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Benjamin Franklin and Adventures with Paper Currency - Part 2

Paper Currency as a Substitute for Money

Between the late 18th and early 20th centuries, banks backed their issuances of paper currency — bank notes — with reserves of gold and silver coins. Under normal conditions, bank notes were convertible at face value on demand into money. Today, gold and silver backing and convertibility conditions have been removed. Now, paper currency only circulates based on the force of the Federal government through legal tender laws.

Benjamin Franklin’s life spans most of the first age of paper currency in the colonies and the United States of America. Arguably, he is its most interested party and ardent defender. He did not create the first paper currency in America, nor was he yet born when it was first used.

Temporary Paper Currency in the Colonies

Early experiments with paper currency began in 1690 in New England. Until the first two decades of the 18th century in the Carolinas, New York, and New Jersey, they used paper currency for limited emergency wartime exercises that were temporary in design. In the 1720s, colonial legislatures started issuing paper currency. The goal was to make it a permanent fixture within their colonies. Pennsylvania was an active leader and the most successful colony in this movement, with no small thanks to Benjamin Franklin.

Permanent Paper Currency in the Colonies

It is the birth of the permanent peacetime paper currency that Franklin was able to benefit. No other American was involved over as long a period of time with so many different facets of colonial paper currency as Benjamin Franklin — certainly no other American with such a preeminent stature in science, statesmanship, and letters.

Franklin arrived in Philadelphia the year paper currency was first issued by Pennsylvania (1723), and soon became a keen observer and commentator on colonial currency. He wrote pamphlets, treatises, and letters about paper currency. He designed and printed paper currency for various colonies. He entertained ideas about and proposed alternative monetary systems.

Lobbying Paper Currency for the United States

As an assemblyman for the colony of Pennsylvania, he was involved in the debates during the 1740s and 1750s over management of its paper currency. As a lobbyist for various colonies to the British court, he dealt with conflicts over colonial paper currency arising between Britain and her colonies in the 1760s and 1770s. Finally, at the end of his life, as one of the preeminent Founding Fathers at the 1787 Constitutional Convention, he participated in constitutionally ending the first age of paper currency (Continentals) and helped usher in the second age of paper currency in America.

Benjamin Franklin is arguably the preeminent authority on paper currency in America in this period.

posted by Don Marchand @ 9:45 AM 0 comments

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 0 comments