In Nothing We Trust: Part 2/5

by Josh Kern | Dec 15, 2008 | 7 comments

Here is part Two of the my piece on banking, gold standard, and the Fed.

PART TWO: THE UNITED STATES, THE GOLD STANDARD AND CENTRAL BANKS – A BITTER MENAGE A TROIS

The first coins to be struck in the New World, the Spanish dollar, were pressed at a Spanish mint in Mexico City in 1536. (MBFR) These silver coins eventually found their way up to the English colonies on the eastern coast of the North American continent.  The mercantilist policies of the British Crown deliberately tried to keep precious metals out of the colonies, fostering a dependence on Bank of England notes and the debt they inherently carried. In light of such policies, the Spanish dollar became the unofficial currency of colonial America.  For smaller transactions, the Spanish dollar was often divided into eight pieces termed bits, hence the term “pieces of eight.”

The American governments first foray in to the realm of paper money came with the Revolutionary War and the need to fund it. Continental dollars, with no standard of value to back them, were printed out of thin air and at such a rapid rate that the currency quickly depreciated to no value. In 1781, at the height of the Revolution, Philadelphia merchant tycoon Robert Morris was given a charter by Congress to establish a privately run central bank. That institution, the Bank of North America, was granted the monopoly privilege to print and issue paper notes, and was the depository of all congressional funds (Rothbard, “The Case Against the Fed” p.70).

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