What an interesting subject.
Over at Ellen Brown’s blog people are talking about money, what it is, who should decide what it is, what’s right, what’s wrong. So many opinions about a seemingly simple, everyday part of our lives.
Often discussions like that center on paper money, which is unfortunate because paper money is a relatively small percentage of money in circulation. Most money, as a federal reserve official once told me, is “held on account”, a ledger entry or digital number in some bank or other. Just as in your personal life the actual currency you might hold at any given time is a small percentage of the money you have available, so it is in the larger economy.
But let’s go back in time a bit. For decades before 1913, the United States had no central bank, no Federal Reserve. At present, currency in the US is in the form of “Federal Reserve Notes” in various denominations, the largest being $100 bills. This is an historic anomaly in itself; at one time there were $10,000 bills. But that’s another subject for another time, maybe.
But was there paper money in the US during the period before there was a central bank? Yes. Banks issued notes – bearer paper – promising to “pay to the bearer on demand” the amount specified. These notes could circulate as money and were widely accepted, although they didn’t have to be accepted. They were not “legal tender” notes. But anyone who possessed them was entitled to redeem them from the bank that issued them. That, too, is a subject for another time.