By the mid 1700’s the British Empire was about at its peak, however it had fought four costly wars since the creation of its privately controlled central bank. To finance these wars the British parliament borrowed heavily from the bank, a total of £140 million. Surely, the greatest debt the world had ever seen at this time. In an attempt to recoup some of these monies, the British government launched a program of taxation on its colonies. Speaking of America…
In America, there was no central bank… yet. In mid-1700’s America, the population was still relatively poor (as compared to Europeans) and there was a shortage of heavy metal coins that were used in trade for goods. Because of this shortage, the early Americans were forced to experiment with their own form of paper money. They printed their own money. Some were successful, others were not. Benjamin Franklin was an advocate for the colonies’ printing their own money. In 1757, Franklin went to London where he stayed for nearly 18 years until the start of the American Revolution. During this time, the American colonies issued their own paper money called Colonial Scrip. This currency helped to unite the colonies. It was just paper, not backed up by silver or gold. It was a total fiat currency. When responding to a question asked by an official of the Bank of England, regarding the prosperity of the colonies, Franklin replied in 1775:
“That is simple. In the colonies, we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and industry to make the products pass easily from the producers to the consumers. In this manner, creating for ourselves our own paper money, and we have no interest to pay to no one.”
Well, of course the soul-less vultures did not like this. So, the British parliament was cohorts into passing The Currency Act in 1764 which prohibited colonial officials from printing their own money and required them to pay all taxes in gold or silver coins. Benjamin Franklin would later write in his memoirs:
“In one year, the conditions were so reversed that the era of prosperity ended, and a depression set in, to such an extent that the streets of the Colonies were filled with unemployed”.
Franklin went even further in his autobiography:
“The colonies would gladly have borne the little tax on tea and other matters had it not been that England took away from the colonies their money, which created unemployment and dissatisfaction. The inability of the colonists to get power to issue their own money permanently out of the hands of George III and the international bankers was the PRIME reason for the Revolutionary War”.
Yeah, but you’ll never read that in any American text book.
When the first shots of the war were fired on April 19, 1775 in Lexington, MA, the colonies reserves of gold and silver were completely drained by the taxation imposed on them by the British parliament. Therefore, the continental government had no choice but to defy the British parliament and print their own money. At the start of the war, the American money supply was roughly $12 million, at the end of the war, $500 million. The currency was, in effect, useless. Shoes sold for $5000 a pair! Unlike its predecessor, Colonial Scrip, which was issued just enough to ferment the trading of goods, this currency was printed in abundance. Over printed. Out of control. Kind of like today, huh?
“A wagon load of money will scarcely purchase a wagon load of provisions”.
In our present time, those who advocate for a return to a gold (or silver) backed currency point to this period of U.S. history as a reason to denounce fiat based currencies. However, remember that the previous currency worked so well in times of peace that the Bank of England had parliament outlaw it. It was only because of the war that the currency was worthless. War uh-uh what is it good for? Absolutely nothing!
(Part 5 HERE)