To Thomas Ruston
LS:9 Yale University Library; AL (draft): Library of Congress
Passy Oct. 9. 1780.
I received and read with Pleasure your Thoughts on American Finance, and your Scheme of a Bank. I communicated them to the Abbé Morellet, who is a good Judge of the Subject, and he has translated them into French.1 He thinks them generally very just, and very clearly exprest. I shall forward them to a Friend in the Congress.2 That Body is, as you well suppose not well skilled in Financing. But their Deficiency in Knowledge has been amply supply’d by Good Luck. They issued an immence Quantity of Paper Bills, to pay, clothe, arm & feed their Troops, & fit out Ships, and with this Paper, without Taxes for the first three Years, they fought & baffled one of the most powerful Nations of Europe. They hoped notwithstanding its Quantity to have kept up the Value of their Paper. In this they were mistaken. It depreciated gradually. But this Depreciation, tho’ in some Circumstances inconvenient, has had the general good and great Effect, of operating as a Tax, and perhaps the most equal of all Taxes,3 since it depreciated in the Hands of the Holders of the Money, and thereby taxed them in proportion to the Sums they hold and the Time they held it, which is generally in proportion to Mens Wealth. Thus after having done its Business the Paper is reduced to about a sixtieth Part of its original Value. Having issued 200 Millions of Dollars, the Congress stopt, and supplyed themselves by borrowing.4 These Sums were borrowed at different Periods during the Progress of the Depreciation. Those who lent to the Publick, thereby fixed the Value of the Paper they lent, since it is to be repaid in silver according to its Value at the Time of the Loan. The rest went on Depreciating; and the Depreciation is at length only stopt by the vast nominal Sums called in easily by Taxes, and which will be by that means destroyed. Thus so much of the Publick Debt has been in this Manner insensibly paid that the Remainder, which you desire to know, does not exceed six Millions sterling. And now they are working with new Paper exprest to be equal in Value to silver, which they have made to bear Interest, and have provided such Funds to pay that Interest, that probably its original Value will be supported. In the meantime the Vigour of their Military Operations is again revived; and they are now as able, with respect to Money, to carry on the War, as they were at the Beginning, and much more so with regard to Troops Arms & Discipline. It is also an encreasing Nation, Sixty thousand Children having been born annually in the United States since the Beginning of the War;5 while their Enemies are said to be diminishing.
I am, Sir, Your most obedient and most humble Servant B F.
Mr. T. R.
Addressed: To / Dr Ruston / Exeter
Notations in different hands: B. Franklin. To Dr Ruston Octr 19th 1780 / with Mr Digges’s Compliments
9. In WTF’s hand. A fragment of the letter, comprising only the first two lines, appears at the bottom of a page in BF’s letterbook at the Library of Congress.
1. See our résumé of Ruston’s Sept. 9 letter.
3. Immediately following this word BF interlined “a Tax set upon Money, a thing heretofore always found most difficult to tax,” and then deleted it.
4. The ratio of currency to specie in July, 1780, was 62.5 to 1; by October it had reached to 77.5 to 1. On Sept. 3, 1779, Congress had set a limit of $200,000,000 in emissions, but in fact had issued $226,200,000 before the devaluation and new emission in March, 1780: Ferguson, Power of the Purse, pp. 30, 32, 46. For Congress’ borrowing see pp. 35–42.
5. A very reasonable guess given what we now know of 18th-century demography. The pre-war population of the colonies which became the United States was about 2,200,000; an annual birth rate of about 27 per thousand would produce 60,000 births per year. For pre-war population and birth rates see Robert V. Wells, The Population of the British Colonies in America before 1776: a Survey of Census Data (Princeton, 1975), pp. 141, 260, 284.