On the 4th of July and Pieces of 8: A brief history of American money

With the 4th of July arriving midweek this year, the whole first week of July takes on a holiday sheen. In that spirit, we look back at the founding of our country, not in terms of original documents like the Declaration of Independence or the later Constitution, but at the history of money and credit in those original 13 colonies. As you know, ideas of freedom and personal dignity were almost secondary benefits of that original American revolution: The original disputes were over finances.

Or as Investopedia puts it, “Money has played a very important role in every war since its creation. Ancient kings played with the percentages of precious metals in their coins to create more money to raise armies, feudal lords tried to undermine each other’s treasuries and counterfeiters have run rampant throughout history. The most famous currency war, however, took place between the British Empire and its colony in America.”

The English forbade the colonies from minting their own money, meaning that allowable English currency could only be exchanged for English goods. In reaction, many colonists returned to a barter system, exchanging goods and services — in a mostly agrarian economy — with each other.

What’s interesting to consider is some of the tensions that arose then played out well into the 20th century, and may still be at work today. Massachusetts defied the crown nearly one hundred years before the revolution, predating its money so as to conform with a loophole in British law. Others took to cutting up Spanish gold coins into eight pieces, to exchange the “bits” — hence, the expressions “pieces of eight,” and “two bits!”

The tensions increased, and we think you know what happened when the Colonies dumped tea and waged war against the British. It took nearly a half-century for the new U.S. government to drive out competing foreign and state-created currencies as it moved toward a national system. By the time of our Civil War, a century after the revolutionary one, the Federal government created paper “greenbacks” to help finance the war.

Only after the war was a true national currency system put aggressively in place, with the National Bank Act, and then a debate over whether new U.S. dollars should be backed by gold or silver, a debate that would continue into the early 20th century, which also saw the arrival of the Federal Reserve Act.

Of course, the U.S. went off the gold standard in 1971, allowing the creation of more currency than the amount of available gold to back it. Whether you think this was entirely a good idea probably depends on how you’re faring during this current period of reigning in financial abstractions like derivatives and hedge funds.

What would those original, defiant land-holders in the Massachusetts colony have made of today’s means of exchange, wherein the small computer in your pocket will become the main implement used in purchases, or — if you’re a merchant in the field — for selling to customers?

We can’t guarantee what the next hundred years will hold — in terms of coherent financial systems or anything else — but here at AVPS we can certainly brighten your near-term prospects with an array of solutions and options.

Give us a call, and enjoy the rest of your holiday week!

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