By Kelly Burgess
Why did people bury their money in the backyard? For the same reason William Strawser did: they worried that if they put their money in the bank they’d never see it again. For the treasure-hunting type, however, knowing more about the types of bills you could find buried in the backyard means knowing a bit more about the types of banking in America.
America’s cash crunch started when Europeans arrived in America, lured by the promise of streets paved with gold. What they found was the opposite: a dire lack of precious metals on the continent. Any valuable, visible commodity to trade, like silver or gold, was in short supply. “For a country to be wealthy, it had to have real gold and silver in the country and restrict the amount of gold and silver that left,” says American Numismatic Association Money Museum curator Douglas Mudd. “Other countries were aware of [America’s precious-metal deficit] and tried to avoid paying for necessary goods, like trees and hemp or whatever, in gold, preferring to trade with items like slaves or sugar. This kept [America] in a perpetual shortage of actual wealth and made it difficult to issue paper money, because money has to be guaranteed by something.”
Treasury bills were the first paper money in America, and they were issued by the Massachusetts Bay Company to fund a war with the French. The money was “guaranteed” by an expected victory—defeat of the French would surely result in a booty that could back up at least the face value of the money. The victory, however, never materialized. “At first, money was issued for brief periods with the idea that it would be redeemed by a state as soon as possible,” says Mudd. “As long as people were confident that the state could back up the money, it worked. If you’re the farmer that means relying on the merchant to take the money, and, as the merchant, trusting that your suppliers will take the money. If at any point this system of trust breaks
down and someone won’t take that money, it all starts to devalue.” Soon, colonies all over America were printing money and guaranteeing it in various ways that were a gamble for anyone who took it. The money might only be good in a single colony: people couldn’t take a dollar from a bank in Massachusetts and spend it in New York because there was no way for a New York merchant to know if that piece of paper was good or worthless. Fraud and counterfeiting were rampant.
The first organized attempt by the U.S. government to issue money came during the American Revolution. This, too, ended in disaster, and the bitter phrase, “not worth a continental” was born.
It wasn’t until the Civil War that Congress created a national banking system, chartering federal banks that could issue their own paper money. The banks had to have a certain amount in reserves with the federal government, and the government would print notes that conformed to a standard design for the banks. The problem with this system was that banks were still independent entities, and they relied on the national economy to remain solvent. If a bank went out of business, as happened to many banks in the 1920s and 1930s, a depositor might lose everything.
Finally, in 1933 when the FDIC was established, America had a banking system that citizens could trust for the first time; however, it took time to build that trust. So for anyone who lived through the years when putting money in a bank was almost as much of a gamble as betting that money on a horse, it’s little wonder why a person would decide to hide his or her fortune in the attic. Or the outhouse. Or the garden. Or the fishbowl. Or all of the above.
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