Currency - Business in United States of America

Currency: Revolutionary War and Confederation

Currency: The New Republic

Currency: Civil War Developments

Currency: The Federal Reserve System

Currency: New Deal and After

Definition: The paper money and coins that constitute a major part of a country’s circulating money supply

Significance: The money supply is an important determinant of aggregate demand and business conditions in general. Until 1935, a significant proportion of U.S. paper money was issued by commercial banks. The opportunity to issue banknotes was an important source of lending power for banks.
Before the United States gained its independence, paper money was issued by the various British colonial governments. Massachusetts made the first issue in 1690 to finance military expenditures: The bills could simply be paid out to soldiers and suppliers. Most colonies issued currency in the wartime period of 1713-1718, causing significant price inflation. Issuing paper money was a means of financing government deficits before the development of well-ordered interest-bearing government bonds. The notes were not formally convertible into gold and silver (specie) but could be used to pay taxes. Several colonial governments established loan offices, mostly for mortgage loans secured by land. The borrowers received paper money. The new issues of paper were withdrawn as the loans were repaid. Some colonies managed their money creation with restraint, and the money supply grew enough to facilitate the spread of a market economy, specialization, and exchange. Real inflationary abuses occurred in Rhode Island, the Carolinas, and Massachusetts. The British government tried to stamp out the practice and issued a general prohibition in 1764. This enraged many colonists and was one of the many grievances precipitating the move for independence. During the 1770’s, the total money supply was about $12 million, of which half was British and foreign coins and half was paper money.

Further Reading

• Friedman, Milton, and Anna J. Schwartz. A Monetary History of the United States, 1867-1960. Princeton, N.J.: Princeton University Press, 1963. The definitive monetary history, with lots of attention to the economic causes and effects of policy decisions. 
• Goodwin, Jason. Greenback: The Almighty Dollar and the Invention of America. New York: Henry Holt, 2003. Colorful, anecdotal history of American money; mostly pre-1900. 
• Hessler, Gene. The Comprehensive Catalog of U.S. Paper Money. Sixth ed. Port Chester, Ohio: BNR Press, 1997. This catalog has many color illustrations of the various historical paper money issues. 
• Nussbaum, Arthur. A History of the Dollar. New York: Columbia University Press, 1957. A nice mix of scholarship and readability, this contains lots of detail on all the complexities of U.S. currency history. 
• Trescott, Paul B. Money, Banking and Economic Welfare. New York: McGraw-Hill, 1960. Chapters 14- 17 of this college textbook put currency evolution in a full context of economic and political history. 

See also: confederate currency; Federal monetary policy; U.S. Department of the Treasury.