JourndolLs~mnmSrud;r. Vol. 2. No. 4, pp. 311 - 189 O Pcrpmon Pnrr Ltd. 1918. Printed in Gnat Bnlain.

THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY

JEFFREY ROGERS HUMMEL

Deportment of Hiclory, University of Texas

In no other field is the crucial importance of specific historians, it is necessary to understand theory to history more obvious than in the field a few key concepts and to be familiar with a of economic history. One's knowledge of the general overview of the specific events. The concrete historical events may remain unchang- monetary history of America to 1789 can be ed, but if the economic theory applied to those conveniently divided into three periods: the col- events is altered, then one's entire historical in- onial period (up to 1775), the revolutionary terpretation will of necessity be modified. A period (1775 - 1781), and the confederation historical account can be factually accurate and period (1781 - 1789). Each period is distinctive, yet, if the informing economic theory is faulty, and while some historians have treated all give a totally false interpretation. Furthermore, three, many have confined themselves to one or the validity of the theory, in economics at least, the other. is often decided a priori to history, on some The colonial period contained the greatest other basis. This procedure is not objectionable variety of monetary practices, but these can be if the historian's theoretical paradigm is ex- roughly divided into three categories. plicit. However, it makes the task of historiography more complex. One must not (1) Manipululion of the unit of account only consider the overt interpretations and ex- The monetary standard for accounting pur- planations offered by different historians; one poses in the colonies was the English pound, must also determine each historian's theoretical shilling, and pence. However, most of the coins framework, whether explicit or implicit, and in the colonies were Spanish or Portuguese. The subject it to theoretical criticism. standard Spanish dollar contained 387 grains of The monetary history of the British colonies silver, while the English silver shilling weighed in America and of the United States prior to the 86 grains. Therefore a dollar should have been adoption of the Constitution in 1789 is worth four shillings and six pence. The col- extremely varied. Many different monetary ex- onies, in the hope of attracting foreign coin and periments were tried by colonial and state specie, arbitrarily overvalued the dollar in governments. Unfortunately, the monetary terms of shillings, or in other words, devalued theory used by current historians is flawed and, the unit of account. This technique was first consequently, their rendering of the period is adopted in 1642 when Massachusetts declared unsatisfactory. In this paper, I will first the Spanish dollar equal to five shillings. Other describe how changing monetary theories have methods used to attain the same results were, been reflected in the historical accounts. Then I instead of devaluing the shilling in terms of will criticize the current accounts and, using the dollars, to devalue the shilling in terms of silver monetary theory developed by Austrian or gold. Either way, the process led to com- economist^,^" offer a more accurate reinter- peting devaluations, as high as seven shillings pretation of the monetary history of the period. and six pence to the dollar, and different monetary standards in each colony. Another expedient employed to hold coins by the col- Before proceeding to an examination of onies was to forbid their export. 374 JEFFREY ROC 3ERS HUMMEL (2) Bills of credit by issuing so-called "treasury notes" that were, Bills of credit were simply fiat paper money. in fact, paper money. They were issued in one of two ways. One way was for the government to print the money and (3) Legal tender then spend it to cover expenditures, usually the Although often treated in conjun'ction with financing of a war effort. Future taxes would bills of credit, the practice of legal tender is be pledged towards retiring the bills. The bills conceptually distinct. Legal tender could be of would be withdrawn from circulation by being two types. Public legal tender established what paid directly as taxes or by being redeemed in would be accepted as money for payment of specie that had been collected through taxes. taxes, quit-rents, and other public levies. By Often, however, when the pledged taxes came declaring something public legal tender, the due, the bills would be reissued rather than government obviously helped foster its use as withdrawn. This type of currency finance was money. Private legal tender decreed what the first employed in Massachusetts in 1690 and government would permit to be used in the pay- eventually embraced at one time or another by ment of debts and the fulfillment of contracts. all the colonies.[" It had the effect of fixing the value of the The other way of issuing bills of credit was monetary good in terms of the unit of account. through land banks. Instead of spending the For instance, when tobacco was declared legal money directly, the issuer would loan the tender, it had to be set at a certain rate of money out at interest with land as security. pounds of tobacco to shillings. This fixed rate When the principal on the loan was repaid, the was either set by statute or left up to the courts. bills might either be reloaned or retired. The If two or more goods were legal tender, then the issuer could be a group of private individuals or exchange rate between them was officially fix- the government. Although private land banks ed. Exchange rates set by statute never coincid- were frequently proposed, they only operated ed with market exchange rates; exchange rates briefly during the 1740s in Massachu~etts.[~' set on an ad hoc basis by the courts might Government land banks appeared in all the possibly do so. The discrepancy between legal colonies. and market rates of exchange was the source of It should be noted that the term "bills of perennial complaints by creditors, because it credit" is used here in the generic sense, in- allowed debtors to pay their debts with over- cluding both types of paper money. Sometimes valued money. Private legal tender at different the term is used to refer only to paper money times was used to fix the exchange rates bet- paid out directly to cover government expenses. ween quite a variety of goods: wampum and The term is a misnomer, anyway, because in specie, tobacco and specie, heavy coins and neither case was the bill of credit a credit instru- light coins, paper money and specie, gold and ment. It did not represent borrowings of the silver, etc. Paper money was frequently, hut government repayable in money at some future not always, declared private legal tender by the date; it was money. This was true despite the issuing colony. De facto, paper money was fact that bills of credit sometimes paid interest. always public legal tender (if only at the loan Colonial governments also engaged in actual hank that had issued it or for the taxes pledged borrowing. For this they issued treasury notes toward its redemption), although Parliamen- comparable to private bills of exchange, and tary restrictions prevented this from always be- these, of course, were credit instruments and ing formally admitted. not money. Unfortunately, the colonial govern- Other monetary experiments of limited scope ments blurred the distinction between credit and less interest include Massachusetts' suc- transactions (involving the exchange of a pre- cessful but temporary running of a mint bet- sent good for a claim to a future good) and cur- ween 1652 and 1684'" and Virginia's system of rent transactions (involving the exchange of a tobacco warehouses with fully backed present good for a present good) not only by warehouse receipts circulating as money paying interest on some bills of credit but also substitutes. THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 375 Great Britain also had an impact on its col- ed, but the Bank of North America lost its na- onies' monetary practices. Throughout the col- tional charter and became a state chartered in- onial period, Britain prohibited the export of stitution. National coinage legislation was English coins to the colonies and 'forbade the discussed, but nothing was enacted. Many of establishment of colonial mints. Too much, the states returned to the issue of bills of credit. however, has been made of these restrictions. Three states chartered banks. The ban on exports applied only to British coins, and not to specie, which could be freely exported. ~h'us,British coins could be melted During the colonial period, monetary policy down and exported without hindrance. Also, was an important and controversial issue. The the restriction did not apply to foreign coins. debate was recorded in a rich pamphlet England looked askance at the colonies' literature. On the hard-money side, the leading competitive devaluations of their units of ac- partisan was Dr. William Douglass, a Scottish count, and in 1704, the Crown proclaimed that physician and scientist who had settled in six shillings to the dollar was the maximum Boston. His most famous pamphlet, "A devaluation permitted. Because of widespread Discourse Concerning the Currencies of the evasion, Parliament enacted this proclamation British Plantations in America", was published into law in 1707. in 1740. In it, he contended that "There can The British government was particularly therefore be no other proper Medium of Trade, unhappy with colonial bills of credit. At first it but Silver, or Bills of Exchange and Notes of attempted to restrain the colonies through in- Hand payable in Silver at a certain (I'sos or structions to the royal governors and suspen- Period, which by a currant Discount are reduci- sion clauses. When this proved ineffective, ble to Silver ready Money, at any Time." He Parliament passed the Currency Act of 1751. held paper money in scorn. "To make a Bill or This act applied only to New England. It con- Note bearing no Interest and not payable till fined the issue of paper money solely to impor- after a dozen or score of Years, a legal tant government expenses, it placed limits on Tender . . . in Payment of Debts, is the highest the quantity issued and the period of redemp- of despotick and arbitrary Go~ernment."~'' tion, and it barred making paper money Douglass felt that increasing the quantity of private legal tender. The Currency Act of 1764 money only depreciated the value of each covered the rest of the colonies, and it pro- monetary unit and caused price inflation. Infla- hibited making bills of credit legal tender, tion hurt creditors, laborers, and those living public or private. on fixed incomes, and represented an insidious During the revolutionary period, the Con- form of taxation. Legal tender laws coupled tinental and state governments financed the war with paper money drove specie out of circula- effort through massive emissions of bills of tion, increased the foreign exchange rate, and credit. A serious hyperinflation resulted. All brought about an unfavorable balance of trade. states made the bills of credit legal tender, and Only a specie currency could maintain stable most of them instituted formal price fixing. prices, attract specie, and balance foreign Eventually, the paper money became worthless. trade. If banks issued paper money, it must be At the end of the revolutionary period, the backed by a fractional specie reserve. Bank of North America was founded. It was a Douglass' most formidable opponent was nationally chartered bank which loaned out Benjamin Franklin. His "Modest Enquiry into paper money bank notes. It operated with a the Nature and Necessity of a Paper-Currency" fractional specie reserve, and most of its loans appeared in Philadelphia in 1729 and has were made to the government. The remainder become a classic. Franklin argued that "There were made to private individuals against is a certain proportinate Quantity of Money re- various forms of security. quisite to carry on the Trade of Country freely With the confederation period, not only had and currently; More than which would be of no the emission of Continental paper money ceas- Advantage in Trade, and Less, if much less, ex- 376 JEFFREY RCU 3ERS HUMMEL ceedingly detrimental to it."t@l The colonieS these writers, was the adoption of the precious suffered from a scarcity of money, brought on metals, gold or silver, as the monetary stan- by an unfavorable balance of trade, and this dard. If governments were permitted to print scarcity depressed the economy. Issuing paper money, they would inevitably print too much money brought economic prosperity and, if and cause depreciation. Only specie could be done in moderation, could avoid depreciation. relied upon to provide stability. In addition, since paper money was cheaper, it William M. Gouge, the Jacksonian provided the benefits of a medium of exchange economist, was the first hard-money theoreti- at far less cost than specie. cian to write a monetary history of the United The pamphlets of Franklin and Douglass States. Published in 1833, it was entitled A show the emergence of two opposing schools: Short History of Paper Money and Banking in the advocates of hard (metallic) money and the the United state^.^^ Gouge's initial four advocates of managed money. Without too chapters are on colonial commodity money, much simplification, most historians treating colonial paper money, Continental paper this question fall into one of these two schools. money, and the Bank of North America, Variations exist within each position, but most respectively. Although now outdated, Gouge's of the arguments that historians subsequently historical research was impressive for the time. adopted were anticipated by Douglass or He condemned legal tender laws, devaluations Franklin. of the unit of account, and bills of credit. He included tables showing the depreciation of both colonial and Continental paper money. The hard-money school's interpretation He even attacked the Bank of North America. developed earliest. Its theoretical underpinning In that respect he went much further than was the quantity theory of money, which states Douglass before him or most hard-money that the value of money depends upon the sup- writers afterwards by consistently opposing all ply of money and the demand for it. If the sup- paper money, even when issued by hanks with ply decreases, other things remaining equal, the specie reserves. value of money will go up and the price of Despite its pioneering research, Gouge's goods will fall. Conversely, if the quantity of work was primarily polemical. Following it, money is increased, the value of money will fall however, came several works devoted solely to and prices rise. Modern writers often accuse the historical scholarship. In 1839 Joseph B. Felt, a old hard-money advocates of using a crude clergyman working in the Massachusetts ar- quantity theory in which the demand for money chives, wrote An Historical Account of is ignored. This is untrue; even the earliest Massachusetts Currency."' Henry Bronson ex- statements of the quantity theory make explicit amined the monetary records of Connecticut the ceteris paribus assumption on which they and published the results in the Papers of the are based. The old hard-money theoreticians New Haven Colony Historical Society in did not ignore the demand for money; they 1865.'sl The next year, John H. Hickcox's A merely thought that it was fairly stable in the History of the Bilk of Credit or Paper Money short-term, a question which economists still Issued by New York from 1709 to 1789''01ap- argue over. peared. At the same time, Henry Phillips com- The hard-money school's policy goal was piled the two volume Historical Sketches of money that maintained a stable value. Whether Paper Currency of the American Colonies this goal was achieved could be measured in Prior to the Adoption of the Federal Constitu- two ways, by the stability of the exchange rate tion.'"] in his first volume, Phillips reprinted between colonial monies and English money or an 1837 pamphlet on Rhode Island by Elisha R. by the stability,of prices. Hard-money writers Potter,'"] and included essays of his own on usually focused on one or the other, although a Pennsylvania, New Jersey, and Virginia, with a few considered both. The policy prescription two page discussion of Vermont's paper-money most likely to achieve this goal, according to issue of 1781. The second volume he devoted to THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 377 Continental money. The Continental paper money used to finance Because these works were scholarly efforts the Revolution was seriously over-issued and and, more importantly, because they were less generated a hyperinflation. Sumner denounced concerned with the economic impact of paper paper money for causing a "social palsy".'"] money than with the details of when bills were He took a favorable view of Morris and ap- emitted and how many, their theoretical bias proved of the Bank of North America as a was not pronounced. Nevertheless, Felt, Bron- sound financial scheme. Charles J. Bullock son and Potter can be placed without reserva- took nearly the identical stance in his work on tion in the hard-money camp. Phillips and the same topic, The Finances of the United Hickcox are not as easy to position. Phillips did States from 1775 to 1789, With Especial condemn as harmful the issues of Virginia, New Reference to the Budget.Im1His work only dif- Jersey, and the Continental Congress, but with fered from Sumner's in that it was an institu- Pennsylvania, a colony noted for the restraint tional rather than a political history. Another of its policies and the relative lack of deprecia- institutional history relating to national finance tion by its currency, he concluded that the issue published at this time was Lawrence Lewis, of fiat money was prudent and successful. Jr.'s brief History of the Bank of North Hickcox reached a similar conclusion with America: The First Bank Chartered in the regard to New York. United State~.l'~]Lewis viewed his subject In 1874, William Graham Sumner made a positively. brief monetary survey of the period prior to While Bolles, Sumner, and Bullock were 1789 in A History of American Currency.lal working out the hard-money position on na- This work, as Sumner himself admitted, was tional finance, a number of studies bolstered sketchy and rough, merely pointing the direc- the hard-money case at the state and colonial tion toward further research. Its treatment of level. Charles H. J. Douglas' The Financial both the colonial and confederation periods History of Massachusetts from the Organiza- focused mostly on New England and took a tion of the Massachusetts Bay Colony to the hard-money attitude. One of Sumner's conten- American Rev~lution[~~~gave extensive space tions was that the unfavorable balance of trade to monetary affairs. Douglas blamed of the colonies was due to a preference for Massachusetts' paper-money policies on the foreign goods and capital over specie on the masses of impoverished debtors. William part of the colonists. The first edition of Albert Zebina Ripley's The Financial History of S. Bolles' The Financial History of the United Virginia, 1609- 177612'' devoted two chapters Statesl"] was published also in 1874. Bolles to monetary issues. Ripley praised Virginia, the dismissed the colonial experience with the state- last colony to issue bills of credit, for avoiding ment: "Paper money had been tried in all the the temptation for so long. C. W. Macfarlane, Colonies, and nowhere had the experiment in his article on "Pennsylvania Paper Curren- worked satisfactorily, save in ~y",[~"presented extensive price series for Pennsylvani.a."["~ His first volume, based on many commodities. Macfarlane's price infor- much new research, covered national finance mation was taken from colonial newspapers during the revolutionary and confederation and was amazingly complete. Although a hard- periods and confirmed the hard-money posi- money advocate, Macfarlane was forced to ad- tion. Sumner examined the same territory in mit that bills of credit had suffered little even greater detail in his two volume The depreciation in Pennsylvania. "The most Financier and Finances of the American strenuous opponents of paper money will hard- Revolution."" These volumes, unlike his ly deny, that under such circumstances [as previous work, were scholarly and authorita- prevailed in Pennsylvania] the value of almost tive. The book combined a financial any currency might be maintained. The dif- history of the American Revolution with a ficulty is, that few legislative bodies are likely to biography of Robert Morris. In it emerged be as wise as the Assembly of Pennsylvania what has become the standard interpretation. seems to have been during this period."lZf1 378 JEFFREY ROGERS HUMMEL Frank Fenwick McLeod wrote "The History of tinental paper money. Hepburn even denounc- Fiat Money and Currency Inflation in New ed the practices of Pennsylvania. Finally, the England from 1620 to 1789"."'1 He found that hard-money case was cautiously but ably the "fluctuating and complicated currency defended in Davis Rich Dewey's Financial retarded business and crippled commerce. . . History of the United States1"] Inflation was triumphant, business One notion that has often been attributed to paralyzed".[2a1 Charles Bullock gathered the hard-money school is that paper money was together three of his studies in his Essays on the always instituted at the behest of poor, agrarian Monetary History of the United Two debtors. The hard-money school did recognize of them gave the history of paper money in that depreciating money helped debtors and states that had not previously been treated, hurt creditors, giving debtors an incentive for North Carolina and New Hampshire. The supporting paper money, but they did not third, "Three Centuries of Cheap Money in the necessarily equate debtor interests with United States", was a general commentary. agrarian or lower-class interests. Only Douglass, The culmination of these colony and state Bullock, and White hinted at such an explana- studies, and perhaps the premier work of the tion, and none of them developed it at any hard-money school, was the massive two length. If the poor-agrarian-debtor thesis came volume Currency and Banking in the Province to dominate historical interpretations, the hard- of Massachusetts Bay by Andrew McFarland money school is not responsible. The respon- Davis.["' Imposingly researched, it examined sibility really belongs to the historians of the in detail the political struggles surrounding progressive school, none of whom wrote Massachusetts' currency and banking legisla- specifically on money. tion through the Parliamentary ban of 1751. It also surveyed policies in other New England colonies. It analyzed the economic conse- quences of the various policies, blaming the After the turn of the century, the hard- bills of credit for driving specie out of circula- money school began to lose its prominence. tion and raising exchange rates. Davis' resear- This was in part due to the increasing popular- ches led to his editing, in four volumes under ity of the ideas of managed money. Even before the title of Colonial Currency Reprints, the Keynesian revolution, economists were con- 1682- 1751,["1 the colonial pamphlet literature cluding that government management of the on money. money supply would be much more efficient Eventually, the hard-money position found than reliance upon the precious metals. The its way into more general secondary works and first signs of a shift in historical interpretation texts. One of the most popular of these was came with the publication of several new colony Horace White's Money and Banking: II- studies. Clarence P. Gould's Money and lustrated by American Hist~ry.['~lWhite Transportation in Maryland, 1720-1765"'l devoted several chapters to colonial commodity appeared in 1915, and in 1923 Kathryn L. money, legal tender, bills of credit, colonial Behrens published her Paper Money in banking, and the Bank of North America. Maryland, 1727- 1789.[a41Gould, who devoted "The pamphlets and records of the colonial only one chapter to transportation, was almost period are filled with accounts of the distress ecstatic over Maryland's paper-money policy. and demoralization caused by depreciated "Considering the peculiar benefits to grain and paper made legal tender", he wrote; "the emis- tobacco culture, the conveniences offered to sion of bills of credit on loan was, in effect, a trade, the exceptionally high exchange that the conspiracy of needy landowners against the rest bills maintained throughout most of their life, of the comm~nity."[~~lLater editions of A. and the faithful redemption of every shilling at Barton Hepburn's A History of Currency in the face value, it is hardly too much to say that this United State~[~'lalso included chapters presen- was the most successful paper money issued by ting the hard-money line on colonial and Con- any of the colonies."['61 Behrens, whose study THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 379 extended into the revolutionary period, was on- distorted the colonial experience by ignoring ly slightly less enthusiastic, and she agreed that the middle colonies. "Since there was relatively "As a colony Maryland had solved the problem little depreciation in the middle colonies, most of paper Although not as of the writers have played up the experience of substantial as the studies of Gould and the New England colonies. There the deprecia- Behrens, Richard S. Rodney's Colonial tion of the currency was more extreme." This Finances in Delaware[371also saw paper money was due to "a peculiar currency arrangement" as necessary and beneficial. Another state study in which "the paper money of each New published about the same time was William England colony was freely accepted without Estill Heath's article, "The Early Colonial discount in the other New England Money System of Georgia", a purely descrip- colonies".1421Thus, each colony had a built-in tive account that took no position on the incentive to issue bills of credit without desirability of paper restraint. The middle colonies, on the other In 1934 Curtis Putnam Nettels applied the hand, particularly Pennsylvania, used sound new interpretation foreshadowed in the works money management to avoid depressions and of Gould and Behrens to all the colonies. His stimulate the economy. Lester argued that book, The Money Supply of the American Col- without currency emissions, prices would have onies Before 1720,[381was the first general fallen and depression would have resulted. In treatment from the managed-money school. short, "our colonial forefathers were much Actually, over half the book discussed not the more intelligent on money matters than hither- colonial money supply but the colonial balance to they have been given credit for being".t431 of payments. Nettels' consideration of this Although he provided a strong theoretical issue, however, provided the groundwork for justification for the managed-money school, his argument that the unfavorable balance of Lester's research was limited. The work that payments caused a chronic shortage of money finally nailed down the managed-money inter- in the colonies: pretation historically was Leslie Van Horn Brock's dissertation, "The Currency of the The colonies - as a debtor region - were con- American Colonies, 1700- 1764: A Study in fronted with a continuous adverse balance of payments, and their available specie was repeatedly Colonial Finance and Imperial Relations".t441 drawn away to creditors in Europe. The scarcity of Overlapping and bringing forward Nettels' ac- specie in America gave birth to a widespread belief that count through the Currency Act of 1764, it was prices of colonial products were ruinously low because money was wanting. . . One solution of these dif- thoroughly researched and has become the ficulties appeared to be an enlargement of the volume standard treatment of the subject. It gave a of c~rrency.['~l history of the monetary policies in each colony, On this basis, Nettels justified all of the col- in the process confirming the conclusion that onial monetary experiments: the making of on the whole paper money was salutary. commodity money legal tender, the devaluation Because of the specie drain, it was needed, and of the unit of account, and the issue of bills of most colonies issued it with enough restraint to credit. All of them were efforts by the colonists be successful. to attain some economic independence. Although the managed-money triumvirate of Even more outspoken in his defense of col- Nettels, Lester, and Brock has supplanted the onial monetary practices was the economist hard-money school, both groups share certain Richard A. Lester. In his book, Monetary Ex- principles. Both accept the quantity theory of periments: Early American and Recent Scan- money, and both have, at least implicitly, dina~ian,~~']he refined Nettels' argument stability of purchasing power as their policy ob- about the shortage of money. Precious metals jective. They differ as to the most efficient were too expensive a form of money for the col- means of attaining that objective. Even on the onies. By using cheaper paper money, the col- historical record, their differences are not as onists were conserving resources and making great as at first they might seem. The hard- themselves wealthier. Previous historians had money advocates freely admitted that the 380 JEFFREY ROGERS HUMMEL monetary policy of Pennsylvania resulted in tury. Davisson's figures only went up to 1685, relatively less depreciation. As Gouge put it, before the first paper-money emission, but they "All things go by comparison. The credit bills covered the years during which the of Pennsylvania were so much better than those Massachusetts mint operated, which Davisson of the other Governments, . . . but it was not a felt had had a stabilizing influence on prices. fact that they never sunk below the value of the The most recent study of colonial prices is John gold and silver which was current in the colony J. McCusker's Money and Exchange in Europe before the first emission of its For and America, 1600- 1775: A the hard-money school, Pennsylvania's ex- This monumental work of research gives series perience was exceptional; the prevailing tenden- on the exchange rates between all the colonies cy was toward massive depreciation. The and London, painstakingly pieced together managed-money school, on the other hand, ad- from a huge array of contemporary mitted that even in Pennsylvania some fall in quotations. exchange rates took place -just not enough to Most of the research done after Nettels, be concerned about. They also agreed that in Lester, and Brock has built upon or refined New England and during the Revolution too their approach. Theodore Thayer's general much money did result in serious inflation. For commentary on "The Land-Bank System in the them, however, these cases were aberrations ex- American was not totally un- plained by extenuating circumstances (war, for critical. He felt that land banks had failed in instance); Pennsylvania's experience was New England, both because they over-issued typical. money and because the security they required While Nettels, Lester, and Brock were revis- was inadequate. "Nevertheless, in four colonies ing the interpretation of colonial finance, a few - Pennsylvania, New Jersey, New York, and historians were doing additional research on the Maryland - the system was on the whole suc- revolutionary period. Ralph V. Harlow's cessful and is deserving of more attention than "Some Aspects of Revolutionary it has been given."[531E. James Ferguson, in gave a broad overview of the issue of paper his "Currency Finance: An Interpretation of money by the Continental Congress and the Colonial Monetary Practices",[541 ostensibly various states. William B. Norton, in "Paper dealt with both the land bank and "currency Currency in Massachusetts during the Revolu- finance" methods of emitting bills of credit, tion",["I noted the relative conservatism of although he gave greater consideration to the Massachusetts' monetary policies during the latter. He surveyed the historical literature and Revolution. Massachusetts placed greater did battle, again, with the hard-money school. reliance on borrowing than on bills of credit "An effort will be made to show that in the and attempted scrupulously to repay creditors. middle colonies, from New York to Maryland, Neither of these works attempted to revise the paper money was successful. Secondly, it will previous negative historical verdict on revolu- be argued that except in New England and the tionary bills of credit. Also important was Carolinas, paper money did not engender any Anne Bezanson's Prices and Inflation During great conflict between broad classes of the the American Revolution,[481which provided populati~n."[~~~Ferguson later reworked his incredibly complete price series for the period. article and made it the first chapter of his book, Earlier Bezanson had coauthored with Robert The Power of the Purse: A History of D. Gray and Miriam Hussey a similar book American Public Finance, 1776- 1790.[561The about Prices in Colonial The book was a welcome addition to the literature Bezanson-Gray-Hussey series were those used on finance during the revolutionary and con- by Lester in his study of Pennsylvania currency. federation periods, but its analysis of the Con- William I. Davisson's "Essex County Price tinental inflation was quite standard. Trends: Money and Markets in 17th Century Ferguson's real contribution was his coverage Massachu~etts",[~~1gave colonial price of the debt and taxation questions. He also statistics for a different area and an earlier cen- painted a less favorable picture of Robert Mor- THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 381 ris than had Sumner. Bray Hammond's highly suasive. Ten years earlier, Joseph Dorfman, in overrated Banks and Politics in America: From his examination of the colonial monetary the Revolution to the Civil addressed its debate in The Economic Mind in American first two chapters to pre-1789 monetary history. Civilization, discovered that "Contrary to the Predictably, Hammond thought highly of the tradition that historians have perpetuated, a Bank of North America. He, alone among critical analysis of the contemporary literature historians, even praised Rhode Island's emis- indicates that the proponents as well as the sions of paper money. His main purpose, critics [of paper money] were not poor debtors however, was to discredit the myth that paper or agrarians, but for the most part officials, money was supported by poor, agrarian ministers, merchants, and men of substance debtors. On the contrary, the demand for paper and learning in general". [B41 Dorfman's conclu- money, claimed Hammond, whether bills of sion was confirmed by George Athan Billias. In credit, Continentals, or bank notes, came from The Massachusetts Land Bankers of 1740,[851 sophisticated merchants and commercial in- Billias systematically investigated the pro- terests. ponents and opponents of Massachusetts' 1740 Of the few state studies done after 1941when land-bank scheme and found that the poor- Brock wrote his dissertation, the only one not agrarian-debtor thesis did not hold. Herman J. holding to the managed-money line was Donald Belz, in two journal article^,[^^^ extended the L. Kemmerer's "Paper Money in New Jersey, description of political forces battling over 1668- 1775".1581Kemmerer, in fact, found a paper money in Massachusetts both forward boom -bust cycle accompanying New Jersey's and backward from 1740. Although he found paper money policies. When new paper-money some agrarian support for paper money was injected into the economy, an inflationary schemes, Belz agreed that the most significant boom would result. When the money was support came from merchant groups. redeemed, a deflationary depression followed. Along with the political forces within the col- Kemmerer concluded that "the method of sud- onies fighting over monetary policy, historians denly expanding and gradually contracting the have explored the implications of the money paper-money supply was largely responsible for issue for the colonial relationship with Great both Peter E. Ellertsen, on the other Britain. Some argue that the colonists' frustra- hand, thought much more highly of New tions with British monetary restrictions con- Jersey's policies in his article, "Prosperity and tributed to the Revolution. Robert M. Weir Paper Money: The Loan Office Act of found in his article, "North Carolina's Reac- 1723".[801Looking at a shorter time span, he tion to the Currency Act of 1764,"[e71that this decided that the loan office was responsible for was true in North Carolina. Jack P. Greene and New Jersey's great prosperity. Richard M. Richard J. Jellison, in "The Currency Act of Jellison's "Paper Currency in Colonial South 1764 in Imperial - Colonial Relations, Carolina: A Reapprai~al"~"~was also 1764- 1776" ,[881 examined the various eva- favorable. "The first period, from 1703 to sions of the Currency Act that occurred in all 1731, was one of much experimentation and the colonies outside of New England and the may be characterized by depreciation. The colonial effort to get the act reinterpreted, years following 1731 witnessed not only com- modified, or repealed. They decided that the plete acceptance of the medium but also stabili- act was an important psychological irritant in ty in its value."t621Jellison's conclusions were British -American relations. Lawrence H. Gip- significant because managed-money historians son's "Virginia Planter Debts before the had usually conceded that South Carolina's American Revoluti~n"~~~~described the genesis paper-money policies were as bad as those in of the Currency Act of 1764 and showed how it New England.~e31 originated from the desire of British creditors Bray Hammond was probably the most vocal to protect themselves from Virginia's monetary in his efforts to debunk the poor-agrarian- legislation. Jack M. Sosin's discussion of the debtor thesis, but he was not the most per- Currency Act and the colonial reaction to it in 382 ' JEFFREY ROGERS HUMMEL "Imperial Regulation of Colonial Paper elasticities of liquidity preference [were1 very Money, 1764- 1773"[701treated in less detail high What that means is that the material covered by Gipson and Greene and changes in the money supply did not matter. In Jellison and reached the same conclusion. the long-run, prices in Pennsylvania were com- One area of monetary history that has cap- parable to those in London and the exchange tured the interest of at least one historian is rate was stable regardless of what happened to counterfeiting. Counterfeiting was endemic in the quantity of money. By reaching this conclu- colonial and revolutionary America, and at sion, Burstein struck at the heart of both the times caused very serious problems for the col- hard-money and managed-money schools. In onies' paper money issues. The counterfeiting effect, the demand for money was so flexible of Continentals was especially serious. Kenneth that the colonists could absorb into their cash Scott investigated this topic in his book, balances as much money as was printed and the Counterfeiting in Colonial America, 17'I and in much touted money shortgage was a mirage. numerous articles and monographs on in- This premise, that money does not matter, is dividual colonies. [721 such an important feature of modern Keynesian Many of Scott's contributions appeared in economics that it is a wonder that no one before numismatic journals, which have a special in- had applied it to the colonial experience. Un- terest in counterfeiting. Although largely ig- fortunately, even if one accepted Burstein's nored by mainstream historians, the theoretical premise, his use of limited data numismatic discussions of colonial money are made his conclusions highly tentative. excellent references. Often they are more com- Another author who questioned the whole prehensive and thorough with regard to such quantity-theory framework was Joseph Albert matters as the dates, the quantities, and the Ernst. One of Ernst's early contributions, an denominations of paper money emissions. Eric article entitled "Colonial Currency: A Modest P. Newman's The Early Paper Money of Inquiry into the Uses of the Easy Chair and the America is the standard numismatic guide, Meaning of the Colonial System of Freely superseding all previous catalogues and pro- Floating International E~change",~~']was a viding extensive bibliographical references to reply to Burstein. Ernst expanded the article in- the remainder of the numismatic literature.[731 to a chapter of his book, Money and Politics in America, 1755- 1775: A Study in the Currency Act of 1764 and the Political Economy of Revolution.[771Like Burstein, Ernst contended The writings on the political ramifications of that the quantity of money did not really matter monetary policy so far discussed - those of internationally for the determination of ex- Billias, Greene and Jellison, Sosin, and the change rates. Exchange rates were governed by others - if not directly reinforcing the changes in the balance of payments, which in managed-money school's interpretation, are at turn were determined by the sale of colonial ex- least consistent with it. Only a few recent ports, the purchase of imports by colonists, and writings have contradicted the managed-money the inflow of English capital. Unlike Burstein, orthodoxy in any fashion. The first of these, M. Ernst inconsistently maintained that the quanti- L. Burstein's "Colonial Currency and Contem- ty of money did matter domestically, and he ac- porary Monetary Theory: A Review cepted the managed-money school's position was highly technical and not based on the necessity of printing money to alleviate on a wide range of secondary material (let alone the specie shortgage. The rest of his book was a primary sources), but it did contain some discussion of the politics surrounding the Cur- thoughtful theorizing. Burstein compared rency Act of 1764 in which Ernst argued for a figures on Pennsylvania's money supply with new economic interpretation of the data on prices in Pennsylvania and England, Revolution.[781He covered much the same ter- the exchange rate, and interest rates. His con- ritory as Weir, Greene and Jellison, Gipson, clusion was that "reasonably long-run and Sosin, but in doing so he presented an ac- THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 383 count of colonial monetary practices that rangements in the Constitution, it is usually started in 1764, where Brock leaves off. treated as an addendum to the revolutionary or While Burstein and Ernst both attacked the colonial period. Some, though not all, of the quantity-theory framework used by the hard- state studies go through to 1789.[841 money and managed-money schools, their The revolutionary period is adequately policy recommendations were more congenial covered by both general and specific works, but with managed money. In Ernst's case this they all share a common interpretation. All followed from his acceptance of the domestic agree that bills of credit issued by the Continen- importance of the money supply. In Burstein's tal and state governments resulted in a serious case, since the quantity of money does not mat- hyperinflation. Some controversy exists over ter, there cobld be no serious objection to in- the Bank of North America, the character of creasing it through the printing press. Only one Robert Morris, and the necessity of bills of recent writer has disputed the managed-money credit for the war effort, but the really in- school's policy recommendations: Roger W. teresting questions in this period seem to lie Weiss, in his article, "The Issue of Paper outside the field of monetary history. Money in the American Colonies, In contrast to the two later periods, the col- 1720- 1774".1791Weiss argued that the col- onial period has both an extensive literature onies suffered from no real scarcity of specie. and rousing controversy. The main problem is Using data from Pennsylvania and Boston, he that the older works of the hard-money school attempted to demonstrate that even without the are, for the most part, theoretically superior to emission of paper money, prices would have the newer treatments by the managed-money risen rather than fallen.[801Colonial money school, but the newer treatments are historical- issues were not well managed anyway; "Their ly sounder than the older, out of date works. volume changed erratically and with a large To get a competely accurate picture of the col- amplitude." This was due to the fact that "the onial monetary experience, one must consult issues were made to meet the needs of the col- the newer works for data and the older works onial treasuries and these needs rose greatly in for theory. times of He adds that "it should be Consider some of the justifications for the clear that a monetary system, the changes in colonial monetary policies that have graced the whose issues of paper money depend on the er- writings, from Franklin to Ferguson, of the ratic fiscal needs of government, will not very managed-money school. By the far the most well serve the need for maintaining a stable pervasive is the claim that due to an un- money supply or of balancing the international favorable balance of trade, the colonies suf- movements of specie".[821By casting doubt on fered from a chronic shortage of money. The the government's ability to manage the money best rejoinder to that claim is still the one given and by denying the colonial shortage of specie, by Adam Smith: "No complaint, however, is Weiss is resurrecting the hard-money approach. more common than that of a scarcityof money. More recently, Weiss has bolstered his conclu- Money, like wine, must always be scarce with sions with a study of "The Colonial Monetary those who have neither wherewithal to buy it, Standard of Massachusetts".~831 nor credit to borrow Money is a medium of exchange. When a good is used as money, it is desired so that it can be exchanged for other goods. It is not used In appraising the state of historical research up in consumption or production. Therefore, on money in America before 1789, one glaring any stock of the monetary good, within certain deficiency is immediately obvious. There is no very wide physical limits, can perform the general overall treatment of the monetary prac- monetary function with equal facility. There is tices in the states during the confederation no optimal supply of money. Increases in the period. Despite the seeming importance of this stock of money confer no social benefit; period toward influencing the monetary ar- decreases cause no harm. A smaller stock of 384 JEFFREY ROGERS HUMMEL money simply requires that a given monetary payments that unit have greater purchasing power or, in other Another argument cites as evidence of a words, that prices be lower. shortage of money the fact that interest rates Most writers, even Sumner, White, and some were too high or that money was too "tight". of the other members of the hard-money This argument confuses a shortage of money school, have denigrated the colonial use of with the scarcity of capital. The interest rate is tobacco, wampum, and other commodities as not the price for money; rather it is the price in money. They ignore that fact that all money, the time market. All individuals discount the even gold and silver, emerges on the market future against the present, but different in- when some commodity previously only used for dividuals do so at different rates. The interest consumption or production is employed as a rate is the premium received by savers for medium of exchange because of its wide foregoing present consumption. Savings must marketability. Gold and silver are more occur for capital to accumulate, and high in- durable, portable, and divisible than other terest rates indicate that immediate consump- commodity monies, but the colonial use of their tion is more important to the economy than staples and other less satisfactory commodities capital accumulation. The high interest rates in as monies befitted their low level of economic colonial America reflected the scarcity of development. The colonial domestic economy capital. Usury laws probably converted the was just not that complex. capital scarcity into a shortage, making savings The colonial trade with England and other unavailable at the legal rate. The way to areas, in contrast, was highly developed, and alleviate the scarcity was - as happened here it is argued that the colonists' unfavorable through time - to save more balance of trade drained away their specie. Printing new money can seemingly alleviate However, regional trade balances are merely the scarcity of capital if it is injected through aggregations of individual trade balances. the loan market, as in the case of colonial land Every individual has his own balance of banks. The supply of loanable funds increases payments for any given period, during which he and the interest rate falls. However, this fall in will add to, subtract from, or leave unchanged interest is not matched by an increase in real his own cash holdings. Any net flows of money saving. No one has foregone present consump- in regional balances of payment result solely tion. Therefore, the investments induced by the from changes in the demand for money. Specie fall in interest rates are really malinvestments, and foreign coins were readily available, and all misallocating resources. This generates a that colonists had to do was to trade for them. boom -bust trade cycle. The new money enters The balance of trade was not an exogeneous the loan market, interest rates fall, and in- condition foisted by circumstances upon the vestments are induced. As the new money cir- colonists; it resulted from their own market culates throughout the economy, the new in- preferences. "The colonists evidently preferred vestments turn out to be malinvestments and to import British goods rather than invest in an they suffer losses; a depression improved domestic monetary system", point This explains the apparent prosperity that out James Shepherd and Gary Walton. "Their followed the first emission of new money, and preference was to substitute other forms of the boom -bust cycle noted by Kemmerer in media for specie, rather than to manage with New Jersey. It also exposes the fallacy in less British and European manufactured Lester's defense of managed money for preven- The lament that the colonists could ting depressions. Lester equates falling prices not pay their debts to English merchants with depression. Actually, during several because an unfavorable balance of trade had historical periods, secularly falling prices and drained off all their specie is no more valid than economic prosperity have existed simultaneous- the excuse given by an individual debtor that he ly. A depression is a cluster of business failures cannot repay the money he owes to a bank caused by the distortion of interest rates that because he had an unfavorable balance of accompanies the injection of new money in the THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 385 loan market. The prosperity of the boom phase limited. Even if there is no depreciation, the of the cycle is merely an illusion. printing of paper money always has distribu- In one sense, however, the clamor over the tion effects. It always shifts resources from pro- shortage of money in the colonies was valid. ducers to the non-producing issuers and their Colonial governments were continuously ex- privileged favorites. This makes paper money periencing such a shortage. To finance a war objectionable even when there is little deprecia- through taxes collected in the form of tobacco tion. or wampum was inconvenient and difficult. To The first gainer is the issuer of paper money, require citizens who did not ordinarily use who spends it for something he wants. Since he specie to pay taxes in that form was burden- has produced nothing in exchange for the pur- some. The connection between the colonial chased good, someone else must lose. This is wars and the issue of paper money was no coin- accomplished either through a rise in prices, to cidence, nor was the connection between over- the extent that the new money circulates, or a due tax debts and paper money in Shays' decrease in current consumption, to the extent rebellion. Paper money was often demanded that the new money is held in cash balances. In because it would make tax payments easier. In one case the new money creates a hidden tax on the case of the revolutionary bills of credit, cash holdings; in the other, a forcible loan at paper money was issued in lieu of taxes zero interest. In addition to the first issuer, altogether. those whose incomes rise before the prices they When managed-money advocates argue that pay also benefit. Those who are hurt the most paper money is less expensive than specie, they are those facing prices that go up before their are thinking in terms of macro-economic ag- incomes. Individuals on fixed incomes lose. gregates that never influence people's economic Debtors gain at the expense of creditors. Deb- actions. No one ever decides on the basis of the tors, furthermore, are not always poor, and overall cost to society to use a paper shilling quite often during the colonial period they were rather than a silver shilling. Individuals only act wealthy merchants and landowners. Merchants according to the specific array of costs and may be debtors and creditors both, and they prices facing them, and if the prices they pay may shift back and forth. If the new money is and earn are the same in both paper and silver injected through the loan market, it temporarily shillings, then it will be a matter of indifference lowers interest rates which benefits mer- to them which they use. The important chants and businessmen who wish to expand economic fact is that paper money is less expen- their operations. The price of durable goods, sive to the person or institution issuing it. like land, is very sensitive to interest rates. A Specie can only be acquired by trading fall in interest tends to raise the price of land, so something that was produced for it. Paper landowners also benefit.1g01Land speculators money can just be created and spent. Conse- who are also debtors doubly benefit. Thus, the quently, the issuing of paper money political revisionism of the managed-money redistributes wealth and income. Economically, school is the one area where their reinterpreta- it is no different from counterfeiting. tion of events has merit. The support of The hard-money school was correct in noting wealthy merchants and landowners for paper that paper money depreciates. The quantity money makes theoretical sense. theory of money holds true to the extent that A corollary of the quantity theory of money prices are always higher after the issue of new is the purchasing power parity theory, which money than they otherwise would have been. claims that the exchange rate between coex- The price level, however, might not change isting monies will tend to equate to their pur- dramatically because other factors go into its chasing power. If dollars can buy five times determination. By resting the case against paper more than shillings, then the exchange rate will money solely on depreciation, they left tend to be five shillings per dollar. This theory themselves open in those cases, like Penn- allowed the hard-money school to measure the sylvania, where the depreciation was relatively depreciation of paper money through the fall in 386 JEFFREY ROGERS HUMMEL its exchange rate with English sterling. Ernst Gresham's Law; bad money has driven out argued that the purchasing power parity theory good, or more precisely stated, money ar- is oversimplified; that exchange rates between tificially overvalued by government has driven London and America were determined by the out of circulation money artificially under- value of imports bought, and the value of ex- valued. ports sold, and the value of capital flows. The monetary history of the colonies offers Ernst's argument is a non sequitur. No pur- many demonstrations of the operation of chasing power parity theorist has ignored the Gresham's Law. Through legal tender laws the operation of supply and demand in the deter- exchange rate between different monies was fix- mination of exchange rates. These very forces ed. Usually specie was artificially undervalued. are the ones that bring about purchasing power Tobacco drove out specie, or paper money drove out specie, or light coins drove out heavy For example, if a colony should increase its coins. The colonial juggling of the unit of ac- money supply, the price of its domestic pro- count was a special kind of rate fixing. It did ducts will rise. This makes foreign goods not usually fix the exchange rate between two relatively cheaper. Imports will increase, and different monies, because the colonial shillings exports will decrease. These factors combined were allowed to float in terms of British shill- will drive up the exchange rate until the point is ings, but merely changed the denomination of reached where purchasing power parity is the existing money. Suddenly, a coin that was restored. If the exchange rate is not at parity, if previously worth five shillings was now worth for instance the dollar will buy only five times six shillings. This encouraged the importation more than a shilling, but the exchange rate is six of coins, gave a boost to exports, and shillings per dollar, then individuals can profit discouraged imports. The effect was tem- by trading dollars for shillings and buying pro- porary, however as prices would immediately ducts. This lowers the shilling demand for rise in terms of the new unit of account so that dollars and products that can be bought with the same coin would purchase the same quanti- dollars and raises the dollar demand for shill- ty of goods as before. ings and products that can be bought with shill- In short, the hard-money school was basical- ings. This will drive down the exchange rate ly correct. The colonial -and revolutionary - toward five shillings per dollar.[821 monetary experience was a continuous stream The purchasing power parity theory holds of government failures. There was no shortage whether the monies coexist in the same of money. That complaint provided the excuse geographical area or are employed mainly in for governments and special interests to different areas. Government fixing of the ex- plunder the economy through the printing of change rate is totally unnecessary. When the paper money. In the New England colonies, the government does fix the exchange rate, it never depreciation was so severe that the monetary fixes it at the market parity rate. As a conse- system was nearly wrecked, as it finally was quence, one of the monies is overvalued while throughout America during the Revolution. the other is undervalued. In the example above, Even though depreciation was more mild in the if the government fixed the rate at six shillings middle colonies, the printing of money still had per dollar, shillings are artificially undervalued distribution effects. In all the colonies, the and dollars are artificially overvalued. In- monetary policies were erratic and subservient dividuals will increase their demand for shill- to the fiscal appetite of governments. When ings and decrease their demand for dollars. Any bills of credit were emitted through land banks, price denominated at the fixed rate of six shill- they had the further undesirable effect of ings to the dollar when the market rate is five distorting interest rates. Paper money did not shillings to the dollar will be paid in dollars. generate prosperity, it generated the Since the exchange rate cannot adjust, a surplus boom -bust trade cycle. At the same time, legal of dollars and a shortage of shillings will tender laws drove specie out of circulation. On emerge. This result is a classic illustration of the whole, it was an abysmal record. THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 387 NOTES service, thought it fit to reward me by employing me in printing the money; a very profitable jobb and a great 1. The seminal work on Austrian monetary theory is Lud- help to me. wig von Mises, The Theory of Money and Credit, new 7. (1833; reprint ed., New York, 1968). The full title was en]. ed., (1953; reprint ed., New York, 1971). See also A Short History of Paper Money and Banking in the the appropriate sections of Mises, Human Action, 3rd United States, Including an Account ofProvincia1and rev. ed., (Chicago, 1%6), and Murray Rothbard, Man, Continental Paper Money. To Whichis Prefixed an Zn- Economy, and State, 2 v., (Princeton, 1962). quiry into the Principles of the System, with Con- Rothbard's What has Government Done to Our siderations of its Effects on Morals and Happiness. Money?, (Santa Ana, 1964), is a good, brief introduc- The Whole Intended as a Plain Exposition of the Way tion to Austrian monetary theory. Rothbard has ap- in which Paper Money and Money Corporations,Af- plied Austrian theory to the colonial experience in the fect the Interests of Different Portions of the Com- second volume of his history of the American Revolu- munity. The reprint edition includes an introductory tion, Conceivedin Liberty I1 (New Rochelle, 1975), pp. essay by Joseph Dorfman. 123- 140. Rothbard provides one of the best short 8. (Boston, 1839). surveys of colonial monetary policies, and I have relied 9. "A Historical Account of Connecticut Currency, Con- on it heavily in this paper. tinental Money, and the Finances of Revolution," New 2. In Maryland in 1733, bills of credit, in addition to be- Haven Colony Historical Society, Papers, 1 (1865), ing used to finance government expenditures, were pp. 1- 192. passed out to all the inhabitants as compensation for 10. With a Description of the Bills, and Catalogue of the the tobacco destroyed in Maryland's price-support pro- VariousIssues, (1866; reprint ed., New York, 1969). gram. Economists are fond of abstracting from the 11. (1865, 1866; reprint ed., New York, 1972). distribution effects of increases in the money supply by 12. "A Brief Account of the Emissions of Paper Money considering the case where a helicopter flies over and Made by the Colony of Rhode Island" (Providence, evenly distributes the new money among the people. 1837). Potter's pamphlet was also reprinted later by This is the only case, as far as I know, where the Sidney S. Rider under the title "Some Account of Bills helicopter effect has actually been approximated in of Credit or Paper Money of Rhode Island from the practice. First Issues in 1710 to the Final Issue in 1786", Rhode 3. Sometimes private land bank proposals envisioned Island Historical Tracts, no. 8, (1880). loans on personal property as well as land. Usually 13. (1874; reprint ed., New York, 1968). there was no provision for any specie reserve fund to 14. 3 v. All references are to the 4th ed., (1884; reprinted., redeem notes, but a private specie bank did operate New York, 1896). briefly also in Massachusetts. 15. Zbid., I, p. 29. 4. Virginia unsuccessfully tried to mint copper coins. 16. (1891; reprint ed., New York, 1968). See also Sumner's Maryland's attempt to establish a mint proved unsuc- A History of Banking in the United States, (New York, cessful. A numismatic history of these early mints is 1896). Sylvester S. Crosby, The Early Coins of America and 17. Zbid., I, p. 60. the Laws Governing Their Issue (1875; reprint ed., 18. University of Wisconsin, Bulletin: Economic, Political New York, 1970). Science, and History Series, 1, no. 2, (Madison, 1895). 5. Andrew McFarland Davis, ed., Colonial Currency 19. (Philadelphia, 1882). Reprints, I682 - 1751, 111, (1911; reprint ed., New 20. Columbia University, Studies in History, Economics York, 1964), pp. 309, 326. Davis' four volume work is and Public Law, 2nd ed., 1, no. 44, (New York, 1897). a compilation of most of the pamphlet literature on The first edition was published in 1892. colonial money with an excellent introductory essay. 21. Columbia College, Studies in History, Economics and Douglass' pamphlet was also reprinted in American Public Law, 4, no. 1, (New York, 1893). Economic Association, Economic Studies, 2 (1897), 22. American Academy of Political and Social Science, no. 5, with a biographical essay by Charles J. Bullock. Annals, 8 (July, 1896), pp. 50- 126. Joseph Dorfman, The Economic Mind in American 23. Zbid., p 74. Civilization, 1606- 1865, also covers the monetary 24. American Academy of Political and Social Science, debate, although he does not do justice to Douglass. Annals, 12 (Sep, 1898). pp. 229 -249. See also Harry E. Miller, Banking Theories in the 25. Zbid., p. 245. United States before 1860, (Cambridge, 1927). 26. (New York, 1900). 6. Davis, Colonial Currency Reprints, 11, p. 336. 27. American Economic Association, Publications, 3rd Franklin's pamphlet can also be found in Jared Sparks, ser., 1, no. 4; 2, no. 2, (New York, 1900, 1901). ed., The Works of Benjamin Franklin, 11, (Boston, 28. op. cit. 1836), pp. 254-277. Franklin's advocacy of paper 29. 5th ed., (Boston, 1911). The first edition of this work money was not without ulterior motives. As he so char- was published in 1896. White also wrote "New York's mingly put it in his Autobiography, (reprint ed., New Colonial Currency", Sound Currency,5 (1 Mar, 1898), York, 1940), p. 82: pp. 50 - 64. It [the pamphlet] was well receiv'd by the common 30. Zbid., pp. 86 - 87. people in general; but the rich men dislik'd it, for it in- 31. Rev. and enl. ed., (1924; reprint ed., New York, 1967). creas'd and strengthen'd the clamor for more money, The first edition, History of the Coinage and Currency and they happening to have no writers among them in the United States and the Perennial Contest for that were able to answer it, their opposition slaken'd, Sound Money, (1903; reprint ed., New York, 1968), and the point was carried by a majority in the House. omitted mention of colonial and revolutionary Mv friends there. who conceiv'd I had been of some monetary policies. THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 379 extended into the revolutionary period, was on- distorted the colonial experience by ignoring ly slightly less enthusiastic, and she agreed that the middle colonies. "Since there was relatively "As a colony Maryland had solved the problem little depreciation in the middle colonies, most of paper Although not as of the writers have played up the experience of substantial as the studies of Gould and the New England colonies. There the deprecia- Behrens, Richard S. Rodney's Colonial tion of the currency was more extreme." This Finances in Delaware[371also saw paper money was due to "a peculiar currency arrangement" as necessary and beneficial. Another state study in which "the paper money of each New published about the same time was William England colony was freely accepted without Estill Heath's article, "The Early Colonial discount in the other New England Money System of Georgia", a purely descrip- colonies".1421Thus, each colony had a built-in tive account that took no position on the incentive to issue bills of credit without desirability of paper restraint. The middle colonies, on the other In 1934 Curtis Putnam Nettels applied the hand, particularly Pennsylvania, used sound new interpretation foreshadowed in the works money management to avoid depressions and of Gould and Behrens to all the colonies. His stimulate the economy. Lester argued that book, The Money Supply of the American Col- without currency emissions, prices would have onies Before 1720,[381was the first general fallen and depression would have resulted. In treatment from the managed-money school. short, "our colonial forefathers were much Actually, over half the book discussed not the more intelligent on money matters than hither- colonial money supply but the colonial balance to they have been given credit for being".t431 of payments. Nettels' consideration of this Although he provided a strong theoretical issue, however, provided the groundwork for justification for the managed-money school, his argument that the unfavorable balance of Lester's research was limited. The work that payments caused a chronic shortage of money finally nailed down the managed-money inter- in the colonies: pretation historically was Leslie Van Horn Brock's dissertation, "The Currency of the The colonies - as a debtor region - were con- American Colonies, 1700- 1764: A Study in fronted with a continuous adverse balance of payments, and their available specie was repeatedly Colonial Finance and Imperial Relations".t441 drawn away to creditors in Europe. The scarcity of Overlapping and bringing forward Nettels' ac- specie in America gave birth to a widespread belief that count through the Currency Act of 1764, it was prices of colonial products were ruinously low because money was wanting. . . One solution of these dif- thoroughly researched and has become the ficulties appeared to be an enlargement of the volume standard treatment of the subject. It gave a of c~rrency.['~l history of the monetary policies in each colony, On this basis, Nettels justified all of the col- in the process confirming the conclusion that onial monetary experiments: the making of on the whole paper money was salutary. commodity money legal tender, the devaluation Because of the specie drain, it was needed, and of the unit of account, and the issue of bills of most colonies issued it with enough restraint to credit. All of them were efforts by the colonists be successful. to attain some economic independence. Although the managed-money triumvirate of Even more outspoken in his defense of col- Nettels, Lester, and Brock has supplanted the onial monetary practices was the economist hard-money school, both groups share certain Richard A. Lester. In his book, Monetary Ex- principles. Both accept the quantity theory of periments: Early American and Recent Scan- money, and both have, at least implicitly, dina~ian,~~']he refined Nettels' argument stability of purchasing power as their policy ob- about the shortage of money. Precious metals jective. They differ as to the most efficient were too expensive a form of money for the col- means of attaining that objective. Even on the onies. By using cheaper paper money, the col- historical record, their differences are not as onists were conserving resources and making great as at first they might seem. The hard- themselves wealthier. Previous historians had money advocates freely admitted that the 380 JEFFREY ROGERS HUMMEL monetary policy of Pennsylvania resulted in tury. Davisson's figures only went up to 1685, relatively less depreciation. As Gouge put it, before the first paper-money emission, but they "All things go by comparison. The credit bills covered the years during which the of Pennsylvania were so much better than those Massachusetts mint operated, which Davisson of the other Governments, . . . but it was not a felt had had a stabilizing influence on prices. fact that they never sunk below the value of the The most recent study of colonial prices is John gold and silver which was current in the colony J. McCusker's Money and Exchange in Europe before the first emission of its For and America, 1600- 1775: A the hard-money school, Pennsylvania's ex- This monumental work of research gives series perience was exceptional; the prevailing tenden- on the exchange rates between all the colonies cy was toward massive depreciation. The and London, painstakingly pieced together managed-money school, on the other hand, ad- from a huge array of contemporary mitted that even in Pennsylvania some fall in quotations. exchange rates took place -just not enough to Most of the research done after Nettels, be concerned about. They also agreed that in Lester, and Brock has built upon or refined New England and during the Revolution too their approach. Theodore Thayer's general much money did result in serious inflation. For commentary on "The Land-Bank System in the them, however, these cases were aberrations ex- American Colonie~",[~~~was not totally un- plained by extenuating circumstances (war, for critical. He felt that land banks had failed in instance); Pennsylvania's experience was New England, both because they over-issued typical. money and because the security they required While Nettels, Lester, and Brock were revis- was inadequate. "Nevertheless, in four colonies ing the interpretation of colonial finance, a few - Pennsylvania, New Jersey, New York, and historians were doing additional research on the Maryland - the system was on the whole suc- revolutionary period. Ralph V. Harlow's cessful and is deserving of more attention than "Some Aspects of Revolutionary Finance"14s1 it has been E. James Ferguson, in gave a broad overview of the issue of paper his "Currency Finance: An Interpretation of money by the Continental Congress and the Colonial Monetary Practices",[541 ostensibly various states. William B. Norton, in "Paper dealt with both the land bank and "currency Currency in Massachusetts during the Revolu- finance" methods of emitting bills of credit, ti~n",[~'Inoted the relative conservatism of although he gave greater consideration to the Massachusetts' monetary policies during the latter. He surveyed the historical literature and Revolution. Massachusetts placed greater did battle, again, with the hard-money school. reliance on borrowing than on bills of credit "An effort will be made to show that in the and attempted scrupulously to repay creditors. middle colonies, from New York to Maryland, Neither of these works attempted to revise the paper money was successful. Secondly, it will previous negative historical verdict on revolu- be argued that except in New England and the tionary bills of credit. Also important was Carolinas, paper money did not engender any Anne Bezanson's Prices and Inflation During great conflict between broad classes of the the American which provided populati~n."[~~~Ferguson later reworked his incredibly complete price series for the period. article and made it the first chapter of his book, Earlier Bezanson had coauthored with Robert The Power of the Purse: A History of D. Gray and Miriam Hussey a similar book American Public Finance, 1776- 1790.Cs6] The about Prices in Colonial The book was a welcome addition to the literature Bezanson-Gray-Hussey series were those used on finance during the revolutionary and con- by Lester in his study of Pennsylvania currency. federation periods, but its analysis of the Con- William I. Davisson's "Essex County Price tinental inflation was quite standard. Trends: Money and Markets in 17th Century Ferguson's real contribution was his coverage Massachu~etts",[~~1gave colonial price of the debt and taxation questions. He also statistics for a different area and an earlier cen- painted a less favorable picture of Robert Mor- THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 381 ris than had Sumner. Bray Hammond's highly suasive. Ten years earlier, Joseph Dorfman, in overrated Banks and Politics in America: From his examination of the colonial monetary the Revolution to the Civil addressed its debate in The Economic Mind in American first two chapters to pre-1789 monetary history. Civilization, discovered that "Contrary to the Predictably, Hammond thought highly of the tradition that historians have perpetuated, a Bank of North America. He, alone among critical analysis of the contemporary literature historians, even praised Rhode Island's emis- indicates that the proponents as well as the sions of paper money. His main purpose, critics [of paper money] were not poor debtors however, was to discredit the myth that paper or agrarians, but for the most part officials, money was supported by poor, agrarian ministers, merchants, and men of substance debtors. On the contrary, the demand for paper and learning in general". [B41 Dorfman's conclu- money, claimed Hammond, whether bills of sion was confirmed by George Athan Billias. In credit, Continentals, or bank notes, came from The Massachusetts Land Bankers of 1740,[851 sophisticated merchants and commercial in- Billias systematically investigated the pro- terests. ponents and opponents of Massachusetts' 1740 Of the few state studies done after 1941when land-bank scheme and found that the poor- Brock wrote his dissertation, the only one not agrarian-debtor thesis did not hold. Herman J. holding to the managed-money line was Donald Belz, in two journal article^,[^^^ extended the L. Kemmerer's "Paper Money in New Jersey, description of political forces battling over 1668- 1775".1581Kemmerer, in fact, found a paper money in Massachusetts both forward boom -bust cycle accompanying New Jersey's and backward from 1740. Although he found paper money policies. When new paper-money some agrarian support for paper money was injected into the economy, an inflationary schemes, Belz agreed that the most significant boom would result. When the money was support came from merchant groups. redeemed, a deflationary depression followed. Along with the political forces within the col- Kemmerer concluded that "the method of sud- onies fighting over monetary policy, historians denly expanding and gradually contracting the have explored the implications of the money paper-money supply was largely responsible for issue for the colonial relationship with Great both Peter E. Ellertsen, on the other Britain. Some argue that the colonists' frustra- hand, thought much more highly of New tions with British monetary restrictions con- Jersey's policies in his article, "Prosperity and tributed to the Revolution. Robert M. Weir Paper Money: The Loan Office Act of found in his article, "North Carolina's Reac- 1723".[801Looking at a shorter time span, he tion to the Currency Act of 1764,"[e71that this decided that the loan office was responsible for was true in North Carolina. Jack P. Greene and New Jersey's great prosperity. Richard M. Richard J. Jellison, in "The Currency Act of Jellison's "Paper Currency in Colonial South 1764 in Imperial - Colonial Relations, Carolina: A Reapprai~al"~"~was also 1764- 1776" ,[881 examined the various eva- favorable. "The first period, from 1703 to sions of the Currency Act that occurred in all 1731, was one of much experimentation and the colonies outside of New England and the may be characterized by depreciation. The colonial effort to get the act reinterpreted, years following 1731 witnessed not only com- modified, or repealed. They decided that the plete acceptance of the medium but also stabili- act was an important psychological irritant in ty in its value."t621Jellison's conclusions were British -American relations. Lawrence H. Gip- significant because managed-money historians son's "Virginia Planter Debts before the had usually conceded that South Carolina's American Revoluti~n"~~~~described the genesis paper-money policies were as bad as those in of the Currency Act of 1764 and showed how it New England.~e31 originated from the desire of British creditors Bray Hammond was probably the most vocal to protect themselves from Virginia's monetary in his efforts to debunk the poor-agrarian- legislation. Jack M. Sosin's discussion of the debtor thesis, but he was not the most per- Currency Act and the colonial reaction to it in 382 ' JEFFREY ROGERS HUMMEL "Imperial Regulation of Colonial Paper elasticities of liquidity preference [were1 very Money, 1764- 1773"[701treated in less detail high What that means is that the material covered by Gipson and Greene and changes in the money supply did not matter. In Jellison and reached the same conclusion. the long-run, prices in Pennsylvania were com- One area of monetary history that has cap- parable to those in London and the exchange tured the interest of at least one historian is rate was stable regardless of what happened to counterfeiting. Counterfeiting was endemic in the quantity of money. By reaching this conclu- colonial and revolutionary America, and at sion, Burstein struck at the heart of both the times caused very serious problems for the col- hard-money and managed-money schools. In onies' paper money issues. The counterfeiting effect, the demand for money was so flexible of Continentals was especially serious. Kenneth that the colonists could absorb into their cash Scott investigated this topic in his book, balances as much money as was printed and the Counterfeiting in Colonial America, 17'I and in much touted money shortgage was a mirage. numerous articles and monographs on in- This premise, that money does not matter, is dividual colonies. [721 such an important feature of modern Keynesian Many of Scott's contributions appeared in economics that it is a wonder that no one before numismatic journals, which have a special in- had applied it to the colonial experience. Un- terest in counterfeiting. Although largely ig- fortunately, even if one accepted Burstein's nored by mainstream historians, the theoretical premise, his use of limited data numismatic discussions of colonial money are made his conclusions highly tentative. excellent references. Often they are more com- Another author who questioned the whole prehensive and thorough with regard to such quantity-theory framework was Joseph Albert matters as the dates, the quantities, and the Ernst. One of Ernst's early contributions, an denominations of paper money emissions. Eric article entitled "Colonial Currency: A Modest P. Newman's The Early Paper Money of Inquiry into the Uses of the Easy Chair and the America is the standard numismatic guide, Meaning of the Colonial System of Freely superseding all previous catalogues and pro- Floating International E~change",~~']was a viding extensive bibliographical references to reply to Burstein. Ernst expanded the article in- the remainder of the numismatic literature.[731 to a chapter of his book, Money and Politics in America, 1755- 1775: A Study in the Currency Act of 1764 and the Political Economy of Revolution.[771Like Burstein, Ernst contended The writings on the political ramifications of that the quantity of money did not really matter monetary policy so far discussed - those of internationally for the determination of ex- Billias, Greene and Jellison, Sosin, and the change rates. Exchange rates were governed by others - if not directly reinforcing the changes in the balance of payments, which in managed-money school's interpretation, are at turn were determined by the sale of colonial ex- least consistent with it. Only a few recent ports, the purchase of imports by colonists, and writings have contradicted the managed-money the inflow of English capital. Unlike Burstein, orthodoxy in any fashion. The first of these, M. Ernst inconsistently maintained that the quanti- L. Burstein's "Colonial Currency and Contem- ty of money did matter domestically, and he ac- porary Monetary Theory: A Review cepted the managed-money school's position was highly technical and not based on the necessity of printing money to alleviate on a wide range of secondary material (let alone the specie shortgage. The rest of his book was a primary sources), but it did contain some discussion of the politics surrounding the Cur- thoughtful theorizing. Burstein compared rency Act of 1764 in which Ernst argued for a figures on Pennsylvania's money supply with new economic interpretation of the data on prices in Pennsylvania and England, Revolution.[781He covered much the same ter- the exchange rate, and interest rates. His con- ritory as Weir, Greene and Jellison, Gipson, clusion was that "reasonably long-run and Sosin, but in doing so he presented an ac- THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 383 count of colonial monetary practices that rangements in the Constitution, it is usually started in 1764, where Brock leaves off. treated as an addendum to the revolutionary or While Burstein and Ernst both attacked the colonial period. Some, though not all, of the quantity-theory framework used by the hard- state studies go through to 1789.[841 money and managed-money schools, their The revolutionary period is adequately policy recommendations were more congenial covered by both general and specific works, but with managed money. In Ernst's case this they all share a common interpretation. All followed from his acceptance of the domestic agree that bills of credit issued by the Continen- importance of the money supply. In Burstein's tal and state governments resulted in a serious case, since the quantity of money does not mat- hyperinflation. Some controversy exists over ter, there cobld be no serious objection to in- the Bank of North America, the character of creasing it through the printing press. Only one Robert Morris, and the necessity of bills of recent writer has disputed the managed-money credit for the war effort, but the really in- school's policy recommendations: Roger W. teresting questions in this period seem to lie Weiss, in his article, "The Issue of Paper outside the field of monetary history. Money in the American Colonies, In contrast to the two later periods, the col- 1720- 1774".1791Weiss argued that the col- onial period has both an extensive literature onies suffered from no real scarcity of specie. and rousing controversy. The main problem is Using data from Pennsylvania and Boston, he that the older works of the hard-money school attempted to demonstrate that even without the are, for the most part, theoretically superior to emission of paper money, prices would have the newer treatments by the managed-money risen rather than fallen.[801Colonial money school, but the newer treatments are historical- issues were not well managed anyway; "Their ly sounder than the older, out of date works. volume changed erratically and with a large To get a competely accurate picture of the col- amplitude." This was due to the fact that "the onial monetary experience, one must consult issues were made to meet the needs of the col- the newer works for data and the older works onial treasuries and these needs rose greatly in for theory. times of He adds that "it should be Consider some of the justifications for the clear that a monetary system, the changes in colonial monetary policies that have graced the whose issues of paper money depend on the er- writings, from Franklin to Ferguson, of the ratic fiscal needs of government, will not very managed-money school. By the far the most well serve the need for maintaining a stable pervasive is the claim that due to an un- money supply or of balancing the international favorable balance of trade, the colonies suf- movements of specie".[821By casting doubt on fered from a chronic shortage of money. The the government's ability to manage the money best rejoinder to that claim is still the one given and by denying the colonial shortage of specie, by Adam Smith: "No complaint, however, is Weiss is resurrecting the hard-money approach. more common than that of a scarcityof money. More recently, Weiss has bolstered his conclu- Money, like wine, must always be scarce with sions with a study of "The Colonial Monetary those who have neither wherewithal to buy it, Standard of Massachusetts".~831 nor credit to borrow Money is a medium of exchange. When a good is used as money, it is desired so that it can be exchanged for other goods. It is not used In appraising the state of historical research up in consumption or production. Therefore, on money in America before 1789, one glaring any stock of the monetary good, within certain deficiency is immediately obvious. There is no very wide physical limits, can perform the general overall treatment of the monetary prac- monetary function with equal facility. There is tices in the states during the confederation no optimal supply of money. Increases in the period. Despite the seeming importance of this stock of money confer no social benefit; period toward influencing the monetary ar- decreases cause no harm. A smaller stock of 384 JEFFREY ROGERS HUMMEL money simply requires that a given monetary payments that unit have greater purchasing power or, in other Another argument cites as evidence of a words, that prices be lower. shortage of money the fact that interest rates Most writers, even Sumner, White, and some were too high or that money was too "tight". of the other members of the hard-money This argument confuses a shortage of money school, have denigrated the colonial use of with the scarcity of capital. The interest rate is tobacco, wampum, and other commodities as not the price for money; rather it is the price in money. They ignore that fact that all money, the time market. All individuals discount the even gold and silver, emerges on the market future against the present, but different in- when some commodity previously only used for dividuals do so at different rates. The interest consumption or production is employed as a rate is the premium received by savers for medium of exchange because of its wide foregoing present consumption. Savings must marketability. Gold and silver are more occur for capital to accumulate, and high in- durable, portable, and divisible than other terest rates indicate that immediate consump- commodity monies, but the colonial use of their tion is more important to the economy than staples and other less satisfactory commodities capital accumulation. The high interest rates in as monies befitted their low level of economic colonial America reflected the scarcity of development. The colonial domestic economy capital. Usury laws probably converted the was just not that complex. capital scarcity into a shortage, making savings The colonial trade with England and other unavailable at the legal rate. The way to areas, in contrast, was highly developed, and alleviate the scarcity was - as happened here it is argued that the colonists' unfavorable through time - to save more balance of trade drained away their specie. Printing new money can seemingly alleviate However, regional trade balances are merely the scarcity of capital if it is injected through aggregations of individual trade balances. the loan market, as in the case of colonial land Every individual has his own balance of banks. The supply of loanable funds increases payments for any given period, during which he and the interest rate falls. However, this fall in will add to, subtract from, or leave unchanged interest is not matched by an increase in real his own cash holdings. Any net flows of money saving. No one has foregone present consump- in regional balances of payment result solely tion. Therefore, the investments induced by the from changes in the demand for money. Specie fall in interest rates are really malinvestments, and foreign coins were readily available, and all misallocating resources. This generates a that colonists had to do was to trade for them. boom -bust trade cycle. The new money enters The balance of trade was not an exogeneous the loan market, interest rates fall, and in- condition foisted by circumstances upon the vestments are induced. As the new money cir- colonists; it resulted from their own market culates throughout the economy, the new in- preferences. "The colonists evidently preferred vestments turn out to be malinvestments and to import British goods rather than invest in an they suffer losses; a depression improved domestic monetary system", point This explains the apparent prosperity that out James Shepherd and Gary Walton. "Their followed the first emission of new money, and preference was to substitute other forms of the boom -bust cycle noted by Kemmerer in media for specie, rather than to manage with New Jersey. It also exposes the fallacy in less British and European manufactured Lester's defense of managed money for preven- The lament that the colonists could ting depressions. Lester equates falling prices not pay their debts to English merchants with depression. Actually, during several because an unfavorable balance of trade had historical periods, secularly falling prices and drained off all their specie is no more valid than economic prosperity have existed simultaneous- the excuse given by an individual debtor that he ly. A depression is a cluster of business failures cannot repay the money he owes to a bank caused by the distortion of interest rates that because he had an unfavorable balance of accompanies the injection of new money in the THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 385 loan market. The prosperity of the boom phase limited. Even if there is no depreciation, the of the cycle is merely an illusion. printing of paper money always has distribu- In one sense, however, the clamor over the tion effects. It always shifts resources from pro- shortage of money in the colonies was valid. ducers to the non-producing issuers and their Colonial governments were continuously ex- privileged favorites. This makes paper money periencing such a shortage. To finance a war objectionable even when there is little deprecia- through taxes collected in the form of tobacco tion. or wampum was inconvenient and difficult. To The first gainer is the issuer of paper money, require citizens who did not ordinarily use who spends it for something he wants. Since he specie to pay taxes in that form was burden- has produced nothing in exchange for the pur- some. The connection between the colonial chased good, someone else must lose. This is wars and the issue of paper money was no coin- accomplished either through a rise in prices, to cidence, nor was the connection between over- the extent that the new money circulates, or a due tax debts and paper money in Shays' decrease in current consumption, to the extent rebellion. Paper money was often demanded that the new money is held in cash balances. In because it would make tax payments easier. In one case the new money creates a hidden tax on the case of the revolutionary bills of credit, cash holdings; in the other, a forcible loan at paper money was issued in lieu of taxes zero interest. In addition to the first issuer, altogether. those whose incomes rise before the prices they When managed-money advocates argue that pay also benefit. Those who are hurt the most paper money is less expensive than specie, they are those facing prices that go up before their are thinking in terms of macro-economic ag- incomes. Individuals on fixed incomes lose. gregates that never influence people's economic Debtors gain at the expense of creditors. Deb- actions. No one ever decides on the basis of the tors, furthermore, are not always poor, and overall cost to society to use a paper shilling quite often during the colonial period they were rather than a silver shilling. Individuals only act wealthy merchants and landowners. Merchants according to the specific array of costs and may be debtors and creditors both, and they prices facing them, and if the prices they pay may shift back and forth. If the new money is and earn are the same in both paper and silver injected through the loan market, it temporarily shillings, then it will be a matter of indifference lowers interest rates which benefits mer- to them which they use. The important chants and businessmen who wish to expand economic fact is that paper money is less expen- their operations. The price of durable goods, sive to the person or institution issuing it. like land, is very sensitive to interest rates. A Specie can only be acquired by trading fall in interest tends to raise the price of land, so something that was produced for it. Paper landowners also benefit.1g01Land speculators money can just be created and spent. Conse- who are also debtors doubly benefit. Thus, the quently, the issuing of paper money political revisionism of the managed-money redistributes wealth and income. Economically, school is the one area where their reinterpreta- it is no different from counterfeiting. tion of events has merit. The support of The hard-money school was correct in noting wealthy merchants and landowners for paper that paper money depreciates. The quantity money makes theoretical sense. theory of money holds true to the extent that A corollary of the quantity theory of money prices are always higher after the issue of new is the purchasing power parity theory, which money than they otherwise would have been. claims that the exchange rate between coex- The price level, however, might not change isting monies will tend to equate to their pur- dramatically because other factors go into its chasing power. If dollars can buy five times determination. By resting the case against paper more than shillings, then the exchange rate will money solely on depreciation, they left tend to be five shillings per dollar. This theory themselves open in those cases, like Penn- allowed the hard-money school to measure the sylvania, where the depreciation was relatively depreciation of paper money through the fall in 386 JEFFREY ROGERS HUMMEL its exchange rate with English sterling. Ernst Gresham's Law; bad money has driven out argued that the purchasing power parity theory good, or more precisely stated, money ar- is oversimplified; that exchange rates between tificially overvalued by government has driven London and America were determined by the out of circulation money artificially under- value of imports bought, and the value of ex- valued. ports sold, and the value of capital flows. The monetary history of the colonies offers Ernst's argument is a non sequitur. No pur- many demonstrations of the operation of chasing power parity theorist has ignored the Gresham's Law. Through legal tender laws the operation of supply and demand in the deter- exchange rate between different monies was fix- mination of exchange rates. These very forces ed. Usually specie was artificially undervalued. are the ones that bring about purchasing power Tobacco drove out specie, or paper money drove out specie, or light coins drove out heavy For example, if a colony should increase its coins. The colonial juggling of the unit of ac- money supply, the price of its domestic pro- count was a special kind of rate fixing. It did ducts will rise. This makes foreign goods not usually fix the exchange rate between two relatively cheaper. Imports will increase, and different monies, because the colonial shillings exports will decrease. These factors combined were allowed to float in terms of British shill- will drive up the exchange rate until the point is ings, but merely changed the denomination of reached where purchasing power parity is the existing money. Suddenly, a coin that was restored. If the exchange rate is not at parity, if previously worth five shillings was now worth for instance the dollar will buy only five times six shillings. This encouraged the importation more than a shilling, but the exchange rate is six of coins, gave a boost to exports, and shillings per dollar, then individuals can profit discouraged imports. The effect was tem- by trading dollars for shillings and buying pro- porary, however as prices would immediately ducts. This lowers the shilling demand for rise in terms of the new unit of account so that dollars and products that can be bought with the same coin would purchase the same quanti- dollars and raises the dollar demand for shill- ty of goods as before. ings and products that can be bought with shill- In short, the hard-money school was basical- ings. This will drive down the exchange rate ly correct. The colonial -and revolutionary - toward five shillings per dollar.[821 monetary experience was a continuous stream The purchasing power parity theory holds of government failures. There was no shortage whether the monies coexist in the same of money. That complaint provided the excuse geographical area or are employed mainly in for governments and special interests to different areas. Government fixing of the ex- plunder the economy through the printing of change rate is totally unnecessary. When the paper money. In the New England colonies, the government does fix the exchange rate, it never depreciation was so severe that the monetary fixes it at the market parity rate. As a conse- system was nearly wrecked, as it finally was quence, one of the monies is overvalued while throughout America during the Revolution. the other is undervalued. In the example above, Even though depreciation was more mild in the if the government fixed the rate at six shillings middle colonies, the printing of money still had per dollar, shillings are artificially undervalued distribution effects. In all the colonies, the and dollars are artificially overvalued. In- monetary policies were erratic and subservient dividuals will increase their demand for shill- to the fiscal appetite of governments. When ings and decrease their demand for dollars. Any bills of credit were emitted through land banks, price denominated at the fixed rate of six shill- they had the further undesirable effect of ings to the dollar when the market rate is five distorting interest rates. Paper money did not shillings to the dollar will be paid in dollars. generate prosperity, it generated the Since the exchange rate cannot adjust, a surplus boom -bust trade cycle. At the same time, legal of dollars and a shortage of shillings will tender laws drove specie out of circulation. On emerge. This result is a classic illustration of the whole, it was an abysmal record. THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 387 NOTES service, thought it fit to reward me by employing me in printing the money; a very profitable jobb and a great 1. The seminal work on Austrian monetary theory is Lud- help to me. wig von Mises, The Theory of Money and Credit, new 7. (1833; reprint ed., New York, 1968). The full title was enl. ed., (1953; reprint ed., New York, 1971). See also A Short History of Paper Money and Banking in the the appropriate sections of Mises, Human Action, 3rd United States, Including an Account of Provincial and rev. ed., (Chicago, 1%6), and Murray Rothbard, Man, Continental Paper Money. To Whichis Prefixed an In- Economy, and State, 2 v., (Princeton, 1962). quiry into the Principles of the System, with Con- Rothbard's What has Government Done to Our siderations of its Effects on Morals and Happiness. Money?, (Santa Ana, 1964), is a good, brief introduc- The Whole Intended as a Plain Exposition of the Way tion to Austrian monetary theory. Rothbard has ap- in which Paper Money and Money Corporations,Af- plied Austrian theory to the colonial experience in the fect the Interests of Different Portions of the Com- second volume of his history of the American Revolu- munity. The reprint edition includes an introductory tion, Conceivedin Liberty I1 (New Rochelle, 1975), pp. essay by Joseph Dorfman. 123- 140. Rothbard provides one of the best short 8. (Boston, 1839). surveys of colonial monetary policies, and I have relied 9. "A Historical Account of Connecticut Currency, Con- on it heavily in this paper. tinental Money, and the Finances of Revolution," New 2. In Maryland in 1733, bills of credit, in addition to be- Haven Colony Historical Society, Papers, 1 (1865), ing used to finance government expenditures, were pp. 1 - 192. passed out to all the inhabitants as compensation for 10. With a Description of the Bills, and Catalogue of the the tobacco destroyed in Maryland's price-support pro- Various Issues, (1866; reprint ed., New York, 1969). gram. Economists are fond of abstracting from the 11. (1865, 1866; reprint ed., New York, 1972). distribution effects of increases in the money supply by 12. "A Brief Account of the Emissions of Paper Money considering the case where a helicopter flies over and Made by the Colony of Rhode Island" (Providence, evenly distributes the new money among the people. 1837). Potter's pamphlet was also reprinted later by This is the only case, as far as I know, where the Sidney S. Rider under the title "Some Account of Bills helicopter effect has actually been approximated in of Credit or Paper Money of Rhode Island from the practice. First Issues in 1710 to the Final Issue in 1786", Rhode 3. Sometimes private land bank proposals envisioned Island Historical Tracts, no. 8, (1880). loans on personal property as well as land. Usually 13. (1874; reprint ed., New York, 1968). there was no provision for any specie reserve fund to 14. 3 v. All references are to the 4th ed., (1884; reprinted., redeem notes, but a private specie bank did operate New York, 1896). briefly also in Massachusetts. 15. Ibid., I, p. 29. 4. Virginia unsuccessfully tried to mint copper coins. 16. (1891; reprinted., New York, 1968). SeealsoSumner's Maryland's attempt to establish a mint proved unsuc- A History of Banking in the United States, (New York, cessful. A numismatic history of these early mints is 1896). Sylvester S. Crosby, The Early Coins of America and 17. Ibid., I, p. 60. the Laws Governing Their Issue (1875; reprint ed., 18. University of Wisconsin, Bulletin: Economic, Political New York, 1970). Science, and History Series, 1, no. 2, (Madison, 1895). 5. Andrew McFarland Davis, ed., Colonial Currency 19. (Philadelphia, 1882). Reprints, 1682 - 1751, 111, (1911; reprint ed., New 20. Columbia University, Studies in History, Economics York, 1964), pp. 309, 326. Davis' four volume work is and Public Law, 2nd ed., 1, no. 44, (New York, 1897). a compilation of most of the pamphlet literature on The first edition was published in 1892. colonial money with an excellent introductory essay. 21. Columbia College, Studies in History, Economics and Douglass' pamphlet was also reprinted in American Public Law, 4, no. 1, (New York, 1893). Economic Association, Economic Studies, 2 (1897), 22. American Academy of Political and Social Science, no. 5, with a biographical essay by Charles J. Bullock. Annals, 8 (July, 1896), pp. 50- 126. Joseph Dorfman, The Economic Mind in American 23. Ibid., p 74. Civilization, 1606- 1865, also covers the monetary 24. American Academy of Political and Social Science, debate, although he does not do justice to Douglass. Annals, 12 (Sep, 1898). pp. 229 -249. See also Harry E. Miller, Banking Theories in the 25. Ibid., p. 245. United States before 1860, (Cambridge, 1927). 26. (New York, 1900). 6. Davis, Colonial Currency Reprints, 11, p. 336. 27. American Economic Association, Publications, 3rd Franklin's pamphlet can also be found in Jared Sparks, ser., 1, no. 4; 2, no. 2, (New York, 1900, 1901). ed., The Works of Benjamin Franklin, 11, (Boston, 28. op. cit. 1836), pp. 254-277. Franklin's advocacy of paper 29. 5th ed., (Boston, 1911). The first edition of this work money was not without ulterior motives. As he so char- was published in 1896. White also wrote "New York's mingly put it in his Autobiography, (reprint ed., New Colonial Currency", Sound Currency,5 (1 Mar, 1898), York, 1940), p. 82: pp. 50 - 64. It [the pamphlet] was well receiv'd by the common 30. Ibid., pp. 86 - 87. people in general; but the rich men dislik'd it, for it in- 31. Rev. and enl. ed., (1924; reprint ed., New York, 1967). creas'd and strenethen'd- the clamor for more money, The first edition, History of the Coinage and Currency and they happening to have no writers among them in the United States and the Perennial Contest for that were able to answer it, their opposition slaken'd, Sound Money, (1903; reprint ed., New York, 1968), and the point was carried by a majority in the House. omitted mention of colonial and revolutionary My friends there, who conceiv'd I had been of some monetary policies, 388 JEFFREY ROGERS HUMMEL

32. 12th ed., (1934; reprinted., New York, 1%2). The first 58. New Jersey Historical Society. Prweedings, 74 (April. edition came out in 1903. 1956), PP. 107- 144. 33. Johns Hopkins U~versitj,Studies in Historical and 59. Ibid., p. 144. Political Science, 33, no. I, (Baltimore. 1915). M). New Jersey History, 85 (Spring, 1%7), pp. 47-57. 34. Johns Hopkins University, Studies in Historical and 61. South Carolina Historical Magazine, 62 (July, 1%1), Political Science. 41, no. 1. (Baltimore. 1923). pp. 134- 148. This article was based on JeUison'sdisxr- 35. Could, Money and Transportation in Maryland, p. 11. tation, "Paper Currency in Colonial South Carolina, 36. Behrens, Paper Money in Maryland, p. 58. 1703- l764", (unpublished Ph.D. dissertation, In- 37. (Wilmington. 1928). The word "finances" in the titleis diana University, 1952), which I have not seen. misleading. This short book deals exclusively with 62. Ibid., p. 134. Delaware's paper money from 1723 through the 63. Another state study that would not be wo~hmention- Revolution. . ing except for the fact that it is the only treatment of 38. Georgia Historical Quarterly, 19 (June, 1935), North Carolina outside of Bullock's is Mattie Erma pp. 145 - 160. Parker's very short pamphlet (I4 p.), Money Problem 39. University of Wisconsin. Studies in the Social Sciences of Early Tar Heek (Raleigh, N.C., 1942). Unpublished and History, no. 20, (Madison, 1934). Much of the state studies that I have not examined are PatonYoder, contents of this book had already appeared in previous "Paper Currency in Colonial Pennsylvania", (un- journal articles. Nettels included within his compass published Ph.D. dissertation, India University, the British sugar islands. 1941); Blanchard Macl~es,"Rhode Island Bills of 40. Ibid., p. 8. Credit, 1710- 1755", 2". (unpublished Ph.D. dissena- hl. (princeton, 1939). The bulk of Lester's work on tion. Brown University, 1952). and DonaldB. Scheick, America was contained in two previous articles, "Cur- "The Regulation of Commodity Currency in Colonial rency Issues to Overcome Depressions in Pennsylvania, Virginia", (unpublished Ph.D. dissertation, Indiana 1732 and 1729", Journal of Political Economy, 46 University, 1954). (June, 1938), pp. 3%-375, and "Currency Issues to 64. Dorfman. TheEconomic Mind, p. 142. Overcome Depressions in Delaware, New Jersey. New 65. University of Maine, Studies, 2nd xr., no. 74(0rorio, York, and Maryland, 1715- 1737". Journal 01 1959). Poliricnl Economy, 47, (April, 1939). pp. 182-217. 66. "Paper Money in Colonial Massachusetts", Essex In- 42. Ibid., p. 7. stitute, Hisrorical Collections, 101 (April, 1%5), 43. Ibid., p. ix. pp. 149- 163, and "Currency Reform in Colonial 44. (Ph.D. dissertation. University of Michigan, 1941). Massachusetts, 1749 - 1750", Essex Institute Brock's disseaation has ken published by Arno Press Historical Collectionr. I03 (Jan, 1%7), pp. 66-84. (New York, 1971). 67. North Carolina Historical Review, 40 (Spring, 1953), 45. Gouge, A Short History of Paper Money, pt. 2, pp. pp. 183-199. P-0 "-7. 68. William and Mary Quortedy, 3rd ser., 18 (October, 46. American Hislorical Review. 35 (October. 1929). 1961). pp. 485-518. pp. 46-68. 69. Virginia Magazine of History and Biography, 69 (July, 47. New Englond Quarterly, 7 (March. l934), pp. 43 -69. 1961). oo. 259-277. Gioson armed further that the 48. Industrial Research Department, Wharton School of desire &evade their debis was bwerful motivation Finance and Commerce, Research Studies, no. 35, among Virginia planters propelling them toward revo- (Philadelphia, 1951). A much earlier study that gave lution. Emory G. Evans, "Planter Indebtedness and some prices for the same period was Arthur Harrison the Coming of the Revolution in Virginia", William Cole, Wholesale Commodify Prices in the United andMary Quarterly, 3rd ser., 19 (October, 19$2), pp. States, 1700-1861 (Cambridge, 1938). Before the 511 -535, disputes that thesis, but nothing he says publication of her book, Bezanson wrote an article, detracts from Gipson's account of the genesis of the "Inflation and Controls, Pennsylvania, 1774- 1779", Currencv Act. On the issue of olanter indebtedness. see Journalof EconomicHistory. 8 (sup. 1948). pp. 1 -20, also James F. Shepherd and 'Gary M. Walton, ship that is the only piece that I have seen that even begins ping, Maritime Trade, and the EconomicDevelopment to consider the distribution effects of the Revolu- of Colonial North America (Cambridpe, 1972), pp. ,,,-,<< tionary hyperinflation. .<. Add. 49. Industrial Research Department, Wharton School of 70. Pennsylvania Magazine of History and Biography, 88 Finance and Commerce, Rexarch Studies, no. 26, (April, l%4), pp. 174- 198. (Philadelphia, 1935). 71. (New York, 1957). 50. Essex Institute, Historical Collections, I03 (April, 72. "Counterfeiting in Colonial New York", in 1967). pp. 144- 185. Numismatic Notes and Monographs, no. 127, (New 51. (Chapel, Hill, N.C., 1978). McCusker also includes York. 1953); "Counterfeiting in Colonial Virginia", series between London and other European centers of Virginia Magazine of History and Biography, 61 trade. (January, 1953). pp. 3 -33; "Counterfduhg in Colonial 52. Journol of Economic History. 13 (Spring, 1953). Pennsylvania", in Numismatic Notes and PP. 145- 155. Monographs, no. 132, (New York. 1955); 53. Ibid., p. 145. "Counterfeiting in Colonial Maryland", Maryland 54. William andMary Quarterly, 3rd ser., IO(Apri1, 1953), Historicol Magazine, 51 (June. 1956). pp. 81 -100, DO. 153- 180. "Counterfeiting in Colonial New Jersey", New Jersey 55. bid., p. 157. Historical Society, Proceedings, 75 (July, 1957). 56. (Chapel Hill, N.C.. 1%1). pp. 170- 179: "The Gmt Epidemic of Coining in the Jer- 57. (Princeton, 1957). sia", New Jersey Historical Society. Proceedings, 75 THE MONETARY HISTORY OF AMERICA TO 1789: A HISTORIOGRAPHICAL ESSAY 389

(April. 1957), 112- 127; "Earliest Counterfeiting in 83. Economic Hisrory Review, 2nd ser., 27 (November. New Jersey", New Jersey Historical Society, Pro- 1974). pp. 577 -592 =&in@, 75 (January, 1953, pp. 18-34; "Counterfeiting 84. Specifically: Felt, An Hisrorical Accounl of in Colonial North Carolina", Norlh Corolina Hisrorical Massachusetts Currency; Hickcox, A Hislory of the Review, 34 (October, 1957). pp. 467-482; Bill. of Credit or Paper Money Issued by New York; "Counterfeiting in Colonial Connecticut", in Phillips, Historical Skelches of Paper Currency; Numismatic Notes and Monographs, no. 140, (New McLeod, "The History of Fiat Money and Currency York, 1957); Counterfeiting in Colonial Rhode Island, Inflation in New England"; Bullock, Emys on the (Providence, 1960). An earlier work by a different Monetary Hislory of rhe United Slates; and Behrens. author is Harold Gillingham, "Counterfeiting in Col- Paper Money in Maryland. Of course, general state onial Pennsylvania", in Nurnismalic Noles and histories will also contain material, but I have not Monograph, no. 86, (New York, 1939). surveyed them for this paper. 73. (Racine, 1%7). See also Eric P. Newman and Richard 85. The Wealrh ofNalions, (1776; reprinted., New York, G. Doty, eds., Studies on Money in Early America 1937), p. 407. 86. EconomicDevelopment ofColonialNorlh America, p. (New York.. 1976).~. 74. Explorations in Entrepreneurial History, 3 (Spring- 166. Shepherd and Walton find that the colonial balance of trade was not even all that unfavorable and Summer, 1%6). PP. 220-233. . .~ that most of the capital within the colonies at the time 75. Ibid., p. 221. of the Revolution had been accumulated through 76. Exoloraliom in Enlreoreneurial Hislory, 2nd ser., 6 domestic saving rather than borrowed from abroad. (winter, 1%9). Ernst was primarily upsit at Burstein's Furthermore, the deficits were higher in New England shoddy research. However, it is not at all clear that than in the South. The literature on the colonial Ernst really understood that he and Burstein reached balance of payments begins with Nettels, The Money essentially the same conclusion. In general, Ernst is a Supply of the American Colonies. Also of interest is contentious writer, disparaging of all previous con- Sheridan, "The British Credit Crisis of 1772". tributions to the field. Furthermore, his theoretical 87. Weiss, "The Issue of Paper Money", pp. 774-775, forays are at least as shoddy, in their own way, as Burs- makes almost the same point. tein's research. For a brief theoretical critiqueof Ernst, 88. Burstein, "Colonial Currency", p. 222, points out the see the review of his book by Gary M. Walton, confusion between shortages in the "stock of transac- Business History Review, 48 (Summer, 1974), tions balances" of money and high interest rates. He pp. 245 -246. also mentions the deleterious effects of usurv laws. 77. (Chapel Hill. 1973). Other previous articles by Ernst 1hey dtraurage Cap~taldccumulat~cm through bdrrou that were incojporated into his book were "Genesis of ~mg,rn.ourage form, of burmes organ17at~onthat In- the Currency Act of 1764: Virginia Paper Maney and the ternalize profits, and, most importantly, encourage Protection of British Investments". William andMary banks and other financial intermediaries to over-issue Qmrterly, 3rd Ser., 22 (January, 1%5), pp. 33-74: "The their liabilities. Sumner, A History of American Cur- Currency Act Repeal Movement: A Study of Imperial rency, p. 125, makes noteof this last impact. Despite the Politics and Revolutionary Crisis, 1764- 1767", importance of usury I& under pre-industrial condi- William andMary Quarlerly, 3rd ser.. 25 (April, I%$), tions when market rates of interest were high, very few pp. 117- 21 1; "The Robinson Scandal Redivivus - economic historians have considered them. Money, Debts, and Politics in Revolutionary 89. This, greatly simplified, is the Austrian business cycle Virginia", Virginio Magazine of Hislory and theory, first developed by Mires. It is discussed in the Biography, 77 (April. 1%9), PP. 146 - 173. works noted in note 1 above. Friedrich A. von Hayek 78. Ernst's political thesis relies heavily on Richard refined the theory in Monelary Theory and the Trade Sheridan, "The British Credit Crisis of 1772 and the Cycle (New York, 1933); Prices and Produdion, 2nd American Colonies", Journal ofEconomic Hislory, 20 ed. (London, 1935); and The Pure Theory ofCapiIa1, (June, 1960), pp. 161 - 168. (Chicago, 1941). 79. Journal of Economic Hkfory, 30 (December, 1970). 90. The price of a durable good is the discounted value of pp. 770-784. its expected future returns. For instance, given a 80. This directly contradicts Lester, Monelary Ex- machine that lasts two years and earns $10 per year, if periments, p. 106. Amazingly, both Lester and Weiss the interest rate is 5 per cent per year, the machine will use the same price series for Pennslyvania (those in sell for $10 + $9.52. ($9.52 invested at 5 per cent will Beranson, Gray, and Hussey, Prices in ColoniolPenn- yield $10 in a year, so the value of $10 one year from sylvonio), and both calculate what prices would have now is 69.52.) This total is what economists call been by the same method (divide the commodity price capitalized value. For a permanently durable good, like index by the exchange rate index for the same year and land, the formula for calculating capitalized value multiply by IW). Their differences arise because they works out to P=A/i, where Pis the present capitalized are considering different time periods. Lester's value (price) of the land, A is its future annual rents, hypothetical price level is drawn only for 1720 through assuming that they are expected to remain constant 1745, even though his graph gws up to 1774. If he had through time, and i is the annual rate of interest. You continued his hypothetical price level to the end of the can see that if the rate of interest falls by one half, the graph, he would have reached the same conclusion as price of land will double! Weiss. Weiss admits that between 1720 and 1739 prices 91. Walton makes this criticism in his review of Ernst's would have fallen by 20 per cent, but for the period book, op. cir. 1720 to 1774, they would have gone up 24 per cent. 92. 1 have simplified the analysis by ignoring capital flows. 81. Weiss, "The Issue of Paper Money", pp. 782-783. Their inclusion makes the analysis more compiex but 82. Ibid., p. 775. does not materially alter the basic conclusion. We know something about you. You have a serious interest in the scholarship of liberty.

The fact that you're reading this As a "Friend of rhe Center," you'll Joumol means you're strongly concerned ( Bemea "Friend of the reccive: with libertarian idrar. I Center" and A one-year subscription to rheJouml It also mcam that you should become of Libertonin Studies. a Friend of the Center for Libertarian receive the A one-year subscription to the Center Studia, That wav, you'll automatically Iournal of meiw the Jouml, as well as many other for Libertarian StudiesNewsletter. All of the center's Occasional Papen. Center benefits (described below). Studies as one What's the Center for Libertarian Invitations to exclusive receptions and Studies all about? of many benefits. ' seminars featuring prominent liber- You might call it a libertarian "chink tarian speakers. tank.'' Premised on the belief that idem Substanrial discounts on publications, ore the key to rocinl chonge, the Center confrrmca, counes, and lectures. What's in it for you? has establkhd itself as the nation's major A handsome card identifrinevou, -, as a source of libertarian scholarship. Frankly, we think you should join and "Fricnd of the Center for Libertarian The Center assism deserving young support the Cenm for Libertarian SN& Studies." rholars, generats an interchange among because it's one of the best way for you To cop it all off. your contribution is the various disciplines concerned with to help create a truly free society. fox-deductible. human liberty, considen alrlrnarive But we realize that it will take a while rtrateees of social change, and serva as to achieve that goal. So in the meantime, So, all thing, comidered, yodvc got a a vital link between Academia and the we'd like to offer you some more im- number of very selfish reasons torupport "real world." mediate and tangible rewards in return the Center for Libertarian Studies-not To achieve a libertarian society, we for making a contribution to the Cenrer. least of which is rhe pamibiliv of achie\ing must create a climate to encourage the We've created a special package of Freedom in Our Time. basic theory and research that will makc benefits for our supporters, whom we Join us in the battle of ideas for liberty it pmiblc. In the long run, no task is call "Friends of the Cenrer far Libcr- Clip rhc coupon, and write a check. more important for the advance of liberty rarian Studies." today. The creation of such a climate is pre~ r------cisely the purpose of rhc Cenrcr for Lib------I ertarian Studia. I Become a Friend of the I Thecenter has the support of some of I the world's best-known Libertarians. The Center for Libertarian Studies I roster of CLS advisors and directors qfi!lI 200 Park ,.bmue kwlh. Suilc 911. SLW 10.11. Y.S. 10003 includes such distinguished names as I I Nobel Prize~winnerFriedrich A. Hayek, I You're right-I am committed to libertarian ideas1 Sign me up as a "Friend of the I Robert A. Nirbet. Murray N. Rothbard. I Cenrer." I understand (hat my contribution entitles me to receive the full package 1 Roben Nozick, Mrs. Ludwig von Miss I of benefits described above.' 1 Felu Morlq, Heruy Hdrt. Yale Brazen, and Arthur A. Ekirch. The Center's program I 0 I want ro know more abotir the Cenrer. Send me a copy of your 1 I official prospectus. (Enclosed is $1 ra cover postage and handling.) I The Program of the Center for Liber- I 4/ tarian Srudia includes the Journal Name I fibertortin Studies you're now reading. I TheJoumol, published by arrangement I Address I with Pergamon Presl, is a forum for the I besr in libertarian scholarship. I city Stare Zip I Also included among the Center's ac- L------J &itis is the annual Libenaria" Scholars for any donation you can make. However, in order to qualify as a "Friend Conference, a Rerearch Fellows Pmgram, .we'rc of the center" and rcccive the package of bcncfirr hrcd above. your contribution must a seria of Occasional Papers, the Cenrer be $100 or mom. Nmletto; and the Educational Pro@[.