A Brief History of American Paper Money, with emphasis on Georgist Perspectives

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Please cite the paper as:
Scott Baker, (2013), A Brief History of American Paper Money, with emphasis on Georgist Perspectives, World Economics Association (WEA) Conferences, No. 1 2013, The political economy of economic metrics, 28th January to 14th March, 2013



Much has been written about the nature of money, but almost all of it treats money as if it was synonymous with debt, i.e. as debt-money. However, there exists a class of sovereign money, largely unknown in our time, but prevalent in large quantities in Henry George’s time (1839 – 1897), which was written about, appreciated by a money-starved public, and even used as the foundational issue for a political party, the Greenback Party. The constitution and precedence in the Legal Tender cases of Henry George’s time, and beyond, allows for a return to debt-free money.

8 responses

  • Paul Grignon says:

    Can government issue “debt-free” money? Yes, but only in a system dependent on exponential growth.

    Let’s imagine a state in which all money is created as so-called “debt-free” money by the national government. Imagine also a stable state of the economy in which government has already spent into existence sufficient money to meet the needs of the economy. If it spends more without taxing it back, it will create monetary inflation, never-ending price increases of everything.

    So, to maintain a stable state, taxes must equal spending to avoid causing monetary inflation.
    Thus this money is not debt-free. It is money spent as “taxes owed” In other words… a debt.

    It is a credit cycle just like a so-called loan from a bank.

    • Scott Baker says:

      Not so fast.
      Suppose I had a simple economy in which there were no merry-go-rounds. Now the government issues enough to build a merry-go-round. So, now this money actually got “eaten up” paying people to build this merry-go-round. Still more money could be issued to pay people to maintain the merry-go-round. Of course, customers must be paid too, not just so they can ride merry-go-rounds, but also so they can do things like buy food and clothes – perhaps even more important for anyone over the age of 6! The population grows too, so needs more money because of that as well.
      In general, the more things are built, developed and invented, the more money society needs to pay for them. Sure, some things get cheaper, but only primitive man got things for free – water, shelter, food (if he didn’t have to buy or trade for a spear).
      And there is no limit to Man’s desire – another Georgist axiom. If expensive cars become cheaper, we’ll want the next more expensive car, at least at the upper margins.
      What George understood, and today’s neo-classical economists do not, is that we should charge for use of the Commons, including location (more so if it’s prime location), since that is provided by Nature, and raised in value by demand, neither of which has anything to do with the owner of that natural thing, like Land.
      Right now, money does not exist in sufficient quantity to meet the productive capacity of the nation. There are always and everywhere millions of jobs to be done and millions of people who want to do them, and all that stands in the way is money (including money to train).
      It is not right that the vagaries of the credit cycle should so constrain the natural productive capacity of human beings.

      • Paul Grignon says:

        Your response is that endless growth makes it possible. I rest my case.

        • Scott Baker says:

          No, although my paper didn’t go into this, the full Georgist position is that Land (under classical definition meaning ALL natural resources, not just actual land), should be taxed according to its value. So, prime locations get taxed more heavily than rural locations. Scarce water more heavily than where water is in lesser demand. Street space more heavily than highways through the hinterlands (though, in reality, both are woefully under-taxed, and therefore, over-used and underfunded).
          Do this for pollution too: i.e. Pigovian taxes.
          A proper system of taxation on the use, abuse and locational value of Land, would eliminate the need to tax production at all – which in an ideal world, ought to be steered towards more efficient use of increasingly scarce resources; that is NOT the case today.
          However, having only the private banks be allowed to create money is a separate problem that George saw, though not to the scale that exists today.

  • Olaf Schilgen says:

    I fully agree with the statement, that Government can create money without debt.

    But there is always one problem: The problem of the measuring “of the size of the economy”.

    Think about a farmers world without any kind of money.
    Introducing some kind of currency needs some kind of measuring of the economy. You have to know how much cows, how much wheat, corn, etc. there is to set a starting price level.
    There is no way around that measuring of the first day (of money creation).
    Someone has to define: One “sac of wheat” is one “dollar”.
    This setting defines the quantity of dollars – if you count the sacs of wheat in total.

    As i show i my paper, there is one problem with the money. It has no value in any defined and measurable unit of physical existence.

    And by allowing the banks create money without an exactly measurable amount of credit there is always a problem of control.
    (The steering of the growth of M3 by setting an interest rate is not a direct control, it is an indirect control of M3.)

    This is not defined by Henry George. The question is what the right amount of money for a given economy is. If you can define and measure the “physical size” of that economy, you can define this.

    I really agree on the idea of changing the way of money creation from the credit-way to a different one.

    (here you find an updated version 1.04 of my paper: http://www.schilgen.com/sn/downloads/2013-01-27_paper-energy-as-the-numeraire-of-an-economy_schilgen_v.1.04.pdf)

    • Paul Grignon says:

      QUOTE: “This allows measuring a physically real GDP in Joule units which represents an exactly metered value of real existing characteristics opposing the inflation corrected money based ‘real GDP’”

      Perhaps I am misreading the author’s intentions here. I certainly agree that economics should treat energy as the irreplaceable basis of the economy, not simply as another good.


      But I balk at the equating of an energy unit as a VALUE unit if that is what is intended.
      For example, is a Joule of coal as useful or valuable as a Joule of electricity?

      That depends on whether you want to use a light bulb or a computer as opposed to a coal-burning stove. Coal is useless for the former and electricity for the latter, but in general a Joule of electricity is far more useful, versatile and therefore valuable than a Joule of coal. With the right equipment, one can make a Joule of electricity from 3 Joules of coal. One cannot make coal out of electricity at all. It is the match of needs and wants with supply that determines value not the energy content.

      If energy consumption were the measure of the economy’s size, then it follows that economic growth could be achieved by becoming LESS energy-efficient, all the way to a theoretical 100% total wastage of energy with zero production of value. Economic shrinkage would be the result of finding efficiencies to do more with less energy. If you could create infinite value with zero energy your economy wouldn’t even exist by this measurement.

  • I fully concur with Scott Baker that the existing monetary regime is both corrupt and ineffective at creating the basis for sustainable economic growth. It makes no sense to empower a central bank to create monetary balances out of thin air, made available to government in exchange for interest-yielding bonds. Government notes could certainly be issued as currency; however, this currency should be redeemable in some stated quantity of goods or services, such redemption enforced under law, effectively regulated and further protected by third party insurance.

    Federal Reserve Notes are what I described as “promises to pay nothing in particular.” A government-issued currency note, if not redeemable as above, would have the same impact on prices, except that the absence of an interest payment would be capitalized by market forces into a discounted purchasing power for the government-issued currency.

    • Scott Baker says:

      If we had “currency … redeemable in some stated quantity of goods or services” that would by definition mean interference in the marketplace for those goods and services, i.e. price-fixing. That didn’t work under Nixon, or anyone else, and won’t work here.
      Money certainly does have to be controlled as to quantity – both too much AND too little are bad; the latter is even worse as it leads to deflation. But it should exist in sufficient quantity to meet the productive capacity of the nation. No one seriously thinks we are meeting our productive capacity right now. Both the national unemployment statistics and the tepid GDP, and other measures, confirm this.
      Let’s put debt-free money into infrastructure, schools, and other public works, and maybe even replace the regressive payroll tax with direct-funding, and then see where we are. When we get down around 3% unemployment and some sign of non-speculation led inflation, then let’s talk again. Right now, that would be a nice problem to have.
      As George also said “Man seeks to gratify his desires with the least amount of effort.” Right now, that least effort is going toward supporting an idle rentier class.