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Value
of a Dollar I have seen it written that one definition of irrational is "repeating the same experiment over and over, each time expecting a different outcome." I did not find this in my Webster's, but this is a variation on the old proverb that those who forget the mistakes of the past are doomed to repeat them. The Founders were keenly aware of the dangers posed by inflation and conversely they understood the benefits of sound money. Paper currencies freely convertible into silver or gold greatly facilitate trade and commerce. Non-convertible currencies allow governments to steal the savings and part of the income of its citizens. The history of the three phases of the US dollar can be summarized in a phrase quoted from each period:
Words have meanings. Admittedly language evolves and sometimes usage changes the meaning of words. But if we are to measure things, we must have consistent standards. "Pound" is a unit of measure containing sixteen ounces and is 1/2000th of a "ton". If these units are constantly changing, then it becomes impossible to measure or quantify things. If a "foot" contains 8 "inches" today and thirteen "inches" tomorrow, our buildings, highways and everything else are going to be grossly distorted. Nothing will fit or work properly and without both accurate and stabile standards to use for comparison we may not know why. It is no different for economies. Monetary units are the means of measuring things economic from national economies to family budgets. When the economic unit of measure is not constant, it becomes difficult to compare the present to the past and there is no useable standard to predict future value. What is a "dollar"? Is it a descriptive word or a unit of measure? Not one American in a thousand knows what a dollar is. I doubt if President Bush, Secretary of the Treasury John Snow or even Federal Reserve Chairman Allan Greenspan know precisely what a dollar is. And if any of them do, it is clear that they do not want you to know. The Founders used the word "dollars" twice in the Constitution, but they recognized that "dollar" was a word, not a unit of value or measurement. Unlike our modern leaders, the Continental Congress appointed a committee to make "dollar" a unit of value and measurement. Thomas Jefferson rose to the occasion by making the Spanish Milled Dollar our standard until we would have a mint of our own. "The Congress shall have the Power . . . To Coin Money." (Constitution of the United States, Article I, Section 8.) Soon after the Constitution's ratification, Secretary of the Treasury Alexander Hamilton personally prepared plans for a national Mint. On April 2, 1792, Congress passed The Coinage Act, which created the Mint and authorized construction of a Mint building in the nation's capitol, Philadelphia. This was the first federal building erected under the Constitution. Money and the "dollar" were clearly import to the Founders and they clearly understood standards: "SEC. 9. And be it further enacted, That there shall be from time to time struck and coined at the said mint, coins of gold, silver, and copper, of the following denomination, values and descriptions, viz. Eagles—each to be of the value of ten dollars or units, and to contain two hundred and forty-seven grains and four eighths of a grain of pure, or two hundred and seventy grains of standard gold. Half Eagles—each to be of the value of five dollars, and to contain one hundred and twenty-three grains and six eighths of a grain of pure, or one hundred and thirty-five grains of standard gold. Quarter Eagles—each to be of the value of two dollars and a half dollar, and to contain sixty-one grains and seven eighths of a grain of pure, or sixty-seven grains and four eighths of a grain of standard gold. Dollars or Units—each to be of the value of a Spanish milled dollar as the same is now current, and to contain three hundred and seventy-one grains and four sixteenths parts of a grain of pure, or four hundred and sixteen grains of standard silver. Half Dollars—each to be of half the value of the dollar or unit, and to contain one hundred and eighty-five grains and ten sixteenth parts of a grain of pure, or two hundred and eight grains of standard silver. Quarter Dollars—each to be of one fourth the value of the dollar or unit, and to contain ninety-two grains and thirteen sixteenth parts of a grain of pure, or one hundred and four grains of standard silver. Dismes—each to be of the value of one tenth of a dollar or unit, and to contain thirty-seven grains and two sixteenth parts of a grain of pure, or forty-one grains and three fifths parts of a grain of standard silver. Half Dismes—each to be of the value of one twentieth of a dollar, and to contain eighteen grains and nine sixteenths parts of a grain of pure, or twenty grains and four fifths parts of a grain of standard silver. Cents—each to be of the value of one hundredth part of a dollar, and to contain eleven penny-weights of copper. Half Cents—each to be of the value of half a cent, and to contain five penny-weights and a half a penny-weight of copper. Note the contrast to our current coin act. History tells us that governments tend to reduce the value of their country's money over time. Why, you ask, would anyone want their money to decline in value or to become worth less? Read the two coin acts above again. In 1792 a dollar contained 371.25 grains of pure silver; now there is none. Historically, most countries used a fixed amount of gold or silver minted into coins as their basic unit of money. Governments quickly discovered that if they cut the gold or silver content in half and substituted another metal to make the weight or size of the coins the same as the old coins, they could create twice as much money at virtually the same cost, since each coin would now have only half as much silver or gold. Most older Americans have heard the expression "sound as a dollar". Even young Americans have heard the cheer: "Two bits, four bits, six bits, a dollar". The cheer is not relevant to our story, but History of the Dollar is interesting and will tell you the origin of the cheer. The sound dollar disappeared with Woodrow Wilson's passage of the Federal Reserve act. The 1912 dollar still purchased 97% of the same goods and service as the 1789 dollar. But in 2003, the dollar will barely purchase a nickel's worth of 1913 goods and services. Wilson gave us the paper dollar, and Roosevelt made it unlawful for Americans to own gold. Nixon severed any tie between the dollar and gold. "Money is the root of all evil." This aphorism is only half right. Money is the foundation for civilization and ranks close to the discovery of fire and agriculture in beneficial importance to the upward ascent of man. The evil is glimpsed above in what governments do to the value of money. The Founders considered government a necessary evil. The Constitution of the United States placed greater restraints on our government than any other government in the history of man. America's rise to greatness was not an accident. It is a reasonable question to ask, "Why would a "good" or even a "rational" government want to destroy the value of its money?" If you know the answer or think you have a reasonable guess, there are two corollary questions that you might consider: "Can any government that deliberately destroys the value of its money be "good" or even "rational"? and "What happens to "bad" or "irrational" governments?" You might also want to ask yourself, "What happens to the citizens living under such governments?" ©
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