HISTORY OF MONEY IN THE UNITED STATES - COINS, PAPER, BARTER AND GOLD

This page provides a brief history of the various monies used in the United States from Colonial times.

EARLY COLONIAL TIMES AND BARTER

The Pilgrims and early settlers in the New World had little wealth or money. They relied on hard labor to sustain themselves and what they could not make, they would obtain in trade from the Native Americans. Thus developed an economy of barter based largely on wampum (strung shell beads) and tobacco. Later, nails and other items were added as media of exchange and gradually, as trade with the old world steadily increased, coins were no longer scarce and became the standard money.

BIRTH OF THE NATION THROUGH THE GREAT DEPRESSION

This section summarizes money in the late 18th through early 20th century. All of the US coin denominations used for daily trade are shown below. However, foreign coins were far more plentiful in the United States than U.S. coins during the first half of the 19th century. It is estimated there was only about one United States coin in circulation per American!

Hard money was preferred until the 20th century

Coins were made of valuable metals so that the coins had intrinsic values to support the face value, even if melted down. Coins were viewed as lumps of so much copper, silver, or gold. Until 1857, foreign coins were legal tender in the US, and surprisingly far outnumbered US coins in circulation. People didn't much care which country had stamped the design, as the metal's value was what counted. Shown are examples of each coin denomination the United States has issued for general circulation.

EXAMPLE	DENOMINATION	FIRST ISSUED	MOST RECENT ISSUE	Browse on Ebay
	Half Cent	1793	1857	half cents
	Large Cent	1793	1857	large cents
	Small Cent	1856	present	small cents
	Two Cent	1864	1873	two cents
	Three Cent Silver Nickel	1851 1865	1873 1889	three cents
	Five Cent Silver Half Dime Nickel	1794 1866	1873 present	five cents
	Dime	1796	present	dimes
	Twenty Cent	1875	1878	twenty cents
	Quarter Dollar	1796	present	quarters
	Half Dollar	1794	present	half dollars
	Dollar	1794	present	dollars
	Quarter Eagle ($2.50)	1796	1929	quarter eagles
	Three Dollar piece	1854	1889	3 dollars
	Four Dollar piece	1879	1880	four dollars
	Half Eagle ($5.00)	1795	1929	half eagles
	Eagle ($10.00)	1795	1933	eagles
	Double Eagle ($20.00)	1849	1933	double eagles

Paper money always had a place

However, coins were not convenient for large transactions and sometimes metal shortages abroad would create profit opportunities for melting and exporting them, causing domestic coin shortages. This, and economic growth beyond what the coin supply could keep pace with, allowed paper money to have a place. As the law demanded that Congress could only authorize production of hard mettalic money (by the US Mint through the Department of the Treasury), the government did not issue paper money. However, private banks could. Congressional chartering of the 'Bank of United States' in 1791 (central bank precursor to the Federal Reserve) skirted the law via the private bank loophole. The quasi-public 'Bank of United States' provided a nationwide standard currency to replace the dozens of free-wheeling private bank issued currencies that were prone to volatile and highly variable exchange rates, and were worthless upon the bank's failure. Early US political history was steeped in a raging debate over either the necessity or the "evils" of a central bank. The debate continues today.

Paper money in those days was a note, or I.O.U, payable on demand in gold or silver. The issuing bank would have in its vaults at all times, precious metal sufficient to retire all or part of its circulating notes. This guaranteed convertibility of paper money into gold is known as the gold standard. Customer deposits were, unlike today, not insured. Periodic 'bank panics' of widespread withdrawals would empty the bank vaults causing bank failures and crippling losses for depositors. The 19th century was plagued by these bank panics nearly every decade, though it was in that century that the US economy on the whole rose from a that of a fledgling nation to dominate the world's production.

The Gold Bugs' view

Gold bugs adhere to the notion that a gold standard resumption is necessary to avoid the inevitable financial catastrophe of unbacked fiat money failing. They say (ignoring the last several decades of our history) that money cannot be viable unless it has intrinsic value backing such as gold. Many also claim that inflation (generally rising prices) is caused specifically by oversupply of unbacked money. Intrinsic value refers to money that is useful, or valuable, even should the issuing authority or government (and consequently, faith) fail. A gold coin is still so many grams of gold, so it is valuable purely as a lump of metal. Fiat, on the other hand, refers to money such as paper money that is only valuable by decree or 'fiat'. It cannot be officially redeemed for a fixed amount of any commodity, and so becomes worthless if the issuer fails. However, perceptions of value can even blur these cut and dried distinctions. For instance, the Confederate States of America's paper money became worthless when the Union won the Civil War, because the issuing government was defunct. However, a century later that fiat Confederate money of a defunct government was actually valuable once again as a collectible.

Here are a few closeups of 19th century US coin examples.

Bank panics in the 19th century

Today's financial fright and faltering economy are a new experience to those born after World War II. However, scary times and financial panics are not new in the context of US history. The following periods were all strife with bank collapses, widespread fear and deep recession. As you can see, nearly every decade of the 19th century saw yet another financial panic and recovery. These frequent disruptions were of great concern to the nation. After the serious 'Panic of 1907', there was much pressure for the government to take action. Following a great deal of political wrangling, Congress' response was the Federal Reserve Act of 1913.

The panic of 1792
The panic of 1819
The panic of 1825
The panic of 1837
The panic of 1847
The panic of 1857
The panic of 1866 and Civil War Years
The panic of 1873
The panic of 1884
The panic of 1890
The panic of 1893
The panic of 1907
The Great Depression

For a summation of these panics, click here.

THIS WEB PAGE UNDER CONSTRUCTION – CHECK BACK LATER AS I WILL BE CONTINUING THE CHRONOLOGY OF US MONEY HISTORY TO INCLUDE THE MODERN CREDIT SYSTEM.