How much has U.S. currency inflated since 1792?

How much has U.S. currency inflated since 1792?

We are searching data for your request:

Forums and discussions:
Manuals and reference books:
Data from registers:
Wait the end of the search in all databases.
Upon completion, a link will appear to access the found materials.

How much has U.S. currency inflated since the Coinage Act of 1792 established the U.S. Mint? Adjusting for inflation, what amount of modern currency would have the same buying power as a 1792 dollar?

Likewise, what hypothetical denomination in 1792 would have the same buying power as a modern penny? (Presumably it would be much less than a half penny, which I understand was the smallest coin at the time).

Please don't use CPI. CPI only measures consumption bundles for wage workers.

If you want to measure inflation you need to ask why you're equating the value of money over time. goes into this, in great detail, with multiple theoretical papers and multiple measuring systems for US inflation.

what amount of modern currency would have the same buying power as a 1792 dollar

To buy what? Playstations. No amount of 1792 money could buy playstations.

To buy a large business? %GDP

To buy a small business? %GDP/capita

To determine the labour cost of a project? Production worker compensation.

See measuring worth, they go through this problem in depth. From what I've read on the theoretical problem, and the concrete problem in extended period wage bargaining, the problem is intractable in capitalism as all money is contingent upon the market for money, and as the price of labour is fungible.

1792$1000 => 2011$

$24,300.00 using the Consumer Price Index
$23,300.00 using the GDP deflator
$396,000.00 using the unskilled wage
$1,120,000.00 using the Production Worker Compensation
$907,000.00 using the nominal GDP per capita
$67,800,000.00 using the relative share of GDP

The CPI bundle has to change over time, we drink less beer now than in the past, and buy more playstations. The purpose of CPI inflations is to indicate the long term cost of labour to capitalists.

The unskilled wage talks more about share of total social output, as does the Production Worker Compensation. One is the "minimum price of labour," the other the "average socially necessary" form of labour.

Nominal GDP per capita takes into account the growth in the number of people and the growth of the total economy.

GDP is the size of the total economy.

If you want to talk about building a Navy (for instance, how much were the Frigates worth compared to an Aircraft carrier), use GDP. If you want to know if a nation spanning industry was bigger then or now, use GDP/capita. Measuring worth explains these in detail.

CPI is occasionally a valid measure for certain things. The cost of beer should be computed in CPI terms. But it is a poor measure for many many other things. For instance, the salary of Doctors shouldn't be computed in CPI terms, as Doctors aren't CPI wage labourers.

If we grant that the dollar changed insignificantly until the 1934 when the dollar was detached from the gold standard, then we are left with some way of attaching value to something else that is constant.

Because all companies and their products are expressed in dollars, it would be a circular reference to attempt to use those. I see only one constant: the value of a common, unskilled laborer. Workers that require little or no training have been in demand since the beginning of time, and still exist today. Granted working at McDonald's today would be quite different than working in the woods hauling bins in the 1890s, but you could probably take either one and swap their positions and soon be at about the same rate of production on both sites.

We don't have the best metrics of this, but we do know that the 1938 minimum wage laws were set at 25 cents an hour. So an hour of an American worker's time was worth at least 25 cents. Today an hour of an American worker's time is worth $7.25. Simple math would lead us to indicate that a cent today is worth$7.25 / .25 = 29cents. The inverse of this would indicate 0.034 cents of those dollars for a cent of today.

This appears to also be in line with T.E.D.'s estimate of 0.037 despite using an entirely alternative system of calculation.

Taking the link SevenSidedDie found, it looks like a penny in 2007 would have been worth roughly 0.037 cents at the founding of the Republic.

The interesting thing is that if you look at the graph, almost all of this inflation happened after the 1930's. For most of the history of the USA, the buying power of our currency was fairly stable.

What changed in the '30's, you might ask? Well, that's when we untethered the dollar from any precious metal's value and let it float on its own.

$1 in 1776 is worth $30.94 today

$1 in 1776 is equivalent in purchasing power to about $30.94 today, an increase of $29.94 over 245 years. The dollar had an average inflation rate of 1.41% per year between 1776 and today, producing a cumulative price increase of 2,994.20% .

This means that today's prices are 30.94 times higher than average prices since 1776, according to the Bureau of Labor Statistics consumer price index. A dollar today only buys 3.23% of what it could buy back then.

The 1776 inflation rate was 12.99% . The current year-over-year inflation rate (2020 to 2021) is now 4.99% 1 . If this number holds, $1 today will be equivalent in buying power to $1.05 next year. The current inflation rate page gives more detail on the latest inflation rates.

Inflation from 1776 to 2021
Cumulative price change 2,994.20%
Average inflation rate 1.41%
Converted amount ($1 base) $30.94
Price difference ($1 base) $29.94
CPI in 1776 8.700
CPI in 2021 269.195
Inflation in 1776 12.99%
Inflation in 2021 4.99%
$1 in 1776 $30.94 in 2021

The History of American Coin Denominations

Today, U.S. coinage consists primarily of the penny (cent), nickel, dime, and quarter, but as you can see from the previous section, this wasn’t always the case.

In fact, the U.S. Mint has experimented with 15 different coin denominations.

This table shows all of these different denominations and when they were produced.


Years Produced

Five Cent (Half Dime, Nickel)

Coin Designs

Modern-day U.S. coinage honors past leaders, but it wasn’t always this way.

The Coinage Act of 1792 mandated that all coins have an “impression emblematic of liberty,” along with the inscription of “Liberty” and the year of coinage on the obverse side. Furthermore, the reverse side of gold and silver coins had to have an eagle and the inscription “United States of America.”

Obverse Designs

The dominating obverse design of U.S. coinage has been Lady Liberty, who appeared for more than 150 years.

Congress had debated featuring George Washington and future presidents on the first coins, but lawmakers decided that this practice would be too like Great Britain’s coinage practice of putting monarchs on coins.

Instead, Congress chose to represent the concept of liberty as a person. Lady Liberty had been used as a symbol during the Revolutionary War and was an obvious choice.

Abraham Lincoln replaced Lady Liberty on the penny in 1909, which began a series of changes in which presidents or other Founding Fathers eventually replaced Liberty and various other designs on all U.S. coinage. Washington took over the quarter in 1932, Jefferson the nickel in 1938, Roosevelt the dime in 1946, Benjamin Franklin the half dollar in 1948, and Eisenhower the dollar in 1971.

Susan B. Anthony was also featured on the dollar coin from 1979 to 1981 and 1999, while Sacagawea has been featured since 2000.

Reverse Designs

Despite Lady Liberty’s impressive run, the bald eagle featured on the reverse side of U.S. coinage has endured longer. In fact, this design is still featured on the quarter and the Kennedy half dollar. Another early and endearing design was a wreath.

The buffalo nickel (1913-38) was the first to deviate from the traditional eagle or wreath designs. Congress has occasionally authorized different reverse designs to commemorate events or places since. Examples of these design changes include the Westward Journey Nickel Series, America the Beautiful Quarters Program, and the Lincoln Bicentennial One Cent Program.

Coin Symbols

The history of U.S. coins is riddled with symbolism, including many with Greek and Roman origins.

Some of these symbols and their meanings include:

  • Liberty Cap: Stands for liberty and freedom this cap was given to freed Roman slaves
  • Cap with Wings: Stands for freedom of thought
  • Wreath: Stands for victory
  • Union Shield: Stands for Congress and the original 13 colonies taken from the Great Shield
  • Stars: Symbolizes America as a new nation and represents the number of states
  • Oak Branch: Stands for strength and independence
  • Olive Branch: Symbolizes peace
  • Arrows: Symbolizes war
  • Fasces: Stands for strength through unity it’s a Roman symbol showing wood rods tied around an ax
  • Torch: Stands for liberty
  • Bald Eagle: The national bird
  • E Pluribus Unum: Latin phrase meaning “Out of Many, One” our national motto

How much do you know about the U.S. Mint?

Not long ago, I asked this question to a room full of high school students.

Answers ranged from, “It prints money,” to, “I don’t know anything.”

Even the young guy who said that the Mint “prints money” wasn’t quite sure what’s involved with that function. That is, he believed that the Mint prints paper currency.

No, actually the U.S. Bureau of Engraving and Printing creates paper cash.

The Mint stamps out metal coins: pennies, nickels, dimes, etc.

It also stamps out high-end coins made of gold, silver, platinum and palladium.

And not long ago, the Mint ran out of metal.

Which is an ominous harbinger of inflation that’s already here — and yet to come.

Specifically, the U.S. Mint recently ran out of silver and sent out an email that said as much. The Mint said that it’s having trouble obtaining silver from metal suppliers. More on that in a moment.

But first, let’s discuss what I told the high school kids.

The U.S. Mint is an arm of the Treasury Department, responsible for stamping out coins for the U.S. economy. And there’s much revealing history here.

Congress established the Mint in 1792, shortly after the Whiskey Rebellion began in Western Pennsylvania. Farmers revolted over taxes on whiskey stills, and one big issue was that there was no official U.S. money with which to pay those taxes.

Indeed, for lack of what we consider today as money, farmers back then used jugs of whiskey as a form of currency. But the U.S. government wanted tax payments in copper and silver coins, of which there were nearly none out on the austere frontier.

Another way to say it is that money was scarce in Colonial and early Constitutional Republican America, certainly outside of seaport trading cities and towns.

In the interior of the country, often as not people bartered and traded, or conducted commerce via private notes, essentially “IOUs” and distinctly not government currency. On occasion, people used coins from Britain, Spain, France, Holland and other nations. Whatever worked, right?

Now, consider the timeline here: the U.S. Constitution was drafted in 1787 and ratified in 1788. The first Congress sat in 1789. Among its immediate acts, Congress imposed taxes to raise funds. The new U.S. government had to pay the nation’s bills, including a large amount of Revolutionary War era national debt.

So the country had national taxes but no national currency, and by 1792 people were rebelling over lack of real money.

That Whiskey Rebellion was quite an event, far more than a local matter. Typically, if it’s even taught anymore in American schools, it’s presented as a tale about quaint, hicks-in-the-sticks farmers, bent out of shape over paying taxes on their whiskey stills.

But this rebellion was far more than that. As it developed, the revolt had the potential to end the U.S. Constitutional experiment. In fact, some Whiskey rebels of Pennsylvania raised the prospect of seceding from the new United States entity and rejoining Britain, or merging with France out west, if not making a deal with Spain.

This is why President George Washington raised three state militias to march across the Alleghenies and put down the insurrection. Not paying taxes is one thing. Seceding is something else entirely.

And all of this was a big part of why Congress expeditiously set up the U.S. Mint, in Philadelphia no less, which was at the time the seat of national government, i.e., before Washington D.C. was established.

Even then, with a new Mint, U.S. coinage was rare. That is, how much output can anyone expect from a new entity that is just setting up? In the 1790s the Mint stamped out few coins, which today are quite rare and perforce exceedingly valuable.

The point to keep in mind is that early in the country’s existence, U.S. coinage was in no way common, let alone ubiquitous. For many decades after the U.S. was founded, there was little in the way of a national form of money to support exchange and commerce.

Again, keep in mind that for lack of “American” money, much early commerce was conducted via foreign specie. And this lack of U.S. coinage reflected a major problem.

That is, the U.S. was handicapped by geography and, by extension, by its bedrock geology. There just isn’t much gold and silver in the rocks of the eastern states. Yes, a small bit here and there, from Vermont to New York to Virginia. But the amounts are miniscule.

Due to scarcity of materials and logistical necessity, much early U.S. coinage (1790s to about the 1830s) was stamped out of imported metal, particularly silver coins which were made from stock that commonly originated in the mines of Mexico.

Early products of U.S. Mint: U.S. “Capped Liberty” silver half dollars.

Many other U.S. coins of the period were re-struck from coins originally minted elsewhere too, in Britain, France, etc. That is, the minters at their Philadelphia furnaces would take an existing coin from another country, weigh the metal, heat it up and stamp U.S. symbology on it.

Finally, in the 1830s the U.S. economy caught a break. Prospectors discovered gold in the western piedmont of North Carolina. And in 1835 Congress established a new U.S. Mint in Charlotte, which specialized in gold coins. The building is still there, but today it’s an art museum called (no surprise) “The Mint.”

While we’re discussing this, it’s worth mention that in 1838 Congress established another mint in New Orleans. The Queen City was (and remains) a major seaport, and at the time was the gateway for commerce across much of the South. Many a ship carrying gold and silver from Mexico and South America docked there and fed metal into those New Orleans Mint forges.

Still, throughout the 1840s and 50s American commerce was conducted via a mix of U.S. coins, plus foreign coins, and many different private bank forms of so-called “currency.” It wasn’t until 1857 that foreign coins were finally legislated out of the economy by Congress.

(Note: That ban on foreign currency contributed in its own way to the Civil War, because it reinforced many people’s sentiments about Northern economic dominance over the South.)

Mints or no, America’s first true monetary windfall came in California in 1848 with the gold discovery at Sutter’s Mill. Finally, the country had some serious “money” — because gold is money — coming down out of the hills.

Add in the discovery of Nevada’s Comstock Lode in 1859. This kicked off a “silver rush” to match the previous decade’s California Gold Rush, and the U.S. economy was beginning to liquefy with serious amounts of precious metal money.

Then came the Civil War, 1861-65, and as no less than Sun Tzu noted about 2,600 years ago, “wars cost much silver.”

Fortunately for President Abraham Lincoln and the North, California and Nevada were there to supply money straight from the mines, with which to fight the war. In a fascinating, mostly forgotten historical aside, no less than Tsar Alexander II of Russia sent part of his navy to defend the U.S. Mint at San Francisco during those troubled times. We discussed it here.

The Civil War was a monetary disaster for the U.S.

Despite the gold and silver from California and Nevada, the country ran out of money with which to pay its bills. The U.S. began issuing “greenback” paper currency, a long tale for another time.

Fortunately for the monetary fate of the nation, the U.S. covers half a continent, much of which is filled with mineralized areas, particularly out West. The 1860s through 1920s were a long era of prospecting, discovery and mining, particularly for gold and silver, as well as many other metals.

For many of those above-noted decades, members of Congress and Senators from out West promoted coinage that used metals mined in their states, namely gold and silver. It led to a political debate over the concept of “bimetallism,” and that too is another story for another time.

But it does bring us back to the U.S. Mint, which stamped out vast numbers of gold and silver coins in the second half of the 19th Century and well into the 20th Century.

Among those coins was the famous “Morgan” silver dollar. It was designed by an engraver named George Morgan, hence the name. The Mint issued this coin between 1878 and 1904, with a special issuance in 1921.

U.S. Mint, 1921 Morgan silver dollar.

Well, here it is 2021 and obviously, that’s 100 years since the last of the Morgans.

So the people who run the U.S. Mint decided to issue a special 2021 commemorative of the century-old coin. The idea is to release a series of limited editions.

One of these commemorative Morgans has the “CC” mark, representing the old Carson City, Nev. Mint. Here’s the U.S. Mint ad.

And the other commemorative Morgan has the “O” mark, representing the old New Orleans Mint. Here’s that ad.

Both of these coins went on sale at noon on May 24.

And the entire allowance was sold out within 20 minutes. Indeed, traffic was so heavy that the servers crashed at the Mint.

That’s two different coins, at mint runs of 175,000, or a total of 350,000 coins.

Note that each coin contains 0.858 troy ounces of .999 silver. The balance is copper. So it’s not even an ounce of precious metal. And the Mint priced these commemoratives at $85 each, which is over three times the spot price of silver.

And it all sold out within 20 minutes!

Now, an outsider might just think that this 2021 commemorative Morgan must be a big thing amongst coin collectors. Lots of people them. And that’s true, as far as it goes.

But then the Mint sent out an email stating that it’s having problems meeting demand due to a “global silver shortage.”

Then a few days later, on June 4 the Mint sent out a correction, stating:

“The United States Mint … is being impacted by silver blank shortages among its suppliers. The demand for many of our bullion and numismatic products is at record heights and increasingly outpacing the supply of silver blanks available through our suppliers.”

So it’s not a global silver shortage, it’s “silver blank” shortages from suppliers. And demand is “increasingly outpacing the supply.”

Now, wait a minute… That’s an explanation that fails to explain.

The fact is that the U.S. Mint is among the largest users of silver in the world. It has large supply contracts with the largest silver refiners in the sector. And contracts with the Mint specify that it (the Mint) is number one for allocation in the event of tightening supply chains.

That is, the U.S. Mint is at the top of the list for silver supplies from refiners. And yet, it’s telling the world that it can’t obtain sufficient metal to meet demand.

This is not to say that there’s no silver. No, it’s not all gone. Silver miners are mining and refiners are refining.

You can still buy silver bullion, bullion coins, old bags of “junk” silver (pre-1964 U.S. coins for example) at many sites online. There’s a range of places to obtain silver. But it’s pricey, and getting pricier, especially the “markups” above the official spot price.

The main takeaway here is that the Mint shortage of silver reflects the shadow of a new cycle of inflation that has already begun. And this inflation is breaking out wide open.

Doubtless, you see inflation every day at the supermarket, the hardware store, the lumber yard, the auto dealer, in housing prices and much more.

In essence, the dollar is losing purchasing power, more and more, faster and faster.

The other side of this phenomenon is that people are converting more and more of those paper and electronic dollars they control into something real, into hard precious metal.

Yes, a nice, shiny 2021 Morgan silver dollar might be a nice collector’s item. But the fact that the Mint sold out of 350,000 of them in 20 minutes is astonishing.

And then the fact that the Mint came right out and stated that it can’t obtain raw material is beyond worrisome.

Inflation is here. It’s about to explode. And the consequences will be seismic.

100 Years of Inflation Rate History

Inflation can be devastating while it has been under control for the past 25 years, there is no guarantee that it will remain so. Since this blog emphasizes long-term planning, it is important that we address the issue of inflation, and the impact that the declining purchasing power of the dollar has on our investments. For perspective, as always, let's first look at the past century.

U.S. Inflation Rates since 1900

U.S. Yearly Inflation since 1900

The above chart shows the yearly rate of inflation as measured by the Consumer Price Index for All Urban Consumers (CPI-U) for the past 100 years. By early 2012, prices were more than 28 times higher than in 1900 -- the CPI increased from 7.9 to 226.7. Phrased differently, a dollar buys 28 times less now than a dollar bought in 1900 (see inflation calculator). While inflation has averaged only 3% for the complete period, and also 3% since 1982, such subdued inflation has clearly not always been the case. The graph shows several periods where inflation rose to 10% or more. Here's a quick summary of inflation's impact on some key areas.

The Impact of Inflation: A Dollar Buys a Lot Less Than it Used To

Inflation increases the
price of the things we buy. When I first started driving, gasoline was 25 cents a gallon now it's more than $3/gallon -- more than 10 times higher. On the other hand, salaries are also more than 10 times higher if not, few people could afford food or housing, or gasoline. As a result, you could argue that the ultimate net impact of inflation on income and expense for working people is relatively small. (However, it can be painful since increases in salaries often lag behind inflation. In addition, unless/until tax brackets are adjusted, it pushes taxpayers into higher tax brackets). Partly for that reason, in this post I'll focus on the impact on assets. (Note: To see just how much less a dollar buys than it used to, see The Declining Value of the U.S. Dollar.)

The Rule of 72 & the Impact of Inflation on the Value of a Dollar

The rule of 72 says that if inflation is N%/year, prices will double in approximately 72/N years. For example, at 3% inflation, prices will double in (72/3=) 24 years at 12% inflation, prices will double in (72/12=) 6 years. This means that at 3% inflation, the purchasing power of a dollar will be cut in half every 24 years since what you could buy for $100 will cost $200 24 years later, the value of the original $100 has effectively been reduced by 50% -- to $50.

Inflation Hurts Savers and Helps Debtors!

As a result, inflation can be devastating to people with a lot of cash the higher the rate of inflation, and the more dollars one holds, the more devastating is the impact. It follows (though somewhat surprisingly to some) that inflation is a boon to those with negative assets -- i.e., those who are in debt and, the more inflation and the more debt, the bigger the benefit! If you have huge student loans that you have no idea how you will ever repay, pray for inflation. You want to repay those loans with cheaper dollars -- dollars with less purchasing power than today's dollars.

The Impact of the Rate of Inflation on Bonds

Inflation affects conventional, non-inflation-protected, bondholders in three ways. First, the purchasing power of the periodic interest payments decreases with time. Secondly, at maturity, the principal repayment that they receive is in cheaper dollars -- dollars with less purchasing power. Finally, increasing inflation generally means higher interest rates, which in turn means lower prices for bonds they currently own.

The impact of these factors increases as inflation increases and as maturity/duration increases. To offset inflation, bond buyers generally demand higher rates for longer maturities, and when inflation is high or rising. The problem arises when inflation rates are higher than was anticipated at the time the bond was purchased. (For a more complete discussion, see posts on inflation-adjusted 10-year Treasury note returns, and why rising interest rates cause falling bond prices.)

The Impact of Inflation Rates on the Stock Market

0-6%) over long periods, under "normal" circumstances, the equity asset class has generally outperformed all other asset classes. At inflation rates above 6% or so, there is some evidence that natural resources, real estate and commodities (e.g., gold) perform better than equities -- in some cases much of the out-performance comes in anticipation of inflation. (See 100 Years of Inflation-Adjusted Stock Market History: note especially what happens during periods of high inflation.)

The Impact of Inflation Rates on Housing

Homeowners with mortgages are debtors. As a result, the larger the (conventional, fixed rate) mortgage, and the more years remaining, the larger the benefit (see "Inflation Helps Debtors" above). In the U.S., the fact that the mortgage interest payments are tax deductible enhances that benefit.

At the same time, the value of the home is likely to appreciate at least in line with inflation (see 100 Years of Inflation-Adjusted Housing Prices), and real estate tends to outperform equities during periods of high inflation. In the U.S., the value of the gain will be enhanced by the fact that taxes on the gain are deferred until the sale, and much of the gain may be exempt from taxes. Finally, the return on investment is magnified by leverage -- the home buyer receives all of the appreciation in price even though his equity in the home is less than 100%. (See The Problem with Low Down Payment Mortgages for more on the impact of leverage).

The Impact of Inflation on Retirees & Retirement Planning

. can be devastating. The tremendous spike in inflation in the late 70s had relatively little impact on my lifestyle. I was young, employed, and my accumulated savings were relatively small. However, in general, retirees are in the opposite position. They have the most cash and bonds, and therefore have the most assets at risk. In addition, many retirees have income streams that are not adjusted for inflation -- such as corporate pensions and fixed annuities. Even if the inflation rate averages only 3%, prices double in 24 years, and the purchasing power of their income will be cut in half. Inflation is one of the most critical challenges for retirees. (See How Much Will $100 be Worth in 10-20 Years?)

Retired homeowners will benefit from the appreciation in the value of their homes. However, they may not benefit as much as younger homeowners because younger homeowners tend to have more mortgage debt, and more leverage. In addition, inflation increases ongoing home ownership expenses. Retirees with significant non-inflation-adjusted fixed income may have trouble keeping up with increases in real estate taxes, insurance & home maintenance costs.

Caveat: Think Both Nominal AND Real Growth

Low to moderate inflation is generally relatively benign -- especially if planned for. However, even these levels can cause investors to significantly overestimate their performance over long periods of time. For example, a stock or real estate investment that has doubled in 24 years during a period of 3% inflation has only maintained its purchasing power. On the other hand, that would clearly be better than investment alternatives that lost purchasing power.

Related Material

The Declining Value of the U.S. Dollar: Graphs cumulative change in value since 1900.

How Much Will $100 be Worth in 10-20 Years? Graphs the impact of inflation rates of from 1-10% on purchasing power over the next 1-50 years.
Inflation Calculator/Spreadsheet: calculates inflation rates between any 2 years, and converts dollars to equivalent purchasing power.

100 Years of Inflation-Adjusted Housing Prices -- to see inflation-adjusted housing prices.
100 Years of Inflation-Adjusted Stock Market History -- to see how the stock market reacts to inflation.
About Nominal & Real Rates of Return: discusses the difference between real & nominal returns.
Wikipedia: for a more detailed discussion of inflation and the rule of 72.
For an even more detailed discussion of inflation and the CPI, see this article.
For lists of other popular posts and an index of stock market posts, by subject area, see the sidebar to the left.

Pre-1913: Robert Shiller "Irrational Exuberance" data
1913 forward: Consumer Price Index for All Urban Consumers: All Items (CPIAUCNS) from the U.S. Department of Labor: Bureau of Labor Statistics.

Copyright © 2011. Last modified: 1/26/2013

Share This Article

Bookmark this on Delicious To share via Facebook, Twitter, etc., see below.

The Decrease in Purchasing Power of the U.S. Dollar Since 1900

The declining value of the dollar is one of the biggest threats to retirees, and near retirees. This post explores the history of that decline over the past 100 years or so, with graphs going back to 1900.

One of the biggest threats to my own retirement plan is the cumulative impact that future inflation rates will have. Readers whose retirement income is not cost-of-living-adjusted need to evaluate the impact that inflation and the declining value of the dollar will have on their income, and be prepared to supplement their income as necessary.

Try my interactive inflation calculator that will convert any prior year dollars to any later year right on your screen. Then come back to this post and look at the bigger picture.

Decreasing Purchasing Power of the U.S. Dollar: What's $10,000 in 1900 Worth Today?

The graph above (click to expand) shows that if a shopper were magically transported from the year 1900 to 2020, the $100 bill that he had in his wallet in 1900 would now be worth only $3.06! That is, $100 in 2020 would have the purchasing power that $3.06 had in 1900 $10,000 would be worth only $306 today. That's a 96.9% decrease in buying power. Our shopper would consider current dollars virtually worthless. (Note: the calculations in the post were made using my inflation calculator.)

The Cumulative Impact of Inflation on Retirement Planning

Since 1900, U.S inflation has averaged about 3.0% per year. However, even at that moderate rate, the cumulative effect is
remarkable. The implications on retirees should be clear even moderate rates of inflation have a large impact over long periods. For example, if inflation averages 3%/year, in 20 years (e.g., between age 65 and 85) the value of a $100 bill will be almost cut in half -- it will lose about 45% of its value. (See What Will $100 be Worth in 10-20 Years?)

If you live in retirement for more than 20 years, or inflation rates are higher than average, the impact is even more dramatic. During my mother's retirement, the dollar lost over 70% of its value. Her retirement lasted almost 30 years, and included the high-inflation 1970's and early 1980's. It's possible that you could have a similar experience -- especially if you're female.

Consider Inflation & the Future Value of the Dollar in Your Retirement Planning

One of the biggest threats to my own retirement plan is the cumulative impact that future inflation rates will have. Readers whose retirement income is not COLA (cost-of-living-adjusted) income need to evaluate the impact that inflation and the declining value of a dollar will have on their income, and be prepared to supplement as necessary.

Frankly, I'm even concerned about Social Security and other pensions/annuities that do have COLAs. Promised pensions can be paid only if there is enough money available to pay them. In addition, COLA increases in some plans may not keep pace with the actual increases in your yearly expenses. For example, some increases are based upon the increase in so-called "core" inflation. Core inflation does not include food and energy my inflation does.

100-Year History of Decline in Value of a Dollar -- Log Version

Here's another graph of the exact same data (click to expand), but I've changed the scale on the vertical axis from the "normal" (linear) way you'd see it to logarithmic. As I discuss in about log graphs, when you're graphing data over decades, or when there are large changes in values, using a log scale for the vertical axis presents a more accurate picture. These two graphs highlight the difference.

The Advantage of Using a Log-Scale Axis

In the top chart, the drop in purchasing power between 1915 and 1920 dominates the chart -- it was a drop of almost $40. The inflation of the 1970's, on the other hand, appears relatively benign -- the value of a dollar decreased by less than $10. But note that in the teens you were starting from of base of around $80 in the 70's, you were starting from a base of around $20.

In the second chart, however, those two drops are about the same magnitude because they're both about 50% drops. The distance (on the vertical scale) between the start and end of each period is about the same the drop in the 70's is just not quite as sharp -- it's over an 8-year period rather than a 5-year period. I think this is a more meaningful representation of what we're trying to measure.

Just to beat a dead horse, consider this. If, God forbid, inflation had been 100% in 2011, purchasing power would have been reduced from about $3.60 in 2011 to $1.80 in 2012 -- a drop of $1.80. On the first chart, since it measures changes in terms of dollars, you would hardly notice $1.80. On the other hand, in the second chart you would see a drop of about the same magnitude as the drop in the teens, but this time over a shorter period of time. That's a lot more representative of what we experience in the real world -- and why my long-term stock market price graphs all use a log scale for the vertical axis. (For more on this, see About Log Graphs).

Related Posts

What Would $10,000 in 19xx be Equivalent to Today? an easy way to convert dollar amounts in the past to the approximate equivalent amount this year.
How Much Will $100 be Worth in 10-20 Years? converts current dollars to equivalent value 1-50 years in the future assuming inflation rates from 1-10%.
100 Years of Inflation Rate History Graph of yearly inflation rates, and discussion of the impact.
The Observations Inflation Calculator: will calculate inflation and the change in purchasing power between any two years in the past -- e.g., between 1970 and 1980. The source for the above graphs.
To see the historical impact of inflation on investments, see:
100 Years of Inflation-Adjusted Stock Market History, 10-Year Treasury Note Inflation-Adjusted Return History, 100 Years of Inflation-Adjusted Housing Prices.
For lists of other posts, by category, see the drop down list (mobile viewers) or tabs (computer viewers) just below the blog header at the top of the page. There are additional links in the sidebar if your device supports sidebars.

Copyright © 2011. Last modified: 11/21/2020

Share This Article

B.C. (Before Christ)

  • 9000 B.C. — Bartering starts in Egypt
  • 1200 B.C. — Cowrie shells are used as money
  • 1100 B.C. — Rounded coins are used in China
  • 600 B.C. — The first official currency is minted in Lydia

A.D. (Anno Domini)

  • 1100 — The tally stick is used in England to cover taxes
  • 1190 — Paper money is introduced in Europe based on a Chinese invention
  • 1250 — The Florin from Florence is used for international commerce
  • 1650 — The Wampum becomes the official currency in Massachusetts Bay Colony
  • 1661 — The first banknotes are issued
  • 1792 — The US dollar is issued
  • 1848 — The gold rush begins and leads to the Gold Standard Act
  • 1860 — Western Union starts electronic fund transfer via telegram
  • 1861 — Civil war money is issued
  • 1913 — The Federal Reserve is created
  • 1929 — The Great Depression begins
  • 1946 — The first charge card is invented.
  • 1971 — The gold standard is abolished.
  • 1999 — Mobile banking and online banking begins
  • 2002 — The euro is issued
  • 2008 — Contactless payment cards are issued, and Bitcoin starts cryptocurrency

A history of money timeline can be confusing because of our Western calendar. Essentially, we have two different types of calendars: one before the birth of Christ and one after his birth. We have a descending series of dates of the years before the birth of Christ as B.C., but since there is no year labeled as zero, the year Christ was born is called, “Anno Domini” Latin for “in the year of our Lord.” This new calendar begins an ascending series of dates starting at 1 A.D.

History of Money in the Era Before Christ (B.C.)

Bartering is first recorded as occurring in ancient Egypt, around 9000 B.C. People bartered goods they had in surplus for goods they needed. Usually, they bartered basic commodities like vegetables and grains or cattle and sheep.

In 1200 B.C. there is evidence that cowrie shells were used as money. Coastal regions around the Indian Ocean and the Mediterranean regions used cowrie shells in lieu of money to keep track of trades, as it was more convenient than bartering.

1100 B.C. brought the use of rounded coins in China. The Chinese first used goods made from bronze as money and later used rounded coins. In 600 B.C. the first official currency was created by King Alyattes in Lydia, now known as Turkey.

History Money in the Era after Christ (Anno Domini—A.D.)

In 1190, paper money was introduced in Europe based on a Chinese invention. When Marco Polo visited China, he was amazed by the splendor and sophistication and science of China. In the Travels of Marco Polo, he shares his discovery about the use of paper money issued by the government of Kublai Khan to manage the economy. When he shared his ideas back in Europe, the idea of paper was adopted to handle payments and debt obligations.

By the year 1250, the Florin from Florence was used for international commerce. The Italian Florin, the “fiorino d’oro,” was a gold coin used by the Republic of Florence. Until 1533, it remained popular as the coin money of international trade because it replaced bulky silver bars when it came to large-scale business transactions.

In the “New World” in America, the wampum became the official currency in Massachusetts Bay Colony in 1650. The history of money in America could be said to have started with the wampum. The wampum were tiny beads made from shells that were strung together and worn as decorative clothing. They became the official currency of the Massachusetts Bay Colony, and based on the official exchange rate, the purple beads were worth twice the value of the white ones.

In 1661, the first banknotes were issued. Today we tend to think of bills as money and silver bars as commodities to invest in, but in the 17th century, people would often think of precious metal bars as cash itself. Although the idea of paper money was introduced to Europe by Marco Polo, the history of paper money gained wider recognition when Sweden printed out the first banknotes. European merchants appreciated how this worked far better for business because it was easy to mass produce without the need to trade with precious metals like gold and silver.

The United States Congress created the U.S. dollar as the nation’s national currency on April 2, 1792, predating the Gold Standard by over 50 years. In 1848, the gold rush began, after the precious metal was discovered in abundance at Sutter’s Ranch. By 1861, the enthusiasm for gold had unified the western part of America. The Gold Standard Act set $20.67 an ounce as the value of gold and established that gold was the only precious metal that could be redeemed for U.S. legal tender.

In 1860, the first electronic fund transfer occurred when Western Union legally transferred funds through a telegram. This important event was overshadowed by the Civil War, however. In 1861, civil war money was issued, and the history of American paper money started with the “greenbacks.” The United States issued the greenbacks, a form of paper currency that was printed in green ink on its back, during the time of the American Civil War to help finance the war effort. Demand Notes were issued from 1861 to 1862, then United State Notes were issued from 1862 to 1865.

History of Money in the Modern Era

In 1913, the Federal Reserve was created. The Federal Reserve Act was created to alleviate the stresses on the money supply disturbed by the various financial crisis. It added a central authority to control the monetary system. The Federal Reserve managed to stabilize the value of the currency based on the gold standard, which was seen as a necessary step to control inflation.

In 1929, the infamous Great Depression began. The Great Depression occurred from 1929 to 1939, after the stock market crashed in October 1929. Wall Street panicked, and millions of investors lost all their money. This was the worst economic disaster in the history of the modern world.

An early version of the credit card emerged in 1946. The first credit card, named “Charg-It,” was invented by John Biggins. The notion that products and services could be purchased easily and paid off later quickly became popular throughout the entire world.

In 1971, the gold standard was abolished. It was a historic moment. Since 1879, it had been possible for an American to redeem dollars for gold, securing an ounce of gold for $20.67. But by 1971, the U.S. could no longer meet this obligation. The gold standard was officially terminated on August 15th, 1971 by Richard Nixon. Fiat currency now made it possible for any government to increase their money supply by printing out as much money as they needed to meet their expenses since the value of money was no longer tied to the worth of gold. The value of money was simply based on the government declaring it had value. The value of money was no derived from its relationship with a physical commodity like gold. Today, all societies use national fiat currencies and have no limit to how many bills they can put in circulation.

With the advent of the internet, mobile banking and online banking was first launched in 1999. European banks also started to offer their customers the option to do their banking through early smartphones. PayPal is often credited with initiating online banking and making it possible to make online purchases. This was the first type of online and electronic person-to-person payment system.

The European Central Bank issued the first series of the euro in 2002. This new European currency replaced national currencies, and today about 19 out of 28 members of the European Union use this currency.

In 2008, two significant changes occurred in 2008. The first was the use of contactless payment cards, a way of making payments using radio frequency or near field communications (NFC) with credit, debit, or smart cards, as well as mobile devices. The second big change was the release of Bitcoin in October 2008. This led to the development of the blockchain and cryptocurrencies because Bitcoin was released as an open-source software Today, many smart investors buy cryptocurrencies as part of a long-term currency investment.

The History of Money

We have come a long way from using cowrie shells as currency. Money is now a complex medium of exchange. What’s more, the history of money continues to evolve in our times. In recent years, for instance, only as far back as 2014, Barclaycard introduced the idea of wearable contactless wristbands. During the same year, iPhone users were given a new digital option called Apple Pay which worked like a virtual wallet to allow them to buy things directly with their mobile phone. No doubt many more innovations, ranging from apps to devices to new forms of money, will occur before the end of this second decade of the 21st century.

Interestingly enough, there appears to be a new monetary trend: Money is now becoming a more abstract medium of exchange, digital cash is slowly beginning to replace our reliance on paper money and metal coin. Of course, people will still continue to invest in precious metals but they won’t need to physically possession any tangible assets. A digital record that they own particular assets will be more than enough to establish ownership. In these modern times, we enjoy speedy transactions and convenience, and these traits will only improve over time. As we move into the future, we must make sure we don’t sacrifice our financial security in the process.

A Brief History Of U.S. Currency

Many people today don’t often use coins or paper money anymore, preferring instead the convenience of a credit card, debit card, or even a smartphone. But the history of currency in the United States is actually (surprisingly) very fascinating.

For example, did you know that there were redbacks before there were greenbacks? And that after the Revolutionary War our currency was so worthless that the phrase “not worth a Continental” was a regular part of everyday language?

What does value investing really mean? Q1 2021 hedge fund letters, conferences and more Some investors might argue value investing means buying stocks trading at a discount to net asset value or book value. This is the sort of value investing Benjamin Graham pioneered in the early 1920s and 1930s. Other investors might argue value Read More

But beyond these interesting tidbits, the evolution of American currency helps to frame the history of finance in the United States, as our rapidly expanding nation struggled, failed, and ultimately succeeded in creating a reliable monetary and banking system. Creating trust in paper notes has been an enduring theme in the history of American finance, banking, and currency.

So, read on below for a brief glimpse of America’s – and your wallet’s – financial history:

1. Continental Currency (1775-1790)

To finance the Revolutionary War, the Continental Congress issued paper money, backed by the “anticipation” of tax revenues. It was the first federally issued paper money. Without solid backing and easily counterfeited, the Continental currency notes quickly became devalued, giving rise to the phrase “not worth a Continental.” Continental currency depreciated rapidly, becoming practically worthless by the end of the war.

2. Silver Coins (1792-1863)

Congress passed the first Coinage Act in 1792 giving the United States Mint responsibility for creating coins for public use. Silver coin is usually 90% silver with the remaining 10% of copper for strength. The law directed money to be made from copper, silver, and gold. Today, these coins (quarters and dimes) are comprised of 75% copper and 25% nickel alloy.

3. Gold Coins (1795-present)

In 1795, the first official gold coins were minted in the United States. When gold was discovered in California in 1948, two new denominations were struck, the gold dollar and the double eagle. Popular among collectors, modern gold coins are used primarily for investment purposes.

4. Texas Dollar (1837-1840)

The Republic of Texas first issued paper money in 1837. This currency was called “Star Money” for the small star on the face of the bill. The Star Money was not face value currency, but rather interest-bearing notes (similar to a Treasury Bill) that circulated by being endorsed over to the next payee. In 1838, Texas issued change notes with elaborate designs on the front and blank backs. The so-called Texas “Redbacks” were issued in 1839 with the name coming from the reddish color of the back of the bills.

5. State Bank Notes (1837-1863)

Issued by state-chartered, private banks, State Bank Notes became the dominant form of currency after 1836. With more than 7,000 varieties of color and design, they were easily counterfeited, causing confusion and circulation problems, No federal regulations regarding banking existed, creating what is referred to as the Free Banking Era. Because of the public’s lack of trust in the banking industry, there were widespread bank failures during this time as the public removed their funds from the banks. Eventually, Congress levied a tax on State Bank Notes that decreased their value, until they were eventually phased out of circulation.

6. Confederate Currency (1861-1864)

During the Civil War, the Confederacy printed and issued notes from the Treasury of its newly formed government. The Confederate States of America dollar was first issued just before the outbreak of the Civil War. It was not backed by tangible assets, but simply by a promise to pay the bearer after the war. As the war began to tilt against the Confederates, confidence in the currency diminished, and inflation followed. By the end of 1864, the currency was practically worthless.

7. Fractional Currency (1862-1876)

Fractional currency, also referred to as “paper coins” and “shinplasters” (as the quality of the paper was so poor that with a bit of starch it could be used to make paper mache–like plasters to be used to treat wounded legs), was introduced by the United States government following the outbreak of the Civil War. These fractional notes were in use between 1862 and 1876, and issued in 3-, 5-, 10-, 15-, 25-, and 50-cent denominations. Fractional currency was used to provide change at a time when people were hoarding gold and silver.

8. Demand Notes (1861-1917)

To finance the Civil War, the U.S. Treasury issued paper money for the first time in the form of non-interest bearing notes, popularly called “greenbacks” due to the distinctive green ink. The U.S. government placed demand notes into circulation and used them to pay salaries and expenses incurred during the Civil War.

9. National Bank Notes (1863-1935)

Backed by United States bonds, these notes were issued by national banks and chartered by the United States government. State banks issued their own notes prior to the Civil War, but in 1863, the National Banking Act established a system of national banks. The new banks issued these national bank notes with federal oversight. This currency was sometimes called “hometown” notes, due to the wide range of towns and cities that issued them.

More than 7,600 banks were in existence as of January 1, 1929. National bank notes were discontinued in 1935 however, they can still be redeemed at their face value at the Department of the Treasury.

10. Gold Certificates (1865-1933)

First authorized by the United States government, gold certificates were first printed in 1865, backed by gold coin and bullion deposits. These were first for the exclusive use as transactions between banks. In 1882, a general-circulation gold certificate was issued. A gold certificate was a document that showed ownership of gold, without people having to store the actual gold. At a rate of $20.67 per troy ounce established by the Coinage Act of 1834, these gold certificates were used as actual currency, redeemable for goods and services. The Gold Reserve Act of 1933 required the surrender of all gold certificates, rendering them obsolete. However, it is legal to collect them today as restrictions were removed in 1964.

11. Silver Certificates (1878-1963)

The Coinage Act of 1873 caused standard silver dollars to stop being produced. The Treasury printed out promissory notes on paper that were legal tender redeemable in silver dollars. These were silver certificates, printed from 1878 to 1963 and were backed by silver bullion purchased by the U.S. Treasury. Redemption for silver ended on June 24, 1968, with millions of unredeemed silver certificates still in circulation.

12. Federal Reserve Bank Notes (1913-1935)

Federal Reserve Bank Notes were first authorized by Congress in 1913 when the Federal Reserve System was established. These notes were obligations of the specific Federal Reserve Banks named on the face of the note. Issuance was discontinued in 1935. Federal Reserve Bank Notes differ from Federal Reserve Notes in that they are backed by one of the 12 Federal Reserve Banks, rather than by all collectively. They were backed in a similar way to national bank notes, using U.S. bonds, but by Federal Reserve Banks instead of chartered national banks. Federal Reserve Bank Notes are no longer issued. The only U.S. bank notes still in production are Federal Reserve Notes.

13. Federal Reserve Notes (1913-present)

Federal Reserve Notes were introduced with the Federal Reserve Act of 1913 to help promoted a central banking system. Federal Reserve Notes comprise more than 99% of today’s paper currency, and are currently issued in denominations of $1, $2, $5, $10, $10, $50, and $100. Before 1945, Federal Reserve Notes were also printed in denominations up to $10,000, but the larger bills were retired in 1969 due to the lack of demand. The Federal Reserve does not print currency or mint coins. It acts as a holding facility and distributor for the Bureau of Engraving & Printing and the United States Mint.

Want to Learn More?

¯_(?)_/¯ Information from this post was adapted from a brochure I got at The Money Museum at the Federal Reserve Bank of Kansas City – Denver Branch, in downtown Denver. It’s worth a stop if you’re ever in Denver – the museum’s free and you get a bag of $165 in shredded dollar bills when you leave… so technically you actually make money by going!

If you want to learn more about the history of money and finance in general, then I would check out The Ascent of Money by Harvard history professor Niall Ferguson. He also has a 4-hour long, 4 episode series over at PBS covering the same topic as the book, if you’d rather watch than read.

The Ascent of Money: A Financial History of the World by Niall Ferguson

Niall Ferguson follows the money to tell the human story behind the evolution of our financial system, from its genesis in ancient Mesopotamia to the latest upheavals on what he calls Planet Finance. What?s more, Ferguson reveals financial history as the essential backstory behind all history, arguing that the evolution of credit and debt was as important as any technological innovation in the rise of civilization. As Ferguson traces the crisis from ancient Egypt?s Memphis to today?s Chongqing, he offers bold and compelling new insights into the rise? and fall?of not just money but Western power as well.

America’s Inflation and Hyperinflation

With the reckless activities of the Federal Reserve and the United States Treasury over the past several years, some among the punditry are starting to fret that America may soon find herself engulfed by high inflation or even hyperinflation. The former has been a scourge since time immemorial wherever improvident governments chose to debase the value of their own currency. The latter — the catastrophic decline in a currency’s value, manifested by consumer price increases by hundreds or thousands of percent or more over a brief interval — has wreaked financial and social havoc on empires large and small for millennia, bringing post-World War I Germany to its knees in the 1920s, overthrowing the government of Argentina in the 1980s, and driving once-prosperous Zimbabwe into utter ruin in the current decade.

Begotten by irresponsible fiscal policy — the expansion of the money supply via the printing press — both inflation and hyperinflation have the potential to damage severely the body politic. Hyperinflation in particular is usually accompanied by civil unrest, regime change, and dictatorship. Wherever it rears its ugly head, confidence in banks, money, and the economy as a whole is lost. Savings are wiped out as currencies lose value, and pauperized citizens revert to a barter economy. Bereft of assets, the desperate often turn on one another, prompting an explosion in violent crime and even revolution. The damage done by hyperinflation can require generations to undo.

Small wonder that many American economists, dismayed at the enormous expansion of the money supply under Bernanke’s Fed, are warning of the specter of hyperinflation and its potentially devastating consequences both to the economy and to the American body politic. Yet such a calamity is not without precedent in American history. Both during the Colonial period and during the Revolutionary War, America endured bouts of crippling inflation and hyperinflation, always caused by the same mistaken policies — and always curable by the same remedy.

Inflation and hyperinflation since the 17th century — the time that witnessed the birth of modern banking and finance in northwestern Europe, especially in England and Holland — have always been by-products of so-called fiat money, money that is issued without convertibility into a precious metal like gold or silver (&ldquospecie&rdquo). Because consumers typically prefer gold and silver, fiat money is usually reinforced by &ldquolegal tender&rdquo laws that compel people to use it.

Before the invention of the modern computer, the printing press was the tool used by governments and their kept banks to issue fiat money. To be sure, the printing press can wreak havoc merely by issuing more paper money than there exist reserves of specie to redeem it, should the demand arise. But the worst damage has always been done by the issuance of pure paper money backed by nothing but the say-so of banks and governments that it will forever retain its value.

The dubious distinction of the invention of paper money, at least in the Western world, falls to the Massachusetts Bay Colony. In the late 1600s, this ambitious and prosperous colony was in the habit of conducting regular military raids on French Canada and paying the soldiers who participated in these campaigns with plunder. But the 1690 expedition did not go as planned. The French in Quebec routed the Massachusetts raiders and sent them home empty-handed. Massachusetts, unable to borrow money from Boston merchants to pay the soldiers, hit upon a novel scheme: The colony would print 7,000 pounds worth of paper notes to pay the soldiers, but would pledge to redeem them within two years in gold and silver extracted from the colonists via taxation. The Massachusetts Bay colonial government also promised never to print any more money.

But within a few months, the government, unable to resist the siren song of the new paper money, printed tens of thousands of additional paper pounds, triggering massive inflation and driving good money — silver, mostly — out of circulation. Two years later, the Massachusetts government, frustrated by citizens’ understandable reluctance to use the rapidly depreciating paper currency, passed laws making it legal tender.

Despite the unhappy experience of Massachusetts, other New England colonies began to issue paper money as well. By 1711, both Connecticut and Rhode Island were doing their part to inflate the money supply. More than 200,000 pounds of paper money had been printed in New England, pyramided on an asset base of at most a few tens of thousands of pounds in gold and silver coin and bullion. Silver was being driven out of circulation by the inexorable effects of &ldquoGresham’s Law,&rdquo the economic truism that bad money always drives out good. In 1711, Massachusetts suffered another failed expedition to Quebec, and printed an additional 500,000 pounds to cover the shortfall.

And so it went. Far from being chastened by Massachusetts’ poor example, the other colonies all jumped on the paper-money bandwagon. Massive inflation in all 13 colonies was the result, with the value of paper pounds depreciating over the first few decades against silver. In Rhode Island, the most inflationary of all the colonies, paper notes originally issued at par with the pound sterling had sunk by 1740 to a ratio of 23 to 1, corresponding to a rate of inflation of 2,200 percent over several decades. The least inflationary of colonial paper, that of Pennsylvania, had appreciated by 80 percent, while Massachusetts, the originator of the madness, had endured inflation of roughly 1,000 percent — not numbers worthy of modern-day Zimbabwe, to be sure, but formidable enough to create unending economic and civil woes. The colonial governments, faced with chronic shortages of specie, passed various legal tender laws threatening those who refused to use the depreciated currency with confiscation of assets and imprisonment. But the destruction of the money supply continued apace — indeed, accelerated — through the French and Indian War, as cash-strapped colonial governments printed still more money to pay for the war.

The British parliament, meanwhile, dismayed at the destructive effects of runaway inflation in the colonies and under pressure from British traders who resented being paid for their wares in nearly worthless colonial scrip, promulgated two Currency Acts, in 1751 and 1764, to rein in the insanity. The first act cracked down on the New England colonies, allowing the continued payment of public debts (i.e., taxes) in existing paper money (which had come to be called &ldquobills of credit&rdquo) but prohibited its use for private transactions. The future emission of bills of credit was severely limited. The 1764 Currency Act, enacted soon after the end of the French and Indian War, extended the provisions of its predecessor to the rest of the British colonies, but did not outright prohibit the emission of bills of credit. Instead, the act forbade the passage of legal tender laws to compel their acceptance.

Although the British parliament, whatever its motives, was acting in the best economic interests of the financially intemperate colonies, many colonists resented the Currency Acts as hindrances to economic activity and as encroachments on their liberties. With the exception of Delaware, the colonies came to view the Currency Act of 1764 as one of the &ldquomajor grievances&rdquo committed by the British government against the Americans. It was labeled by the first Continental Congress of 1774 as one of seven acts of parliament &ldquosubversive of American rights.&rdquo The right to debase one’s own currency, it would seem, was an entitlement of sovereign states — one the Americans would soon put to the test in their war of independence.

Paying for War

The American colonies were, by the time of the outbreak of war with Britain, thoroughly steeped in the seductive sorcery of fiat money. It is therefore not surprising that one of the first things the Continental Congress did in 1775 was approve the issue of $2 million in brand-new paper money, pyramided atop an estimated colonial money base of about $12 million. Gouverneur Morris, the brilliant young New York aristocrat who became one of the authors of the United States Constitution a generation later, led the movement for paper money. Congress made no promises ever to redeem the money in specie, but it was fondly hoped the scrip would be retired by the states within seven years via taxation.

Of course, the initial promises and austerities were soon abandoned, and by year’s end, the Continental Congress was printing money on a scale the world had never seen before. Unable to cover the war expenses with the initial $2 million issue, it printed another $4 million by year’s end, thereby increasing the entire existing money supply by 50 percent.

Nor was Congress finished. The next year — the year the Declaration of Independence made a protracted, all-out war inevitable — an additional $19 million was printed, more than doubling the pre-war money supply. The printing presses ran without surcease for the next five years, emitting a total in $225 million in new &ldquoContinentals,&rdquo as the currency was called. In the meantime, the states, newly emancipated from the perceived restraints of the Currency Acts, were running the printing presses on their own, cranking out bills of credit that competed with Continentals in an inflationary — and eventually, hyperinflationary — race to the bottom.

And bottom out the Continental dollars did, depreciating with astonishing speed until, by early 1781, they were worth only 1/168th of their original value, a rate of inflation of 16,700 percent over a mere six years. Much the same happened with dollar-denominated bills of credit issued by the states, which, like the Continental, faded into worthlessness by war’s end as a result of more than $200 million in new money emitted by state-based printing presses.

The social calamity occasioned by this inflationary wartime finance is difficult to overstate. Soldiers were paid in Continentals, but farmers and merchants refused to accept them, leading the Continental Army to confiscate needed goods like foodstuffs in exchange for promissory notes or &ldquocertificates&rdquo that soon became as worthless as the paper they were printed on. Attempts to fix prices and compel redemption of bills of credit at par led to shortages and other ills. The British took advantage of America’s financial vulnerability by printing large numbers of counterfeit Continentals to further debase the value of the American currency. By war’s end, the American government abandoned any further pretense at redeeming the hundreds of millions of new dollars of printed money. Worthless wartime Continentals and state-issued bills of credit disappeared from circulation, and inflated wartime prices quickly collapsed. This deplorable state of affairs, wrote economist Murray Rothbard, was at least the lesser of two evils:

The one redeeming feature of this monetary calamity was that the federal and state governments at least allowed these paper issues to sink into worthlessness without insisting that taxpayers shoulder another grave burden by being forced to redeem these specie issues at par, or even to redeem them at all.

By the time of the Constitutional Convention in Philadelphia in 1787, most Americans had had enough of paper money, inflation, and hyperinflation. American finances had been a spectacle of instability for almost a century, making it difficult for ordinary Americans to accumulate monetary wealth. If America were to realize her potential as a new nation, she would have to grow out of her monetary adolescence and furnish for her citizens a financial climate in which savings could accrue and confidence could be maintained.

Maintaining Sound Money

The monetary solution hit upon at the Constitutional Convention was not novel, but it proved effective for generations to come. Sound money was restored by returning to a strict standard of gold and silver, a state of affairs given full countenance by the new Constitution.

Congress alone was given the authority, in Article I, Section 8, to &ldquocoin money, regulate the value thereof, and of foreign coin.&rdquo (This last provision reflected the fact that Spanish silver dollars — which gave their name to the new American currency — were, until well into the 19th century, widely circulated in the United States.) It is worth noting that the term &ldquocoin&rdquo would appear to disallow the printing of paper money, or at least of paper not fully redeemable in gold and silver coin. This interpretation is supported by additional provisions, in Article I, section 10, prohibiting the states from coining money, emitting bills of credit, or &ldquomake[ing] any thing but gold and silver coin a tender in payment of debts.&rdquo Contrary to the uninformed claims of some modern self-styled sophisticates, the American Founders were well aware of the distinction between coined and printed money, and did not intend for the nation they created to repeat the experiences of the Colonial period and the Revolutionary War with fiat money.

The new American government under the Constitution acted with relative dispatch in discharging its new delegated monetary powers. In 1792, the Coinage Act was passed denominating the new American coins to be minted. The act authorized three gold coins — $10.00 eagles, $5.00 half eagles, and $2.50 quarter eagles — and five silver coins ranging from the silver dollar to the half disme (five cents, abandoned in the 1870s in favor of the nickel). Additionally, copper cents and half cents were minted, although the latter were discontinued in 1857. Any American citizen could bring gold or silver to the mint to be coined. All coins were required to have a representation of liberty (usually Lady Liberty in some guise) and the inscription &ldquoliberty&rdquo as well as a representation of an eagle and the date of minting. As any numismatist can attest, the coins of early America are not only uniquely beautiful, they also contrast remarkably with the parade of presidents, statesmen, buildings, and Native Americans that adorn more modern coins and paper money and which are emblematic of rather different national priorities from those of the lovers of liberty who founded our nation’s finances.

Although the bimetallic standard established by the Founders was effectively abolished by the Fourth Coinage Act of 1873, the United States remained on a full gold standard until 1934, when FDR made private ownership of gold coins illegal, ending the ability of ordinary Americans to redeem paper money for specie, a right Americans had enjoyed since the ratification of the U.S. Constitution.

Not coincidentally, the money supply under the modern fiat money regime has been inflated enormously in the past eight decades or so, the U.S. dollar has lost much of its original purchasing power. Although modern fiat money is created by computer entry rather than the printing press, the results are the same — the gradual debauchment of currency, subtly eating away at savings accounts and propelling the cost of everything from supermarket eggs and milk to houses and college educations into the stratosphere.

Like colonial Americans, our generation has gotten used to &ldquoa little inflation,&rdquo unaware that the same forces that once caused investment portfolios to swell and real-estate holdings to appreciate almost without limit are also responsible for the monumental bust we are now experiencing. Even more ominously, the efforts of the Federal Reserve to re-inflate the bubble by pumping more and more money into the economy has the potential to trigger not merely a currency correction but a calamitous collapse of the entire economy, on a scale that would dwarf even the hyperinflation of the Revolutionary War and its doleful aftermath. Modern America is dependent on savings accounts and other dollar-determined measures of wealth to a much greater degree than were Americans in the 18th century. An episode of Weimar Republic-esque hyperinflation would wipe out untold trillions in savings accounts, retirement accounts, and other assets whose value is determined ultimately by bookkeeping entries. It is difficult to imagine the social and economic dislocation such a catastrophe would entail.

On the other hand, as the Founders discovered after several generations of colonial monetary folly, the solution to the ills of inflation and hyperinflation is to be found in sound money. With the ratification of the Constitution, the Founders reinstated sound money, an institution that had been out of favor in the colonies for nearly a century. The economic miracle that ensued propelled the United States to the apogee of wealth and power within a few generations.

Although our present time of troubles will admit of no instant fix, our financial troubles can only be solved in the long run if we follow the example of the Founders and restore a precious-metal standard to America. Otherwise, if we persist in our madcap dash into hyperinflationary turmoil, the choice will be made for us.

Dollar Trends 2016-2020: Fluctuations Amid Uncertainty

Recent years have resulted in some instability in the dollar's value as uncertainty increased around the globe with President Trump taking office in 2016, and then the 2020 recession.

Between 2016 and 2020, the dollar started to weaken again as the aforementioned global events propping it up faded into the past and concerns about the impact of the Trump administration's trade war began to weigh on investors.   In 2019 and into 2020, it strengthened as investors sought safety amid concerns about a looming global recession, but eventually sank as the economy dealt with the effects of the pandemic.