Conceived in Liberty Volume 2 - Ludwig von Mises Institute

from circulation. Massachusetts had increased the inferior money in circulation,
at the expense of displacing the superior. Furthermore, market depreciation
against silver had only been checked for a time. The push of the Massachusetts
issues over the brink came in 1711, when 500,000 pounds in notes
were issued to pay merchants for the failure of another plunder expedition
against Quebec. The issue led to the hoarding and exporting of silver, and to
a thirty-percent depreciation against silver. For while the Massachusetts
money was officially seven shillings to the silver ounce, it had now fallen on
the market to nine shillings per ounce.
By 1714, Massachusetts, after a generation of hopefully alleviating its socalled
scarcity of money, found itself with its silver gone and with the paper
money, despite its efforts, rapidly depreciating. It was faced therefore with yet
another "shortage of money" and with a crossroads: either it could begin to
return from paper to silver or it could embark on a massive, eventually more
than self-defeating, issue of yet more paper money. The former course was
not seriously considered; instead a conflict arose on the proper inflationary
path to follow. Merchants and debtors wanted to enjoy some of the blessings
of cheap money, and a group of them tried to reactivate the land-bank plan of
1688. The leader of the private land-bank scheme was John Colman, a prominent
Boston merchant and real estate speculator. Other leading supporters
were Edward Lyde, a Boston merchant and heavy debtor in the 1711 expedition
against Quebec; Timothy Thornton, Boston shipbuilder and real estate
speculator; John Oulton and William Pain, Boston real estate speculators.
The equally eminent objectors, headed by Attorney General Paul Dudley, son
of the governor, prevailed with plans for further government issue. Specifically,
the private land bank was rejected by the General Court and a public
land bank established instead. The latter's notes were made legal tender and
in 1716 it issued 100,000 pounds in notes to be loaned in real estate in the
various counties.
The 1716 issue added at once a huge forty percent to the colony's money
supply, and prices were raised so rapidly that objections to paper money
began to be voiced. An anonymous pamphleteer in The Present Melancholy
Circumstances . . . (1719) and An Addition to the Present Melancholy Circumstances
(1719) pointed out that monetary issues had led to a doubled cost
of living in twenty years, to depreciation and to the disappearance of Spanish
silver through the operation of Gresham's law. The author advocated calling
in some of the notes in order to increase the value of the money. He trenchantly
concluded that a law can penalize and restrict, "but it can't change
men's minds to make them think a piece of paper is a piece of money."
By 1718, Massachusetts had made a valiant effort to reduce its bills in circulation,
by allowing retirement of notes as loans were repaid. But by this
time the other colonies had taken a lesson from Massachusetts, and New England
colonies were bound to honor each other's notes. Long Island had
already issued 40,000 pounds in legal tender "loan bills." As a result, the
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