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AN ESSAY OR Humble Attempt to examine and state the TRUE INTEREST Of Pennsylvania with Respect to the Paper Currency. [ First published in Philadelphia, Dec. 13, 1780.] - Pelatiah Webster, Political Essays on the Nature and Operation of Money, Public Finances and Other Subjects 
Political Essays on the Nature and Operation of Money, Public Finances and Other Subjects, published during the American War, and continued up to the present Year, 1791 (Philadelphia: Joseph Crukshank, 1791).
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AN ESSAY OR Humble Attempt to examine and state the TRUE INTEREST OfPennsylvaniawith Respect to the Paper Currency.
I PROPOSE, first, some remarks on the subject of paper money, and, secondly, some particular consideration of the Acts of our Assembly for issuing the new Continental bills, with some reasons why I think the true interest of Pennsylvania requires that those acts should be repealed, and the issuing of those bills should be stopped or suspended for the present, and I hope to do this without offence; for the great interests of a State, in which 400,000 citizens are concerned, cannot be too well understood, nor the utility of its laws be too carefully examined, or the errors of them be discovered and amended too soon.
Two things are essentially necessary to give paper bills a credit and currency equal to hard money. 1. Such certainty ofhonestandpunctual redemption, as shall fully satisfy the mind of the possessor. 2. That thecreditanddemandfor said bills should be so constantly kept up, from the time of theiremissionto that of theirredemption,that the possessor may be able, at any time, to pass them at hard money value. The first of these is provided for by the Assembly, if their act shall produce the certainty of redemption required, which I am not here to dispute: but the second is equally necessary; for should the bills pass from their emission to their redemption, or any part of that intermediate time, at a depreciated value, say 2, 3, or 4 for 1, tho’ they should be redeemed at full value at the expiration of their currency in the most punctual manner, yet the mischiefs they would occasion in the mean time would be infinite.
One of which would be, that the depreciation itself would render the final redemption of the bills at full value both unjust and pernicious, as well as very hard and oppressive to the body of the people; for, in this case, the people must be taxed, say two, three, or four times the value or current exchange of the bills; not to the public benefit, but solely to increase the wealth of those rich people, who will hoard up the bills, and have them in possession at the time of their redemption. From which it appears (and indeed I think it may be demonstrated from the plainest principles) that public bills ought always to be redeemed at that value or current exchange, at which they usually pass at the time of redemption, let their nominal value be whatever it may. Indeed, the infinite and ruinous mischiefs of a fluctuating currency are so generally felt and well understood, that I conceive there is no need of proof, that it is equally necessary to keep the value or exchange of bills stable and unvarying thro’ the whole time of their currency, as to provide sure funds for their final redemption, and that the first of these does not depend solely on the last. The first of these depends on opinion, persuasion, and general practice; the last on the ability and integrity of the redeemer.
If you offer a bill to a stranger, he never thinks of asking when, by whom, or how certainly that bill is to be redeemed, but his only question is, whether he can pass it again? Not one in a thousand who takes a public bill, takes it with a design to lay it up five or six years, tho’ its redemption be ever so sure at that time, but his object is immediate use, to serve his present occasions by instantly passing it again, or at least having it in his power to do it whenever oceasion may offer. I take it that these principles and reasonings are perfectly plain and clear, and will afford, by the clearest inference, the following consequence, viz. That no public bills ought ever to be issued, which have not these two great and essential supports, 1. acertaintyof final redemption; and, 2. such general confidence and demand, as will insure their currency at full value without depreciation, during the whole time of their circulation.
Indeed, it appears to me, that to issue public bills without these supports is the plainest folly, bordering on insanity, and must be very criminal, when done in the face of clear evidence and conviction. It further appears to me, that the new Continental bills have not these supports at present, and therefore ought not to be issued till these supports can be obtained, and of consequence, that the great interest of the State requires that the laws for issuing them should be repealed; or at least that the issuing them should be suspended till these supports can be obtained; for which I offer the following reasons, which seem to me to be of weight and force sufficient to engage the most serious attention of the public.
1. The quantity (viz. 10,000,000 of dollars) is at least four times as much in value as all the old Continental bills, and therefore must, from the nature of the thing, depreciate it, were its funds ever so indubitable, and the public confidence in it ever so great.—I conceive the present mean exchange of the Continental bills is about 100 for 1, at least they cannot be set at less than 80 for 1, on any sure facts, which makes the whole quantity (viz. 200,000,000) worth 2,500,000 of hard dollars, which is but one fourth of 10,000,000;—and further, that increasing the quantity of money will (cæteris paribus) decrease its value. This will always be a natural truth, as long as the value of money is nothing but the proportion between the quantity of circulating money and the occasions of money (as I think I have demonstrated in my Essays on Free Trade and Finance, and especially in the Second Essay) and which now is become such a received truth, that it cannot need further proof here.
2. The sum of 10,000,000 of dollars, added to the other bills which will continue circulating, such as State money, and certificates of various kinds, &c. is much more paper money than the Thirteen States ever did or can bear. The whole circulating cash of the Thirteen States, on the best calculation I have been able to make, never did exceed 12,000,000, I rather think it not more than 10,000,000 of hard dollars in value, and not more than half, or at most three fifths, of the circulating cash in this State was paper in 1774; and I am convinced, by very good documents, that that proportion was not exceeded in the other States, where paper money was circulated; and as most of the trade and business that requires stock or cash, is now in stagnation, there cannot be occasion for so much circulating cash as in 1774, when every business, trade, and occupation was in full vigor.
Indeed, it is easy to make a pretty just estimate of the quantity of circulating paper which the country can now bear, from fact, viz. from the value of the present circulating paper, of which the Continental bills are much the greatest part; by which it will appear, that the present circulating paper cannot exceed four millions of Spanish dollars in value,—and that it is as much as the Thirteen States can bear, or rather more, is plain from this,—viz. that the paper of all sorts continues to depreciate. Now, in these circumstances, to pour on 3 or 4 times as much new paper as we are found, by experiment, by plain fact, able to bear, is in my opinion a sure way to depreciate it. I think it is not more certain, if you pour three or four buckets of water into one that is already full, that some of it must run over; yea, I think that the whole quantity you pour in must all run over.
3. We have already too much money circulating among us, for it is certain that even hard money will not purchase more than two thirds as much labor, country produce, or other necessaries, which are not heightened in their price by the extraordinary expense of importation, as the same would have purchased in 1774. Hence it follows, that the quantity of money has increased beyond the occasions of money in that proportion. This is reasoning on sure principles, which any body may disprove that can; the price of market, rents, and even real estates, afford a most plain and striking proof of this; it is further to be noted here, that the French and British armies import much money, which they are daily spreading among us, and thereby rapidly increase our circulating cash. It follows then, that our best policy is to reduce the quantity of our circulating medium, especially that dangerous part of it which consists in paper, that we may avoid, as far as possible, the further horrors and mischiefs of a depreciating currency, rather than to increase the evil by pouring in immense additions.
4. The present Continental money passes at its exchange thro’ all the Thirteen States readily enough; any thing, even hard money, may be purchased with it; therefore it answers well the ends and uses of a circulating medium. But the new bills, however well established their funds may be, have not the confidence of the public in general, nor will they be readily received. They are a new thing, and their fate uncertain. This will naturally depreciate them in the first beginning of their circulation, by which the whole commerce of the Thirteen States, as well as the public finance and expenditures, will receive the most essential injury. Now to call in a currency that is well received, and which answers well the ends and uses of a circulating medium, and issue instead of it one of doubtful credit, which will probably be received with diffidence, if not disgust, appears to me the height of absurdity.
5. The new bills, however funded, must stand on the same basis as the old, viz. the public faith, which, however modified, is neither better nor worse in the one case than the other, and therefore the new bills will depend on no better supports than the old ones, and of consequence nothing can be gained by the exchange, the trouble, risk, and expense of which must therefore be wholly lost.
6. If the old bills should depreciate, the public will gain the depreciation; but if the new bills should depreciate, the public must lose the depreciation, or must suffer a second bankruptcy to avoid the loss.
7. If the new bills should be emitted, they will not answer the purpose of ageneral currency,which is one principal end of their creation; but, like the State money, will be confined to the State that signs them. For it is very certain, that one State will no sooner take the new bills signed by another State, than they will take any other bills signed by the same State; for the Continental security, added to the new bills, is neither expressed nor intended to mend the credit or make good the deficiencies of any of the States, but such as are rendered incapable of payment by the power or possession of the enemy. The present Continental bills have a general currency, and therefore ought to be kept in circulation in preference to the new bills, if no other reason could be given for it.
8. Most of the other States who have emitted the new bills, have issued them at 40 for 1, i. c. at about half their nominal value, and it is in my opinion pretty much in vain for us to attempt to give our bills a better exchange or value than theirs have, in as much as their funds of redemption and means of intermediate circulation are as good as ours; besides, to attempt this would be to introduce such a variety, such a jargon of exchanges, as would defeat every purpose of a general currency of those bills.
9. If the new bills should be issued at half value, or should speedily depreciate to 2 for 1 (and I think on every natural principle they must depreciate to 3 or 4 for 1 by the time they are all out) I say, at 2 for 1 the States will not only—1. give 40s. for every 20s. which they issue; and, 2. give 10 per cent. interest in hard money for it all; but, 3. when they have issued it all, it will pay but half the expenditures of the year, if those expenditures are 10,000,000 of hard dollars, as they are generally computed; for it is plain that 10,000,000 at 2 for 1, will pay but 5,000,000 real money; and if the whole 10,000,000 should be called in by taxes within the year, yet at the end of the year, the States would find themselves in debt 5,000,000 of hard dollars, over and above the heavy balance now against them, and the annual increase of the public debt abroad.
But if (as will most likely be the case) most of the new bills should be outstanding at the end of the year, we must add to the aforesaid 5,000,000 of hard dollars debt, the amount of all the outstanding bills, with one year’s hard money interest on them all—a vast chaos this, equal to the dreary regions of ancient night! My reader may think my reasoning is sanguine, and expression strong, but both proceed from the real convictions of my own mind, from the force of truth.
If I have discovered and described properly these operations of the new bills on the Thirteen States, it follows that this State must take its share of these consequences if they issue their quota of them.
What I would humbly propose, instead of this measure, is, to repeal the acts for issuing the new bills, or suspend their execution till we are in condition to give them a currency truly and really equal to hard money, and keep them so; and in the mean time to continue the circulation of the present Continental or State bills, or both, till we can get hard money enough for a currency, or till time and wisdom shall discover some other resource, less fraught with dishonor, disappointment, and ruin.
In fine, taxation equal to the public expenditures is, in my opinion, the only method in nature by which our defence can be continued, our independence be preserved, a destructive increase of the public debt be avoided, our currency (hard or paper) be kept in a state of fixed value, the natural springs of industry be given to every profession of men, our supplies made plentiful, the public confidence be restored to the public counsels, the morality of our people be revived, and the blessings of heaven be secured to ourselves and our posterity. All this, I conceive, is proved fully in my five Essays, especially the Fifth, to which I refer every one who is not already weary of my thoughts, and would wish to be further acquainted with my sentiments on this subject.
Upon the whole matter, I conceive that union in counsels, uniformity of method in our finances, and the benefits of a general currency, were the principal objects of the resolution of Congress of the 18th of March, 1780 (tho’ I confess I never could see the advantages of that resolution.) I further conceive these objects are already lost; for the different exchange at which the different States issue and pass the bills, and the want of confidence of the States in each other (for one State will not take the bills of the other States, as we find by experiment) together with the deficient and dilatory supports given to those resolutions, I say, all these together destroy the intended union of counsels and uniformity of finances, and render a general currency of the bills impracticable.
Indeed, I ever considered the enormous quantity of bills proposed for emission in the said resolution, to be a seed of mischief, which would grow up with force in the course of its operation, and defeat its effects; the ill consequences of which could no otherwise be avoided, than by the most strenuous and united efforts of the States in its support, and using the greatest prudence and caution as to the quantity issued; all which I noticed with great freedom in my strictures on said resolution, in my Fifth Essay, published ten months ago. It now appears that the efforts of the States in support of said resolution have been very dilatory, far from decisive, and widely differing in the manner of exertion; that the general confidence of the public in the success of the bills is greatly shaken; and that the general currency of them is rendered impracticable, and not to be expected, and of course that the great design, and benefits of the measure are already become desperate.
I cannot see that it would be wife in our Assembly further to pursue a scheme, the principal objects of which are already defeated, and which, of course, has already lost its capital uses; especially when there are so many and important objections lying in the way of its operation: to suppose that we can cut our way thro’ all these difficulties, and force the bills into circulation by penal laws is an idea which I cannot think admissible, for the reasons I alleged in my Strictures on the Tender-Act, whilst it was under consideration; at least this dependence is dangerous to a great degree, for should it fail, we shall be left dreadfully destitute, without any cash at command, and without time or means of recurring in season to our more sure resources.
If the emission of the new Continental bills should be laid aside, we may be able well to support our new emission of state bills; if the demand for them is sufficiently increased by taxes which is very practicable; and if the legislature could be prevailed on to take off the penalties of the tender-act, which were designed to enforce their circulation, but which, in my opinion, add horror to the currency itself, and raise doubts and fears which otherwise would not be thought of; and, in any view, stand as a monument of the weakness of our public credit, which requires such unnatural supports to keep it in existence, and will be a monument of our folly, shame, and inadequate policy, if it should fail of producing the effects intended.
I apprehend it would be much more sure, natural, and advisable, if we need money for any use, e. g. to pay and feed the army, &c. to lay a tax on our people for it, and solemnly appropriate it to that purpose only, and tell them so. I am of opinion such a tax would be speedily and cheerfully paid, and let the same be done for every other branch of expenditure. This will be settling and finishing the matter as we go along, and will keep our State and counsels free from the confusion of perplexed finances, the endless labor of settling public accounts, the pressure of a public debt, and the disheartening horrors of future endless taxes, to discharge the Lord knows what of interest and principal, which will remain to be paid in future time.
If other States are disposed to involve themselves and posterity in an endless labyrinth of confused accounts, fluctuating currency, and immensity of debt, it does not follow that it is either prudent or necessary that we should imitate their example. If we satisfy the quotas (demanded by Congress) as well as they, we do our duty as well; and if this be done in a way of more ease and safety to our own people, the other States cannot be prejudiced by it; and if they should apprehend that our method has more advantages in it than theirs, instead of blaming us, they may, if they please, follow our example. If this should not suit them, they will be at liberty to load themselves with paper, whilst we shall draw their hard money to ourselves, which will be the natural and unavoidable consequence of their continuing, and our restraining, the emissions of paper money.
The same thing will fill our State with the best inhabitants; for it is plain that every sensible man would choose to settle himself in a State free of debt, rather than in one loaded with a debt which would require the galling taxes of an age to discharge it.
But, all this aside, I would rather discharge the expenditures as we go, tho’ it should prove heavy, than to leave a legacy of debt on posterity, which will mix bitterness with the sweets of that liberty which we are endeavouring to procure for them, and induce them to censure the humanity of our counsels, and lessen their gratitude to us for a most valuable blessing secured to them, because they will find themselves charged with the expense of it.
But still I expect to hear the old cry against my principles, that they are good in theory, but not admissible, because impracticable; that taxing equal to the expenditures is impossible, because the people cannot bear such weight of taxes; but there is no disputing against necessity, I therefore beg the reader’s patient attention to the following short propositions.
1. Taxing equal to the expenditures is the only possible method of keeping our currency to a fixed value; for if there is more money in any country issued into currency, than is taken out during the year, there must be more money in circulation at the end of the year than there was in the beginning of it, and an increase of quantity will depreciate the value of any currency (hard or paper:) this depends on principles as natural and unalterable as the laws of gravitation, or powers of the magnet.
2. A fluctuating currency is by all men confessed to be a calamity, much more dreadful and ruinous than any degree of taxation necessary to prevent it.
3. The mischief of a fluctuating currency is dreadfully increased by all regulations, tender-acts, and every other application of force made use of to prevent it; the noise, force, and devastation of an irresistible current are dreadfully increased by obstacles thrown in its way, beyond what would happen, if it was suffered to take its natural course without interruption; for a practical proof of these two last propositions, I appeal to the experience of every man of any business, with this plain question, “Sir, would you not rather pay your share of the whole expenditures of the year in monthly or quarterly taxes, than suffer, thro’ the year, the pains, injuries, and inconveniences of a fluctuating currency, with regulations, committees, tender-acts, and penalties in force?” I dare believe that scarce a man of business and character can be found in this State, who would not readily answer, and from full conviction, that the tax would be much the least burdensome of the two.—I will then state my propositions with freedom, and submit them to the candid examination and censure of the public. I propose,
1. To repeal the acts for issuing the new Continental bills, of March 18th, 1780; and
2. All the tender-acts; and
3. To let the laws have their free course to oblige every man to fulfil his contracts as plain justice requires; in order to this, a scale of depreciation* for some time past may be easily made for the government of the courts; or the court and jury may be empowered to give judgment for what appears to be in justice due, on the full hearing the case; i. e. I humbly propose to be honest once more, to revive our old notions and practice of justice and equity; i. e. to suffer justice and judgment to run down our streets, and overflow our land. My reason for this proposal is, because I really believe it is both a natural and revealed truth, that “righteousness exalteth a nation, but sin is a reproach to any people.
4. To issue a tax for whatever money we want for public use, which will lay the public burden on all equally, in proportion to every one’s ability, and cannot wrong or ruin any body.
5. To continue the new State money, or old Continental bills, or both, in circulation. I do not think that Congress will object to this on a review of the case; for the old Continental bills are the only paper money among us, which has any chance of a general currency thro’ the Thirteen States, and I look on a general currency to be an object of such indispensable necessity, such vast magnitude, that Congress will rather choose to relinquish an old resolution already in ruins, than attempt to support the vast expenses of the Thirteen States, without any general currency at all.
6. I propose to call in the old State money (i. e. all the old State money made since the last bills under the crown) at its present exchange or current value,* which may be easily done by a tax made for hard money, or that money at the present exchange. We shall then have no bills to redeem, but the new State bills,† and our share of the old continental ones.—These things I conceive to be more practicable and less burdensome than the omission of them would be, and will be a good introduction to our reinstating our public finances, and restoring the industry and morality of our people, and of course recovering our trade, manufactures, and husbandry.
The whole is freely submitted to the consideration of the public.—It is undoubtedly mine as an individual to examine, remark, and propose; it is the public that must adopt or reject, and may God give the wisdom necessary to the due exercise of this great privilege.
I beg leave to conclude, by observing that this State, and our posterity, born and unborn, are yet on this side the bottomless gulf of infinite debt,*shame, and slavery, but they stand trembling on the brink of it, and it depends much on our present counsels, whether they shall be pushed in or not.
[* ] The Assembly of Pennsylvania, by their act of April 3, 1781, made a scale of depreciation, by which all debts, accounts, contracts, &c. were to be adjusted and settled.
[* ] The money here meant is resolve-money, shilling-money, and in short, all bills of this State, dated prior to 1778; the nominal amount was great indeed, but the value was so reduced by the depreciation (the exchange being at about 100 for 1) that a small tax of hard money would have sunk or redeemed it all.
[† ] The new State bills were such as were dated since 1778, of which the Island money (100,000l.) was the principal emission then extant; but an addition of 500,000l. more was made afterwards with tender, April 7, 1781.
[* ] Our circumstances were extremely dreary at this time; the enemy pressed us very hard; the burden of the war seemed insupportable; our visionary revenues all failed; and our public counsels (tho’ all firm and united in the great idea of establishing our independence at all events, and of sacrificing every other consideration to this most capital object) yet, I say, our counsels were much divided in opinion with respect to the means of obtaining it.
Schemes and projects various enough, and some of them wild enough, were proposed and urged; the great difficulty lay in the deficiency of the revenue; ways and means of procuring money engrossed every one’s attention.
Among other things the scheme of negotiating immense loans in Europe, had long been proposed and at this time began to gain ground in Congress; and the ruling powers of Pennsylvania, seemed disposed to adopt the same idea for the particular supplies of their own treasury.
This raised in every body the alarming idea of an immense foreign debt, which would drain the country for ages to pay the interest, with little hopes of getting clear of it, by ever paying the principal.
The horrors of this almost swallowed up the dreadful apprehensions of the domestic debt, for the burden of this still lay heavy on the public mind; for the idea of sinking it by depreciation had not yet gained establishment in the public opinion. The author of these Essays, from first to last, reprobated every idea of foreign loans beyond a sum sufficient to purchase such articles in Europe, as were essentially necessary for us, and which could not be procured among ourselves.
He thought the resources of the country were by no means exhausted, and that by proper wisdom and exertion, we could much better furnish all necessary supplies within ourselves, than by loans abroad.
This idea he not only adopted fully himself, but endeavoured to impress it on his countrymen to the utmost of his power, by every argument and means of conviction which he could possibly lay before them.