Swammerdami
Squadron Leader
Before prescribing future money, let's review the history of money. In this thread I propose to discuss money in the 20th century and earlier.
There are 21st century innovations:
One innovation that arose in the 20th century but is still very recent is the use of "electronic transfers" to replace paper checks. But conceptually this money operates much like paper checks; if you think it needs special attention discuss it in the 21st century thread.
In this thread we refer only to definition 1. A shorter definition would be simply "cash." For our purpose we classify money into just three types:
We can ignore "money of account" -- this refers to ledger entries. The ledger entry can reflect a promise to pay money, but it isn't itself money.
Fiat money and bank-created money (typically paper) are valuable when we believe the promise of a government or bank, but intrinsic-worth money has no such dependence. When we sell something for a pack of cigarettes or 5 grams of peppercorns we need not look to an authority for approval; we accept that medium of exchange because the cigarettes or spice has an intrinsic worth independent of its use as money. (This may seem to be not quite true. A two-gram silver coin stamped with the face of a king is worth more than 2 grams of raw metal; but that's just because the coinage is CONVENIENT -- it lets us avoid weighing or assaying the silver. An official mint has tied its reputation to the coin.)
I'm going to review the history of money in Europe and the Near East but first let's list some things we WON'T need to discuss.
For almost 5000 years, almost all money was intrinsic-worth money. Details about the coinage systems may be irrelevant, but I'll review some just to help make clear the nature of intrinsic-worth money. Merchants and bankers dealt with silver and gold, and often used scales to weigh the coins. Period. Mint markings on coin or bullion primarily just served as hints about metal purity.
Ancient Sumeria. More than 5000 years ago there was already money-oriented accounting and trading in Mesopotamia. Barley and silver were the two intrinsic-worth materials most often used for reference. To trade apples for oranges, one might reference the market prices in terms of barley or silver and do arithmetic. Accounting was the norm -- perhaps taking the form of replacing one marker with another on a bushel of barley in the town storage room. But there is evidence that weighing and transferring small quantities of silver DID occur. Nominally one gur of barley had the same monetary value as one shekel of silver, but this exchange ratio apparently did fluctuate.
Ancient Greece. By the time of Solon the Lawgiver, Greece had a system of coinage. (Details varies by city-state; we consider Athens specifically.) The drachma was a silver coin of 4.3 grams; it was subdivided into six oboloi; one oboloi was further subdivided into 8 chalkoi. The chalkoi were largish coins of copper. Iron sticks, tiny silver coins and larger bronze coins were all used as oboloi at some point. But the 4.3-gram silver drachma coin of Athens became a standard in the Eastern Mediterranean. 100 drachma made up a mine, and 60 mine a talent, but mine and talent were just accounting terms that varied from country to country. Athens' 6000-drachme talent, the 3000-shekel talent of Canaan, the 3600-shekel talent of Ur, and the 1200-ounce talent of Rome all had different weights measured in kilograms.
Two oboloi (1.4 grams of silver) was the daily wage of a ditch-digger and three oboloi (2.1 grams) the price of a prostitute's trick. Clearly the copper chalkoi coins were essential if lower classes shopped with money. These base metal were valued at much more than intrinsic-worth and so were fiat money, but the amounts were small and counterfeiting was a serious crime. Governments continued to issue postage stamps, base-metal coins of small denomination and other simple forms of fiat money but we will ignore these if the amounts are small.
I'll mention just a few more early coinages. A Persian gold daric was 8.4 grams (very slightly less than two Attic drachma) of 96% gold; it was about 1 months wages for a soldier. Assuming 25-day month this is 6 oboloi daily, or thrice the wage of the Attic ditch-digger. Eventually Arab countries introduced a gold dinar half the weight of a daric. The legendary King Croesus of Lydia Googles as minter of the first "real" coins in the 7th-century BC, despite earlier rudimentary coinages, e.g. in Greece. Initially using electrum (gold & silver alloy) as the intrinsic-worth material, Lydia soon switched to minting both pure gold and pure silver coins, always a multiple or fraction of 1 stater (10.7 grams) in weight. In 150 BC King Eucratides I minted 20-stater gold coins, the largest gold coins ever minted. Rulers found there was much to be gained by producing consistent, non-depreciating coinage. (I think that eventually a larger stater was defined in Greece as a 4-drachma coin.) 2000 years later, Florence famously produced the gold florin of 3.54 grams of 98% gold, with a consistent value that persisted for centuries.
Other intrinsic-worth materials. In addition to silver, gold, or electrum (silver-gold alloy), other materials have been used as intrinsic-worth money. Barley and cattle were used as moneys of account in ancient Mesopotamia but were too bulky for cash convenience. Peppercorns were used variously in Europe, and tobacco in the Virginia colony; in each case for the same reason: Scarcity of silver coins. (Britain made it illegal for the Colonies to use British silver coins --Britain needed its silver to buy tea from China!) Sweden was on a copper standard and had "coins" that it took a strong man to lift! This may be why Sweden was the first country to organize a central bank.
Rome. The Punic wars led to a huge expansion in the need for coins. Neighbors in a town might just say "You don't have a coin? No problem, my wife will stop at your farm next Thursday and pick up some eggs and milk." But with soldiers traveling to strange places, they needed money for purchases. And the Roman coins were continually rescaled and debased. The denarius was still 90% silver in the Reign of Commodus but by the time of Claudus II the coin was just brass. The only reason debased Roman money was functional at all was the power of that Empire. The fiat money was good for taxes and that was the major cash expense for many people. Carthage, with its Near Eastern roots, started with 7.2-gram shekels of fine silver but these were debased as the Punic Wars played out.
Rome had various sorts of bankers, toll collectors and money-changers; and primitive forms of "fractional-reserve banking" were practiced. In a simple form, a banker might issue the equivalent of a certified check. That check was probably written on papyrus.
Medieval Italy. I've already mentioned gold coins minted in Northern Italy like the florin, which became a standard throughout Europe. And by 1200 AD, banking money-changers were operating in Northern Italy, creating money represented on parchment (again, consider a certified check, some payable to bearer). These bankers preferred customers who left their funds on account, and would charge commissions for withdrawal of precious metals. Account books had to specify clearly what coinage system was used for a given account. Here's a book which documents some of that banking activity.
France and Britain both inherited the Carolingian system of 20 pennyweights to the ounce, 12 ounces to the pound, and 3 ounces equals 5 shillings. (A mark of 8 ounces was frequently mentioned. Such large "moneys of account" were often paid in bullion rather than counting out many coins.) These two important countries evolved Charlemagne's livre in two different directions. I will start with Britain, perhaps discussing France later if it seems useful.
England. In the time of Offa the Great, England adopted Charlemagne's system, with an ounce of sterling (92.5%) silver providing 20 pennies. (It took a while before the troy ounce stabilized at 31.1 grams.) In the time of King Edward I, the silver penny still had 1.3 grams of sterling silver and this was about the daily wage of a ditch-digger: Almost exactly the same wage, in silver, as almost 2000 years earlier in Attic Greece. (Does Google show the price of a prostitute's trick in 13th-century England?) By the time of Queen Elizabeth. the Royal Mint produced 62 pennies from an ounce of sterling silver. British money had lost 67.7% of its value, if measured by silver content. However this was an 800-year interval so it averages out to 0.14% annual devaluation. (In fact devaluation was not steady. Elizabeth's own father was responsible for much devaluation and Elizabeth herself did the final bump, from 60 pennies per ounce to 62. With 60 pennies per ounce, it took three penny coins to get one pennyweight of sterling silver. Both the reduced size of the coin, and higher copper content contributed to this debasement.)
Please note that any debasement was soon reflected in the value received for the money (British money in this example) overseas, or anywhere assay tests revealed the debasement. This was intrinsic-worth money not fiat money. A penny containing only 90% of the earlier penny's silver would purchase only 90% as much as the earlier penny. A ruler who devalued would get only a "quick fix" while the market adjusted, with a cost in long-term reputation.
Revaluation in the other direction almost never happened. Rulers understand the burden debtors are under. To compound their suffering by making them repay the money (silver or money of account) they had borrowed with money valued at a new, higher rate would be unacceptable. There was one notable exception to this rule: King Henry VIII had his mint secretly create large quantities of debased silver coins, and then suddenly started spending them. He was willing to risk the long-term reputation of English money just for a quick infusion of illicit wealth he could lavish on his partying and military. But this led to much annoyance and IIUC the English government soon replaced the debased coins with silver at the 60 pennies per ounce standard.
When Sir Isaac Newton was Master of the Mint, the monetary pound was still 32.26% of a troy pound of silver. Believe it or not, you could buy a full pound of sterling silver for slightly less than a monetary pound in 1941 !! In other words, when measured in silver, the British pound APPRECIATED between Offa the Great and Churchill.
I stress this all so that the connection of such money to a Precious Metal is quite vivid. Among other important achievements as Mint Master, Sir Isaac switched the country to a gold standard. Using the market gold/silver price ratio, and Elizabeth's 62-penny ounce, in effect Britain promised to buy or sell gold at the price of 84.6 shillings per troy ounce. This promise continued for centuries up until 1930 when Britain abandoned the gold standard in response to one of the biggest credit crunches in all of history.
Stability of the Prices of Precious Metals
As everyone knows, Prices Fluctuate! Homework Assignment: Please pick a commodity and present a graph of its fluctuations over time.
Yet Britain maintained a stable price of gold (£4.23) essentially from the time of Queen Elizabeth and Isaac Newton all the way until 1930. And the United States, eventually under the Bretton-Woods agreement, maintained a stable price of gold from FDR to Nixon.
Or rather ALMOST stable. The price of gold in London rose slightly in 1801, and continued to rise reaching £5.76 pounds in 1813 (the height of the War against Napoleon). By 1820 the pound had recovered. It remained at Newton's price until an excursion 1919-1924, reaching £5.65 in 1920. It wasn't until 1931 that the U.K. abandoned the gold standard. After Hoover dawdling, FDR took office and the U.S. changed its own official price of gold, imposing a 41% "hair-cut" on dollar holders. (It was worse than that. They made dollar hoarding illegal.) Britain maintained a stable gold-price of £8.40 (49% haircut) throughout World War II; and this price continued after Bretton-Woods.
The United States helped maintain stable prices of the precious metals. A troy ounce of gold sold for $19.39 in New York City. The U.S. dollar was defined as an amount of silver, and the gold/silver ratio was defined by statute. In 1815 at the height of a War, gold sold in New York at a 12% premium, but the statutory price was quickly restored. In the 1830's the statutory gold/silver ratio was revised and gold was priced at $20.67. To finance the Civil War, Lincoln introduced paper "greenbacks" and in 1864 it took $42.03 of greenbacks to buy a troy ounce of gold. But the greenbacks were eventually redeemed into precious metal at their face value and by 1879 the price of gold in New York was again $20.67. It remained at that price until FDR became President. FDR set the new statutory price of $35 per ounce and, although it was made illegal for American citizens to hold gold, gold traded in London for the equivalent of $35 until 1968 when inflationary pressures arose. Finally in 1971, President R.M. Nixon closed the Treasury's gold window and the link between world currencies and precious metals was severed.
During the 19th century France was the leading European power and, by committing to buy or sell both gold and silver at fixed prices -- bimetallism -- French power was able to keep the gold/silver price ratio essentially constant. Eventually new silver discoveries, e.g. Nevada's Comstock Lode, forced France to abandon its ratio, and the price of silver fell. By then most countries had followed Newton's lead and switched from a silver standard to a gold standard. (W.J. Bryan famously spoke of a "cross of gold". He wanted silver to be accepted as money at the old price ratio. I mention this as evidence of the strong lnks between monetary policy and politics.)
So, the values of gold and silver remained stable for thousands of years. This price stability arose mostly due to their use as money, I think. As trading increased, and especially as world producion rose rapidly during the 19th century, shortage of precious metals became an important issue. Many of the financial panics in the U.S. prior to the establishment of the FedRes System had a shortage of the gold needed for banking and commerce either as cause or effect. (One of these panics was finally solved, famously, when a ship carrying gold from Europe was spotted entering New York's harbor.)
This concludes preliminary discussion of intrinsic-worth money. In subsequent posts I will discuss fiat (government-created) money and bank-created money.
But while we're here, let's consider Lincoln's greenbacks. What kind of money were they? They came with a "guarantee" that they could be eventually redeemed into precious metal, so were they intrinsic-worth money? If not, were they "fiat money" or "bank-created money"? The market value (measured in precious metal) of the paper notes reflected the level of confidence that their "guarantee" would eventually be satisfied. (Confederate banknotes fared less well than Union banknotes!) Whether a piece of paper promising to pay out gold or silver has "intrinsic worth" or is just "fiat money" does not always have a simple answer.
There are 21st century innovations:
- "Quantitative Easing"
- Modern Monetary Theory (MMT)
- Cryptocurrencies like Bitcoin
One innovation that arose in the 20th century but is still very recent is the use of "electronic transfers" to replace paper checks. But conceptually this money operates much like paper checks; if you think it needs special attention discuss it in the 21st century thread.
Merriam-Webster said:
In this thread we refer only to definition 1. A shorter definition would be simply "cash." For our purpose we classify money into just three types:
- intrinsic-worth money
- fiat money
- bank-created money
We can ignore "money of account" -- this refers to ledger entries. The ledger entry can reflect a promise to pay money, but it isn't itself money.
Fiat money and bank-created money (typically paper) are valuable when we believe the promise of a government or bank, but intrinsic-worth money has no such dependence. When we sell something for a pack of cigarettes or 5 grams of peppercorns we need not look to an authority for approval; we accept that medium of exchange because the cigarettes or spice has an intrinsic worth independent of its use as money. (This may seem to be not quite true. A two-gram silver coin stamped with the face of a king is worth more than 2 grams of raw metal; but that's just because the coinage is CONVENIENT -- it lets us avoid weighing or assaying the silver. An official mint has tied its reputation to the coin.)
I'm going to review the history of money in Europe and the Near East but first let's list some things we WON'T need to discuss.
- We won't bother with primitive societies that didn't need money.
- We won't condone the meme "Money is debt." If someone wants to argue this viewpoint is useful, please begin with a paragraph explaining what the meme even means: It has about 3 distinct and contradictory interpretations.
- I've heard some say that gold and silver "do not have intrinsic worth." This is so confused I won't bother refuting it unless someone insists. I will ask "Does platinum have intrinsic worth? How about beanie babies?"
For almost 5000 years, almost all money was intrinsic-worth money. Details about the coinage systems may be irrelevant, but I'll review some just to help make clear the nature of intrinsic-worth money. Merchants and bankers dealt with silver and gold, and often used scales to weigh the coins. Period. Mint markings on coin or bullion primarily just served as hints about metal purity.
Ancient Sumeria. More than 5000 years ago there was already money-oriented accounting and trading in Mesopotamia. Barley and silver were the two intrinsic-worth materials most often used for reference. To trade apples for oranges, one might reference the market prices in terms of barley or silver and do arithmetic. Accounting was the norm -- perhaps taking the form of replacing one marker with another on a bushel of barley in the town storage room. But there is evidence that weighing and transferring small quantities of silver DID occur. Nominally one gur of barley had the same monetary value as one shekel of silver, but this exchange ratio apparently did fluctuate.
Ancient Greece. By the time of Solon the Lawgiver, Greece had a system of coinage. (Details varies by city-state; we consider Athens specifically.) The drachma was a silver coin of 4.3 grams; it was subdivided into six oboloi; one oboloi was further subdivided into 8 chalkoi. The chalkoi were largish coins of copper. Iron sticks, tiny silver coins and larger bronze coins were all used as oboloi at some point. But the 4.3-gram silver drachma coin of Athens became a standard in the Eastern Mediterranean. 100 drachma made up a mine, and 60 mine a talent, but mine and talent were just accounting terms that varied from country to country. Athens' 6000-drachme talent, the 3000-shekel talent of Canaan, the 3600-shekel talent of Ur, and the 1200-ounce talent of Rome all had different weights measured in kilograms.
Two oboloi (1.4 grams of silver) was the daily wage of a ditch-digger and three oboloi (2.1 grams) the price of a prostitute's trick. Clearly the copper chalkoi coins were essential if lower classes shopped with money. These base metal were valued at much more than intrinsic-worth and so were fiat money, but the amounts were small and counterfeiting was a serious crime. Governments continued to issue postage stamps, base-metal coins of small denomination and other simple forms of fiat money but we will ignore these if the amounts are small.
I'll mention just a few more early coinages. A Persian gold daric was 8.4 grams (very slightly less than two Attic drachma) of 96% gold; it was about 1 months wages for a soldier. Assuming 25-day month this is 6 oboloi daily, or thrice the wage of the Attic ditch-digger. Eventually Arab countries introduced a gold dinar half the weight of a daric. The legendary King Croesus of Lydia Googles as minter of the first "real" coins in the 7th-century BC, despite earlier rudimentary coinages, e.g. in Greece. Initially using electrum (gold & silver alloy) as the intrinsic-worth material, Lydia soon switched to minting both pure gold and pure silver coins, always a multiple or fraction of 1 stater (10.7 grams) in weight. In 150 BC King Eucratides I minted 20-stater gold coins, the largest gold coins ever minted. Rulers found there was much to be gained by producing consistent, non-depreciating coinage. (I think that eventually a larger stater was defined in Greece as a 4-drachma coin.) 2000 years later, Florence famously produced the gold florin of 3.54 grams of 98% gold, with a consistent value that persisted for centuries.
Other intrinsic-worth materials. In addition to silver, gold, or electrum (silver-gold alloy), other materials have been used as intrinsic-worth money. Barley and cattle were used as moneys of account in ancient Mesopotamia but were too bulky for cash convenience. Peppercorns were used variously in Europe, and tobacco in the Virginia colony; in each case for the same reason: Scarcity of silver coins. (Britain made it illegal for the Colonies to use British silver coins --Britain needed its silver to buy tea from China!) Sweden was on a copper standard and had "coins" that it took a strong man to lift! This may be why Sweden was the first country to organize a central bank.
Rome. The Punic wars led to a huge expansion in the need for coins. Neighbors in a town might just say "You don't have a coin? No problem, my wife will stop at your farm next Thursday and pick up some eggs and milk." But with soldiers traveling to strange places, they needed money for purchases. And the Roman coins were continually rescaled and debased. The denarius was still 90% silver in the Reign of Commodus but by the time of Claudus II the coin was just brass. The only reason debased Roman money was functional at all was the power of that Empire. The fiat money was good for taxes and that was the major cash expense for many people. Carthage, with its Near Eastern roots, started with 7.2-gram shekels of fine silver but these were debased as the Punic Wars played out.
Rome had various sorts of bankers, toll collectors and money-changers; and primitive forms of "fractional-reserve banking" were practiced. In a simple form, a banker might issue the equivalent of a certified check. That check was probably written on papyrus.
Medieval Italy. I've already mentioned gold coins minted in Northern Italy like the florin, which became a standard throughout Europe. And by 1200 AD, banking money-changers were operating in Northern Italy, creating money represented on parchment (again, consider a certified check, some payable to bearer). These bankers preferred customers who left their funds on account, and would charge commissions for withdrawal of precious metals. Account books had to specify clearly what coinage system was used for a given account. Here's a book which documents some of that banking activity.
France and Britain both inherited the Carolingian system of 20 pennyweights to the ounce, 12 ounces to the pound, and 3 ounces equals 5 shillings. (A mark of 8 ounces was frequently mentioned. Such large "moneys of account" were often paid in bullion rather than counting out many coins.) These two important countries evolved Charlemagne's livre in two different directions. I will start with Britain, perhaps discussing France later if it seems useful.
England. In the time of Offa the Great, England adopted Charlemagne's system, with an ounce of sterling (92.5%) silver providing 20 pennies. (It took a while before the troy ounce stabilized at 31.1 grams.) In the time of King Edward I, the silver penny still had 1.3 grams of sterling silver and this was about the daily wage of a ditch-digger: Almost exactly the same wage, in silver, as almost 2000 years earlier in Attic Greece. (Does Google show the price of a prostitute's trick in 13th-century England?) By the time of Queen Elizabeth. the Royal Mint produced 62 pennies from an ounce of sterling silver. British money had lost 67.7% of its value, if measured by silver content. However this was an 800-year interval so it averages out to 0.14% annual devaluation. (In fact devaluation was not steady. Elizabeth's own father was responsible for much devaluation and Elizabeth herself did the final bump, from 60 pennies per ounce to 62. With 60 pennies per ounce, it took three penny coins to get one pennyweight of sterling silver. Both the reduced size of the coin, and higher copper content contributed to this debasement.)
Please note that any debasement was soon reflected in the value received for the money (British money in this example) overseas, or anywhere assay tests revealed the debasement. This was intrinsic-worth money not fiat money. A penny containing only 90% of the earlier penny's silver would purchase only 90% as much as the earlier penny. A ruler who devalued would get only a "quick fix" while the market adjusted, with a cost in long-term reputation.
Revaluation in the other direction almost never happened. Rulers understand the burden debtors are under. To compound their suffering by making them repay the money (silver or money of account) they had borrowed with money valued at a new, higher rate would be unacceptable. There was one notable exception to this rule: King Henry VIII had his mint secretly create large quantities of debased silver coins, and then suddenly started spending them. He was willing to risk the long-term reputation of English money just for a quick infusion of illicit wealth he could lavish on his partying and military. But this led to much annoyance and IIUC the English government soon replaced the debased coins with silver at the 60 pennies per ounce standard.
When Sir Isaac Newton was Master of the Mint, the monetary pound was still 32.26% of a troy pound of silver. Believe it or not, you could buy a full pound of sterling silver for slightly less than a monetary pound in 1941 !! In other words, when measured in silver, the British pound APPRECIATED between Offa the Great and Churchill.
I stress this all so that the connection of such money to a Precious Metal is quite vivid. Among other important achievements as Mint Master, Sir Isaac switched the country to a gold standard. Using the market gold/silver price ratio, and Elizabeth's 62-penny ounce, in effect Britain promised to buy or sell gold at the price of 84.6 shillings per troy ounce. This promise continued for centuries up until 1930 when Britain abandoned the gold standard in response to one of the biggest credit crunches in all of history.
Stability of the Prices of Precious Metals
As everyone knows, Prices Fluctuate! Homework Assignment: Please pick a commodity and present a graph of its fluctuations over time.
Yet Britain maintained a stable price of gold (£4.23) essentially from the time of Queen Elizabeth and Isaac Newton all the way until 1930. And the United States, eventually under the Bretton-Woods agreement, maintained a stable price of gold from FDR to Nixon.
Or rather ALMOST stable. The price of gold in London rose slightly in 1801, and continued to rise reaching £5.76 pounds in 1813 (the height of the War against Napoleon). By 1820 the pound had recovered. It remained at Newton's price until an excursion 1919-1924, reaching £5.65 in 1920. It wasn't until 1931 that the U.K. abandoned the gold standard. After Hoover dawdling, FDR took office and the U.S. changed its own official price of gold, imposing a 41% "hair-cut" on dollar holders. (It was worse than that. They made dollar hoarding illegal.) Britain maintained a stable gold-price of £8.40 (49% haircut) throughout World War II; and this price continued after Bretton-Woods.
The United States helped maintain stable prices of the precious metals. A troy ounce of gold sold for $19.39 in New York City. The U.S. dollar was defined as an amount of silver, and the gold/silver ratio was defined by statute. In 1815 at the height of a War, gold sold in New York at a 12% premium, but the statutory price was quickly restored. In the 1830's the statutory gold/silver ratio was revised and gold was priced at $20.67. To finance the Civil War, Lincoln introduced paper "greenbacks" and in 1864 it took $42.03 of greenbacks to buy a troy ounce of gold. But the greenbacks were eventually redeemed into precious metal at their face value and by 1879 the price of gold in New York was again $20.67. It remained at that price until FDR became President. FDR set the new statutory price of $35 per ounce and, although it was made illegal for American citizens to hold gold, gold traded in London for the equivalent of $35 until 1968 when inflationary pressures arose. Finally in 1971, President R.M. Nixon closed the Treasury's gold window and the link between world currencies and precious metals was severed.
During the 19th century France was the leading European power and, by committing to buy or sell both gold and silver at fixed prices -- bimetallism -- French power was able to keep the gold/silver price ratio essentially constant. Eventually new silver discoveries, e.g. Nevada's Comstock Lode, forced France to abandon its ratio, and the price of silver fell. By then most countries had followed Newton's lead and switched from a silver standard to a gold standard. (W.J. Bryan famously spoke of a "cross of gold". He wanted silver to be accepted as money at the old price ratio. I mention this as evidence of the strong lnks between monetary policy and politics.)
So, the values of gold and silver remained stable for thousands of years. This price stability arose mostly due to their use as money, I think. As trading increased, and especially as world producion rose rapidly during the 19th century, shortage of precious metals became an important issue. Many of the financial panics in the U.S. prior to the establishment of the FedRes System had a shortage of the gold needed for banking and commerce either as cause or effect. (One of these panics was finally solved, famously, when a ship carrying gold from Europe was spotted entering New York's harbor.)
This concludes preliminary discussion of intrinsic-worth money. In subsequent posts I will discuss fiat (government-created) money and bank-created money.
But while we're here, let's consider Lincoln's greenbacks. What kind of money were they? They came with a "guarantee" that they could be eventually redeemed into precious metal, so were they intrinsic-worth money? If not, were they "fiat money" or "bank-created money"? The market value (measured in precious metal) of the paper notes reflected the level of confidence that their "guarantee" would eventually be satisfied. (Confederate banknotes fared less well than Union banknotes!) Whether a piece of paper promising to pay out gold or silver has "intrinsic worth" or is just "fiat money" does not always have a simple answer.
