History of Money
In the United States
"He who loses money loses much. He who loses a friend loses more. But he who loses faith loses all."
Henry H. Haskins
Hi Uncle Bill! Look what I found!
Wow! Look at those great coins!
Do you think it's enough to buy some ice cream?
I don't think you would want to buy ice cream with those coins, Penny.
Because one of your coins is a 1943 penny, and if it's
copper it could be
worth a lot of money! Pennies weren't made of copper that year, because the copper
was needed for the communications equipment during World War II.
How do you know that?
Because Penny, I'm a numismatist.
A new miss what?
Is it contagious? Because I haven't had my shots!
No Penny, a numismatist is someone who collects money.
Oh that sounds like fun! I like money, especially spending it!
I don't spend the money I collect Penny, I keep it in a safe place.
If you don't spend it, why do you keep it?
Because it's fun Penny! I have a lot of old money.
Because old money can be very valuable.
Sure Penny! Some people are willing to pay thousands of dollars for old bills and coins. Not only that but, studying old money can teach us about the history of our country.
That's really interesting Uncle Bill! Tell me more!
Well Penny, It's hard to imagine our world without money, isn't it? But, there was a time when money didn't even exist. Before the invention of money, people had to get food, clothes and other items by bartering. Back then, the world's population was much smaller than it is today, so people didn't have to go very far to barter. For example, the farmer would take his leftover pork to the weaver in hopes of exchanging it for cloth. However, bartering only worked if both people wanted to barter at the same time. So something new began to happen. In most countries, there was often one item that was valuable to everyone. This valuable item was usually hard to find or in small quantities. People began to give this valuable item in exchange for goods and that person could trade it for the goods that he needed. Shells, beads, animal skins and grain are just a few things that were considered valuable and were used for trade. When the Pilgrims arrived in America in 1620, the Indians were trading wampum for their goods. Gold coins and paper money were first introduced by early European settlers. These settlers were using English and French currency as well as Spanish pieces of eight. The colonists made coins called shillings and pence according to the British money system. But the gold and silver used to make them were in short supply. The colonists didn't mine either metal and couldn't afford to import them. The British government didn't like the colonists making coins because they thought it should be a privilege only of the mother country. So, most of the money used in the colonies at this time was Spanish, which colonial traders received when dealing with Spanish settlements in the West Indies. Paper money was first issued by the colonies in the late 1600's and was used to pay the cost of military attacks on Canadian colonists. By 1750 there was too much paper money, and there was not enough gold or silver to exchange it for.
What did they do Uncle Bill?
Well, people found that they had to pay several times the price of an item if they paid for it with paper money instead of coins. To keep the colonial notes from becoming worthless, by 1764, the British government had prohibited the colonies from printing any more paper money. This and other issues angered the colonists and the Revolutionary War began. In this war, the colonists fought for their independence from England.
We learned about that war in Social Studies last week!
Yes, it was a very important part of United States history. During
the war,the Continental
Congress issued many paper notes called continentals. These notes were backed by Spanish silver coins called dollars.
you silly dog! Anyway, the continentals quickly lost their value because there were
more of them than there were Spanish dollars. Americans
began to say that anything that was worthless was "not worth a
continental." During and after the Revolutionary War, the states issued small
quantities of copper coins. Some people made and circulated unofficial coins on their own.
These included silver shillings, pence and gold doubloons. The first U.S. Mint was established
in 1792, due to the Coinage Act. This act also set up the first official United States money system. Congress established an American dollar as the basic unit of this money system. The American and Spanish dollars had about the same value. Both gold and silver coins were used in this new system
and Congress chose the decimal system to count units of money because it was easy to use. Americans continued to use many foreign coins along with their new money.
Wasn't that confusing?
It sure was Penny! A law passed in 1793
made these foreign coins a legal part of the U.S.
coinage system, but things were still very confusing. Under this law, the value of a foreign
coin depended on the amount of silver or gold it had in it. By 1857, Congress passed another
law removing foreign coins from circulation. During the 1800's, American banks issued paper
notes to borrowers. The First and Second Banks of the United States supported their own notes
with reserves of gold coins. People were glad to use these notes because they could
exchange these for coins when they wanted to. State banks also issued notes, but they did not
set aside enough coins to support their notes. Notes issued by one bank couldn't always be
exchanged for coins at another bank. When the notes could be exchanged, their value in
coins varied from bank to bank. Many times the notes were worth less than the amount
printed on them, or were totally worthless.
Do you mean that a $10 bill wasn't worth $10 and maybe sometimes it wasn't worth a cent?
That's right, and things weren't much better in the
mid 1800's. In 1861 the U.S.Treasury
Department issued its first notes called greenbacks. These were issued to help pay the cost
of the Civil War (1861-1865), but they could not be exchanged for gold or silver and they lost much of their value. In l863 and l864 a system of national banks was set up by the National Banks
Act. The national banks had power to issue notes backed by government bonds. The government
limited the amount of notes issued to keep them from losing their value, but then, they were always having a shortage of paper money. The Federal Reserve Act was passed in 1913 to help the
government overcome the money shortage. Under this law, a new kind of paper money was created, and they were called Federal Reserve Notes. These notes are the kind that we use today.
Boy Uncle Bill, you sure know a lot about money!
Oh, there are a lot of interesting things to learn about money Penny! You can learn more about money too! Just follow the links to our other pages! Have fun!