Author's note: This is an attempt to finally post an article which has been in the works for a while now, but remained in editing limbo. I know it's long and rambley. If there are any spelling errors, sentence splices, or other relics from too much rearranging, I apologize in advance.
No State shall [...] make any Thing but gold and silver Coin a Tender in Payment of Debts... (Constitution of the United States of America, Article I, Section 10)
Dollars or the same is now current, and to contain three hundred and seventy-one grains and four sixteenth parts of a grain of pure, or four hundred and sixteen grains of standard silver (Coinage Act of April 2nd, 1792)
"You shall do no unrighteousness in judgment, in measures of length, of weight, or of quantity. You shall have just balances, just weights, a just ephah, and a just hin." (Leviticus 19:35-36, WEB)
1921 Peace Dollar, 412.5 grains of 90% silver and 10% copper, which still calculates to 371.25 grains of pure silver. Image via Wikimedia, public domain.
In the modern age, we do not think of the dollar (or your national currency wherever you live) as a weight or measure, but until a little over a century ago, money was almost always defined by a weight of pure or alloyed precious metal. The British Pound Sterling was literally a pound of sterling silver alloy. The US Dollar was based on the Spanish Milled Dollar, which was in turn related to the German Thaler, a coin renowned for its uniformity in composition and weight. Same for the Franc, the Mark, and most other European coins.
The 19th century saw economic progress at a previously unimaginable rate. Steam power, advancements in metallurgy, scientific discoveries, and trade networks expanded the wealth available to the everyman in spite of various wars and rapacious governments. Sound money played a role in making this progress possible. There is no question that even the poorest were better off in 1892 than in 1792. This did also coincide with an increase in cronyism as businessmen sought government largesse instead of economic productivity as a primary means of gaining wealth, and the gilded age of the 1890s suggested deeper problems in society, but honest money kept many political ambitions in check.
In fact, between 1800 and 1920, in spite of westward expansion, manifest destiny, attempts at bimetallism, gold rushes, civil war, bank panics, colonial ambitions, and even the emergence of a fiat money central bank and World War I, the silver dollar maintained remarkable stability. Technological advances meant prices often fell over time, something now considered scary deflation. It was only when central banks inflated into the Roaring Twenties that problems emerged on a truly systemic level, and the Great Depression emerged.
Money with honest weights and measures has a long history of relative price stability. Money supply inflation invariably leads to chaos. Debasing precious metal coins by adding greater ratios of base metals like copper has been popular with ruling classes throughout time.The Cantillon effect transfers real wealth to the ruling class and funds magnificent government projects, but any short-term gains always lead to long-term impoverishment of the workers and traders who keep society running. The problem of the seen and the unseen, visible government program and unseen alternate voluntary exchanges preferred by consumers, also distorts public perceptions.
As of this post, the Peace Dollar pictured above has a melt value of over $22, but this is only part of the story of how the dollar has been devalued over the years, and likely under-represents the real value were silver to increase in demand as money. Measuring the change in buying power is difficult, but even this best-case scenario of 4.5% is bad. Some measures go as low as 1%. When people blame "corporate greed" for inflation, you now they're only looking at the surface level instead of trying to understand the real history of the dollar.
Economic Theory
We tend to consider wealth and money to be synonyms, but wealth counted in an unstable devalued currency is much less concrete. Price and value likewise to not mean the same thing, and prices are just an offer to exchange for mutual benefit. If the seller says, "I value $5 more than I value this loaf of bread," any buyer implicitly states they value the bread more than the dollars, and those who decline to buy value some other use of those dollars more highly than the bread.
People want to blame "capitalism," "free market failure," immigration, corporate CEOs, and other bogeymen instead of trying to understand how the economy works. Value is not imaginary, but it is subjective. Time preference and the tradeoff between prices and goods/services vary between individuals. The economy is not some abstract things, it is the very real web of production and exchange which ensures food, shelter, utilities, and luxuries.
Interest rates are condemned widely by religious and secular thinkers. Yet nonetheless, lending money bears not only the time preference cost of money now versus money later, but also also risk the borrower defaulting on repayment. $1000 now is not the same as $1000 next year even in the absence of systemic devaluation through money supply inflation and risk of non-payment. This not only affects borrowing. Investments in future plans are complicated by an unstable money in addition to the everyday ebb and flow of prices based on fluctuating supply and demand. Honest weights and measures in money would add stability just like honest weights and measures ensure stability in plans to use steel, concrete, and other resources in production and exchange.
Gresham's Law is the observation that "bad money drives out good money," or more specifically, when government declares things of unequal market value to be equal, people will exchange the overvalued bad money and hoard the undervalued good money. This led to problems in the era of bimetallism, when silver or gold coins would be in short supply depending on which was losing or winning in the real-world commodity markets. This same problem would arise later as inflation devalued paper dollars against precious metals.
A Brief History of the Dollar
Once upon a time, silver and gold were money. Governments at various times have chosen either cold or silver as the definition of their monetary systems. Some, including the US, tried to balance the two at a fixed ratio, unaware that these monetary metals were also commodities which fluctuate in value against one another depending on supply and demand in the market.
In the US, the federal government established its current central banking system and income tax laws in 1913. During World War I, taxation of the productive economy and inflation of the money supply funded the war. After the war, more inflation led to the "Roaring Twenties," but few saw this booming economy as a bubble of debt and speculation waiting to burst.
Burst it did. In response, we got a command economy and revaluation of the dollar. Herbert Hoover is often presented as a do-nothing fiscal conservative, but he kicked off many of the misguided interventions later expanded upon by Franklin Delano Roosevelt. Hoover at least had a vague understanding that abandoning the gold standard was an admission of fiscal failure, but not the deep knowledge of what really brought the economy down: money supply inflation and credit expansion encouraged by federal monetary policy and a cartelized banking system.
Gresham's Law led people to keep their gold because it was worth more than the face value, and preferred to trade in paper or silver. The government "solved" this problem through outright theft instead of by fixing the money problems it created. From 1934 to 1975, it was illegal for Americans to own gold aside from a few specific industrial, medical, jewelry, or collectible exceptions. Poeple were ordered to surrender their gold. The dollar was then revalued from $35/oz to $50/oz, instantaneously devaluing the dollar and acknowledging the reality of inflation without addressing the root cause or admitting fault.
This was only one small part of the sweeping "New Deal" interventions intended to curb the depression. Instead, it festered. Even today, most economists insist this would have been worse had government failed to act, and few ask whether misguided responses turned a temporary market correction into perpetual struggle. When World War II rolled around, the court economists insisted the rationing, more taxation, more inflation, and a command economy making things to be destroyed overseast somehow pulled us out of the depression. Call me crazy if you want, but privation and mass slaughter don't scream "wealth creation."
In fact, private sector recover didn't truly occur until after the war ended, when economists predicted an even worse collapse with the sudden loss of government spending. Industry returned to production aimed at satisfaction of consumer wants. Along with the post-war Baby Boom, we had one of the greatest periods of economic growth and real wealth creation our country has seen. However, even then, the damage done by fiscal mismanagement was still lingering in the background. Instead of returning to sound money, the Bretton Woods system used the US dollar as the foundation for rebuilding the finances of the former Allied Nations. Needless to say, it wasn't very successful.
Money supply inflation still continued, and the government spent more on the Korean War, the space race, and the Cold War. After 1964, silver was removed from most US coins. The minimum wage of $1 in 1964 was worth at least $22 today based on the current (January 2025) silver content of the dime, quarter, and half-dollar of the day. The old silver coins filtered from circulation and into collections, leaving only the debased cupro-nickel coins in common use. A 1965 coin is worth only its face value now. Gresham's Law strikes again!
Then, in 1971, Richard Nixon completely split the US dollar from gold as a "temporary measure," implicitly admitting the US would inflate arbitrarily, and tearing down the reason Bretton Woods was supposed to work in the first place. Oddly enough, that's also when wages began to decline in relation to GDP, corporate profits ballooned in comparison to worker wages, and inflation took off like a rocket.
Through all of this, government has intervened more and more into the lending market, financial services like securities, and now crypto. Fannie Mae began as a scheme alleged to stabilize housing prices and ensure people would not lose their homes. Funny how these loan subsidies and manipulated interest rates seem to coincide with housing bubbles and unaffordable rent. Of course, the argument for every new imposition is "consumer protection," but the track record of governments does not inspire confidence anywhere else either.
Current Events and Crypto
Now, after a century of divorcing currency from metal entirely, money supply inflation has run amok. Is it any surprise we have had a growing "wealth gap," an accelerating boom-bust business cycle, ballooning national debt, perpetual war, price inflation, and other fiscal problems have become so severe? I strongly suspect we are in a recession now as the housing bubble threatens to burst and consumer debt strains the financial system.
I also see people angrily asking why prices aren't falling if inflation rates are falling. They do not understand the difference between "growing more slowly" and "reversing the trend." It's like a morbidly obese individual thinks they're losing weight because they only gained 5 pounds this month, and they gained 10 last month. The cure is an economic crash diet of honest money and free market price discovery in the absence of intervention, not price controls and more regulatory systems for corporations to capture. Even if we kept fiat money system and just ended the web of inflation, subsidies, bailouts, and war spending, it would be a step in the right direction, but it would still be dishonest money at the foundation.
Instead, I expect the recession will be blamed on Donald Trump in 2025, where he will somehow be portrayed as a paragon of laisse-faire virtue in spite of his reckless history of demanding spending, subsidies, and COVID inflation. As always, I strongly suggest readers get out of debt, save some emergency cash, diversify investments, and store up essentials like food and durable goods. Build your community, because if the economy gets worse, your neighbors are your safety net, not the government.
Back to the topic of sound money, if government funny money has no basis in honest weights and measures anymore, what do we make of cryptocurrencies? I think they pass the test. Unlike dollars and pounds, they never pretended to be based on a commodity in the first place. Unlike modern fiat money, they don't have government enforcement and tax demands as their real backing, and their rate of inflation is a matter of code rather than arbitrary policy. Crypto can be a pure medium of exchange and unit of account which does not distort the precious metal commodity market in the process. Usage is based on consent, not coercion.
Crypto is voluntary money using pure market forces to determine their value as people accept them more widely. This is our path to victory, yet it does not preclude using precious metals, barter, a gift economy, or any other alternative some might prefer instead. We are in the very beginning of the price discovery process, and we are waging a war against the power elite using their best weapon—finance—against them. Is it any wonder they're either hostile toward, or eager to usurp, our experiment in silly internet money?
My grandmother a number of years ago gifted me a 1940s-era silver certificate $1 bill, and explained that you used to be able to take one of these to a bank and exchange it for the equivalent amount of silver coinage or bullion. Obviously all that ended in the late 60's, but I always thought it was cool that, at one point in time, you could have handed paper money over and received actual silver in exchange just by visiting your local bank. :)
I can see why this took a while to come together for you, but I'm glad it finally worked out. It's a good historical article as well as a nod to crypto's place in the overall economy. Excellent work, @jacobtothe!
You are right, that was long. I only read some of each part, sorry.
How things have changed since the day of only carrying gold or silver.
I can't imagine having to carry enough of these to buy things in today's world
How much do you imagine you would need to carry? Imagine a silver quarter being equivalent to a $5 or even $10 bill, and it's far less daunting. You could buy a cart of groceries for a couple bucks.
I guess I would rather carry one piece of eight instead of a 1,000 quarters, so you are right.
Yup. The quarter is still called "two bits" sometimes in reference to being two eighths (one quarter) of a Spanish Milled Dollar. They literally used to cut silver coins into halves, quarters, and eighths to make change.