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This is page 2 of an 1863 informative multi-page article about Revolutionary war Continental currency and paper money devaluation (inflation).

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The Continental Currency

The following article is from

The New York Herald newspaper

- dated January 26, 1863

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The first issue (of paper money) - on the 23rd June, 1775 - was for two millions of dollars.  To give value to this new government currency, it was supposed that taxes must be imposed equal to the amount of the notes, so that there might be a certainty of redemption.  If no taxation was laid, the notes, in the opinion of Congress, would be severed altogether from the basis of specie.  They could not consequently pass current, or represent any value whatever.  Here, then, was the dilemma.  Taxes were indispensable as a basis for the paper money to rest upon; but they were impossible, in consequence of the exhausted and impoverished state of the country.  How was the difficulty to be met?  The only plan seemed to be for Congress solemnly to give an explicit guarantee that taxes should be laid on the return of peace.  The two millions of dollars were to be redeemed in four annual installments, to commence at the end of four years.  An elaborate calculations divided the burthen of redemption among the several colonies in the ratio of their supposed number if inhabitants.  Before long the public voice hailed the experiment as a wonderful financial triumph.  The paper was found to be exchangeable freely at its nominal value for gold and silver coin.

This satisfactory result was attributed to the happy device of sustaining the notes by taxation, which, though future, was guaranteed.  It was, therefore, as certain as the power of Congress could make it.  Accordingly the same expedient was adopted when, on the 29th of November of the same year, the Treasury was once more found to be empty; and in the absence of every other possible relief a second issue of paper money was risked.  Three millions were now emitted, and the annual installments for redeeming them were to begin in eight years.  Once more it was observed with gratification that no loss of value had occurred.  Some alarm the next spring was indeed felt at the discovery that metallic money, which from the first had shunned the companionship of paper money, was mysteriously disappearing from circulation.  But, though specie was thus being hoarded or sent out of the country, the paper dollar was found to possess as much purchasing power as the silver dollar.  Theorists grumbled in vain.  They said that the country was being ruined for want of gold and silver, which were the most valuable kinds of public wealth, as they supposed. But practical men showed that the government money was at present as good as gold; and, since its use was both a convenience and a necessity, patriotism kept the bulk of the people mute and contented. 

The financial experiment has so far worked well.  Five millions of paper money were in circulation, secured by the promise of future taxation.  No depreciation whatever had taken place.  Every person took the Continental money freely in exchange for what he had to sell, because he knew he could buy with it whatever he wished to own.  Soon, however, a new crises appeared.  Impecu-niosity, the chronic malady of the young republic, again became troublesome.  The stern exigencies of war admitted of no denial.  The public exchequer was drained of its last dollar, and more paper must be issued - this time with fear and trembling; for how could the paper dollar be sustained without the corner-stones of taxations to connect it with the basis of specie?  And how could Congress give any pledge of future taxes, when the estimated revenues for twenty years to come had been already mortgaged? It were a mere farce to promise taxation.  Hence no guarantee of future redemption could be given.  Depreciation, with all its evils, was counted on as certain.  But the war, it was supposed, though only just begun, was near its end.  In England a powerful opposition to the war was organized, both in and out of Parliament.  Peace, it was hoped, would enable the country to recover from its exhaustion.

After delaying as long as possible, Congress succumbed to necessity and on the 17th of February 1776, four millions of notes were issued and were left to support their credit as best they could.

The hoped for peace did not arrive; but neither did the predicted depreciation.  It was soon found that the new edifice of public credit stood as well without the aid of tax action as with it.  Sanguine politicians took heart, and declared that the effete financial theories of the Old World were too narrow for the destinies of the free, intelligent population of the New World. A specie basis, they said, had been found unnecessary.  Equally needless was a pledge of revenue of redemption.  The country just then was wild with the excitement and enthusiasm of emancipations from the falling tyranny of governmental systems borrowed from feudal Europe.  As to these new political ideas, they found expression on the 4th of July, 1776, in the Declaration of Independence: and the new financial ideas on the 13th of August following, when five million more of the paper money were issued, swelling the amount in circulation to fourteen millions of dollars.

The delight of the people at the success of their new wealth-creating machinery was about this time abruptly chilled.  From some unknown cause the mystic wand of the magician was losing its power.  At the very moment when all apprehension had passed away the spectre of depreciation appeared.

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