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Inflation in Lilliput

ISSUE:  Spring 1936

The paper money came during a war. It was a very small war; in comparison with those which have followed in a thunderous crescendo, it could be characterized only as minute. But to raise and equip 155 men, with stores and transport, was in 1710 a task which the Assembly of the Colony of Rhode Island and Providence Plantations felt could not be compassed without bills of credit. England’s request for aid against the French in Canada came after several similar demands; there were less than ten thousand whites in the Colony; the store of hard money was small, and was constantly being pumped away by a Mother Country who sold far moire to her New World offspring than she bought from them.

On the face of it, the act was orthodox financing, for the bills were to be redeemed within five years, and were secured by a tax of 1,000 a year, levied for this specific purpose. But paper money is like liquor; it is for those who can take it or leave it alone. It is for cool-headed communities, and Rhode Island was not then, and never has been, a model of political temperance. The flurry of 1710 was the precursor of a storm of paper which was to rage for over seventy years, and which was to be brought to an end (like the N. R. A.) in a legal decision precipitated by a humble butcher. All of the colonies issued paper, but Rhode Island carried the course to the most logical and the most painful end.

Between 1710 and 1715 the country taverns of the Colony echoed with exactly the kind of money talk which troubles the ether in these days. The farmers wanted money and they could see only one way of getting it—by way of the government printing presses. According to the schedule, r3,000 of the 1710 issue were to be burnt in 1713, and an order actually was issued for the burning of .2,000. The fact that the order was disobeyed is an indication of a rising excitement about currency. The people wanted this issue kept in circulation. They wanted even more paper, and they wanted it in the form of a “bank.” The “bank” was an ingenious device said to have been first used in South Carolina. It was an issue of paper money printed by the government and loaned to those of its citizens who offered mortgages on their land as security.

By 1715 the paper-money party was thoroughly established. In that year the Assembly authorized a bank of 40,000, the first of ten issues. The preamble to the first act is worth noting, since it became a stock fixture, to be taken out, dusted up, and used again and again. Very plausibly it cites the reasons for issuing the paper: distress caused by war (“Whereas it hath pleased God to suffer the French and the Indians, our late Enemies, to maintain a long, bloody, and expensive war against His Majesty’s Subjects in these parts of North America”); lack of currency (” . . . it hath reduced the Money of the Colony and other Mediums of Exchange unto a very low Ebb”); hard times (” . . . Trade is sensibly Decayed, the Farmers thereby Discouraged, Husbandmen and others Reduced to great Want and all sorts of Business Languishing, few having wherewith to pay their Arrears”); need for public works (” . . . his Majesty’s Fort, called Fort Anne, is gone much to Decay and almost everything therein out of Repair. . . . also his Majesty’s Gaol in the Metropolis of this Government is calling for speedy and considerable Repairs and Enlargements . . .”).

A similar siren quaintness prefaces the issues which followed, with the alteration that mortal changes turn Fort Anne into Fort George, and that bounties on the manufacture of duck, the growth of flax, and fishing for whale and cod become further reasons for issuing banks. In 1721 another bank of 40,000 was emitted, and in 1728 there was an additional issue of the same amount.

Sixty thousand more pounds in paper were proposed for 1731, but by this time opposition had become organized and vocal. Along with the banks, the Treasury had emitted occasional bills of credit, and the result was that by 1730 close to 150,000 in paper were in circulation. This is a net figure, arrived at by subtracting the 45,000 called in and burnt from the total of 190,000 issued. By 1730 each man, woman, and child in the Colony owed or was owed by way of the Treasury about eight pounds as against a practical zero twenty years before. It is true that the Colony had grown in the meantime (from less than ten thousand to eighteen thousand) and that trade had grown with it, but the growth of population had been, in comparison with the rising debt structure, snail-like. Whether silver was rising during these twenty years or whether paper was falling was probably a matter of semi-religious conviction among those who argued on street corners and across stone walls, but there can be no doubt as to the change in the value placed upon it. In 1710 silver was priced at eight shillings an ounce, but in 1730 it had passed twenty shillings.

The opposition came from the merchants, for whom money must be a yardstick of future value as well as a token for immediate use. The historic schism between farmer and capitalist flared anew. When the fourth bank was proposed, in 1731, the merchants of Newport, thriving in trade and culture, drew up a memorial of protest which they presented to Governor Jenckes. The Governor vetoed the bill authorizing the bank, and furthermore refused to convene the Assembly for any sort of consideration of the matter. He thereby provoked one of those palace revolutions which to this day characterize; the politics of “God’s Cozy Corner.” Deputy-Governor Wanton was quite willing to call a meeting of the Assembly, and did so. The Assembly met and declared in effect that the Governor had, by the Charter, no power of veto. Jenckes carried the matter to London, where it was decided that according to the Charter, the Governor sat only as one of the Assembly and had no more power to nullify any of its acts than did the humblest member.

The result was an important factor in confirming the inhabitants in their testy individualism, and it resulted in a complete triumph for the paper party. The fourth bank, of 60,000, was immediately issued. The next general election carried John Wanton into the Governor’s seat, and Gideon Wanton into the General Treasurer’s office. They celebrated the victory by the issue of a bank of 100,000, followed five years later by a sixth issue of a similar amount.

Two years later another bank was emitted, but it is marked by important differences which lead to the belief that the merciless flow of paper was not having the beneficial effects that its partisans promised. The 1740 issue was small in amount (20,000) and the bills, instead of carrying the naive declaration that each was worth so much in “Money,” were said to be worth a certain weight in sterling alloy. Because of this change, the issue was known as “New Tenor,” and the Assembly tried to fix a scale of value as between it and the depreciated money of former issues. While retaining the principle of paper issues, the Assembly was fumbling for a more stable medium, but it did not cease issuing bills. In 1743-44 the eighth bank, of 40,000, was emitted, and in 1750 a ninth bank, of 25,000, the last until the tenth and most famous bank, which followed the Revolution.

By 1750 the Colony had issued over 750,000 in paper and had called in and burnt less than a third of this amount. The population numbered 35,000 souls, each soul, by this time, being provided with paper currency to an average of slightly over fifteen pounds. Silver was by now twenty-seven shillings the ounce, and prices placed on goods and services had risen in proportion. It was costing more and more to “proclaim the monarch” and more and more to feed the Grand Jury. Feather beds, clothing, and pewter, as inventoried in estates, show a constantly rising value; and while the tight little Colony might be casual as to the integrity of its currency, it was jealous of the integrity of its voters’ list, and in 1740 doubled the amount of the property qualification, raising it from two hundred to four hundred pounds. It cost more and more, also, to keep the land free from wolves. Before 1710 the bounty on wolves was one pound. As soon as paper was issued and the real value of the money fell off, the killing of wolves fell off also. In 1715 the bounty was, therefore, increased to thirty shillings. But by 1717 paper had lost a third of its value, and for this recompense hunters would not face the hardships of scouring the Great Swamp. Step by step the bounty was increased until, in 1739, it stood at thirty pounds. Under this stimulus wolves were finally exterminated, and in a plentiful supply of wool a cornerstone was laid for the textile industry.


When the ninth bank was proposed, opposition again became vocal and organized, with seventy-two of the most substantial merchants sending a petition to the King. Better than any other document, it indicates the unhappy spiral created by successive issues of paper, and it levels an accusing finger at those who were, in the opinion of the merchants, using their political power to escape payment of just debts. The memorial asserts that “the landholders of this Colony, having generally mortgaged their farms or plantations as a security for Bills of Credit they have taken upon Loan, have found it to their interest to multiply such Bills that they may depreciate and lessen in value; and which they have recourse to, as a legal expedient of wiping away their debts without labour.”

London read with pleasure, for both Government and merchants had frowned for years upon the rising flux of paper.

The House of Commons passed resolutions which pointed out, among other things, that whereas, in 1742, 100 sterling were worth from 500 to 550 in Rhode Island currency, by 1749, 100 sterling were worth from 1,050 to 1,100 in Rhode Island currency. A stringent bill was passed which prohibited the issue of bills of credit except in cases of the greatest public emergency, and then only if reasonable provision were made for calling them in, and that within two years. The bill prohibited the passing of any law postponing the time of payment, and ordered those issues already in circulation to be called in at the maturity of loans.

When this news reached the Colony, it created profound impressions: joy on the one side, no doubt, and pain on the other. The Assembly appointed a committee to investigate the signers of the petition “who call themselves inhabitants of this Colony.” But however loud the resentment, this maternal rap across the knuckles had a pronounced disciplinary effect. Thereafter, the Colony seems to have made a sincere effort to make an honest woman of its currency, and the entries show a much larger proportion of paper money burnt than issued. The chests of gold and silver that were sent over by England in payment of war expenses, aided in placing Colonial currencies on a more stable basis. Massachusetts used this specie (plus an heroic direct tax) to sink her paper, and in one degree or another the other colonies followed suit.

In fairness to Rhode Island it should be said that the paper-money fever did not originate within her borders, and that in striving to furnish her citizens with a medium of exchange she was doing only what others were doing. Whether peace would have prevented the inflation is a debatable point, but it is true that the expeditions north and south which grew out of the long struggle between England and France were the bane of the New World’s infant financial structure. New England saw its first paper when, in 1690, Massachusetts issued bills of credit to pay the expenses of Sir William Phipps’ handsome cannonading of Quebec. Subsequent issues up and down the Colonies generally found their impulse in some similar expedition.

Furthermore, the system had contemporary advocates as eloquent as its opponents, although none of the former equalled Dr. MacSparran’s tart: “The Nova Anglians in general, and the Rhode Islanders in particular, are perhaps the only people on earth who have hit on the art of enriching themselves by running into debt.” Governor Ward of Rhode Island wrote: “If this Colony is in any respect flourishing, it is paper money and the right application of it, that hath rendered us so.” Franklin wrote a modest inquiry into the nature and necessity of paper money, which was considered of so much value to the cause that as one result he was awarded the contract for printing the first Pennsylvania issue. “A very profitable job and a great help to me,” he said. Thomas Pownall, who came closer than any other royal governor to being a genuine student of Colonial affairs, said of Pennsylvania’s loan office that “never was a wiser nor better measure, never one better calculated to serve the interests of our increasing country . . .”

It is probable that this homespun currency was better than no money at all, and its success, or lack of success, seems to have rested solely upon the judiciousness of its use. Vermont reacted in exact accordance with the Plymouth Notch tradition. Its single (and almost shamefaced) issue did not come out until the stress of the Revolution had rendered it absolutely necessary; it passed at par during its short life, and at maturity was promptly redeemed and burnt. But in spite of the return to grace which ensued upon the vigorous action in London, the disease remained endemic in Rhode Island, and in the period which followed the War for Independence it became architecturally complete.


The fact that I as a mid-western boy used the phrase, “Not worth a Continental,” without in the least knowing its genesis, indicates a major experience on the part of the race. When the flintlocks banged at Lexington, Spanish milled dollars and paper were practically at par. At the close of the Revolution 100 Spanish milled dollars were worth 16,000 paper dollars.

Yet immediately after the close of the war, paper parties arose in almost every State. In Rhode Island the people clamored for another bank. The Legislature lent a willing ear, the preamble to the act authorizing a bank of 100,-000 stating that “from a variety of causes, political and mercantile, the currency of the State was become insufficient in quantity for the purposes of trade and commerce and for paying the just debts of the inhabitants.”

This time they put teeth into the law. Those merchants and money-changers who, in the opinion of the farmers, sent specie out of the country “to make it dear,” and who cheapened paper by their chariness in accepting it, were to take the money at its face value or suffer for it. If a creditor refused to accept paper he was to be summoned before a special court, there to be tried without jury. If guilty, he could be fined up to one hundred pounds, the debt would be declared satisfied and appeal forever barred, and the offender could never after hold office of trust, honor, or profit in the State.

Thus it was that Rhode Island entered a topsy-turvy period which saw creditors jumping out of windows and hiding in attics in order to avoid debtors bent on paying their obligations. A sour neighbor in Connecticut wrote:

Hail, realm of rogues, renown’d for fraud and guile,

All hail, ye knav’ries of yon little isle;

There prowls the rascal clothed with legal power,

To snare the orphan and the poor devour;

The crafty Knave his creditor besets,

And advertising paper pays his debts.

Bankrupts their creditors with rage pursue, No stop—no mercy from the debtor crew. Armed with new tests, the licensed villain bold Presents his bills, and robs them of their gold; New paper struck, new tests, new tenders made, Insult mankind, and help the thriving trade. Each weekly print new list of cheats proclaims, Proud to enroll their knav’ries and their names; The wiser race, the snares of law to shun, Like Lot from Sodom, from Rhode Island run.

Merchants at length put up their shutters and countrymen retaliated by refusing to bring produce to town. Actual hunger brought riots. Social pressure became a weapon of battle. St. John’s Episcopal Church, Providence, expelled a member for taking advantage of the law to satisfy a debt, as did the Rhode Island Chapter of the Order of the Cincinnati.

It remained, however, for a humble butcher (the Schech-ter of his day) to strike the really telling blow for sanctity of contract and stability of currencies. He must have been humble, for a month before his sudden projection into the arena he was on the relief rolls of Newport. His name was John Weeden, and from him one John Trevett bought meat, offering paper in payment. Weeden refused to receive it, was complained against, arrested, and summoned before a special court of three judges. Friends of hard money placed the most brilliant legal talent in the State at his disposal, including General James W. Varnum, a Revolutionary leader of no mean ability. The case was argued before the judges with what seems, in view of the severance from the mother country, a curious reliance on English law. Varnum made the practical point that Weeden was being called upon to sell for fourpence a pound beef which had cost him sixpence a pound on the hoof, but he spoke also of the Magna Charta, the rights conferred by King John, and of the very inclusive guarantees incorporated in the Charter granted the Colony by King Charles: “. . . all and every the subjects of us, our heirs and successors, which are already planted and settled within said Colony of Providence Plantations, which shall hereafter go to inhabit said Colony, and all and every of their children, which have been born there or on the sea going thither, or returning from thence, shall have and enjoy all liberties and immunities of free and natural subjects within any of the dominions of us, our heirs or successors, to all intents, constructions and purposes whatsoever as if they and every of them were born within the realm of England.”

After what must have been very sober consideration, the judges announced that the case was not within the cognizance of the Court—in plain language, by refusing to take paper the Newport butcher had not committed a crime. If this were the case, then the law lost its teeth: the new money had lost its props and would seek its own natural and dismal level.

In view of Burke’s tribute to the universal legal sense of the Colonists, and in view of their apparent willingness to wage a grueling war in defense of principle, the naive surprise of the Legislature at finding that there was a body which could act as a check on its laws is surprising. Such is the fact; one can sense the alarm not only that this particular act should fall, but that there should be an agency which could defy the “supreme authority” of the law-making body.

The judges were immediately summoned to attend upon the Legislature. They placed their defense in the hands of their youngest member, David Howell. As far as can be learned, none of the three had ever practiced law, but Howell had taught Mathematics and Natural Philosophy at Rhode Island College (now Brown University) and a later distinguished legal career indicates a knowledge of law. Howell repeated the reasons which had led the judges to decide that the case was not within their cognizance, but this point made, the rest of the session resolved itself into a six-hour seminar, with the young professor (he was still under forty) instructing the legislators in their own folkways, with special reference to the fact that there are certain rights which even legislatures cannot invade, and that courts are constituted to protect these rights.

Ideally, he should have swayed his hearers into compliance, but the immediate result was a motion dismissing the judges from office. They countered at once with a memorial to the Speaker of the House, and with this move the tide began to turn, probably because the members of the Assembly could think of no method, short of physical violence, of punishing those who had been set up as dispensers of punishment. Some of the ablest members spoke cautiously in favor of the judges, and the latter were finally dismissed from further attendance on the Legislature. The people had their revenge, however, for at the next election none of the three was returned to office, although the Chief Justice, who had kept discretely aloof from the whole matter, was re-elected.

This was a turning point, but it was by no means the end of the excitement. It was seriously proposed in convention, although the plan never got as far as the Legislature, that a committee be appointed and empowered to regulate all trade, fix prices, and compel the transfer of property. Gold and silver were to be held in the iron grip of the State and were not to be sent abroad freely at the will of its owners. The Rhode Island scene at this time drew a vigorous rebuke from Washington: “Rhode Island still perseveres in that impolitic, unjust, and one might add, scandalous conduct which seems to have marked all her councils of late.” General Varnum replied that the legislation was “equally reprobated by the whole mercantile body, by most of the respectable farmers, and mechanics. The majority of the administration,” he wrote, “is composed of a licentious number of men, destitute of education, and many of them devoid of principle. From anarchy and confusion they derive their temporary consequence. . . . It is fortunate, however, that the wealth and resources of the State are chiefly in the possession of the well affected and they are entirely devoted to the public good.”

The “well-affected” were, in fact, then fumbling with the forces which probably decided the issue. They were the most active proponents of the Federal system, and when, after a long and tantalizing delay, Rhode Island joined the Federal union (thereby probably saving herself from being split into even smaller units), the power to print and coin money passed out of the hands of the Legislature. Shortly before this event, the bills of the last bank having fallen very low, the law which made them legal tender was repealed. In 1793 the burning of the issue began, and ten years later all but 4,000 had been destroyed. A law was passed making gold and silver the only legal tender in the State. Private banks were chartered and the whir of the spinning jenny began to be heard in the land. The dominant interest changed with startling rapidity from agriculture to industry. In the course of the next century, Rhode Island became as perfect an exemplar of the hard-money system favored by the capitalist as it had been of the paper-money system favored by the agrarian.


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