There was a time when coins were made of metal and the value of the metal in the coins corresponded to the denomination of coin. Ie, there was a point when a dollar silver coin was made out of a dollar’s worth of silver. In fact, the decline of the Roman Empire was marked by a degredation of the actual amount of silver. From another post of mine on the matter:
It is in the silver or precious metal content of roman coinage with which we can track the decline of the Roman Empire. The backbone coin of the Roman economy was the Denarius which started out with a silver weight of approximately 4.5 grams. Have you ever noticed the ridges on the edge of a quarter? These same ridges were present on the Denarius and there intention is to make any shaving of the coin obvious. This made it harder for individuals to debase the currency but the government was free to mint coins with less and less silver content. By the year 274 CE under Aurelian’s reign the coins had almost no silver content at all.
As the penny is gradually phased out, prices will have to be rounded to the nearest 5 cent increment. This has me thinking eerily of the Weimar republic and the rapid hyperinflation that marked the end of the regime. Printers worked overnight to mark and remark the bills at higher values to keep up with hyperinflation:
Here is an example of an over stamped Weimar Republic bill. This is an example of a ‘fiat currency’. A fiat currency is one backed only by the national bank without being pegged to a known commodity such as silver or gold. (Canada and the United States also use fiat currencies)
Before 1913, bills in the United States were marked: “redeemable in gold”.
That meant that the bill was backed by a real tenable metal (gold). After 1913 with the creation of the Federal Reserve Act bills were only thereafter marked as “legal tender”. This allowed the Federal Bank to issue bills arbitrarily and thus create the ‘inflation tax’. Government projects could now be funded by invented money which the populace paid for in inflation without a noticeable formal tax. Canada, indeed all modern nations followed suit and use printed currency not pegged to the gold standard.
I feel that we need to further discuss the loss of the penny in the historical context of hyperinflation. If we address the loss of the penny with the necessary concern, it may soon turn out that we all won’t have two coins to rub together.
To see the full release: