Rothbard Summary



Rothbard responds to the theory put forth by Franklin that paper money brought prosperity - Sorry, we do not know where this paragraph came from:

The English government, at the behest of the understandable complaints of English merchants and creditors defrauded by paper money, opposed the issue of paper money in the colonies. Royal governors had tried to repress the inflation, but were defeated by the Assemblies' appropriations. Finally, Parliament in 1751 prohibited all further legal-tender issues of paper money in New England. Bills were to be redeemed when due. The colonies could still issue treasury notes for a brief period, but not with legal-tender powers. However, Virginia, the last colony to succumb to the lure of money creation, joined the pack in 1755 as did the new colony of Georgia. By the 1760s, Virginia paper had fallen to a discount of fifty to sixty percent. It attempted to form a public loan bank, but that was vetoed by the governor. In 1764, Parliament finally extended the prohibition of any further monetary issues from New England to all the other colonies, and it also required the gradual retirement of outstanding notes. The leniency on retirement, however, as well as the provisions for treasury notes, managed to keep a great deal of paper in circulation for the remainder of the colonial period. Although the new notes could not be legal tender, they were somewhat maintained in value by being made receivable in taxes. All in all, by 1774, the estimated monetary circulation in the American colonies was $14 million, of which fifty to sixty percent was paper notes. We have indicated that the drive for paper money was led by prominent men in each colony. The economic arguments were highly simplistic - basically that more money was needed and therefore should be printed. The Reverend Cotton Mather added such typical arguments as that "money is a counter" and paper money would be an advantage in never leaving the colony (that is, it wasn't really money since it could not be used for imports). Mather also denounced "hoarding" because it obstructed the circulation of money. It was often maintained that paper money did not depreciate, but rather that silver appreciated, due to demands for its export. Such an argument was used, for example, by Benjamin Franklin in his venal campaign for paper notes that he personally would be paid to print. Laying blame on the export of specie - as if it were an uncaused act of God! - was typical; thus Massachusetts thought that prohibition on the export of silver would arrest the depreciation of paper. Of course it did not!



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