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The American Dollar – and the many changes!

January 7, 2013

Following is a brief overview of the American Dollar. This is an update from prior missives! The changes which have occurred are important!

The two most influential Founding Fathers on the issues of money were Benjamin Franklin and Thomas Jefferson. Benjamin Franklin was mostly influential in getting the Continental Dollar into circulation. Ben also was more in favor of ‘fiat’ type currencies (paper notes which could be issued by the Government). Ben, however, died in 1790 and Thomas Jefferson was the primary mind behind establishing the logic of our currency and the concept of dividing and multiplying by units of ten. Thomas invented fractional units of the ‘dollar’ with smaller units like the penny and the mil. Alexander Hamilton was our first Secretary of the Treasury and he was instrumental, with Jefferson (our first Secretary of State), in getting the Coinage Act of 1792 through Congress. The concept of a Mint to coin money was also mostly the idea of Jefferson.

The history of the Continental (1776-1781) was immediate evidence in the mind’s of Franklin, Jefferson, and Hamilton (and many other Founding Fathers) that ‘fiat’ type currencies were unsound and led to worthlessness. This led to the view that our dollar needed to be associated with some precious metal that was viewed as having ‘value’. This led to defining our ‘dollar’ in terms of the most popular coin within the Colonies (the Spanish Silver Coin called the Piece of Eight, Peso, or Spanish Milled Dollar). The mind of Thomas Jefferson, however, was most influential in creating our American Dollar and all the subsidiary coins. When we think of the American Dollar, however,  we need to think mostly about the mind’s of Franklin and Jefferson.

American Dollar    (brief history and creation process)

1775 – 1781: Continental Dollar printed (some coins also minted). Continental mostly equal to 1 Spanish Milled Silver Peso Coin. Benjamin Franklin involved as main originator of the paper Continental (Philadelphia). Ben favored paper money.

1785 (idea): The ‘name’ Dollar was officially chosen as our Currency Unit by our Continental Congress (Thomas Jefferson was primary mind behind logic of our currency system). Alexander Hamilton agreed with Jefferson’s ideas.

1792 (start): Dollar defined in terms of Silver (371.25 grains of Ag = $1.00). This resulted in dollar coins made from Silver.

Dollar also viewed as 24.75 grains of Au (Gold). This resulted in creation of the $10 Eagle coin.

1862: U.S. Greenback Dollar printed (lasted until 1878). This was our first issue of pure ‘fiat’ (paper) money. Fiat means no backing or convertibility. 1862 was also the start of Bureau of Printing and Engraving in Washington D.C.

1913:  U.S. Federal Reserve Bank started with centralized money creation promoted. Act was contrary to our Constitution, Article I, Section 8, Clause 5 (which specified that our money be regulated by Congress).

1792 – 1933: Money creation (supply) resulted from Ag and Au being minted into coins at Philadelphia Mint (anyone could bring their Ag and Au to mint for coinage). Penalty for ‘counterfeiting’ false coins was death to the perpetrator.

1792 – 1933: First and Second U.S. Bank (1791 – 1836) allowed proxy paper notes to be printed and engraved. Paper Notes were redeemable or convertible (at bearers discretion) into Ag or Au. Money creation was limited and prices mostly stable. Third U.S. Bank emerged with passage of Federal Reserve Act of 1913. Money was, initially,  convertible into Ag and/or Au (at option of holder). Paper notes and certificates were viewed as equivalent to Ag and Au since convertibility was allowed. Money was viewed as mostly a psychological phenomena. People accepted proxies as long as they thought that note was equivalent to Au or Ag.

1934 – 1971: Franklin D. Roosevelt removed Au (gold) as option (convertibility) for Americans. Silver certificates, however, continued until 1968. Fiat paper notes were issued by our Federal Reserve Banks (‘lawful money’ being silver was removed f from note in 1968). F.D.R. also devalued Au (gold) from $20.67/ounce to $35.00/ounce for Foreign holders of Dollars. Our Treasury purchased gold from foreigners and increased our supply to 740 million ounces (mostly stored at Fort Knox). U. S.owned 70% of official supply of all gold on the planet as of 1944. From 1944 to 1971 our gold supply was allowed to decrease as foreigners could convert dollars to our gold at $35/ounce (Bretton Woods Agreement). As of August 15, 1971, our gold supply at Fort Knox was about 272 million ounces. President Nixon then ‘closed’ the gold window to all foreigners. Result: All world currencies became ‘fiat’ and ‘floating’ currencies with no psychological tie to Au (gold). World currency system was in transition from 1971 – 1973.

President Nixon closes gold window to preserve dwindling supply of our gold.
1973 – 2013: Dollar (globally) became an ‘index’ currency (weighted average) with math and cardinal numbers becoming our units of money. Around 1998 the digital dollar emerged as all banks transitioned to the electronic (computer) system for money creation and distribution. After crash of 2008, money creation evolved into psychological units via policies of Federal Open Market Committee (mostly Ben Bernanke’s policies). QE (creating digits within the computer screen) became the primary method of increasing currency units in circulation (globally). Result:  units of Consciousness = money). Today, all world currencies are mostly virtual or digital currencies. Most trading, investing, lending, and money creation is via the computer.
We need to recognize that our ‘dollar’ has changed in meaning from its origin in 1792. The ‘name’ dollar is just a ‘name’ derived from consciousness. The ‘name’ then gets defined and then gets engraved on coins and paper notes. When the ‘name’ is divorced from a physical item like silver or gold we call this a ‘fiat’ dollar. A ‘fiat’ dollar is a paper unit. When we drop the paper and create digital dollars within the computer screen there emerges a new meaning for the dollar. A dollar within the computer screen is a virtual unit or digit. This virtual unit is imaginary (with no physical substance). Today, our Central Bank (via polices of Bernanke and Company) create these digital dollars ‘out of nothing’…or via their consciousness. This means that most ‘dollars’ today are merely ‘units of consciousness’ (nothing). We now are dealing mostly with imaginary numbers and imaginary debt. We have entered the realm of the MetaPhysical. Keep up to date on these issues by visiting this blog:  https://kingdomecon.wordpress.com.
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