. The upshot explained why gold and silver are the only money mentioned in the U.S. Constitution.
Support for Metallic Money
Lessons learned by the founding fathers led to a constitutional provision and foundational currency law that established a monetary standard for the entire country, and authorized silver and gold as the nation’s statutory money.
As the principal architect of the Constitution, James Madison criticized state-issued paper currency and unbacked bills of credit because their value inevitably eroded, usually through official legislative actions that created excessive paper promises that couldn’t be fulfilled.
The Virginia delegate and lawmaker considered depreciating paper notes unjust to creditors when mandated as legal tender and unfair to debtors if they weren’t legal tender. As such, he believed fiat currency was a threat to personal property and public prosperity.
Madison, who went on to become the nation’s fourth president, also understood Gresham’s law: “Bad money drives out good.” He noted the difficulty of getting specie, or silver and gold coinage, when excessive fiat currency is in circulation. People tend to hold onto their “hard money,” which retains value, while spending their “soft” or paper currency, whose value fluctuates and declines over time.
While drafting the highest law of the land in 1787, Madison advocated a bimetallic money standard and championed precious metals as the basis of the nation’s currency system. His efforts succeeded, resulting in Article I, Section 10, Clause 1, which prohibits the states from making anything but gold and silver tender for payment of debts.
After ratification and implementation of the Constitution in 1788 and 1789, respectfully, the nation’s founders undertook the task of defining the U.S. dollar as a specific purity and weight of silver and gold. That was accomplished with passage of the Coinage Act of 1792, which authorized creation of the U.S. Mint in Philadelphia, and the issuance of gold, silver and copper coins.
As Secretary of State, Jefferson proposed the decimal-based dollar system in the law while Treasury Secretary Alexander Hamilton formulated the legal and fixed silver-to-gold exchange rate of 15 to 1. Washington, the nation’s first president, signed the measure into law during his first term.
Fiat Currency Comes Full Circle
Much has changed—and stayed the same—with the nation’s money during the last two and a half centuries.
Contrary to the cautionary advice and concerns expressed by the founding fathers, their warnings and wisdom about the dangers and drawbacks of fiat currency eventually were forgotten and unheeded.
Through a long, complicated series of new laws, legislative revisions and executive actions, Congress and the U.S. government gradually abandoned the nation’s bimetallic standard and returned to fiat currency by making unbacked Federal Reserve Notes legal tender.
Over the last 250 years, the nation has come full circle. Born by emitting excessive and virtually worthless Continentals, the United States today relies on an increasingly virtual and worthless supply of unbacked currency conjured into existence by the Federal Reserve, the nation’s central bank, and its affiliates.
Blind Faith in Unsound Money
While Federal Reserve Notes are used in millions of transactions daily and the fiat currency has been government-mandated legal tender since passage of the Emergency Banking Act of 1933, American patriotism doesn’t—and shouldn’t—require absolute devotion to the ever-depreciating dollar. Blind faith in unsound money is misguided and financially foolish.
Though U.S. greenbacks and coinage bear the likenesses of some of the nation’s foremost forefathers, the physical monetary units and their progressively more common and prevalent electronic equivalent lose purchasing power with each passing year. The same item bought for $1 in 1933 would cost $25 today, a cumulative inflation rate of nearly 2,500 percent, according to the US Inflation Calculator.
Driven by excessive currency creation, persistent inflation acts like a perpetual tax, undermining personal savings and liberty.
That’s something to bear in mind as we—freedom-loving Americans and flag-waving patriots—commemorate the nation’s founding, celebrate 250 years of independence, and watch barrages of glittering golden fireworks and shimmering silver salutes explode in the night sky on the Fourth of July.
