P. J. O'Rourke Quotes
A U.S. dollar is an IOU from the Federal Reserve Bank. It's a promissory note that doesn't actually promise anything. It's not backed by gold or silver.
O'Rourke, P. J. Eat the Rich. Atlantic Monthly Press, 1998.
Economists they world over have differed as to how critical it was to have a money supply that is based on a gold standard or other precious metal. United States history has had a dispute over whether the money should be backed by gold or silver. Finally, under the Richard M. Nixon administration, the United States went off the gold standard and American money ever since is only backed by the ‘full faith and credit’ of the United States. Some politicians like Paul believe this is a poor policy since it allows governments to control their own money supply irrespective of their gold or silver holdings. Paul goes further than most and sees freedom itself dependent on a precious metal standard. Most politicians disagree.
At the time any private bank could issue their own money. Private sector bankers thought it outrageous that the Congress should consider trampling on their rights to issue money. The solution that was finally adopted some years later was to use the Federal Reserve Board to control the money supply. It is independent of the Congress and the President but members are appointed by the President and confirmed by the Senate. Our system, like no other system, is a compromise where neither the Government or the Private Sector controls the American money supply.
At the time there was no national paper money. Individual banks printed their own and paper money was not accepted or heavily discounted most Americans. Most opposed a tender law that required paper money to be accepted in commerce.
At the time, there was no United States currency. Private banks in some of the states issued their own money. A dollar from Georgia might only be worth 75 cents in New York.
The same argument can be made against the modern paper money supply. What Jefferson and most of the founding fathers, with the exception of Alexander Hamilton. did not realize was that the major stability of any kind of money was not only the silver or gold that backed it but the political and legal stability of the nation and the size of its productive economy. Where Jefferson was right however is that all these banknotes at the time were issued by local private banks. The Government had no responsibility for paper money and had no knowledge of how much paper money any bank issues and whether or not they had any silver to back it up. Banks didn’t trust other bank’s notes and would only redeem them at a discount. A $10 note from a South Carolina bank might only be worth $7 in New York and $6 in Boston. The early American monetary system was a mess.
At the time, a bank note—paper money issued be a private bank—was not backed by any gold or silver and was not insured bym the government. A bank could print as much as they wanted, so it was always worth less as the further you were from the particular issuing bank, the less you could get your bank note, because no one knew whether or not the issuing bank would redeem the note or even be in existence. So every private bank note had diminished value for the public. However, carrying gold and silver around and making change for precious metals was difficult and often impractical. So people used banknotes. The same thing happens with credit cards today. The merchant has to pay a fee to the credit card company and the bank and therefore charges us more for whatever we buy. But most consumers and merchants are willing to pay the difference to obtain the convenience of the credit card,
Most people owned a little land as most of America were still farmers. They had small amounts of money at different times but spent it for necessities. A relatively few people (mostly in the East) had money—gold and paper currency backed by gold. If the price of property was high, only rich could afford to buy it. The home mortgage system did not then exist, so there was no way that the average land owner could get enough money to buy land to expand farms or buy for children unless the price was low. Today, most land owners want the price of land to be high. The financial system in use at the time makes the difference.
Patrick Jake O'Rourke is an American political satirist and journalist. O'Rourke is the H. L. Mencken Research Fellow at the libertarian Cato Institute and is a regular correspondent for The Atlantic Monthly, The American Spectator, and The Weekly Standard, and frequent panelist on National Public Radio's game show Wait Wait... Don't Tell Me! Since 2011, he has been a columnist at The Daily Beast.
