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Lagged behind massachusetts in the return to a specie

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lagged behind Massachusetts in the return to a specie standard, and as a result Boston became the region’s major center of trade, while Newport’s influence waned. To finance the Revolutionary War that began in 1775, the Con- tinental Congress soon began to issue huge amounts of unrede- emable fiat paper. On top of an estimated $12 million total money supply in the United States at the time, Congress issued $2 million in June 1775 and a total of $6 million by the end of the year. In 1776 it added $19 million, $13 million in 1777, $64 million in 1778, and $125 million in 1779, a total of over $225 million, with the result that the fiat paper’s value fell from its face value of 1:1 versus silver to 168:1 in 1781 despite all manner of price controls and compul- sory par laws. The term “not worth a Continental” remained in popular use into the twentieth century. The governments of the GOLD: THE ONCE AND FUTURE MONEY 40
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individual colonies added their own unredeemable paper issues, totaling around $210 million. The United States began its history with a hyperinflation. At the same time, the U.S. government had issued public debt totaling $600 million during the war, which also had depreciated on the open market. In 1779, it was trading at roughly 4 cents on the dollar. Some had been liquidated at the depreciated rate, but most remained as the beginnings of the U.S. federal debt. Chastened by the colonies’ long and unhappy experience with unredeemable fiat currencies, the framers of the Constitution in 1789, led by the first Treasury secretary, Alexander Hamilton (who studied Adam Smith closely), established that gold and silver would be the only money in the new United States. The intent was to out- law the issuance of fiat currencies, explicitly by the states and im- plicitly by the federal government. Article I, Section 10 of the Constitution reads: “No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; emit bills of credit;make anything but gold and silver coin a tender in pay- ment of debts; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.” Congress was given the power “to coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures.” At the time, the dollar was simply considered a measure of gold or silver, just as the British pound had originally meant sim- ply a pound of silver in any form. (The term dollar derives from the silver “thaler” coins produced from the mines of Joachimsthal in Bohemia, which served as a model for the silver coins made in Mex- ico and Peru.) In 1792, the dollar was defined as 371.25 grains of metallic silver or 24.75 grains of gold, or $18.65 an ounce of gold and a 15:1 silver/gold ratio. This was roughly the weight in silver of the popular Mexican silver dollar and its equivalent value in gold. It did not matter what form a dollar took. In 1793, all foreign coins were declared legal tender, and in 1800, an estimated 80 percent of all coins in circulation in the United States were of foreign origin.
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