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CCCX: VINDICATION OF THE PROVINCIAL PAPER-MONEY SYSTEM. 1 - Benjamin Franklin, The Works of Benjamin Franklin, Vol. IV Letters and Misc. Writings 1763-1768 [1904]

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The Works of Benjamin Franklin, including the Private as well as the Official and Scientific Correspondence, together with the Unmutilated and Correct Version of the Autobiography, compiled and edited by John Bigelow (New York: G.P. Putnam’s Sons, 1904). The Federal Edition in 12 volumes. Vol. IV (Letters and Misc. Writings 1763-1768).

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CCCX

VINDICATION OF THE PROVINCIAL PAPER-MONEY SYSTEM.1

In the Report of the Board of Trade, dated February 9, 1764, the following reasons are given for restraining the emission of paper bills of credit in America as a legal tender.

1. “That it carries the gold and silver out of the province, and so ruins the country; as experience has shown in every colony where it has been practised in any great degree.

2. “That the merchants trading to America have suffered and lost by it.

3. “That the restriction has had a beneficial effect in New England.

4. “That every medium of trade should have an intrinsic value, which paper money has not. Gold and silver are therefore the fittest for this medium, as they are an equivalent, which paper never can be.

5. “That debtors, in the Assemblies, make paper money with fraudulent views.

6. “That in the middle colonies, where the credit of the paper money has been best supported, the bills have never kept to their nominal value in circulation, but have constantly depreciated to a certain degree, whenever the quantity has been increased.”

To consider these reasons in their order, the first is:

First. “That paper money carries the gold and silver out of the province, and so ruins the country; as experience has shown in every colony where it has been practised in any great degree.” This opinion of its ruining the country seems to be merely speculative, or not otherwise founded than upon misinformation in the matter of fact. The truth is, that the balance of their trade with Britain being greatly against them, the gold and silver is drawn out to pay that balance; and then the necessity of some medium of trade has induced the making of paper money, which could not be carried away. Thus, if carrying out all the gold and silver ruins a country, every colony was ruined before it made paper money. But, far from being ruined by it, the colonies that have made use of paper money have been, and are, all in a thriving condition. The debt indeed to Britain has increased, because their members, and of course their trade, have increased; for, all trade having always a proportion of debt outstanding, which is paid in its turn, while fresh debt is contracted, the proportion of debt naturally increases as the trade increases; but the improvement and increase of estates in the colonies has been in a greater proportion than their debt.

New England, particularly, in 1696 (about the time they began the use of paper money), had, in all its four provinces, but one hundred and thirty churches or congregations; in 1760 they were five hundred and thirty. The number of farms and buildings there is increased in proportion to the numbers of people; and the goods exported to them from England in 1750, before the restraint took place, were near five time as much as before they had paper money. Pennsylvania, before it made any paper money, was totally stript of its gold and silver; though they had, from time to time, like the neighbouring colonies, agreed to take gold and silver coin at higher and higher nominal values, in hopes of drawing money into, and retaining it for the internal uses of, the province. During that weak practice, silver got up by degrees to 8s. 9d. per ounce, and English crowns were called six, seven, and eight shilling pieces, long before paper money was made. But this practice of increasing the denomination was found not to answer the end. The balance of trade carried out the gold and silver as fast as it was brought in, the merchants raising the price of their goods in proportion to the increased denomination of the money. The difficulties for want of cash were accordingly very great, the chief part of the trade being carried on by the extremely inconvenient method of barter; when, in 1723, paper money was first made there, which gave new life to business, promoted greatly the settlement of new lands (by lending small sums to beginners on easy interest, to be repaid by instalments), whereby the province has so greatly increased in inhabitants, that the export from hence thither is now more than tenfold what it then was; and, by their trade with foreign colonies, they have been able to obtain great quantities of gold and silver, to remit hither in return for the manufactures of this country. New York and New Jersey have also increased greatly during the same period, with the use of paper money; so that it does not appear to be of the ruinous nature ascribed to it. And if the inhabitants of those countries are glad to have the use of paper among themselves, that they may thereby be enabled to spare, for remittances hither, the gold and silver they obtain by their commerce with foreigners, one would expect that no objection against their parting with it could arise here, in the country that receives it.

The second reason is: “That the merchants trading to America have suffered and lost by the paper money.” This may have been the case in particular instances, at particular times and places; as in South Carolina about fifty-eight years since, when the colony was thought in danger of being destroyed by the Indians and Spaniards; and the British merchants, in fear of losing their whole effects there, called precipitately for remittances; and the inhabitants, to get something lodged in safe countries, gave any price in paper money for bills of exchange; where by the paper, as compared with bills, or with produce, or other effects fit for exportation, was suddenly and greatly depreciated.

The unsettled state of government for a long time in that province had also its share in depreciating its bills. But since that danger blew over, and the colony has been in the hands of the crown, their currency became fixed, and has so remained to this day. Also in New England, when much greater quantities were issued than were necessary for a medium of trade, to defray the expedition against Louisburg; and during the last war in Virginia and North Carolina, when great sums were issued to pay the colony troops, and the war made tobacco a poorer remittance, from the higher price of freight and insurance; in these cases, the merchants trading to those colonies may sometimes have suffered by the sudden and unforeseen rise of exchange. By slow and gradual rises they seldom suffer; the goods being sold at proportionable prices. But war is a common calamity in all countries, and the merchants that deal with them cannot expect to avoid a share of the losses it sometimes occasions, by affecting public credit. It is hoped, however, that the profits of their subsequent commerce with those colonies may have made them some reparation. And the merchants trading to the middle colonies (New York, New Jersey, and Pennsylvania) have never suffered by any rise of exchange; it having ever been a constant rule there to consider British debts as payable in Britain, and not to be discharged but by as much paper (whatever might be the rate of exchange) as would purchase a bill for the full sterling sum. On the contrary, the merchants have been great gainers by the use of paper money in those colonies; as it enabled them to send much greater quantities of goods, and the purchasers to pay more punctually for them. And the people there make no complaint of any injury done them by paper money, with a legal tender; they are sensible of its benefits, and petition to have it so allowed.

The third reason is: “That the restriction has had a beneficial effect in New England.” Particular circumstances in the New England colonies made paper money less necessary and less convenient to them. They have great and valuable fisheries of whale and cod, by which large remittances can be made. They are four distinct governments; but having much mutual intercourse of dealings, the money of each used to pass current in all. But the whole of this common currency, not being under one common direction, was not so easily kept within due bounds; the prudent reserve of one colony in its emissions being rendered useless by excess in another. The Massachusetts therefore were not dissatisfied with the restraint, as it restrained their neighbours as well as themselves; and perhaps they do not desire to have the act repealed. They have not yet felt much inconvenience from it; as they were enabled to abolish their paper currency by a large sum in silver from Britain, to reimburse their expenses in taking Louisburg; which, with the gold brought from Portugal, by means of their fish, kept them supplied with a currency, till the late war furnished them and all America with bills of exchange, so that little cash was needed for remittance. Their fisheries, too, furnish them with remittances through Spain and Portugal to England; which enables them the more easily to retain gold and silver in their country. The middle colonies have not this advantage; nor have they tobacco, which, in Virginia and Maryland, answers the same purpose. When colonies are so different in their circumstances, a regulation, that is not inconvenient to one or a few, may be very much so to the rest. But the pay is now become so indifferent in New England, at least in some of its provinces, through the want of currency, that the trade thither is at present under great discouragement.

The fourth reason is: “That every medium of trade should have an intrinsic value, which paper money has not. Gold and silver are therefore the fittest for this medium, as they are an equivalent which paper never can be.” However fit a particular thing may be for a particular purpose, wherever that thing is not to be had in sufficient quantity, it becomes necessary to use something else, the fittest that can be got in lieu of it. Gold and silver are not the produce of North America, which has no mines; and that which is brought thither cannot be kept there in sufficient quantity for currency. Britain, an independent, great state, when its inhabitants grow too fond of the expensive luxuries of foreign countries, that draw away its money, can, and frequently does, make laws to prohibit or discourage such importations; and, by that means, can retain its cash.

The colonies are dependent governments; and their people, having naturally great respect for the sovereign country, and being thence immoderately fond of its modes, manufactures, and superfluities, cannot be restrained from purchasing them by any province law; because such law, if made, would immediately be repealed here, as prejudicial to the trade and interest of Britain. It seems hard, therefore, to draw all their real money from them, and then refuse them the poor privilege of using paper instead of it. Bank bills and bankers’ notes are daily used here as a medium of trade, and in large dealings perhaps the greater part is transacted by their means; and yet they have no intrinsic value, but rest on the credit of those that issue them, as paper bills in the colonies do on the credit of the respective governments there. Their being payable in cash, upon sight, by the drawer, is indeed a circumstance that cannot attend the colony bills, for the reasons just above mentioned, their cash being drawn from them by the British trade. But the legal tender, being substituted in its place, is rather a greater advantage to the possessor; since he need not be at the trouble of going to a particular bank or banker to demand the money, finding (wherever he has occasion to lay out money in the province) a person that is obliged to take the bills. So that, even out of the province, the knowledge that every man within that province is obliged to take its money, gives the bills a credit among its neighbours, nearly equal to what they have at home. And, were it not for the laws here [in England], that restrain or prohibit as much as possible all losing trades, the cash of this country would soon be exported. Every merchant who had occasion to remit it would run to the bank with all its bills that came into his hands, and take out his part of its treasure for that purpose; so that, in a short time, it would be no more able to pay bills in money upon sight, than it is now in the power of a colony treasury so to do. And if government afterwards should have occasion for the credit of the bank, it must of necessity make its bills a legal tender; funding them however on taxes, by which they may in time be paid off; as has been the general practice in the colonies.

At this very time even the silver money in England is obliged to the legal tender for part of its value; that part which is the difference between its real weight and its denomination. Great part of the shillings and sixpences now current are, by wearing, become five, ten, twenty, and some of the sixpences even fifty per cent. too light. For this difference between the real and the nominal, you have no intrinsic value; you have not so much as paper, you have nothing. It is the legal tender, with the knowledge that it can easily be repassed for the same value, that makes three-pennyworth of silver pass for sixpence. Gold and silver have undoubtedly some properties that give them a fitness above paper as a medium of exchange; particularly their universal estimation; especially in cases where a country has occasion to carry its money abroad, either as a stock to trade with, or to purchase allies and foreign succours; otherwise that very universal estimation is an inconvenience which paper money is free from; since it tends to deprive a country of even the quantity of currency that should be retained as a necessary instrument of its internal commerce, and obliges it to be continually on its guard in making and executing, at great expense, the laws that are to prevent the trade which exports it.

Paper money well funded has another great advantage over gold and silver—its lightness of carriage and the little room that is occupied by a great sum; whereby it is capable of being more easily and more safely, because more privately, conveyed from place to place. Gold and silver are not intrinsically of equal value with iron, a metal in itself capable of many more beneficial uses to mankind. Their value rests chiefly in the estimation they happen to be in among the generality of nations, and the credit given to the opinion that that estimation will continue. Otherwise a pound of gold would not be a real equivalent for even a bushel of wheat. Any other well-founded credit is as much an equivalent as gold and silver, and in some cases more so, or it would not be preferred by commercial people in different countries. Not to mention again our own bank bills, Holland, which understands the value of cash as well as any people in the world, would never part with gold and silver for credit (as they do when they put it in their bank, from whence little of it is ever afterwards drawn out)1 if they did not think and find the credit a full equivalent.

The fifth reason is: “That debtors, in the Assemblies, make paper money with fraudulent views.” This is often said by the adversaries of paper money, and if it has been the case in any particular colony, that colony should, on proof of the fact, be duly punished. This, however, would be no reason for punishing other colonies, who have not so abused their legislative powers. To deprive all the colonies of the convenience of paper money, because it has been charged on some of them that they have made it an instrument of fraud, is as if all the India, bank, and other stocks and trading companies were to be abolished, because there have been, once in an age, Mississippi and South Sea schemes and bubbles.

The sixth and last reason is: “That in the middle colonies, where the credit of the paper money has been best supported, the bills have never kept to their nominal value in circulation, but have constantly depreciated to a certain degree, whenever the quantity has been increased.” If the rising of the value of any particular commodity wanted for exportation is to be considered as a depreciation of the values of whatever remains in the country, then the rising of silver above paper to that height of additional value, which its capability of exportation only gave, it may be called a depreciation of the paper. Even here, as bullion has been wanted or not wanted for exportation, its price has varied from 5s. 2d. to 5s. 8d. per ounce. This is near ten per cent. But was it ever said or thought on such an occasion that all the bank bills, and all the coined silver, and all the gold in the kingdom, were depreciated ten per cent.? Coined silver is now wanted here for change, and one per cent. is given for it by some bankers; are gold and bank notes therefore depreciated one per cent.?

The fact in the middle colonies is really this: On the emission of the first paper money a difference soon arose between that and silver; the latter having a property the former had not, a property always in demand in the colonies, to wit, its being fit for a remittance. This property having soon found its value by the merchants bidding on one another for it, and a dollar thereby coming to be rated at eight shillings in paper money of New York, and 7s. 6d. in paper of Pennsylvania, it has continued uniformly at those rates in both provinces now near forty years without any variation upon new emissions, though in Pennsylvania the paper currency has at times increased from £15,000, the first sum, to £600,000, or near it. Nor has any alteration been occasioned by the paper money in the price of the necessaries of life when compared with silver. They have been for the greatest part of the time no higher than before it was emitted, varying only by plenty and scarcity, according to the seasons, or by a less or greater foreign demand. It has indeed been usual with the adversaries of a paper currency to call every rise of exchange with London a depreciation of the paper; but this notion appears to be by no means just; for if the paper purchases every thing but bills of exchange at the former rate, and these bills are not above one tenth of what is employed in purchases, then it may be more properly and truly said that the exchange has risen than that the paper has depreciated. And as a proof of this, it is a certain fact that whenever in those colonies bills of exchange have been dearer, the purchaser has been constantly obliged to give more in silver, as well as in paper, for them, the silver having gone hand in hand with the paper at the rate above mentioned; and therefore it might as well have been said that the silver was depreciated.

There have been several different schemes for furnishing the colonies with paper money, that should not be a legal tender, viz.:

1.To form a bank, in imitation of the Bank of England,with a sufficient stock of cash to pay the bills on sight.

This has been often proposed, but appears impracticable, under the present circumstances of the colony trade; which, as is said above, draws all the cash to Britian, and would soon strip the bank.

2.To raise a fund by some yearly tax, securely lodged in the bank of England as it arises, which should (during the term of years for which the paper bills are to be current) accumulate to a sum sufficient to discharge them all at their original value.

This has been tried in Maryland; and the bills so funded were issued without being made a general legal tender. The event was that, as notes payable in time are naturally subject to a discount proportioned to the time, so these bills fell at the beginning of the term so low, as that twenty pounds of them became worth no more than twelve pounds in Pennsylvania, the next neighbouring province; though both had been struck near the same time, at the same nominal value, but the latter was supported by the general legal tender. The Maryland bills, however, began to rise as the term shortened, and towards the end recovered their full value. But, as a depreciating currency injures creditors, this injured debtors; and, by its continually changing value, appears unfit for the purpose of money, which should be as fixed as possible in its own value; because it is to be the measure of the value of other things.

3.To make the bills carry an interest sufficient to support their value.

This too has been tried in some of the New England colonies; but great inconvenience was found to attend it. The bills, to fit them for a currency, are made of various denominations; and some very low, for the sake of change; there are of them from £10 down to 3d. When they first come abroad, they pass easily, and answer the purpose well enough for a few months; but as soon as the interest becomes worth computing, the calculation of it on every little bill, in a sum between the dealer and his customers in shops, warehouses, and markets, takes up much time, to the great hindrance of business. This evil, however, soon gave place to a worse; for the bills were in a short time gathered up and hoarded; it being a very tempting advantage to have money bearing interest, and the principal all the while in a man’s power, ready for bargains that may offer; which money out on mortgage is not. By this means numbers of people became usurers with small sums, who could not have found persons to take such sums of them upon interest, giving good security; and would therefore not have thought of it; but would rather have employed the money in some business, if it had been money of the common kind. Thus trade, instead of being increased by such bills, is diminished; and by their being shut up in chests, the very end of making them (viz., to furnish a medium of commerce) is in a great measure, if not totally, defeated.1

On the whole, no method has hitherto been formed to establish a medium of trade, in lieu of money, equal, in all its advantages, to bills of credit, funded on sufficient taxes for discharging it, or on land security of double the value for repaying it at the end of the term, and in the meantime made a general legal tender. The experience of now near half a century in the middle colonies has convinced them of it among themselves, by the great increase of their settlements, numbers, buildings, improvements, agriculture, shipping, and commerce, And the same experience has satisfied the British merchants, who trade thither, that it has been greatly useful to them, and not in a single instance prejudicial.

It is therefore hoped that, securing the full discharge of British debts, which are payable here, and in all justice and reason ought to be fully discharged here, in sterling money, the restraint on the legal tender within the colonies will be taken off; at least for those colonies that desire it, and where the merchants trading to them make no objection to it.

CCCXI

TO WILLIAM FRANKLIN

London, 9 January, 1768.

Dear Son:—

We have had so many alarms of changes which did not take place, that just when I wrote it was thought the ministry would stand their ground. However, immediately after, the talk was renewed, and it soon appeared that the Sunday changes were actually settled. Mr. Conway resigns and Lord Weymouth takes his place. Lord Gower is made President of the Council in the room of Lord Northington. Lord Shelburne is stripped of the American business, which is given to Lord Hillsborough, as secretary of state for America, a new distinct department. Lord Sandwich, it is said, comes into the post-office in his place. Several of the Bedford party are now to come in.

How these changes may effect us, a little time will show. Little at present is thought of but elections, which gives me hope that nothing will be done against America this session, though the Boston Gazette had occasioned some heats, and the Boston Resolutions a prodigious clamor. I have endeavoured to palliate matters for them as well as I can. I send you my manuscript of one paper, though I think you take the Chronicle. The editor of that paper, one Jones, seems a Grenvillian, or is very cautious, as you will see by his corrections and omissions. He has drawn the teeth and pared the nails of my paper, so that it can neither scratch nor bite. It seems only to paw and mumble. I send you also two other late pieces of mine. There is another which I cannot find.

I am told there has been a talk of getting me appointed under-secretary to Lord Hillsborough; but with little likelihood, as it is a settled point here that I am too much of an American.1 I am in very good health, thanks to God. Your affectionate father,

B. Franklin.

[1 ]Mr. Vaughan says, in his edition of the author’s writings: “The best account I can give of the occasion of the Report, to which this paper is a reply, is as follows: During the war there had been a considerable and unusual trade to America, in consequence of the great fleets and armies on foot there, and the clandestine dealings with the enemy, who were cut off from their own supplies. This made great debts. The briskness of the trade ceasing with the war, the merchants were anxious for payment; which occasioned some confusion in the colonies, and stirred up a clamor here against paper money. The Board of Trade, of which Lord Hillsborough was the chief, joined in this opposition to paper money, as appears by the Report. Dr. Franklin, being asked to draw up an answer to their report, wrote the following paper.”

“It is to be observed that he vindicates the system on the ground of its absolute necessity, as the means of a supply of a circulating medium. The existence of such necessity is then the main question. The suppression of the paper currency in Massachusetts, in 1747, in pursuance of Hutchinson’s proposal, and its suppression in the other New England provinces, afford very strong grounds of argument against the existence of any such necessity, notwithstanding the difference in the circumstances of the middle provinces, from those of the New England provinces, pointed out by Franklin in this paper; since, after all, the cause imagined for this necessity, namely, the excessive importations, the constantly outstanding balance due to the British merchants, and the consequent remittances of specie, existed no less in New England than in the middle provinces. It may be gravely doubted whether the operation of these causes was so different in the different provinces as Franklin supposes.”—W. Phillips.

[1 ]Perhaps Dr. Franklin had not at that time read what Sir James Stewart says of the Amsterdam bank re-issuing its money.—B. V.

[1 ]I understand that Dr. Franklin is the friend who assisted Governor Pownall in drawing up a plan for a general paper currency for America, to be established by the British government. See Pownall’s Administration of the Colonies, 5th edition, pp. 199, 208.—B. V.

The paper money first issued by the colonial Assemblies was made a legal tender. The excessive issues in some of the colonies caused a great depreciation in the value of the bills, and thus produced mischievous consequences. To remedy the evil, an act of Parliament was passed, prohibiting the colonies from issuing any more paper money, which should be a legal tender. At the same time that this act removed one difficulty, it raised up another. In the fluctuating state of things in the colonies, the credit of the bills could not be sustained in any degree, unless the people were required to take them at their actual value. It then became a matter of importance, that Parliament should provide some means for giving stability to a paper currency in the colonies. Governor Pownall, in conjunction with Dr. Franklin, proposed a plan for this object. Speaking of this proposal, Governor Pownall says: “So far am I from assuming any merit in the invention or framing of it, that I desire it may be considered as founded on what hath been actually practised in Pennsylvania, by the good sense and good policy of the Assembly of that province, with success and with benefit to the public; that the particular proposal as it is now formed, and applied to the present exigencies of America and Great Britain, was drawn up some years ago, in conjunction with a friend of mine and of the colonies. It was, by us, jointly proposed to government, under successive administrations, in the years 1764, 1765, 1766, during which time the publication was suspended.”

The principal outlines of this plan were, that bills of credit to a certain amount should be printed in England, for the use of the colonies; that a loan-office should be erected in each colony to issue bills, take securities, and receive the payments; that the bills should be issued for ten years, bearing interest at five per cent., one tenth part of the sum borrowed to be paid annually, with the interest; and that they should be a legal tender.

[1 ]Had the position been offered to Franklin, and had he accepted it, all our current histories of the United States, should they have been written, would now read like the sheerest romances.