In the aftermath of disaster, while wondering where my next buck will come from, I wonder also about the nature of that buck. What is it, really?
The origin of the word “buck,” meaning a dollar, is uncertain. Some etymologists believe that it was a reference to deerskins. In early America buckskins were more common than silver or gold coins. In some places they served as money. According to a reference at snopes.com, the term was used in 1748 by an explorer named Conrad Weiser. On a trip through Indian territory, in what is now Ohio, Weiser wrote, "He has been robbed of the value of 300 Bucks." A hundred years later, deerskins had fallen into disuse as money but the word buck had come to mean “dollar.” Perhaps we will hit on a use for Key Deer yet.
Knowing that a buck is a dollar, or even knowing how dollars came to be bucks, however, doesn’t help us know what a dollar is.
Few Americans today have the slightest notion of what a dollar is. If you doubt it, try this the next time you face a cashier. Say you don’t have any dollars. Ask if the store will accept Federal Reserve Notes instead. Stick with it until you meet the store manager. You will most likely find the store doesn’t accept Federal Reserve Notes, but you can pay with a credit card, a check or cash.
Now you can really show what a smarmy smart guy you are by pulling a twenty out of your wallet and directing the manager to read the words printed above Jackson’s portrait. There he will see the twenty is a “Federal Reserve Note.” He will loathe and despise you. The experiment was not intended to win friends, however, but to confirm that most people have no idea what our money really is.
This was not always so. In early America a dollar was a Spanish milled silver dollar. This coin was also known as a Piece of Eight because it was common practice to make change by simply cutting the coin into eight pieces, or bits. Today the expression “two bits” still means a quarter of a dollar.
Pieces of Eight were the most common coin in Colonial America. The first United States Congress directed the first mint master to discover the exact weight of silver in a Spanish dollar. They intended that the U.S. Dollar would match it. In subsequent legislation Congress declared a dollar to be 371.25 grains of fine silver. Congress has never repealed that law.
In early America everyone not only knew what a dollar was, they knew what a dollar was not. The word “bill” then meant what it does today. A “bill” was something that required payment. People knew that “dollar bills” were not really dollars. The bills only represented dollars, which could be claimed by presenting the bill for payment. Of course, as long as they thought the bill would be paid, there was no reason to seek payment. Bills were literally money in the bank.
In those days people also knew a “note” was a promise to pay something. Federal Reserve Notes are not promises to pay anything. They do not qualify as legal notes, which require a promise to pay, a payee, a specified sum and a due date.
Older Federal Reserve Notes, those printed before 1964 were legal notes. They bore the words: WILL PAY TO BEARER ON DEMAND (certain number of) DOLLARS. Those notes were legal promises with a payee, BEARER, a date, ON DEMAND, and a specific sum written on them. You could redeem those notes for “lawful money,” that is, silver or gold coin, at any Federal Reserve Bank.
Before 1964 Federal Reserve Banks paid silver coin for their notes on demand. If you had had a thousand Federal Reserve Notes in those days and had been wise enough to present them for payment, your thousand silver dollars would be worth ten to twenty thousand Federal Reserve Notes today. Had you kept your Federal Reserve Notes instead, you would only be able to buy a tenth of what they would buy in 1964.
Some people think our money is still backed by silver or gold. But it is not. Today’s Federal Reserve Notes are I.O.U’s for nothing at all, except perhaps our children’s future. Their value rests on the confidence of the people who use them that the notes can be exchanged for something of value. Federal Reserve Notes are the very model of the “confidence game.” Confidence games are run by confidence men, con men for short.
Since Federal Reserve Notes became irredeemable, the Fed has created them at a furious pace. There are so many in circulation now that the money gnomes have decided to stop reporting the total number. That number is known as M3. The Fed won’t be reporting that statistic any more. At last report M3 had crossed the 10 trillion mark, double what it was when the maestro, Alan Greenspan, took charge of printing them. I guess the foreigners holding those trillions of worthless IOU’s were getting a little nervous. This should calm them down.
Meanwhile, if I ever do see another Federal Reserve Note, and if I don’t need it for beer or bullets, I may convert it to real dollars.