“Hold on,” said the barista as she studied the bill she was about to hand back to me for change.
She looked down at it with wrinkled brow. The she held it up to the light. I joked about counterfeiters probably not wasting time producing dollar bills.
The barista couldn’t find her counterfeit-finding pen so just handed it to me to look at. I thought it might be real–and real old. So I said I’d take a chance on it.
Turned out it was real–and pretty old. 1957. Back then, our dollars didn’t say “Federal Reserve Note” across the top but “Silver Certificate.”
Can you guess why?
We aren’t that good with money knowledge. But such facts tell us something about our country, the nature of money, and social psychology. (A much more detailed and complete history of money can be found here.)
Back in the day-way back in the day–money was invented as a way of exchanging goods and services without having to trade or barter, to have to find someone who wanted to trade what they had or offered with what you had or offered. Money allowed one person to simply exchange value for a good or service whether they had something the other person wanted or not. This first money is considered commodity money, because it was made of something with inherent value–precious metals like gold and silver or seashells.
Eventually, representative money came along to replace the unwieldiness of carrying around a sack of gold. This money started as receipts for deposits made, and people started trading them instead of the deposits themselves. This turned into the first paper money. And thus, the US government used to print money like the bill above as certificates exchangeable for silver. Back when our parents or grandparents were running around, they could’ve taken a bill like this, gone to a bank, and exchanged it for a bit of silver.
But then, governments decided to try something: would people trust this paper as worthy even without the backing of something tangible? Perhaps–if government made it law to accept it, illegal to make other competing currencies, and even under FDR criminalize gold possession–the citizens would be compelled to trust it. They did. In fact, they may have trusted without all these measures. Today, Americans are allowed by law once again to buy gold and yet we all still trust the dollar, which in the 70s lost all ties to precious metals and thus, bills like the one above ended.
Today we don’t carry Silver Certificates. We carry Federal Reserve Notes, the Federal Reserve being the national bank in charge of monetary policy. I do think it’s a raw deal that I’m not allowed to exchange this bill for silver from the government. Feels like Uncle Sam went back on his word. And the inflation of currency since being decoupled from precious metals, and the resultant devaluing of the dollar, has money-savers crying foul. (If you saved money all your life, your savings has dwindled. But if you find (or have) pre-1965 quarters, keep them. They’re actually made of silver and worth much more than face value.)
But for most, the modern identity of money is acceptable. In fact, that’s exactly what’s been discovered over this grand worldwide experiment: money simply comes down to trust, believability, and acceptance. The dollar is just paper, but gold is just metal. And that Picasso is just paint on canvas. Value for these items is subject to sociological processes–mass acceptance. Generally, as long as trust is high, the currency, and thus the economy, will operate smoothly.
Finally, as this time of year encourages, we can now look back on our nation’s history with a little more understanding.