Although we usually don't think about it, the value of our money today is judged by how much it can buy not what it is actually worth. If you have a quarter in your pocket, take it out and look at it. It's worth 25 cents, right? After all, it says so on the coin. However, if you were to melt it down and try to sell it, the actual value of the metal in your hand is probably worth only a fraction of a cent. What makes your coin valuable is the writing on it: the words "United States of America" and "Quarter Dollar." That means that even though the amount of metal in your hand is less than a penny you can still take it out and buy twenty-five cents worth of merchandise anywhere in the United States. No matter whether the price of the metal that we make our coins out of becomes very valuable or very cheap, we can always be confident that our quarters will still be worth 25 cents.

This was not always the case with money in America. In fact, in the early years of our country there was no such thing as "American money!" During colonial times, nearly all money was European silver and gold coins. Merchants accepted English, German, Spanish, French and other coins alike, not because they particularly trusted the economic soundness of those countries, but because those coins were made of pure silver and gold. Thus an English pound coin was literally "worth it's weight in gold." Even if the country that issued it went broke, the metal the coin was made of still had value. Because gold and silver coins were very scarce, many banks and merchants started to issue paper money or "bank notes." These could be spent in the stores and shops of the town in which the bank was established, but which the bank also promised to exchange for silver or gold coin if you brought the note back to them.

During the 1820's and 30's as settlers moved even farther west into the Illinois and Iowa territories, coin money became even more scarce than it already was. The federal government still did not have it's own currency to issue, so it allowed for the formation of "free banks" under the regulation of the state governments. These privately owned banks could be started by anyone and were allowed to issue their own currency in order to foster trade in the local economy. Unfortunately, many of these banks issued far more paper bills than they had gold to back it up. These bills were called "wildcat currency" because the banks supposedly willing to redeem it for gold or silver were often more accessible to wildcats than people. When times were hard and people went to these banks to redeem their bills for gold, they often found out the bank did not have enough to pay them. This would create a panic and everyone would rush to the bank to withdraw their money. They bank would go broke and the "wildcat" bills they had issued would become worthless.

The days of the "wildcat" banks came to an end during the Civil War when the United States government sought to control the economic panic and at the same time, find a way to finance the war effort. Under the National Bank Act of 1863, all banks were required to have a federal charter, and were only permitted to issue federal currency (our first real American money) which was backed up with Government securities for collateral. The acceptance of the new federal money required a great deal of faith on the part of the people. During the Civil War, this money was backed up only by faith in the United States government, as metal was very scarce and you could not redeem it for gold or silver. It was not until 1879 that the United States Treasury first began redeeming dollar bills for gold coin. Over the years, confidence grew in the new U.S. currency, and eventually the gold standard as well. Today we can no longer take our dollar bills into the bank and redeem them for gold, but not to worry! Unlike the wildcat currency of the 1800's your dollar bill is still good in any store in America.