The Complete Works in Philosophy, Politics and Morals of the late Dr. Benjamin Franklin, Vol. 3 [of 3] · Benjamin Franklin
FOOTNOTES:
For this difference between the _real_ and the _nominal_, you have no _intrinsic_ value; you have not so much as paper, you have nothing. It is the legal tender, with the knowledge that it can easily be repassed for the same value, that makes three-pennyworth of silver pass for sixpence. Gold and silver have undoubtedly _some_ properties that give them a fitness above paper, as a medium of exchange; particularly their _universal estimation_; especially in cases where a country has occasion to carry its money abroad, either as a stock to trade with, or to purchase _allies_ and _foreign succours_. Otherwise, that very universal estimation is an inconvenience, which paper-money is free from; since it tends to deprive a country of even the quantity of currency that should be retained as a necessary instrument of its internal commerce, and obliges it to be continually on its guard in making and executing, at a great expence, the laws that are to prevent the trade which exports it. Paper-money well funded has another great advantage over gold and silver; its lightness of carriage, and the little room that is occupied by a great sum; whereby it is capable of being more easily, and more safely, because more privately, conveyed from place to place.
Gold and silver are not _intrinsically_ of equal value with iron, a metal in itself capable of many more beneficial uses to mankind. Their value rests chiefly in the estimation they happen to be in among the generality of nations, and the credit given to the opinion, that that estimation will continue. Otherwise a pound of gold would not be a real equivalent for even a bushel of wheat. Any other well-founded credit, is as much an equivalent as gold and silver; and in some cases more so, or it would not be preferred by commercial people in different countries. Not to mention again our own bank bills; Holland, which understands the value of cash as well as any people in the world, would never part with gold and silver for credit (as they do when they put it into their bank, from whence little of it is ever afterwards drawn out) if they did not think and find the credit a full equivalent. The 5th reason is, "_That_ debtors _in the assemblies make paper-money_ with fraudulent views." This is often said by the adversaries of paper-money, and if it has been the case in any particular colony, that colony should, on proof of the fact, be duly punished. This, however, would be no reason for punishing other colonies, who have _not_ so abused their legislative powers. To deprive all the colonies of the convenience of paper-money, because it has been charged on some of them, that they have made it an instrument of fraud, is as if all the India, Bank, and other stocks and trading companies were to be abolished, because there have been, once in an age, Mississippi and South-Sea schemes and bubbles.
The 6th and last reason is, "_That in the middle colonies, where the paper-money has been best supported, the bills have_ never kept to their nominal value _in circulation; but have constantly depreciated to a certain degree, whenever the quantity has been increased_." If the rising of the value of any particular commodity wanted for exportation, is to be considered as a depreciation of the values of _whatever remains_ in the country; then the rising of silver above paper to that height of additional value, which its capability of exportation only gave it, may be called a depreciation of the paper. Even here, as bullion has been wanted or not wanted for exportation, its price has varied from 5_s._ 2_d._ to 5_s._ 8_d._ per ounce. This is near 10 per cent. But was it ever said or thought on such an occasion, that all the bank bills, and all the coined silver, and all the gold in the kingdom, were depreciated 10 per cent? Coined silver is now wanted here for change, and 1 per cent is given for it by some bankers: are gold and bank notes therefore depreciated 1 per cent.?
The fact in the middle colonies is really this: on the emission of the first paper-money, a difference soon arose between that and silver; the latter having a property the former had not, a property always in demand in the colonies; to wit, its being fit for a remittance. This property having soon found its value, by the merchants bidding on one another for it, and a dollar thereby coming to be rated at 8_s._ in paper-money of New York, and 7_s._ 6_d._ in paper of Pensylvania, it has continued uniformly at those rates in both provinces now near forty years, without any variation upon new emissions; though, in Pensylvania, the paper-currency has at times increased from 15,000_l._ the first sum, to 600,000_l._ or near it. Nor has any alteration been occasioned by the paper-money, in the price of the necessaries of life, when compared with silver: they have been for the greatest part of the time no higher than before it was emitted; varying only by plenty and scarcity, or by a less or greater foreign demand.
It has indeed been usual with the adversaries of a paper-currency, to call every rise of exchange with London, a depreciation of the paper: but this notion appears to be by no means just: for if the paper purchases every thing but bills of exchange, at the former rate, and these bills are not above one-tenth of what is employed in purchases; then it may be more properly and truly said, that the exchange has risen, than that the paper has depreciated. And as a proof of this, it is a certain fact, that whenever in those colonies bills of exchange have been dearer, the purchaser has been constantly obliged to give more in silver, as well as in paper, for them; the silver having gone hand in hand with the paper at the rate above-mentioned; and therefore it might as well have been said, that the silver was depreciated. There have been several different schemes for furnishing the colonies with paper-money, that should _not_ be a legal tender, viz. 1. _To form a bank, in imitation of the bank of England, with a sufficient stock of cash_ to pay the bills on sight. This has been often proposed, but appears impracticable, under the present circumstances of the colony-trade; which, as is said above, draws all the cash to Britain, and would soon strip the bank.
2. _To raise a fund by some yearly tax, securely lodged in the bank of England as it arises, which should_ (during the term of years _for which the paper-bills are to be current_) _accumulate to a sum sufficient to discharge them all at their_ original value. This has been tried in Maryland: and the bills so funded were issued without being made a general legal tender. The event was, that as notes payable in time are naturally subject to a discount proportioned to the time: so these bills fell at the beginning of the term so low, as that twenty pounds of them became worth no more than twelve pounds in Pensylvania, the next neighbouring province; though both had been struck near the same time at the same nominal value, but the latter was supported by the general legal tender. The Maryland bills however began to rise as the term shortened, and towards the end recovered their full value. But, as a depreciating currency injures creditors, _this_ injured debtors; and by its continually changing value, appears unfit for the purpose of money, which should be as fixed as possible in its own value; because it is to be the measure of the value of other things. 3. _To make the bills_ carry an interest _sufficient to support their value_.
This too has been tried in some of the New England colonies; but great inconveniencies were found to attend it. The bills, to fit them for a currency, are made of various denominations, and some very low, for the sake of change; there are of them from 10_l._ down to 3_d._ When they first come abroad, they pass easily, and answer the purpose well enough for a few months; but as soon as the interest becomes worth computing, the calculation of it on every little bill in a sum between the dealer and his customers, in shops, warehouses and markets, takes up much time, to the great hindrance of business. This evil, however, soon gave place to a worse; for the bills were in a short time gathered up and hoarded; it being a very tempting advantage to have money bearing interest, and the principal all the while in a man's power, ready for bargains that may offer; which money out on mortgage is not. By this means numbers of people became usurers with small sums, who could not have found persons to take such sums of them upon interest, giving good security; and would therefore not have thought of it; but would rather have employed the money in some business, if it had been money of the common kind. Thus trade, instead of being increased by such bills, is diminished; and by their being shut up in chests, the very end of making them (viz. to furnish a medium of commerce) is in a great measure, if not totally defeated.
On the whole, no method has hitherto been formed to establish a medium of trade, in lieu of money, equal in all its advantages, to bills of credit--funded on sufficient taxes for discharging it, or on land-security of double the value for repaying it at the end of the term; and in the mean time, made a GENERAL LEGAL TENDER. The experience of now near half a century in the middle colonies has convinced them of it among themselves; by the great increase of their settlements, numbers, buildings, improvements, agriculture, shipping, and commerce. And the same experience has satisfied the British merchants, who trade thither, that it has been greatly useful to them, and not in a single instance prejudicial. It is therefore hoped, that securing the full discharge of British debts, which are payable here, and in all justice and reason ought to be fully discharged here in sterling money; the restraint on the legal tender within the colonies will be taken off; at least for those colonies that desire it, and where the merchants trading to them make no objection to it[56].
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