Chapter

Monetary Policy and the Dollar

Peter L. Rousseau

in Founding Choices

Published by University of Chicago Press

Published in print January 2011 | ISBN: 9780226384740
Published online February 2013 | e-ISBN: 9780226384764 | DOI: http://dx.doi.org/10.7208/chicago/9780226384764.003.0005
Monetary Policy and the Dollar

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The United States developed as a nation considerably during 1790 after the Constitution ended the colonial and 1780 monetary system which had allowed provincial and then state governments to issue their own fiat paper currencies, and replaced that system with the new specie dollar and currency union of all the states. Under this new system, banks would provide most of the nation's money stock by issuing deposits and bank notes convertible into specie-dollar base. The “Continental Currency” issued by Congress essentially had collapsed by 1779/1780 because Congress lacked the authority to levy taxes to be paid in Continentals. States had powers of taxation, and their currencies during and after the war fared better than Continentals because states were reluctant to levy unpopular taxes. Under the new system, money was created not by government officials printing it to finance public spending, but by banks issuing it to finance trade, investment, and entrepreneurial innovation.

Keywords: Constitution; monetary system; specie-dollar base; Continental Currency; levy taxes

Chapter.  13126 words.  Illustrated.

Subjects: Economic History

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