Table of Contents Introduction Part I FROM THE FIRST ISSUE OF BILLS OF PUBLIC CREDIT IN THE AMERICAN COLONIES TO THEIR ABOLITION BY CONNECTICUT. FROM 1690 TO 1755-6. Part III THE FEDERAL CONVENTION SHUTS AND BARS THE DOORS AGAINST PAPER MONEY. FROM 14TH MAY TO 17TH SEPTEMBER, 1787. Part IV THE CONSTITUTION IN THE HOUSE OF ITS GUARDIANS. Part V WHAT IS TO BE DONE? Appendix
The establishment of a post by France at the junction of the rivers which form the Ohio, with the design of appropriating the valley of the Mississippi, involved Virginia from May, 1755, in measures of war and immediate and increasing issues of paper bills which from the beginning were made a lawful tender for private debts. For the new "notes" of April, 1757, it was further ordered that any seller who should demand more for his goods in notes than in gold or silver coin, should "forfeit twenty percent of their value." The treaty of peace between England and France, which was ratified in the early part of 1763, left the middle and southern colonies under extreme embarrassment from their issues of paper. Massachusetts had stood firm by the sole use of coin. Rhode Island, with Stephen Hopkins for its governor and a legislature of which the majority reflected his own uprightness, at once and in spite of the severest opposition, put on its statute book: "Lawful money of this colony is, and shall hereafter be, silver and gold coin; and nothing else;" and it never again resorted to the emission of paper money, till, in 1775, it took up arms for the defense of its liberties. New Hampshire fixed 1771 as the limit for its paper, which in that year totally disappeared. Connecticut went through the great French war without issuing bills of credit; but in 1770, after an intermission of twenty-five years, relapsed into the old abuse. The legislature of New York in 1770 passed an act for emitting one hundred and twenty thousand pounds in bills of credit, to be put out on loan. The king promptly gave it his negative, but it was successfully reenacted in February of the following year. The war for independence exhibited a new development of the system of credit, by the reckless disregard of its bounds. Promises of money were scattered over the land alike by the states and by the United States, until "bills," to use the words of John Adams, "became as plenty as oak leaves." North Carolina, having in 1780 directed the emission of more than a million pounds, and such further sums as the exigencies of the state might require, in the next year gave authority at one dash to issue twenty-six and a quarter millions of paper dollars, being six percent interest. Virginia in March, 1781, directed the emission of ten million pounds, and authorized five millions more; and the continental paper currency and its own were made a legal tender in discharge of all debts and contracts, except contracts which expressly promised the contrary. In 1780 the United States began repudiation by issuing a new paper dollar equal to forty of their previous issues. After their new constitution was established, all that remained of the bills of the continental congress were called in at the rate of one dollar in silver for one hundred dollars "impressed" on paper. The experience of the war of the revolution completed the instruction of our fathers on the wastefulness and injustice of attempting to conduct affairs on the basis of paper promises, indefinite as to their time of payment; and with peace the nation began the reform of its finances with the same determined purpose and energy which had achieved its independence. In less than a month after the surrender of Cornwallis, the general assembly of Virginia enacted, that the paper issues of the state shall from the passing of this act cease to be a tender in payment of debt. On the 6th of February, 1782, South Carolina, after declaring that "laws making bills of credit legal tender are found inconvenient," enacted "that from and after the passage of this act, no bill or bills of credit or paper currency whatever shall be considered, taken, or received as a legal tender, payment, or discharge of any debt due, or demand whatsoever." Rhode Island, in June and November, 1782, ordered all bills and notes to be brought into the treasury. They were struck out of circulation, and new notes, bearing interest, given in their stead. The increase of paper money in the state was arrested for the coming four years. Washington, in his circular letter of June, 1783, to the governors of the several United States, wrote that "honesty will be found on every experiment to be the best and only true policy," being convinced that "arguments deduced from this topic could with pertinency and force be made use of against any attempt to procure a paper currency." In June, 1783, Alexander Hamilton, in resolutions for a new constitution of the United States of America, set forth explicitly: "To emit an unfunded paper as the sign of value ought not to continue a formal part of the constitution, nor ever hereafter to be employed; being, in its nature, pregnant with abuses, and liable to be made the engine of imposition and fraud; holding out temptations equally pernicious to the integrity of government and to the morals of the people." The overwhelming evils of paper money formed the subject of universal deliberation as affecting domestic, inter-state, and international relations, which could be effectually remedied only by a central government. On the 21st of March, 1783, Pennsylvania, which hardly knew what it was doing and had not yet gathered up the strength of its will, was the first to renew in peace the evil usage of the times of war, and issued three hundred thousand dollars in what it called treasury notes, the lowest of one quarter of a dollar, the highest of twenty dollars. Two years later, but after great resistance, its legislature issued one hundred and fifty thousand pounds, the lowest note of three pence. But in the decisive hour Pennsylvania proved the implacable foe of paper money. In the same year, 1783, North Carolina emitted one hundred thousand pounds, declaring "each pound of the emission equal to two and a half Spanish milled dollars, and a tender in all payments whatever." But every former paper currency of the state and the continental paper currency ceased to be a tender in the payment of debts. The state, in 1785, emitted one hundred thousand pounds more, and it took no part in the convention of the United States in 1787. In October, 1785, the legislature of South Carolina suffered itself to be persuaded to lend among its constituents one hundred thousand pounds in paper bills of the state, which were to pass in payments to the treasury of the state, but were not otherwise made legal tender. The state soon perceived that the paper banished more gold and silver than the amount of the bills which were to take their place. The policy of New York was an uncertain one. In 1782 it incorporated the bank of North America. In April, 1786, the opening year of the final great movement for a closer union of the states, it placed an emission of two hundred thousand pounds in bills of credit with loan officers, to be loaned on mortgage security; and they were made a legal tender in any suit for debt or damages, and the costs of suit. The bills were further to be received for duties collected at the port of New York by the state. General McDougall, the brave soldier and patriot, though sick unto death, insisted on being carried to the senate, that, as the last act of his public life, he might give his voice against the proposal to emit paper money. The ill-considered and happily transient desire of New York to levy duties on the neighboring states whose imports would naturally come through its great and more convenient harbor, combined with the passion for paper money to paralyze her influence in the coming convention for the establishment of union. From end to end of the whole country its best men were seeking remedies for what Madison called "the epidemic malady" of paper money. Following the lead of Pennsylvania, New Jersey had been the third state after the peace to issue paper money; in December, 1783, it issued thirty-one and a quarter thousand pounds, and in 1786 it struggled to issue a larger amount. William Paterson, the same who was afterwards a member of our supreme court, resisted the proposal with inflexible courage, and here are some of the words which he employed: "An increase of paper money, especially if it be a tender, will destroy what little credit is left, will bewilder conscience in the mazes of dishonest speculations, will allure some and constrain others into the perpetration of knavish acts, will turn vice into a legal virtue, and sanctify iniquity by law. Men have, in the ordinary transactions of life, temptations enough to lead them from the path of rectitude; why then pass laws for the purpose, or give legislative sanction to positive acts of iniquity? Lead us not into temptation is a part of our Lord's Prayer, worthy of attention at all times, and especially at the present." In the conflict of forces, the two parties were nearly equal. The popular branch of the legislature gave way to its illusions; the council, having at first refused to concur, thought it the part of prudence to succumb; but the desire to escape the taxation of its commerce by the state of New York clinched the fidelity of New Jersey to the union. In the summer of 1785 Richard Henry Lee, then president of congress, warned Washington of a plan formed for issuing a large sum of paper money in the next assembly of their state, adding as his opinion: "The greatest foes in the world could not devise a more effectual plan for ruining Virginia. I should suppose every friend to his country, every honest and sober man, would join heartily to reprobate so nefarious a plan of speculation." "I never have heard," answered Washington, in August, "and I hope never shall hear any serious mention of a paper emission in this state. Yet ignorance is the tool of design, and is often set to work suddenly and unexpectedly." In the same year, George Mason wrote: "They may pass a law to issue paper money, but twenty laws will not make the people receive it. Paper money is rounded upon fraud and knavery." As the danger drew nearer, Washington, on the 1st of August, 1786, wrote to Jefferson: "Other states are falling into very foolish and wicked plans of emitting paper money." When later in the year the proposal to issue paper money was brought up in the house of delegates of Virginia, Madison spoke as follows: "Paper money is unjust; to creditors, if a legal tender; to debtors, if not legal tender, by increasing the difficulty of getting specie. It is unconstitutional, for it affects the rights of property as much as taking away equal value in land. It is pernicious, destroying confidence between individuals; discouraging commerce; enriching sharpers; vitiating morals; reversing the end of government; and conspiring with the examples of other states to disgrace republican governments in the eyes of mankind." Moved by his words and the well-known opinions of Washington, Richard Henry Lee, and George Mason, the house of delegates of Virginia, on the first day of November, resolved by a vote of eighty-five against seventeen that an emission of paper money would be "unjust, impolitic, and destructive of public and private confidence, and of that virtue which is the basis of republican government." In Maryland the impassioned struggle was renewed within five months of the opening of the constitutional convention. Luther Martin led the partisans of paper emissions in the house of delegates to victory, and a secession was threatened if it should be rejected by the other branch. But the senate was inflexibly resolute; and the patriots of that state were forced to continue their resistance to the fury for paper emissions so long as the result of the federal convention remained in doubt. To Jabez Bowen, of Rhode Island, Washington wrote on the 9th of January, 1787: "Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice;" and he restrained his keenest sorrow at the loss of General Greene by the thought that Greene himself might have preferred an early death to the scenes which it seemed probable many of his surviving compatriots might live to bemoan. In this state of affairs, Stone, a member of the senate of Maryland, appealed to Washington to allow his opinion on the case as it stood in Maryland to be publicly known. Just three months before the opening of the constitutional convention, Washington answered: "As my sentiments thereon have been fully and decidedly expressed long before the assembly either of Maryland or of this state was convened, I do not scruple to declare, that, if I had had a voice in your legislature, it would have been given decidedly against a paper emission upon the general principles of its utility as a representative, and the necessity of it as a medium. "To assign reasons for this opinion would be as unnecessary as tedious. The ground has been so often trod, that a place hardly remains untouched. In a word, the necessity arising from a want of specie is represented as greater than it really is. I contend, that it is by the substance, not with the shadow of a thing, we are to be benefited. The wisdom of man, in my humble opinion, cannot at this time devise a plan, by which the credit of paper money would be long supported; consequently depreciation keeps pace with the quantity of the emission, and articles for which it is exchanged rise in a greater ratio than the sinking value of the money. Wherein, then, is the farmer, the planter, the artisan benefited? An evil equally great is, the door it immediately opens for speculation, by which the least designing, and perhaps most valuable, part of the community are preyed upon by the more knowing and crafty speculators." In New Hampshire a plan for the emission of paper money was printed and sent to the several towns for their judgment. When at the next session in January, 1787, the returns from the towns were received and counted, a majority appeared against paper money. Then the assembly, guided by the counsel of the people, decided that "the legislature cannot, consistently with the constitution, pass an act making paper bills of credit a tender to discharge private contracts, made prior to the passing such act," nor shall "paper money be emitted on any plan which has been proposed." New Hampshire chose to the great federal convention delegates who were in harmony with the resolves of its towns and legislature. Disquieting symptoms having appeared in Virginia, Madison in April enjoined Monroe, a member of its assembly "to battle paper money." Among the evils for which the new constitution should provide a remedy, Madison enumerated the "familiar violation of contracts in the form of depreciated paper made a legal tender." In his notes for his own guidance in the federal convention he laid down the principle that, "Paper money may be deemed an aggression on the rights of other states." Just five weeks before the time for the meeting of the convention, he wrote from congress in New York to Edmund Randolph: "There has been no moment since the peace, at which the federal assent would have been given to paper money."
THE FEDERAL CONVENTION SHUTS AND BARS THE DOORS AGAINST PAPER MONEY. FROM 14TH MAY TO 17TH SEPTEMBER, 1787.
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