Mark Lyman Staker notes that, while the U.S. Constitution reserved to Congress alone the power to create money, banks could acquire capital in the form of hard currency, land deeds and other assets and issue short-term loans in the form of "bank notes."

Date
2009
Type
Book
Source
Mark Lyman Staker
LDS
Hearsay
Secondary
Reference

Mark Lyman Staker, Hearken, O Ye People: The Historical Setting for Joseph Smith’s Ohio Revelations (Salt Lake City, UT: Greg Kofford Books, 2009), 447

Scribe/Publisher
Greg Kofford Books
People
Mark Lyman Staker
Audience
Reading Public
Transcription

The U.S. Constitution reserves to Congress alone the power to create money which, in the 1830s, the Treasury Department issued as gold and silver coin (specie). In addition to this legal tender, businesses of all kinds commonly lent money in the form of banknotes that they printed individually and which were used much like promissory notes. Recently scholars have compared these banknotes to credit cards (and even to internet purchases) because they fostered virtual economic transactions without the use of actual money. These banknotes were backed by very small amounts of specie and large amounts of less liquid forms of capital such as land, grain, cotton, canals, industries, books, or even sandstone. This collateral, in theory, could be sold for specie; and if an individual wanted specie in exchange for his banknotes, he could trade the printed paper in for gold and silver at any institution that would accept it but especially at the institution that had issued the note. Financial experts at that time considered the ability to exchange banknotes for specie as “one of the greatest practical improvements which can be made in the political and domestic economy of any State. . . . Such convertibility was [considered] a complete check against over issue.”

Banks in particular made a business of issuing notes as a means of proving short-term loans, although they were not the only lending institutions. As economic speculation and general economic optimism spread widely in the Western Reserve and throughout the United States, “paper and speculation . . . were heartily approved by many westerners”; banks, canal companies, gristmills, and other companies printed notes, in the process of fueling rising land investments.

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