Conceived in Liberty Volume 2 - Ludwig von Mises Institute

tion, but were defeated by the Assemblies' appropriations. Finally, Parliament
in 1751 prohibited all further legal-tender issues of paper money in New
England. Bills were to be redeemed when due. The colonies could still issue
treasury notes for a brief period, but not with legal-tender powers. However,
Virginia, the last colony to succumb to the lure of money creation, joined the
pack in 1755 as did the new colony of Georgia. By the 1760s, Virginia paper
had fallen to a discount of fifty to sixty percent. It attempted to form a public
loan bank, but that was vetoed by the governor. In 1764, Parliament finally
extended the prohibition of any further monetary issues from New England
to all the other colonies, and it also required the gradual retirement of outstanding
notes. The leniency on retirement, however, as well as the provisions
for treasury notes, managed to keep a great deal of paper in circulation for the
remainder of the colonial period. Although the new notes could not be legal
tender, they were somewhat maintained in value by being made receivable in
taxes. All in all, by 1774, the estimated monetary circulation in the American
colonies was $14 million, of which fifty to sixty percent was paper notes.
We have indicated that the drive for paper money was led by prominent
men in each colony. The economic arguments were highly simplistic—basically
that more money was needed and therefore should be printed. The Reverend
Cotton Mather added such typical arguments as that "money is a counter"
and paper money would be an advantage in never leaving the colony
(that is, it wasn't really money since it could not be used for imports).
Mather also denounced "hoarding" because it obstructed the circulation of
money. It was often maintained that paper money did not depreciate, but
rather that silver appreciated, due to demands for its export. Such an argument
was used, for example, by Benjamin Franklin in his venal campaign for
paper notes that he personally would be paid to print. Laying blame on the
export of specie—as if it were an uncaused act of God!—was typical; thus
Massachusetts thought that prohibition on the export of silver would arrest the
depreciation of paper. Of course it did not!
It should be noted that the most enthusiastic supporters of the public land
banks and paper money in Pennsylvania were the merchants, who were able to
lobby effectively in England with the aid of Quaker bankers and merchants
there. The wealthy merchant and land speculator Francis Rawle was one of
the leaders of the paper-money movement in Pennsylvania. On the other
hand, the proprietary, whose accruing quitrents were fixed in terms of money,
strongly opposed "rotten" and "vile" paper money. In notoriously inflationist
Rhode Island, Governor Richard Ward, a prominent Newport merchant,
argued in 1740 that paper money had been spent on valuable public works
and contended that its depreciation was due to the wickedness of the merchants
rather than to economic law. The most prominent advocates of paper
money in Rhode Island, it should be noted, were the Wanton family of Newport,
two brothers of which were respectively the wealthiest merchant and the
leading shipbuilder in the colony.
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