The real reason gold and silver coinage initially worked well as money for the people, is that the people produced the gold and silver, a raw resource of the earth, through their labor. The 1792 Coinage Act allowed anyone to take that resource to the United States mint and have it monetized (coined) free of charge. We, the people, furnished our own money, based on our production, as a wealth to ourselves and spent it into circulation as a benefit to all of society with no debt attached to it.

Gold and silver are very heavy metals and not as convenient to carry as paper money. If we didn't want to carry the gold and silver coins around with us we could take them to the United States Treasury and store/deposit the coins. The Treasury would issue depositors gold and silver certificates as receipts. They stated on their face that there was X amount of gold or silver coin on deposit in the Treasury, payable to the bearer on demand. Now, we had paper money. As long as just this principle was followed you still had good, honest, wealth money with no debt, no excessive profit, nor excessive purchasing power to anyone.

The ten dollar gold certificate

However, when someone deposited their gold and silver coin in a fractional reserve bank, a totally different principle went into action. The bank held the coins as a reserve and expanded the money supply by making new loans equal to 10 times the face value of the coins deposited. At that point, money switched from wealth to debt.

Americans have lacked this understanding. Lack of understanding is why America is the world's greatest debtor nation with over $26 Trillion in public and private debt at the end of 1990.

On January 24, 1939, Robert H. Hemphill, credit Manager of the Federal Reserve Bank of Atlanta stated:

"If all the bank loans were paid no one would have a bank deposit and there would not be a dollar of coin or currency in circulation. This is a staggering thought. We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous: if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture the tragic absurdity of our hopeless position is almost incredible, but there it is. It (the banking problem) is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon."

Throughout the nineteenth century, larger banks worked to get laws passed that would consolidate all fractional banking under the control of just a few. They did so under the guise of a standardized national money. They were successful in 1863 with the passage of the National Banking Act. It allowed newly chartered national banks to create a uniform national bank currency. A few years later the federal government taxed state bank notes out of existence. In 1873, the government stopped all free coinage of metals. They began to use United States Certificates of indebtedness -- United States Bonds -- as security for the national currency.

The note states on it's face "The Federal Reserve Bank of Minneapolis Minnesota will pay to the bearer on demand one dollar -- Federal Reserve Bank Note" However, it no longer said a dollar of what, like the gold and silver certificates. It also says "secured by United States Certificates of indebtedness" You can now clearly understand why our government and private sector are so deeply in debt. All we use for money is (monetized) DEBTS.