If money rules the world, what happens when there just isn’t enough of it? This was a problem faced by many of Britain’s North American colonies in the early 18th century. Metal coins were the currency of choice, but they were scarce. And while wholesalers could often do business on credit, it wasn’t so easy for small farmers or wage laborers. As historian Katie A. Moore writes, colonies like Pennsylvania developed an innovative solution: government loans to farmers in the form of banknotes, which could then be circulated throughout the colony’s economy.
The spur that propelled Pennsylvania’s creation of the new currency was a depression that began in 1720. The downturn was in part the result of growing competition from other flour producers, a major export for the colony. There was also a credit crunch associated with the South Seas bubble. But, Moore argues, the biggest problem was lack of money.
Rawle identified the currency issue as a particular problem for the poor, who sometimes simply could not find enough silver or copper to buy basic necessities.
Merchant and MP Francis Rawle pushed for the issuance of paper money. He identified the currency issue as a particular problem for the poor, who sometimes simply could not find enough silver or copper to buy basic necessities. The idea was widespread, and in 1723 the provincial assembly approved the issue of paper money.
The new system allowed the colony’s government to grant landowners loans equal to half the value of their land. They then repaid the loan with interest over time, preventing too much paper money from circulating in the economy. Decades later, philosopher David Hume described Pennsylvania’s monetary system as one in which “the land itself, the principal commodity, is minted and circulated.”
Traders expressed their confidence in the new currency and immediately began using it, which helped legitimize the new system. Within a year, the influx of money led to a full economic recovery of the colony.
Paper money wasn’t universally useful – it didn’t work, for example, to repay British creditors. It also gave landowners, who actually received the loans, an advantage over artisans and wage laborers. Moore notes that lawmakers could have given direct credit to working-class people, who often depended on personal credit from merchants and moneylenders.
Nonetheless, paper money was popular across the Pennsylvania political spectrum. When Britain sent the colony a new governor, Patrick Gordon, with instructions to halt further printing of paper money, Gordon realized that to intervene would anger the provincial assembly, which was responsible for paying his salary. So he found ways to circumvent the mother country’s rules and keep the money flowing, declaring that “no one in the province is a truer and more sincere friend of this currency than I am.”
Even after Parliament passed the Currency Act of 1764, which banned paper money from being legal tender in British America, many in Pennsylvania continued to use their local currency.
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By: Katie A Moore
History of Pennsylvania: A Journal of Mid-Atlantic Studies, Vol. 3, No. 83, No. 4 (Autumn 2016), pp. 529-557
Penn State University Press
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