CHAPTER XIV

INTRODUCTION

by Alexander Del Mar

THE monetary systems of the present day are an historical development; they descend from the principles enunciated in the great Mixt Moneys case of 1604, the circumstances connected with the Spanish Conquest of America; the Spanish Free Coinage Act of 1608, the British Free Coinage Act of 1666 and the invention of the coinage and printing presses. It would therefore seem necessary that writers on the subject should possess some familiarity with these topics. But though the author of the present work has consulted many treatises relating to monetary systems he has never yet met with one which evinced the least grasp of these various historical elements. Some of them contain information relative to the details of monetary issues. These, when carefully collated, are of value to the historian and commentator. But for the most part books on money are filled with doctrines, or worse yet, mere dilutions of doctrines, without history or experience to support them; doctrines based on words, on definitions, on figments of the mind, false, worthless, misleading, mischievous and hurtful. (emphasis added)

The legal, political and social character of Money; its influence upon the public welfare; the prominent place it has occupied in the annals of the past; the countless experiments that have been made in the fabrication and emission of its symbols; the civic struggles that have centred upon its control; and the learning that has been devoted to its principles by philosophers, legislators and jurists, surely claim for its historical treatment some better preparation than doctrines. The Father of the Inductive method was born more than three centuries ago; yet it is only now that his method is being applied to the study of money.

I.--The Mixt Moneys case decided that Money was a Public Measure, a measure of value, and that, like other measures, it was necessary in the public welfare that its dimensions of volume should be limited, defined and regulated by the State. The whole body of learning left us by the ancient and renascent world was invoked in this celebrated dictum: Aristotle, Paulus, Bodin and Budelius were summoned to its support; the Roman law, the common law and the statutes all upheld it; "the State alone had the right to issue money and to decide of what substances its symbols should be made, whether of gold, silver, brass, or paper. Whatever the State declared to be money, was money." That was the gist of it. (For a full account of this famous case, see the author's "Science of Money," ch. IV.)

This decision greatly alarmed the merchants of London, and for more than half a century after it was enunciated they were occupied with efforts to defeat its operation. In 1639 they succeeded in getting the matter before the Star Chamber; but their plans were rejected. The Revolution of 1648 postponed their projects. The Restoration of 1660 revived them. Their final success dates from 1666. Meanwhile other things had happened.

II.--In the contracts which it made with Columbus, Cortes, Pizarro, De Soto and the other commanders whom it sent forth to discover or plunder America, the Crown of Spain always stipulated that the Quinto--one-fifth--of the spoil should be reserved for the king. The remainder, if of gold or silver, might then be melted down and stamped with its weight by public officials and then shipped to Spain for coinage. At each step of these operations the Crown exacted a fresh tax, seigniorage, derecho, haberia, etc., so that by the time the plunderer or miner got back his metal, one-third to one-half of it had found its way into the royal coffers. The delay and risk of shipment to Spain supported a clamour for Colonial coinage and Colonial coinage resulted in an agitation to abolish all coinage fees except the Crown's Quinto: an agitation which ended in securing the "free" coinage edict of 1608. Under this edict all gold and silver which had paid the Quinto on acquisition or production, was required to be coined by the Royal officials for private individuals free of charge and without limit. The granting of such a privilege bespeaks the employment of coining machinery, for the Crown could hardly have afforded it so long as coins had to be made by hand. As a matter of fact coining machinery was employed in Italy and Spain about the middle of the 16th century.

III.--Before the Crown of Spain proclaimed "free" coinage for Quinto-paid metal in America, much of the metal plundered from the natives or acquired through the repartimiento system, of which more anon, was smuggled out of the Colonies and found its way to Holland, France and England. With "free" coinage in Spanish America this movement slackened, and this cessation of the illicit trade in the precious metals furnished a pretext to the London merchants for renewing their demands upon the Crown for gratuitous and unlimited coinage. But their main argument was supplied by the East India Company, who were anxious to ship silver to India in exchange for gold, a transaction that at that time afforded a profit of cent per cent. Behind this argument there was bribery of the court officials, of the king's mistress, Barbara Villiers, and even of the king (Charles II.,) himself. After several years of intrigue, the merchants finally succeeded; and in 1666 was enacted that "free" coinage law which practically altered the monetary systems of the world and laid the foundation of the Metallic theory of money. The specific effect of this law was to destroy the Royal prerogative of coinage, nullify the decision in the Mixt Moneys case and inaugurate a future series of commercial panics and disasters which down to that time were totally unknown.

IV.--The Spanish Crown rewarded its Conquistadores and their followers not with grants of land in America but with grants of Indians, nominally as vassals, but practically as slaves. These grants were called repartimientos, afterwards encomiendas. They virtually awarded to the grantee the right to seize upon a specified number of the natives and compel them to produce gold and silver for nothing. Millions of lives were thus granted away and millions of ducats were the result; but besides the lives they cost, these millions cost nothing to the Spaniards, whose acquisitions of the precious metals, whether by plunder or through their repartimientos, had therefore no relation to that "cost of production" which forms the fallacious basis of the Metallic theory.

V.--It has been already intimated that coining machinery was employed in Italy and Spain during the 16th century. Evelyn, in his work on Medals, asserts that Jerome Cardon, who died in 1576, described a coining press used in the Venetian mint, "which both stamped, cut and rounded money by one operation only." This device is also mentioned by Benevenuto Cellini, who died in 1570. Previous to the invention of coining machinery, an ordinary workman could turn out not more than 40 or 50 coins a day. With the laminating-mill and screw-press, which was employed in Spain so early as 1548, he could turn out several thousand coins a day. These labour-saving machines entirely changed the relations of Money to exchange and society; a revolution which was still further advanced by the application of the printing press to the issues of Money, the earliest examples of which, within the scope of the author's researches, were the pasteboard (embossed) dollars of Leyden issued in 1572.

VI.--The invention of coining machinery had still another important consequence: it multiplied counterfeits, not necessarily base coins, but forged coins containing as much or more fine metal than the genuine ones; but metal that had not paid the Quinto. In 1569 Phillip Mastrelle, who brought a coining press from France into England, was detected in making coins on his own account, an offense for which he was executed. Fenelon states that in 1574 certain Germans, Hollanders and Frenchmen, in England, were detected in forging a million crowns of the coins of France, Spain and Flanders; and that this was done as a political measure, with the connivance of some of the ministers of Queen Elizabeth. The Marquis de Tavannes assures us that Salcede, who was executed at Paris in 1582 had grown rich from the profits of what he termed forgery, but what, according to the Metallic school, was really only justifiable private coinage; because the forged coins contained more silver than the genuine. These offenses could only have been profitable when committed with the aid of coining machinery, whose influence upon exchange and society must have become in this manner greatly augmented. ("Barbara Villiers," p. 18.)

With this brief Introduction the author commends his book to the indulgent public. Should his health permit, it will be followed by the "History of Money in America, from the Adoption of the Constitution to the present time," and this will form the last of a series of monetary histories, which, commencing with a History of the Precious Metals, and followed by a History of Monetary Systems, now embraces all the principal States of the world, both ancient and modern.

INTRODUCTION

CHAPTER XIV

 FEW events have occurred in the history of mankind of more general importance than the American Revolution. It was not merely the assertion of independent sovereignty by a few remote and obscure colonies. It was the establishment of an order of society which had been substantially forgotten for eighteen centuries; it was the separation of Church and State, and the extinction of the feudal system, and that too among a people with such natural advantages and opportunities of growth and progress, that this new order of affairs was likely to create a new empire, greater than that of all Europe. This revolution possesses such great historic interest that it demands a rigorous impartiality in tracing its inception and progress.

In the execution of this task historians have hitherto paid too little attention to the significant circumstance, adverted to in a previous work,(1) that the New England Colonies, in which the revolution originated, were of an agricultural character, and for this reason, as well as from the political antecedents of the colonists and the expanse and fertility of the lands they occupied, they possessed a strong tendency to rapidly increase in numbers and productive resources. Such a community demanded the establishment of institutes favourable to its rapid development and the removal of such institutes as threatened to retard or prevent it. Foremost among the latter was the institute of Money imposed upon it by the Mercantile system of Great Britain. This system encouraged the import and discouraged the export of the precious metals from England. Therefore, unless the North American Colonies could produce these metals from their own soil, which happily for posterity they could not, they had to be contented with such money as the Crown chose to provide them with.

It is evident that with money, the supplies of which were subject to the power of a distant sovereign and an apathetic ministry, the orderly development of the Colonies was impossible, and hence followed those efforts to establish at first a silver coinage and afterwards a paper system of their own, which led to the contentions between them and the Crown that distinguished the latter half of the 17th and first half of the 18th century. The bitterness arising from this source was enhanced by the Contraction of 1750 and the prostration of industry to which it led. When in 1774 the Act was promulgated which required a stamp to be placed upon every instrument of commerce, and thus threatened to suppress or defeat that restoration of the paper money system which was at that time being sought, the bitterness of the Colonists grew to phrenzy and resulted in those acts of resistance to the Crown which have been dignified by the names of the "battles" of Lexington and Concord.

Almost the first act of the Massachusetts and the Continental revolutionary assemblies was the emission of paper money in the teeth of the Royal prerogative, and this was done while yet the Colonies had no fixed determination of separating from the mother country. Indeed, barring Lexington and Concord, which were mere skirmishes to protect some trumpery stores, the emission of paper money was the first act of open resistance and defiance which the American Colonies offered to the Crown. On the 1st of May, 1775, less than a fortnight after the opening skirmishes of the Revolution, the Committee of Safety appointed by the Provincial Congress passed a resolution, in defiance of the lately re-established prerogative of the Crown providing that the "paper currencies" of the neighbouring Colonies "be paid and received within this Colony." The following are the words of this important resolution:

"Whereas, many of our brethren of the Colonies of Connecticut and Rhode Island are now with us, to assist us in this day of public and general distress, in which we are all deeply concerned; and whereas our brethren of said Colonies have brought with them some of the paper currencies of their respective Colonies, which have not, of late, had a currency with us, and for want of which our common interests may greatly suffer, Resolved, that said paper currencies shall, from and after the date hereof, be paid and received within this Colony, in all payments, to all intents and purposes, in the same proportion to silver, as the same are paid and received within the respective Colonies by which the same have been issued."

Two days afterwards, to wit on the 3rd of May, the Provincial Congress empowered the Treasurer of Massachusetts to raise £100,000 (Colonial) by issuing six per cent interest-bearing bills of credit to that amount, payable June 1, 1777. No bill was to be of a less denomination than £4; and, as they desired the other Colonies to accord them "currency," it is to be presumed that they were made legal tenders in Massachusetts. Eight days later, to wit on the 11th of May, Massachusetts asked the Revolutionary, or "Continental" Congress which had assembled at Philadelphia on the previous day, to endorse for her, the sum of £100,000 in bills of credit, which she proposed to issue, so that she might be able the better to obtain circulation for them in the other Colonies. Pending the consideration of this request by Congress, Massachusetts on the 20th May, 1775, ordered the emission of £26,000 one-year interest-bearing legal-tender bills of credit, chiefly of small denominations. The following is a copy of one of these notes:

"COLONY OF THE MASSACHUSETTS BAY.

No...                                                                                                                                 May 25, 1775.
The possessor of this note shall be entitled to receive out of the public treasury of this Colony the sum of twenty shillings, lawful money, on the twenty-fifth day of May, A. D. 1776, with interest, at the rate of six per cent per annum, and this note shall be received in all payments at the Treasury, at any time after the date hereof, for the principal sum, without interest, if so paid before the 25th day of May 1776, which notes shall be received in all payments in this Colony, and no discount or abatement shall be made thereon, in any payment, trade, or exchange whatsoever."

Turning from the acts of Massachusetts to those of the Congress of all the Colonies, we find that the establishment of an independent monetary system was among the first measures they adopted. This immortal body met May 10, 1775, and on June 22 it resolved to emit $2,000,000 in bills of credit, for whose redemption the faith of the "United Colonies" was pledged.

The following is a copy of one of the bills emitted under this resolution:

"CONTINENTAL BILL OF CREDIT.

No. 10                                                                                                                                  Ten Dollars.
    This bill entitles the Bearer to receive Ten Spanish milled Dollars or the value thereof in gold or silver, according to the resolutions of the Congress held at Philadelphia, on the 10th day of May, 1775."

Says Jefferson: "Before the 19th of April, 1775," the day succeeding the Battle of Lexington, "I never had heard a whisper of a disposition to separate from Great Britain. The Colonies had not yet cut asunder the ties of their allegiance to the Crown. The Continental Congress had sent a petition to the King denying any intention of separation from England." But, although the Colonies were as yet uncertain of their course with respect to separation, there was no uncertainty with regard to their monetary system. This they had determined should be independent of the Crown and this determination they had expressed in overt acts that had long marked them as disaffected rebels and were now to mark them as outlaws. Lexington and Concord were trivial acts of resistance which chiefly concerned those who took part in them and which might have been forgiven; but the creation and circulation of bills of credit by revolutionary assemblies in Massachusetts and Philadelphia, were the acts of a whole people and coming as they did upon the heels of the strenuous efforts made by the Crown to suppress paper money in America, they constituted acts of defiance so contemptuous and insulting to the Crown that forgiveness was thereafter impossible. After these acts there was but one course for the Crown to pursue and that was, if possible, to suppress and punish these acts of rebellion. There was but one course for the Colonies; to stand by their monetary system. Thus the bills of credit of this aera, which ignorance and prejudice have attempted to belittle into the mere instruments of a reckless financial policy, were really the standards of the revolution. They were more than this: they were the Revolution itself!

There are several circumstances in connection with the Continental bills which are worthy of observation in this place:

I.—They were money only to a partial extent. They were not legal-tenders throughout the whole country. The Colonies did not clothe the Continental Congress with power over money, but retained it themselves. One by one and usually in return for an endorsement of their own notes (i. e., so-called "Continental bills" allotted and given to or issued by them, and endorsed by Congress) the States made the Continental bills a legal-tender within their respective jurisdictions, sometimes at par with their own notes, sometimes at a great discount below them. Others of the states, like Massachusetts, limited the legal-tender function of the Continental bills to one dollar, or, like Virginia, practically destroyed it altogether, by boundless emissions of their own notes, which were made co-ordinate with them. The progress of monetization was so slow that so late as January 14th, 1777, Congress felt constrained to appeal to the States to fully accord the function of legal-tender to its bills.

II.—The Continental Congress had no legal power to create money and no physical power to maintain or enforce its circulation after it had been created. It could not redeem the notes in taxes. Congress was a revolutionary body liable to be suppressed at any moment. It was without any legal authority, either from Great Britain or from its constituent States, to create money. This power was first granted by the Articles of Confederation, which although they were provisionally agreed upon in 1777 were not ratified by all the states until 1781, by which time the Continental bill system was superseded by coins. The circumstances of Congress were such, (for example, it had no power to levy taxes), that it could not refrain from continuing to emit bills. Hence, it could make no positive limit to the emissions, and hence could not maintain the system. It had no courts or police, nor other physical means to enforce the acceptance and circulation of the bills, nor to prevent or punish counterfeiting.

Perhaps in all history there never was a body at once so powerful and so helpless as this one. It exercised all the powers of national sovereignty, and yet never collected a dollar of taxes in its own right. It accredited its ministers to foreign countries, and received ambassadors in return; but would have trembled to appoint a tax collector in Rhode Island or Delaware. It created armies, emitted money, made foreign loans, yet had no certain resources upon which to base any of these acts. In a word, it was at once a sovereign and a mendicant.

III.—For more than three-fourths of a century the Colonies had been admonished that in emitting bills of credit they had usurped a royal prerogative, and for more than a quarter of a century, these same Colonies had been made the object of most severe measures designed to repress this practice and stop the circulation of the bills. To encourage the currency of Continental bills was therefore to incur the certain displeasure of the Crown.

IV.—The lack of monetary authority on the part of Congress reduced its emissions to the rank of those made by the various Colonies. As during the Revolution all these emissions were more or less co-ordinate, the position of the Continental bills was that of one series out of twelve series of paper emissions, all of them branded with disloyalty and rebellion and all, at one time or another, and finally all at one time, legal-tenders.

V.—After the Continental bills had declined in value greatly below coins of the same denominations, Congress fixed a limit to their emission; but there were no limits fixed to the emissions of the States, and consequently none to that of the whole mass of paper bills.

VI.—There are evidences that the necessities of Congress compelled it to make frequent emissions of bills of credit in secret; so that, although in fact the emissions were within the limits of their authority, they were not within those of their implied statements to the country. Thus, although the various authorizations to emit bills added up $242,052,780, it was affirmed that the actual emissions outstanding at any one time were only $200,000,000; whereas in point of fact, they amounted to over $240,000,000. The emissions were so redundant that at one period during the war the mass of paper dollars including the State issues and other paper notes in circulation amounted to the almost incredible sum of five hundred millions.

VII.—Colossal as this sum was, the sum of counterfeits was probably still greater. Of this fact some evidences will be furnished during the course of this chapter. In short, the emissions of Revolutionary bills formed a measure of value without any known length, breadth, or depth. The six years during which the Continental bills passed as money will now be treated in their order.

Year 1775.—On June 28th, the Provincial Congress of Massachusetts, in the hope that the other colonies would give currency to their notes, made those of the other colonies current, and resolved that whoever should receive them at less than par "shall be deemed an enemy to his country." On July 6th, 1775, Massachusetts, through her Committee of Safety, resolved to issue £100,000 in bills from 1 to 100 shillings each. These bills were constituted a legal-tender for taxes within the Colony, and ran as follows:

"COLONY OF THE MASSACHUSETTS BAY.                      July 18th, 1775.                                  No. 109.
The possessor of this bill shall be paid by the Treasurer of this colony two shillings and sixpence, lawful money, by the 18th day of July, 1777, and it shall be received in all payments at the Treasury at all times. By order of CONGRESS, A. D., B. E., Committee."

On July 27th, 1775, the Continental Congress authorized a second emission of bills of credit similar in tenor to those of June 22nd, but limited in amount to $1,000,000. It was intended that the bills of these two emissions should be "sunk," or redeemed with taxes, to be levied by the various Colonies. But this intention was not enforced by simultaneous action or legislation on the part of the Colonies, and thus the emission of bills was unaccompanied by any definite provision to retire them. These $3,000,000 were emitted not so much to meet the requirements of the nascent government as to be divided and appropriated amongst the various Colonies on the basis of population. This division was made as follows:

Emissions of Continental Bills authorized down to July 27th, 1775.

The division of Continental bills made in 1775 was conducted upon the basis of the estimated total population of each Colony, including negroes and mulattos, and was intended to be rectified when the "list" or census of each Colony was obtained. Such information was, however, not received until several years later, about the year 1783, when the "lists" were made up so as to include only two-fifths of the slaves and no Indians. It is from these lists that the foregoing tables of population are derived. The total number of slaves was about 500,000. In 1775, Georgia was occupied by the British forces and was not included in the appropriation of Continental bills.

In addition to these emissions of Continental bills, the various Colonies emitted bills of credit of their own. Thus, besides the £126,000 authorized to be emitted by the Massachusetts legislature in May and £1,200,000 more in July and August, many of the other Colonies emitted bills of credit, of which the following is a partial account:

Colonial Bills of Credit emitted in 1775.

Neither the Colonial nor the Continental bills were general legal-tenders throughout the country. The former were sometimes only legal-tenders to and from the state and only within its jurisdiction, sometimes full legal-tenders within the state and sometimes full legal-tenders within several states, according as the various state legislatures admitted them to currency. The latter were legal-tenders sometimes in a few, at others in all, and at others again in only some of the states, according to local legislation. Any treatment of the whole mass as so much money of equal efficacy and value is therefore erroneous. On November 29th, 1775, the Continental Congress authorized the emission of $3,000,000 more in bills of credit to be divided up and appropriated amongst the states. At the close of 1775 the condition of the currency was approximately as follows:

Estimated Currency of British America at the close of 1775.

Year 1776.—Thus far, the Revolutionary bills of credit had circulated at par and they were destined to do so for another whole year to come. Nevertheless, the Continental Congress on January 11, 1776, deemed it necessary to declare that whosever should refuse to accept them, or discouraged their circulation, should be treated as a public enemy. As Congress had no power to execute this threat it simply amounted to an exhortation to the patriotic to accord circulation to the bills, whether the laws of the several Colonies encouraged such circulation, or not. On January 5th, 1776, Congress authorized the emission of $10,000 in bills of credit; on February 17th, it authorized $4,000,000; on May 9th and 22nd, it authorized the emission of $5,000,000 each time; on July 22nd and August 13th, $5,000,000 altogether; on November 2nd, $500,000; and on November 22nd and December 28th, $5,000,000 altogether; total for the year, $19,510,000. Besides these emissions Congress, on October 3rd, 1776, authorized a loan of $5,000,000 for which certificates bearing interest at four per cent. per annum were given. It was expected that these certificates would absorb the bills; on the contrary, they circulated as money, and thus augmented the quantity of bills. Meanwhile, the several Colonies continued to add to their emissions of bills. The following is a partial account of them:

Colonial Bills of Credit emitted in 1776.

At the close of 1776 the condition of the currency was approximately as follows:

Estimated Currency of British America at the close of 1776.

This augmentation of the currency occasioned a rise of prices which afforded great stimulus to trade. "Flush times" are reported in Connecticut, Massachusetts, New York, Virginia, and several others of the states. Unfortunately, the ignorance of the period in relation to the influence of money found expression in "maximum" laws, and laws of this character were passed in Connecticut and elsewhere. Down to this date the Continental bills and therefore necessarily the Colonial bills, had circulated on a par with coins. They were hereafter, chiefly through the influence of counterfeiting, unfriendly legislation by the several states, and excessive emissions, destined to rapidly fall in value.

Year 1777.—In January, 1777, the Continental notes fell to a discount of 5 per cent. in coins. Congress, to avert their further depreciation, declared January 14, 1777, that any person giving or taking them at less than their par value in coins was an enemy to liberty, etc., and recommended the several states to make the notes legal-tenders, a measure which had been adopted thus far only in some of the states. The declaration of Congress having no legal footing and being unsupported by physical force, was without effect. The recommendation to the states could only have validity so fast as it was adopted into their codes of laws.

Pending the operation of these feeble measures, the British government entered upon a course of action which at a single stroke suddenly and greatly impaired the value of the bills of credit and doomed them to speedy destruction. Fortunately for the cause of liberty, this policy took time enough in its operation to enable the states during the interval to achieve their independence by force of arms. I allude to the adoption of Counterfeiting as a military weapon. Some evidences of this action on the part of the royal government will now be adduced. The existence of counterfeits on a large scale probably dates from the year 1776, but little evidence of it is found previous to 1777. The presence of counterfeit notes induced the Massachusetts House of Representatives on May 3, 1777, to recommend that especial exertions should be made to obtain water-marked paper upon which to print their bills, and they gave authority to officers of justice to enter and search any house suspected of containing counterfeiters' implements. On June 25th, 1777, a delegation was appointed by the state of Massachusetts to confer with other delegations from New England and from New York, at Springfield. Among the objects of this Convention was that of devising means to arrest the growth of counterfeiting. The Convention met July 30, 1777. On July 3, 1777, it was recorded in the Secret Journal of Congress that a large amount of counterfeit Continental bills had been fabricated in England and brought to America in British men-of-war operating in the Delaware; and that the bills had been put into circulation. Regarding "immense" quantities of counterfeit Continental bills fabricated in New York and elsewhere under British influence, Schuckers says: "In a confidential letter to Lord George Germaine, about this time (1781) General Clinton observed, 'that the experiments suggested by your lordships have been tried; no assistance that could be drawn from the power of gold or the arts of counterfeiting have been left untried; but still the currency, like the widow's cruise of oil, has not failed.' "Says Henry Phillips, Jr.: "It is a fact too well authenticated to admit of dispute that Gen. Howe aided the making and uttering of counterfeit Continental bills. In the same newspaper, in New York, in which the British official documents were printed, there were also printed advertisements proposing to supply counterfeit money to persons going into other Colonies, so nearly and exactly executed that no risk attended their circulation. Persons accompanying a British flag of truce were known to have made use of the opportunity for circulating the counterfeits; arid emissaries from New York endeavoured to obtain from the mills paper similar to that used by Congress for its emissions."

On October 13th, 1777, the state of Massachusetts, rather unpatriotically it must be stated, passed a law limiting the legal-tender of Continental bills—bills which, it will be remembered, were awarded to that state by the general Congress—to six shillings, or $1, in any one payment. It moreover forbade the circulation of the bills of any of the other states after December 1st, 1777. At this time Congress was "with an earnestness almost pathetic," appealing to the state legislatures to refrain from local issues. Massachusetts had borrowed on time-notes £950,400 and issued £500,042 in bills of credit since the outbreak of the Revolution. Besides these bills there was a large amount of Continental notes in circulation within the state.

Year 1778.—The Articles of Confederation between the states were agreed upon Nov. 15th, 1777, though they were not fully ratified until July 9th, 1778. This instrument conferred upon the Confederation power to regulate the alloy and value (denomination) of coins, whether struck by the Confederacy or the states, to borrow money and to emit bills of credit, and it assumed (Art. xii) the obligation to pay "all bills of credit emitted, moneys borrowed and debts contracted by and under the authority of Congress before the assembling of the United States." But the nascent empire had as yet no taxing power and no police to enforce its laws. These elements of political life were jealously retained by the states, who only granted them reluctantly and at a later period. These provisions illustrate in another way the halting opinions on money which were entertained at this period. To accord power to the states to emit coins or issue paper money, was to permit the general measure of value to be augmented or diminished at the pleasure of the individual states. It was as though bushels, yards or gallons were to be of such dimensions as the various states chose to make them—indeed, as they did make them, and to some extent still make them. Such provisions clearly prove the weakness of the General Government and its inability to control its constituent members. The monetary emissions of the Government were bound to share this weakness and so might prove to be altogether invalid. "There was no bond sufficiently energetic between the members of our Union," says Felt, and especially true was this of its power over the currency. That such currency should have fallen in value is therefore no matter for astonishment.

On December 3rd, 1777, information was promulgated which revealed the existence of various Tory associations formed to put illicit paper notes into circulation with the double view of making money out of the operation and of depreciating the Continental bills by adding to the redundancy of the whole mass of paper. On December 19th, 1777, a great mass of counterfeit Continental notes fabricated under the orders of the British government were brought into New York by the fleet under Sir William Howe and put into circulation during the following year.

Year 1779.—The Continental bills were now so largely and successfully counterfeited that entire issues had to be recalled in order to save the system from immediate collapse. On January 2nd, 1779, Congress after stating that these bills "had been extensively counterfeited and particularly of late in New York, and spread through the country, enhancing the price of provisions and injuring our currency,'' ordered that thereafter that the entire issues of May 20th, 1777, and April 11th, 1778, amounting together to $10,000,000, shall cease to pass current; but directed the states to receive bills of these issues for taxes, and to pay them into the Continental treasury. Massachusetts alone paid in $800,000 of these bills, and it is presumed that of the whole amount thus retired by the Continental authorities, a large proportion was counterfeit.

On February 20th, 1779, Massachusetts addressed a circular letter to the Southern states renewing an application which she had previously made for food, particularly flour and grain, of which she declared herself destitute, and she called upon the Congress of the Confederacy to give her application the benefit of its endorsement. Seven months later, to wit, on the 23d September, 1779, she laid an embargo upon all exportations out of the state in order that the other states might not be able to purchase provisions and other commodities in Massachusetts with Continental bills, the legal tender of which, it will be remembered, she had already limited to $1 in any one payment.

On September 1st, 1779, Congress for the first time set a definite limit to the emissions of its bills of credit outstanding at any one time. It declared that under no circumstances should this limit exceed $200,000,000; and to its great credit be it recorded, this limit was never exceeded. Nearly a century later, the American Congress made a similar enactment. On June 30th, 1864, it declared that the emission of treasury notes, or "greenbacks," should not exceed $400,000,000, and this limit was never exceeded. On both occasions, however, other things besides government notes were permitted to circulate co-ordinately with them as money; and the consequence was that the whole mass of money became so swollen and redundant as to occasion the depreciation of all of it, including the government notes. In the Revolutionary period this redundancy was occasioned chiefly by the Colonial bills and counterfeits; in that of the Civil War it is attributable to private or so-called "national" bank notes.

Year 1780.—The monetary system of the new Republic presented a curious phenomenon at this date. The Continental notes had a general currency throughout all the states, except where, as in Massachusetts, their currency was curtailed by local enactment. At the outset of the Revolution the Colonies had accorded currency to one another's emissions of bills of credit; but at subsequent dates this privilege was gradually restricted until the notes ceased to obtain currency outside of the Colony or state of their emission. And, since each Colony had emitted bills of credit without regard to the emissions of the other Colonies, it followed that in some Colonies these emissions were far greater and more redundant than in others. Hence a different scale or level of prices prevailed in each one. For example, prices were much lower in Boston than in Philadelphia. When the Continental emissions were augmented so greatly as to form the principal portion of the currency in each state, a tendency towards the equalization of prices betrayed itself, which the states with the least redundant Colonial currencies, hastened to countervail. This was sought to be accomplished by means of a device similar to that adopted by Massachusetts in September, 1777, namely an inland embargo. Such embargoes were enacted in New York, Connecticut, Rhode Island and New Hampshire. On January 14th, 1780, Massachusetts, finding that the object with which her embargo had been enacted was defeated, and having been urged by Congress to repeal it, addressed a letter to the states above named, offering to repeal her embargo act, if they would agree to do the same.

On March 18th, 1780, Congress, alarmed at the great and rapid depreciations of its bills, which now stood at 40 for 1 in coin, proposed to retire them by means of taxes to be levied by the states, at the rate of $15,000,000 per month. This would have retired the whole emission in the course of a little more than a year. They were to be received at the rate of 40 for 1 of coins; a feature of the project that had no real significance; for whether received at this rate or any other, the choice could have made no further difference than to have rendered necessary an alteration of the rate of taxation. The act contemplated would have been the same whether the bills were received at 40 for 1 or at 1 for 1. That act was the demonetization, retirement and destruction of the entire emissions of Continental bills in the course of little more than a year. It was the suggestion of a madman. Meanwhile a new emission of bills was to be made, which it was hoped would circulate at par with coins. These bills were to be issued to the extent of one-twentieth part of the nominal sum of the old emissions brought in to the state treasuries to be destroyed, and were to be signed by the state authorities and endorsed by the United States. They were to bear interest at five per cent. per annum and were to be redeemable in coins in six years. They were not made legal-tenders. The following was the form:

"STATE OF MASSACHUSETTS BAY.

No. 7928.                                                                                                     Eight Dollars.
The possessor of this bill shall be paid eight Spanish milled dollars, by the thirty first day of December, one thousand seven hundred and eighty-six, with interest in like money, at the rate of five per cent per annum, by the State of Massachusetts Bay, according to an act of the Legislature of the said State, of the fifth day of May, 1780. Interest, annually 2s. 4d. 3f.; monthly 2d. 1½f. The United States ensure the payment of the within bill and will draw bills of exchange for the interest annually, if demanded, according to a resolution of Congress, of the 18th of March, 1780."

It will be observed that in this bill, for the first time, Massachusetts employs the "dollar" instead of the sterling denominations as before. Curiously enough, the interest calculation is made in sterling. The denomination of dollars had been used in New York since 1774. How, with the previous experience in bills of credit, the revolutionary authorities could have expected these bills to circulate at par with coins, is difficult to imagine. They were not legal-tenders; they were issued not in the place of the old emissions withdrawn, but in addition to the old emissions still in circulation, and only promised to be withdrawn. They were issued also, in addition to the old Colonial and bank bills, besides the mass of counterfeits of all these emissions which had obtained circulation. The reason why they were not made legal-tenders, is not clear; neither is the reason for deferring their payment for so long a time as six years, unless indeed, it was the difficulty of making the public believe that any earlier payment was possible.

Of the total emission of these New Tenors the states were to have the right to issue six-tenths and the United States four-tenths. On May 5th, 1780, Massachusetts issued under this arrangement £460,000, at the exchangeable rate of 1 for 40 of the Old Continental Tenors; but before the New Tenors could be paid out the Old Tenors had fallen to 75 for 1 of coins in Massachusetts and 120 for 1 in Pennsylvania. It was evident that the Continental bills were about to become worthless. They had been issued and used as money without authority on the part of Congress to make them money; the States had continued to authorize other emissions; the emissions had been excessive; and they had been successfully counterfeited to an immense extent. It is therefore not surprising that the New Tenors failed to answer the purposes intended. Few people would take them. The soldiers had refused the Old Tenors and clamoured for coins, saying that they wanted no paper money of any kind; and coins were actually coming into circulation. "Large quantities came from the French and British forces, some from Havana and other foreign parts and some from prizes captured in the West Indies." They passed freely among the population.

Year 1781.—On January 18th, 1781, the Massachusetts legislature levied a tax partly payable in coins; showing that at this date and at least in Massachusetts, coins were becoming the actual currency of the country. As going to show the extraordinary opinions with reference to the principles of money which prevailed at this date, I here reproduce the views of the Massachusetts legislature on this subject: "The value of money, which is but a representative of property, will ever be regulated by the consent of the common people at large; hence attempts of any legislature to regulate it must prove abortive.'' Three propositions are here enunciated: 1. That money is a representative of property; 2. That its value is regulated by common consent; 3. That the legislature, which embodies the common consent, cannot regulate it.

If money is a measure of value as is commonly believed, the first of these propositions is untrue; for no measure can represent property; it merely represents a relation. If the second proposition is right, the third one is evidently wrong; but the second one is not right; for measures, (money being a measure of value) are not regulated by common consent, but by authority. Neither common consent nor legislation can fix the value of money in relation to commodities. This is fixed by their relative supply and demand, over which, only so far as money is concerned, is legislative authority supreme. Another opinion current at the time was that of Pelatiah Webster. This author graduated at Yale in 1746, was ordained for the ministry, and at a late period became a merchant in Philadelphia. At the outbreak of the war he met with considerable losses. Between 1776 and 1790 he printed a number of pamphlets on the currency, which in 1791 were put together and published in a volume of 504 pages with notes. Mr. Webster in his essays lays down the following law of money: "I conceive the value of the currency of any state has a limit, a ne plus ultra, beyond which it cannot go, and if the nominal sum is extended beyond that limit, the value will not follow." This is a half-truth of the Metallic School which will be found fully refuted in the author's "Science of Money." The Congressional declaration of 1779 that "paper is the only kind of money that cannot make to itself wings and fly" is attributed to John Jay. This is another half truth; but, indeed, the times were full of them. The principles of money cannot be condensed into a sentence; and all sententious observations on the subject should be regarded with distrust.

It should be mentioned in this place that the states (other than Massachusetts), which had demonetized the Old Tenor Continental notes had not, as was expected, retired them upon the emission of the New Tenors and that the value of these notes—which it seems were regarded as legal-tenders (see below) differed in the various states; giving rise to financial transactions embarrassing to merchants and detrimental to industry.

On July 5th, 1781, the Legislature of Massachusetts demonetized the Old Tenor Continentals by forbidding them to be presented as legal-tenders at any rate whatever. They were valued at 500 to one. On May 31st, 1781, the New Tenors were three for one, and although placed under the ban of the State Assembly, they permitted, July 8th, 1781, their quota of them to be received at 1⅞ for 1. Yet on September 25th, finding that they had fallen to four for one, they demonetized them altogether and forbade them to be received as money. On November 1st, 1781, the Assembly offered to retire them for coins at four for one. It seems that at the time of this rapid depreciation, interest was paid on the face value of these notes in coins; proving that the depreciation was not due to any failure on the part of the state to keep their promises in references to them, but to the great quantity of all the notes in circulation.

On October 19th, 1781, Lord Cornwallis surrendered his forces to the American army before Yorktown, Va., and this event virtually ended the war. Coins were now in general circulation throughout the country. On May 26th, 1781, a bill was passed in Congress to incorporate the Bank of North America with privilege to issue notes. Subscriptions to the stock were completed December 31st, 1781, and on January 7th, 1781, the Bank commenced operations.

Never was a great historical event followed by a more feeble sequel. A nation arises to claim for itself liberty and sovereignty. It gains both of these ends by an immense sacrifice of blood and treasure. Then, when victory is gained and secured, it hands the national credit—that is to say, a national treasure—over to private individuals, to do as they please with it! A similar anti-climax is being urged upon the nation today. The Civil War was fought with the bills of credit issued by the general government, after all the private banks in the country had shamefully closed their doors and gone into bankruptcy, (December, 1861). Now that the war is over, these same banks, under new names, are urging Congress to retire the greenbacks and allow them, the bankrupts, to issue their own notes as money in place of the greenbacks which served the nation so well.

That such measures were enacted by Congress a century ago, and that similar measures are entertained by Congress today, can only be attributed to the absence of such a body of knowledge on financial subjects as would have enabled the statesmen of that day and as might enable statesmen of the present day, to profit by the experience of the past. The Americans of the Revolution had before them not merely the chimerical Utopias which were dreamed of during the Halcyon Age of Europe, they had the historical examples of Greece and Rome. In all of these states, the main contention from first to last between the aristocratic and popular factions, arose out of and centered in the monetary system; that greatest of all dispensers of equity or inequity. (Emphasis added) In America there were no such difficulties in the way as those which had beset the great republics of antiquity; no dissonance of races, language or history; no conflicting religions; no constriction of territory; no fear of neighboring interference. The Colonists had practically an entire continent to themselves. They had only to take care that the seed they planted was genuine and uncontaminated. Nature was certain to do the rest. Well, they planted; and now look at the fruit and see what it is that they planted! They planted financial corporations, a rotten seed that Rome had trampled under foot nearly two thousand years before; they planted private money, in which successively both Greece and Rome had found the germs of social decay; and they planted financial exemptions from public burdens, whose offspring has already become a tree so mighty that it casts a threatening shadow over the land. In a word they planted another revolution.(2) (Emphasis added)

Hamilton estimated that the "current cash of the country" before the Revolution was thirty million dollars, of which eight millions were in coin. Webster's estimate of the coin was ten millions. We shall now review the effect of adding to it several hundred millions of genuine notes, a vast but unknown sum of counterfeits, besides smaller issues of some twenty other kinds of money. The Continental notes bore the following legend: "The United Colonies. Three Dollars. This Bill entitles the Bearer to receive three Spanish milled Dollars, or the value thereof in gold or silver, according to the Resolutions of the Congress, held at Philadelphia, the 10th of May, 1775. Continental Currency." This legend was a promise to pay the bill with Spanish milled dollars, or else gold and silver bullion of equal value. The bills were therefore not money, they were not legal-tenders; they were not receivable for taxes or any other obligation due to the State (for the assembling and actions of the Congress amounted to the erection of a State); they were simply promises, promises which patriots should never have required and which the Congress should never have made. We did better in the Civil War. The greenbacks contained no promise which was not dischargeable in themselves; they were legal-lenders for all purposes except customs-dues and interest on the public debt; they were MONEY. And behold the moral: the greenbacks, which promised nothing but themselves, were paid in coins, while the Continental promises to pay coins or bullion were never paid at all. At the same time it must be remembered that the United States at the period of the Revolution constituted merely a nascent State, practically without resources, or credit, whilst at the time of the Civil War they were fully grown, rich and prosperous. If the definition of a perfect money is one that has no other possible use or function than that of measuring value, it goes without saying that such perfect money can only be maintained by a perfect State.

The first issue of Continental notes were of the denominations of 1, 2, 3, 4, 5, 6, 7, 8 and 20 dollars each and the total amount of the emission was two million dollars. The various systems submitted to the Congress were: 1st, that each Colony should itself issue the sum of notes which should be apportioned to it by Congress; 2nd, that the United Colonies should issue the whole sum necessary and each Colony become bound to redeem its proportion; and 3rd, that Congress should issue the whole sum, each colony to redeem its own proportion and the United Colonies be bound to pay the portion which any Colony might fail to redeem. The Congress substantially adopted this last system. All of them were bad and this one was as bad as any. The resolution ran: "That the twelve Confederation Colonies (Georgia not yet being included) be pledged for the redemption of the bills of credit, now directed to be emitted." Each Colony was to promise to pay its proportion in four annual installments, the first by the last day of November, 1779, the fourth by the last day of November, 1782. We here perceive the germ of that Safety Fund system which was adopted by the banks at a later period, after the states had granted, for nothing, to private bankers the sovereign prerogative of issuing bills of credit designed to circulate as money.

The various emissions of Continental notes and their value from time to time in silver dollars (that is to say, the sum in notes necessary to purchase one Spanish milled dollar) is shown in the following table, the values in the second valuation column being the average for the first whole month which followed the date of each new issue:

Emissions and Coin Value of Continental Notes.

It will be observed that there are two sets of coin valuations attached to the emissions. The first one is official and is printed in the monthly report of the United States Bureau of Statistics for November, 1872, p. 212. This scale of depreciation is deduced from Gen. George Washington's Account Current with the government of the United States. The second set of coin valuations is copied from an unsigned article in Harper's Magazine for March, 1863.

The American Almanac for 1879, p. 81, states that the maximum issues of Continental notes amounted to $359,546,825; but I am unable to account for the difference, unless it includes the new emissions of 1781, which were of a totally different character. Although the emissions of the Old Tenors ceased in 1779, the value of the bills continued to decline, so that for $1in silver coin the following sums of bills (according to Harper's) had to be paid: Year 1780, January, $29.34; February, $33.22; March, $37.36; April, $40.00; May,$46.00; June, $64.00; July, $89.00; August, $70.00; September, $71.00; October, $72.00; November, $73.00; December, $74.00; year 1781, January, $74.00; February, $75.00.

In referring to this table two considerations must always be borne in mind. First, the Continental notes were not the only money in circulation; there were many other kinds of money; and more than all there were prodigious quantities of counterfeits afloat. These last did more than anything else to depreciate the value of the mass. Second, the quantity attainable of Spanish milled dollars was not constant, but fluctuated enormously, as when the British made them scarce by purchasing them with their counterfeit notes, or the French auxilliary troops made them plentiful by expending them among the people. Further evidences on the subject of counterfeits will now be brought forward. The attention of the American authorities was called to the subject of counterfeiting so early as August 1st, 1776, when an ordinance was passed condemning counterfeiters of Continental, or of State bills of credit to be punished by having their ears cut off and being whipped and fined. But the counterfeiters were safe within British lines, where they plied their nefarious trade with the knowledge and connivance of the authorities. In 1775, the British authorities had begun to disseminate counterfeits of the Continental (paper) money, as they afterwards did in respect to the assignats of revolutionary France. Extensive counterfeiting also went on in America. Walker, on "Money," 330.

In November, 1776, the British authorities at New York permitted the following scurrilous advertisement to appear in the Gazette: "Wanted—by a gentleman full of curiosities, who is shortly going to England, a parcel of Congress notes with which he intends to paper some rooms. Those who wish to make something of their stock in that commodity, shall, if they are clean and fit for the purpose, receive at the rate of one guinea per thousand for all they can bring before the expiration of the present month. Inquire of the printer."(3)

Great Britain was very confident that by ruining the circulating medium of America the people would return to their allegiance; hence the desperation with which counterfeiting was practiced by the British agents. Soon after their issue, the bills of credit emitted by Congress were counterfeited and a nest of counterfeiters was destroyed at Cold Springs, on Nassau Island. The British officials also embarked in the business. Gen. Howe abetted and patronized those who were engaged in making and pushing these spurious issues into circulation. "A shipload of counterfeit Continental money" says Phillips, "coming from Britain, was captured by an American privateer.'' "Persons accompanying an English flag of truce are known to have largely made use of the opportunity for disseminating the fraudulent notes." The British government promoted the business of counterfeiting extensively, because it was thought that if the credit of the Continental money could be destroyed, the Americans would be obliged to submit, from lack of funds, to maintain their cause. (Bolles, 150-157.)

May 8, 1777. "Some days ago a villain was taken up at Peekskill in New York, in whose custody were found 88 counterfeit Connecticut 40s. bills and one of 30 dollars Continental currency, badly done, being paler and fainter impressed than the true ones. Those of Connecticut are done on copper plate, and are not easily to be distinguished from the true ones, but from that circumstance the true ones being done at the common printing press. Another of these adventurers with £2,700 of counterfeit money about him is secured at Peekskill. It seems they were tempted to follow this desperate employment by the terms offered in the following advertisement taken from the Gaine's New York Gazette (Tory) of April 14th last: "Persons going into the other Colonies may be supplied with any number of counterfeit Congress notes for the price of the paper per ream. They are so nicely and exactly executed that there is no risk in getting them off, it being almost impossible to discover that they are not genuine. This has been proved by bills to a very large amount which have been successfully circulated. Inquire for Q. E. D., at the Coffee House from 11 P. M. to 4 A. M. during the present month." Pennsylvania Evening Post, May 13th, 1777, in Moore's Diary, 1, 440-1.

The wife of John Adams, writes May 9th, 1777: "A most horrid plot has been discovered of a band of villains counterfeiting the New Hampshire currency to a great amount. No person scarcely but what has more or less of these bills." Bolles, p. 153. So many counterfeits were pushed into circulation, especially of the Continental bills dated May 20th, 1777, and April 11th, 1778, that Congress resolved to retire the whole of these two emissions (and did so). Bolles, p. 153. The first notice of counterfeits by Felt appears under the date of May 3rd, 1777. As this and the foregoing notices coincide very closely with the first depreciation of the notes, we are at liberty to conclude that such depreciation was due less to the quantity of genuine Continental notes thus far issued, namely 30 millions, than to the infusion into the circulation of an unknown quantity of well executed counterfeits difficult to distinguish from the genuine notes. Under date of June 25th, 1777, Felt, 174, again notices counterfeits in the circulation. About July 3rd, 1777, the English imported their counterfeit Continental issues into the Delaware. It now began to be publicly suspected that these counterfeits were made, or authorized, or their issue connived at, by the British authorities; a suspicion that did much to injure the credit of the genuine notes. About December 19th, 1777, counterfeits circulated by the agents of Sir William Howe, began to make their appearance.

In 1778, a quantity of counterfeit American bills of credit on the way from Scotland to New York was captured by an American privateer and destroyed. "Hist. Colonial Paper Money." In January, 1779, counterfeits had become so numerous that, as before stated, Congress recalled and destroyed certain entire emissions of genuine notes. Among these was the issue of April 11th, 1778, of which it is believed but a single note is extant at the present day.

In the "Penn. Packet," published March 13th, 1779, is the following: "The unnatural enemies of this country, not satisfied with their frequent but fruitless attempts to destroy the credit of our paper currency, have, at length, introduced large sums of counterfeit Half Joes and Dollars amongst us, in order to buy up the paper money and thereby stamp a discredit upon it; but thank God this villainy has been detected in its bud, though the perpetrators of the same are still unknown. The Half Johannes are admirably well imitated and require the nicest observation to distinguish the genuine from the counterfeit." (Bolles, p. 156.)

We have now to consider the various kinds of money that were in circulation in the American Colonies or states during the period when the Continental notes were issued, that is to say 1775-81. These were: 1. Gold and silver coins. Of these the estimates vary from 8 to 10 million dollars; but they began to disappear from circulation in 1777 and by 1778 they were no longer to be seen. 2. Copper coins. These remained in circulation until 1779, but there is no estimate of the quantity. 3. Colonial notes or bills of credit. 4. Counterfeit Colonial notes. 5. Continental notes, as per table. 6. Secret issues of Continental notes. Schuckers, III, says about $58,000,000,000. 7. Counterfeit Continental notes. 8. Continental 4 per cent. loan certificates, 1776. These circulated for a time as money. 9. Quartermaster's certificates circulating as money. Schuckers, 69. 10. Registers' certificates circulating as money. Schuckers, 85. Loan-office certificates. Schuckers, 107. 11. Lottery tickets circulating as money, 1776. Schuckers, 20. An issue was made in 1782. Bronson, 104. 12. Notes issued by private banks authorized by the various colonies or states. Amount not known.(4) 13. Tory notes, 1777. 14. Private bills of exchange for small sums, intended to circulate as money. 15. Private issues known as "tokens" or "shin-plasters," 1775. Schuckers, 73-4. 16. "Country pay," 1780 and 1781. Schuckers, 62, 63, 95; Bronson, 124, 137. In addition to these various media of exchange reference is made in various authorities to coins employed in special contracts and to other exceptional moneys.

That amidst this rabble of rival moneys, all struggling into the circulation at once, the Continental notes managed to retain any footing at all, affords one of the strongest proofs that can be offered of the vitality of paper money. Properly issued and guarded against counterfeiting, the limits of issue rigidly maintained, and the field left entirely to themselves, all other moneys being forbidden, these notes might not only have retained their original value, they might in time have advanced to a premium in coins of like denominations. This is the objective point toward which all paper issues should be directed: the command of a premium in coins of like denominations. When this object is once demonstrated to be within the compass of practical attainment, the use of gold and silver coins as money will fade into the barbarous past.

1. Hist. Prec. Metals.return