150 Years Of US Fiat

Tyler Durden's picture

5 days ago saw the 150th year anniversary of an event so historic that a very select few even noticed: the birth of US fiat. Bloomberg was one of the few who commemorated the birth of modern US currency: "On April 2, 1862, the first greenback left the U.S. Treasury, marking the start of a new era in the American monetary system.... The greenbacks were originally intended to be a temporary emergency-financing measure. Almost bankrupt, the Treasury needed money to pay suppliers and troops. The plan was to print a limited supply of United States notes to meet the crisis and then have people convert the currency into Treasury bonds. But United States notes grew in popularity and continued to circulate." The rest, as they say is history. In the intervening 150 years, the greenback saw major transformations: from being issued by the Treasury and backed by gold, it is now printed, mostly in electronic form, by an entity that in its own words, is "set up similarly to private corporations, but operated in the public interest." Of course, when said public interest is not the primary driver of operation, the entity, also known as the Federal Reserve is accountable to precisely nobody. Oh, and the fiat money, which is now just a balance sheet liability of a private corporation, and thus just a plug to the Fed's deficit monetization efforts, is no longer backed by anything besides the "full faith and credit" of a country that is forced to fund more than half of its spending through debt issuance than tax revenues.

More on the history of American fiat from Bloomberg:

At the start of the Civil War, the U.S. didn't have a national paper currency. Instead, the money supply consisted of U.S. coins and a collection of paper notes issued by private banks. Technically, the federal government began issuing its own paper currency in 1861. That year, the Lincoln administration issued $60 million in demand notes, a variant of a Treasury note that was redeemable "on demand" for gold coins at the Treasury or any sub-Treasury.


These notes were overshadowed in 1862 by the issue of $150 million in a new fiat currency officially known as United States notes and popularly known as greenbacks or legal tenders. By the end of the war, close to $450 million worth of greenbacks were in circulation.


The name greenbacks referred to the reverse of the notes, which were printed in green. The name legal-tender notes referred to the text that originally appeared on the back, which began, "This note is legal tender for all debts, public and private." This provision made the currency a valid form of payment on par with gold and silver, which was a very controversial action at the time. It made the United States note a fiat currency -- meaning its value was established by law alone and wasn't based on some other unit of value, such as gold, silver or land.


Many Americans during and after the Civil War believed the creation of a fiat currency was unconstitutional. The Constitution explicitly stated that only gold and silver could be considered legal tender. In 1871, in the case of Knox v. Lee, the Supreme Court settled the matter by declaring that making United States notes legal tender was indeed constitutional.


By this time, the greenback was at the center of a countrywide debate on monetary policy. When the post-Civil War economic boom ended in the panic and depression of 1873, many people, especially farmers, blamed the Treasury’s policy of contracting the currency -- that is, removing United States notes from circulation in an attempt to go back to the gold standard, which would require that a $1 note could be redeemed for $1 in gold.


As a consequence, there was a call for the expansion of United States note circulation or an inflation of the currency. This belief became joined with a political ideology that opposed big business and banking interests, resulting in the birth of the Greenback Party in 1874.


Opposing the Greenbackers were more conservative interests, sometimes known as "gold bugs,'' who found support in the Republican Party and in elements of the Democratic Party. Gold interests proved the stronger contestant in the debate and in 1878, the total circulation of United States notes was fixed at a little over $346 million and the notes eventually became redeemable in gold (at least until 1933, when this provision was removed).


During the 20th century, United States notes became ever less important in the nation’s money supply, though Congress supported their continued circulation. They were increasingly replaced by currency issued by the Federal Reserve System, which came to look almost identical to the United States note. The Federal Reserve note thus became the new greenback.


In 1966, Congress allowed the Treasury to start removing United States notes from circulation. The last delivery of the notes by the Bureau of Engraving and Printing to the Treasury was made in 1971. In 1994, the Riegle Community Development and Regulatory Improvement Act eliminated the issuance of the notes altogether.

So instead of real money, America has an impostor "which came to look almost identical to the United States note" with the full complicity of everyone in charge, just so that when needed, any and all untenable debt burdens can be inflated away. And while the latter is a topic of a whole different discussion, we present another chart which, unlike the 150th anniversary of fiat, should be something discussed far more broadly... Because in a fiat world superpower status is always relative.

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GOSPLAN HERO's picture

"Honest Abe" Linkum would love the crony capitalist America of 2012.  He would marvel over the dictatorial power of the federal government over the states ... something that he helped to create.



Buckaroo Banzai's picture

Worst Presidents Ever (chronological order):

Abraham Lincoln
Woodrow Wilson
Bill Clinton
GW Bush
Barry Soetero

The awful part is that most of them were in the last 50 years.

killallthefiat's picture

Teddy and Truman have to fit in here too.  I would say that even douchebag like JQ Adams had principals and was far superior to most of the 20th century presidents.  Imagine what the future holds for us?!

Imagine an election and no one showed up to vote.

CrockettAlmanac.com's picture

Imagine an election and no one showed up to vote.


And yet one hand picked crony would still "win."

UP Forester's picture

Diebold would make sure.  SkyNet is now self-aware.

Harbanger's picture

Why'd you skip Nixon?  He ended the convertibility between US dollars and gold.

Manthong's picture

Nixon didn't have much of a choice and he probably would not have had to close gold redemptions or instituted the price controls if it were not for the LBJ Great Nam Society, the March, 1968 elimination of Fed gold reserve requirements and the June 1968 SDR/IMF/ESF ponzifications. Any monkey in the White House would have done the same… not that Nixon wasn’t a bit of a schmuck anyway .


But Carter sure needs to be on that list.

nmewn's picture

"But Carter sure needs to be on that list."

I think he was trying to separate willful intent from complete ignorance in his list ;-)

Buckaroo Banzai's picture

Precisely. Jimmy Carter meant well, he just couldnt get out of his own way.

wisefool's picture

Well said. Even the great Ron Paul has trouble with this. France was going to cash every dollar they had for US gold, followed immeadiately by the UK and germany. If Nixon kept the gold standard there would be not a single ounce of gold left in the USA. Private or public.

The euroes "allowed" us to keep our gold, provided we used our military to protect their empire/franchises with US blood for the next and current 40 years. And the frenchies bitch about Isreal being the boy who cried wolf ....

StychoKiller's picture

Hmm, the Federal Reserve seems to regard Gold as "tradition" or a barbarous relic -- would it have been so terrible to let ALL the (public) gold circulate to Europe?  Sooner or later, they'd have to purchase something from the USA, which would have been an opportune time to charge the price in Toz of AU!  So many logical inconsistencies, so little time...

wisefool's picture

If you are saying I have logical inconsistancies, I can admit that happens quite a lot, but not nessecarily here. The Euroes hauled tons of gold from the western hemisphere for 300 years before the nixon shock. why would it have been logical to give all that was left on the chance they might trade it back?

And much of the US notes redeemable in gold were granted by the Marshall Plan. Which, if we are going to use logic with some history, means under your scenario the Euroes would have likely traded the gold back if the USA would fight and supply wars. Same schtick Isreal runs, and again, the euroes wonder where they learned that from.....

Its not going to matter much anyway. Europe and the USA have negative population replacement rates for the cultures/races who were in the majority while all this was going on.

Uber Vandal's picture

The article forgot the other important thing that Lincoln did:

The first Federal INCOME TAX on August 5, 1861.

"In 1861, in order to finance the Civil War, President Abraham Lincoln signed the Revenue Act, imposing the first federal income tax in U.S. history.

The Revenue Act defined income as gain “derived from any kind of property, or from any professional trade, employment, or vocation carried on in the United States or elsewhere or from any source whatever.

Congress finally repealed income taxes in 1872, although they were revived in 1894. In 1895, however, the U.S. Supreme Court ruled the income tax to be unconstitutional. In 1909, Congress proposed the 16th Amendment, which set in place today’s federal income-tax system. It was ratified in 1913."

GOSPLAN HERO's picture

April 15, 1861 Lincoln declared war against the Confederate States:

“Whereas, the (revenue) laws of the United States have been for some time past, and now are opposed by combinations too powerful to be suppressed by the ordinary course, now, therefore, I call forth the militia of the several States, to the aggregate number of 75,000, in order to suppress said combinations, and to cause the laws to be duly executed” (i.e., create a compulsory Union to collect tax). (Paragraphs 1-2)

And again on April 19:

“Whereas an insurrection against the Government of the United States has broken out and the laws of the United States for the collection of the revenue cannot be effectually executed therein: Now, therefore, I have further deemed it advisable to set on foot a blockade of the ports within the States aforesaid.” (Paragraphs 1,4)

Lincoln never even mentioned slavery in his two war Proclamations.

Buckaroo Banzai's picture

Anybody who thinks the War Between The States had anything to do with slavery are fucking idiots.

AnAnonymous's picture

Anybody who thinks the War Between The States had anything to do with slavery are fucking idiots.

Lets be an idiot then. Idiots are simpled minded people and usually they are not astute enough to build a whole world of fake representations in order to disguise the most obvious and straightforward observations.

Lets US citizens thrive in a fantasy world as long as they are able to shift the costs of whimsical fantasies onto others.

Slavery was central to the US civil war. But it is also well known that US citizens since the rise of US citizenism have been standing up for freedom, justice and truth. So they have said.

Quite hard even for talented propagandists to hide the very fact that the two parties involved into the Civil war wanted either to maintain the institution of slavery (northern part) or expand it (southern part)

For people claiming to promote freedom, well, it does not read well on the resume.

But what, better the fantasy that slavery had nothing to do with the Civil war rather than the dangerous immixion of the slavery issue, that could lead to the admission that the standard bearer of the free world, the mecca of US citizenism, the US of A,when caught in the civil war, tackled the issue of slavery either to maintain it or to expand it.

Emancipation was forced on the good old US of A. That brutal reality, accepted by idiots who can not build complex and totally fake representations of reality in order to kick the can. Kicking the can, the trademark of US citizens.

hamurobby's picture

Then okay, if the fed gov wanted to unconstitutionally tax slave labor as well as non slave labor, and the Southerners wanted to expand slavery (were the slaves labor to be taxed and paid for by the slave owner? and would that be a double tax?). Since slavery really isnt constitutional, I guess there was not much room for an arguement unless, by decree, the "North" wanted to actually end slavery per se, but they never claimed that fact. However, by default, what they wanted was everyone to be slaves to the state by taxation. Dont you think the evil Southerners knew this? Governments HATE competition, you cant own anyone when the state owns everyone.

AnAnonymous's picture

Welcome to the US citizen world.

Taxation slave, what a modern representation.

It measures somehow US citizens' mettle to build such an incredible comparison.

Now lets bring it back to historical perspective.

The US of A has been a success of the government state.

Back then, in the 19th century, US citizens all over the world, rejoiced that their state built societies, were crushing stateless societies.

Taxation was certainly not the hallmark of slaves (slaves paid taxes? wooo) but on the contrary, the distinct membership sign of belonging to a state run society that was crushing stateless societies, for some of which, were destined to become slaves.

Slavery was a central issue for the civil war. Both sides.

Emancipation was not. Both sides.

hamurobby's picture


I meant it to be retorical, the slaves would not pay taxes, the owners would, and then pay taxes on their own income. The taxation was passed as an excuse to help pay for the war, another federal power grab that was enacted under declaration of war. 

The US of A had huge issues at the time, and like any expanding empire, had huge succeses through its history. State societies' imperialism at the time was overrunning the unprotected. The USSR is a prime example of how well that can turn out. The US is now the premier imperialistic power in the world, far from what the founding fathers orginal intent.

Yes, and I agree with you. Slavery was an issue for both sides. The Northerners were very concerned that if slavery was abolished, the north would be overrun with freed slaves. only 8% of the entire US population owned slaves, and 95% of the black population lived in the south. The real riff and division of the states was over tarriffs and industrialization. The south controlled congress and tariff laws to protect the price of cotton was not benificial to the iron industry of the north. The MAIN reason there was war was over economics, and the seizing of control by the federal government (political power) over States rights, not for the freedom of mankind from slavery as it were. Most think (not you) ( thanks to the DOE and a high school education) that Abe and the North were fighting the South over freeing the slaves and individual rights, and that is less than half the story. If that were the case, we would have something to be really proud about.

Lednbrass's picture

Actually if you analyze the 1860 census (yes, I have) it was considerably less than 8%.

Only two states had an ownership percentage of 7% or higher, South Carolina at 9.2% and Mississippi at 8.7%.

I only ran the numbers by atate and not overall, but if you look at all states below the Mason Dixon where it was legal the average is probably 5 ish.

TheFourthStooge-ing's picture

AnAnonymous said:

Lets be an idiot then.

Easy for you.

Made me laugh.


Catullus's picture

A slave army (the draft) paid in worthless currency... So that they could end slavery.

Only 2 of those things are facts.

GOSPLAN HERO's picture

Federal armies were raised by Lincoln because southern states had failed to pay taxes and tarriffs to Washington.

... slavery was not mentioned.



CrockettAlmanac.com's picture

Slavery was mentioned. Lincoln offered to let the south keep slavery forever as long as they stayed in the Union and kept paying taxes.

Harbanger's picture

South Carolina, Mississippi, Florida, Alabama, Georgia, Louisiana, and Texas seceeded from the Union before Lincoln was even President.  Every single Slave owner was a registered Democrat by 1861, the beginning of the new plantation.

Clay Hill's picture

Those States saw the inevitability of the economic shackles about to be placed on them, and tried to escape Mr. Lincoln's plantation.


CrockettAlmanac.com's picture

You are quite the font of useful information this evening. Thanks again.

Clay Hill's picture

It is a labour of love, born of respect for this community.

A li'l crown'n'coke every now and then helps too.

CrockettAlmanac.com's picture



Clay Hill was a crown and a cola man,

Who sorted through facts like hurrican.

I'll offer him, "Cheers!"

Though I'm fresh out of beers,

I'm his newest and biggest Hedge forum fan.


Please forgive any tenuous rhyming schemes as a writer is nothing without his spiritual muse.

Clay Hill's picture

No need to strike up the band,

I'm just an ordinary man

Life dealt me a shot to the head,

and I refuse to go back to bed.

CrockettAlmanac.com's picture

Bed sounds good to me. Besides, I don't want the Easter Bunny to pass me by because I'm still awake. Have a good evening and keep up with your research, it is appreciated.

Lednbrass's picture

And every control freak politician who wanted central government uber alles was a registered repub in those days.

Those states seceded after Lincoln was elected because it was pretty clear where things were headed, whats your point?

Harbanger's picture

It’s an interesting fact that during the civil war all the slave owners became Democrats. Democrats have been the self ordained saviors of blacks ever since the civil war, yet today they still embrace and promote a plantation mentality. It makes more sense when you know who became the overseers and how it all began.

Lednbrass's picture

Repubs are no different, the party was founded on the idea of a hyperpowered central government and remains that way to this day, regardless of the lies they tell.  We now have a government and president that is the logical extension and predictable end product of Lincolns policies, repubs should love it.

Considering that their likely nominee is philosophically indistinguishable from Obama, it seems they do. Repubs love big government, in spite of their empty rhetoric their actual policies have advanced it pretty much every step of the way for 150 years.

Your sense of history is distorted, youve concocted some silly scenario where dems are always bad and repubs are always good while ignoring the fact that at the time of the War Between The States the southern dems were fighting against a federal government gone insane while the repubs were fighting to create it and you use the fig leaf of ending slavery to cover it. Well, you won- and replaced a system where part of the population was enslaved with one that has the power to enslave everyone.  Quite a victory for equality, nice job. You now are living with the final result of what your ancestors fought for, hope you enjoy it. I do not.

It is at least amusing that the government now will grind the descendants of those Yankee soldiers into the dust through the very power they fought for.

Harbanger's picture

I agree with much of what you said, but the south could have made their slaves into paid servants and we would have avoided all this. Liberty and justice for all while allowing slavery? Not possible. Yes, both party’s have dismissed the Constitution for a long time, but today the Repubs have new elements that want a constitutional restoration. There are strong forces inside the Dem party that want fundamental transformation. To say both sides are the same today is naïve. We don’t need lefty Rads at the helm when the $ collapses.  Happy Easter.

Lednbrass's picture

Well, the best bet would have been to free them then leave, it would have changed the international situation but thats all water under the bridge.  I still believe the world would be a better place if the South were its own nation.

Naive? I disagree as I watch what they do, not what they say. The presumptive repub nominee cranked up his state debt by 40% in one term, signed an "assault weapons" ban into law, and created the blueprint for Obamacare.  With "friends" like that I dont need enemies. There may be elements of the repubs that want a Constitutional restoration but the northern establishment elements will always run the show, and most of the idiots in that party will still vote for Romney or whoever they are told to even though they differ little from the left in substance.

If slavery were truly the issue, there are no slaves now so feel free to talk to all your northern repub friends about letting us have a vote on secession then.

Happy Easter to you and yours also. :-)

Revert_Back_to_1792_Act's picture

Still pretty much like that.


I wish they would put this on instead of American Idol.  Just one time.


Zgangsta's picture

"The greenbacks were originally intended to be a temporary emergency-financing measure."

Never accept any unpalatable law or decree on the condition that it be "temporary"!

ebworthen's picture

Reserve currency chart based upon world trade.

Just look at the progression, it was based on who owned the biggest trading routes, and that was determined by the most powerful navy and control of shipping lanes.

China is spending a great majority of their newfound wealth on their navy - no accident that.

I am Jobe's picture

and don;t forget moneralrights and other natural resources. Americans must be dumb clinging to 401K.


Xibalba's picture

And all this time I thought FIAT was just a shitty car....

Boxed Merlot's picture

There are times I wish Zero Hedge did not exist.  There are times, I'm sure, my wife wishes Zero Hedge did not exist.

I try to tell her Love without Truth is not a worthy pursuit.  Just as Truth without Love is an evil master.

Where to now? 

I am Jobe's picture

Dump her and get a dog or two. You will be happier.


SilverIsKing's picture

Dump her and you'll be happier.

Fixed it for ya.

Boxed Merlot's picture

Unfortunately, I don't find "happy" as a worthwhile pursuit either. 

I'm old enough to realize it occurs quite naturally while in pursuit of other more worthwhile goals.

Jendrzejczyk's picture

If you've got true love, nothing else matters. The timeline of events doesn't matter- only that you die in your lover's arms.

I am Jobe's picture

Scary. 450million rounds of Hollow Points- WTF- Geneva Convention, o never mond does not applyh on US Soil or Citizens of the USSA. Fuck the sheeples gonna grab their ankles,

Lednbrass's picture

Heres the thing though- its only pistol ammo. This is utterly worthless for any sort of "crackdown" on the populace. If the Dept. of Homeland Stupidity goes full retard this is exactly the sort of weapon we WANT them to have, a .40 peashooter is meaningless and borderline useless compared to what is sitting in home gun vaults across the country. I hope they buy so much they blow their ammo expenditure for the next decade. I hope they order a billion rounds of this stuff. Should they buy real ammo for real guns, that is time to worry. Trying anything with this stuff would be like the knife scene in Crocodile Dundee.

israhole's picture

These rounds are not for battle, they're for up close after you're hands are tied behind your back like the NKVD did in their sloped-floor red rooms.  Look into the very jewish overthrow of Russia, packaged as the Bolshevik Revolution.