USA > Pennsylvania > History of proprietary government in Pennsylvania > Part 35
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1 " Such credit as far as may be necessary to supply the want of coin may be very useful, but if it jostle out the use of coin, as some have proposed, it is most dangerous," Ibid., p. 65. " Some paper credits may be allowed with a prospect that they may stand good against all attempts or accidents that may endanger its reputation ; but if general and too much, the more likely to fall and sink under its own weight. If care be not taken at the same time to preserve gold and silver, which must support it and make it useful, we may soon experience a great want of valuable riches, and have in its room only what is imaginary," Ibid., p. 66.
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power of the government to force their circulation at par, would insure them against depreciation. They asserted, moreover, that the scheme to lend out sums on lands or plate as security to be discharged by annual payments with interest, was not unjust or dangerous. The pledge given was more than equal to the sum received, while the interest itself was not an incon- siderable element. They maintained that, when gold and silver might be had in New York, or elsewhere, in exchange for paper, one was as good as the other; because the value of a thing depended upon the amount it would purchase. They thought that, if the whole sum issued was small, it would not answer the immediate exigencies of those who had good secur- ity to offer. A longer time also for sinking the notes, they believed, would help many to effect what might be to their own advantage and to that of the country at large. They were an- swered in turn by long criticisms, notably on the last state- ments, showing the popular fallacies therein and favoring public credit, but not all sorts of ill-devised schemes. It was proved that the price of gold and silver depended on supply and de- mand.I If the people made it evident that they estimated them as less valuable than specie, all would so consider them. The amount of the security2 made no practical difference, and would
1 " Bullion or coin, when exchanged for commodities or the commodities them- selves, may be esteemed higher or lower, according to the plenty or scarcity of the bullion or coin, or of the commodities." Ibid., pp. 30-31.
2 " It cannot be pretended that any fund or security can be more infallible than land ; but paper currency, though land be its foundation, if intended as running cash, will never pass as money longer than money may be had for such bills as soon as demanded. When that falls, such bills will fall under a disrepute, occa- sion confusion, and stop trade and payments, though the security be unquestion- able. A law to make bills or tallies a good tender, would have little better suc- cess than the allowing of coin of different values; and force will rather be a disre- pute and make them ineffectual, than be a credit, and create opposition rather than facilitate the taking of them. * * * Though people should take notes issued out upon land security, payable on demand, yet any suspicion that they should not have money for such bills on demand, will occasion a general run, because such bills will not serve them longer than money may be had for them on demand. The
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certainly add nothing to their value. Clearly, if a man possessed £50 in bills of credit, though a security of £100 were given by him at the time of his first taking the currency, in event of depreciation, the security would not compensate for the loss ;" because, when he returned the bills, the security would be discharged by the payment, no matter what the real worth of the currency might be at that time. No force exerted by the government could compel its circulation for any length of time at a parity, or at a fixed ratio with specie.2 Paper money, if issued at all, should be primarily for a circulating medium, but not to scale down debts."3
people's occasions will always make a great difference between what they have lent out on mortgages and what they have laid out on such notes, being what they designed for their running cash. * * If it be found that our coin is not suf- ficient to supply our present occasions, bills or notes issued out upon funds or land security of a sufficient value, payable at certain times, with a running interest, may supply the deficit, it not appearing impossible to make such bills or notes as secure and as valuable as any mortgage of lands or bonds, and as desirable as money, and to continue in that regard till there be a failure of payment. But nothing but having a prospect that coin will be ready to pay such bills at their respective times, can make them be preferred to money, or preserve the reputation of such bills, or any paper credit, but the having the money ready to make a punctual payment at the time agreed. * * * No such bills can be brought into practice for marketing and petty expenses, * * * and when any failure happens, a stop will be put to the currency of the bills, and give preference to coin." Ibid., pp. 71,73-75.
1 " If a gentleman hath an estate in land and money, if he should squander his money on a supposition that bills of credit issued out chargeable on his land may do as well, he would not long be the true owner, either of land or money." Ibid., p. 65.
2 " Unless ready money can be obtained for such bills on demand, the bills are not likely to pass as money, further than as the law may be compulsory, which may be impossible to reach future contracts, and therefore of such little use in dealings as may not make amends for the hardships they will put upon creditors at the time of passing such an act. Nothing is [more ] likely to occasion the hoarding of money than the people's being possessed with fear that, if they part with it, they shall have such notes or tallies forced upon them in exchange for it ; for being that they cannot be converted into money until they become payable on the funds on which they were issued, it cannot be expected that they should be willingly taken." Ibid., pp. 71, 72.
3 " Paper credit may come in as an aid in case of want, but is not to be depended
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However valid these objections might be, they could not prevail against the urgent necessity for an increase in the me- dium of circulation, and the rapidly-growing sentiment in favor of the issue of bills of credit. Still, considerable doubt pre- vailed as to the form and method to be employed in their issue. Those which had been hitherto issued in the colonies were based on one of two foundations-either on the credit of future dues and taxes by which in time they were to be redeemed, as in New York and South Carolina, or on pledges, and redeemed by the borrowers repaying the bills into the treasury at stated intervals, as in New England. As long as the amount issued was kept within proper bounds, the latter method was far safer and more feasible. Then the advisability of the establishment of a provincial bank' or office to loan the bills at interest to borrowers on deposit of satisfactory security was discussed. While opinions on this scheme were being freely circulated, Gov. Keith offered some suggestions. He thought that, what- ever might be the amount issued, if a part of it, varying ac- cording to the time for which it was to run, was returned to the loan office yearly, it might be lent out again at 5 per cent. for any period within the term of issue, to such persons as could not use the first loan. Every person according to his ability could thus share " in that advantage which the public * * * offers
on, as its origin and existence are from credit and opinion, that must be obtained with a prospect that it will continue. Bank notes on good foundation may pass from hand to hand as money, and be useful as long as there is good assurance that such notes will be discharged by money at the time specified for the payment of them, yet it will never be esteemed as coin, because it will only serve as a pledge to gain time for the payment of money, but not answer the ends designed by money, i. e., to pay debts, which can be no more done by such bank notes than a mort- gage that is transferred from one to another can be said to be discharged till the money be paid off by the mortgager, and deed cancelled." Ibid., pp. 76, 78.
1 As early as 1689, a plan for the establishment of a bank had been submitted to the council. Though no immediate encouragement was given, Gov. Black- well expressed the opinion that the petitioners might issue personal notes to such as would receive them as money; but on account of the danger of counterfeiting, he doubted the expediency of the undertaking. Col. Rec., i, p. 236.
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to the necessities of the people." If a large proportion of the entire sum issued came in annually in order to be loaned again, it would in great measure prevent the accumulation of the bills in the hands of individuals, and would help considerably the circulation of them. It would also give frequent opportunity to discover frauds, and gradually increase the revenue of the bank. By this means, the original sum would be sunk within the time specified. Hence, at the end of the term for which the bills were issued, either they would be found in the loan office or their value in cash ready to pay what should then happen by accident to be left outstanding. He believed also that, if too great security were demanded for the loan of the bills, the design of relieving many industrious people would be frustrated. One-half the value of lands, one-third the value of houses and personal estate, and nearly the entire value of ground-rents, he thought, might be safely lent to those "will- ing and able to give such security," and that, since the king could repeal the law at any time within five years after its en- actment, the duration of the term of issue need not be too definitely fixed.1
After several petitions concerning the amount to be issued had been received in the assembly, a number of motions on this head were made and negatived. Then £12,000 was agreed upon as the proper amount. A suggestion to loan this at 6 per cent. was also negatived. Thereupon the assem- bly resolved that the bills should pass current for five years at 5 per cent., it being left to the choice of the borrower to pay off sooner the principal, or any part of the sum he had received, provided it was not less than one-fourth at a time. The security to be deposited should be three times the value of the amount loaned, if in bonds, and five times its value, if in houses. But the proceedings of the assembly did not give satisfaction, for in November, 1722, several petitions were pre- sented, praying that the paper money should be made to
1 Votes, ii, pp. 342-3.
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affect former contracts, and should continue current longer than ten years. It was also desired that the sum to be issued should be increased; that the security should be lessened ; and that the method of redemption should be such as to extinguish both principal and interest together. Thereupon, March 2, 1723, the assembly passed a law for the issue from a provin- cial bank or loan office, and in denominations varying from one shilling to twenty shillings, of £15,000 in bills of credit. They were to be signed by agents, men of financial standing in the province, who were expressly named in the act; and a loan office, with four trustees, was established at Philadel- phia. The bills should be loaned for eight years at 5 per cent. per annum, and were to be secured by a mortgage on fee simple estates in land or ground-rents, or for one year on plate at the same rate of interest. The trustees, before accepting any lands, houses, or ground-rents as security, should ascer- tain what the value of the estates was, whether the title was good, and if they were free from encumbrances. The bills were intended chiefly for the " benefit of the poor and indus- trious, at an easy interest to relieve them from difficulties, which end could not be well performed if any one person should be allowed to take up too great a sum." Hence, in order to "prevent the splitting of any man's land into parcels by alienating it to others in trust, in order thereby to get greater amounts, and to prevent frauds and abuses in mort- gaging lands," the applicant had to show that the property offered was held in his own right, was free from any encum- brances, and had not been conveyed to him for the purpose of raising money on loan for others. The amount loaned to any applicant, moreover, was not to be less than £12, 10sh., or more than £100, unless at the expiration of four months after the opening of the loan office any part of the sum voted should remain undisposed of. In this case an applicant might have £200. The trustees were to take a security on the
1 Votes, ii, p. 341 et seq.
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value of lands or ground-rents of at least double, and on houses of three times the amount loaned. The mortgage was to be executed in the presence of two witnesses, acknowledged before a justice of the peace, and duly enrolled in the loan office at the expense of the applicant. The loans should be repaid in annual installments of one-eighth, either in current money or in bills of credit. These installments should be en- dorsed on the back of the mortgage. At the last payment the mortgage was of course given up. In default of payment within two months after the installment became due, the mort- gager might be proceeded against by scire facias. If he did not appear at the day of return, or pay what was due, the mortgaged premises could be sold. The quantity received by these yearly payments at the loan office, was to be appro- priated for the purchase of other bills; and all so returned were to be sunk and destroyed. The interest should be dis- posed of as the assembly might direct. A committee of that body was yearly to audit the accounts of the trustees and provincial treasurer, and to certify the fact by public adver- tisement, showing the quantity of money received, and then in the hands of the trustees. The paper money, as well as country produce, was " to be equal to all current coin for the discharging of all debts, bonds, mortgages, and other contracts, already made, or hereafter to be made, either for sterling, silver, dollars, or any other species of gold or silver." Refusal to receive it, or the attempt to dispose of commodities for specie at a cheaper rate, was to be punished with fine. Any person who did so refuse the bills, should, in addition to the fine, lose his debt, and be deprived of action for recovery. Severe penalties were also provided against counterfeiting.1 Of the
1 In October, 1683, a case of counterfeiting was tried before Penn and the council. The offender was sentenced to make satisfaction to the injured party, to pay a fine, and to give security for good behavior. Soon after a proclamation was issued to cry down " new bitts and New England shillings," Col. Rec., i, pp. 84-88.
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£15,000 issued, £2,500 was appropriated for the payment of public debts and salaries, while £1,500 was divided in loans among the counties. It was expected that the provincial treasury would be reimbursed from the customs and excise ; and an annual tax of Id. per { was added to the regular county levy to discharge the county loan. As a compensation for this unwarrantable appropriation of the excise, £1,800, arising annually from the 5 per cent. interest on the bills loaned, was reserved for the support of government.I The hope of temporary release from the burden of taxation-always a plausible pretext-assured support for this currency scheme. Some doubt, however, arose over the question whether or not the estate offered as security should be free from encum- brances, for the land was subject to proprietary rents and reservations. Hence the trustees, by an act passed the following May, were instructed to ascertain the clear value of the pro- perty over and above such reservations, and to loan to the mortgager bills of credit to the amount of one-third of its clear value.2
No sooner had paper money thus issued begun to circulate than numerous petitions for an increase of it were presented. Thereupon, December 12, 1723, a bill was passed for the emission of £30,000 additional. This was to be loaned at 5 per cent. interest for a period of twelve and one-half years, and in amounts not greater than £200 or less than £12, 10sh. If within eight months any part of the £30,000 was still undis- posed of, an applicant might have £500. The bills, as they were returned, could be annually reissued in lots of two- twenty-fifths of each loan, till the expiration of the period specified, at which time the entire amount should be redeemed and cancelled. Precautions, also, were taken against counter- feiting by changes in the devices printed on the bills; and the trustees were given corporate powers.3
1 Votes, ii, p. 344; Bradford, Laws of Pa.
2 Bradford, Laws of Pa. 3 Ibid.
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The issue of these bills gave the province considerable relief. Trade revived and prosperity seemed to be restored. Gov. Keith, however, was forbidden by instructions from the trustees of the government to assent to any further acts for the issue of paper money.I Still, in 1724, he suggested to the assembly the passage of a bill to lessen the yearly payments into the loan office by continuing the currency already issued for a reasonable time longer than was provided in the acts for its emission. This, it was believed, would meet the demands of those who were anxious for further issues. Moreover, the annual redemption and de- struction of the bills greatly reduced their quantity; while those in circulation were often in very poor condition. Therefore an act soon after was passed providing that the principal annually paid should be reissued for six years. The bills reissued yearly should be cancelled within the time pro- vided for redeeming the original sums. Also, on urgent re- quest, a sum of £10,000 in small bills was to be printed and exchanged for such as were ragged and torn.2
The paper money was regarded with disfavor in England, although strong representations were sent from Pennsylvania showing the benefits which had resulted from it. It was shown that the later issues had not lessened the value of the bills, but that the discount upon them was diminishing and seemed likely to disappear. Still the Board of Trade would have recommended the repeal of the acts, had not many persons come into possession of the bills. As it was, the Board gave warning that care should be observed in prop- erly redeeming them, while the governor was ordered to con- sent to no further emission under pain of its disallowance.3
In spite of the fact that the paper money had greatly bene-
1 American Broadsides, Mrs. Penn to Sir William Keith, May 26, 1724.
2 Bradford, Laws of Pa.
3 Gov. Gordon to the Board of Trade, Dec. 15, 1726; Pa. Arch., Ist series, i, p. 186; Votes, iii, p. 5.
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fited trade, the increase of population-particularly from immi- gration-and the diffusion of the currency incident thereto, caused considerable depression. The frugal and industrious kept what they had. The merchants in general scarcely knew how to invest. Those who desired to stir up contention against Gov. Gordon, who favored a cautious policy in issuing the bills of credit, hinted that the letter from the Board of Trade had been procured for the occasion. Thereupon, in October 1728, the assembly declared that the increase in commerce and immigration, the want of currency to discharge contracts made with English merchants and their factors in the colonies, and provision for the support of government ne- cessitated a further emission of paper money. Hence a bill for the issue of £50,000 was passed. Gordon, fearing that it would be repealed by the crown, and being desirous that some features which would make it less offensive to his superiors might be introduced, reminded the assembly of the threat uttered by the Board of Trade, and requested it to enact that the bill should remain unenforced till it received the king's approval. At the same time he urged various modifications-notably that the bills should circulate for a shorter period, that the amount proposed should be reduced, and that a stipulation for the pay- ment of quit-rents in sterling should be introduced. Then the assembly suggested that £40,000 be issued at 4 per cent. for 16 years; but he insisted on the issue of £25,000 at 5 per cent. for 10 years.' After some conference a compromise was reached, May 10, 1729, by which £30,000 should be issued at 5 per cent. for 16 years, in sums not exceeding £300, or less than £12, 10 sh. to any one person. Special care was taken to guard against counterfeiting, in that the trustees or their repre- sentatives were required to be present at the printing of the bills, and personally to take charge of the apparatus.2 It will thus be seen that the governor's contentions were unheeded. Still, he promised to aid in securing the acceptance of the act
1 Col. Rec., iii, pp. 346-58. 2 Bradford, Laws of Pa.
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in England, since there was danger that any attempt to have it repealed would provoke a furious outbreak against the pro- prietary party in the province. An English agent, F. J. Paris, was accordingly appointed to procure the acceptance of the act; and addresses were sent to the king and to the pro- prietors. These energetic efforts were successful, for the measure was not repealed.I
We have seen that the trustees were ordered to render to a committee of the assembly an annual account of the loan office. These committees met with great delay, and were put to con- siderable trouble by the trustees in arriving at a knowledge of the true state of the office. Also a report was spread that the office had been robbed, and one of the trustees told such a plausible story of the burglary, that for some time he escaped suspicion. But careful investigation proved that he had ap- propriated for his own use a large amount of the bills of credit, and that the supposed robbery was a myth. Suspicion, if not positive evidence of complicity in the crime on the part of some of the other trustees, induced the assembly in 1730 to appoint new trustees, and to provide for the punishment of the principal embezzlers.2 Moreover, as the position of trustee had attached to it great influence over persons, estates, and votes at election, complaint was made against their being capable of sit- ting in assembly. Thereupon an agreement resulted by which they were to be removed quadrennially.3
In 1731 the assembly presented a bill for reissuing and con- tinuing the paper money which by former acts was to be re- deemed and destroyed, besides a further issue of £40,000 to be exchanged for torn and ragged bills. All those also which had been issued before 1728 were not to pass current after 1731. In his reply Gordon referred to the prejudice among British merchants against increasing the supply of paper money, as
1 P. L. B., i, Proprietors to Logan, April, 1730.
2 Pa. Arch., Ist series, i, p. 272 et seq .; Franklin, Laws of Pa.
3 Votes, iii, pp. 149, 150, 200-202.
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well as the necessity for a clause suspending the execution of the act until the pleasure of the king could be known." But he eventually agreed to pass it. In the law the procedure of the loan office was very carefully regulated, and in addition to what we have noticed in the discussion of the previous laws, the fol- lowing provisions were made: The bills were to be numbered and signed by four persons, who should take oath or affirmation for the true signing and delivering of them to the trustees, and who should also keep an account of all that they had thus signed and delivered. The trustees, whose number was now increased to five, should give a receipt for their delivery. They were, moreover, required to take oath or affirmation, and give security to the provincial treasurer for a faithful perform- ance of their duties. They were, of course, to have the bills printed 2 according to a form specified in the act. In order to establish the identity of the original bills, counterparts of them should also be printed and numbered, but not signed. " Of the bills and their counterparts the trustees should keep accurate accounts, to which a committee of the assembly should have access. The duty of this committee was to ascertain whether the sums at which the bills might be loaned were exceeded, and to inform the public of the general transactions of the office. In the presence of this committee, moreover, after the bills had been compared with their counterparts, and their number and values properly noted, they should be cancelled and destroyed.3
Since the introduction of paper money into Pennsylvania, the pound sterling was rated at 1.3373, and exchange had risen over 70 per cent. As debts were to be paid in provincial
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