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Franklin in his Early Days

Benjamin Franklin arrived in Philadelphia in 1723. He was 17 years old. There were about 6,000 people in Philadelphia, at the time. Pennsylvania’s population was about 35,000.

The province was in the doldrums. Franklin recalled seeing many vacant houses for rent, sluggish economic activity, and a decline in permanent residents. He noted that just prior to 1723, foreign trade had stripped Pennsylvania of its gold and silver coins. The colony had exchanged much of its gold and silver coins for manufactured goods imported from Europe. Without this money, local trade within the colony was difficult to transact.

Using gold and silver as money.

In this era, money was used as a medium of exchange between colonies and countries, specifically gold and silver coins. These coins also served as a medium of exchange for internal trade within a colony or country. Pennsylvania did not produce gold or silver and only procured these coins through trade.

Typcially, Pennsylvanians would export goods to Spanish and Portuguese America. In exchange, they would receive gold and silver coins. These coins would be kept in the colony and used as a medium of exchange for internal trade. OR, they would be exported to Europe to pay for manufactured goods.

Franklin's Strange Observation.

If coins were exported, the colony might not have enough money to conduct trade in the colony. Franklin often points to this in his writings. He would say that unless some measures are taken to prevent the export of gold and silver coins, foreign trade would lead to temporary shortages of gold and silver. This would inhibit internal trade within the colony.

The Pennsylvania legislature issued its first paper currency in 1723. It was the modest amount of £15,000 (the equivalent of just over 48,000 Spanish silver dollars). Another £30,000 was issued in 1724. This paper currency was not linked to or backed by gold and silver money. It was backed by...

• the land assets of subjects borrowing paper currency from the government and,


• by the future taxes due the government that would be paid in this paper currency.

After the legislature issued this paper currency, Franklin notes internal trade, employment, new construction, and the number of inhabitants in the province all increased.

Labels: colony, currency, franklin, money, Pennsylvania

posted by Don Marchand @ 11:50 PM 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