Last month, I posted the first part of this article. It talked about the origins of money, money in the colonies and money used during the revolution. It also included the first part of our use of money after the revolution. That’s where we’ll pick up the story this month…
Post-Revolutionary Coins – Part 2
The Coinage Act of 1792 specified that all coins have an “impression emblematic of liberty,” the inscription “LIBERTY,” and the year of coinage on the obverse side. The Act required that the reverse of gold and silver coins have a representation of an eagle and the inscription, “UNITED STATES OF AMERICA.” The only requirement of copper coin reverses was to list the denomination of the coin, although a wreath became the standard design until the 20th century. Later Acts were responsible for changing the inscriptions and elements that we recognize on our coins today.
The face of Lady Liberty appeared on our circulating coins for more than 150 years. When considering options for our first coins, Congress debated over whether to feature George Washington and later presidents. Many believed that putting the current president on a coin was too similar to Great Britain’s practice of featuring their monarchs. Instead, Congress chose to personify the concept of liberty rather than a real person.
The figure of Liberty, often with a cap and pole, had been a symbol used during the American Revolution. Because of Liberty’s origins as a Greco-Roman goddess, early coin designs portrayed her with classical style clothes, facial features, and symbols.
In 1909, Abraham Lincoln replaced Liberty on the penny. Presidents then appeared on other denominations: the quarter in 1932; the nickel in 1938; the dime in 1946; the half dollar in 1964; and finally, the dollar in 1971. Liberty last appeared on a circulating coin in 1947 in the final year of the Walking Liberty half dollar.
The bald eagle appeared on the reverse of gold and silver coins, often as a heraldic eagle modeled after the Great Seal of the United States. The heraldic eagle with wings spread clutched an olive branch in one talon and arrows in the other with a shield in front. Sometimes stars and clouds appeared above the eagle to symbolize America as a new nation.
The eagle has endured longer than Liberty on our circulating coins, still appearing on the Kennedy half dollar today. The Buffalo nickel was one of the first coins to deviate from the traditional eagle or wreath designs by featuring an American bison on the reverse. Since then, Congress sometimes authorizes new reverse designs to commemorate certain events or places, such as the Lincoln Bicentennial One Cent Program, the Westward Journey Nickel Series, and the America the Beautiful Quarters Program.
Post-Revolutionary Currency
After the Revolutionary War, currency had kind of a bad name and coins were preferred. In fact, Article I of the Constitution gives the government the right to coin money and made no mention of printed paper money. Nonetheless, a number of different currency approaches were tried. Mainly this consisted on bank notes issued by individual states. As you might imagine, this was pretty out of control with over 8,000 entities issuing their own currency. The Republic of Texas had its own currency and, of course, the Confederacy issued its own money. (An interesting footnote to the Confederate currency is that George Washington and Andrew Jackson were pictured on some of their bills as these men were former slaveholders.)
To try and bring order to this financial chaos and to raise money for the Civil War, President Lincoln, along with his Treasury Secretary, Salmon P. Chase, conceived the national banking system and the Office of the Comptroller of the Currency to regulate and supervise it.
On February 25, 1863, President Lincoln signed The National Currency Act into law. The Act established the Office of the Comptroller of the Currency (OCC), charged with responsibility for organizing and administering a system of nationally chartered banks and a uniform national currency. In June 1864, the legislation underwent substantial amendment and became known as the National Bank Act. One of the objectives of this Act was to get state banks to convert to national charters. Not every state bank converted, so congress slapped a 2% tax on state bank notes (which increased over time). This proved very effective and by 1885 over 80% of bank funds were in national banks. However, state banks weren’t throwing in the towel and their creation of demand deposits (savings and checking accounts are examples of demand deposits) resulted in them having more depositors than the national banks within 10 years. Modified and supplemented over the years, the National Bank Act continues to provide the basic governing framework for the national banking system today. This system is referred to as the dual banking system since national and state banks coexist.
Through the National Bank Act, Congress sought to achieve both short- and long-term goals. One crucial objective was to generate cash desperately needed to finance and fight the Civil War. After prospective national bank organizers submitted a business plan and had it approved by the OCC, they were required to purchase interest-bearing U.S. government bonds in an amount equal to one-third of their paid-in capital. Millions of much-needed dollars flowed into the Treasury in this manner.
But the national banking system was also designed to achieve longer-term economic goals. Under the new system, the purchased bonds were to be deposited with the Treasury, where they were held as security for a new kind of paper money: national currency. Bearing the name of the issuing national bank and the signatures of its officers, these notes were otherwise identical in design, size, and coloration. Anyone holding a national bank note could present it for redemption in, gold or silver coin, at the issuing bank or at reserve banks around the country. If, for whatever reason, the issuing bank was unable to meet the demand for cash redemption, the system was set up so that the government could sell the bank’s bonds and pay off the noteholders directly.
Once accepting and holding national currency became essentially risk-free, it gained in public confidence and circulated throughout the nation. This represented a marked improvement over the pre-Civil War money supply, which had involved thousands of different varieties of paper money issued by local banks, rampant counterfeiting, chronic uncertainty about the value of paper money, and, as a result, difficulty conducting private business.
Over the years, the government has issued multiple types of bank notes including Federal Reserve Notes, Silver Certificates, Gold certificates and United States Notes. Federal Reserve Notes replaced National Bank Notes, which national banks issued from 1863 to 1935, and are what we use today.
I hope you enjoyed the conclusion of this brief overview of the history of our money. If this has gotten you thinking about your own personal wealth, we’d be glad to sit down and talk about your financial matters in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
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