From Cash to Trash, Rinse and Repeat

A Frank Giustra guest post, beginning in 1775

A guest post today from Frank Giustra, CEO of the Fiore Group and a veteran mining financier. Among many other well known successes, Frank was the founder of Silver Wheaton, which became Wheaton Precious Metals, a flagship of the streaming model. Original post is here.

The Continental dollar, born in 1775, was meant to finance the colonies’ fight against Britain—the American Revolution. What it actually financed was a masterclass in how quickly a currency can evaporate when it has no anchor, no credible backing, and no one willing to stop the printing presses. Hundreds of millions of Continental notes were issued with nothing but the promise of future redemption in gold or silver—which the colonies did not possess in sufficient quantity.

As wartime expenses mounted and the conflict dragged on, the colonies’ solution was a time-honored tactic. Just dig yourself a deeper financial hole by printing more currency. When confidence in the Continental buck inevitably collapsed, merchants demanded ever-larger stacks of paper for the same goods.

By 1781, a barrel of flour that once cost a few Continental dollars cost hundreds or thousands. The exchange rate against silver reached the point where it took five hundred to a thousand Continentals to buy a single hard dollar (meaning a silver or metal coin). Some states saw the writing on the wall and simply stopped accepting the notes altogether.

The British, who had plenty of practice in meddling in colonial internal affairs, helped the debasement process along. They knew that counterfeiting Continentals on an industrial scale was cheaper than fighting military battles, and more effective. The result, as intended, was hyperinflation. When the dust settled, the phrase “not worth a Continental” had entered the language as shorthand for worthless.

The Founders, having lived through the destruction of the Continental dollar, carried a deep suspicion of unbacked paper money into the constitutional debates. That suspicion helped produce a document that at least tried to constrain monetary experimentation. George Washington famously said, “Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open a door to every species of fraud and injustice.”

That was not the only such inflationary episode before the colonies became a republic. During and after the American Revolution, individual states issued their own notes with similarly dismal results—sharp depreciation, hyperinflationary spikes in the 1780s, and the general chaos that made a stronger federal hand on currency seem necessary.

The War of 1812 brought another suspension of convertibility and the circulation of Treasury notes at discounts. The so-called Free Banking Era that followed (1837–63) is not unlike today’s cryptocurrency industry. It produced thousands of state-chartered banknotes, many of which traded at steep discounts or became worthless when the issuing (“wildcat”) banks, beset by fraud and panics, collapsed.

The Confederate currency of 1861–65 offers perhaps the cleanest parallel to the Continental story. Once again, massive overprinting to finance a war without adequate taxation was followed by hyperinflation so severe that prices rose thousands of percent before the notes became essentially worthless by the end of the Civil War.

In every case, the pattern resurfaces predictably. Governments (or would-be governments) facing extraordinary expenses turn to the printing press when taxation and borrowing prove inadequate or inconvenient. It’s as if politicians and policy makers either never read a history book or had their memories magically erased. Without a credible anchor in hard assets or ironclad fiscal discipline, public confidence erodes, money velocity rises, and the currency loses purchasing power—sometimes gradually, sometimes in a sudden rush.

The modern version of this story began in earnest with the end of dollar convertibility into gold. Domestically this occurred in 1933, when FDR confiscated privately held gold. Internationally, the break came in 1971, when Nixon closed the gold window.

Ever since, the dollar has functioned as a pure fiat currency. The cumulative effect on purchasing power has been substantial. What $1 bought in 1971 is what about 15 cents buys today. In other words, you need $6.50 to $7 to purchase what a single dollar bought in 1971. That’s a loss of roughly 85 percent of purchasing power over half a century—an outcome entirely consistent with the long-run behavior of unbacked paper currencies. It’s not hyperinflation in the dramatic sense we saw in 1920s Weimar Germany, or in 2000s Zimbabwe, but it’s a steady, grinding, quasi-invisible debasement that compounds across generations.

The usual excuses, “This time is different”, assume that American institutions are uniquely resilient or exceptional, that the dollar’s reserve status grants permanent immunity, and that the U.S. can abuse its currency without serious consequences. These sound like the rationalizations heard at the late stages of any long monetary experiment.

The historical record is not kind to such beliefs. Empires from the Spanish to the British to the French have discovered that the ability to print unlimited currency eventually encourages the very behaviors that undermine the currency. Countless wars have been financed by debt and debasement. Political fragmentation prevents corrective action, confidence bleeds away, and alternative stores of value gain traction. De-dollarization today, whether measured in central-bank gold purchases or shifting trade-settlement patterns, reflects a repeat of that loss of confidence.

The Founders understood something that today’s generation, lacking direct experience of currency collapse, finds easy to overlook. Paper money untethered from hard assets removes the shackles that keep politicians from doing what politicians would always rather do—abandon fiscal responsibility.

The Founders had seen the Continental experiment up close. They knew that once the printing press becomes the path of least resistance, the incentive structure for politicians and central bankers alike encourages more spending, more debt, and more monetary accommodation. The result, over time, is the gradual erosion of purchasing power we’ve seen since 1971, punctuated by sharper episodes when political or geopolitical pressures intensify.

None of this is to predict imminent hyperinflation or the sudden disappearance of the dollar as a medium of exchange. Fiat currencies can limp along for decades, sustained by network effects, institutional inertia, and the absence of a clearly superior alternative. But the long-run arithmetic is unforgiving and requires only elementary school math to foresee. Every historical example of sustained, unbacked issuance ends the same way. The currency loses most of its value, new arrangements eventually emerge, and those who held real assets, particularly gold, preserve wealth while others do not.

The lesson is not complicated, just inconvenient. When a great power abandons any credible link to hard money, the currency loses purchasing power over time, and the temptation to finance geopolitical ambitions through debt and debasement grows ever stronger.

The phrase “not worth a Continental” was once popular in the U.S. It wasn’t part of a Cadillac marketing campaign. It came about after the Continental Congress decided that printing its way out of a war was preferable to the messy and difficult business of collecting taxes.

As we’ve seen, the United States has lived through several episodes of this series. The only novelty today is the scale at which the experiment is being run and the amnesia with which it’s being conducted. Those who imagine the outcome will be any different this time around might usefully recall that the Continental Congress also believed its circumstances were unique—until the notes stopped buying anything at all.

Is it too far-fetched to imagine that our descendants will one day adopt the expression “Not worth a US dollar”?