Of the Paper Money of America1
AD (draft): Library of Congress
Much Conversation having arisen lately on the Subject of this Money, and few Persons being well acquainted with the Nature of it, you may possibly oblige many of your Readers, by the following Account of it.—
When Great [torn: Britain commenced(?)] the present War upon the Colonies, they had neither Arms, nor Ammunition, nor Money to purchase them, or to pay Soldiers. The new Government had not immediately the Consistence necessary for collecting heavy Taxes; nor would Taxes that could be raised within the Year during Peace have been sufficient for a Year’s Expence in time of War: they therefore printed a Quantity of Paper Bills, each expressing to be of the Value of a certain Number of Spanish Dollars, from One to Thirty. With these they paid clothed & fed their Troops, fitted out Ships, & supported the War during Five Years against one of the most powerful Nations of Europe.3
The Paper thus issued, passed current in all the internal Commerce of the United States, at par with Silver, during the first Year: supplying the Place of the Gold & Silver formerly current, but which was sent out of the Country to purchase Arms, &c. or to defray Expences of the Army in Canada: But the great Number of Troops necessary to be kept on foot to defend a Coast of near 500 Leagues in Length, from an Enemy who being Masters at Sea could land Troops where they pleas’d, occasion’d such a Demand for Money, and such frequent additional Emissions of new Bills, that the Quantity became much greater than was wanted for the Purposes of Commerce; and the Commerce being diminished by the War, the Surplus Quantity of Cash was by that means also proportionally augmented.
It has been long & often observed, that when the current Money of a Country is augmented beyond the Occasions for Money, as a Medium of Commerce, its Value as Money diminishes, its Interest is reduced, and the Principal sinks if some Means are not found to take off the surplus Quantity. Silver may be carried out of the Country that produces it, into other Countries, and thereby prevent too great a Fall of its Value in that Country. But when by this Means it grows more plentiful in all other Countries, nothing prevents its Sinking in Value. Thus within 300 Years since the Discovery of America, & the vast Quantities of Gold & Silver imported from thence and spread over Europe, & the rest of the World, those Metals have sunk in Value 4 fifths, that is five Ounces of Silver will not purchase more Labour now than one Ounce would have done before that Discovery.4
Had Spain5 been able to confine all that Treasure within its own Territories, Silver would probably have been there of no more Value by this Time than Iron, or Lead.— The Exportation has kept its Value on a Level with its Value in other Parts of the World.
Paper Money not being easily receiv’d out of the Country that makes it, if the Quantity becomes excessive, the Depreciation is quicker & greater.
Thus the excessive Quantities which Necessity oblig’d the Americans to issue, for continuing the War, occasion’d a Depreciation of Value, which commencing towards the End of 1776 has gone on augmenting till at the beginning of the present Year 50, 60, & as far as 70 Dollars in Paper were reckon’d not more than equal to one Dollar in Silver and the Prices of all things rose in proportion.6
Before the Depreciation commenc’d the Congress fearing it, stopt for a time the Emission of new Bills, and resolv’d to supply their Occasions by borrowing. Those who lent them the Paper Money at that time, & until March 1778, fix’d their Property and prevented its Depreciation; The Interest being regularly paid by Bills of Exchange on France, which supports the Value of the Principal Sums lent.7
These Loans not being sufficient, the Congress were forced to print more Bills, and the Depreciation proceeded. The Congress would borrow no more on the former Conditions of paying the Interest in French Money at Paris.8 But great Sums were not withstanding offered & lent them on the Terms of being paid the Interest & repaid the Principal in the same Bills in America. These Loans in some degree lessen’d, but did not quite take away the Necessity of New Emissions, so that it at length arrived at the excessive Difference between the Value of Paper and Silver that is above-mentioned.
To put an End to this Evil, which destroy’d all Certainty in Commerce, the Congress first resolved to diminish the Quantity gradually by Taxes, which tho’ nominally vastly great, were really less heavy than they appear’d to be, and were readily paid. By these Taxes 15 Millions of Dollars, of the 200 Millions extant, are to be brought in monthly and burnt. This Operation will destroy the whole Quantity of viz: to wit 200,000,000 in about 14 Months. Thirty Millions have already been so destroy’d.9
To prevent in the mean time the farther Progress of the Depreciation, and give some kind of determinate Value to the Paper, it was ordain’d, that for every Sum of Forty Dollars payable by any Person as Tax, he might discharge himself by paying One Dollar in Silver. Whether this Expedient will produce the Effect intended or not, Experience & Time must discover.
The general Effect of the Depreciation among the Inhabitants of the States, has been this, that it has operated as a gradual Tax upon them. Their Business has been done and paid for by the Paper Money, and every Man has paid his Share of this Tax according to the Time he retain’d any of the Money in his Hands, and to the Depreciation within that Time. Thus it has proved a Tax on Money, a kind of Property very difficult to be taxed in any other Mode; and it has fallen more equally than many other Taxes, as those People paid most who being richest had most Money passing thro’ their Hands.
With regard to the Paper Money or Bills borrowed by the Congress it appears by the above Account to be under two different Descriptions.
First, The Quantity of Bills borrowed before the Depreciation, the Interest of which in Silver was to be & is paid in France. The Principal of this Sum is considered as equal in Value to so many Dollars of Silver as were borrowed in Paper, and will be paid in Silver accordingly.
Secondly, The Quantities of Bills borrowed in different Stages of the Depreciation down to the present time. These Sums are by a Resolution of Congress to be repaid in Silver according to the Value they were in Silver at the Time they were lent, and the Interest is to be paid at the same Rate. Thus those Lenders have their Property secured from the Loss by Depreciation subsequent to the Time of their Loan.
All the Inhabitants are satisfied & pleas’d with this Arrangement their Public Debt being by this Means reduced to a small Sum. And the new Paper Money which bears Interest, & for the Payment of which solid Funds are provided, is actually in Credit equal to real Silver.1
If any Persons living in distant Countries have thro’ their Absence from their Property in America, suffered Loss by not having it timely fix’d in the several Loans abovementioned, it is not doubted but that upon an Application to Congress stating the Case, they will meet with Redress.2
1. BF on several occasions during his life wrote about the benefits to the American economy of an adequate supply of paper currency; see, especially, “The Nature and Necessity of a Paper-Currency” (I, 139–57) and “Scheme for Supplying the Colonies with a Paper Currency” (XII, 47–60). Several of the ideas he expresses here, sometimes in identical language, also appear in an April, 1779, letter to Samuel Cooper and one of October, 1780, to Thomas Ruston: XXIX, 355–6; XXXIII, 390–2. We are grateful to Mary Gallagher and Elizabeth Nuxoll, editors of the Morris Papers, for invaluable assistance with this document.
2. Previous editors of BF’s writings have either let this piece stand without date (WTF, Memoirs, III, 98–101) or ascribed it to July 3, 1784, the date of a letter to Felix Frecon (Library of Congress) about American money that BF drafted on the verso of the present document (Smyth, IX, 231–6). In both cases the letter to Frecon has been printed as the final six paragraphs to “Of the Paper Money of America.” William A. Wetzel, in Benjamin Franklin as an Economist (Baltimore, 1895), p. 22, gives the date as 1781, but supplies no reason for doing so.
We believe that the two documents are unrelated and that BF most likely wrote “Paper Money” sometime in 1780, or possibly 1781, after news of Congress’ March 18 radical devaluation of the currency reached France and set off a vigorous debate among French creditors and between Vergennes and JA: XXXII, 449 and passim. Although the piece is written in the form of a letter to a newspaper we have found no record of its publication.
3. BF wrote and then deleted: “aided by about 10,000,000 of Livres from France”. French loans through 1780 had totaled about this amount: Ferguson, Power of the Purse, p. 126.
4. A point reminiscent of BF’s argument in “The Nature and Necessity of a Paper-Currency” that labor, not precious metals, is the fixed standard of value: I, 149.
5. Deleted: “& Portugal”.
6. In April, 1780, the ratio of continental currency to specie was 60 to 1 and by October it was 77.5 to 1. In January, 1781, it reached 100 to 1: Ferguson, Power of the Purse, p. 32.
7. See ibid., pp. 35–7, 39.
8. Ibid., pp. 37–8.
9. Ibid., pp. 34, 51–2. BF is referring to the March 18, 1780, devaluation of the currency.
1. Bills of the new emission drew 5 percent interest: Ibid., p. 51.
2. BF drafted and then deleted a concluding sentence: “no others have any Pretence to complain of or to censure the internal Operations of a foreign Country in the Management of its own Finances.”