8. THE AMERICAN REVOLUTION
By the mid-1700s, the British Empire was approaching its height of power around the world. Britain had fought four wars in Europe since the creation of its privately-owned central bank, the Bank of England. The cost had had been high. To finance these wars, the British Parliament, rather than issuing its own debt-free currency, had borrowed heavily from the Bank.
By thie mid-1700s, the government's debt was £140,000,000 - a staggering sum for those days. Consequently, the British government embarked on a program of trying to raise revenues from its American colonies in order to make the interest payments to the Bank.
But in America, it was a different story. The scourge of a privately-owned central bank had not yet landed in America, though the Bank of England exerted its baneful influence over the American colonies after 1694.
Four years earlier, in 1690 the Massachusetts Bay colony printed its own paper money - the first in America. This was followed in 1703 by South Carolina and then by other colonies. In the mid-1700s, pre-Revolutionary America was still relatively poor. There was a severe shortage of precious metal coins to trade for goods, so the early colonists were increasingly forced to experiment with printing their own home-grown paper money. Some of these experiments were successful. Tobacco was used as money in some colonies with success.
In 1720 every colonial Royal Governor was instructed to curtail the issue of colonial money. This was largely unsuccessful. In 1742 the British Resumption Act required that taxes and other debts be paid in gold. This caused a depression in the colonies - property was seized on foreclosure by the rich for one-tenth its value.
Benjamin Franklin was a big supporter ofthe colonies printing their own money. In 1757, Franklin was sent to London to fight for colonial paper money. He ended up staying for the next 18 years - nearly until the start of the American Revolution. During this period, ignoring Parliament, more American colonies began to issue their own money.
Called Colonial Scrip, the endeavor was successful, with notable exceptions. It provided a reliable medium of exchange, and it also helped to provide a feeling of unity between the colonies. Remember, most Colonial Scrip was just paper money - debt-free money - printed in the public interest and not really backed by gold or silver coin. In other words, it was a fiat currency.
Officials of the Bank of England asked Franklin how he would account for the new-found prosperity of the colonies. Without hesitation he replied:
"That is simple. In the colonies we issue our own money. It is called Colonial Scrip. We issue it in proper proportion to the demands of trade and tndustry to make the products pass easily from the producers to the consumers…
In this manner, creating for ourselves our own paper money, we control its purchasing power, and we have no interest to pay to no one."
This was just common sense to Franklin, but you can imagine the impact it had at the Bank of England. America had learned the secret of money, and that genie had to be returned to its bottle as soon as possible.
As a result, Parliament hurriedly passed the Currency Act of 1764. This prohibited colonial officials from issuing their own money and ordered them to pay all future taxes in gold or silver coins. In other words, it forced the colonies on a gold and silver standard. This initiated the first intense phase of the first "Bank War" in America, which ended in defeat for the Money Changers beginning with the Declaration of Independence, and concluded by the subsequent peace Treaty of Paris 1783.
For those who believe that a gold standard is the answer for America's current moneta problems, look what happened to America afer the Currency Act of 1764 was passed. Writing in his autobiography, Franklin said:
"In one year, the conditions were so reversed that the era of prosperiy ended, and a depression set in, to such an exten that the streets of the Colonies were filled with unemployed."
Franklin claims that this was even the basic cause for the American Revolution. As Franklin put it in his autobiography:
"The Colonies would gladly have borne the little tax on teaand other matters had it not been that England took away from the Colonies their money, which created unemployment and dissatisfaction."
In 1774, Parliament passed the Stamp Act which required that a stamp be placed on ever instrument of commerce indicating payment of tax in gold, which threatened the colonial paper money again. Less than two weeks later, the Massachusetts Committee of Safety passed a resolution directing the issuance of more colonial currency and honoring the currency of other colonies.
On June 10 and June 22, 1775, the "Congress of the Colonies" resolved to issue million in paper money based on the credit and faith of the "United Colonies". This flew in the face of the Bank of England and Parliament. It constituted an act of defiance, a refusal to accept a monetary system unjust to the people of the colonies.
"Thus the bills of credit [ie. paper money] which historians with ignorance or preiudice have belitled as instruments of reckless financial policy, were really the standards of the Revolution. They were more than this: they were the Revolution itself." - Alexander Del Mar, historian
By the time the first shots were fired in Concord and Lexington, Massachusetts on April 19, 1775, the colonies had been drained of gold and silver coin by British taxation. As result, the Continental government had no choice but to print its own paper money to finance the war.
At the start of the Revolution, the U.S. (colonial) money supply stood at $12 million. By the end of the war, it was nearly $500 plion. This was partly a result of massive British counterfeiting. As a result, the currency was virtually worthless. Shoes sold for $5,000 a pair.
George Washington lamented, "A wagon load of money will scarcely purchase awagon of provisions."
Earlier, Colonial scrip had worked because just enough was issued to facilitate trade and counterfeiting was minimal. Today, those who support a gold-backed currency point to this period during the Revolution to demonstrate the evils of a fiat currency. But remember, the currency had worked so well twenty years earlier during times of peace that the of England had Parliament outlaw it, and during the war the British deliberately sought to undermine it by counterfeiting it in England and shipping it "by the bale" to the colonies.
Acknowledgement and credits
The Money Masters: How International Bankers Gained Control of America
Produced by Patrick S. J. Carmack
Directed by Bill Still
Royalty Production Company 1998