Once upon a time, all the money in the world was gold and silver. Hard as it is to imagine nowadays, little more than a human lifetime ago, all of the world’s major economies used money that was equivalent to precious metals. The wealthy countries, such as England and France, which had large stockpiles of gold, used that metal as their yardstick, while less-wealthy countries, such as Mexico, the Philippines, and China, used silver. The United States used a bimetallic standard, whereby both gold and silver were the basis for the dollar, according to a convertibility rate of 15 to 1 first set by Congress in 1792. Banking and paper money existed then as now, but with a key difference: Paper notes represented claims on gold and silver, and could be redeemed as such, while banks kept coinage in both metals in their reserves.
This state of affairs imposed strict limits on the ability of governments to spend money. Bereft of the power to print money at whim, political leaders were forced to raise money by taxation, or, in case of war or other emergency, to borrow money that would be eventually repaid — with interest — using taxpayer money. Because of this, statesmen and politicians needed to keep their natural avarice and ambition in check, lest they incite a revolt from overtaxed citizens.
Steve Bonta is Publisher of The New American a magazine from the John Birch Society discusses this delicate tension that exists between governments and its citizens or subjects.
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