Not worth Continental – AIER – News Couple

Not worth Continental – AIER

The phrase “not worth a continental dollar,” which means “not worth a continental dollar,” appeared in the lexicon during the Revolutionary War, when the resort to paper money sent prices soaring, wrecked the economy, and nearly cost the war.

In 1775, practically at the beginning of hostilities, the Continental Congress authorized the issuance of two million dollars in paper money. By the end of 1776, $25 million was in circulation, already at a discount of 30 percent compared to silver. By the end of 1777, $38 million was in circulation, a 70 percent discount compared to silver. By the end of 1779, $192 million was in circulation, and one dollar of paper money was worth only 1 or 2 silver. States were issuing their own paper money, which contributes to inflation.

Figure 1. Three-dollar banknote issued by the Continental Congress prior to the Declaration of Independence. (Note the inscription “United Colonies”)

Reproduced from the original held by the private department

Hesburgh Libraries Collections at Notre Dame.

Figure 2. Three-dollar bill issued by the Continental Congress after the Declaration of Independence. (note the inscription “United States”)

Reproduced from the original held by the private department

Hesburgh Libraries Collections at Notre Dame.

Figure 3. Three shilling “sword in hand” note issued by Massachusetts prior to the Declaration of Independence. (note that the patriot holds a magna carta)

Reproduced from the original held by the private department

Hesburgh Libraries Collections at Notre Dame.

Figure 4. Forty-eight “sword in hand” shillings issued by Massachusetts after the Declaration of Independence. (note that the patriot holds the ad)

Reproduced from the original kept by the private department

Hesburgh Libraries Collections at Notre Dame.

With so much paper money, prices rose dramatically, and coins were hoarded. At one point, George Washington, commander of the Continental Army, noticed that a cartload of money wouldn’t buy a cartload of provisions. Tavern owners, merchants, and farmers were refusing to do business in terms of money. In October 1779, the Continental Congress requested not money from the states, but actual supplies—such as corn, wheat, hay, and oats—in order to support armies in the field.

In Massachusetts and other states, attempts were made to set maximum prices and force supply, with severe penalties for “frustration”, “monopoly”, “oppression”, “extortion” and the like. In January 1777, Massachusetts passed a law covering the prices of 50 commodities, such as “a good Indian meal or corn” 4 shillings a bushel, and “grass-fortified good beef,” 3 pence a pound. But the law did not last long, and in May 1777 another was passed, which also did not last long. Eight conferences were held between New England states to coordinate price control, all of which failed.

Soldiers and their families were among those affected by the rapid rise in prices. The first attempt to improve their condition was a law requiring them to be sold at legal prices, which was fake. In 1779, soldiers of four battalions in Massachusetts petitioned the state for relief, complaining that they were losing seven-eighths of their salaries to depreciation. The state responded with a similar useless law to sell them at legal prices, and a declaration that the state would pay their wages at the end of the war.

Many of these soldiers joined for three-year terms by resolutions of the Continental Congress and Resolutions of the State of Massachusetts in late 1776, so their terms of service were about to expire. The British controlled the south and parts of the north, and the alliance with France yielded no material support. The Continental Congress and the state legislature were deeply concerned about the military.

In early 1780, Massachusetts passed a bill to pay its soldiers according to the average price of four items: beef, corn, wool, and leather. This was probably the second case of the price index clause in world history (after Massachusetts invented the price index clause to deal with inflation during King George’s War); And for the first time, the price index condition has actually been applied. This price index has not only been used to adjust soldiers’ wages, but has been used in at least a few other cases to adjust other amounts of cash so that it reflects the value of paper money.

Financially, and even more so in military terms, 1780 was the most important year of the war. In May, King George III said that America’s financial distress would force revolutionaries to sue for peace. He was not alone in this opinion. At about the same time, Washington wrote, “We seem to be on the verge of extinction so rapidly that I am filled with sensations that I had been so alien to until these three months.” Alexander Hamilton said that France should be told that without a loan, America would have to reconcile with Great Britain. A French envoy secretly offered the British an armistice that included holding New York, Georgia, and the Carolinas, but this was refused.

The Continental Congress sent envoys to France to beg for help, with military forces, with supplies, and silver. The French government, bearing a heavy burden of war expenditures, provided money to purchase much-needed supplies in Europe, to pay interest on American debts placed with European creditors, and a relatively small but significant amount of silver to carry to the colonies. .

Accordingly, under the direction of its new treasurer, Robert Morris, the Continental Congress essentially disavowed its paper money. The amount owed was to be recovered by paying taxes to the states, and exchanged at the rate of $40 in paper money to one dollar in silver. Through this medium, $120 million in paper money was withdrawn. Another $6 million was exchanged for bonds, at a rate of 1 dollar of paper money to 1 of silver, and the balance was assumed to be lost, destroyed, or kept as souvenirs.

State-issued paper money, totaling about $250 million, was handled on a state-by-state basis. In the worst cases, Georgia and Virginia, were accepted to pay taxes at the rate of $1,000 of paper money for one dollar of silver. (In these two states and North Carolina, the continental dollar continued to circulate for about a year after collapsing elsewhere, during which time these states experienced a steady decline in their currency.) New York was more representative, accepting its own paper money for payment. Taxes at a rate of $128 in banknotes for one silver dollar. In Pennsylvania, the state accepted its paper money at the rate of $175 per dollar.

Almost immediately, monetary reform revived trade, both domestic and foreign. Silver flowed where previously it was not available, and came out of hoards, as well as from the expenses of both the British and French armies. New paper money, for example, issued by the (private) North American Bank was exchanged for equal silver. A French army joined our army, and its commander, General Rochambeau, placed himself and his force under Washington’s authority. Together they installed the British Army under General Cornwallis against the sea at Yorktown, Virginia, and won the battle that turned the world upside down.

In hindsight, it is difficult to understand how the patriots seriously erred in issuing paper money during the revolution. At least a certain amount of them were aware that only a limited amount of paper money could be issued before an inflationary vortex was triggered. Pelatiah Webster, a particularly intelligent observer of monetary affairs at the time, estimated that in 1776 the total “demand for money” in the states was about $30 million, of which about $12 million was “provided” by a certain kind and the rest of various forms. of colonial paper money. Thus, a limited amount of continental dollars could be issued, displacing the currency in circulation and possibly also the colonial paper money in circulation at the time, before consumption began. And after the war, money issued in this way could be withdrawn from circulation through taxes and destroyed. Thomas Jefferson and Alexander Hamilton, among others, thought similarly. Jefferson, an avid observer, watched the amount owed from the Continental dollar, and its depreciation. See Chart 1. His numbers compare well with those of a Philadelphia broker. See chart 2.

According to Jefferson, “the quantity which they were compelled to release, for purposes of war, exceeded the usual quantity of the medium of circulation. And consequently, it began to become cheaper (or, as we have said, consumed), as gold and silver would, had they been put up for circulation in quantities Equal. But without an intrinsic value, like them, its devaluation was faster and greater…”

Nowadays, our money is not backed by anything other than green ink and the phrase “in God we trust.”

Clifford V

Clifford V

Clifford F. Theiss Professor of Economics and Finance at Shenandoah University, is the author, co-author, contributor, and editor of more than one hundred books, encyclopedia entries, and articles in scholarly journals.

He is a member of the editorial board of the Journal of Private Enterprise and is a former Bradley resident scholar at the Heritage Foundation. He is a past chair of the faculty boards at Shenandoah University and the University of Baltimore. He also served in the US Army and Army Reserve.

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