Inflation & Gold

The central banks and how they cause inflation Most people have probably heard of the U.S. Federal Reserve, but what they don't realize is that inflation was almost non-existent. In fact, in the first 125 years of this republics history, we did not have a central bank (1789 to 1914) and the only serious bout of inflation was during the War Between the States when President Lincoln printed "Greenbacks", which were unbacked by gold or silver. [The Confederate state printed their own currency.]
Prior to the founding of our country, during the War of Independence, the Continental Congress printed the "Continental", a paper currency that was only backed by "faith and good intentions". Since it was not backed by gold or silver, merchants demanded more Continentals for the same amount of goods. In fact, General Washington complained that "a wagonload of currency will hardly purchase a wagonload of provisions".

By the end of the Revolutionary War, the Continental was worthless. After that experience, the phrase "not worth a Continental" became a way to describe anything that offered no real value.

The drafters of the U.S. Constitution probably had this experience in mind when they wrote gold and silver into our founding documents: "No State shall... make any Thing but gold and silver Coin as tender in Payment of Debts" (Article I, Section 10). This is why, under the Coinage Act of 1792, the first American coins were composed of gold and silver, with only the half-cent and one-cent coins to be made of copper.

But you can't stop the nature of those who covet power and by the beginning of the twentieth century people had forgot the currency lessons of those two great wars. The first nail in the coffin was the creation of a central bank or as we know it, The Federal Reserve. While it was sold to the people as a way to 'stabilize' the economy to prevent ups and down, it actually prevented the ebb and flow of the free enterprise system that created such wealth and innovation during the 1800's and early 1900's.


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