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Posted July 4, 2019
0/ Happy Fourth of July!
Have you ever wondered what the founders of the United States would say about cryptocurrency? Given their views on paper money, I get the sense they’d be hodling bitcoin.
Warning: 🔥 takes from the Early Republic below.
1/ First, a brief history lesson.
Before the American Revolution, the colonies used many different forms of money, including European specie (money in the form of metal coins), personal lines of credit, IOUs, and paper bills issued by banks and governments.
2/ During the war, Congress (both Continental and Confederation) and the states didn’t have enough specie to cover their rising costs.
To address the shortfall, they printed paper money backed by loans from individuals, banks, and foreign nations.
3/ But, they printed way more paper bills than the value of those loans and far outspent their actual worth. This resulted in rapid inflation and caused government debt to skyrocket.
Thus, the saying: “not worth a Continental.”
After the war, the US had to repay its debts.
4/ Problem was, Congress couldn’t force the states to contribute to the national debt, and citizens didn’t have enough cold, hard specie to pay taxes.
So, Congress and many states started experimenting even more with paper money.
Here’s what a few of the founders had to say:
5/ Alexander Hamilton, June 1783:
“To emit an unfunded paper as the sign of value ought not to continue a formal part in the Constitution, nor ever here after to be employed;…”
6/ “…being in its nature pregnant with abuses and liable to be made the engine of imposition and fraud; holding out temptations equally pernicious to the integrity of government and to the morals of the people.”
7/ George Washington, 1785:
“I never have heard, and I hope I never shall hear, any serious mention of a paper emission in this state. Yet ignorance is the tool of design and is often set to work suddenly and unexpectedly.”
8/ George Mason, 1785:
“[T]hey may pass a law to issue paper money, but twenty laws will not make the people receive it. Paper money is founded upon fraud and knavery.”
9/ James Madison, 1786:
“Paper money is unjust; to creditors, if a legal tender; to debtors, if not legal tender, by increasing the difficulty of getting specie. It is unconstitutional, for it affects the rights of property, as much as taking away equal value in land….”
10/ “…It is pernicious, destroying confidence between individuals; discouraging commerce;…reversing the end of government, and conspiring with the examples of other states to disgrace republican government in the eyes of mankind.”
11/ George Washington, January 9, 1787:
“Paper money has had the effect in your state that it will ever have, to ruin commerce, oppress the honest, and open the door to every species of fraud and injustice.”
12/ Oliver Ellsworth, August 16, 1787:
“This is a favorable moment to shut and bar the door against paper money. The mischiefs of the various experiments…are now fresh in the public mind, and have excited the disgust of all the respectable part of America.”
13/ George Washington, February 16, 1787:
“[I]f I had a voice in your Legislature, it would have been given decidedly against a paper emission…. I contend that it is by the substance, not with the shadow of a thing, we are to be benefited….”
14/ “…The wisdom of man, in my humble opinion, cannot at this time devise a plan by which the credit of paper money would be long supported; consequently depreciation keeps pace with the quantum of the emission; and articles for which it is exchanged…”
15/ “…rise in a greater ratio than the sinking value of the money.
“I shall therefore only observe…that so many people have suffered by former emissions, that, like a burnt child who dreads the fire, no person will touch it who can possibly avoid it.”
16/ Charles Pinckney, May 1788:
“[T]hese general reasons will be found true with respect to paper money; that experience has shown that in every state where it has been practiced since the Revolution, it always carries the gold and silver out of the country and impoverishes it.”
17/ Thomas Jefferson, November 6, 1813:
“[T]he trifling economy of paper as a cheaper medium, or its convenience for transmission weigh nothing in opposition to the advantages of the precious metals; that it is liable to be abused…”
18/ “…has been, is, and forever will be abused in every country in which it is permitted. [W]e are already at 10 or 20 times the due quantity of medium, insomuch that no man knows what his property is now worth, because it is bloating while he is calculating[.]”
19/ Before anyone drags me into politics twitter (please no), it’s worth pointing out that the founders had diverse views on many issues. They’d probably end up arguing as passionately as we do today.
Still, as they intended, it often feels as if they’re talking to us directly:
20/ Thomas Jefferson, May 28, 1816:
“I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
21/ We’re still working on a problem that Jefferson identified 200 years ago. Maybe, just maybe, we finally have the technology to solve it.
I’d like to think Jefferson, an inventor, would approve.
So let’s all enjoy the holiday, and then let’s get back to work!
PS/ Thanks to @lmchervinsky, my brilliant wife and PhD-holding historian of the American Revolution and Early Republic, for helping me understand 18th century fiscal policy.
She says historians will accuse me of taking these quotes out of context, but I think I can handle it. 🚀