From Thomas Ruston2
Translation:3 American Philosophical Society
<London, September 9, 1780, in French: The world marvels at the wisdom and maturity shown by the American Congress in organizing a country that has so recently conquered its freedom. The only weak point of this new administration—a flaw it shares with all European nations excepting England and Holland—has to do with the handling of public credit. That American paper currency should have fallen into discredit in spite of the country’s vast resources is proof that Congress is not yet aware of the basic principles governing this subject.
Allow me some background explanation.
Europe has long accepted the idea that public credit can only be maintained when grounded on a certain quantity of gold or silver specie. The French, for instance, carried this view to extremes, but without worrying whether such specie was in the hands of private people or of the government, so that their credit sank and has only begun to be salvaged in the last few years. In England, on the other hand, the paper money in circulation represents vastly more than the coinage in existence. This can be verified in pp. 363–443 of the first volume of the Witworth edition of Dr. Davenant, as well as in Dr. Price’s Observations on the Nature of Civil Liberty, p. 74.4
Furthermore, one would be grossly mistaken in believing that only gold and silver are the proper basis for currency. Their intrinsic value is less than that of iron, a metal of greater use to humanity. Were it not for the myth surrounding gold, a pound of it would be less valuable than a single bushel of wheat. Paper credit is as good as silver or gold, better even, and more convenient as witnessed by the preference that the Dutch, who know as much as any nation about money, show it in depositing their papers of credit in the bank. See Dr. Franklin’s remarks on the Board of Trade’s report.5
To those who object that bills are only as valuable as the belief that they can be exchanged for silver or gold, I shall answer that it is not so, that what counts is the certainty that the other person owns some form of property. Is there one knowledgeable merchant in the world who will sell one whit cheaper if he is paid in cash?
According to Dr. Price, the paper money of the colonies is more stable than that of England because it is not exchangeable for cash upon presentation, because a debtor is legally authorized to have it accepted as payment, and because it does not sustain as monstrous a debt as that of England. Indeed, should such a debt occur in times of exceptional necessity, it can be extinguished within four or five years through taxes on that paper money. Why, then, did the value of paper money fall so low in America? It is because of the public’s ignorance of the true nature of credit.
In order to put their finances in good order, the Americans should gather complete knowledge of their debts and of the conditions under which they have been contracted. Having heard that a bank may soon be established in Philadelphia,6 I make the following suggestions:
1. That all credits be placed in a common fund or in separate funds; that the creditors not be allowed to demand reimbursement but only transfer within the funds, leaving the government free to reimburse all or part of those funds when convenient.
2. That taxes be levied in order to pay scrupulously the interest which has been agreed upon. That a Bank be established for that purpose, and compensated for its services. That a fund large enough to secure the public’s trust be created, said fund made up by various kinds of properties (real estate and other), by a subscription and a sale of shares, and by land mortgages, and that the government stand as a guarantor behind the bank.
The Bank should receive all taxes and keep careful accounts. All negotiations of public funds should be done through it, and it should handle silver and gold and operate a mint whenever necessary. It should be allowed to lend money under certain restrictions both to private people and to the government, up to the amount of taxation for that year. Branches should be opened in provincial towns, in order to supplant eventually the local banks. 3. When the Bank’s credit is solidly established, both within the country and without, it will be able to borrow at more advantageous conditions and to solicit loans at stipulated interests from various European nations.
The rates of exchange should be fixed according to the place with which one is trading but the Bank should not enjoy a monopoly on those operations. It should keep out of small or precarious commercial operations, so as to eliminate any risk of harming the national credit.
The only valid objection to such a plan is that this is wartime and America is invaded by an enemy army, not the most propitious moment for opening a bank, but keep in mind that both England and Holland were in worse shape than the United States when they started their central banks. This is definitely the moment to act.
The proposed bank is somewhat different from most of the ones already established in Europe, to wit:
The Amsterdam Bank is used only for deposits and transactions within the city.
The Scottish banks offer loans only on land mortgages.
The Bank of England, which resembles most the one I am suggesting, assists private commerce through its own credit.
Please believe, Sir, that my only intention is to be of help to a cause endorsed by reasonable people all over the globe and to pay homage to your honesty and your talents. Should you wish to comment, I can be reached at the Carolina Coffeehouse.>
2. Ruston, a physician practicing in London and Exeter (XXI, 157n), identifies himself as the author in his Sept. 29 letter, below. He had taken a great interest in business since his 1771 or 1772 marriage to a wealthy heiress and was, according to the later testimony of George Washington, “a warm Friend of the American cause”: James McLachlan et al., eds., Princetonians: a Biographical Dictionary (5 vols., Princeton, 1976–91), I, 404–5.
3. Made from the English original (now missing) by the abbé Morellet: BF to Ruston, Oct. 9, below. A partial copy of this translation is at the Bibliothèque Municipale de Lyon, with a note on it in Morellet’s hand that he had translated the piece because it was so similar to BF’s way of thinking. Information kindly communicated to us by Dorothy Medlin.
4. Charles Whitworth, ed., The Political and Commercial Works of Charles D’Avenant … (5 vols., London, 1771); Richard Price, Observations on the Nature of Civil Liberty … (London, 1776).
5. Possibly BF’s “Scheme for Supplying the Colonies with a Paper Currency,” which he wrote in February, 1765: XII, 47–60. The Board of Trade in January and February of that year had been holding hearings on the paper money problem in the American colonies: XI, 176n.
6. He may be referring to the Bank of Pennsylvania; see RB’s letter of July 22. Robert Morris submitted his proposal for a national bank to Congress on May 17, 1781, three days after promising to accept the position of superintendent of finance: Morris Papers, I, 61, 66.