Money In Crisis

 Money Goes on wire Paper was still used for payment messaging and bookkeeping when the US Federal Reserve was founded in 1913. What happened next is so important for the history of money that it merits recounting in some detail. The reader will pardon a few technicalities and a brief step back in time. After the demise of the Second Bank of the United States (1834), until the Civil War the United States practiced what we called "free banking." A single monetary denomination, the US dollar, had existed since the Founding Fathers. Its name was inherited from the Spanish American colonies, and with a root ("Tal," or valley) deriving from the German location where silver mints were originally located. US dollars were available in two forms, coins minted in species and paper notes issued by banks. US dollar coins were minted only by one federal institution and were thus the same everywhere. However, banknotes were issued by many different private banks and were not alwa...

 History is the flow of thought-stuff. Thought-stuff goes through phases like water. — Henry Adams In the late 1800s, world monetary arrangements seemed to have reached a stable and lasting form. Banking practices in the advanced world, which at the time meant essentially Europe, mirrored those of Great Britain, the world leader of the time. Encompassing one-quarter of the world’s land and a higher share of its population, the British Empire dominated the globe economically, politically, and militarily. Its colonial system, the Commonwealth, accounted for most of the world’s trade and capital flows and encompassed all elements of a well-functioning economic system: ample availability of raw materials; a powerful industrial base; vast markets for consumer and investment goods; and, last but not least, a well-run political system, with liberal institutions supported by dominant military power. Other European countries' monetary and financial structures tended to align with Britain...