1775 (20 page)

As British North America grew during the first four decades of the eighteenth century, the separate money supplies of the various colonies were subject to the oversight of the government’s Board of Trade. No specie—silver or gold coins—could be exported to the colonies from Britain, and minting privileges were also denied. Massachusetts initiated paper money, but London’s concurrence was assured only when colonies were raising money for local military purposes that the Crown favored (and did not want to fund itself).

Still, with hard money scarce and most commodities unsuitable for a monetary purpose, paper currency became the principal answer. Military
needs were the best justification for issuance. In one scholar’s words, “the colonies were at war for thirty-four of the first seventy-four years between the first emission of paper bills by Massachusetts in 1690 and the prohibition of further issues by Parliamentary statute in 1764. On many occasions paper money issues were the only method to obtain the cash needed for military expeditions. Thus, it was both to supply the needs of trade and to meet the demands of war that paper currencies became instruments of finance in eighteenth-century America.”
⁷

To mid-eighteenth-century Crown officials, the real downside of colonial paper money was that when it became legal tender, people in Boston or Charleston could use it for cheap settlement of debts to British merchants. Colonists who shipped enumerated goods or commodities to Britain—tobacco, rice, pig iron, or tall pines for Royal Navy masts—got paid by bills drawn on London or through goods shipped back in return. Encouraging other enterprise in the colonies (or the money supply to nurture it) was not a priority at the Board of Trade.

Across most of the thirteen colonies money was a crazy quilt of coinage, paper, and commercial confusion. Before we continue on to its pre-Revolutionary significance and politics, a look at the many inadequacies is useful.

Currency necessarily took many forms. Some of the silver Pine Tree shillings minted in seventeenth-century Massachusetts remained in circulation. Provincial authorities sometimes imported chests of Spanish silver or small English copper pieces, to which London had no objection. The popular silver eight-real piece—
thaler
or dollar—used widely in North America was famously adaptable. It could be clipped, “sweated,” hollowed, or otherwise reduced in silver content. Divided into two-real portions, it yielded four “two-bit” pieces—the ancestors of latter-day U.S. quarters.

Valuation was often a challenge. “Gold is very scarce here,” New York merchant John Watts advised a colleague. “I shall write to my friend Mr. Allen to send you £500 sterling if a Vessel of Force offers. Half Johannes’ are the only Gold that can be picked up in any Quantity. They pass at 63/.
^*
Moidores are very rare at 46/; so are guineas at 36/ and pistoles at 29/.” Provinces were usually barred from imposing their own parochial values on coins. New York governor Sir Henry Moore in 1769 vetoed a bill making gold coins legal tender at specified local rates because that would have improperly
conflicted with a parliamentary valuation.
⁸
Even gold and silver transactions could be slow and complicated. By one estimate, some “10 to 15 percent of the money stock had to be weighed and its fineness proved before it could change hands.”
⁹

Some commodities also served as currencies. The term
buck,
for example, reflected how for many decades deerskins were legal tender in South Carolina and elsewhere. At some point, presumably, one buckskin of quality was worth eight reals in South American silver. Wampum passed in places, as did tobacco in the Chesapeake. Beginning in the 1730s and 1740s, Virginia and Maryland required official inspections of tobacco and established public warehouses. The receipts furnished by warehouses were effectively monetized and could be sold or tendered for settlement of taxes, fees, and debts. Their worth, however, varied with the daily price of tobacco.

Britain continued to drain gold and silver back to her own exchequers. One method was to make taxes, duties, and customs charges or fines payable in specie. Opposition to the Stamp Act in 1765 became even more bitter because the stamps required for taxable transactions—publications, conveyances, mortgages, and many more—had to be paid for with hard money, however difficult to come by in a troubled economy.

Paper money—above and beyond its frequent scarcity—also contributed to the confusion. Each colony’s paper money had a different valuation. In 1740, for example, to match £100 sterling would take £160 in the local currencies of New York and New Jersey, £170 in Pennsylvania, and £200 next door in Maryland, but it would require £800 in South Carolina money and £1400 in North Carolina.
¹⁰
This necessitated reference guides like the
American Negotiator,
published in London, that provided exchange rates between pounds sterling and the various provincial paper pounds.
¹¹

During the decade before the Revolution, merchants in Britain did not have to take colonial paper as legal tender. They were, however, free to take it at a substantial (or whopping) discount. Nor did any colony have to take another’s paper notes, which made for some interesting diplomacy. New Jersey was betwixt and between. With East Jersey a commercial adjunct of New York and West New Jersey a Pennsylvania outlier, both larger provinces usually took New Jersey notes. But in 1772, New York caused a ruckus by temporarily declining.
¹²
In 1774 and 1775, after Massachusetts moved to break with Britain and looked to its neighbors for aid, the Bay Colony
found it politic to once again let Rhode Island and Connecticut money circulate within Massachusetts.

If valuation was chaotic, it was further complicated by the widespread use of barter and credit arrangements. In Connecticut, shopkeepers had to be ready to price their goods flexibly, adjusting for any payment delay and for whatever commodity might be tendered. As described by one participant, four major possibilities existed: “Pay, money, pay as money, and trusting.
Pay
is grain, pork and beef &c, at the prices set by the General Court that year.
Money
is pieces of eight, rials or Boston or Bay shillings (as they call them) or good hard money as silver coin is termed by them; also wampum, viz. Indian beads, which serve for change.
Pay as money
is provisions, as aforesaid one-third cheaper than the Assembly or General Court sets it. And
trust
is as they and the merchant agree on for time.”
¹³
This did not exactly match Adam Smith’s prognoses for a modern economy.

As for credit, its role in cash-short 1767 Virginia was summarized this way: “Even well-to-do growers had to make most of their purchases on credit. Property for sale generally bore two prices: one for cash customers and a significantly higher one for those who bought on credit. The annualized interest incorporated into the credit customer’s price ranged as high as 15 percent, triple the legal interest ceiling of 5 percent…It was hidden interest charges that explained why British manufactured goods could be obtained far more cheaply in northern seaports than in Virginia.” Nor did the economic distortion end there. When debts were called in and currency was not obtainable—as in a money supply dearth—“debtors were often unable to sell property for cash at a decent price,” and those who paid obligations with property “had to pay perhaps double what they owed.” Sheriff’s auctions, in turn, sometimes brought only one fourth of the real value of the assets being sold.
¹⁴

British attitudes toward currency regulation had created some earlier economic and political crises—for early-eighteenth-century South Carolina because of military demands and related issuance of notes, and for Massachusetts in the 1730s because of land banks and military-related printings. However, our pre-Revolutionary focus begins with the Currency Act of 1764, a measure later specifically condemned by the First Continental Congress.

By that act, British ministers and Parliament assumed full direction over what provincial governments could or could not do in terms of currency
issuance. The first direct constraint, the Currency Act of 1751, had barred the issuance of paper notes as legal tender in the four New England colonies. Although paper currency could be issued in some forms, essentially for internal purposes, British merchants did not have to take it in payment. Some restraint was justified; too much New England paper money had been issued in the 1740s, albeit much of it for war-related purposes. The basic pattern of military-related issuance repeated during the French and Indian War, especially in Virginia. British authorities went along while the paper was helping to finance the joint war effort. But as soon as peace came in 1763, the Crown’s renewed concern with creditors’ interests rang a tocsin for remedial legislation.

In extending statutory restraint to the other nine colonies, the 1764 act did not ban paper money; nor did it require any province to immediately recall its paper currency already in circulation. What it did do was to prohibit further legal-tender issuance and to insist that all colonies retire their existing issues on the dates scheduled. This was not small stuff. The result was a further squeeze on provincial economies already experiencing major contractions through the end of wartime stimulus. Virginia and North Carolina had been identified in London as the principal misbehavers, and four plantation colonies—Virginia, the Carolinas, and Georgia—led in protesting to Parliament and the Privy Council.
¹⁵

The pain lay in the double squeeze applied—first, the money-supply shrinkage from the retirement of old notes, and second, the allowance of only a few ways to issue new ones. For a while, in 1766 and 1767, as complaints arose, talk grew on both sides of the Atlantic about repeal. That came to naught when the inflexible Earl of Hillsborough became American secretary in 1768.
¹⁶
Upon his departure four years later, Parliament in 1773 passed a modifying act, which made some needed exceptions. In practical terms, though, currency liberalization came only on the heels of the severe British credit crisis of 1772, and after five or six years of constriction, so that concession was both too small and too late.

Currency-deprived and debt-saddled local economies—a description that best fit the tobacco colonies—often bred a corollary system of legal traps and snares for small farmers and became a cornucopia for attorneys, wealthy lenders, and sheriffs (who in some jurisdictions worked for percentages, not salaries). As we will see in
Chapter 6
, it was this kind of distressed milieu that in the late 1760s incubated the Regulators’ movement in North Carolina. Fees on a £4–5 judgment could come to £2–3. Royal Governor
William Tryon acknowledged that his fast-growing but currency-starved province had to make do with one third of the money supply it required.
¹⁷

If these scarcity effects are usually downplayed, the skimpiness and lack of detail on the complexity of that era’s currency-and-debt mess is partly responsible. It also takes a punctuation of household anguish, resort to violence, and bitter politics to come alive.

For example, few observers have cared that most colonial paper currency took the form of so-called bills of credit, issued by provincial governments in anticipation of tax revenues. This seems essentially technical. However, for the four or five years beginning in 1765, as colonies adhering to Currency Act mandates used tax revenues to pay off many of these bills and remove them from circulation, some British officials perversely took this as evidence of the lightness of the American tax burden. If the debt taken on during the war could be paid down this easily, it couldn’t have been very heavy.

Not exactly. As specified in the act, when tax revenues were used to pay off provincial notes, that simultaneously shrank that province’s paper money supply by 15 or 25 percent or whatever share had to be removed from circulation. South Carolinians took complicated actions to circumvent these requirements.
¹⁸
Elsewhere, the notes were usually destroyed. Merrill Jensen was almost alone among twentieth-century U.S. historians in explaining the process, which amounted to a hidden but painful levy on economic activity.
¹⁹

Paper money shrinkage cut deepest during the several downturns of the pre-Revolutionary years. Using a generalized North American chronology, these took place between 1761 and 1766 and then again between 1772 and 1774. In some colonies, though, Currency Act crises created a separate local chronology of foreclosures, debt litigation, and hard times.

The economics and politics of money supply shrinkage would become a major national issue again in the United States during the 1870s, 1880s, and 1890s and then again in the 1930s. Its importance during the decade before the American Revolution deserves equal attention. It is probably true, as economic historians have argued, that British North America was one of the world’s most prosperous societies. But the same was true of the United States during those later periods.

Estimates have been made of the money-supply contraction occurring in the farm states during the Populist angst of the late nineteenth century and then again during rural crisis periods of the 1920s and 1930s. Alas, no
similar data are available for the colonies between 1764 and 1774. Retrospective estimates of the thirteen-colony money supply or money stock as of 1775 have indeed been published, but most appear to reflect as much guesswork as science. In
The Emergence of a National Economy, 1775–1815,
Curtis Nettels noted that the pre-Revolutionary colonies “suffered from an acute shortage of hard money; all the coin in circulation in 1775 would not have paid a year’s expenses of the Continental Army.”
²⁰
Another expert, economic historian John McCusker in
The Economy of British America, 1607-1789,
collected estimates ranging from $30 million in Spanish dollars—postwar guesswork by Alexander Hamilton—to levels considerably lower.
²¹
Estimates of hard and paper currency available per person in British North America ranged from a stingy £1 to an acceptable £3, more or less the ratio for the mother country. These definitions raise enough questions that the proverbial grain of salt has to be more like a pinch.