USA > Rhode Island > Providence County > Providence > State of Rhode Island and Providence Plantations at the end of the century : a history, Volume 3 > Part 22
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the treasurer's accounts. Repeated votes were taken in favor of burning some of the bills, but the committecs, to which such matters were entrusted, and the treasurer himself were negligent. The assem- bly finally ordered £2,000 burned on April 1, 1714, but, although the audit in 1713 had found a balance in the treasury of £2,900 and £1,000 due from taxes, only £655 8s. 6d. were now on hand, and this sum, with £447 due from the sale of stores and ships, a total of £1,100 8s. 6d. was burned in the presence of the assembly in June. Thus of the £4,000 which should have been redeemed, only about one-fourth part was "sunk" at the time and no further taxes were levied for redemption purposes. In 1715 the paper money party was successful at the polls. All coins had disappeared from circulation by 1713. In 1710 silver bullion had been worth eight shillings New England standard an ounce ; in 1715 an ounce of silver was worth over twelve shillings paper money ; in 1711 exchange on England had risen from its par of 133 1-3 to 140 in Boston.
The struggle between the landed and trading classes then prevailing in England had its counterpart in New England. Massachusetts had issued its first bank in 1714.1 South Carolina had issued a bank in 1712 based on both land and personal property. The success of the landed paper money party in Rhode Island in 1715 gave to it a control of the financial system which was maintained for over fifty years. Two issues of bank notes, amounting to £40,000, were authorized. Bank notes differed in many ways from bills of credit, although the face of the bill and the note were the same and both were colonial promises to pay. The bills had been issued to meet the demands of the treas- ury ; the notes were issued and loaned to individuals on mortgage on lands appraised at double the value of the amount loaned. Borrowers were to pay five per cent. interest. The interest payment was not covered by the mortgage, but was secured by a personal bond of the borrower. The notes were legal tender; they were to be redeemed in ten years by the borrowers, and the law provided for the inspection of titles of mortgaged land and the renewal of both mortgage and interest bonds at the end of five years. The notes were apportioned among the towns according to their last tax assessment and loaned in sums not over £500 nor under £50 to each individual. They seem to have been subscribed for by some of the leading citizens of the colony. The interest on the notes, amounting to £2,000 annually, was to be used one-half for redeeming the outstanding bills of credit and the re- mainer for public expenses.
1In the present discussion bills of credit or the term bills will be applied only to the issues of bills by the colonial government and based only on the government's promise to pay. Bank notes or notes will be applied only to notes issued by the government to private parties on pledges of mortgages on real estate.
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This venture in financial legerdemain had many advantages over an issue of bills of credit. The colony, with no available assets except a few public buildings, with no available income except from fines, which seem to have yielded in 1717 the sum of £1, and small amounts re- ceived from tonnage dues and the sovereign power of taxation which it could not then enforce, loaned its promises to pay to individuals at five per cent. interest and thus got an income from its debts. The government of the merchant classes, which had found it difficult to redeem its pledges with regard to bills of credit, now in the hands of inflationists, began to assist those who had borrowed from it in violat- ing the terms of their agreement to pay. A requirement that the loans should be paid in the issues of the notes borrowed had obvious advan- tages, but it would not have suited the purpose of those who expected to pay their debts without labor. This section of the law was, there- fore, repealed, and payments were allowed in the current money of New England. In 1724, the year before the mortgages were payable, the method of payment was changed to five annual payments with interest, and though in 1728 many had already paid portions of their principal, the payments were refunded and the method of payment was again changed to ten annual installments without interest. The bonds pledged for such payments were called "tenth bonds". Thus the redemption of this issue of notes promised in ten years was de- ferred for twenty-three years and then not completed. The collection of interest was more difficult than the collection of the principal, as the former was secured by a personal bond only, and the leniency of Rhode Island law toward debtors rendered legal process against them difficult to enforce. Borrowers not infrequently sold their mortgaged land and departed from the colony, thus leaving it without means for enforcing its claims for interest. In 1738 purchasers of mortgaged land were therefore required to give bonds for the payment of the interest; otherwise the mortgage was to hold for interest as well as principal and the subsequent laws providing for the issues of notes required that the mortgage cover both interest and principal.
To prevent counterfeiting, bills and notes were numbered and indented. Indenting a bill was a process of printing a scroll across the upper margin of it, corresponding numbers being printed both above and below the scroll. The scroll was then irregularly cut through, usually by shears, and the upper piece retained in the treas- ury ; the bill with its irregularly indented edge being sent into circula- tion. Bills which when presented for redemption did not correspond to the portion of the scroll retained by the treasurer were declared counterfeits. When counterfeits became numerous it was necessary to call in the whole issue of the counterfeited bill and reissue it in another form. The indented bill was used in all issues until 1738. .
The bills of credit of 1710 and the bank notes of 1715 are typical
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204 STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS.
issues of the first period of paper money issues. The assembly never laeked an exeuse for a new issue and the reasons assigned in the pre- ambles of the various aets of emission but thinly disguised the real sentiments of the advocates not only of cheap money but of constantly cheapening money. The colony was in debt; the colony house was out of repair-and to judge from the frequent mention of it, it must have been in a ehronieally dilapidated condition ; previous issues were about to be retired; there was a seareity of small ehange; a more plentiful money medium was necessary for the encouragement of trade; the
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RHODE ISLAND PAPER MONEY, 1738.
fortifications, a subjeet dear to the English authorities, needed re- building, for though a state of war did not exist the imaginations of the Rhode Island legislators readily anticipated one in the near future and preparation for it was important. Changes were rung on these and other exeuses ad nauseam.
The bills and notes were not, however, all issued for publie purposes. That paternalism of government which was normal to the teachings of Mercantilism found here its illustration in a system of assistance to
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PUBLIC AND PRIVATE FINANCE. .
industry by means of bounties. In May, 1721, a loan of £200 was made to Samuel Bissell, a blacksmith of Newport, for "improving the nail trade". In the same year £40,000 bank notes were emitted, and hemp at 8d. and flax at 10d. per pound were receivable in payment of the interest. In the following year an exclusive bounty on duck was granted to William Borden at the rate of £1 for every bolt. Subse- quently Mr. Borden got a loan of £500 for three years with interest, and later another loan of £3,000 for ten years without interest. A bounty on hemp for seven years had been provided by a law of 1721 and it was renewed in 1728. The interest of a bank of £60,000, issued in 1728, was devoted to paying bounties on hemp, flax, whale oil and whalebone. At this time Newport was largely engaged in commerce and ship building, and such measures must have tended to conciliate the commercial interests of the state which were opposed to fiat money. Shrewd political moves on part of the paper money advocates were numerous. One-half the interest of a £40,000 bank issued in 1721 was refunded to the towns "to improve as they shall think fit in the man- agement of their prudential affairs". The interest of the two £100,- 000 banks, emitted in 1733 and 1738, after providing for a few specific objects for a year or two, was divided equally between the colony and the town. In this way from 1722 to 1748 sums varying from £1,000 to £2,900 were annually legislated into the town treasuries. The legislature, however, seems to have been as unable to fulfill its agree- ments in this matter as it had previously been in regard to other similar engagements. In 1735 of the £2,500 due to the towns only £956 18s. 6d. were paid.
From time to time the colony also emitted small sums of bills for treasury purposes. There were also large amounts issued to withdraw counterfeited and old and torn bills from circulation, and as the amounts ordered for these purposes were usually the amounts of the original issue of the denomination in question, while the amounts actually redeemed fell short of the original sum, there was always a large excess of such reissues left for treasury uses. Of an issue of £46,634 in 1726 to redeem counterfeited bills only £30,383 had been called for by 1739 and the surplus in the treasurer's hands was £16,251.
Between 1710 and 1739 inclusive the colony authorized £22,300 of original issues of bills of credit; and £380,000 of original issue of bank notes and it issued £94,701 to redeem counterfeits and old and torn bills and notes-a total of £497,001. During the same period the sum burned was £105,704, leaving outstanding in 1740, £391,297. At the same time Massachusetts seems to have had outstanding about £230,- 000. The amount of the tenth bonds due on the various banks pre- vious to 1740 was £60,000.1
1How much of this sum was included in the £105,704 mentioned as burned
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STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS.
The population of the colony was approximately 24,000, the per capita debt, including all the notes, was nearly £16.3, and excluding the overdue notes about £13.4. The number of borrowers of the £40,000 bank of 1728 was about 550. If the number of borrowers in the other banks outstanding in 1739 were proportionately as numerous, and such an estimate was probably well within the mark, the number of debtors exceeded 4,100, or an average a little higher than one person in every six of the total inhabitants. Of the heads of families it would seem that nearly every one was in debt and that every land owner had burdened his land with mortgages. The state was de- bauched with paper money. Issue after issue had been added to the already depreciating mass by legislators who knew, and whose debtor constituents knew, that each new bank would not only enable them to borrow with greater ease, but that the impetus given to depreciation would enable them to pay their debt in a currency much less valuable than that which they had borrowed. Repudiation was not even thinly disguised and as Collector Kay had declared in 1721, the widows, the orphans and those who had only money incomes suffered most. Numerous acts for the relief of debtors were passed. In 1731 a law granting legal release to insolvent debtors who could make terms with two-thirds of their creditors was enacted, although it was repealed soon afterwards. The courts were crowded with cases and the prisons with debtors. In 1739 the plaintiff in an action was required to pay the board of the defendant while the latter was confined in jail. Debtors refused to pay their obligations and protracted their cases in courts by legal subtleties and appealed to England from judgments obtained against them until in 1750 the assembly voted that appeals to Eng- land, on bonds promising a sum of money only, should no longer be allowed.
The depreciation of paper money is difficult to estimate. The offi- cial reports invariably underestimate the value of silver and figures covering actual transactions in foreign exchange are not sufficiently numerous to be averaged. They thus represent perhaps but for a day or two rather than for lengthy periods the true state of paper depre- ciation.1
As the bills of each of the colonies in New England circulated throughout the others the values of the issues of each was dependent upon the issues of all the others. In 1721 exchange on London was 3.55 for one and though Governor Ward quotes silver at 16s. an ounce, the real price was therefore 18s.
there is no means of knowing. The figures given in the text do not corre- spond with those in the official reports for the reason that such reports were always "doctored" for the occasion.
1Allowance must always be made for the difference already noted between the old England and the New England standard in estimating depreciation by means of rates of exchange.
.
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PUBLIC AND PRIVATE FINANCE.
In the same year an English half-penny was declared equal to three half pennies of local money in all public payments. In 1723 sterling exchange was purchased at a rate of 2.6 paper for 1 of coin. This appreciation of paper may be due to the restrictions on Massachusetts issues, which had been somewhat effective since 1720. Governor Shute and other royal governors in the colonies had been instructed not to allow issues of bills of credit except such as were necessary to meet current expenses of the administration unless approved by the King. These instructions were sent to Governor Cranston of Rhode
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Island in 1724, but were not applicable because a governor had no veto power and could not control the acts of the legislature, and because the charter did not provide for the submission of the acts of the R. I. assembly to the King. From this time until the practical interdiction of paper issues by Parliament in 1751 the value of Rhode Island credit money became largely dependent upon the field offered for its circula- tion in the neighboring colonies. In 1728 Governor Burnett arrived in Massachusetts bearing express instructions not to permit issues of
208
STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS.
bills in excess of £30,000, except with the sanction of His Majesty, and subsequently the order was extended to all the colonics, but this, like the former order, was not observed in Rhode Island. The limitation of paper issues in Massachusetts was a tempting opportunity for the neighboring states. Rhode Island therefore issued £40,000 in 1728, £60,000 in 1731 and £100,000 in 1733, but despite the larger field offered for circulation, these large additions to the currency depreci- ated rapidly. Sterling exchange rose from 2.3 for 1 in 1729 to over 5 for 1 in 1733. The action of Rhode Island aroused the jealousy of the paper money in Massachusetts and government issues being limited by Governor Belcher, a private land bank of £110,000 was issued at a nominal rate of 19s. for an ounce of silver, but the cheaper Rhode Island money, which was then 27s. for an ounce of silver quickly drove the private bank notes from use.
Within the colony itself the hard money party assumed the offensive. A vigorous protest to the issue of 1731 asserted that the course pursued by the assembly in opposition to the express wishes of Parliament en- dangered the charter. The protest was disregarded and the signers sent their objections to England asking the authorities to interfere. Governor Belcher was exercising his veto power effectively in Massa- chusetts, and Governor Jenckes of Rhode Island, being opposed to paper money, placed his dissent at the bottom of the act of emission of 1731. This action caused great dissatisfaction and a special session of the general assembly was convened by the deputy-governor to consider the legality of the veto power thus seemingly assumed by the governor. But there were more fundamental constitutional questions involved than the right of the executive to dissent from an act of the legislature and it is doubtful whether, considering previous instructions which the governor had received from England, directing him to prevent exces- sive issues of paper money, he was not simply conforming to such orders. It is true that the charter had not provided any specific method for the submission of the acts of the assembly to the governor for approval or disapproval, nor to the authorities in England, and the scope of legislative power was limited only by the vague expression that its enactments should conform to the laws of England as far as local circumstances would permit. The Rhode Island general assem- bly, moreover, had interpreted the charter so liberally as to enact all of its laws in entire disregard of English precedent. In this case, how- ever, Governor Jenckes might well doubt that local conditions were such as to warrant the passage of a law in direct opposition to the wishes and orders of the home government. The real question at issue therefore was not only the veto power of the governor, but the deter- mination of whether the home government or the colonial government was to be the final arbiter of the necessity of laws passed in the colony. Not alone the veto power of the governor, but the conditional veto
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PUBLIC AND PRIVATE FINANCE.
power of the home government, clearly implied in the charter, was at stake. Whether the full import of the issue was understood in Rhode Island is not now known. When, however, Governor Jenckes sent to the king a request for decision as to the matter he confined his ques- tions to the veto powers of the governor in general, and failed to ask regarding the validity of this particular law or the method of testing the validity of any law which seemed to contravene the orders of His Majesty. Moreover those who had protested against the act in a petition to the Board of Trade, while distinctly explaining the nature of its illegality, then proceeded to ask the more general but less im- portant question as to the necessity of submitting an act of the legis- lature to the king in council. The questions being thus narrowly limited, the answers of the king's officers could have but one meaning. They simply explained that the governor had no veto power, and that the charter made no provision for the reference of the acts of the legis- lature to the king before they could be considered valid. The validity of the law, they pointed out, did not depend upon the approval of the king, but on its conformity to the laws of England as closely as local conditions would permit. If it did not thus conform it was ipso facto void, but they did not explain who was to determine in any specific case whether a law was or was not void. Thus the replies, like the questions, failed to touch the most vital point involved, but the king's officials hinted at it when they significantly said that it did not then seem expedient to attempt to enforce the law limiting the issues of paper money in the charter colonies. Twenty years later, however, this question was settled by the peremptory law of Parliament, which might equally have been enacted and enforced in 1731.
The paper money party seemed, therefore, to have been sustained by the home government, and at the spring election in 1732 members of the Wanton family, advocates of fiat money, were elected governor and deputy-governor, and the judicial, legislative and executive depart- ments of the colony were vested in the hands of inflationists. This success of the paper money advocates in Rhode Island added to the bitterness of feeling between the chief executive and the legislature in Massachusetts. The legislature desired to issue more paper, and Governors Shute, Dummer, Burnett and Belcher were, one after the other, tired out by the persistence of the Yankees. The first so-called sugar act dates from these years, and thus to the restrictions on colo- nial paper issues was added the restriction on colonial commerce; the two chief causes of the Revolution originated at about the same time.
No further issues were made by Rhode Island until 1738, and as the issues of Massachusetts were limited, the rate of sterling exchange varied but little during the intervening years, being about 5.4 for one. In 1737 Massachusetts issued the first batch of so-called new tenor bills, and in 1739 the general court ordered that no bills of other colonies
14-3
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should be eirculated unless payable in lawful money, i. e., silver and gold. Rhode Island at onee aceepted the situation and in the follow- ing year issued its first bank of new tenor bills, and made them payable in gold and silver bullion. By prophetie eoineidenee the emissions previous to 1738 had borne the motto "In Te Domine Speramus"; those of 1738, the last of the old tenor banks whose eireulation was thus forbidden in Massachusetts, bore the motto "In Te Domine Speravi."
Before deseribing the new tenor period a brief account of the ex- penditures of the peaee period will be presented. No elassifieation of sueh expenditures, however, is possible beeause the treasurer's ae- eounts were kept in alphabetical books and payments were made to individuals, no mention being made of the objects of the payments. The period of peace from 1713 to 1739 was one of eommereial develop- ment. The eentral government emerged from its somewhat experi- mental state. No longer dependent upon loeal taxes for its ineome, the weakness of its authority, previously most eonspieuously shown in its fiseal relations to the towns, eeased, and having the peeuniary resourees
to execute its projects, it began to exercise a degree of sovereignty which before it had only theoretically possessed. A degree of pater- nalism also toward local authority became possible as new towns were set off from the four original towns-sueh new towns being ereatures of the general assembly and deriving their whole powers from it. They were usually composed of the agricultural seetion of the state where the land bank note system had its strongest advocates, and many of them seem to have been created partly at least for the politieal assist- anee which their representatives would give to the party in power. In 1731 Providenee was divided into four towns, three of them being wholly agricultural, and their representatives took their seats in the general assembly for the first time during the heated discussions which have just been described. The dominant party, therefore, represented the new and the country towns, and under such conditions the pater- nalism of the eentral government was mueh morc congenial to the localities than it would have been at an earlier period when the four original towns had comprised the whole eolony. From this time dates that feeling of antagonism between the urban and rural distriets, which had sinee persisted in a marked form. The towns, being polit- ieally in control of the eentral government, also began to depend upon it for assistance. In the first fifty years of the settlements the loeal governments had suffieed for emergent oeeasions and many of the colonial laws merely confirmed local custom. Within this period when an oeeasion arose for the exercise of an unused power the towns began to ask for sueh powers from the general assembly. The town of New- port, for instance, had always imposed taxes in the form of public serviee for the wateh and for mending the roadways-sueh an imposi-
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tion being in the nature of a per capita tax on males of age, but when the right to levy a money tax for these purposes was desired, the authority to do so was asked from and granted by the colonial assem- bly. The colony also exercised its paternal policy in providing for extensive internal improvements. Beginning in 1711 with an appro- priation of £200 for bridges in Providence, large expenditures for many years were made for bridges and highways. Within the town of Newport the principal street was paved by the proceeds of a duty on slaves of £3 eaclı, and when in 1732 the duty was abolished, a lottery was instituted for the same purpose: Piers were erected at Block Island and Point Judith and every material encouragement offered to a growing commerce, while bounties were granted, as we have already seen, for many of the local products. Governor Belcher in Massachu- setts urged the extension of the system of bounties to other agricultural products than hemp. and flax, believing that industry would thereby be stimulated and enough goods produced to offset the unfavorable balance of trade. He thought that the money metals might be retained in circulation and paper issues would then be unnecessary. But his advice was not followed in Massachusetts and its wisdom was not likely to find favor among the farmers of Rhode Island, who believed borrow- ing a much easier way to get money than working for it.
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