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The Depreciation of Paper Money

From Diary of the American Revolution, Vol II.  Compiled by Frank Moore and published in 1859.

May 1.—When rebel writers write, and rebel printers print, all good rebels must believe. Walsingham’s inquiry into the causes of the depreciation of the paper money of the United States, is an honest display, to say the least, and will effect a change in the sentiments of those who have been the real supporters of the Congress measures.1 That writer says:—”The Continental money was issued in 1775, at a time when America was without trade, without allies, and above all, without any system of government. At no period of the present revolution were the malice and arts of dissaffection employed with more industry to prevent the circulation of this money, than for the first year after its emission; and yet, under all these complicated disadvantages, it passed near a twelvemonth upon a par with gold and silver; nor did it suffer the least depreciation, until it felt the operation of that cause which would have depreciated the gold of Ophir; I mean an excess in its quantity. Here, then, we have fixed the first cause of the depreciation of the paper money of the United States. This cause affected its value only, but had no effect upon its credit. The lower it depreciated, until it fell to four to one, the more extensively and freely it circulated, insomuch that many of the most acknowledged Tories sold gold for it at the above exchange, and put it into the funds, or locked it up in their chests.

“The second cause which produced a depreciation in our money, must be sought for in those acts of government which affected its credit. These were:

“1. The resolve of Congress for calling the emissions of May 1777 and 1778 out of circulation. This was the first shock the money received. Hundreds suffered by it, and although its quantity was diminished by it, yet it fell in a few weeks from four to ten, and in a few months to twenty to one.

“2. The laws for making the Continental money a legal tender for old debts. This made it the interest of every man who had debts or even taxes to pay, to depreciate the money. It moreover, excited the disgust and opposition of everybody who had been injured by it.

“3. Laws for regulating the prices of goods. These, from the instability of the paper currency, were unjust and incapable of execution, and hence specie or barter were introduced in many places in the room of paper money. This affected the money in two ways. By diminishing the number of people among whom it circulated, it sunk its value, and the authority of the laws which compelled its circulation at a given rate, for articles at all times fluctuating in their prices, necessarily struck at its credit.

“4. The embargo upon provisions. This depreciated the money in two ways: First, it lessened the objects of money, particularly among the farmers; and secondly, it obliged our merchants to purchase specie often at a high exchange to send abroad, which exchange afterwards stamped a similar value upon every article of life.

“5. The resolve of the eighteenth of March, 1780, for redeeming the money at forty for one. This resolve, from being compared with the tenor of every bill, and above all, from being compared with the circular letter which preceded it only a few months, destroyed all faith in the promises and declarations of government. I should as soon think of trusting a man with a cargo of goods who had ruined my family by bankruptcy, as think of giving a credit to a new emission of money, from a body of men who had acted so contrary to every principle of sound policy.

“6. The neglect of Congress to pay the interest of the moneys borrowed since March, This, like number five, helped to destroy the confidence of the public in the promises of Congress.

“7. The payment of public debts in depreciated, money. This, like numbers five and six, has destroyed the faith of individuals in our governments. The scale of depreciation lately adopted by the State of Pennsylvania, for the settlement of old debts, is both impolitic and unjust. The first payment of the money due, for depreciation, to the officers and soldiers of the Pennsylvania line, is obviously calculated to promote resignations and mutiny.

“8. The laws for investing executive bodies with a, power to alter the exchange of money. The edict of the council of Pennsylvania, of the second of May, was the death-blow of paper currency of all kinds. As Mark Antony says of the wound inflicted by Brutus upon the body of Caesar, ‘ it was the most unkindly stab of all.’

“Thus have I enumerated the principal causes and circumstances which have reduced and nearly ruined the paper money of the United States. I think it is evident, from what has been said, that the arts of the Tories, sharpers, speculators, and money-changers, so often mentioned by weak politicians, have had no more to do in depreciating it than the patriotism of the Whigs, or the exertions of officers of government have been effectual in raising its value or restoring its credit. It is high time to seek for the causes of our misfortunes, in other sources than the disaffection of a few tame animals, who are peaceably submitting to our governments, and contributing their share of industry in agriculture, arts, and commerce, towards establishing our independence. This country groans at present only beneath the folly of weak, ambitious, and interested Whigs, from whom we have more to fear than all the Tories on the continent, or even from the power of Britain.

“It becomes rulers to learn, from the catastrophe of our continental currency, that money is upon a footing with commerce and religion. They all three refuse to be the subjects of law. It becomes the rulers of freemen to learn further, that money is property, and that the least attempt to lessen its value in our pockets or chests, is taxing us without our consent. It is the highest act of tyranny. We have tried every art and device to keep up the credit of paper money, except one. We have never yet tried the effects of being honest.

“I shall conclude by proposing two plans for the emission of paper money, which no arts of Tories or Whigs will be able to depreciate:

“1. Institute a bank where specie may be lodged in safety; let bills be issued, signed by the Financier-General, subject to be exchanged at the pleasure of the holder, for specie at this bank. One million of Spanish dollars, under the management of a gentleman of established credit and ample fortune, would serve as a fund for ten millions of paper dollars. Or,

“2. Let our government emit money, and let a tax be imposed at the same time to the exact amounts of the emission to be paid in three, six, nine, or twelve months in specie, or the said bills only. This will necessarily bring the paper money into universal circulation, and preserve its equality to gold and silver.

“It has been said, that the war may be carried on by taxes and loans in specie. Perhaps this may be necessary until we forget the frauds and deceptions of our paper currency. It is certain there is more specie in the country than there was ten years ago. But while contracts for specie may be cancelled with paper, (but little more valuable than oak leaves,) it will be difficult to draw it from the coffers of those who hold it in the largest quantity.

“The Americans deserve the highest praise for the fortitude with which they have borne the sacking of their towns, and the desolation of their country, from the hands of the British army. But let Europe and posterity admire them chiefly for the patience with which they have borne the more complicated evils and losses of tender laws, regulations of trade and exchange, and a depreciating paper currency. In spite of them all, I hope my countrymen will part with their republican forms of government and their independence only with their lives.”2


1 MS. letter from Edward Bagot, May 20.— Winslow.
2 Pennsylvania Journal, May 16.