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Depreciation of Paper Currency during the Revolution  
   

Gold and/or silver coins, often referred to as "specie", were commonly used as payment for goods or services rendered in the colonial period. The problem with specie was that each Colony rated the coins differently and there were a wide variety of coins in circulation: English coins, French coins, Spanish coins, Portuguese coins, etc…. Because colonial authorities frequently revised exchange rates to encourage and discourage the use of certain coins in circulation, there was a lack of consistency in determining the value of foreign currency among the colonies. These issues were minimal in comparison to the ones paper money would cause during the Revolution.

The colonies had experimented with bills of credit or paper money since the 1690's, typically, although not exclusively, it was used as a means of wartime finance. One of the key reasons printed money was issued in times of war was convenience- values could be determined and bills printed at will. Bills of credit printed between 1775 and 1779 were not backed by specie, they were backed by the promise of taxes to be collected by each colony at a future date. If promises were not kept the consequence was inflation and depreciation.

Between 1775 and 1776, the Continental Congress printed 25,000 paper bills of credit (worth roughly $25 million). At the same time individual states were printing their own bills of credit.

Connecticut Colonial Records, April 1775:

"Be it therefore enacted by the Governor, Council and Representatives, in General Court assembled, and by the authority of the same, That there be forthwith imprinted the sum of fifty thousand pounds, bills of credit on this Colony, equal to lawful money, of suitable denominations as the committee herein appointed shall direct, and of the same tenor with the late emission of bills of credit of this Colony, without interest, payable at or before the tenth day of May, 1777, dated the tenth day of May, 1775."

"Be it enacted by the authority aforesaid, That a tax of seven pence on the pound be and is hereby granted and ordered to be levied on all the polls and rateable estate in this Colony, according to the list thereof to be brought in to this Assembly in October 1775, with the additions; which tax shall be collected and paid into the treasury of this Colony by the tenth day of May, 1777; which tax may be discharged by paying the bills of this Colony of this emission, or lawful and directed to send forth his warrants for collecting the same accordingly."

Connecticut Colonial Records, June 1776:

"Be it enacted by the Governor, Council and Representatives, in General Court assembled, and by the authority of the same, That there be forthwith imprinted the sum of fifty thousand pounds, bills of credit on this Colony, equal to lawful money, of suitable denominations from six pence, lawful money to forty shillings inclusive, and of the same tenor with the late emission of bills of credit of this Colony, without interest, payable at or before the first day of January 1782, dated the 19th day of June 1776."

"Be it enacted by the authority aforesaid, That a tax of seven pence on the pound be and is hereby granted and ordered to be levied on all the polls and rateable estate in this Colony, according to the list thereof to be brought in to this Assembly in October 1779, with the additions;"

This over-issuance of paper money caused a disastrous financial situation in the colonies. By April of 1777, it took two printed dollars to buy one dollar's value in hard currency. In July, 1777 it took three printed dollars to buy one dollar's value in hard currency. Initially, it was considered a crime against patriotism to even admit that the Continental dollar was sinking in value. But when it became clear that the Continental dollar had depreciated, the Continental Congress asked that all states curb their issuance of bills and tax themselves sufficiently to sink the growing paper problem. For one reason or another the solution to this fiscal problem was heatedly discussed but never bridled (see number of issues and amounts in Table 1 for 1778-79) and by 1781 the Continental dollar was virtually worthless (see Table 2).

Table 1: Continental Issues and Amounts.

Number of Issues Amount
1775 3 $6.0 Million
1776 4 $19.0 Million
1777 5 $13.0 Million
1778 14 $63.50 Million
1779 14 $140.0 Million
1780
1781
Totals 40 $241.0 Million*

*In addition to this total, the states had issued $209 million of their own notes.

Table 2: Depreciation of Paper Currency (Paper Currency Required to Purchase $1.00 Specie*)

1777 1778 1779 1780 1781
January 1.25 4.00 8.00 42.50 100.00
April 2.00 6.00 16.00 60.00 167.50
July 3.00 4.00** 19.00 62.50
October 3.00 5.00 30.00 77.50

* Specie = Hard money or coins both gold and silver
**Reflects signing of the French Treaty.

In 1780, Congress issued $4.5 million in a new interest-bearing currency (view examples), redeemable in coin after five years, and receivable for taxes. It too depreciated rapidly after being paid out. In 1781, Congress chartered a fractional-reserve bank, the Bank of North America, the declared purpose of which was to lend funds to the government, and furnish the country with a stable paper currency. Because the notes were redeemable in specie only at the Philadelphia bank, they depreciated everywhere else. In addition, the new Superintendent of Finance, Robert Morris, issued treasury notes, known as "Morris notes," which promised to be redeemable in hard currency at the treasury department at a future date designated on the note. They too depreciated. By means of these three forms of credit currency, Congress purchased supplies, paid the troops, and met interest on its debts. The army, however, continued to give certificates for impressed goods.

Commissary Notes

To serve the needs of the army, the Continental Congress began to issue indented draft certificates. These were basically I.O.U.'s issued by government departments for all types of payments. They became known as "commissary notes" because they were most actively used by the commissary quartermaster, who would seized items needed for the military and leave the owner with a certificate promising future payment.

At the close of the war, these notes became war debts and a major concern of the Confederate Congress. There were notes due to officers and enlisted men for wages, bonuses and pensions; accounts with commissary quartermaster, hospital, and other officers who had disbursed money during the war; and debts owed to individual suppliers. The Congress with little revenue to pay these debts selectively reimbursed individuals. Claims for reimbursement on record in New York State range from 1782 to 1794 and it's doubtful all claims were paid. In many cases, the patriots that had risked their lives and well being, either needing cash or convinced they would never be repaid, had sold their certificates to speculators for a pittance.

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Life of Israel Putnam ("Old Put": Major-General in the Continental Army)
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