USA > Rhode Island > Providence County > Providence > State of Rhode Island and Providence Plantations at the end of the century : a history, Volume 3 > Part 24
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The large issues of lawful money from 1758 to 1762, although their interest rate caused them to be hoarded and though their payment was pledged by taxes and by the receipts from England in payment of war expenses, depreciated, being in 1762 at five per cent. discount. The two taxes of £19,000levied in 1763 and 1764 brough them to par in the latter year and they remained so until the outbreak of the Revolution. From 1756 until 1774 there were issued of lawful money bills £96,909 and of old tenor £240,000. During the same period the treasurer seems to have borrowed £9,000 lawful money and £210,000 old tenor. From 1756 to 1764 there was received from England in payment of expendi- tures for war £56,928 4s. 3d. sterling, equivalent to £75,904 5s. 11d. law- ful money. Taxes were assessed amounting to £157,015 in lawful money and also £686,687 in old tenor. The old tenor taxes reduced to lawful money at the various times levied amounted to about £35,000. In the twenty years, therefore, from 1754 to 1774, the taxes levied amounted to about £192,000 lawful money, an average of £9,600 annually. Tak- ing the average population at 50,000, the annual per capita tax was less than 3s. 10d.
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STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS.
The permanent debt, which began in 1752, accumulated during the seven years war and in 1764 was about £70,000 sterling or £93,300 New England standard. In 1775 it had been reduced to about £4,000.1
The colonial and state finanees of the Revolution are inseparable from those of congress and the eonfederation. The colony, however, attempted to meet the extraordinary demands made upon the treasury in this period as it had those of the previous sixty years-by the issue of paper money. The bills issued in the early part of 1775, amount- ing to £40,000, carried interest at 2 1-2 per cent. and were redeemable by taxes one-half at the end of periods of two and five years. They were not legal tender. In June, 1775, the continental congress began to issue bills of eredit and in August they were made legal tender, and the same quality was given to subsequent colony and state issues. A colony issue of £20,000, ordered in November, carried no interest and as the other colonies had generally issued non-interest bearing bills, Rhode Island recalled its interest bearing bills. In January, 1776, it ordered that interest should cease on them. They were redeemed by another issue of £40,000 and by the proceeds of the first assignment of continental money to the state by congress in payment of war expenses. The colony elaims against congress in January, 1776, were about £150,000. A partial payment of £120,000 was received from congress. During these two years the colony issued £152,000 of bills of credit, those in 1776 being due six years from date. In December of the latter year a price convention was held in Providence; goods had already begun to rise and money to depreciate, and it was recommended by the states there assembled that no more paper issues be made except in extreme emergeneies and that taxation and loans be solely depended on as financial resources. The recommendation was followed in letter at least by Rhode Island? for four years. The treasurer was at onee ordered to hire £40,000 and to give his notes for it, payable in two years and bearing six per cent. interest. No note was to be issued for a less sum than £10. A tax was to be levied to redeem the notes, but in ease that was impracticable they were to continue to bear interest at the usual rate among the states. In the following February £50,000 of treasury notes were issued bearing only four per cent. interest. The time of payment was not specified and though the former issue had been receivable for taxes the latter issue was made full legal tender. The difference between these treasury notes and the bills of credit was therefore one of form only. They at once depreciated, but as continental bills had come into general circulation and had depre- ciated even more, the state treasury notes were hoarded. Early in 1776 specie had disappeared from circulation and a committee of fifty
1The authorities do not agree on this amount, but all place it between £3,000 and £4,000.
2There was one minor exception in May, 1777.
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PUBLIC AND PRIVATE FINANCE.
appointed to collect coin for use in the Canadian expedition got only $1,173.
Most of the subsequent borrowings of the state were made in antici- pation of taxes, and taxation, begun early in 1777, was the main source of income until many years after the adoption of the federal constitu- tion.
The financial war measures of the continental congress may be divided into two periods, separated by the date of March, 1780. Dur- ing the first period congress attempted to secure its income not only by
No. 312
DEN SHILLINGS.
THE. PoHeffor of chir BILL thall be paid; by the Tiea. forer of the Colony OFRHODE. ISLAND, TEN SHIL LINGS Lawful Money, atthe
-Rate of Six Sbil-
Price for One
within Two Years from the Date hereof, Iwith. Ihr tereft at Two and an Half art City per Annum brtil paid BY ONDER
the
Third Day of May. 1775.
Commite.
RHODE ISLAND PAPER MONEY, 1775.
means of taxes requested of the sovereign states, but by issues of non- interest bearing bills of credit and loan certificates bearing interest, for the payment of which it pledged the faith of the Union or the states as a whole. The interest on the loan certificates was payable in exchange on Europe. By the issues of loan certificates and bills of credit it established a direct relation of debtor and creditor between itself and the individual citizens, but it had no means of redeeming the bills or paying the certificates except indirectly by taxes requested of the state governments, which the latter might or might not grant. Such methods of financiering were accompanied by an attempt to
222
STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS.
supersede state issues of bills of credit by continental issues, and in pursuance of this purposestate bills were called in and partly redeemed, as we have already seen, by continental bills. In October, 1776, the continental loan offices were established and loan certificates were also issued to redeem state bills. The circulation of the latter was prohib- ited after July 1, 1778. This assumption by congress of sovereign powers over money issues, and dircet liability without power to redeem its pledges was at once attended by depreciation. A convention in Providence to arrest the fall in the purchasing power of money in 1779 discountenaneed trading in gold and silver and recommended the citizens to take their quota of a loan of $20,000,000, asked for by con- gress. When subscriptions failed to come in the assembly ordered the assessors to apportion $100,000 of the loan upon those best able to pay it, and although such an assessment was pure confiscation, gave the assessors authority to enforce the loan by severe penalties. This con- vention also advised the confiscation of tory estates and the assembly passed an act to that effect in December. Early in 1780, owing to the depreciation of continental money, the states were recommended to repeal legal tender laws affecting it. Rhode Island did so with regard to all contracts dated previous to January, 1777. A medium of circu- lation was then supplied by a return, after nearly four years, to the issue of state bills of credit in March, 1780. Some of the confiseated tory estates were pledged to redeem an isuse of £20,000. The bills were made legal tender equal to gold and silver. Continental bills had fallen to 40 for 1. On March 18th congress by an act of repudia- tion directed them to be called in by taxation by the various states and thus made the states responsible for the redemption of their respective quotas. When the states received them they were to be redeemed by the continental treasury by a new issue of bills at a rate of 20 for 1. In June a scale of depreciation for loan office certificates was established, beginning with par in January, 1777, and graded to 40 for 1 on the date of the enactment. Robert Morris was soon afterward appointed continental financier and ordered the loan offices to close up their business.
These measures mark the practical bankruptcy of the continental treasury and the abandonment by congress of its direct financial rela- tion to the individual citizen. The second period of Revolutionary finance then began. The new bills of credit of March 18, 1780, properly known as "40 to 1 money," were issued under the direction of con- gress and printed in Philadelphia, but they were apportioned to each state according to population and each state's quota bore on the face of the bills the pledge of the state itself to redeem them. The bills carried interest at the rate of five per cent. and were redeemable in 1786. Congress assumed no direct responsibility for them but guar- anteed the payment of the principal by an endorsement on the back
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PUBLIC AND PRIVATE FINANCE.
and pledged the payment of the interest in bills of exchange, if re- quested to do so, drawn on foreign countries where a loan for that purpose had been secured. The bills were to be distributed to the states as rapidly as the old continental bills were presented to the loan offices. Three-fifths of the amounts apportioned to the states were reserved for state uses and two-fifths were to be remitted to congress for continental uses. The taxes pledged for their redemption were to be divided between the state and congress in the same proportions. The taxes apportioned on Rhode Island to call in the old continental bills were $2,600,000, and they were redeemed by congress by the state's quota of $130,000 of the new issue-three-fifths or $78,000 for state uses and two-fifthis or $52,000 for continenal uses. As these bills were interest bearing and would have heavily increased the obligations of the states, Rhode Island and other states used them sparingly. Of the $78,000 for state uses about $38,000 seem to have been drawn from the treasury and that sum was used chiefly on continental account. The remaining $40,000 were not issued.
Congress relied for the future on taxes contributed by the states and on loans. As a means of securing loans the states were requested to grant to it the power to levy a five per cent. impost on all imported goods, and in the controversy which ensued between Rhode Island and congress with regard to this question the state appeared in a most unenviable light. Congress had reached the limits of its power. The battle of Yorktown had not yet been fought and the exhausted states partly could not and partly would not comply with the requisitions made upon them. Each state thought its own quota the largest and would have been "very happy to apologize to the world for doing nothing with the thin and flimsy pretext" that it had been asked to do too much. In this predicament congress asked for the right to levy a five per cent. impost tax, the proceeds to be used to pay interest on bonds, the successful negotiation of which depended upon some per- manent form of income which could be pledged in payment of the accruing interest-the impost to run as long as the bonds To this request Rhode Island alone refused to accede. The grounds of objec- tion urged by its delegate, David Howell, were three. First, the tax would bear hardest on commercial states ; second, it would introduce a set of officers accountable only to congress; third, it would give con- gress independent power to collect a tax from the commerce of the state indefinite as to time and quantity. As to the arguments with which Mr. Howell supported these contentions little comment is now necessary. The replies made by Morris were acute but those written by Hamilton and Madison were conclusive. They covered the whole question at issue from a simple refutation of Howell's misstatements in the last objection to a thoroughly satisfactory analysis of the mod- ern theory of price, when discussing the first objection. But in many
224 STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS.
respects the arguments on both sides were well taken and whether or not they were conelusive depended largely on one's point of view. The difference between the disputants was fundamental and a limit- less controversy could not bring them together. . They represented radically different systems of government. Howell stood for state's rights, state supremacy and decentralization. Congress and Hamilton stood for centralization and national supremaey. The arguments of the former were all political and covered in a slightly modified form all the dangers which had been rehearsed again and again from the time of the attempt to limit paper money emissions and the first sugar tax
33/2
chice.
TATE, OF RAUDE-ISLAND, CU
OHIS BINI 15
$
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Max andf
RHODE ISLAND PAPER MONEY, 1786.
act in 1733 to the outbreak of the Revolution. Mr. Howell believed that great principles were threatened in any bill conferring on congress the simple power to levy an impost, and in comparison with them, the suc- eess or failure of the Revolution itself seemed of little moment. On the contrary, Hamilton's arguments were largely financial and the neees- sity of providing a fixed income for congress in order to carry the Revolution and all that it stood for to a successful issue, was a para- mount consideration. When he claimed that congress was in a posi- tion of powerless responsibility, he stated a faet patent to all, but this was the position that the states had intended that it should be in when
225
PUBLIC AND PRIVATE FINANCE.
they ratified the articles of confederation, and it was the position that Rhode Island would not consent to extricate it from by a grant of power which it asked. Hamilton was also right when he said that no federal constitution can exist without powers that in their exercise affect the internal police of its component members. This was the very nub of national life. It foreshadowed the scheme of national finance which he elaborated under the federal constitution of 1789. But the history of Rhode Island had been an almost uninterrupted protest against such a theory. The first fifty years of the state's federal life emphasized no political fact more strongly than that the purse strings, though in theory controlled by the state government, should in fact, through local appointment, election, and control of tax officials, rest in the localities. In the years 1766-67, as we shall soon see, the central government of the state proved to be entirely unable to enforce a tax levy on three recalcitrant towns in Providence county. The position of Mr. Howell was, therefore, in entire consonance with the development of political theory in his state; he accurately repre- sented the views of his constituents. We now know that he was wrong and that had not other fortuitous events interposed, the course which the state adopted would have left no independent states to form the Union in 1789.
Indeed, the cordial support which Howell's constituents gave him was not altogether political nor disinterested. Under the existing conditions of commerce some of the merchants of the state were taxing the trade of Connecticut and Massachusetts and they did not want to be disturbed. Rhode Island also having no western lands, desired to link the imposts to the cession of such lands by the states that claimed them. In 1785, therefore, the assembly voted for an impost of five per cent. for twenty-five years, combined with an annual tax of $1 on every hundred acres of land and on every male over twenty-one years of age and on horses. The act was to take effect when the other states approved it, but it was never approved.
In November, 1782, the state consolidated its obligations.1
There was at this time in circulation a varied assortment of cur- rency. Some state bills of credit were still outstanding and the treasurer had issued his notes for back pay, depreciation and for direct loans from individuals. The state commissary had issued orders on the treasury in payment of army supplies, and the commanders of the regiments had issued similar orders. The continental bills of
1The treasurer was ordered to give his notes for the balances due the soldiers and to add a sufficient sum for depreciation. The notes carried com- pound interest at six per cent. and were due in four years. Outstanding bills of credit were to be presented and endorsed with value according to the scale of depreciation adopted in July, 1778, when they were ordered out of circula- tion, and on treasury notes issued for this reduced value compound interest was allowed at the rate of six per cent.
15-3
.
226
STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS.
ercdit, both the old and the new issue, were still in use. The treasurer of congress had issued notes for direct loans from individuals and the eontinental army commissaries and commanders had issued orders in payment of supplies. The loan office ecrtifieates and "indents" issued for interest on them added to the money that was daily passing from hand to hand.
At the close of the war Rhode Island, like the other states, was financially exhausted. The British oeeupation was estimated to have eost Newport $425,000, and the debt, which at the beginning of the war was $11,495, was calculated at the close of the war at $698,000. The economic condition of the people which eaused the Gloucester (Massachusetts) riots and Shays's rebellion had their counterpart in this state, in a demand for another paper moncy issue with which to relieve the burden of public and private debts. The movement was successfully combated in 1784 and early in 1785, but combined with the opposition to even a conditional grant of impost, it arrayed the country and debtor towns against the commercial and creditor towns. It resulted in 1786 in a complete political victory of the former. Re- pudiation ran riot. Reeent tax and impost acts were suspended. The assembly cmitted £100,000 bank notes, founded on real estate, to run seven years and bearing four per eent. interest, and then to be re- deemed in seven years without interest. They were legal tender, they at onee depreciated. The assembly passed a penal forcing act and suspended the usual forms of trial by jury in actions against those refusing to receive the notes. A member of St. John's Episcopal Church of Providence was exeommunieated for tendering the bills, and a member of the Cincinnati was expelled for similar cause. Mcr- ehants closed their shops. Farmers refused to bring produee to market. A partial famine was relieved in Providence by a supply of food purchased at publie expense from Connectieut. A convention was held in Smithfield which recommended the use of lumber and produce in the payment of taxes and other obligations. A test ease soon arose. The now famous case of Trevett vs. Weeden was brought by the former, John Trevett, against the latter, John Weeden, for re- fusing to receive paper money in payment for a piece of meat. The court after hearing the facts dismissed the case for want of jurisdie- tion. This action was equivalent to a statement that such a law eould not be enforeed and it was so interpreted by the public. The assem- bly, mistaking the plea of the defence, to the effect that the law was unconstitutional and void, for the decision of the court, cited the judges before them to show eause for their deeision. The whole question of the scope of power of the legislative and judicial branches of state government was discussed at length. The judges elaimed that the legislative branch had no authority to eompel them to show cause for their decisions, that theirs was a co-ordinate but independent braneh
227
PUBLIC AND PRIVATE FINANCE.
of the government. The legislature claimed its complete supremacy over them and its right to review their decisions. The judges were finally discharged and their discharge was accepted as their vindica- tion, but no definite conclusion was reached as to the fundamental points at issue. The four judges who rendered the decision were not re-elected in the following year, and the legislature continued to pass laws as though no implied decision had been rendered.
The attitude of the legislature toward its own honorable obligations is well illustrated by its treatment of the state's congressional dele- gates. President Manning, of Brown University, was attending con- gress in Philadelphia, and his salary was so in arrears that, "reduced to the very last guinea and a trifle of change", his "lodging, washing, barbers, hatters, tailors bills not paid", he was unable to return home for lack of funds to pay his passage. The assembly offered to pay him £400 in paper money but "in no other way". Paper money was worth about 6 for 1, so that, wrote Manning, "I must losc five-sixths of my salary-a more infamous set of men under the character of a legisla- ture never, I believe, disgraced the annals of the world". "Rhode Island has not many more strides to make to complete her disgrace, and ruin too, but that is not all-she is likely to hold a distinguished rank among the contributors to the ruin of the federal government."
In 1787 the state debt amounted to £153,047 15s. 9d.1 This debt was called in in four installments, the last being due in 1789, and or- dered paid in paper moncy depreciated to from 6 to 9 for 1. All debts not thus presented for payment were declared forfeitcd. Under the four calls there was redeemed the sum of £79,349 0s. 2d.2 The assembly also voted to pay the taxes and requisitions of congress in paper money, and in retaliation congress approved the action of the commissioner of the loan office in refusing to issue indents of interest on loan office certificates, asserting that it was manifestly improper to make pay- ments of interest to the state after it had declared its obligations pay- able only in paper currency. In September, 1789, the notes had sunk to about 30 to 1 and the legal tender act was repealed. A scale of depreciation was established. Soon after the return of the sound money party to power in 1790 the burning of the bills commenced, and by 1803 £96,646 had been destroyed. They were, however, receivable for taxes at a rate of 15 for 1 as late as 1819.
The accounts of Rhode Island during the seven years war were kept so negligently that the colony was never fully reimbursed by England, as were the other colonies. The accounts of the Revolution are equally unreliable.
1Of this sum notes for £46,000 had been issued to redeem the 4 per cent. notes of 1777. The assembly passed an act requiring all holders of such notes to state when they got them and how much they received them for, and this reduced value, if any, was to be endorsed on the back of the notes.
2£29,151 1s. 8d. of the amount were the 4 per cent. notes.
1
228
STATE OF RHODE ISLAND AND PROVIDENCE PLANTATIONS.
The United States by acts of August 4 and 5, 1790, made provision for funding its debts and a portion of those of the states. Three classes of obligations were recognized. First, those duc from the United States to individuals, consisting of loan office certificates, cer- tificates given for supplies and for pay of soldiers, certificates issued by the register of the treasury for individual loans, indents of interest, and continental bills of credit at the rate of 100 for 1. The claims of the citizens of Rhode Island on these accounts were $598,990.98. They were allowed and funded stock issued for them. The second class consisted of the arbitrary amount of $21,500,000 of the state debts to individuals which the United States assumed. The debts thus assumed consisted only of those incurred by the state for services and supplies in carrying on the war. The claims of Rhode Island's creditors amounted to $344,259.49. Of this sum Rhode Island's quota was $200,000. This amount was paid in funded stock to the state and distributed pro rata to the state's creditors, leaving a balance of $144,259.49 unpaid. The third class consisted of all equitable claims between the states and the United States.1 The net balance in favor of the state on this account was $299,611. This sum was paid by the United States in funded stock. The arrangements were not all com- pleted until 1795, when accrued interest from 1790 seems to have swelled the amount due to $420,000.
In 1791 the assembly had repealed the repudiation acts of the paper money party and had ordered that the payments of the state debt, made in depreciated paper money, should be reduced to specie basis and notes issued to the creditors for the depreciation, but there had been an express provision that in renewing its obligations the state should not "be held or obliged to pay on any of the said securities, on any other terms" than those proposed by the act of congress of Au- gust 4, 1790. The state thus made itself simply the agent for congress in arranging the transfer of indebtedness. But in 1795 the total claims presented amounted to $503,494.66. Of these $419,662.30 was paid by transfer of the $420,000 certificates of United States stock and $83,932.46 was left unpaid. This sum was increased by various acts from that time until 1806 when the amount due had reached $138,- 670.35. For these amounts the state issued its notes with interest at 4 per cent. "until paid". This was the Rhode Island Revolutionary
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