The Massachusetts Paper Money of 1690

Abstract

Modern currency originates in the inconvertible, legal tender paper money that Massachusetts devised in 1690. The circumstances that led to its creation are more complex than the typical story of wartime specie shortage. Due to temporary political constraints of that turbulent period, the currency could be neither backed by land nor imposed on anyone, as was then standard. Instead, it had to be disguised from England as a simple, private-seeming IOU. By pleasing both its pay-demanding troops and England, the government maximized its probability of survival subject to the constraints. “Monetary innovation, the development of new forms of money, has not received much systematic study from economic historians.”1

Is Paper Money Just Paper Money? Experimentation and Variation in the Paper Monies Issued by the American Colonies from 1690 to 1775

“…4 See Goldberg (2009); Grubb (2003Grubb ( , 2004Grubb ( , 2010Grubb ( , 2012; Hanson (1979); McCallum (1992); Michener (1987Michener ( , 1988; Wright (2005, 2006); Officer (2005); Perkins (1988, pp. 163-86); Rousseau (2006Rousseau ( , 2007; Rousseau and Stroup (2011); Smith (1985aSmith ( , 1985b; Sumner (1993); West (1978); Wicker (1985).…”

Property Rights Under Administrator-Dictators: The Rise and Fall of America's First Bank

“…Seventeenth-century English America was so chronically short of silver that it adopted the Native American seashell money and legalized the use of bullets, fur, tobacco, and grain as media of exchange. Massachusetts opened a mint but lost it in the early 1680s as part of the charter revocation (Goldberg 2009). The shortage of coin hurt all sectors of the economy, including the dominant crop agriculture.…”

“…In the meanwhile, in a time of great financial need, Massachusetts was forced in December 1690 to invent a new currency: paper money which was unbacked by coin, land, or goods, but was receivable in taxes. Blackwell helped by publicly supporting that currency, and perhaps in its very invention (Goldberg 2009). From that point, the land bank had no chance of winning political approval since the banknotes would have competed with the government's notes.…”

Review of periodical literature published in 2009

“…Three articles deal with monetary and financial history. Goldberg argues that the decision to issue a non‐convertible paper money by the Massachusetts government in 1690 was not simply a response to a lack of specie during wartime, but arose out of more complicated political factors. In particular, so as not to anger the English Crown, who had stamped out previous attempts at maintaining a colonial currency, the new money had not to look like it was legal tender, but rather to appear a simple credit instrument that just happened to be government‐issued.…”