In 1641, in the Plymouth colony, corn was made a legal tender for the payment of debts, "to save the debtor from the inequity of forcing him to great sacrifices in conse quence of the scarcity of the money of the realm." About 1650 the exports of Mas sachusetts were bringing in returns of gold and silver Spanish coins. In 1652 a mint was Bet up in Boston to make a set of coitus for home circulation, and the colonists made laws to impede the circulation of Spanish coins in order to drive them to the mint; thus recognizing, what every nation sooner or later learns, that for domestic exchanges a non exportable currency is desirable. For some time later the lack of any sufficient recog nized money in the New England colonies caused the tax collectors to be authorized to receive corn, cattle, furs. and lumber for taxes, and the local authorities were'obliged to furnish accommodation for these commodities; but "lank cattle" were refused. In 1655 was still received for taxes at the rate of six shells to the penny, and the limitation to 12d. as legal tender does not seem to have applied to taxes. In 1675 it was ordered by the Massachusetts colonial council that "instead of transporting bar ter payments of taxes to and from the treasury, the transfers should be male by paper orders." In 1686 a bank of issue sprang into existence and soon went out. The mint was discontinued in 1688. In. 1690 the colony issued notes for about one-seventh of the debt contracted by a disastrous expedition against the French iu Canada, and made them receivable for taxes and for goods paid into the treasury for taxes. In 1652 a pre mium of 5 per cent over coin was allowed at the colonial treasury for these bills, and they remained at par for 20 years.
In Connecticut about this time different kinds of money were scaled in psyments. Plain "pay" was barter at the government rates. " 3Ioney" was Spanish or New Eng land_ coin and wampum for change; 12d. "pay" equaled 6d. "money." After 1700 Massachusetts issued paper money to a moderate extent. It was received for taxes and held at par with coin. In 1700 to 1711 Massachusetts, New Hampshire, Rhode Connecticut, New York, and New Jersey joined in an expedition against Canada. The first colony increased its paper money moderately, and Rhode Island immoderately, and lengthened the term for its payment. The arts of banking were at this time engaging the attention of schemers the world over. John Coleman in Boston proposed a plan to issue notes on land security. The council did not permit him, but did itself in 1715 " bank," thst is, issue, £30,000 of notes payable in coin in 10 years. The time of pay ment was deferred as the term approached. In 1721 another " bank " of money was issued, drawing interest to the government, payable in hemp or flax.
In 1723 Pennsylvania authorized the issue of colonial paper money to the amount of £15,000, to be apportioned among its counties according to the amount of their taxable property, and to he loaned by the county commissioners for 16 years at 5 per cent inter est, and one-sixteenth of the principal, annually. Notes paid back during the first ten Years were to be loaned again for the remainder of the period. In 1729, when Benjamin Franklin commenced the publication of his first newspaper, the question of an addi tional issue was being discussed. About 40 years afterwards Franklin, in his autobiog raphy, thus alludes to the subject: "About this time there was a cry among the people for more paper money; only £15,000 being extant in the province, and that soon to be sunk. The wealthy inhabitants opposed any addition, being against all paper currency, from the apprehension that it would depreciate, as it had done in New England, to the injury of all creditors. We had discussed this point in our junta, where I was on the side of all addition; being persuaded that the first small sum struck in 1723 had done much good by increasing the trade, employment, and number of inhabitants in the prov ince; since I now saw all the old houses inhabited, and many new ones building; whereas I remembered well, when I first walked about the streets of Philadelphia, eating my roll, IFaw ninny of the houses in Walnut street between Second and Front streets, with hills on their doors "to be let," which made me think the inhabitants of the city were one after another deserting it. Our debates possessed me so full of the subject that I-wrote and printed an anonymous pamphlet entitled The and .Necessity of a Paper Carrenc,y, The utility of this currency became by time and experience so evi dent, that the principles upon which it was founded were never afterwards much dis puted; so that it grew soon to £55,000; and in 1739 to £80,000; trade, building, and inhabitants all the while increasing. Though I now think there are limits beyond which the quantity may be hurtful" (Spark's Franklin, vol. i, pp. 90-92).
About 1720 the commissioners of the New England colonies became alarmed at the tendency to further increase of paper notes for money, and recommended its stop. The English parliament forbade banking except under its charter, and forbade the colonial governments from emitting bills. Later the restriction was modified to permit an issue
for government expenses only. In 1789 a "land bank" was set in operation in Phila delphia, which loaned its notes for 3 per cent per annum interest, and 5 per cent in prin cipal, both payable in merchandise. This is one of the first American examples of the fertile banking which secures a payment of merchandise for the loan of a debt. This bank became a strong factor in politics, and as fortunes were to be made throvgh it by the managers without any capital risked by them, they could afford to aoitate energeti cally. "The land bank," says Sumner, "resisted its fate by social and political intrigues." In 1740 parliament required its wind up, but it managed to evade the requirement. The history of the shifts made use of to take up, to pay, and to re-issue paper money in Massachusetts and the other New England colonies for the next a years, is simply the example of how legislation, controlled first by men with one interest, and then by men of another interest, without any philosophic, disinterested statesman ship to harmonize conflicting interests, can keep up a financial agitation injurious to all parties. The history of the colonial paper money issues of Pennsylvania, on the other hand, which started on a more sound and philosophic basis, is much more satisfactory; and although in the end the original chart was lost sight of, the benefits far outweighed the injury resulting from their excesses. _ The French alliance in 1779 enabled congress to borrow money, and it attempted to limit the outstanding issues of paper money to $200,000,000, but did not. The loss of value of the entire issue became complete in 1781, and havin,g been gradual as it passed from hand to hand through several years came to be regarded in light of an involun tary tax for the maintenance of the war, which in general had fallen severely on people according to their means, though in cases it produced shameful wrongs. But, says if it saved the state it also polluted the equity of our laws." In Jan., 1732, the bank of North America, chartered with a capital of $400,000, opened in Philadelphia. It was a private hank, having the confidence and support of the Continental congress. $70,000 in specie were put into its capital by citizens, and the remainder by the government in specie or foreign exchange out of a foreign loan. The hank had its origin in a union of Philadelphia citizens to supply the army. They issued the hank's notes in pay for them. Gouge, in his History of Paper Money and Banking in the U. S., published in 1833, shows that it was a mistake to suppose that that bank aided the government; as its stockholders only paid in $70,009, or seven-fortieths of its capital. The government deposited $254,000. and was credited by Robert Morris with that amount of stock in the bank. The individual directors thus acquired the power to circulate $400,000 in the bank's notes, and loaned the government and others their own money and the $400,000 additional money which the government's deposits and sanc tion soon made current at par. The dividends were soon from 12 to, I6 per cent for the stockholders, with fat liVings for the organizers. "In 1783," .%4's Gouge, "the effects of its operation began to be apparent: A temporary plentifulness of money, followed by great scarcity, usury, ruin to the many, riches to the few." In 1785 the Pennsyl vania legislature repealed the bank's charter, but it continued operations by virtue of the congressional charter, and managed to get a renewal afterwards front the state by means of its great monetary influence. From the beginning of 1780 till the close of the war hard money is said to have been plenty; caused by considerable sums disbursed by the French and British armies, by the loan made to the government, and by commerce with the West Indies. Frame spent $3,000,000 in specie to meet her army and navy expenses, besides what came through her as loans. Such was the flux of specie to America then that in both France and England the drain was seriously felt.
In 1787 the clause in the new federal constitution that no state "shall coin money, emit bills of credit, or make anything but gold or silver coin a tender in payment of debts" would seem to have forever barred a state, not only from issuing bills of credit, but from giving charters to banks of issue; as it seems absurd that a state legislature may delegate a power to private corporations which the constitution has denied to the state itself. But the profits of the bank of North America in Philadelphia had stimu lated banking; Massachusetts, New York, and Maryland gave charters to banks which the U. S. courts did not abrogate. The system of state banks thus begun did not ter minate till congress wrestled with the subject and suppressed them during the great rebellion. In 1791 congress chartered the first U. S. bank. See NATIONAL BANKS and PAPER MONEY OF THE UNITED STATES. About 60 state bank charters were issued prior to 1800. Their subsequent increase and separate history in each state is without the pale of this article.