Fiat in America

by a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” -admitted by John Maynard Keynes (British economist who advocated deficit spending and central planning)

From 1792 to 1913, we had 17 percent inflation in the United States. Since 1913 to today we’ve had 3,200 percent inflation.” Idaho State Rep. Phil Hart (while pitching a silver medallion bill to the Idaho House State Affairs Committee)

To illustrate the past failures of fiat currency in correlation to present day America, let’s look at The Coinage Act of 1792.

First, it must be pointed out, that in Section 19 of the Coinage Act, it states, “That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained…….every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death.

Among other things, through the Coinage Act, Congress officially defined the dollar in terms of silver.

Eagles were defined in terms of Gold, with 10 dollars equaling 1 Eagle. Below is a chart to see the denominations of the initial U.S. currency. (The nominal gold price at this time was equal to $19.39.)

  • Eagles                    $10 247 4/8 grain (16.0 g) pure or 270 grain (17.5 g) standard gold
  • Half Eagles         $5 123 6/8 grain (8.02 g) pure or 135 grain (8.75 g) standard gold
  • Quarter Eagles  $2.50 61 7/8 grain (4.01 g) pure or 67 4/8 grain (4.37 g) standard gold
  • Dollars or Units $1 371 4/16 grain (24.1 g) pure or 416 grain (27.0 g) standard silver
  • Half Dollars         $0.50 185 10/16 grain (12.0 g) pure or 208 grain (13.5 g) standard silver
  • Quarter Dollars  $0.25 92 13/16 grain (6.01 g) pure or 104 grains (6.74 g) standard silver
  • Dismes                   $0.10 37 2/16 grain (2.41 g) pure or 41 3/5 grain (2.70 g) standard silver
  • Half Dismes         $0.05 18 9/16 grain (1.20 g) pure or 20 4/5 grain (1.35 g) standard silver
  • Cents                      $0.01 11 pennyweights (17.1 g) of copper
  • Half Cents           $0.005 5 1/2 pennyweights (8.55 g) of copper

Fast forward to 2012, and the Coinage Act sounds like a fairy tale. Debasement punishable by death? The coins used now not only have a lower proportion of gold or silver… they contain NONE AT ALL! The paper dollar can’t even be redeemed easily for gold, as it is only worth its weight in ‘faith.’ A complete reversal of The Coinage Act with once carried such importance.

The purchasing power of the U.S. Dollar relative to gold has fallen nearly 98% in only several decades.

The following chart shows the decreasing value of the U.S. dollar ( the Federal Reserve Note) relative to gold.

As you can see, the War of 1812 and the Civil War in 1862 affected the value of the dollar, however both would bounce back to relative normalcy after the conflicts had ceased.

Notable fluctuations in the purchasing power of the dollar:

  • Coinage Act of 1834…..dollar revalued, one troy ounce of gold = $20.67
  • Gold Reserve Act of 1934…..dollar revalued at $35
  • Bretton Woods Agreement of 1944….. U.S. dollar treated as a substitute for gold globally. Money could now be printed for use worldwide.
  • Nixon ends convertibility of dollars to gold in 1971….. it was realized that the U.S. could not meet its obligations of redeeming foreign dollars for gold and was itself living beyond its means. The result was a U.S. dollar being backed by nothing of intrinsic value.
  • 1971 through 1974…. gold went from $35 to $195
    All of the world’s currencies ‘floated’ against each other, with the U.S. dollar retaining its ‘reserve’ status. Petrodollar is born.

Through the years, the dollar lost more and more of its power with one ounce of gold equaling $1900 at one point in 2011.

Will the U.S. Dollar be relegated to the dustbins of history?