Conceived in Liberty Volume 2 - Ludwig von Mises Institute

26
Inflation and the Creation of Paper Money
So far we have been concentrating on the leading developments in each
colony in the first half of the eighteenth century, in the "domestic" affairs, so
to speak, peculiar to the colony. Now let us turn to the increasingly important
experiences that were common to several or all of the colonies, experiences
that helped to impart a greater degree of community in colonies that originated
as completely separate and independent entities. Among these we can
distinguish two categories: first, events and developments that, while still
chiefly domestic to the colonies, permeated some or all of them (for example,
such new developments as paper money or such intellectual currents as the
Great Awakening) ; second, "foreign affairs"—that is, the emergence of common
relations and problems outside the colonies, specifically relations with
Great Britain and the British Empire, with the other European colonies in
North America (France and Spain), and with the Indians (the last two
spheres often blending). Many of the predominantly domestic questions, of
course, had external ramifications, particularly vts-à-vis Great Britain.
Turning first to domestic developments shared by the various colonies in the
first half of the eighteenth century, one of the most important was the creation
of an entirely new and destructive economic device: paper money. Apart
from isolated China, during the Middle Ages, money had always emerged on
the market as a useful commodity: whether goods like tobacco and grain, as
in the colonies, or the more widely used but more expensive gold and silver.
In any case, the monetary commodity could only be produced as other goods
were: by the use of labor and capital to transform material resources into more
desirable forms—for example, by growing and picking tobacco or by mining
gold. Again, as in the case of other goods, the monetary commodity could
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