Conceived in Liberty Volume 2 - Ludwig von Mises Institute

favored the land bank, but Governor Belcher and the Council refused to agree
to either scheme. Failing to obtain incorporation, both the land bank and the
silver bank proceeded to print new money anyway, during 1740, and Belcher
was not able to persuade the Assembly to outlaw these emissions.
The new land bank issued over 49,000 pounds in notes, a hardly risky
enterprise since the bank could issue pure money without having to redeem it
in anything else. Governor Belcher promptly and properly used his position
to warn the people of Massachusetts against this private inflation. He warned
that the notes were unsound and "tended to defraud men of their substance."
Belcher also formed an alliance with the silver bank, persuading the latter to
make its bills far sounder by agreeing to redeem them in specie upon demand.
The silver bank refused to accept land-bank notes, while the governor
removed all government officials who received or paid land-bank notes, going
to the extent of prohibiting lawyers from receiving the notes when pleading
cases before the Council. Many merchants and businessmen—including 145 in
Boston, and seventy-four in Newport—publicly agreed not to accept any of
the unsound land-bank notes.
The idea of a land bank for one's own creation of money out of thin air
enchanted many in Massachusetts. The number of subscribers to this open
sesame for profit soon swelled from nearly 400 to over 900. Moreover, petitions
for more land banks arose in several other towns and counties in the
province. The enthusiasm, indeed, for the land bank was easily comprehensible;
a majority of assemblymen were themselves subscribers. But if stockholders
were delighted, the note holders were not. In six months' time the public
was almost universally refusing to accept the notes.
Inflationists are always prone to blame everyone but themselves for the consequences
of their own actions. As the land-bank notes began to depreciate,
and to be refused in trade, land bankers began to mutter about a march on
Boston to try to force merchants to accept the notes. The final blow to the
mischievous land bank was delivered by Parliament, which in 1741 granted
the request of several Massachusetts merchants and of Governor Belcher, and
outlawed land banks in Massachusetts. The prohibition covered the silver
bank as well.
We have noted the predominance of the wealthy and of large land speculators
in forming the land bank. Unfortunately, historians have been misled by
two contemporary opponents of the bank who denounced its supporters as
being "plebeians" and "insolvents" of "low condition." In those days being
poor and insolvent was deemed a reproach rather than an automatic badge of
merit, and it is important not to be misled by the denunciations of contemporary
opponents.
Hardly had the land bank and a return to sounder money begun, however,
when the vast expenses on the self-defeating expedition against Louisbourg,
on Cape Breton Island, led to a great inflation and expansion of paper money
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