Barbara Villiers: History of Monetary Crimes - Alexander Del Mar




IX. The Crime of 1742

The early trade of the Colonies had been effected by barter, but by the last quarter of the 17th century the population had grown too numerous, widespread and differentiated in occupation to render such an archaic system of exchange any longer practicable.

So early as 1652 (October 19) the province of Massachusetts found it necessary—for it was no mere act of wantonness or of profit-seeking by the colony—to defy the Royal authority by erecting a Mint and striking Pine Tree shillings. These were to contain 66.5 gr. fine silver, the same as the actual circulating clipped shilling of England, though not the same as the theoretical or minted shilling of the Commonwealth, which should have contained about 85 gr. fine.

From this moment began in America a contest between Barter and Exchange, between Capital and Blood, between the Plunder of the Seas and the Credit of the Colonies, between the Metallic product of slavery and the Fiduciary issues of a free people, that has not yet ended and that never will end until the principles which Aristotle distilled from the republics of antiquity have again asserted their vitality in the halls of legislation.

These principles were revived in the Mixt Moneys case in 1604. They were affirmed by Bastiat in 1840: "Exchange is political economy; it is society itself, for it is impossible to conceive of society as existing without exchange, or exchange without society." They were again affirmed by Destutt Tracy in 1870: "Society is in fact held together by a series of exchanges. "And they will be again and again affirmed until they are nailed inseparably to the Constitution of every free State in Christendom."

Exchange is a social act; money is a social mechanism; it is a public measure of value, the unit of which is not one coin, nor one note, but all the coins and notes of like currency under the law of each nation when added together; money to be equitable must be of stable volume; stability can only be secured by national authority and limitation; if you want prosperity you must trust the national government to conserve the Measure of Value; if you fear to trust the government, you may indeed preserve the size of the coin in your pocket, but you cannot secure the profits it may earn for you; and persistence in this course will force ruin upon others and probably upon yourself."

During the interval between the first issue of Pine Tree money and the Revolution, these principles were brought home over and over again to the Tory classes in America, but without avail. The Tories affected entire disbelief in the Quantitative Theory of metallic money, yet they always wanted the quantity of metallic money reduced; they derided paper money when it was issued by the Colony, but vaunted it when issued by themselves. Because they could buy the votes of certain individuals they mistrusted the body politic. This was a grave mistake; for the body politic taken collectively is a totally different entity from the individuals of which it may be composed. It acts upon entirely different principles; and so does Money.

The Pine Tree coins were at first of the denomination of 12, 6 and 3 pence, and in 1662 also of 2 pence. All except the 2 pence pieces are dated 1652, although they were continued to be coined every year until 1686, about which time paper money began to be thought of. The shilling was ordered to contain 72 grains of standard silver, (0.925 fine) or 66 grains of fine silver. The extant coins in the best preservation contain about 60 grains fine; that is to say, about three-fourths as much fine silver as the newly minted Royal shilling of the same period; and at this valuation they were made legal tender by colonial law and readily passed current. The seigniorage on the Royal coins was 2 shillings in 60 shillings, or about 3.3 percent; on the Colonial coins it was 1 shilling in 20 shillings, or 5 percent, ad valorem; so that in fact the Crown manufactured coins at a cheaper rate than did John Hull.

From the moment of the authorization of Hull's mint by the Colonial Legislature, an event which dates from the period of the Commonwealth in England, to that of its suppression, which was achieved during the reign of William and Mary, an incessant warfare was waged, now by the colonial Tories and then by the Royalists in England, against American money. Its coinage defied the Royal prerogative; it was the money of treason; it was coined from piratical plunder; it was dishonest money; it lowered the Royal standard; it inflated the currency; Hull's charge for coinage was exorbitant, etc. Much of this was true; yet except the first one or two, these charges were equally true of the British shilling of that day. That also was struck from plundered metal; it was therefore dishonest; it had been recently degraded; and was even clipped and sweated. Worse still were the tin coins struck for the American Colonies by James II., 1685-88, of which 192 were ordered to pass for a Spanish peso, or 24 to the real de plata. But in those days there was a great difference between my ox and yours.

The contest over the Pine Tree money was afterwards merged into a greater contest over the Colonial Bills of Credit which arose after and by reason of its suppression. This will receive some further notice when that later usurpation of the Royal prerogative comes to be mentioned.

The Colonial mint (or mints, for I fancy there was another, though a smaller one, in Maryland) was an open one; that is to say, it coined, or professed itself willing to coin, all bullion offered to it for that purpose. Such coins were declared to be legal tender by the Colonial assembly. As the mint did not coin gratuitously, it might be supposed that the seigniorage was enough to keep the coins from being melted or exported. But such was not the case; for although several hundred thousand, perhaps a million or more pounds sterling worth of Pine Tree money was struck from first to last by John Hull, it was all or nearly all exported; and very little of it remained at any time in circulation. One reason for this was that until 1666 the Royal mint also charged a seigniorage; and a second reason was that the West Indian buccaneers, who were the largest depositors at the Boston mint, wanted their remittances promptly returned to them in coins. The result was that the Pine Tree money flowed out of the country almost as soon as it was coined. Much of it was subsequently melted in the mints of Europe.

For these reasons so few coins of any kind remained in circulation during the Pine Tree money emissions that this period may more fitly be embraced in a longer one, 1632-92, during which the principal medium of exchange was obliged to be "country pay," that is to say, merchandise at prices fixed from time to time by Colonial laws.

To enter into details of this wretched system of barter would neither conform to our present limits of space, nor serve any other useful purpose than to corroborate by tedious evidence, the truth of the principles herein advanced by generality. Suffice it to say that the result of being obliged to employ "country pay" was to cramp the trade of the Colonies into the smallest limits and to render impossible any progress of the people beyond the phase of hard manual labor, variegated by neighborly "swaps." Commerce with distant persons or markets was impracticable; transportation was undeveloped; credit was unknown; the marts and the profits of American trade were transferred to London and there they remained.

This system is well illustrated in the private journal kept by Madame Knight, an educated lady, who traveled on horseback from Boston to New York in 1704. While in New Haven she wrote as follows:

"They give the title of 'merchant' to every trader, who rates his goods according to the time and species they pay in; viz., 'pay'; 'money'; 'pay-as-money'; and 'trusting.' Pay is grain, pork and beef, etc., at the prices set by the General Court. Money is pieces-of-eight, ryals, Boston or Bay shillings, or 'good hard money,' as sometimes silver coin is called; also wampum, viz., Indian beads, which serve as change. Pay-as-money is provision aforesaid, one-third cheaper than the Assembly set it; and Trust, as they agree for at the time. When the buyer comes to ask for a commodity, sometimes before the merchant answers that he has it, he says, 'is your pay ready?' Perhaps the chap replies, 'yes.' 'What do you pay in?' says the merchant. The buyer having answered, then the price is set; as suppose he wants a 6d. knife, in 'pay' it is 12d.; in 'pay-as-money' 8d., and 'hard-money,' its own value, 6d. It seems a very intricate way of trade, and what the Lex Mercatoria had not thought of."

But beneath this enforced archaism there were ideas; and in the inventive minds of the Americans these soon took form. The leather moneys of mediaeval Europe were probably unknown to the Colonists; even the paper issues of Milan and Genoa may have been unheard of, or but dimly understood; but such could hardly have been the case with the leather and paper moneys of San Domingo issued about the year 1638, the Swedish "Transport Notes" of 1658, or the notes issued by Cromwell at about the same time. At all events a Land Bank was organized in South Carolina which issued "convertible" notes upon the security of estates, somewhere about the year 1675. The example was eagerly followed in Boston, where in 1686 John Blackwell and six other persons, one or more of whom were from London, established a Land Bank and issued their private notes "payable" in coins and "secured" by land. Either the "security" of these notes proved to be inadequate or doubtful, or else some other circumstance affected their credit; the fact is that the notes failed to become acceptable to the public and soon ceased to circulate as money. Whether they were paid off or repudiated does not appear.

Soon after this abortive attempt to introduce private promissory notes into the circulation, the Colony of Massachusetts resolved to relieve "the scarcity of money and the want of an adequate measure of commerce" by issuing its own Bills of Credit to the modest extent of £7,000. This was done in February, 1690, the notes bearing the following legend:

"No. (916) . . . . . . 20s.

"This indented Bill of Twenty Shillings due from the Massachusetts Colony to the Possessor shall be in value equal to money, and shall be accordingly accepted by the Treasurer and Receivers subordinate to him, in all payments and for any stock at any time in the Treasury, Boston, in New England, February the third, 1690. By order of the General Court.

"Committe: (Elisha Hutchinson, John Walley, Tim Thornton)

It was afterwards repeatedly alleged that this was a "war issue" to pay off the soldiers in the Phips expedition to Quebec, and therefore it was but just and proper to retire it as soon as practicable. Without entering into this sort of reasoning, because it is a non sequitur, the fact is that the issue of notes was made not only before the Phips soldiers demanded to be paid, but before the expedition sailed and indeed before it was planned. The notes were issued early in February, 1690; the expedition to Quebec was not resolved upon until May 1st; it sailed August 9th, landed and was defeated October 8th, re-embarked October nth and arrived in New England November 19th. The soldiers' demand for pay was fully a year later than the date when the Bills of Credit were authorized to be issued.

In 1691 a further issue was made of Colonial Bills of Credit and in these notes some of the defeated heroes of Quebec were doubtless paid off, a circumstance which, however, has nothing to do with the question of their origin or justification.

It will be observed that the Bills were not money; but merely promises to pay money; in other words, they were not legal tender; nobody was obliged to accept them outside the Colonial Treasury. All this was changed after the new Charter of 1692 became effective. The provincial government then, July 2, 1692, made the notes, now amounting to £30,000 or £40,000 full legal tenders, except in special contracts. Under these circumstances they circulated at par with silver coins (the parity being 8 shillings per "ounce" of standard silver coins) until 1712, a period of twenty years, during which time the population of the Colony more than doubled and the trade increased enormously.

By the year 1712 a large increase in the issue of these notes and the admission of other elements into the currency, both foreign and Colonial, metallic and paper, occasioned the depreciation of the notes and clipping of the coins to the extent of about one-eighth. Counterfeit notes of Massachusetts, New Hampshire, Connecticut and Rhode Island also swelled the total.

In 1714 the Colony of Massachusetts made a new and further issue of provincial notes commencing with £50,000 which was soon increased to £125,000. A private bank of issue based upon landed assets was also authorized between 1714 and 1720. In 1692 the population was about 47,000, the note circulation £30,000, and silver coin 6 shillings 10.5d. in paper notes per "ounce." In 1728 the population was about 115,000, the note circulation £400,000, and silver coin 16 shillings per ounce. These excessive issues and the bursting of the Mississippi Bubble in France now led the government of England to interfere. It commenced in 1727 that series of repressive measures which furnished the first distinctive provocation to the American Revolution.

These measures were not undertaken so much with the view of reforming the currency of the Colonies as of enforcing the prerogative of the king, which would have been right enough in England but wholly indefensible when applied to a distant colony. However, this object was sought to be accomplished by means alike offensive and oppressive. The Colonial governors were ordered to sign no more laws authorizing Bills of Credit; the outstanding Bills of Credit were ordered to be withdrawn; the taxes were ordered to be paid in coins; in short, without a single extenuating reason, the British ministry followed in America precisely the same steps that after the downfall of John Law were pursued with such fatal results by Louis XV of France. When in 1727 Gov. Dummer refused to sign an authorization for £50,000 of new bills to help pay off £100,000 of old bills, the House of Assembly declared that they considered their liberties threatened. The Governor's reply to this note of alarm was to force the House in 1728 to further contract the currency.

In 1730, Gov. Belcher was appointed by the Crown with imperative orders to go on with the contraction until the note currency was reduced to £30,000. The Colonial Assembly again and again petitioned the Crown to revoke this ruinous order, but without avail.

The method of contraction rendered it still more objectionable. The notes were not retired by paying for them with a surplus of coin in the Treasury, for there was no such surplus. They were to be paid off from the proceeds of new and additional taxation. On top of all this was another grievance; the void in the circulation was to be partly filled by the notes of private banks, which were authorized to be established upon a "silver basis" by the favorites or dependents of the English governor, such notes having no legal tender quality.

In 1737 the provincial notes had been reduced to not much over the £30,000 limit, and the private bank issues were about £110,000; while the other elements of the currency hardly brought the whole to much more than half of what it had been before contraction began.

In 1735, the worst period of contraction, money was so scarce that the inhabitants could not, even when threatened with a forced sale of their goods, pay their taxes, except in commodities; and the governor reluctantly accepting the situation, agreed to receive the taxes in hemp, flax and bar-iron. It reminds one of the ox-hides exacted by the Roman governor from the Frisians sixteen hundred years previously. The discretion with which such a system necessarily armed the collecting officials must have afforded the latter opportunities for exercising the most galling oppression.

We have no space for entering upon the intricacies of Old, Middle and New Tenor bills, nor for considering the influence of the Merchants' Bank notes, nor of the municipal notes of this seraf upon the circulation; it is far more important to trace the Equity or Demonetization Act that, in 1742 Gov. Shirley tricked the Colonial Assembly into passing.

This Act contained a clause which read: "If they (the Colonial Bills of Credit) depreciate, allowance shall be made accordingly," a clause whose significance seems to have escaped the attention of the Assembly. Its practical effect was to demonetize the Colonial bills and make all contracts payable in standard silver coins at 6s. 8d. per ounce, or in so much paper money as would purchase this quantity of silver coins at the time that payment was made. Nothing could have been more iniquitous.

Shirley's next move was to induce the new "Land Bank" to retire its issues, amounting to £40,000. Similar pressure caused the "Silver" banks to retire their notes, amounting to £120,000. As this process went on, the grip upon the people gradually tightened; and from this they sought relief by according "free course," or currency, to the Provincial Bills of the contiguous Colonies. But here again they were defeated by the governor's untiring zeal and energy in the cause of contraction.

Under the threat of losing their Charter, he induced them, partly in 1744 and partly in 1746, to relinquish this last resource. The results that followed were most distressing. Prices fell, trade became stagnant, securities depreciated and loans were recalled; debtors were sold out by the sheriff; "many good families were brought to poverty"; and cries of distress arose on all sides. The governor was petitioned to repeal the misnamed "Equity Bill," but he refused; the representatives appealed to Parliament, but met with no relief. The fiat had gone forth; the king's prerogative of the coinage, though surrendered in England to the East India Company was to be maintained in the Colonies; the latter were to have no monetary system of their own; and, under the operation of the British Act of 1666, the goldsmiths of London and their newly fledged and already embarrassed Bank of England, were to rule the situation.

What is expansion? It is forcing into circulation an unusually large volume of money, or else exposing it to be so inflated. What is contraction? It is reducing the volume of money, or exposing it to be reduced below the customary amount in circulation. The swollen measure of value is quite as unjust as the shrunken measure. There is no necessity for either; but so long as a nation neglects to regulate by law the volume of its currency, its people will always live in danger of one or the other of these inequitable measures of value, the swollen one or the shrunken one.

After such an unjustifiable expansion as had been caused by the provincial bills of credit, it did not appear to be at all inequitable to pay off the bills in coins and return to coin payments; for everybody assumed that the coins would remain in the Colony and supply the place of the bills. But such was not the case. The Colony was in debt both to the subjects and the government of the mother country; and as fast as the coins entered the circulation as a measure of value in Massachusetts, they were shipped to London as a commodity to meet the bills of exchange drawn by the depositors of the bullion and eventually to feed the open mint in the Tower. The Resumption Act, approved by the king, June 28, 1749, was therefore not a mere contraction; it was a terrible calamity.

The Act was followed by a sop to Cerberus, in the shape of a shipment from London of 653,000 ounces of silver and 10 tons of copper coins, due to the Colonial government, for the expense of the Phips expedition. The Colonial government nevertheless was ordered to pay these coins out only to redeem its own Bill of Credit and at a discount prices, and to demand payment in coin for taxes and dues at par. This operation was commenced in 1750. By itself it would seem both fair and harmless, but in connection with Shirley's surreptitious demonetization of the Colonial bills, previously mentioned, it converted all debts created at inflation prices into obligations payable during the prevalence of contraction—a contraction enormously aggravated by the constant tendency of the coins to flow out of the Colony to the mother country. The result was a complete revulsion of fortune among every class of Americans. The favored official or lucky adventurer became rich, the industrious trader was impoverished, the creditor was lifted up, the debtor was cast down; and every sort of injustice was committed under cover of law. Worse than all, while the inflation had been gradual, and covered a period of many years, the Contraction was made both sudden and severe.

The Land and Silver bank notes were already retired; the provincial notes of the other American Colonies were decried; and £420,000 of Massachusetts bills, which though demonetized in 1742 were still in circulation, were bought up and retired with about £40,000 in coins. The effect was frightful. Ruin stalked in every home; the people could not pay their taxes; and were obliged to see their property seized by the sheriff and sold at one-tenth its previous value. Commerce was annihilated; and in its place was substituted a petty barter that was maintained with "country pay." Even the taxes were obliged to be collected in kind. In the face of this great distress the governor relented so far as to permit £3,000 in small notes to be issued for change; but from the beginning to the end of his administration he never faltered a moment in the execution of the orders he had received; and these were to destroy the fiduciary issues of the Colonies without regard to consequences. The Colonists were to create wealth; it was reserved for Englishmen to exchange and enhance it.

Driven into a corner and deprived of all hope of such a stay of prices as would enable them to effect their exchanges and pay their debts without sacrificing their entire fortunes, the people replied to these measures with subterfuge, violence and defiance of the law. In 1755 large quantities of base coins were imported from France; in 1760 counterfeit "cobs," or dollars, were fabricated at Scarborough; in 1761 the Assembly admitted that counterfeiting had become rife; and in 1762 it was deemed necessary to pass an Act with almost capital penalties against the commission of this offense. In 1751 a Riot Act was passed to suppress the outbreaks occasioned by the Resumption Act; tumultuous assemblies occurred in and near Boston; and the people of Abingdon broke into open revolt.

At this point the Royal government made a concession. To have refused to make it, would have precipitated the Revolution at once; for the people had been pushed to the last point of forbearance. Says a writer on the currency: "Their prosperity had been checked, their trade destroyed, their property sold under the hammer, many of them had been driven away and the remainder were oppressed with a load of taxes which were payable in unattainable coins. They were ripe for revolt. The concession now made to them merely postponed the Revolution; it did not remove its causes."

On April 24, 1751, a bill had passed the Assembly authorizing the Treasurer to liquidate the current expenses of the Colony by the issue of interest-bearing certificates of indebtedness in denominations of £6 (afterwards £4) payable in one year. To this bill the governor had yielded a reluctant consent. Its operation afforded immediate relief to the affairs of the Colony, for to the surprise of the governor and possibly also to that of the Assembly, these certificates circulated freely among the people as money. So soon as this practice became known in London it was attempted to be stopped. In June, 1751, the Parliament of England forbade the circulation of the Colonial debt certificates as money; and to leave no excuse for thus employing them, measures were taken to encourage loans of metallic money to the Colony of Massachusetts upon long bonds, which were to be liquidated out of the proceeds of future Colonial revenues.

But loans of money with a string tied to each coin was not what the Americans desired. They had had enough of that sort of relief. Their Treasurer's certificates were quite good enough for them, and in spite of Parliament, these circulated as money so freely that by the year 1766 not less than £157,000 in this "illegitimate" currency was afloat. Mr. Felt hints at a much higher figure, but I can see no reason to follow him. The emission of these notes eventually led to such an improvement of affairs that in 1774 Gov. Hutchinson remarked in his message: "There never has been a time since the first settlement of the country when the Treasury has been in so good a state as it now is." But the Colony had not forgotten the sufferings it had endured through the monetary policy which this very man had done so much to enforce; and at the moment that he wrote this complacent sentence it was preparing to throw off forever the shackles which had been imposed upon it by British policy and British legislation. All that was needed was a plausible pretext, and that it found in the Stamp Act.