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REMARKS ON THE Resolution of Council, Of the 2 d of May, 1781, for raising the Exchange to 175 Continental dollars for 1 hard. Humbly offered to the Public. [ First published in Philadelphia, May 9, 1781.] - Pelatiah Webster, Political Essays on the Nature and Operation of Money, Public Finances and Other Subjects [1791]

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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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REMARKS ON THE Resolution of Council, Of the 2d of May, 1781, for raising the Exchange to 175 Continental dollars for 1 hard. Humbly offered to the Public.

[First published in Philadelphia, May 9, 1781.]

I HAVE read President Reed’s defence of the resolution of Council of the 2d instant, for raising the exchange of the Continental currency from 75 to 175 for 1 of specie, or State money; but am not convinced that that resolution was grounded on the interests of this State, much less, that it was indispensably necessary in our present circumstances.

I agree perfectly in his opinion, that it is not beneath the dignity of a government to explain any public measures which may be misunderstood thro’ ignorance; but should they be misunderstood any other way, I do not pretend to say how far the dignity of government might suffer by an explanation.

I am also clearly of his opinion, that there has long been a number of persons in this city, who have fermented uneasiness, sparing neither art, nor falsehood, nor violence, to effect their purpose. We have seen uneasinesses, tumults, and ferments among our citizens rise even to the shedding of blood,* which doubtless originated with very bad men, and I could have wished that inquiries and prosecutions might have gone on, till the true, guilty authors could have been discovered, held up to public view, and punished; but government has found this inconvenient, so I have no more to say about it.

I will only observe, that I do not think the character of our citizens is that of uneasiness, tumult, and faction: I rather think they have exhibited an example of great meekness, of tame patience, almost bordering on stupidity. Nor am I at all convinced, that the objections that have been made to the abovesaid resolution of Council, arise at all from faction, or any disposition to impose on the unwary. When a man finds that eleven shillings out of every pound of his cash, is annihilated by a public resolution, we may allow him to be uneasy, without calling him factious.

I proceed, with all respect due to the honorable Council, to make some remarks on their defence. I have no pleasure in cavilling at the measures of government, but only wish to cast light on a subject, in which our whole State is interested. And, as I have never been concerned in factions, ferments, tumults, or riots, but ever have been a peaceable citizen, and hearty well-wisher to the true interests of our State, I expect a candid attention of my fellow-citizens to the arguments I offer.*

1. The first fact alleged by the Council is, “that by the law of the State, and their own oaths, they are required to publish the rate of exchange the first week in every month.” This proves, I conceive, that the Council are required to publish the true exchange the first week in every month; but the whole city knows, that 175 for 1 was not the true exchange on the 2d instant; and the Council cannot be supposed to be ignorant of what is known to every other person in the city, and which the laws suppose them to be acquainted with, or it would be absurd to lodge the power of judgment with them.

So that their variation from the true exchange cannot be excused by any plea of ignorance. Therefore, when they say, “that they have not the same opportunity of knowing the current rate of exchange with accurate precision,” as the merchants have, I think it follows, that they ought to have inquired of the merchants, and gained the most accurate information possible, in a matter of that consequence and delicacy, in which the laws of the State, their own oaths, and the interests of the whole State, were concerned; but not that they should adopt the lowest known rate, at which they could discover that any commercial transactions had been adjusted.

The lowest rate is never the current or true rate of exchange, any more than the highest. It essentially and most manifestly differs from the true, as far as the extreme differs from the mean; a difference which the Council, on their own principles, had no right to make, as it did not, in my opinion, comport with, or satisfy, either the words or meaning of the law under which they acted. But while the obligations of the law, and their oaths, are urged, and the integrity and consciences of the Council are deeply affected; would any one suppose that the Council would publish what all the world knows to be false, and that under the sanction of an oath? Could the Council, without violating every principle of truth and veracity, declare the exchange to be 175, when there was not one person in the city but must know the contrary; Indeed I think it is bad enough when a Council, by any solemn act, violate their faith; but when they are hardy enough to violate their oath and “veracity” too, the matter must look very serious to all good men.

Further, while we are told so much about laws of the State and oaths of office, I am led to inquire where these laws and oaths have been for several months past, during which time the exchange was constantly and gradually rising; and the Council, in the first week in each month as constantly declaring and publishing the exchange to be 75 for 1, for three successive months past, when there was not a single person in the city but must have known the contrary? Consistency in the acts and declarations of public bodies, is of great use, and much to be desired; their dignity stands mightily tarnished, and nigh unto ridicule without it.

2. Another fact adduced by the Council, is, “that the rate of exchange has been, by common consent and usage of trade, gradually rising for some time past; so that no person, in his private dealing, pays or receives at the rate of 75 for 1;” and the whole city may add, neither was it on the 2d inst. (the date of their resolution) at 175 for 1; the current exchange was known to every one to be at least 220 for 1, at that time.

The Council go on to argue, “that the people have raised it (the exchange) by common consent, and Council have only followed them, by making a declaration of what they have done.” If this allegation is true, it will justify the Council’s conclusion; but if it is not, it may be deemed a provoking, insulting attempt to impose a deception on “the unwary” public, and beneath the dignity of Council to adduce it. I will examine it with confidence, because every merchant in the city knows whether it is true or not.

The resolution of Council declares (if not expressly, at least in effect, and all the effect that it could in reason be supposed to have) that the exchange of old Continental to State money is 175 for 1. Now the people, by common consent and usage of trade, have never done this; have not raised that exchange to 175 for 1; it had never exceeded 75 at that time; therefore the resolution annihilated the difference between 175 and 75, i. e. 4-7ths, i. e. somewhat more than eleven shillings in the pound, of all the Continental money, which every man was possessed of at that time. The truth of these facts and observations are obvious to every merchant, and indeed to every market-woman; and I leave them to stand on their own ground, having no disposition to indulge a vein of sarcasm or ridicule on this serious subject.

I would only observe, that this fatal resolution has taken from thousands their daily bread, and ruined the fortunes of many who had capital sums of that money on hand; that all the Continental money in the treasury of the State, or due in taxes, or any other way, is reduced more than half, to the great loss and embarrassment of the public; and every man who has not paid his taxes, may now pay them with less than half the real value which those paid, whose rates were collected one week before. “And is this reasonable? Is this just?”

Further, the Council adduce this fact, viz. “that the rate of exchange has been gradually rising for some time past:” and they might have added, that the people have been gradually conforming themselves to that rise. But the case is widely different, when they make such a shocking start at once, as from 75 to 175. A man may descend from the garret to the lower floor by a flight of stairs without any damage; but were he to descend at one leap, he would probably break his neck. The feelings of too many make any further explanation of this matter quite unnecessary.

3. But the third fact adduced by the Council, and which, I suppose, is designed for a clincher, and which is to afford an argument of indispensable necessity, is this, viz. “that the State of New-Jersey had, on the 27th ult. raised their exchange to 150 for 1; and that the people of that State were pouring in their Continental money on us,” &c.

I cannot but stop here, to observe how quick the old tone is changed. It has been a long time urged by people of great judgment, that the only natural and sure way to prevent our being deluged by an inundation of Continental money, is, to keep the exchange of it somewhat higher here, than it was in the neighbouring States. Yet those very people who now, for this reason, force up the exchange, have, for years past, been in the bitterest manner raising an outcry against such as depreciated the currency.

It is true, indeed, that the Jersey people could bring their Continental money over Delaware, and purchase State money at 75 for 1; and it is as true, that our people could carry the Jersey money over the Delaware, and sell it at 150 for 1; and the advantage, on the whole, would be on our side; because all the Continental money which was in the Jersies at the date of their resolution, cost their people 75 for 1, and they get no more for it here. Whereas our people, who carry their State money to them, purchased it for 75, and got 150 for it.

But after all, it could be but the bubble of a day; it might furnish employment for stock-jobbers, schemers, and idle people a short time, but could not continue long; it is not possible that advantage could be taken long of different exchanges on the two sides of Delaware, whilst the communication is so very great; and after all, the difference could be but trifling.

For neither the resolution of the Jersies, nor of our State, can make the State money of either a whit more valuable, i. e. make it purchase any more hard money or any other valuable goods, than before; but the violent shock must depreciate both, as we find by experience, which is the surest evidence in matters of this nature.

But, salus populi, suprema lex. What is now to be done? Is it best to repeal the resolution? I think not. The mischief is done. A repeal will not remedy it. The Continental money has received its mortal wound. I do not think it advisable or possible to heal it. The State money follows fast after it. The exchange for hard money on the 2d instant was 3 for 1; it is now said to be 4 for 1 at least.

I think we have now no choice left, but to adopt my old doctrine, viz. “To recur to our solid substance, or real wealth, bidding a final farewel to all bubbles, vain expedients, and shadows.”

The present evil originates in the law, which the Council have undertaken to execute. If a law is so absurdly made as to be incapable of execution, nothing but absurdity and perplexity can arise out of it. It will lie with the Assembly in their approaching session, to repeal the law or not.

On the whole, if the Council have not increased the esteem of the public by their resolution, they are at least entitled to some compassion. They have undertaken a task that is impossible; and I imagine their difficulties would puzzle much abler heads than theirs. If a legislature should make a law that a bar of iron should be cut asunder with an ax of wood, the officer entrusted with the execution of it, might think it his duty to try; but he need not be surprised, after all his labor and chopping, to find the iron bar intire, and his ax sadly bruised.

The exchange, or operation of money, is a very nice, touchy, delicate subject; and no man can, by right or prudence, intermeddle with it, who does not understand its nature and principles. No dignity of station, or reverence of character, can secure a man against ridicule and contempt, when he comes to be knocked about by the magical effects of that all-powerful subject, when put into operation under the direction of unskilful hands.

[* ] We had many tumults during mr. Reed’s administration; the most memorable of which was, the riotous assault of mr. Wilson’s house, Oct. 4, 1779, in which the mob proceeded from insulting language and violent abuse, to actual firing with muskets, with which they were all armed.

A great number of most respectable citizens, who were in the house, returned the fire on the mob, and in fine, a number of lives were lost.

Many of these rioters were taken up, and held under legal prosecution for their offence; but the Assembly, by their act of March 13th following, indemnified and pardoned them all.

[* ] The facts referred to in these Essays were, at the time of their publication, fresh in every one’s memory, and matters of general notoriety; but that is not the case with strangers, or even our own people, at this distance of time; therefore a statement of these facts may be necessary to enable the reader to understand these remarks, and the reasonings on them.

The Assembly of Pennsylvania, 25th of March, 1780, issued 100,000l. paper bills, funded on the faith of the State, some city lots, and the Province Island, which at that time belonged to the State (hence this emission was called Island money;) they also issued the bills on interest at 5 per cent. per annum.

These bills, thus propped up, were ushered into the world with great confidence of the Assembly. They, however, passed in a depreciated state, much below their nominal value: to remedy which, a subsequent act was passed, Dec. 23, 1780, by which these bills were made “a legal tender; with penalties for refusing to take them for goods, &c. viz. forfeiture of double the value offered; and for the second offence, of half the offender’s lands, goods, and chattels, and imprisonment of his person during the war.”

This act had several uncommon clauses inserted in it, viz.

1. That agents for the public, collectors of taxes, &c. should account to the treasury for such of these bills as they had received, at the price or rate at which they received them, i. e. at their depreciated value.

2. That the exchange, till Feb. 1, then next, between Continental currency and these bills, should be 75 for 1; but the real exchange of Continental to hard money was 100 for 1, at that time.

3. The Executive Council were empowered and required to publish the rate of exchange between specie and Continental money, in the first week of every month after said Feb. 1: and

4. That exchange, so published, should be the exchange between Contimental money and these bills. On May 2, 1781, the current exchange of these bills to hard money was 3 for 1, and to Continental, was 75 for 1; but the exchange of hard money for Continental was about 220 or 225 for 1; and the practice was, to multiply the exchange of the State bills reduced to Continental, by their exchange with hard money, viz. 3; which gave 225 Continental for the value of one hard dollar.

At this time, the Council declared the rate of exchange of hard money for the month of May, to be 175 for 1, which was the same thing (according to the operation of the said act of the 23d of Dec. 1780) as declaring the exchange of the State bills to Continental to be 175 for 1; and the practice still continued of multiplying the State money reduced to Continental, which was now become 175 for 1, by its hard money exchange, viz. 3; which made the exchange of Continental money three times 175, viz. 525 for 1 of hard; a vast and sudden leap indeed, and which became the current exchange in less than a week from the declaration of the exchange by the Council.

So that every person who had one week before given a hard dollar for 225 Continental ones, found that he had lost above half the value of his money, as it would, at the end of the week, purchase but 3-7ths of a hard dollar.

This made a mighty noise, and deeply affected every body; as Contitinental money was then the general currency, and all prices in market were set or estimated in it, as much as they were in old Tenor at Boston, at the close of the last French war in 1763.

This roused the feelings of mr. Reed, who was President of the State at that time, and was supposed to be the prime mover, not only of the said declaration of Council, but of the act on which it was grounded, and induced him to publish his defence of said declaration, on which these remarks were made.

The error really lay in the absurdity of the law itself, which limited the State money to a certain exchange of Continental (viz. 75 to 1) with such variations of exchange of hard money, as should be published by Council the first week in every month; which exchange of hard money, by the operation of the act, became the legal exchange of the State bills, and of course raised their exchange 4-7ths higher than the real, true exchange of them was at that time, and made them bring indeed more than double the Continental money which they would have purchased before, but did not enable them to buy any more hard money than before.

Had the Council pursued the act, they might have been excused; but their error lay in declaring a false exchange of hard money, much below the true one, with design, by way of trimming and bending facts, to reduce a little the absurd effects of the act itself. The true exchange of Continental for hard money, the first week in Feb. 1781, was about 100 for 1, where it had stood several months; in March it was about 115 to 1, and in the beginning of April, 130; but rose fast thro’ the month, and got up to 220, the first week in May.

These exchanges and the interesting effects of every variation of them, will appear to a stranger as intricate and hard to understand as the price of stocks in Change-alley; but they were perfectly understood by people of all ranks at that time, in as much as every variation of the exchange altered the value of all their cash on hand.

One thing makes these manœuvres very important, viz. they not only raised the exchange of Continental money up to 500 or 600 to 1, but in a few days stopped the currency of the Continental bills intirely, after which they never passed at all as money; or any otherwise than as an article of speculation, at most desultory and capricious exchanges from 400 to 1000 for 1.

The same cause so disgusted the minds of all men with paper bills of all sorts, that our State money (tho’ undoubtedly well funded) depreciated in less than a month to 6 and 7 to 1; the final redemption of which, by a future appreciation, cost this State above 120,000l. tho’ we never received more than 20, or at most, 30,000l. real value for it.

Perhaps this whole transaction affords the most striking proof conceivable, of the absurdity of all attempts to fix the value of money by a law, or any other methods of compulsion.

In this instance we see the Continental money mortally wounded, and our State money debilitated and depreciated down to a seventh part of its nominal value, by the very ill-fated means which were designed to support both of them.

Thus fell, ended, and died, the Continental currency, aged 6 years; the most powerful state engine, and the greatest prodigy of revenue, and of the most mysterious, uncontrollable, and almost magical operation, ever known or heard of in the political or commercial world; bubbles of a like sort which have happened in other countries, such as the Mississippi scheme in France, the South-Sea in England, &c. lasted but a few months, and then burst into nothing; but this held out much longer, and seemed to retain a vigorous constitution to its last, for its circulation was never more brisk and quick than when its exchange was 500 to 1; yet it expired without one groan or struggle; and I believe, of all things which ever suffered dissolution since life was first given to the creation, this mighty monster died the least lamented.

Yet I hear that some folks are preparing to dig the skeleton of it out of the grave where it has quietly rested 9 years, that we may have the pleasure of wasting a million or two upon its obsequies.

If it saved the State; it has also polluted the equity of our laws; turned them into engines of oppression and wrong; corrupted the justice of our public administration; destroyed the fortunes of thousands who had most confidence in it; enervated the trade, husbandry, and manufactures of our country; and went far to destroy the morality of our people; after all this, I wish it might be suffered to lie where it is, in a state of quiet oblivion, yea, perfectly forgotten; for I think that every remembrance of it must be mixed with bitterness.

I hope the reader will excuse this small digression; for when I came to the spot where the poor old Continental died, I could not help stopping to mark the place with some little signal of notice.