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The Issue of Paper Money in the American Colonies, 1720–1774

Published online by Cambridge University Press:  03 February 2011

Roger W. Weiss
Roger W. Weiss
Affiliation:
University of Chicago
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Extract

Every generation has interpreted the monetary experience of the colonies in the light of its own problems. The Jacksonian period produced the interpretations of Gouge just as the silver controversy of the 1890's produced the work of Bullock and Davis. The reaction to the financial fundamentalism of the 1890's came largely from the work of R. A. Lester and the unpublished but celebrated work of L. Brock in the late thirties and early forties, heavily influenced by the experience of the depression. From the latter two, a new orthodoxy has emerged among American historians, under the authority of E. James Ferguson, whose important recent study, The Power of the Purse, defends the paper money currencies of the colonies by a well-reasoned appeal to the modern fiscal practice of financing war by inflation.

Type
Articles
Information
The Journal of Economic History , Volume 30 , Issue 4 , December 1970 , pp. 770 - 784
Copyright
Copyright © The Economic History Association 1970

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References

The author's thanks are given to an anonymous reviewer whose comments on an earlier version avoided an error and improved the organization of this paper.

1 Lester, R. A., Monetary Experiments (Princeton: Princeton University Press, 1939)Google Scholar; Brock, L. Van Horn, The Currency of the American Colonies, 1700–1764 (unpublished Ph. D. Dissertation, University of Michigan, 1941)Google Scholar.

2 Ferguson, E. James, The Power of the Purse (Chapel Hill: University of North Carolina Press, 1961)Google Scholar.

3 William Douglass, “A Discourse Concerning the Currencies of the British Plantations in America,” in Davis, Andrew McFarland, Colonial Currency Reprints, III (Boston: The Prince Society, 1911), p. 326Google Scholar. Davis, Andrew McFarland, Currency and Banking in the Province of Massachusetts Bay (New York: The Macmillan Company, 1900)Google Scholar.

4 McLeod, Frank Fenwick, “The History of Fiat Money and Currency Inflation in New England from 1620 to 1789,” Annals of the American Academy, XII, 1898Google Scholar. Bullock, Charles, Essays in the Monetary History of the United States (New York: The Macmillan Company, 1900)Google Scholar.

5 “The Nature and Necessity of a Paper Currency,” in Sparks, Jared, ed., The Works of Benjamin Franklin, II (Boston: Tappan & Whittemore, 1836), pp. 254–77Google Scholar. Franklin's role is not free of conflict of interest judged by our present-day standards. He wrote in his Autobiography,

It [the pamphlet, Nature and Necessity …] was well received by the common people in general; but the rich men disliked it, for it increased and strengthened the clamor for more money, and they happening to have no writers among them that were able to answer it, their opposition slackened, and the point was carried by a majority in the House. My friends there, who conceived I had been of some service, thought fit to reward me by employing me in printing the money—a very profitable job and a great help to me,” Labaree, Leonard W., ed., (New Haven: Yale University Press, 1964), p. 124Google Scholar.

6 Smith, Adam, Wealth of Nations (New York: The Modem Library, 1937), p. 406Google Scholar.

7 Hammond, Bray, Banks and Politics in America (Princeton: Princeton University Press, 1957), p. 14Google Scholar. Brock's argument is even stronger:

The result was, that as the demand for silver from making payments abroad grew, and as the supply of the metal within this colony dwindled and fewer and fewer silver coins came into the hands of the merchants in the ordinary course of trade, those that needed it to make remittances to Britain began to bid one against the other for it, and its price rose. The existence of a stock of silver in a colony served to retard the rise of the price of the metal even in the face of a substantial increase in the sums outstanding in bills of credit. As soon as the stock was exhausted, the rise became more rapid,” (Brock, Currency of the American Colonies, p. 30).

8 Nussbaum, Arthur, A. History of the Dollar (New York: Columbia University Press, 1957), p. 31Google Scholar.

9 Ferguson, The Power of the Purse, p. 4.

10 Shepherd, James F. and Walton, Gary M., “Estimates of ‘Invisible’ Earnings in the Balance of Payments of the British North American Colonies, 1768–1772,” The Journal of Economic History (June 1969)Google Scholar, Tables 1, 6 and 7 supplemented by their estimate of British spending in North America in support of the military forces stationed there.

11 Pressnell, L. S., Country Banking in the Industrial Revolution (Oxford: Clarendon Press, 1956)Google Scholar.

12 Governor Ward to the Board of Trade, January, 1741, in Bartlett, John R., Rhode Island Colonial Records, V (Providence, 1862), p. 13Google Scholar.

13 “A Petition to the Board of Trade,” Newport, February 27, 1749, ibid., V, p. 284.

14 White, Philip, ed., The Beekman Mercantile Papers, 1746–1799, III (New York: New York Historical Society, 1956), p. 1025Google Scholar, October 15, 1785.

15 Henry Lloyd Letterbook, December 21, 1765, manuscript in Baker Library, Cambridge, Massachusetts.

16 Ferguson, The Tower of the Purse, p. 8.

17 Bezanson, Anne, Gray, Robert and Hussey, Miriam, Prices in Colonial Pennsylvania (Philadelphia: University of Pennsylvania Press, 1935)CrossRefGoogle Scholar.

18 Benjamin Franklin can be forgiven for not having been aware of an index of prices and of how it would have measured the price changes of his time, but his arguments in “Remarks and Facts Relative to the American Paper Money,” written in answer to a Report of the Board of Trade in 1764, may be a bit disingenuous:

A dollar thereby coming to be rated at eight shillings in paper money of New York, and 7s6d in paper of Pennsylvania it has continued uniformly upon new emissions; though in Pennsylvania, the paper currency has at times increased from £15,000 the first sum, to £600,000, or near it. Nor has any alteration been occasioned, by the paper money, in the price of the necessaries of life, when compared with silver. They have been for the greatest part of the time no higher than before it was emitted; varying only by plenty and scarcity, according to the seasons, or by a less or greater foreign demand. Franklin, Benjamin, Works, Sparks, Jared, ed., II (Boston: Tappan & Whittemore, 1836), p. 351Google Scholar.

19 Cole, Arthur H., Wholesale Commodity Prices in the United States, 1700–1861 (Cambridge: Harvard University Press, 1938)CrossRefGoogle Scholar.

20 Jones, Alice Hanson, Wealth Estimates for the American Middle Colonies, 1774 (unpublished Ph.D. Dissertation, University of Chicago, 1968)Google Scholar.

21 The Loan Banks were paper money issues made on mortgage loans to persons by the colonial governments and providing for redemption at the rate at which the mortgage indebtedness was to be amortized. The interest that was paid by the borrowers provided a sufficient income to carry the expenditures of Rhode Island government during some peacetime years.

22 As Judge Samuel Sewall was quoted by Brock for saying in 1712, “I was at making the first bills of credit in the year 1690. They were not made for want of money, but for want of money in the Treasury,” (Sewall, Diary, entry of November 3, 1712 in Collections of the Massachusetts Historical Society, VI, Fifth Series, Boston, 1879, p. 366).

23 Pressnell, Country Banking, pp. 15–16:

Thus the currency was in an unsatisfactory, even lamentable condition throughout the Industrial Revolution. Entrepreneurs were gravely handicapped; they required means of payment for remittance to suppliers of raw materials, but above all for workers' wages; but the monthly (or longer) settlements and bills of exchange that would do for other traders would not suit most workers, who required regular payment in readily acceptable money of low denomination. Fortnightly or staggered pay-days, resort to truck and the tommy shop, were half-measures, particularly as the coin economized thereby was, in any case, of poor quality; more currency and better currency was needed.