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===A Brief History of U.S. Money===

===A Brief History of U.S. Money===

On July 6, 1785 -- two years before the Constitutional Convention drafted the U.S. Constitution -- our young nation unanimously selected the dollar to be the monetary unit.  This was the first time in history that a country selected a decimal system (rather than a fractional system) for its money.

On July 6, 1785 -- two years before the Constitutional Convention drafted the U.S. Constitution -- our young nation unanimously selected the dollar to be the monetary unit.  This was the first time in history that a country selected a decimal system (rather than a fractional system) for its money.  The name "dollar" came from the name of a Spanish silver coin called the dollar, which was used during the Revolutionary War and later as a basis for the "greenbacks" (first "green" dollar bills) that were first issued during the Civil War, to pay for the Union side's expenses.

From 1785 to 1974 -- nearly 200 years -- our dollar was backed by gold or silver or both, and some politicians (such as Congressman and former presidential candidate Ron Paul) urge that we return to the "gold standard" for the dollar in order to guard against inflation.  Gold is in limited supply in the world, and inflation can be controlled by tying the dollar to something in limited supply.  That way more and more dollars could not be printed by the government, which decreases their value.

From 1785 to 1974 -- nearly 200 years -- our dollar was backed by gold or silver or both, and some politicians (such as Congressman and former presidential candidate Ron Paul) urge that we return to the "gold standard" for the dollar in order to guard against inflation.  Gold is in limited supply in the world, and inflation can be controlled by tying the dollar to something in limited supply.  That way more and more dollars could not be printed by the government, which decreases their value.

We used a system of "bimetallism" from 1792 to 1873, by which the dollar was "backed" (could be traded in for) gold or silver.  A ratio of 15:1 was used; someone received 15 times as much silver as gold for a dollar.  Led by Republicans after the Civil War, Congress gradually phased out the use of silver because it was considered to be a cheap, inflationary form of money, and in 1900 an entirely gold standard was adopted.  Recall from history how William Jennings Bryan made his famous "Cross of Gold" speech (in favor of retaining silver as a standard and thereby avoid being "crucified" on gold) in obtaining the Democratic nomination for president in 1896.  Bryan lost.

We used a system of "bimetallism" from 1792 to 1873, by which the dollar was "backed" (could be traded in for) gold or silver.  A ratio of 15:1 was used; someone received 15 times as much silver as gold for a dollar.  In 1834 this was adjusted to 16:1 as more silver was discovered.  Led by Republicans after the Civil War, Congress gradually phased out the use of silver because it was considered to be a cheap, inflationary form of money, and in 1900 an entirely gold standard was adopted.  Recall from history how William Jennings Bryan made his famous "Cross of Gold" speech (in favor of retaining silver as a standard and thereby avoid being "crucified" on gold) in obtaining the Democratic nomination for president in 1896.  Bryan lost.

But gold eventually lost out also, and was removed as the standard in 1974.  Now the U.S. dollar is backed by nothing but a belief that it will continue to have value.  Perhaps one might say it is backed by the American economy, or the U.S. Constitution and our political system.

But gold eventually lost out also, and was removed as the standard in 1974.  Now the U.S. dollar is backed by nothing but a belief that it will continue to have value.  The dollar is sometimes called "fiat money" because it cannot be traded in for anything like gold.  One might say the dollar is backed by the American economy, or the U.S. Constitution and our political system.  Most of the U.S. dollars in the world today are actually being held and used in foreign countries.

 

 

As at July 2003, it has been estimated that if all the gold held by the US government was again required to back the circulating US currency, an ounce of gold would need to be worth around $25,000.

===Applying Gresham's Law beyond Economics===

===Applying Gresham's Law beyond Economics===