which the central Government did not possess. The notes issued were to be returned for cancellation to the latter, in ratio to the amount received, in four annual instalments, the first one to be paid before the last day of November, 1779; and the last, on or before the last day of November, 1782. The smallness of their amount, and the provision made for their repayment, show how little was foreseen of the long and dreary struggle upon which the country had already entered.1 No sooner had these issues been made, than the States made the notes their own. The first one to act was Rhode Island, which declared every person who refused to take them to be a public enemy. Other States followed with laws to a similar effect. On the 29th day of November, 1775, a second issue of $3,000,000 was authorized, with similar provisions for their retirement as for that of the first. This issue was strongly opposed by Franklin, who urged that an attempt should be made to borrow back the notes first issued. that all the notes should bear interest. mendations prevailed. He had also urged Neither of his recom The necessities of the government still continuing, a third issue of $4,000,000 was made on Feb. 17, 1776. Before the close of 1775, however, and when only $6,000,000 of notes had been authorized, an unwillingness to take them began to show itself. The first hesitation appeared among the Quakers, not from any alleged want of their value, but from conscien 1 The apportionment among the States was as follows: New Hampshire Georgia was not included in the apportionment, as she was not represented in Congress. tious scruples which forbade them to take, even indirectly, any part in war. The real cause was undoubtedly distrust, as they afterwards showed no hesitation in taking them at their market value. The year closed disastrously for the American cause. Canada was lost: public confidence was no little shaken. Rumors constantly reached Congress of an unwillingness to receive its notes; in consequence of which, on the 11th of January, 1776, only a little more than six months after the first issue, and only a little more than three after they got into circulation, it put forth the following preamble and resolution : "Whereas, It appears to this Congress that several evil-disposed persons, in order to obstruct and defeat the efforts of the United Colonies in defence of their just rights, have attempted to depreciate the bills of credit emitted by the authority of this Congress, "Resolved, Therefore, that any person who shall hereafter be so lost to all virtue and regard for his country as to refuse to receive said bills in payment, or obstruct and discourage the currency or circulation thereof, and shall be duly convicted by the committee of the city, county, or district, or, in case of appeal from their decision, by the Assembly, convention, council, or committee of safety of the Colony where he shall reside, such person shall be deemed, published, and treated as an enemy of his country, and precluded from all trade or intercourse with the inhabitants of these Colonies." 95 1 The States did their best to sustain the action of the general government. They denounced all recusants, and remitted them for punishment to committees of safety, which in many 1 Would it not have been well for the Economists, who assert that the only cause of the depreciation of government notes is their excess of issue, to explain the cause of the early decline in value of the Continental money? Evidences of such decline in value manifested themselves by the time that only a little more than $3,000,000 had got into circulation, the issue authorized Nov. 29, 1775, not being actually made until after the close of that year. The coin in circulation at the outbreak of the war was variously estimated as from $12,000,000 to $30,000,000. Considering the largely increased expenditures of government, an addition to the currency of $6,000,000 of notes could certainly not be regarded as excessive, if that kind of money were to be resorted to. Professor Fawcett assumes that a country engaged in war may issue, in addition to the currency in circulation, its own notes to serve as money, in ratio to its increased expenditures without affecting prices, or what is the same thing, without causing a depreciation of their value. Is it not astonishing that the Economists should have gone on repeating Adam Smith for a century, without once stopping to interrogate history, or to investigate the conditions upon which the value of all currencies must rest? cases had hardly any more sense of justice than infuriated mobs. Newspapers were by no means wanting in the same direction. "When paper money," says a writer of the time, in one of them, "circulates in the common course of trade, its value gradually rises and falls in proportion to its quantity, when relatively considered with the value of the real effects of a country, such as houses, lands, provisions, gold, silver, and merchandise of every kind; for though paper merely has not any significant value in itself, and has only such value as we place upon it, a single dollar bill being as large as an eight dollar bill, yet, as by general consent we agree to receive and pass this as one and that as eight, so long as this mutual confidence and resolution continues, they are to all intents and purposes of as much real worth as so much actual gold and silver, which are of themselves of no other absolute value than what mankind have been pleased to fix on them.1 . . . "It is a grand continental experiment we are trying, and nothing but the experiment itself can determine the expediency: we are not to look on our present situation as a matter of choice, but of necessity; we have got into a labyrinth, and must get out of it as well as we can. If, by giving a general credit to our money and forcing a trade, we should weary out Great Britain, or involve her 1 This brief paragraph, written before the publication of the “Wealth of Nations," embodies the substance of all that was ever written upon the subject of paper money; and, compared with the loose and incoherent treatise of Adam Smith, is a model of conciseness both in thought and style. It shows the absurdity of any claim for him for originality upon the subject of money. All he did was to obscure and perplex, by irrelevant illustrations and unmeaning verbiage, a subject which had been most perfectly stated — that is, according to his views, if he had any - by those who preceded him, but which he neither investigated nor understood. "The American paper money," says John Adams, "is nothing but bills of credit, by which the public, the community, promises to pay the possessor a certain sum in a certain limited time. In a country where there is no coin, or not enough in circulation, these bills may be emitted to a certain amount, and they will pass at par; but as soon as the quantity exceeds the value of the ordinary business of the people, it will depreciate, and continue to fall in its value in proportion to the augmentation of the quantity."- Adams's Works, vol. vii. p. 296. The writer who at the time best appreciated the nature and effect of paper money was Pelatiah Webster, who published a series of essays, the first under date of the 5th of October, 1776, which were continued during the war. He early presented, with great clearness and force, the danger that was being incurred from the issue of government notes, and constantly urged the retirement of the "superfluity," in order to avoid the catastrophe which he predicted and subsequently described. His essays are to be thoroughly studied, if one would gain any thing like an adequate picture of the time. He, however, by no means grasped the whole subject. It was the "excess " that he wished to get rid of, forgetting that every dollar of the kind is always in excess. in a war with some of her European neighbors, we may then take our own time to pay off the debt we have been contracting, and every year will restore the currency nearer to its original value. To what extent a country may venture to run itself in debt is a question beyond my abilities to solve. Whether a community and an individual may with propriety be compared, I cannot pretend to determine; but, if the comparison would hold, I should say that as an individual has a right to spend or run in debt to the exact amount of what he is worth, without injury to his creditors, so may a community; if this be true, it may be easy to determine how much farther we may safely go." 1 The arguments presented in the preceding paragraphs un doubtedly appeared conclusive enough to their writers when they were not immediately engaged in paying or receiving money; but when they came to act, they were governed by a law far more potent than that which their feeble natures attempted to set up. The loudest advocates of the doctrine that the value of money depended upon convention - upon its quantity, not upon its quality are not in the least degree influenced by their arguments. They never became parties to a convention to accept a note for $10, utterly worthless in itself, for merchandise equalling its nominal value in coin. Nor is there the slightest evidence or probability that the notes then issued ever circulated at any other than their estimated value; while it was inevitable that confidence in them should decline in ratio to the extraordinary efforts made to sustain their price. The writer also forgot that the money of a country represents the proper amount of its consuming power, which equals only its annual product, not its lands, machinery, public works, and the like, which are to form the basis of production, and are not the proper subjects of consumption. The necessities of the government still continuing, with no other resource than its notes, it authorized, on the 6th day of May, 1776, a further issue of $5,000,000; one-half of which was to be made in June, and the other half in July of that year. A serious decline in the value of the notes followed. This was increased by a further issue of $5,000,000 in November. Gov 1 In illustration of the intense patriotic feeling which prevailed at the time, it may be stated that, early in 1776, some American privateers, who brought into Philadelphia $22,000 in specie captured from the enemy, offered that entire sum to Congress in exchange for its notes, and received the thanks of that body for their generous conduct. ernment, to check the decline, directed General Putnam, then in command of the army at Philadelphia, to issue an order, under date of Dec. 14, 1776, that if any one refused to take the government notes in payment for goods, the goods should be forfeited, and the person so refusing should be thrown into prison. These orders produced no other effect than to increase the decline. The state of things near the close of the year will be best shown by a letter written by Robert Morris to one of the government agents in Europe, under date of 21st of December, 1776 :— "I must add," he says, "to this gloomy picture one circumstance more distressing than all the rest, because it threatens instant and total ruin to the American cause, unless some radical cure is applied and that speedily: I mean the depreciation of the Continental currency. The enormous pay of our army, the enormous expenses at which they are supplied with provisions, clothing, and other necessaries, and, in short, the extravagance that has prevailed in most departments of the public service, have called forth prodigious emissions of paper money, both Continental and colonial. Our internal enemies who, alas! are numerous and rich have always been undermining its value by various artifices; and, now that our distresses are wrought to a pitch by the successes and near approach of the enemy, they speak plainly, and many persons peremptorily refuse to take it at any rate. Those that do receive it, do it with fear and trembling; and you may judge of its value even amongst those, when I tell you that £250 Continental currency, or 6663 dollars, is given for a bill of exchange of £100 sterling, sixteen dollars for a half-johannes, two paper dollars for one of silver, three dollars for a pair of shoes, twelve dollars for a hat, and so on. A common laborer asks two dollars a day for his work, and idles half his time. "All this amounts to real depreciation of the money. The war must be carried on at an expense proportional to this value, which must inevitably call for immense emissions, and of course still further depreciations must ensue. This can only be prevented by borrowing in the money now in circulation. The attempt is made, and I hope will succeed by loan or lottery. The present 1 "PHILADELPHIA, Dec. 14, 1776. "The General commanding, to his great astonishment, has been informed that several of the inhabitants of this city have refused to take the Continental currency in payment of goods. In future, should any of the inhabitants be so lost to public virtue and the welfare of their country as to presume to refuse the currency of the American States in payment for any commodities they may have for sale, the goods shall be forfeited, and the person or persons so refusing shall be kept in close confinement. "ISRAEL PUTNAM, |