CHAPTER XXI. PAPER MONEY, AND ITS USE AS A REVOLUTIONARY CURRENCY. We have still to speak briefly of the circulation of paper money, properly so called, or of bills which do not profess to be immediately convertible into specie. These are sometimes issued by the state, in cases of great emergency, and are then usually called bills of credit. In this form, they are forbidden by the Constitution of the United States, which declares that "no State shall coin money, emit bills of credit, or make anything but gold or silver coin a tender in payment of debts." Bank-notes, also, after the banks have suspended specie payments, so that their notes are no longer convertible into coin on demand, become bills of credit, or paper money. Thus the currency of Great Britain consisted of paper money from 1797, when the Bank of England suspended payment, till 1819, when it resumed. The distinguishing characteristics of such money are, that it is inconvertible, and its circulation is compulsory. Thus, to take the more common form of this currency, which is issued by the authority of the state, when the government has no longer the means of meeting its pecuniary engagements, it begins to make purchases and to pay its debts by issuing, not coin, nor bills immediately convertible into coin, but its own promises to pay at some future time. These "promises to pay" are made legal tender,- that is, creditors are compelled to receive them in satisfaction of their demands. Their circulation is compulsory, then; but the very fact that they are receivable in payment of debts gives them a conventional value. To any person who has money to receive, it matters nothing whether the money possesses intrinsic value or not, or whether the "promise to pay" which it bears upon its face is ever redeemed or not, provided he is sure that he can make payments with it, and cancel his own obligations. Even if the money is undergoing a rapid depreciation, as he does not expect to retain it any time in his possession, but intends to pay it away again the next day, or even the next hour, he knows that it cannot lose much value in his hands, but that it will be worth nearly as much when he parts with it as when he received it. Paper dollars are as good as silver ones, so long as they will cancel debts and effect purchases equally well. Paper money of this kind was issued by nearly all the American Colonies before the period of their separation from England; and from the various degrees of its depreciation in different parts of the country arose the different value of the shilling, which is still with us a popular denomination of account, though not an actual coin, and not recognized in the legal currency. The shilling was the denomination used in the Colonial paper money; and when the shilling had its par value, 4s. 6d. were equal to a silver dollar. But paper shillings became depreciated, so that, in New England, six shillings came to pass for a dollar; in New York, eight, and in Pennsylvania, seven shillings had this value. The names of these "shillings" and "pence" have remained for nearly a century after the disappearance of the reality, and still create much confusion in the popular mode of reckoning money. But the most remarkable experiment of paper money here in America was the Continental currency, as it was called, issued by authority of Congress during the American Revolution. The epithet "Continental," like National or Federal now-a-days, marked the distinction between what was done by the government of the whole Union, and the acts of the separate Colonies or States. In June and July, 1775, to meet the expenses of the war which was seen to be inevitable, and in fact had already commenced at Lexington, Congress, having no other funds, issued three millions of dollars in these bills of credit, with a promise that they should be redeemed in four annual instalments, to commence at the end of four years. The burden of redeeming them was distributed among the several Colonies, in the ratio of their supposed number of inhabitants. The bills were issued in the purchase of provisions and munitions of war, and in the payment of the troops. In November of the same year, the issue of three additional millions became necessary; the annual instalments for redeeming this sum were to begin in eight years. Specie, which had been scarce before, had now almost entirely disappeared from the country, and the "Continental money" was considerably de preciated. So rapidly did this depreciation and the exigencies of the war increase, that in the course of the following year, 1776, fourteen millions more had to be issued. After the issue of the first six millions, no time was fixed for the redemption of the bills. Of course, the depreciation, aggravated by large local issues of the several Colonies, soon became alarming, and futile attempts were made by Congress and the Colonial legislatures to check it. The New England Colonies tried to regulate by law the prices to be paid in this currency for labor and commodities; and Congress resolved, that the bills ought to pass for the same value as Spanish dollars in all dealings and payments, and that all persons who should refuse to take them at this valuation, ought to be considered as "enemies to the United States," and to be punished with forfeitures and other penalties. But the necessary laws of exchange and trade were not to be counteracted by legislative enactments or the patriotism of the people. Additional issues continued to be made, and the paper continued to depreciate, until, in 1780, the amount in circulation was about 200 millions, and 500, even 1,000, dollars in this currency were offered for one in silver.* Then finally the bills ceased to circulate, and became entirely worthless, as dealers would not accept them on any terms. No attempt was subsequently made to cancel the original obligation by redeeming the bills, either in full or in part; for as the depreciation had been gradual, while the bills were rapidly circulating in the community, it had obviously become impossible to measure the exact loss which each holder of them had suffered. To pay the last holder in full would only have aggravated the injustice, by giving him much more than was his due, and leaving his predecessors without any compensa * John Adams, in a letter to the Count de Vergennes (June 22, 1780), gives some curious particulars respecting the enormous prices which were paid for commodities in America in 1779 and 1780, in consequence of this depreciation of the currency. "Bohea tea," he says, "forty sous a pound at L'Orient and Nantes, sold for forty-five dollars. Salt, which costs very little in Europe, and used to be sold for a shilling a bushel, was forty dollars a bushel, and, in some of the other States, two hundred dollars at times. Linens, which cost two livres a yard in France, forty dollars a yard. Broadcloths, a louis d'or a yard here, two hundred dollars a yard. Ironmongery of all sorts, 120 for one. Millinery of all sorts, at an advance far exceeding. These were the prices at Boston. At Philadelphia and in all the other States, they were much higher.”—John Adams's Works, Vol. VII. p. 199. tion whatever. It was justly remarked, that the depreciation of the paper money ought to be considered as a tax, inasmuch as the paper was first issued only to relieve the people from the necessity of paying a tax. Each person through whose hands the money passed parted with it again at a loss, proportioned to the quantity he held and the time he held it. As the currency circulated among the whole people, the rich and poor holding it, and suffering by its depreciation, in proportion to the respective amounts of their cash purchases and sales, the whole loss was divided among them very nearly in just proportion to their ability and liability to pay a tax. The payment of the whole value borne on the face of the bill to one who had received it, perhaps, at the rate of a hundred for one, could have been made only by a second tax on the same persons who had already been fairly and heavily taxed by its depreciation. The history of the paper money issued in France, in the course of the Revolution which commenced in 1789, is perfectly similar to that of the corresponding experiment in America. The French bills of credit, however, as their name (assignats) indicates, were nominally issued upon a basis of real property. The national domains, as they were termed, or the confiscated estates of the crown, the clergy, and the emigrants, were made over, or sold in mass, to the municipalities or towns in which they were respectively situated. These municipalities, not having funds to pay immediately, received the property on long credit, binding themselves to pay in instalments, as fast as they were able to make sales of the estates without sacrifice. The creditors of the state then obtained their dues by receiving orders or assignments (assignats) on the municipalities for a portion of the debt thus due to the The holders of these orders might, if they saw fit, immediately obtain the value of them, by becoming the purchasers of the estates which the municipalities had to sell, and paying for them in assignats. If they preferred to wait, they still had the value of the national domains, and the obligations of the municipalities, as securities for the ultimate payment of the debt. Meanwhile, the assignats themselves were transferable property, which might be exchanged for commodities, or assigned in payment of debts; and to aid the negotiation of state. them, they were made transferable without indorsement, and constituted legal tender; that is, they were converted into paper money, and as the issue of them increased, they displaced the sounder portions of the currency, and became the universal medium of exchange. As the expenditures of the state were heavy, through the war in which it was involved, and as it was an easy process to stamp and issue assignats in satisfaction of all demands, the issue of this paper money soon became excessive, and the inevitable consequence followed, its rapid and great depreciation. This fall in value could not be checked by the sale of the confiscated estates, for, as the currency depreciated, the prices of the national domains, as well as of all other property, rose in the same proportion. The issue began in 1790; and as early as 1793 one franc in silver had come to be worth six francs in assignats. The arbitrary government of the Jacobins, who were then in power, having put in forced circulation the anticipated proceeds of the property, now undertook to sustain the value of its currency by penal enactments. They might as well have enacted laws to prevent the sun from setting at the close of the day. Six years' imprisonment was denounced against any one who should exchange any amount of silver or gold for a greater nominal value of assignats; and a maximum of price was established for bread and the other necessaries of life. The only consequence was, that the owners of grain and other commodities refused to bring them to market at all, and thus what was a scarcity became a famine. The starving people then became furious; the severities formerly exercised only against the nobles, the clergy, and the royalists were now turned against the rich, the farmers of the public revenue, the traders who were accused of monopolizing food and holding it back from sale, &c., and these were sent in crowds to the guillotine. But all the terrors of that period which was emphatically called "the Reign of Terror" were not enough to arrest the depreciation. Bread rose to 22 francs (nominally over $4) a pound, and the prices of other commodities were in proportion. The issue of assignats amounted, in 1796, to the enormous sum of 45,000,000,000 of francs. But the state receipts from taxes, loans, the sale of the national domains, and other causes, had reduced the amount actually in circulation to about |