University of Virginia Library

CHAPTER I.
THE COLONY BILLS. THE PROVINCE BILLS.

We are so thoroughly accustomed to the use of paper money that it is difficult to realize that a little over two centuries ago, when the Assembly of the Colony of the Massachusetts Bay first authorized the emission of bills of public credit, they were securing for themselves the right to claim that they were practically the pioneers in a great economic experiment. Writers upon the subject of money tell us that at that time China had already undergone a prolonged experience of the use of a representative paper currency, but in the condition of travel in the latter part of the seventeenth century no experiment in the Orient could have made any impression upon the financiers of Europe, still less was it possible that it could have had any effect in New England. Instances are alleged of the temporary use of paper money in Leyden in the sixteenth century, and in Cyprus at a still earlier date. Concerning these little is known now, perhaps nothing was known in England in 1700. In measuring the value of precedents which may have influenced our ancestors in their belief that they could sustain a paper currency based upon public credit, we ought only to consider such as could have been brought to their knowledge, and in estimating the value of any precedent, its publicity must be considered. The situation in 1690 was practically as follows: The banks upon the continent, whose experience furnished the men of that day with such knowledge of banking as they had at

their command, were banks of deposit. The merchant who left with them the degraded coin then in circulation received in return therefor an equivalent "bank credit" expressed in terms of the standard coinage adopted by the bank. He adjusted his settlements with his creditors by means of transfers of account, and these transfers were supposed to be made at the bank. The theoretical advantage of the bank credit to the merchant was to be found in the establishment of a value for his available funds in terms of standard coins, and in the avoidance of the expenses attendant upon the transportation of specie. Towards the end of the seventeenth century the claim was advanced that these bank deposits were also advantageous to the community because the use of money was thereby multiplied. This argument was based upon the beneficial results which were to be traced to the continental banks, the Bank of Amsterdam being the example most familiar to English writers. In the light of later developments we know that the theory that the deposits of that bank were kept intact was not well founded. The managers of the bank, relying upon the permanence of their custody, made use of the deposits, and it was through this use that the power of the deposited coin was increased. Contemporary writers on the subject of banking do not, as a rule, seem to have appreciated this fact. They looked for an increase of the power of money through its accumulation in the vaults of a bank, without seeking to explain why this should be. One author in the latter part of the seventeenth century plainly saw the weakness of this position, and in his argument in favor of a bank of deposit in London he pointed out that under proper guarantees the deposits thus gathered into the custody of a bank might be utilized by the managers of the institution.[1]

The proposition to establish a bank of deposit did not carry with it any idea of making it a bank of issue nor of utilizing the deposits in any way. It is clear, however, that at an early date the custom of transferring "accounts in bank" by means of bills of exchange, money orders or checks, thus obviating the necessity of personal attendance at the counter of the bank, must have found its way into practice. This would of itself have furnished a form for the circulation of the bank credit in a limited way among merchants, which would have tended to familiarize them with the use of paper as a representative of money. The growth of practices of this sort is hinted at in the propositions for banks submitted in England during the seventeenth century and in the customs of the goldsmiths in London, where these tradesmen acted as the "cashkeepers" for the public. The fact that the London goldsmiths then furnished their customers with their individual notes, and that these notes had a certain field in which they were current, seems to be well established. It may be doubted, however, whether the founders of the Bank of England, in 1694, had before them any other well defined precedents upon which to base an opinion as to the probable success of paper-money, than were to be found in the ordinary mercantile bills of exchange, the goldsmiths' notes, and the bills of public credit of the Colony of the Massachusetts Bay. It is true that in addition to the cases already stated in which paper-money is said to

have been used prior to this time, the claim has been advanced that an experiment in that line was made in Sweden in the middle of the seventeenth century; that at some period of its existence the Bank of Venice emitted bills, and that the Bank of Genoa had also done the same thing. So far as we can judge concerning the alleged paper-money of the Italian banks, it would seem as if the references to the supposed emissions of these banks must have been intended to apply to the paper of their customers, based upon their bank credits. If, however, it should prove that either of these claims is authentic, and if any knowledge thereof could be brought home to the founders of the Bank of England, the fact would still remain that the event made so little impression upon the history of the times that it would have to be classed among unsuccessful experiments which were ephemeral in their nature. The one positive success in furnishing a people with paper money in the way of a circulating medium, knowledge of which was plainly accessible to English financiers, was to be found in the experience of the colony of the Massachusetts Bay. It is of interest, therefore, to trace the sources of knowledge or experience upon which the legislators of that colony could have founded an experiment so novel in its character.

The social and economic conditions under which it was made were widely different from those existing at that time in England. There were many in the colony still living, who remembered when all trade was conducted by barter, when corn was used for money, and when compulsory resort was had to wampum for a medium for trade and to bullets as a substitute for copper coin. An unsuccessful military expedition which had been undertaken in the fullest confidence that the

enemy would furnish the means to meet its expenses, left the colony saddled with debts of great magnitude, to meet which there was but an empty treasury. The government then in existence was provisional and of doubtful legality. If it had been permanent in form and of recognized legality, it is possible that the difficulty might have been overcome by a temporary loan from the people, although the amount required was so disproportionate in size to the circulating medium of the colony as to render that solution doubtful as a possibility. If we seek for the basis upon which the legislators built their hopes that the experimental use of the public credit as a circulating medium might succeed, we shall find that there was a certain knowledge of the use of individual credit for such purposes and that there had been more or less discussion of its application as a remedy for a supposed scarcity of the circulating medium, the proposed supply to be furnished by banks of issue. In an address to the crown, the statement is made officially that one of the reasons for establishing a mint in 1652 was because "for some years paper bills passed for payment of debts, wch were very subject to be lost, rent or counterfeited & other inconveniences."[2] It does not appear from the foregoing whether these "paper bills" were emitted by the colony or were based upon the credit of individuals, but as there is no record of any action having been taken by the General Court of the colony under which such bills were authorized it may be assumed that they were not public bills. We know that at a later date private bills were, for several years made use of to some extent in Portsmouth and also in what the writer upon whom we rely for the information terms the "Western English Plantations."[3] From various sources we know that the thoughts of the colonists were turned during this period towards the establishment of a bank which should furnish a currency based upon mortgages of land and pledges of merchandize, and one writer goes so far as to say that, in 1681 this plan was tested experimentally and bills were actually emitted. The pamphlet issued by this author[4] was published in 1682 and contains a proposal for a "fund of land" "in the nature of a money bank or merchandize lumber[5] to pass credit upon, by book entries; or bills of exchange, for great payments and change-bills for running cash." It is also set forth therein that "credit pass'd in the Fund, by book, and Bills, (as afore) will fully supply the defect of money." The author states that his attention had been called to the subject in 1649,[6]and he gives an account of the several attempts which were made to test the plan, winding up with a statement that an actual experiment was made to pass forth bills for some months, for he says "in 6 moneths a considerable number espoused the designe." Notwithstanding the positive assertion that bills were actually emitted in 1681 and that considerable numbers "espoused the designe" it must be inferred from the pamphlet itself that the experiment was but indifferently successful, for in submitting his plan for a bank to the public he states that it had never been tried.[7]

In 1686, an attempt was made to establish a bank in Boston which should issue, for circulation, bills the security for which was to be based upon pledges of personal property and mortgages of real estate.[8] The president of the council favored the project and several members of the council were interested in it. A printing press was bought, paper was purchased, plates were prepared and bills were actually struck off, but for some reason the experiment was at this stage abandoned.

Brief as was the career of this attempt to establish a bank of issue it must have attracted attention in local financial circles. The scheme was based upon a plan which we know to have been published two years at least before the colony emitted its currency, and, if we may accept contemporary testimony, the publication was in print two years before the projected bank of 1686 was organized.[9]

It may be inferred that the possibility of furnishing a representative paper substitute for the foreign coins which constituted the circulating medium in New England was a question which attracted much attention at

this period. It is however evident that when, in 1690, the assembly of the colony of the Massachusetts Bay proceeded to pay their debts with certificates which were emitted in such form that they could serve as a currency for the colony, they had but little knowledge upon which they could build an opinion as to whether paper money could be made to pass current among the people of the colony. By 1694, when the Bank of England was established, the success of the experiment was practically assured, and it may be that the example of the colony of the Massachusetts Bay had its influence upon the founders of the Bank of England.

The emission of the colony bills of public credit was inaugurated under the provisional government which held the reins after the downfall of Andros. The occasion for this step was the collapse of the expedition which set forth in the fall of 1690 under Sir William Phips with the expectation of capturing Quebec. Hutchinson says: "The government was utterly unprepared for the return of the forces. They seem to have presumed, not only upon success, but upon the enemy's treasure to bear the charge of the expedition. The soldiers were upon the point of mutiny for want of their wages. It was utterly impracticable to raise, in a few days such a sum of money as would be necessary."[10] Sewall says the bills of credit then issued were "not made for want of money, but for want of money in the treasury."[11]

I have already said that under other conditions a loan might have been effected and the crisis thus tided over. It was indeed the opinion of the General Court in November, 1690, before the members were brought to a

realizing sense of the full measure of their responsibilities, that a temporary loan adequate for the emergency, could be effected by a pledge of a part of the taxes for the year, combined with the customs dues, and a promise that the expected plunder from Quebec should be applied for the redemption of the loan. A committee was actually appointed to carry out this scheme, but the confidence in the success of the expedition, which led the General Court to pledge the anticipated plunder was apparently not shared by the capitalists of Boston, and the loan, so far as appears, was not negotiated. The time within which this could have been accomplished was but brief, for on the 18th of November Phips arrived at Boston, bearing the intelligence of his disastrous failure. The language used in the vote of the court defining the duties of this committee is not without value in its disclosure of the temper of the community at the time of its passage. It was as follows:

The loan having become impossible through lack of plunder to pledge, and payment of the debts being even more urgent in consequence of the situation of affairs, some other method of meeting the depletion of the treasury referred to by Sewall had to be devised. The emission of bills in the form of certificates of indebtedness to the possessor on the part of the government was the solution of the question which was adopted. These bills were by their terms receivable at the treasury in payment of government dues. They were originally put forth in anticipation of taxes, and provision in the tax levy was made each year for calling them in promptly. A part only of these notes was destroyed on their return to the treasury. Those remaining in the treasurer's hands were made use of at a later date by the province as a currency, the connection of the provincial government with their emission being indicated by the endorsement of the treasurer of the province. The currency emitted in 1690 was generally spoken of as Colony or Old Charter bills.

The order of the General Court authorizing the original issue sets forth the motives which prompted the legislators to take this step. It was passed at a court sitting in Boston "By adjournment, December 10th, 1690," and is in the following language:

The seven thousand pounds limit was removed in February, 1690-91. The cause for the removal is set forth in the following order which was passed at that time:

On the 21st of May, 1691, an order was passed setting a limit of £40,000 to the emission. It was in the following language:

The following is a contemporary description of the government bills, of the basis upon which they circulated, and of the manner in which they were retired: "What is the use of Coyned Silver? but to furnish a man with Credit, that he may obtain from his Neighbours those Commodities, which he hath occasion for? The Country in General Court, have Recognized or Acknowledged, a Debt of so many thousand pounds unto them that have been the servants of the Publick. The Credit conveyed by the Bills now Circulates from one hand to another as mens dealings are, until the Publick Taxes call for it. It is then brought in to the Treasurers hands, from which it goes not out again.

Now the Conveniences which the servants of the Publick, have had by them, have honestly paid the Countries Debts; and what could coyned Silver have done more?"[16] The statement that "the note goes not out again" was perhaps true in 1691, but it could not have been applied after 1692, except with the qualifying phrase, unless by authority of the General Court. The question whether the province, as a matter of economy used the same colony notes over and over again was of no consequence, provided the use thus made was in accordance with the authorization of the General Court.

If we assume that the entire £40,000 authorized May 21, 1691, were issued,[17] there were put forth of these Old Charter bills, in the various issues and re-issues of the colony and province, £82,000, independent of bills

borrowed by the government,[18] which probably had the same effect as emissions.

Provision was made in each case for a tax which should furnish the means for the prompt retirement of the bills emitted. When the government first offered these bills to creditors in place of coin, they were received with distrust. It was while this distrust prevailed that the authors of the pamphlet from which I have quoted appealed to the public to maintain them, pointing out, as has already been seen, that they were better than notes based upon individual credits which had been current in sections of the country, and asking wherein was the superiority of silver coin in the performance of the various functions assigned to the notes. Cotton Mather sets forth the deleterious effects of this distrust and shows how valuable the bills might have been to the government if cordially received. He then asserts that their circulating value was at first impaired from twenty to thirty per cent.

"Had the government been so settled, that there had not been any doubt of any obstruction, or diversion to be given to the prosecution of the tax-act, by a total change of affairs, then depending at White-Hall, 'tis very certain that the bills of credit had been better than so much ready silver; yea, the invention had been of more use to the New Englanders, than if all their copper mines had been opened, or the mountains of Peru had been removed into these parts of America. The Massachusetts

bills of credit had been like bank bills of Venice, where, though there were not, perhaps, a ducat of money in the bank, yet the bills were esteemed more than twenty per cent. better than money among the body of the people, in all their dealings. But many people being afraid that the government would in half a year be so overturned as to convert their bills of credit altogether into waste paper, the credit of them was thereby very much impaired; and they who first received them could make them yield little more than fourteen or sixteen shillings in the pound; . . ."[19] An officer who accompanied the expedition wrote in reference to these bills as follows: " But they will not pass in trade between man and man, nor can these poor soldiers and seamen get anything for them to above half their value, they being only used to pay rates with."[20]

Another writer intimates that many of those who received the bills hastened to get rid of them at such a disadvantage that their value was reduced to twelve or thirteen shillings on the pound. "What a great loss it was," he says, "to those poor men who ventured their lives in the expedition! They were forced to buy such goods as its likely they had hardly any need of, to get rid of their new coyn'd money. And what they bought was so to their disadvantage that they put off their bills at twelve or thirteen shillings on the pound."[21] If it be true that the market value of the bills was affected by

Plate 2

[Description: Two altered 5s. bills, Province Currency, 1702 Plates]

the causes at which the writer seems to hint, it will be seen that this was only temporary, as the bills soon became current at par.

There was, however, an element of uncertainty as to the approval of the acts of the provisional government by their successors which must, as Cotton Mather says, at first have affected their credit, and it may also be doubted whether any weak government could have floated £40,000 in bills of credit, and precipitated them on the community in the manner in which the first of these notes were issued, without raising some doubts as to their value in the minds of those who were compelled to receive them. It may be assumed that the hesitation on the part of the public to accept the bills as a substitute for coin influenced the General Court in its decision to attach to the act of emission of February 3, 1690-91, the clause pledging the government to receive them in payment of dues at a premium of five per cent., a precedent which fastened itself as a custom upon the annual legislation in this regard, from the consequences of which the court was unable to take steps to free itself until 1720. Mather is authority for the statement that the Boston merchants also came to the rescue, offering to take the bills in payment for goods at reasonable rates, and that Gen. Phips "cheerfully laid down a considerable quantity of ready money for an equivalent parcel of them."[22]

After the organization of the province under the charter, one of the first steps taken was to pass an act to the effect that the bills of the late colony should "pass current within this province in all payments equivalent to money". In public payments they were to be received with an advance of five per cent., following

in this regard the precedent set by the act of February 3, 1690-91, heretofore quoted. Possessors of bills who would loan them to the government were to be secured by public taxes and were to be reimbursed out of the taxes within twelve months. This act is divided into two sections. The first makes all bills current, while the second confers this function only upon such of the bills as should be loaned to the government and imposes restraints upon the currency of all others. In December of the same year (1692), the disability imposed upon a part of the bills by the limitation in the second section of the act was removed.[23]

This trifling with the credit of the bills would seem to have justified the distrust which led to their depreciation. When, however, the complete recognition of the bills was effected by the new government and it was realized that no effort was being made to circulate more of them than was required to meet the immediate necessities of the situation, and further, that no attempt was made to postpone the period when they should be called in, they were accepted with confidence by the entire community. Public sentiment, also, came to the relief of the bills at this time. The town of Boston voted, May 12, 1702, that the province bills of credit should be accepted in payment of the town rates. At the town meeting held in Boston, January 18, 1702-3, the question was submitted "whether the new bills of credit, now to be used in public payments of the Province, shall be taken and accepted by the town treasurer in payments of the town rate at the advance and after the rate of five per cent. more than the value

therein expressed, and the same to pass out in payments get their expressed value without the said advance, according to the practice of the province treasury," and it passed in the affirmative.[24] Thus Boston actually assumed the five per cent. offered by the province as an inducement for the currency of the bills.

It may be inferred that the five per cent. premium at which the government received the notes greatly aided in producing this result. Whether this was so or not, so long as the government was conservative in the amounts which were issued and complied with the provisions which were made at the time of the several issues for the prompt retirement of the bills through taxation, they continued to circulate at par.

Meantime the emission of government bills, which originally contemplated only the furnishing of a temporary expedient had gone on from year to year, the amount annually issued being controlled by the necessities of the government. From motives of economy or policy, probably the latter, the province continued to use the colony bills and did not adopt a form of its own until 1702. It was apparently thought at one time that use might be made of the plates prepared for the colony bills to furnish a new emission, and an order was actually carried through the house of representatives for printing a new supply of bills, certain individuals being designated to sign them in behalf of the colony. The evident impropriety of such action led to the rejection of this order by the council,[25] and naturally led to the preparation of new plates, in which such changes of phraseology only were made

as were required by the new form of government.[26] Each bill was a certificate of indebtedness from the province and contained a provision that it should be accepted as so much money in public payments. Current expenses were met by the emission of bills and for the retirement of these bills future taxes were pledged; but as the emergencies of the government enlarged and the issues needed to meet them increased, the designated tax levies through which they could be returned to the treasury were postponed from year to year. By 1714, the income of the province from taxation was pledged, either wholly or in part, each year for six years, so that the issue then made was not to be called in by taxation until 1720. Inasmuch as some of the bills could not be received by the province for several years to come, it was natural that all should feel the effects of this discredit. This fact alone would have caused them to depreciate, even if the amount then in circulation had been properly proportioned to the needs of the community. The province bills and the bills of the neighboring governments in circulation in the province had by that time driven all the gold and silver out of circulation and much of it out of the province. Silver and sterling exchange had consequently risen twenty and one half per cent. The depreciation and distrust of the bills were sufficient to impair their efficacy, and to cause a clamor for relief. The withdrawal of the silver from circulation made the country dependent upon the bills of public credit for a medium of trade, a large part of which was subject to be called in each year. The retirement of a large proportion of the circulating medium through annual taxation, regularly produced a stringency from which the legislature sought relief through postponement of the retirements. If the bills were not called in according to the terms of the acts of issue, public faith in them would lessen, if called in there would be a disturbance of the currency. On these points there was a permanent disagreement between the governor and the representatives, discussions concerning which reveal themselves in 1715 and traces of which are frequently found after that date. "About this time", says a pamphleteer, writing about 1720, but referring to 1714, "the silver being pretty well drained from the country the bills outstanding on the former fund, continually going in to the treasury, in order to be sunk, it was contrived to alter the fund, and put off the payment for a longer time by lessening the tax about one half. This being not a sufficient stop it was brought to about a quarter part—and I think continues therabouts to this day."[27] Another remedy was supposed to be more paper money, and pressure was brought to bear upon the General Court to secure the incorporation of a bank of issue, the circulation of whose bills would, it was thought, contribute relief to the situation. The promoters reprinted a London pamphlet which, according to the date given upon the title-page of the reprint, was originally printed in 1688, in which a scheme for a bank of issue was set forth in great detail.[28] The preface of the reprint describes its contents as a scheme for a bank of credit founded upon land security. The enemies of the scheme succeeded in defeating it by emitting province bills to be loaned upon real security,[29] but the contest then provoked produced much ill will in the province.[30] A study of the pamphlet then issued discloses the fact that the scheme is similar to one submitted to the council in 1686 by John Blackwell.[31] This latter project was favorably received by the council and was carried forward even to the preparation of the bills for issue, but was not allowed to go beyond that point.

The projectors of the private bank in 1714, not only reprinted this pamphlet bearing date 1688, but they prepared a separate scheme of their own which they termed a projection for a bank of credit founded on land security.[32] The presentation of the petition of the projectors for incorporation produced considerable discussion,

in which the public to some extent participated, through the various pamphlets then published by the disputants.[33]