USA > Massachusetts > Commonwealth history of Massachusetts, colony, province and state, volume 2 > Part 19
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While the foregoing acts were limited as to time, they are typical of the revenue legislation enacted year after year. As the colony increased in population and wealth, the total amount of revenue from these taxes naturally increased, but little effort was made to seek new sources of supply. Doubtless this habit of inertia in tax policy was subsequently influenced by a growing reliance to meet expenditures through the issue of bills of credit or promissory notes, which simply postponed the date of final settlement of obligations, but at the moment appeared to be a solution of fiscal needs.
ADDITIONAL ISSUES OF PAPER MONEY (1694-1701)
The first issue of £7,000 of bills of credit was quickly "found to be far short" of what was necessary, and within a
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few months the sum was raised to £40,000. To make them more acceptable for circulation, it was then authorized that they be receivable for taxes at a premium of five per cent ; that is, 20 shillings of indented bills would be accepted for 21 shillings of public dues. The range of denominations was extended from 2 shillings to 10 pounds. Provision was also made that holders of the bills who would loan them to the government were to be specifically secured by taxes and reim- bursed within twelve months.
These two first issues, however, did not represent the rampant spirit of inflation such as was seen a few years later. The colonial government in the French War was involved in a serious fiscal situation which had to be quickly met; and in pledging taxes and redemption within a year if the bills were loaned back to the treasurer, the General Court evidently regarded the issues as temporary financial measures rather than a means of supplying a more abundant medium of exchange.
At first there was some depreciation of the bills, due to distrust. The government of the colony was unsettled, owing to changes taking place in England in 1689 when William and Mary came to the throne; and undoubtedly the novelty of this new form of currency led to hesitation as to its acceptance in the general course of trade. In some cases, it is stated, the holders were glad to get rid of them at a rate of twelve to thirteen shillings to the pound.
Within two years after issue the entire amount was re- deemed, but the legislators did not abandon this easy method of meeting immediate governmental expenditures. During the next ten years, further issues, amounting to £42,000, were authorized under more than a dozen different acts. Taxes however, accompanied each issue, and the total amount of taxes equalled the issues. Redemption went hand in hand with forced borrowings, in anticipation of taxes. As redemption was constant, distrust practically disappeared, and there was little depreciation after the first shock.
IRREDEEMABLE ISSUES (1702-1713)
Another war with France, Queen Anne's War, which lasted from 1702 until 1713, imposed new financial burdens upon the
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Province. Massachusetts settlements were threatened by the French and Indians; Deerfield was destroyed in 1704; and, nearer the seat of government, Haverhill was attacked in 1707. An expedition against Port Royal (1707) proved unsuccessful. To protect home hamlets and to finance distant expeditions required funds.
Hence the issue of bills of credit was speeded up, while there was a slackening in measures taken to secure retirement. In 1705 the redemption of bills issued in that year was put off until 1707; a two-year extension instead of a one-year interval marked a wavering in public faith. For the issues emitted between 1706 and 1711, the redemption period was prolonged to three years; then five years; and for those put out in 1715 the redemption date was seven years away, 1722. In only two years between 1702 and 1713, the period of war, were the retirements as great as the issues, and in two of the years not a single note was called in. The figures for out- standing notes tell in bold outlines the story of the error which brought so much confusion and hardship. In 1710 the amount outstanding was £115,000; in 1720, £229,500; in 1730, £311,- 300; in 1740, £205,000; and in 1750, £1,819,800. As a contemporary writer notes : "Thus naturally, instead of provid- ing for posterity, they proceeded to involve them in debt."
LOAN BILLS AND LOAN BANKS (1705-1729)
In Massachusetts, private banks to loan notes based upon real estate, personal security and merchandise, were advocated in the latter part of the seventeenth century, and some experi- ments were made in that direction. Of their history, little is known; they were certainly short-lived, and it is probable that the issue of government notes in 1690 checked the development of institutions of this character. There was, however, a growing demand that private individuals be permitted to form partnerships to emit bills on security. In 1711, the provincial assembly authorized a loan to merchants to enable them to furnish supplies for an expedition against Quebec. The loan was to be paid back in two years, as it was expected that re- imbursement would be made by the home government within that period. Inasmuch as the expedition failed, the accounts
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were not promptly settled and the bills circulated beyond the due date. The foregoing method was a step toward private initiative in the circulation of notes; and it was easy to argue that groups of individuals be given greater privileges.
If notes were advantageous for carrying on the affairs of government, might they not be serviceable to private indi- viduals for trade and commerce? The provincial Assembly, however, was loth to surrender its prerogative of issue, and there was substituted a rival scheme for the establishment of a public bank. In 1714 a more general loan of £50,000 was authorized, open to the inhabitants of the province to borrow on real estate security. The General Court was solicitous that this loan should be available to all, and hence provided that it should be apportioned to the several towns according to the amount they contributed in taxes.
This was but a beginning of public loans made for promot- ing the trade and produce of the province. In 1716 another loan of £100,000 was made to the people, distributed through the counties ; in 1721, £50,000 was loaned to towns; and again in 1728, £60,000 to towns. The towns in turn loaned the amount apportioned to them in small sums to individuals who applied for credit. In Haverhill, the loans were limited to amounts ranging from £10 to £20; in Braintree, not less than £20 or more than £25, at six per cent interest for the loan of 1720; and for the loan of 1728, the amounts ranged between £10 and £40. In Newbury the limits were £10 and £30; the town paid four per cent interest and charged five per cent. These figures indicate that the class of small proprietors who were in financial difficulties advocated the extension of public credit, and through it obtained temporary aid. Few of these loans were liquidated by the towns, according to the terms of the loan, and some of them were never fully paid.
As might be expected, the continued issue of non-redeen- able paper money plunged the colony into financial disorder, and this continued through the first half of the eighteenth century. It affected both the political relationships of the colony to England and the social and economic development of the province. The experience of this period is in striking contrast to the stirring exploits of settlement and upbuilding of institutions in the previous century.
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VALUATION OF COINS (1642-1713)
The experience of this period, however depressing, is never- theless most significant for the correct understanding of the causes which led the colony to take a leading part later in the Revolution of 1775. As a by-product, the period also furnishes a social laboratory experiment which clearly illustrates the inevitable operation of economic laws.
To understand fully the significance of the long altercation over the currency, it is necessary to explain more fully certain monetary terms and technical operations which are not familiar to present-day life. The early colonists kept their accounts and made their reckonings in trade in terms of English pounds, shillings and pence. They, however, had very few of the coins which corresponded to these units. Rather they used the Indian wampum, such commodities as beaver skins, corn, and country produce, or the coins of Spanish American colonies. The most familiar Spanish coin was the piece of eight reals, later known as the dollar. There were several varieties of the piece of eight, the Seville, Pillar, and Mexico being the most common, varying slightly in content of pure silver. These differences, however, may be neglected and 386.89 grains of silver accepted as the standard weight of an ounce. An Eng- lish shilling contained 85.93 grains of pure silver; conse- quently the value of a piece of eight at the period of the first settlements was 4s. 6d.
If this relationship between the dollar and the English money of account had been continued there would have been less confusion in subsequent controversy and legislation. Un- fortunately the colonists at an early date took a misstep which led them into still worse difficulties. Back in 1642 the General Court, to avoid misunderstandings which might arise in regard to the value of the foreign coin, declared that the Spanish dollar was worth 5 shillings. This over-valuation of sixpence to the dollar was also due to a belief that, by making the coin worth more in Massachusetts than it was abroad, the coin would stay in its new home and not be exported. It must also be remembered that expert knowledge and advice was not then available as to the real value of the motley variety of coins which followed the opening up of the mines of Mexico
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and South America. By the foregoing action the legal specie content of the shilling was in reality 77.38 grains of silver, instead of 85.93.
This tampering with the mint ratio of true valuation was not at the time serious, inasmuch as many of the Spanish coins which came in were below full weight, having been clipped or otherwise mutilated. The legislation prepared the way, how- ever, for the next error. In 1652 Hull's duly and legally authorized mint began the coinage of the celebrated "Pine Tree" shillings which had only 66.6 grains of silver. This was a depreciation of 221/2 per cent. In other words, the piece of eight was made equal to about 6 shillings of colonial coinage. Other colonies were following the same policy of over-valua- tion in the hope of preventing exportation of coins.
Finally this confusion aroused the home government to action; in 1704 a royal proclamation was issued ordering that the Spanish piece of eight should not be valued at more than 6 shillings-a relation which continued in the New England mind till near the end of the nineteenth century. Some of the colonies, however, found an easy way to avoid this restric- tion, by a legal valuation of an ounce of silver, instead of the silver dollar. Massachusetts at first did not seek this policy of evasion, but later adopted it in order to legalize depreciation.
CONFLICTS WITH GOVERNORS OVER FINANCE (1703-1727)
The governors, who received their instructions from Eng- land, attempted to curb the General Court in its issues of paper money. This effort was unsuccessful. Inasmuch as the gover- nor's salary was paid by the colony, and not by the Crown, the provincial Assembly quickly found that it could force the governor to assent to measures to which he was opposed both by conviction and by instructions from England. Bills could be redeemed only by taxation, and the legislative branch main- tained a jealous attitude over this privilege. In 1703, Gover- nor Dudley cautioned the Court that it make "good the votes of the last Assemblies in raising the tax for the bills already issued;" in 1708 he was "sensible of the great service and benefit we have by bills of credit;" but "it behooves us to be
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very jealous of their disparagement." Again in 1712 he called for legislation which would "honor" the outstanding bills. Little attention was given to this advice. When in 1715 the representatives decided that only a part of the bills due that year should be called in, and the governor protested that this would lead to further depreciation, the legislators gave no heed.
Governor Shute, who succeeded Dudley, was even more explicit in his demands and referred to the "intolerable dis- count" on bills : "We shall never be upon a firm and lasting foundation 'til we recover and return to silver and gold, the only true species of money." In 1721 he was instructed by the English Board of Trade, which supervised colonial affairs, to submit to the Crown for approval all acts authorizing the issue of bills of credit, unless the same were put out to meet necessary charges. The representatives quickly seized the opportunity to uphold their prerogatives. They asked if bills issued to meet charges for salaries, including his own, came within his discretion without submission to the Crown. The Governor, who was dependent upon the legislature for his salary, decided that an appropriation of this nature was a "necessary charge" and did not require royal approval.
In 1727 Lieutenant-Governor Dummer objected to an issue to be loaned to the towns; the representatives retaliated by refusing to pass a tax bill. For months the dispute continued, and salaries were held up. Finally Dummer gave way, signed the loan bill, and wrote to the Lords of Trade that he was in a "difficult and dangerous place."
GOVERNOR BELCHER'S DISTRESS (1730-1741)
Governor Belcher took office in 1730 with more explicit in- structions. Disbursements were to be controlled by the gover- nor and Council; if these were less, the need of emissions would not be so great. The representatives, however, had the whip hand and again refused to make appropriations for salaries. This resulted in the accumulation of a large amount of unfunded public indebtedness. Finally in 1733 authority was granted for the issue of £76,500 in bills of credit, and once more the paper money advocates won. Belcher, however, was warned by the home government that, if he yielded again, it
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would be "under pain of our greatest displeasure and of being immediately recalled."
The plight of the governor under these circumstances is well illustrated by the complaints which that Governor re- peatedly made during his term of office. In a letter to the Board of Trade, October 29, 1731, he wrote that he had "in- dustriously labored" with the Assembly to allow him £3,000 instead of the £1,000 granted to Governor Shute. Owing to depreciation, £3,500 of province currency was worth only £1,000 sterling, and all additional perquisites amounted to only £100 sterling. He hoped that the English government would permit him to receive the salary granted, even though the As- sembly did not conform to the royal instructions not to emit bills of credit. "It cannot be judged just, reasonable, or honorable, that I must live upon air, or consume my own fortune."
He also noted that there was at that time nearly £20,000 due for the support of the military garrisons and other services, and not a shilling in the treasury for many months. "Nor will the representatives grant any money unless they can have the supervising and proving every account." And to another correspondent he wrote that he was having a "hard, cruel time of it."
In 1732 he again informed the Lords of Trade that more than £40,000 was due the garrisons for nineteen months' pay. By 1734 the pay for soldiers and salaries for judges was nearly three years in arrears. As for himself, Belcher declared that his £3,000 salary was not worth £750, and did not defray his annual expenses. Later he accused the Assembly of trying to starve him for not signing a bill for the emission of new credit notes. In 1741, when he lost his position, the arrears in his salary amounted to £14,000.
NEW TENOR BILLS (1730-1741)
Although the Assembly was willing to sacrifice Belcher and the other officials appointed by the English government and subject them to financial embarrassment, in order to assert its own independence of control, it did make some effort in the decade 1730-1740 to reform the currency. During this period
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the currency disorder was aggravated by the circulation in Massachusetts of Rhode Island bills of credit and by private notes issued by Boston merchants upon their own credit. Further depreciation took place and silver rose from 19 shil- lings (paper) to 27 shillings per ounce. Governor Belcher seized the opportunity to press the need of remedial legislation, and recommended the issue of bills which should "carry the value of money." The Assembly was not willing to abandon totally its former position, but did modify its faith in depreci- ated currency. It made a compromise by an issue of bills of credit, in form such as had been emitted in the past, combined with another issue of twenty-shilling notes, equal in value to three ounces of coined silver. It was also ordered that these should circulate at the rate of one for three of the old tenor.
This latter issue was an approximate return to the value laid down in the Proclamation of 1704. These bills were technically known as new tenor, as distinguished from the previous issues, which were henceforth known as old tenor bills. It was difficult, however, at that time to undo the accumulated errors of forty years. Popular opposi- tion was raised to any decrease in the old tenor bills; large emissions were demanded in the interest of trade; and deputies from some of the towns were instructed to withhold supply bills unless the new tenor bills were withdrawn, since they appeared to disparage the old tenor bills. On the other hand, the English government gave instructions that all bills must be retired by 1741. A slight progress was made in that direction ; more bills were retired than issued, and the amount outstanding reduced from £311,300 in 1730 to £205,000 in 1740. Inasmuch as the annual tax levy at that time did not average £30,000, it is difficult to see how the royal instructions to retire the bills could have been enforced without aid from England, or else the imposition of a heavy loss upon the holders of notes. The colonists were not disposed to consent to the heavy tax rate which immediate retirement demanded.
DEPRECIATION OF PAPER MONEY (1704-1750)
As the result of the excessive and repeated issues of paper notes, the bills depreciated in value and all the evils of inflation
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appeared. Prices rose; exchange with England was disorgan- ized, and commercial dealings were infected with speculation. The evidence of depreciation is seen in the quoted prices of an ounce of silver. At the time of the royal proclamation in 1704, establishing the rates of foreign coins as measured in colonial money units, an ounce of silver was worth 7 shillings. In 1712 it was worth 8 shillings in Massachusetts bills; in 1720, 12 shillings; in 1725, 16 shillings; and ten years later, 27 shillings.
Hutchinson, intimately acquainted with the affairs of the colony, states that in 1720, "the depreciation was grievous to all creditors, but particularly distressing to the clergy and other salary men, to widows and orphans whose estates con- sisted of money at interest, perhaps just enough to support them, and being reduced to one-half the former value, they found themselves of a sudden in a state of poverty and want." Possessors of notes and obligations not due for several years were defrauded of one-half their dues when settlement was made ; for owing to the increase of prices, the purchasing power of money was lessened proportionately. Lessors on long leases lost more than half of the rent of their land. Public officials, when salaries were not increased, had equal cause for com- plaint.
Laborers, mechanics and all persons who were paid wages suffered, for prices of commodities increased more than wages. Butter, for example, rose from 4d. a pound in 1712 to 20d. in 1740, while the wage of a carpenter rose from 5 shillings a day to 12 shillings. In so far as butter represented the food cost of living, this increased 5 times, while the wage increased only 2 and 2/5 times. At the earlier date the carpenter could purchase 15 pounds of butter with a day's work; in the later year, only 7 pounds.
A minister, who for forty years kept a careful record of household accounts, stated in 1747 that certain supplies which cost £1 10sh. 10d. at the beginning of the century, had ad- vanced in price to £15 2sh. 6d. Wheat had risen from 5sh. per bushel to 25sh; Indian corn from 3sh. to 20sh; beef from 21/2d. a pound to 1sh. 6d; and shoes from 5sh. to 60sh. In a few towns, as in Weymouth, the minister's salary was auto-
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matically adjusted to the price level as measured in wheat, rye, pork and beef.
COMMERCIAL AND SOCIAL EFFECTS OF INFLATION
(1704-1750)
Trade with England was embarrassed. There was no stabil- ity in the rate of exchange on London. In 1700, the province was practically on a specie basis, and exchange was quoted at its normal par rate, namely, 133 1/3. Exchange mounted to 270 in 1722; 500 in 1737; and 1100 in 1749. Still further evils appeared, besides those due to violent fluctuations in foreign exchange. English merchants who exported goods to the colony suffered great loss. They sold on long-time credit, for the colonists were in no position to meet sight drafts; and if they sold in terms of Massachusetts money of account, they lost by the depreciation of the notes. Agents or factors living in Boston, who imported on credit and had to settle with their English correspondents in silver, were often ruined. Peter Faneuil in 1737 announced to his foreign correspondents that he would accept no more commission business from anyone, owing to the "badness" of trade; for shopkeepers were twelve months and sometimes two years behind in payment.
Fluctuating prices created instability in economic and social life. As another writer expressed it, the whole country is "utterly unhinged and no man knows what to ask for what he sells, nor what he receives for his labor or commodity." The bills of credit were never explicitly declared to be legal tender for private transactions, indirectly, however, they were given this quality. In 1712 it was enacted that a tender of bills would stay an execution by court procedure. In other words, the creditor could not enforce by judicial processes the payment of a debt if offered paper.
Inflation had more far-reaching effects than creating eco- nomic disorder. Traders and merchants were stimulated to speculate when prices were constantly advancing. Stocks of goods purchased today were sure to be worth more, measured in money units, in the not distant future. Merchants pur- chased freely from England and increased the market for luxuries. "The people had thereby means put into their hands
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of gratifying their gay and sensual dispositions. . . . The issue and consequence of these things is that the affectation and use of gayety, costly buildings, still and other strong liquors, palatable though unhealthy diet, rageth with great impetuosity." And another writer described the situation by this sweeping verdict: "The longer we go on in this method of yearly emitting bills, the more will our vanity and sensual- ity, oppression, unrighteousness, and confusion increase."
PRIVATE EFFORTS TO FLOAT NOTES (1714-1746)
Reference has already been made to the loan bills or loan banks established under government authority, beginning with 1714. Owing to the scarcity of money, there were many who favored also private banks which should have power to issue notes and make loans. A project of this nature was urgently put forward in 1714 as a substitute for the loan bank, and a legislative committee reported in favor of such an institution. " 'Tis not propounded to be a bank of money (which is liable to inexpressible and unforeseen hazards), but of credit to be given forth by bills; not on money advanced, as in other banks, but (on lands or goods aforesaid) to supply such as cannot get money."
Naught came of this plan, for the legislature preferred to keep control of all issues. A Boston merchant, John Colman, was one of the petitioners for this bank; and though unsuccess- ful, he did not allow the proposal to go unheeded. In 1720 he published a pamphlet, The Distressed State of the Town of Boston and Humbly Proposed Methods for Redress, in which he rehearsed once more the embarrassments occasioned by an inadequate supply of a monetary medium and advocated the establishment of a private bank to be founded by owners of real estate. Upon the basis of this property, notes could be safely issued and loaned.
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