If a time machine whisked America’s Founding Fathers from Philadelphia on July 4, 1776, to the Bureau of Engraving and Printing in Washington, D.C., on Independence Day, 2011, what might they think? Watching high-speed presses spew giant sheets of greenbacks would dazzle the eyes of even Benjamin Franklin, a professional printer. Beyond that, though, they would feel skin up their noses.
“They would be appalled,” says Judy Shelton, author of Money Meltdown (Free Press, 1994) and co-director of the Sound Money Project at the Atlas Economic Research Foundation, with which I am a senior fellow. “The integrity of the dollar has been utterly compromised by fiscal malfeasance,” Shelton adds. “Monetary policy has become the default mechanism for budgetary irresponsibility.”
Shelton echoes the Framers’ words:
• George Washington wrote to Thomas Jefferson on Aug. 1, 1786, “Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”
• “Paper is poverty,” Jefferson in turn observed in 1788. “It is only the ghost of money, and not money itself.” In 1817, the author of the Declaration of Independence wrote that paper money’s “abuses also are inevitable and, by breaking up the measure of value, make a lottery of all private property.”
• “Paper money is unjust,” declared James Madison, chief architect of the Constitution. “It is unconstitutional, for it affects the rights of property as much as taking away equal value in land.”
• Alexander Hamilton, America’s first Treasury secretary, warned: “To emit an unfunded paper as the sign of value ought not to continue a formal part of the Constitution, nor ever hereafter to be employed; being, in its nature, pregnant with abuses, and liable to be made the engine of imposition and fraud; holding out temptations equally pernicious to the integrity of government and to the morals of the people.”
“The Founders recognized the perils of legal-tender paper money, which coerces people to accept something that may be inherently worthless — as is the case with our paper money today,” says Lawrence M. Parks, executive director of the Foundation for the Advancement of Monetary Education (FAME) in New York City.
Why did the men who launched this nation disdain paper money? They had watched British colonial governments debauch their currencies and, consequently, impoverish their citizens — including some of the Founders.
Connecticut’s Roger Sherman signed both the Declaration and the Constitution. Thomas Jefferson called him “a man who never said a foolish thing in his life.” Sherman recalled in 1752 that among the Rhode Island colony’s government-issued Bills of Credit, “in the year 1743 . . . twenty-seven shillings Old-Tenor was equal to one ounce of silver. And by an Act of their General Assembly passed in March last, they stated fifty-four shilling Old-Tenor Bills equal to one ounce of silver, which sunk their value one half.”
During the Revolution, Virginia also issued paper money. Its unbearable lightness eventually made Madison and Washington wince as their tenants paid for leased land with worthless currency. For his part, Virginia’s devaluation left Jefferson on the losing end of a large bond transaction. He lived impecuniously for the rest of his life and died broke.
Jefferson’s experience with fiat currency surely influenced his views. “If we determine that a Dollar shall be our Unit,” he wrote in 1784, “we must then say with precision what a Dollar is.” Indeed, the Coinage Act of 1792 declared each dollar worth 371.25 grains of pure silver or 24.75 grains of pure gold.