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Depreciation
of Paper Currency during the Revolution
Gold
and/or silver coins, often referred to as "specie", were commonly
used as payment for goods or services rendered in the colonial
period. The problem with specie was that each Colony rated
the coins differently and there were a wide variety of coins
in circulation: English coins, French coins, Spanish coins,
Portuguese coins, etc…. Because colonial authorities frequently
revised exchange rates to encourage and discourage the use
of certain coins in circulation, there was a lack of consistency
in determining the value of foreign currency among the colonies.
These issues were minimal in comparison to the ones paper
money would cause during the Revolution.
The
colonies had experimented with bills of credit or paper money
since the 1690's, typically, although not exclusively, it
was used as a means of wartime finance. One of the key reasons
printed money was issued in times of war was convenience-
values could be determined and bills printed at will. Bills
of credit printed between 1775 and 1779 were not backed by
specie, they were backed by the promise of taxes to be collected
by each colony at a future date. If promises were not kept
the consequence was inflation and depreciation.
Between
1775 and 1776, the Continental Congress printed 25,000 paper
bills of credit (worth roughly $25 million). At the same time
individual states were printing their own bills of credit.
Connecticut
Colonial Records, April 1775:
"Be
it therefore enacted by the Governor, Council and Representatives,
in General Court assembled, and by the authority of the same,
That there be forthwith imprinted the sum of fifty thousand
pounds, bills of credit on this Colony, equal to lawful money,
of suitable denominations as the committee herein appointed
shall direct, and of the same tenor with the late emission
of bills of credit of this Colony, without interest, payable
at or before the tenth day of May, 1777, dated the tenth day
of May, 1775."
"Be
it enacted by the authority aforesaid, That a tax of seven
pence on the pound be and is hereby granted and ordered to
be levied on all the polls and rateable estate in this Colony,
according to the list thereof to be brought in to this Assembly
in October 1775, with the additions; which tax shall be collected
and paid into the treasury of this Colony by the tenth day
of May, 1777; which tax may be discharged by paying the bills
of this Colony of this emission, or lawful and directed to
send forth his warrants for collecting the same accordingly."
Connecticut
Colonial Records, June 1776:
"Be
it enacted by the Governor, Council and Representatives, in
General Court assembled, and by the authority of the same,
That there be forthwith imprinted the sum of fifty thousand
pounds, bills of credit on this Colony, equal to lawful money,
of suitable denominations from six pence, lawful money to
forty shillings inclusive, and of the same tenor with the
late emission of bills of credit of this Colony, without interest,
payable at or before the first day of January 1782, dated
the 19th day of June 1776."
"Be
it enacted by the authority aforesaid, That a tax of seven
pence on the pound be and is hereby granted and ordered to
be levied on all the polls and rateable estate in this Colony,
according to the list thereof to be brought in to this Assembly
in October 1779, with the additions;"
This
over-issuance of paper money caused a disastrous financial
situation in the colonies. By April of 1777, it took two printed
dollars to buy one dollar's value in hard currency. In July,
1777 it took three printed dollars to buy one dollar's value
in hard currency. Initially, it was considered a crime against
patriotism to even admit that the Continental dollar was sinking
in value. But when it became clear that the Continental dollar
had depreciated, the Continental Congress asked that all states
curb their issuance of bills and tax themselves sufficiently
to sink the growing paper problem. For one reason or another
the solution to this fiscal problem was heatedly discussed
but never bridled (see number of issues and amounts in Table
1 for 1778-79) and by 1781 the Continental dollar was virtually
worthless (see Table 2).
Table
1: Continental Issues and Amounts.
|
Number
of Issues |
Amount |
| 1775 |
3 |
$6.0
Million |
| 1776 |
4 |
$19.0
Million |
| 1777 |
5 |
$13.0
Million |
| 1778 |
14 |
$63.50
Million |
| 1779 |
14 |
$140.0
Million |
| 1780 |
|
|
| 1781 |
|
|
| Totals |
40 |
$241.0
Million* |
*In
addition to this total, the states had issued $209 million
of their own notes.
Table
2: Depreciation of Paper Currency (Paper Currency Required
to Purchase $1.00 Specie*)
|
1777 |
1778 |
1779 |
1780 |
1781 |
|
|
|
|
|
|
| January |
1.25 |
4.00 |
8.00 |
42.50 |
100.00 |
| April |
2.00 |
6.00 |
16.00 |
60.00 |
167.50 |
| July |
3.00 |
4.00** |
19.00 |
62.50 |
|
| October |
3.00 |
5.00 |
30.00 |
77.50 |
|
*
Specie = Hard money or coins both gold and silver
**Reflects signing of the French Treaty.
In
1780, Congress issued $4.5 million in a new interest-bearing
currency (view
examples), redeemable in coin after five years, and receivable
for taxes. It too depreciated rapidly after being paid out.
In 1781, Congress chartered a fractional-reserve bank, the
Bank of North America, the declared purpose of which was to
lend funds to the government, and furnish the country with
a stable paper currency. Because the notes were redeemable
in specie only at the Philadelphia bank, they depreciated
everywhere else. In addition, the new Superintendent of Finance,
Robert Morris, issued treasury notes, known as "Morris notes,"
which promised to be redeemable in hard currency at the treasury
department at a future date designated on the note. They too
depreciated. By means of these three forms of credit currency,
Congress purchased supplies, paid the troops, and met interest
on its debts. The army, however, continued to give certificates
for impressed goods.
Commissary
Notes
To
serve the needs of the army, the Continental Congress began
to issue indented draft certificates. These were basically
I.O.U.'s issued by government departments for all types of
payments. They became known as "commissary notes" because
they were most actively used by the commissary quartermaster,
who would seized items needed for the military and leave the
owner with a certificate promising future payment.
At
the close of the war, these notes became war debts and a major
concern of the Confederate Congress. There were notes due
to officers and enlisted men for wages, bonuses and pensions;
accounts with commissary quartermaster, hospital, and other
officers who had disbursed money during the war; and debts
owed to individual suppliers. The Congress with little revenue
to pay these debts selectively reimbursed individuals. Claims
for reimbursement on record in New York State range from 1782
to 1794 and it's doubtful all claims were paid. In many cases,
the patriots that had risked their lives and well being, either
needing cash or convinced they would never be repaid, had
sold their certificates to speculators for a pittance.
[I.O.U's
are currently back in fashion. California
will start issuing them shortly.]
For additional information check out:
My
Brother Sam is Dead Dropbox Account
Word Document
that explains what is at the Dropbox: My
Brother Sam is Dead Dropbox
Photo Examples of the Dropbox:
My Brother Sam is
Dead Dropbox
Please feel
free to email me with any questions @ bcolley@colleyweb.com.
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