The following is the first in a series of articles exploring the history and effects of paper money.
Thomas Paine is well known as one of the Founding Fathers of the United States as well as an author and pamphleteer. In January 1776 Mr. Paine published Common Sense, the pro-independence monograph he anonymously published shortly after his immigration to America in 1774.
Its being stamped into coin adds considerably to its convenience but nothing to its value. It has then no more value than it had before. Its value is not in the impression but in itself. Take away the impression and still the same value remains. Alter it as you will, or expose it to any misfortune that can happen, still the value is not diminished. It has a capacity to resist the accidents that destroy other things. It has, therefore, all the requisite qualities that money can have, and is a fit material to make money of — and nothing which has not all those properties can be fit for the purpose of money.
Paper, considered as a material whereof to make money, has none of the requisite qualities in it. It is too plentiful, and too easily come at. It can be had anywhere, and for a trifle. . . .
But when an assembly undertakes to issue paper as money, the whole system of safety and certainty is overturned, and property set afloat. Paper notes given and taken between individuals as a promise of payment is one thing, but paper issued by an assembly as money is another thing. It is like putting an apparition in the place of a man; it vanishes with looking at it, and nothing remains but the air. . . .
By what power or authority an assembly undertakes to make paper money, is difficult to say. It derives none from the Constitution, for that is silent on the subject. It is one of those things which the people have not delegated, and which, were they at any time assembled together, they would not delegate. It is, therefore, an assumption of power which an assembly is not warranted in, and which may, one day or other, be the means of bringing some of them to punishment.
I shall enumerate some of the evils of paper money and conclude with offering means for preventing them.
One of the evils of paper money is that it turns the whole country into stock jobbers. The precariousness of its value and the uncertainty of its fate continually operate, night and day, to produce this destructive effect. Having no real value in itself it depends for support upon accident, caprice, and party; and as it is the interest of some to depreciate and of others to raise its value, there is a continual invention going on that destroys the morals of the country.
It was horrid to see, and hurtful to recollect, how loose the principles of justice were left, by means of the paper emissions during the war. The experience then had should be a warning to any assembly how they venture to open such a dangerous door again.
As to the romantic, if not hypocritical, tale that a virtuous people need no gold and silver, and that paper will do as well, it requires no other contradiction than the experience we have seen. Though some well-meaning people may be inclined to view it in this light, it is certain that the sharper always talks this language.
There are a set of men who go about making purchases upon credit, and buying estates they have not wherewithal to pay for; and having done this, their next step is to fill the newspapers with paragraphs of the scarcity of money and the necessity of a paper emission, then to have a legal tender under the pretense of supporting its credit, and when out, to depreciate it as fast as they can, get a deal of it for a little price, and cheat their creditors; and this is the concise history of paper money schemes.2
It is very likely that Thomas Paine’s view of paper money was directly influenced by the Continental Congress’ decision to print The Continental – America’s First Paper Money. In order to finance the war effort, this “assembly” had printed $6 million of the new currency by the end of 1775 – increasing the money supply by 50%. By 1779, $100 worth of gold and silver coins (i.e. “specie”) bought $2,600 worth of Continental currency. And by 1781, the same amount of gold and silver coins fetched $16,800 worth of Continental paper money.
Americans soon learned the hard lessons of paper money. In time, the Continental became largely worthless (inspiring the phrase “not worth a Continental”), many people found themselves in debt, and the resulting inflation caused by printing $200 million of the new currency gave “Americans for generations to come a strong bias against paper money.”3