Housing and the Silver Certificate

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Source: National Numismatic Collection at the Smithsonian Institution

When I was a boy, every once in a while, I would come across a one dollar Silver Certificate. Because they were different they did not get spent, usually. I spent my last Silver Certificate on a haircut.  It was the only money I had and I planned on keeping the next one I came across for good, which, sadly, hasn’t happened yet.

These one dollar bills looked like every other one dollar bill except for some different and additional text on the face of the bill. Instead of FEDERAL RESERVE NOTE at the very top, these bills said SILVER CERTIFICATE, and below that and above THE UNITED STATES OF AMERICA in a much smaller font was the phrase THIS CERTIFIES THAT THERE IS ON DEPOSIT IN THE TREASURY OF, and at the bottom of the bill beneath ONE DOLLAR it said IN SILVER IS PAYABLE TO THE BEARER ON DEMAND.

It was rare to come across these bills, but they did show up now and then. Being a curious lad I asked my father to confirm that someone somewhere would in fact give me silver in exchange for the bill. He said the government would, which was correct back then, though today if you show up at the Treasury the law now says that your one dollar Silver Certificate will get you a one dollar Federal Reserve Note.

My father’s explanation made sense to me; actually, it made more sense than the fact that all the rest of paper currency seemed not to have anything of value offered in exchange for it.  “So what makes every other bill in every other denomination worth anything?” I asked. My father, who was a man of the machine age, literally; he was an industrial engineer in post war America when industry was all about mechanical manufacturing. He was no economist, but he was always able to describe the world to me with precision and efficiency. “The value behind our money is our houses,” he said.

What my father was describing back then was what we most recently know as “Quantitative Easing.” In dramatic fashion, up until very recently, the Federal Reserve was printing up hundreds of billions of dollars and using them to buy mortgage backed securities. The fact that the dollar suffered no loss in value because of this is confirmation of my father’s lesson.

Moving money in and out of circulation is far more complicated than this “Quantitative Easing” exercise suggests, and our money is backed up by the entire American economy, but housing is a large and important component. For most Americans, the single largest component of their wealth is in home equity and for the economy as a whole, housing and housing services accounts for over 15% of the Gross Domestic Product. While homeownership has suffered since the Great Recession, it has been increasing lately and is still nearly 65% of all households.

So, my father was right about what makes our paper money valuable, and I was wrong to use my last Silver Certificate for a haircut. Today that certificate would be worth $139 to a collector!