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Benjamin Franklin and his Adventures with Paper Currency

Paper Currency

Often, paper currency has been controversial and misunderstood. Why it has value, why that value changes over time, how it influences economic activity, who should be allowed to make it, how it is used and created and controlled, and whether it should exist at all are questions that have perplexed the public, vexed politicians, and challenged economic experts.

Knowing how, when, and why paper money first became common in America and the nature of the institutions issuing it can help us better comprehend paper money’s role in society. Benjamin Franklin dealt often with this topic, and his writings can teach us much about it.

Paper in the Colonies

There are two distinct time periods of paper money in America. The first began in 1690 and ended with the adoption of the U.S. Constitution in 1789. During this first epoch the legislatures of the various colonies (later states) directly issued their own paper money — called bills of credit — to pay for their own governments’ expenses and as mortgage loans to their citizens, who pledged their lands as collateral. This paper money was useful as a circulating medium of exchange for facilitating private trade within the colony/state issuing it.

By legal statute and precedent, people had to use their paper money to pay the taxes. Also, mortgage payments were owed to the issuing government and had to be paid using that specific paper currency, which, in turn, gave that paper a local “currency.” There could be as many different paper monies as there were separate colonies and states.

The United States and Paper Currency

At the 1787 Constitutional Convention, the Founding Fathers took the power to directly issue paper money away from both state and national legislatures. This set the stage for the second time period of paper money in America. It was the ascendance of a government-chartered and -regulated, but privately run, bank-based system of issuing paper money. It is during this time period that we are today.

Labels: banking, benjamin, currency, franklin, money, paper

posted by Don Marchand @ 11:13 PM