Cashless society

JOURNAL of the

EARLY AMERICAS

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wrninghistor) -ciuIiiisuim and interpreterportra) ing 1521 to 1848.

HEARTH STONE

A Cashless Society: Wave of the Future, Circumstance of the Past: Part I

by Dr. Elizabeth M. Covart, Ph.D. . Editorial Staff

as their preferred form of cashless currency.

SinceToday, the 1950s, Americans have used companies like Google, Apple,credit and cards LevelUp hope to bring credit cards into our digital age by making them virtual. On May 26,2011, Google demonstrated Google Wallet, an application that transforms android-based smartphones into users' credit cards by storing debit and credit card information so that users can pay merchants by tapping their

transfer payments to pay for nearly all of their goods and services. In the colonial period, British North America functioned as a near-cashless society because the colonists exported nearly all of the coin they acquired to pay for imported goods. The American colonies experienced severe coin shortages as a result of this exportation practice. To keep their cash-strapped economies going the colonists used four different types of currency: specie or coin (when available), paper

smartphone on Near Field Contact (NFC) devices.

Following Google, Seth Priebatsch launched LevelUp and Apple released Apple Passbook. Like Google, both companies offer software that turn smartphones into credit cards, but use QR and barcodes instead of Near Field Contact technology. When successful and widespread, these programs promise to antiquate

money (issued during periods of severe coin shortages), commodity money (the use of products such as tobacco, rice, fur, or grain as cash), and bills of exchange (for foreign transactions).

physical credit cards and move the United States closer to a cashless society.1

The Spanish peso de ocho ?~ea/es, or piece of eight, served as the basic unit of money in the seventeenth- and

Although technology developers and modern-day economists promote a near- cashless American economy as a positive, future development, America has a near- cashless past that long predates our digital age. Many colonies in North and South America began with near-cashless economies. Today, a near-cashless society presents an economic goal where consumers will use virtual credit cards, currencies, or electronic

12 JOURNAL o/i/ic EARLY AM ERICAS

Specie/Coin

eighteenth-century Atlantic World. Pesos made up half of all the coins used in colonial America. The peso proved popular for two reasons: First, the Spanish government minted the silver coins in Mexico, making them easy for the colonists to acquire. Second, several European powers restricted the exportation of their currency to the colonies. Although the peso served as the most prevalent coin, colonists also used the circulating monies of Portugal, France, the Netherlands,

Germany, and England when they could acquire the coins through trade. The colonists referred to these European coins as bullion or specie.2

American colonists

^h^

rarely acquired English sterling coins. ^^ T^ae English government banned

exportation of the coins to the colonies throughout the seventeenth and eighteenth centuries because the home economy experienced periods of inadequate coin supply.

Gold and silver formed the basis of English sterling coins. Culturally, the English valued gold more than silver; gold coins held more value than silver coins. Anxious to keep their gold at home, the English traded away their silver coins to countries with higher silver exchange rates. By trading away their silver coins, the English inadvertently created a partial currency shortage. Although plenty of gold coins circulated throughout the English economy, most English people used silver coins to purchase goods and services and to pay their taxes. They used silver because they did not earn enough in wages to acquire gold coins. The English government ultimately banned the exportation of sterling coins to its colonies because it needed to

keep the coins it had in circulation at home. Moreover, the English

more manufactured goods from

government subscribed to the economic policy of mercantilism, the idea that colonies should contribute revenue to England, not draw it away.

England than they exported. As English merchants demanded that their colonial debtors pay their balances in coin or specie, the colonists remitted the majority of the coins they acquired to England.

British North American colonists and their governments devised creative methods to mitigate coin

Therefore, many colonial American governments issued paper money as a way to create a non-exportable and lasting currency supply.

shortages. The value of the piece of eight fluctuated with the price of silver in European countries and

Paper Money

by its weight. Made of malleable silver, colonists increased the number of circulating coins by

In 1685, New France became the first North American colony to issue paper money. Like its

"clipping" or removing small pieces of a coin before they used it. Coin

counterparts in British North America, New France suffered from a want of specie. In 1685, New France authorities used playing cards as a temporary expedient to a severe specie shortage. Treasury officials turned playing cards into

"clippings" allowed the colonists to make change and the "clippings" circulated as additional coins.

Unsure of how much value previous holders had clipped out of a piece of eight, or how to value individual

legal tender by cutting the cards

clippings, many merchants and savvy customers accepted silver coins by weight rather than by count or "tale."3 Although coin clipping increased the amount of small money in the colonies, it did not expand the colonial currency supply enough to avoid shortages.

The colonists imported

linages- (Opposite Page): Hound milled silver coin from Bolivia, found using underwater archeology. [mage courtesy of Dr. E. Lcc Spence, private collection.

(This page): Coins on ihis page arc all from South and (lentral America. The gold coin is from Brazil. Most of the silver cobs were minted in Mexico.

Image courtesy of Dr. L. Lee Spence, private collection.

into quarters and by affixing the seal of the Treasurer and the signatures of both the governor and intendant to the card pieces. Initially, the cards came in three denominations—15 sols, 40 sols, and 4 francs-and were known generally as Monnaie de carte, playing card money. Although meant as a short-term solution, playing card money proved so successful as a local currency that the government of New France periodically placed new cards into circulation up until the British conquest of Quebec in 1759.4 Colonial governments in British North America also issued paper money in times of severe coin shortages. They issued two

types of

paper money: Bills of credit and bills of credit on loan. All of the bills served as temporary measures to expand the circulating

American colony to issue bills of credit. In 1688, Massachusetts

currency supply of a colony. Issuing legislatures tried to ensure the short-term nature of the bills

(1688-1697). In 1690, the soldiers returned home and demanded their

by providing directions for their collection in the same acts they used to issue them.5 Of the two types of bills, colonial legislatures preferred to issue bills of credit. Bills of credit functioned as a loan from a colonial government to itself. Legislatures emitted bills of credit when their treasuries lacked enough specie to pay their creditors. From their creditors, the bills circulated as legal tender until the government bought them back with coin i it collected from taxes. Governments I backed these loans with future tax revenues.6 In 1690, Massachusetts became the first British North

dispatched solders to invade Canada in support of King William's War

pay. When the legislature refused to pay them because it lacked the funds, the soldiers rioted in streets of Boston. In need of a quick influx of cash, the legislature passed a law to emit ÂŁ7,000 in bills of credit, ranging in denomination between two shillings and ten pounds.'

Although the colonists demonstrated a soft demand for early bills, the Massachusetts experiment with bills of credit proved successful. The December 1690 act allowed the colonial treasury to emit the bills, but remained vague about the timeframe for the treasury to redeem them. The law stated that holders could exchange bills with the treasurer and receive the "full Sum thereof in Money, or other Public Stock at the Money Price as Stated for that time." However, everyone knew that the treasury lacked specie.

Images - (Left): Monnaie de carte -Jack oil leans - attributed to I lenri Beau. Public Archives of Canada, Division of iconography. Ottawa (negative no. (',17059). Public Domain. (Right): 1755 New France Card Money reproduction in the amount of 24 hues, private collection. Photo by Casey Criswell.

In 1685, New France authorities used playing cards as a temporary expedient to a severe specie shortage.

In February 1691, the legislature passed a second act to help expand Massachusetts' currency supply and increase demand for the bills. This supplemental currency act allowed the colony's treasurer to issue more bills of exchange and stated that holders could pay their taxes with bills of credit at a 5 percent premium, meaning taxpayers would need to pay 5 percent more in taxes if they used bills of credit. The tax premium encouraged taxpayers to pay their taxes with specie or acceptable goods. Therefore, after the colony collected its taxes, the treasury would have specie and goods on hand to exchange for the bills, which would then be removed from circulation. Demand for the bills increased with the idea that the treasury could redeem them.

Massachusetts never had enough specie in its treasury to redeem all of its bills at once. Between 1690 and 1730, Massachusetts passed several additional acts to emit bills of credit. The colony would not be a paper-money free economy until years after the British Parliament passed the British Currency Act of 1751, which forbade the New England colonies from issuing paper money; Parliament outlawed the use of paper money throughout all the colonies in the Currency Act ofl764.8 After the people of Massachusetts demonstrated that bills of credit

could serve as an acceptable and reliable currency, nearly all of the other colonies emitted their own.

Bills of credit became a popular way to help colonies meet mounting war expenditures, especially during and after Queen Anne's War (17021713). In 1703, Carolina became the second colony to issue bills of credit.9 In 1709, the legislatures of Connecticut, New York, New Hampshire, and New Jersey also turned to bills of credit to help meet their wartime expenses. Rhode Island and North Carolina followed in 1710 and 1712 respectively.10 Additionally, colonial governments also issued bills of credit on loan.

Where bills of credit served as a government-sanctioned loan to itself, bills of credit on loan served as a government-sanctioned loan to private citizens. Issuing governments printed loan bills, declared them legal tender, and then lent them to landholders who used their real estate as collateral. The bills circulated in the economy for a term of eight to ten years, the time the borrowers had to repay their loan. The bills not only expanded the currency supply of the issuing colony, but also generated revenue via interest for the granting colonial government.11 Colonies issued two types of bills of credit on loan: land bills and commodity notes. Nearly all of the thirteen colonies established

land banks to issue land bills.

All land banks had a legislatureor governor-appointed board of directors to oversee their administration. Many colonies permitted the establishment of local land bank offices to better serve the people. Loan offices granted loans on a ratio of two to one based on the value of a borrowers'real estate; in order to obtain a loan of ÂŁ100, a borrower had to mortgage ÂŁ200 worth of property.

South Carolina became the first colony to establish a land bank in 1712. Massachusetts and Rhode Island followed, founding their land banks in 1714 and 1715 respectively. By 1737, every colony but Delaware, Virginia, and Georgia had established land banks.12 Ever opposed to ideas that might affect a depreciation of its currency, Great Britain opposed land banks from the beginning. The Crown feared that colonial governments would issue far more bills of credit on loan than they could reasonably support with the value of mortgaged land, interest payments, and by a timely repayment of loans.

This proved to be the case in the Carolinas and in New England.

In 1739, North Carolina's land bills traded at a ten to one ratio for British sterling; South Carolina's bills traded at a ratio of eight to one. The poor exchange rate in

VOLUME in ISSUE ii # MAY/JUNE 2013 15

the Carolinas had to do with the fact that both colonies had low land values; both colonies had a lot of land but few people to buy and settle it. In New England, Massachusetts and Rhode Island both emitted enormous sums in land bills; Massachusetts issued ÂŁ250,000 in bills and Rhode Island ÂŁ469,000. Surprisingly, the bills of both colonies traded at a ratio of five to one with British sterling.

Still these large emissions made the British government nervous that neither colony would ever fully settle their accounts. Only in the middle colonies did the value between land bills and sterling remain nearly equal at a ratio of 1.70 to l.13 The British government issued proclamations ordering colonial governors to close their land banks as early as the 1720s. However, land bills helped to stimulate colonial economies and ease the currency shortages they experienced.

Therefore, most colonial governors did not enforce the royal proclamation until the banks' charters began to expire in the 1730s and 1740s. The official end of the land banks came in the 1750s, when Great Britain allowed the colonial governments to emit large issues of short-term bills of credit to meet the financial demands of the French and Indian War (17541763).14 Endowed with long growing seasons and a climate well suited for tobacco, Virginia preferred to issue commodity notes. Commodity notes performed the same function as land-based bills of credit on l6 JOURNAL of the EARLY AMERICAS

loan. However, instead of using mortgaged land to back their bills, Virginians used tobacco. The House of Burgesses authorized its first loan bills in the Tobacco Act of 1713. The law allowed planters to exchange their tobacco crops for commodity, or "tobacco" notes, which stated the grade and quantity of the tobacco that backed them. The tobacco notes passed as money and gave holders the option of either continuing to circulate them or to redeem them at the government storehouse for the tobacco that backed them.15 Although paper money did not fully solve the colonists' currency needs, it provided the North American colonists with a lasting domestic alternative to specie; the colonists did not export their paper money because English and European creditors refused to accept it. As each colony emitted its own paper money and chose how many bills to issue and what to back them with, imperial authorities viewed colonial paper money as an unstable currency. For every responsible colony there existed two or three irresponsible colonies.

Massachusetts always issued more bills than it had land or specie to back them with. In contrast, Virginia issued zero bills of credit and issued bills of credit on loan only to the value of the tobacco it had in storage. British officials worried that colonial irresponsibility with paper money might imperil the financial standing of the United Kingdom with other European nations. Parliament put an end to those worries when they prohibited the colonies from emitting paper

money in the Currency Acts of 1751 and 1764.

British imperial fears over the stability of colonial paper currency proved well founded. During the War for Independence, the Continental Congress issued a total of $191,552,380 in paper money to help cover wartime expenses between 1775 and 1780. Without the power to impose or collect taxes, the Continental bills depreciated quickly; the states refused to collect the taxes needed to back the bills and remove them from circulation.

As a result, the new United States began with substantial debts and lacked a stable paper currency until after the establishment of the First Bank of the United States in 1791.16 Although the colonists never had enough specie to pay for the goods they imported, they continually tried to satisfy their debts with coin. Colonial governments issued paper money in the form of bills of credit and bills of credit on loan to keep their economies going. These bills served as a successful domestic substitute for coin. However, many governments issued more bills than they had money or commodities to back them. Parliament worried that this over issuance would negatively impact the home economy and as a result it forbid the colonial governments from using them after 1764. This meant the colonists had to find new ways to pay for goods and services, which led them to use commodities and bills of exchange as money. W

3 McCuskcr, Money and Exchange in About the Author: A Native New Englander, Liz grew-up with a passion for early American history. Fascinated by how Americans came to be Americans, Liz researches and writes about early American identity creation and adaptation between the colonial and early republic periods. Liz lives in Boston, Massachusetts with her partner Tim and their two dogs Thatcher and Sprocket.

Endnotes for A Cashless Society: Wave of the Future, Circumstance of the Past by Dr. Elizabeth M. Covart 1 "Google Wallet," accessed April 8,2013, http://www.googlc.com/wallet/; "LevelUp: How It Works," accessed April 8,2013, https://www.thelevelup.com/how-it-works; "Apple - iPhonc 5 -The Best of Everything.

Built Right In.," accessed April 8,2013, http://www.applc.com/iphone/built-inapps/.

2 Colonists around North and South

Europe and America, 1600-1775,6-8; Curtis P. Nettles, The Money Supply of the American Colonies Before 1720, University of Wisconsin Studies in the Social Sciences and History 20 (Madison, WI: University of Wisconsin Press, 1934), 163.

4 Fred Reinfeld, The Story of Paper Money Including Catalogue of Values (New York: Sterling Publishing Co., Inc., 1957), 11-13.

5 Brock, The Currency of the American Colonies 1700-1764; Nettles, The Money

three and five percent interest rates on loan principals. Most colonics adopted a rate of five percent, but Maryland charged four percent and Connecticut three percent for its land bills. Thayer, "The Land-Bank System in the American Colonies," 156.

12 Thayer, "The Land-Bank System in the American Colonies," 148.

13 The middle colonics of New York, New

Colonies 1700-1764,18-19; Nettles, The

Jersey, and Pennsylvania owed their roughly

Money Supply of the American Colonies Before 1720,252-253. ' Thomas Hutchinson, The History of

equal value to their high land values and selective lending practices. Thayer, "The Land-Bank System in the American

Massachusetts, From the First Settlement

Colonies," 149,151.

14 Thayer, "The Land-Bank System in the

Thereof in 1628, Until the Year 1750, vol.

1, 3rd ed. (Salem, Massachusetts: Thomas C. Chusing, 1795), 356-357; McCusker, Money and Exchange in Europe and America, 1600-1775,133; Theodore Thayer, "The Land-Bank System in the American

cob, the dollar, or pieces of eight. Leslie V. Brock, The Currency of the American Colonics 1700-1764: A Study in Colonial Finance and

Colonies," 'The Journal of Economic History 13, no. 2 (1953): 147-148. s Louis Jordan, "The First Printed

Imperial Relations, Dissertations in American Economic History (New York: Arno Press: A New York Times Company, 1975), 5-6;

Currency: Massachusetts Bay, December 10,1690," Colonial Currency: A Project of the Robert H. Gore, Jr. Numismatic Endowment,

John J. McCuskcr, Money and Exchange in Europe and America, 1600-1775: A Handbook (Chapel Hill: Published for

February 1,1998, http://www.coins.nd.edu/

University of North Carolina Press, 1978), 6-8,98.

Colonies Before 1720,253.

11 Colonies charged anywhere between

Supply of the American Colonies Before 1720, 253-254.

6 Brock, The Currency of the American

America referred to the peso by different names: peso of eight rcalcs, peso, piastra, the

the Institute of Early American History and Culture, Williamsburg, Va., by the

comprised one colony until 1712.

McCusker, Money and Exchange in Europe and America, 1600-1775,215,220.

10 Nettles, The Money Supply of the American

American Colonies," 149-151.

13 Nettles, The Money Supply of the American Colonies Before 1720,253. "' Curtis P. Nettles, The Emergence of a National Economy, 1775-1815, vol.2,10 vols., The Economic History of the United States (New York: Holt, Rinehart and Winston, 1962).

ColCurrency/Currencylntros/IntroEarliest. html; McCusker, Money and Exchange in Europe and America, 1600-1775,131-133; Nettles, The Money Supply of the American Colonies Before 1720,250-277.

9 North Carolina and South Carolina

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