United States Currency Devaluations

There have been many United States currency devaluations throughout the past 235 years.

To understand what can happen in the future economically it is worthwhile to take a trip to the past.

Below are some of the significant times the United States Currency Devaluations occurred and why.

A common theme is huge deficit spending for wars; public works, social programs, and poor monetary policy. Excessive inflation (or hyperinflation) and large (or massive currency devaluations) and or bubbles occurred afterwards.


1775-1779 (Not worth a Continental)
United States Currency Devaluations

The saying: “Not worth a Continental” has its roots at the start of this great nation.

Wars are rarely funded out of the existing treasury, nor are they financed from excessive taxes. The massive amounts needed would curb the enthusiasm of even the most ardent supporters.

The Revolutionary War was no different. At the beginning of the war in 1775 the total money supply was around $12 million. Over the next several years the Continental Congress issues a total of $650 million. That is an increase of the money supply of over 5000%.

In 1775 paper Continentals were traded for $1 in gold; however by 1779 they were worth less than a penny. For example, shoes sold for $5,000 a pair. A suit cost a million continental dollars!

Arguably this is one of the rare times that debasing was the right thing to do. The birth of an powerful and prosperous nation was the result.

Almost all of the other Fiat Currency Failures (if not all)have had disastrous financial results for the populous afterwards—many times leading to loss of liberty and tyranny.


The War of 1812
United States Currency Devaluations

The War of 1812 was senseless and unpopular with the public. There were several reasons for this war with Britain. Here are some of the primary reasons:

• For Britain’s ongoing war with France.

• Against Britain for forcing American merchant sailors into the Royal Navy (although that stopped before the war).

• For Britain’s support of American Indian tribes against American Expansion.

To finance the war the government encouraged wildcat banks to purchase its war bonds and convert them to bank notes. The government used the money to purchase war supplies.

Within two years the money supply had tripled and so had prices. The US population lost about 66% of the money they held during that period.


Greenbacks and the Civil War
United States Currency Devaluations

During the Civil War the money supply increased by 138% to pay for the war. The purchasing power of the Greenbacks fell by 65%. Wages were cut in half while prices doubled.

For the south it was even worse. Almost all of the Civil War was funded by printing fiat money.

Confederate notes increased in volume by 214% per year. The volume of all the money including bank notes and checkbook money increased by over 300% per year. All of the confederate states also printed their own fiat money as well.

Within four years the prices hyperinflated by 9,100%. Confederate bonds and notes were worthless.

Once more the hidden tax of inflation was paid dearly by the public on both sides of the war.

1933 and Executive Order 6102
United States Currency Devaluations

In the 1920s the Federal Reserve (FED) had expanded the money supply during the 1920s for some questionable reasons. This led to loose money, a speculative stock market and the roaring twenties.

When the FED finally contracted the money supply, the crash of 1929 occurred. From there bad money policy and other factors drove the economy from a recession into a depression.

The nation was in the middle of a financial crisis and on April 5th 1933 Executive Order 6102 made it a criminal offense to own almost all types of gold (bullion, coins, etc.) in the U.S by private citizens.

Note: Numismatics (collector’s coins, jewelry, as well as gold for dentistry or art etc. were exempted).

Owning gold was punishable by a fine of up to $10,000 (in 1933 year dollars) or up to 10 years in prison, or both. This was serious business. The government gave citizens $20.67/troy oz for their gold.

Most people who owned large amounts of gold had it transferred to Switzerland. Others hid it and much was passed down in inheritances. In the end only around 22% of the gold was surrendered to the government. However, those who surrendered their gold lost dearly.


Were there any Prosecutions?
There was only one case that was prosecuted with a New York attorney named Frederick Barber Campbell who had 5,000 troy ounces of gold with Chase National Bank.

When Campbell tried to withdraw it and the bank refused he sued and eventually won the case. However the government passed the Gold reserve at in 1934 and retained the authority to seize gold. It also set the new spot price of gold at $35/troy oz as an exchange rate for other countries


Who Prospered?
The government prospered handsomely from the gold they purchased from the citizens. The citizens however, not so much. In essence, the value of the dollar decreased by 70% in one year.

The poor money management policies, by the FED helped create the depression. During the depression further bad money management policies by the FED, helped prolong it as well.

Note: It wasn’t until December 31, 1974 when it became legal for private citizens to freely own and trade gold once again. That was a good thing!


1970s Inflation and Stagflation
United States Currency Devaluations

Inflation and stagflation were significantly damaging to the economy and to money’s purchasing power from 1970 to 1982.

The early 70s’ saw high inflation. During the late 70s to the early 1980s the nation experienced stagflation.

Stagflation is raising inflation, stagnant business growth and increasing unemployment. It was a tough time for many people and businesses.

The Viet Nam war, the war on poverty and the other programs of the Great Society started in the 1960s caused increased government spending.

The 1970’s and early 1980s saw inflation and stagflation (which were a probable result of this excessive spending).


Stagflation

Data from:

InflationData - Historical Inflation


Per the chart shown above it is staggering to see that the purchasing power of $100 in 1969 was only worth $34.73 in 1982. There is a significant possibility that this type of inflation (if not worse) could happen again in the relatively near future.


Final Thoughts on United States Currency Devaluations
The future of United States Currency Devaluation is unwritten, but facts and data indicate that hyperinflation is lurking around the corner. Consider the following:

It is not that public works and social programs don’t have their place. They do. But there is currently a huge chasm between providing a safety net for people in real need, and turning this (or any other country) into another failed welfare state.

Like bad cooks politicians can never seem to figure out the correct mixture of using money wisely, coupled with fair and just regulation to:


• Help people who work hard to have the opportunity to prosper if they do a good job, and fail if they don’t.

• Provide adequate food, shelter, housing, and medical assistance for the very young, the very old, the very sick and the very crippled.

• Not leak huge sums of monies to the growing number of freeloaders.

• Not leak huge sums of moneys to political corruption.


This is the primary problem and danger of a Fiat Money system. The government has the power to print unlimited monies and provide a sense of prosperity for awhile and to increase their power base.

Excessive currency creation (especially of this magnitude) almost always (if not always) leads to waste, corruption, and debasement of the currency. This debasement has dire consequences.


"Those who cannot remember the past are condemned to repeat it"
~ George Santayana

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