Conceived in Liberty Volume 2 - Ludwig von Mises Institute

in Massachusetts. In 1744, the total amount of paper money outstanding in
Massachusetts was 300,000 pounds. With large amounts of new paper issued
beginning in February, the total supply of notes in Massachusetts rose to 1,-
500,000 pounds in two years. In a short while, circulation of paper notes
totalled 1.9 million pounds, and by 1748, the outstanding sum of paper
money in Massachusetts had risen almost to 2.5 million pounds. The price of
silver rose to sixty shillings an ounce, tenfold the amount at the beginning of
the century. Original self-imposed limits on note issue had long since been
forgotten, and early promises of yearly redemption were also forgotten as the
period of future pledges of revenue gradually lengthened to twenty-five years.
In some colonies, interest and principal on the loans were in extensive default.
The saga of paper-money inflation and its depreciation was repeated from
colony to colony. Demands for more money, leading to depreciation and
higher prices, set up further and accelerated clamor for yet more money to
alleviate the continuing "scarcity." If the original par between sterling and
the dollar is taken as 100, then sterling in Massachusetts was down to 133 in
1702 (one dollar equaling six shillings). By 1740, Massachusetts sterling had
depreciated to 550, and by 1750 to 1,100—a depreciation of 11 to 1 compared
with par. Depreciation in Connecticut had reached 9 to 1 by that time,
and in North Carolina and South Carolina depreciation had reached 10 to 1.
In virulently inflationist Rhode Island, sterling had sunk to 23 to 1. The
least-depreciated paper was the least inflated, in Pennsylvania, but even here
specie had appreciated to eighty percent over par.
Finally, after the end of King George's War, Parliament decided to grant
Massachusetts a substantial sum as compensation for its expenditures during
the war. Massachusetts wisely decided to use the funds to return to a hard
money, and to redeem the paper at the current depreciated rate of 7½ *° *·
Connecticut followed with retirement of paper at a rate of 8 5/6 to 1, and New
Hampshire retired some notes a few years later. The panicky opponents of
specie resumption made the predictions usually made in such a situation: the
result would be a virtual absence of money in the colony and the consequent
ruination of all trade. They even threatened an uprising, and thus provoked a
riot act for its suppression. After a temporary adjustment, however, this
resumption, of course, led to a far more prosperous trade and production—the
harder money and lower price attracting an inflow of specie. In fact, the prosperity
wrought by hard money was dramatically embodied in the blow delivered
to Newport. Newport had been a flourishing center of West Indian
imports for sections of Massachusetts. But after 1750, with Massachusetts on
specie and Rhode Island still on depreciated paper, Newport lost its trade to
Boston and languished in the doldrums.
The English government, at the behest of the understandable complaints of
English merchants and creditors defrauded by paper money, opposed the issue
of paper money in the colonies. Royal governors had tried to repress the infla-
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